2. Consider a product market with a supply function Q = Bo + B1P + u, a demand function Q = Yo + u, and a market equilibrium condition Q = Q', where u and u are mutually independent i.i.d. random variables, both with a mean of zero. You have a data set of (Pi, Qi) in equilibrium. a. Show that P; and u are correlated. b. Show that the OLS estimator for 31 is inconsistent.

2. Consider a product market with a supply function Q = Bo + B1P + u, a demand function Q = Yo + u, and a market equilibrium condition Q = Q', where u and u are mutually independent i.i.d. random variables, both with a mean of zero. You have a data set of (Pi, Qi) in equilibrium. a. Show that P; and u are correlated. b. Show that the OLS estimator for 31 is inconsistent.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter1: Introducing The Economic Way Of Thinking

Section1.A: Applying Graphs To Economics

Problem 2SQP

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