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Question 3: Consider the following estimated quadratic regression model: Ý, = 0.5 + 0.03X, + 152i + 0.52. where y = Individual Income, X Individual Education, and Z Age. Calculate the marginal effects (ME) of Y with respect to X and Z for a person with X - 2.5 (years) and Z -18 (years old); and explain clearly what these numbers for the MEs and the elasticities mean

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Solation:- 0 Given dato: the quadvatic steqressfo here X 2.5 yea, ocw, coe have -to indout: MaYginal effect ofソuith respect tNOw Monginal effect of Y with respect to Z: Monginol effecet of Y coith respect to d () d艺 li Nocw, ute hove to find t 4 d군 d군 (Yi ) d군 1.5(リ+0.5 (az) d (A) 七.SH (18) (yi ) 19.5 - d? li 冷 351 0.5 +0.03(4)+1. 5(18)+o5(15% 351 18.545 d군 Maginol effect of y with respect to Zi85I5Explanation:

What these numbers for the ME’s and the elasticities mean:

ME of X on Y implies that with each additonal unit of X, Y increments by 0.03 units.

ME of Z on Y implies that with each extra unit of Z at Z=18, Y increments by 19.5 units.

At X = 2.5 and Z = 18,

Versatility of Y as for X implies that with one percent expansion in X, Y increments by 0.0003956 percent.

Versatility of Y as for Z implies that with one percent expansion in Z, Y increments by 1.8515 percent.

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