1. Assume that a market is in equilibrium. Show with help of demand and supply curve that the market is in equilibrium.
a. Do a comparative static analysis in the short run if the supply of the good is decreased due to decrease in energy price.
b. Do a comparative static analysis in the long run if the supply of the good is decreased due to decrease in energy price.
c. Analyze and show what happen with consumer surplus and producer surplus in question a and b.
2. Annual demand and supply functions for the Entronics Company are given by:
QD = 5 000 + 0,5 I + 0,2 A - 100P, and QS = 1000 + 100P
where QD is the quantity demanded per year, QS is the quantity supplied, P is price, I is income per household, and A is advertising expenditure.
a. If A = $50 00 and I = $50 00, what is the demand curve? Calculate price elasticity of demand, both arc and point elasticity. What is the difference between point and arc elasticity. Have you got same or different results for these two measures? Explain why!
b. Given the demand curve in part a., what is equilibrium price and quantity? Calculate consumer surplus and producer surplus.
c. Assume that income (I) is increased by 10 percent. Find the short run and long run equilibrium price and quantity and calculate consumer surplus and producer surplus.
d. Find the point on the inverse demand function of QDO where unitary elasticity of demand, Ep=-1.
3. In the excel sheet dataassignment2_20160116, a set of data is provided. In this exercise, you have to run different regression to find out the best model or demand function for good A. Step 1: Run a regression with Y as depended variable and X1, X3, X4 and X6 as independent variable.
Step 2: Generate a variable InY=In(Y). This implies that you create a new variable by taking the natural logarithm of Y variable. Run a regression with InY as depended variable and Xl, X3, X4 and X6 as independent variables.
Step 3: Generate the other variable as InX1=In(X1), InX3=In(X3) and InX6=In(X6). This implies that you create three new variables by taking the natural logarithm of the variables Xl, X3 and X6 respectively. Run a regression with InY as depended variable and InX1,In X3, X4 and InX6 as independent variables.
Choose the best model based on statistical criteria and your economic knowledge. Motivate your answer. Make comment on assumption(s) that are violated and the consequences of the violation of assumption in different models. You have to comment on all the coefficients, t- and F-statistics, R2, adj¬R2 and NOVA-table for all of the three models and compare these statistics. You will have to give a vivid economic and statistical analysis on all of the three models.
Attachment:- dataassignment2_20160116 (1).xlsx