Use your computer software for two-stage least squares or IVs estimation, and the 30 observations in the data file truffles to obtain 2SLS estimates of the system in equations (11.4) and (11.5). Compare your results to those in Tables 11.3a and 11.3b.

a. Using the 2SLS estimated equations, compute the price elasticity of supply and demand "at the means." Comment on the signs and magnitudes of these elasticities.

b. Using the 2SLS estimates for the demand equation, obtain the squared 2SLS residuals, \(\hat{e}_{d}^{2}\). Carry out the Breusch-Pagan \(N R^{2}\) test for heteroskedasticity using just the exogenous variables in the variance function. Is there any evidence of heteroskedasticity?

c. Using the 2SLS estimates for the supply equation, obtain the squared 2SLS residuals, \(\hat{e}_{s}^{2}\). Carry out the Breusch-Pagan \(N R^{2}\) test for heteroskedasticity using just the exogenous variables in the variance function. Is there any evidence of heteroskedasticity?

d. Plot the squared supply equation residuals \(\hat{e}_{s}^{2}\) versus each of the three exogenous variables. Discuss the visual evidence of heteroskedasticity.

e. Obtain 2SLS estimates of the supply equation using robust standard errors. How do the \(t\)-statistic values compare to those in Table 11.3b? Do you think it is a good idea to use robust standard errors for this equation? Explain.

Data From Equation 11.4 and 11.5:-

Data From Table 11.3:-

Transcribed Image Text:

-X; + P = - edi - e si - = (11.4)