Economics > QUESTIONS & ANSWERS > University of Texas - ECO 341k>Homework Assignment #7 Solutions (All)

University of Texas - ECO 341k>Homework Assignment #7 Solutions

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ECO 341K Introduction to Econometrics University of Texas Prof. Haiqing Xu Homework Assignment #7 Solutions 1. (Wooldridge 7.2) (i) If Δcigs = 10 then Λ Δ log(bwght) = −.0044(10) = −.044,... which means about a 4.4% lower birth weight. (ii) A white child is estimated to weigh about 5.5% more, other factors in the first equation fixed. Further, twhite ≈ 4.23, which is well above any commonly used critical value. Thus, the difference between white and nonwhite babies is also statistically significant. (iii) If the mother has one more year of education, the child’s birth weight is estimated to be .3% higher. This is not a huge effect, and the t statistic is only one, so it is not statistically significant. (iv) The two regressions use different sets of observations. The second regression uses fewer observations because motheduc or fatheduc are missing for some observations. We would have to reestimate the first equation (and obtain the R-squared) using the same observations used to estimate the second equation. 2. (Wooldridge 7.8) (i) We want to have a constant semi-elasticity model, so a standard wage equation with marijuana usage included would be log(wage) = β0 + β1 usage + β2educ + β3exper + β4exper2 + β5female + u. Then 100⋅ β1 is the approximate percentage change in wage when marijuana usage increases by one time per month. (ii) We would add an interaction term in female and usage: log(wage) = β0 + β1 usage + β2educ + β3exper + β4exper2 + β5female + β6female⋅ usage + u. The null hypothesis that the effect of marijuana usage does not differ by gender is H0: β6 = 0. (iii) We take the base group to be nonuser. Then we need dummy variables for the other three groups: lghtuser, moduser, and hvyuser. Assuming no interactive effect with gender, the model would be [Show More]

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