Question

4. A classic example of modeling demand analyzes the market for farm tractors is Ti = QP.° RR where Ti* is the desired stock of tractors, P4 is the price of tractors, and R4 is the interest rate. This can be estimated using the stock adjustment (partial adjustment) model. The above equation was estimated as In T4 = 17.34+ (-0.218) In Pt + (-0.855) In Rt +(0.364) In Tt-1 + ut a. What is the estimated coefficient of adjustment? b. What is the estimate for the BR coefficient? c. What is the short-run price elasticity? d. What is the long-run price elasticity?

Answer 1

8) Tt" = Q PE BO REBR In To = 8lna + as per partial Adjustment Model oßo lift + 8 BR en Rt + Culo (18) Is Tt-ilo 636 a) 80 coefficient of Adjustment S. or (18)= .364 si 8 = .636. Ang b) Now as 8 BR = - 0855 sava BR= -. 855/8 = -0855 = -|-344 pins (-) SR price el, Coefficient of In Pt = -0218 ans ( T- ) -(il (8) for LR dd funch of divide SR fund by. 8=.636 & drop (18) 80 litt = 17034 +(218) lift + (. 855) In RE to bo •636 (636 so LR price el= -28 = 3427 Ans besta d) .6367. i 20 636