Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 16

Use the data in APPLE.RAW for this exercise. These are telephone survey data attempting to elicit the demand for a (fictional) "ecologically friendly" apple. Each family was (randomly) presented with a set of prices for regular apples and the eco-labeled apples. They were asked how many pounds of each kind of apple they would buy.

(i) Of the 660 families in the sample, how many report wanting none of the eco-labeled apples at the set price?

(ii) Does the variable ecolbs seem to have a continuous distribution over strictly positive values? What implications does your answer have for the suitability of a Tobit model for ecolbs?

(iii) Estimate a Tobit model for ecolbs with ecoprc, regprc, faminc, and hhsize as explanatory variables. Which variables are significant at the 1% level?

(iv) Are faminc and hhsize jointly significant?

(v) Are the signs of the coefficients on the price variables from part (iii) what you expect? Explain.

(vi) Let ?1 be the coefficient on ecoprc and let?2 be the coefficient on regprc. Test the hypothesis H0: - ?1 = ?2 against the two-sided alternative. Report the p-value of the test. (You might want to refer to Section 4.4 if your regression package does not easily compute such tests.)

(vii) Obtain the estimates of E(ecolbs|x) for all observations in the sample. [See equation] Call these What are the smallest and largest fitted values?

(viii) Compute the squared correlation between ecolbsi and

(ix) Now, estimate a linear model for ecolbs using the same explanatory variables from part (iii). Why are the OLS estimates so much smaller than the Tobit estimates? In terms of goodness-of-fit, is the Tobit model better than the linear model?

(x) Evaluate the following statement: "Because the R-squared from the Tobit model is so small, the estimated price effects are probably inconsistent."

Step 1 of 13

(i)

There are 660 families in the sample of which a survey was conducted to elicit demand for ecologically friendly apple.

Of these families, those families who does not wantto be equal to ,will state different quotes each for and, and thus, it is discovered that there are

435 families who wanted that none of their eco-labeled apples be priced at the set price of regular apple