Suppose that in an effort to explain the demand for pineapples,you collect a weekly time series data set with 780 total observations and you propose the following demand and supply equations for pineapples $$\begin{array} { c }
\text { Pineapples } _ { t } ^ { d } = \beta _ { 0 } + \beta _ { 1 } \text { Price } _ { t } + \beta _ { 2 } \text { Income } _ { t } + \varepsilon _ { t } \
\text { Pineapples } _ { t } ^ { s } = \delta _ { 0 } + \delta _ { 1 } \text { Price } _ { t } + \delta _ { 2 } \text { Rain } _ { t } + \varphi _ { t }
\end{array}$$
a)With a graph,explain estimating the demand equation alone would yield biased estimates.
b)Explain why this specification can be viewed as a simultaneous equation.Be as specific as possible.
c)Now with a similar graph explain how the supply shifter,rain,helps identify the demand equation.
d)Describe,using rain as an instrumental variable,how to estimate the demand equation for pineapples.
e)Describe,using income as an instrumental variable,how to estimate the supply equation for pineapples.
f)Why would this sample size be a concern for using instrumental variables in this circumstance?

Question

Suppose that in an effort to explain the demand for pineapples,you collect a weekly time series data set with 780 total observations and you propose the following demand and supply equations for pineapples $$\begin{array} { c } 
\text { Pineapples } _ { t } ^ { d } = \beta _ { 0 } + \beta _ { 1 } \text { Price } _ { t } + \beta _ { 2 } \text { Income } _ { t } + \varepsilon _ { t } \
\text { Pineapples } _ { t } ^ { s } = \delta _ { 0 } + \delta _ { 1 } \text { Price } _ { t } + \delta _ { 2 } \text { Rain } _ { t } + \varphi _ { t }
\end{array}$$ 
a)With a graph,explain estimating the demand equation alone would yield biased estimates.
b)Explain why this specification can be viewed as a simultaneous equation.Be as specific as possible.
c)Now with a similar graph explain how the supply shifter,rain,helps identify the demand equation.
d)Describe,using rain as an instrumental variable,how to estimate the demand equation for pineapples.
e)Describe,using income as an instrumental variable,how to estimate the supply equation for pineapples.
f)Why would this sample size be a concern for using instrumental variables in this circumstance?

Quizplus · Accepted Answer

The Answer of Suppose that in an effort to explain the demand for pineapples,you collect a weekly time series data set with 780 total observations and you propose the following demand and supply equations for pineapples $$\begin{array} { c } 
\text { Pineapples } _ { t } ^ { d } = \beta _ { 0 } + \beta _ { 1 } \text { Price } _ { t } + \beta _ { 2 } \text { Income } _ { t } + \varepsilon _ { t } \
\text { Pineapples } _ { t } ^ { s } = \delta _ { 0 } + \delta _ { 1 } \text { Price } _ { t } + \delta _ { 2 } \text { Rain } _ { t } + \varphi _ { t }
\end{array}$$ 
a)With a graph,explain estimating the demand equation alone would yield biased estimates.
b)Explain why this specification can be viewed as a simultaneous equation.Be as specific as possible.
c)Now with a similar graph explain how the supply shifter,rain,helps identify the demand equation.
d)Describe,using rain as an instrumental variable,how to estimate the demand equation for pineapples.
e)Describe,using income as an instrumental variable,how to estimate the supply equation for pineapples.
f)Why would this sample size be a concern for using instrumental variables in this circumstance?

Suppose That in an Effort to Explain the Demand for Pineapples,you