Why should we expect to estimate the treatment effect of price on quantity sold to be so difficult in nonexperimental data?
A) Firms are not likely to keep detailed records of their prices.
B) Obtaining actual quantity information from sales records is difficult.
C) Firms vary their prices strategically in response to expectations of the resulting sales.
D) Sales taxes create wedges between prices paid and revenue received by the firm.

Question

Quizplus · Accepted Answer

In nonexperimental data, firms may vary their prices strategically in response to expectations of resulting sales. This means that it is difficult to isolate the effect of price on quantity sold because there may be other factors at play, such as changes in demand or marketing efforts. The other answer choices may pose challenges in estimating the treatment effect of price on quantity sold, but they do not necessarily make it inherently difficult in nonexperimental data. For example, while sales taxes create wedges between prices paid and revenue received by the firm, this does not necessarily make it difficult to estimate the treatment effect of price on quantity sold.

Why Should We Expect to Estimate the Treatment Effect of Price