Elasticity and Marginal Effects _Linear_Regression_Continuous vars case.

For Problem Set, visit here:

https://www.chegg.com/homework-help/questions-and-answers/econometricsmultiple-regrssion-analysis-issues-use-data-greene78-following-exercise-consiq8756039
Based on Guided Computations made by Student (Khan Larn, Econ 318)
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(Question and Ans 1-4 see above)
5- For both models calculate marginal effect and elasticity of price (Pg) and income (Y)
when Pg=3, Y=10,000, and Pnc=2
Answer:
One assumption we make throughout the analysis (prerequisite of the regressand G to
be partially differentiable (ceteris Paribus) in Pg and Y), is that all underying variables
are continuous and can take all possible values in R, or at least throughout our open
interval of consideration. This gives us partial differentiability of log function, and thus
of our underlying Equation which is linear/ Log Linear.
Model 1
G = B0 + B1Pg + B2 ln(Y) + B3Pnc + u
Marginal effect of Pg on G:

= 1 = 14.8629

Marginal effect of Y on G:

1
1

=
=
=
= 2 = 294.64
1

Hence,

| =

294.64
10000

= .029464

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Elasticity and Marginal Effects _Linear_Regression_Continuous vars case.

This is the required marginal effect.

Next, we shall plug value of marginal effect into the formula of elasticities.
Price Elasticity of G=

Price Elasticity of G (when Pg=3, Y=10,000, and Pnc=2 )

3
=
=
14.8629 { is obtained from Ans2 } = 0.179536

248.3547

Income Elasticity of G=

10000
248.3547

.029464 = 1.186368

Model 2
ln(G) = B0 + B1Pg + B2 ln(Y) +B3Pnc + u
Marginal effect of Pg on G:

1
=
= 1 = 0.0491644

|{, , } =
| = 0.0491644

244.29 { is obtained from Ans4 which uses sae values of regressors to compute this E(G)} =
12.0104
Which is the required marginal effect.

1

1
1
1

=
=
=
=
= 1.63414
ln

Hence

|{, , } =

|{, } =

10000
244.29

1.63414

{ is obtained from Ans4 which uses sae values of regressors to compute this E(G)}
= 66.8934
Which is the required marginal effect.
Next, we can use marginal effects to compute the respective Elasticities.

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Elasticity and Marginal Effects _Linear_Regression_Continuous vars case.

Price Elasticity of G =

. =

Income Elasticity of G =

3
244.29

10000
244.29

12.0104 =-0.1475

66.8934 = 2738.2783

Let me know if you need additional help, especially with notation.

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