Some Answers for Chapter 6 problems: 6.8. (a) The coefficient -0.1647 is the own-price elasticity, 0.5115 is the income elasticity, and 0.1483 is the cross-price elasticity. (b) It is inelastic because, in absolute value, the coefficient is less than one. (c) Since the cross-price elasticity is positive, coffee and tea are substitute products. (d) and (e) The trend coefficient of -0.0089 suggests that over the sample period coffee consumption had been declining at the quarterly rate of 0.89 percent. Among other things, the side effects of caffeine may have something to do with the decline. (f) 0.5115. (g) The estimated t value of the income elasticity coefficient is 1.23, which is not statistically significant. Therefore, it does not make much sense to test the hypothesis that it is not different from one. (h) The dummies here perhaps represent seasonal effects, if any. (i) Each dummy coefficient tells by how much the average value of lnQ is different from that of the base quarter, which is the fourth quarter. The actual values of the intercepts in the various quarters are, respectively, 1.1828, 1.1219, 1.2692, and 1.2789. Taking the antilogs of these values, we obtain: 3.2635, 3.0707, 3.5580, and 3.5927 as the
Some Answers for Chapter 6 problems: 6.8. (a) The coefficient -0.1647 is the own-price elasticity, 0.5115 is the income elasticity, and 0.1483 is the cross-price elasticity. (b) It is inelastic because, in absolute value, the coefficient is less than one. (c) Since the cross-price elasticity is positive, coffee and tea are substitute products. (d) and (e) The trend coefficient of -0.0089 suggests that over the sample period coffee consumption had been declining at the quarterly rate of 0.89 percent. Among other things, the side effects of caffeine may have something to do with the decline. (f) 0.5115. (g) The estimated t value of the income elasticity coefficient is 1.23, which is not statistically significant. Therefore, it does not make much sense to test the hypothesis that it is not different from one. (h) The dummies here perhaps represent seasonal effects, if any. (i) Each dummy coefficient tells by how much the average value of lnQ is different from that of the base quarter, which is the fourth quarter. The actual values of the intercepts in the various quarters are, respectively, 1.1828, 1.1219, 1.2692, and 1.2789. Taking the antilogs of these values, we obtain: 3.2635, 3.0707, 3.5580, and 3.5927 as the
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