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Consider the Following Model of Demand and Supply of Coffee  Demand: QiCoffee =β1PiCoffee +β2PiTea +ui\text { Demand: } Q_{i}^{\text {Coffee }}=\beta_{1} P_{i}^{\text {Coffee }}+\beta_{2} P_{i}^{\text {Tea }}+u_{i}

Question 41

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Consider the following model of demand and supply of coffee:
 Demand: QiCoffee =β1PiCoffee +β2PiTea +ui\text { Demand: } Q_{i}^{\text {Coffee }}=\beta_{1} P_{i}^{\text {Coffee }}+\beta_{2} P_{i}^{\text {Tea }}+u_{i}
 Supply: QiCoffee =β3PiCoffee +β4PiTea +β5 Weather +vi\text { Supply: } Q_{i}^{\text {Coffee }}=\beta_{3} P{ }_{i}^{\text {Coffee }}+\beta_{4} P_{i}^{\text {Tea }}+\beta_{5} \text { Weather }+v_{i}

(variables are measure in deviations from means, so that the constant is omitted).
What are the expected signs of the various coefficients this model? Assume that the price of tea and Weather are exogenous variables. Are the coefficients in the supply equation identified? Are the coefficients in the demand equation identified? Are they overidentified? Is this result surprising given that there are more exogenous regressors in the second equation?

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Changes in Weather will shift the supply...

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