The elasticity of demand for gasoline has been estimated to be −2.0,and the standard error is 0.25.The t-statistic for the estimated elasticity of demand for gasoline is:
A) −8, indicating a statistically significant elasticity estimate at the 95 percent confidence level.
B) −0.5, indicating a statistically insignificant elasticity estimate at the 95 percent confidence level.
C) 8, indicating a statistically insignificant elasticity estimate at the 95 percent confidence level.
D) 0.5, indicating a statistically significant elasticity estimate at the 95 percent confidence level.

Question

Quizplus · Accepted Answer

The t-statistic can be calculated as (estimated coefficient - hypothesized value) / standard error. Here, our hypothesized value is 0 (since we want to test whether the elasticity is statistically significant or not) and our estimated coefficient is -2.0. So, the t-statistic is (-2.0 - 0) / 0.25 = -8. This is greater than the critical value for a two-tailed test with a 95% confidence level (which is approximately 2), indicating that the elasticity estimate is statistically significant.

The Elasticity of Demand for Gasoline Has Been Estimated to Be