MULTIPLE CHOICE (CHAPTER 4)

1. Using a sample of 100 consumers, a double-log regression model was used to estimate demand for gasoline. Standard errors of the coefficients appear in the parentheses below the coefficients.

Ln Q = 2.45 -0.67 Ln P + . 45 Ln Y - .34 Ln Pcars (.20) (.10) (.25)

Where Q is gallons demanded, P is price per gallon, Y is disposable income, and Pcars is a price index for cars. Based on this information, which is NOT correct? a. Gasoline is inelastic. b. Gasoline is a normal good. c. Cars and gasoline appear to be mild complements. d. The coefficient on the price of cars (Pcars) is insignificant. e. All of the coefficients are insignificant.

2. In a cross section regression of 48 states, the following linear demand for per-capita cans of soda was found: Cans = 159.17 – 102.56 Price + 1.00 Income + 3.94Temp

| |Coefficients |Standard Error |t Stat |
|Intercept |159.17 |94.16 |1.69 |
|Price |-102.56 |33.25 |-3.08 |
|Income |1.00 |1.77 |0.57 |
|Temperature |3.94 |0.82 |4.83 |

R-Sq = 54.1% R-Sq(adj) = 51.0%

From the linear regression results in the cans case above, we know that: a. Price is insignificant b. Income is significant c. Temp is significant d. As price rises for soda, people tend to drink less of it e. All of the coefficients are significant

3. A study of expenditures on food in cities resulting in the following equation: Log E = 0.693 Log Y + 0.224 Log N where E is Food Expenditures; Y