The elasticity of demand for gasoline has been estimated to be -2.0, and the standard error is 0.25.The t-statistic for the estimated elasticity of demand for gasoline is
A)-8, indicating a statistically significant elasticity estimate at the 95% confidence level.
B)-0.5, indicating a statistically insignificant elasticity estimate at the 95% confidence level.
C)8, indicating a statistically insignificant elasticity estimate at the 95% confidence level.
D)0.5, indicating a statistically significant elasticity estimate at the 95% confidence level.

Question

Quizplus · Accepted Answer

The t-statistic is calculated by dividing the estimated elasticity by its standard error.

t-statistic = (-2.0) / (0.25) = -8

Since the absolute value of the t-statistic (8) is greater than the critical value at the 95% confidence level (1.96 for a two-tailed test), we can reject the null hypothesis that the elasticity of demand is zero and conclude that the estimated elasticity of demand for gasoline is statistically significant. Therefore, choice A is the correct answer.

The Elasticity of Demand for Gasoline Has Been Estimated to Be