Question

10. To investigate the relationship between the price of wine and consumption of wine, an economist estimates the following regression using a sample of 32 individuals for one week in 2013: log (wine 4.2514 - 0.8328 log (price) (0.8911) (0.0031) n = 32, R2 = 0.89. wine denotes the amount of wine consumed per week in milliliters (a medium glass contains 175ml), and price denotes the average price of a medium glass of wine of a selection of wines during the week in GBP (£). The numbers in parentheses are the standard errors. (d) A famous TV chef suggests in a talk show that the demand for wine is less elastic (i.e., less negative) for people who have eaten at a restaurant during the week, arguing that eating in a restaurant encourages people to drink wine regardless of the price. To test this theory, the economist defines a dummy variable D; that takes the value 1 if individual i ate at a restaurant during the week, and 0 otherwise. She obtains the following regression result: log (wine 4.2133 - 0.8218 log (price) +0.0889D x log (price), (0.8911) (0.0028) (0.0011) n = 32, R2 = 0.92. i. (3 marks) How does this regression help in assessing the TV chef's claim? ii. (4 marks) Conduct a test that may offer support for the TV chef's claim. Clearly specify the null and the alternative hypothesis. Explain clearly why your test is effective in answering the question of interest.

Answer 1

Solution Given, regression result log (wine) = 4.2133 10.8911 ) 0.8218 log (price ) + 0.0889D 10.0028 10.0011) * log(price), 2 R = 0.92 n.32 who have chef 1 The demand claims that people restaurant for them less a elastic at a eaten i's for wine Di is incorporated thes to assess Can be thus The dummy variable in the regression equation claim his claim if this dummy is if the Coeffi'aent significant testhed significant Statistically of stanistically a test to Chef's suppoot the statistical significance Di. (i) To conduct claim, we will check of coefficient of Null hypothesis Alternate hypothesis Ho : B3 Ho : B3 #o is Null hypotheses : B3 -0 States that there significant difference between clasticity of wine who eat no for people restaurant

00 not tstan'st'c (B3) - 08889 = 80:81 0.001) value coefficient since t stat is Standard error very large thus null rejected. The chef's claim is ; is significant hypothesis right is coefficient of Please give me a like. Thank you.