Economic Theory - Expenditures - Law of Demand - Clothing and Shoes - Welfare Activities - Economic Assignment Help

Assignment Task:

Economic Theory - Expenditures - Law of Demand - Clothing and Shoes - Welfare Activities - Economic Assignment Help 

Basic Demand Model
1. Use OLS to estimate the demand equation (1), and determine 95% confidence intervals for the income and own-price elasticities.
2. Test the law of demand: the null hypothesis p = 0, against the alternative ?p < 0.
3. Test the homogeneity restriction p + q = 0. This can be done in several different ways, including these:

• Replace Log_PCAT in the equation by Log_PREL. In this equation, use the t test to test the significance of Log_QCAT.
• Use TSM’s Wald Test option. Open the Model / Parameter Constraints dialog, choose Coded
• Restrictions, and click on Enter Code. Type the parameter restriction in the form

Model Stability Analysis

1. A time-series analysis assumes that the model is constant over time, but there are a number of reasons why this may not be true.
2. The model could shift with the passage of time due to changes in consumers’ tastes, or changes in the quality and diversity of the goods, or other extraneous factors. The demand for tobacco may be influenced by medical warnings on health risks (early 1970s onwards). The demand for gasoline may be affected by the imposition of a national 55 mph speed limit in the US (1974- 1995). And so on.
3. Our theoretical model describes the behaviour of the individual consumer, but we are fitting it to aggregate data on the US economy. If we assume, (a) that the price elasticities are the same for everyone, and (b) that the income distribution is constant over the sample period, the log-linear model can be aggregated over agents. In other words, the estimated elasticities can be related to those of the typical family. But if the income distribution changes, then  is not constant over time, even if tastes are constant.

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