Suppose you have estimated a log log model of life expectancy as a function of income...
Suppose you have estimated a log log model of life expectancy as a function of income in which log LE = 3.7 + 0.1 x log INC where LE is life expectancy measured in years and INC is income measured in £000s. What is your estimate of the elasticity of life expectancy with respect to changes in income?
Homework Answers
Log-Log Regression
log LE = 3.7 + 0.1 x log INC
Where, Dependent variable is log LE
Explanatory variable log INC.
Here, the coefficient of explanatory variable i.e., 0.1 tells us that if INC increase by one percent, LE will increase by 0.1 percent.
Elasticity of LE w.r.t INC = % change in LE / % change in INC
Elasticity of LE w.r.t INC = 0.1 / 1
Elasticity of LE w.r.t INC = 0.1
Hence, the estimate of the elasticity of life expectancy with respect to changes in income is 0.1
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