ODETTE LEH V.

CARAGOS
MA in Economics I
Xavier University
Survey of Economic Analysis
Key questions (2)
1. Suppose that you are interested in the effect of nutrient intake on wage.
Describe two main potential problems when you apply Ordinary Least
Squares (OLS). Use specific examples in your answer (about 8 lines, or
you can use an equation or diagram to explain).
One major assumption of OLS regression is that the values are
uncorrelated with the error terms. The omitted variable bias is the major
difficulty of observational data. It is a major problem because we are
generally interested in whether the model above represents a causal
relationship between nutrient intake and wage. A frequent interpretation of
the model above is that if we could manipulate by raising it one unit,
would increase by units.
2. Give one example (of your own) that explains the difference between
correlation and causality. For example, the heights of a married couple
are known to be positively correlated, but neither wifes height nor
husbands height causes the other. (at most 8 lines)
Correlation between height and weight are usually known to be high but it
does not mean that height causes weight, or weight causes height. Taller
people weigh more than the shorter people on average.
3. If possible, social scientists (including economists) want to use
experimental studies to examine the effect of something on another.
What is the advantage of experimental studies over observational studies
on socioeconomic surveys? Where does the advantage come from? Often,
social scientists have no choice but to use observational socioeconomic
surveys to examine the effect of something on another. Give one reason
for this. (at most 8 lines)
In an experimental study, the researcher can manipulate the sample
population in some manner. After the manipulation, the researcher remeasures, or re-surveys, using the same procedures to determine if the
manipulation possibly changed the measurements while in in an
observational study, the sample population being studied is measured, or
surveyed, as it is. The researcher does not influence the population in
any way or attempt to intervene in the study. There is no experimental
manipulation. Often, social scientists used observational socioeconomic
surveys to examine the effect of something on another because they
wanted to investigate the correlation of variables.
4. Suppose that we are interested in the effect of nutrition on school
performance by kids. We randomly select schools into two groups. One

group of schools provides nutritious lunch to kids, and the other group
does not. Suppose that additional nutrition is in reality effective in
improving school performance by kids. However, suppose also that we
find no significant impact of the food program on school performance by
kids. What kinds of intra-household responses to the food program nullify
the effect of the food program on school performance by kids? ( at most
8 lines)
Parental characteristics such as pro-child-quality tastes (i.e., parents
preferring fewer, healthier and better-educated children over more, less
healthy and less-educated children) or productivities that contribute to
better child-schooling performance and also contribute to better child
nutrition and health. In such cases, the standard estimates give upwardbiased estimates of the impact of child nutrition/health on child schooling
success. The bias may arise from unobserved parental preferences that
are heterogeneous regarding the value placed on child health versus child
schooling success.