(a) Check signs and magnitudes of estimates. Is the sign of each estimated coefficient consistent with economic theory? Briefly explain your answer for each coefficient.

(b) Which variables are significant at a confidence level of 90% or higher? Which variable does not appear to have a statistically significant impact on water demand? How might you explain this observation?

(c) Create a column in your Excel spreadsheet that shows the estimated water use for each state based on your model results (i.e., your formula will use the coefficients you estimated in the water demand model).

(d) Calculate the point elasticities of water demand for California and Idaho using the correct model coefficients (dQ/dP), the given price for each state, and the estimated water use for each state determined in part (c), above. Show your work.

(e) Suppose California and Idaho want to decrease annual water use by 20% by taxing withdrawals. Use the estimated elasticities for California and Idaho in part (d) to determine the percentage increase in water price needed to decrease water use 20% in these states. Show your work.

 

A 1 2 3 4 5 6 7 8 9 10 6 11 7 12 8 13 9 Georgia 14 10 Hawaii 15 11 Idaho 16 12 Illinois 17 13 Indiana 18 14 lowa 19 15 20 16 21 17 22 18 23 19 24 20 25 21 26 22 27 23 28 24 Missouri 29 25 Montana 30 26 Nebraska 31 27 Nevada 32 28 33 34 35 36 37 38 39 40 36 Oregon 41 37 42 38 43 39 44 40 45 41 46 42 Texas 47 43 Utah 48 44 Vermont 49 45 Virginia 50 46 Washington 51 47 West Virginia 52 48 Wisconsin 53 49 Wyoming 54 ID 0 1 2 3 4 5 29 30 31 32 33 34 35 B State Alabama Alaska Arizona Arkansas California Colorado. Connecticut Delaware Florida Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Pennsylvania Rhode Island South Carolina South Dakota Tennessee | Water Use per capita gal/day 209 224 161 121 144 253 85 105 156 145 211 272 134 125 153 169 137 168 128 119 138 202 129 161 122 195 236 237 116 247 164 589 152 121 127 278 250 172 116 240 88 127 230 508 123 150 194 125 119 324 D Water Price $ per 100 gal 2015 0.47478 1.01080 0.41242 0.44283 0.64250 0.50235 0.57170 0.62570 0.48740 0.51045 0.57180 0.42463 0.50052 0.44507 0.45145 0.60750 0.60843 0.31232 0.41020 0.38122 0.49547 0.54017 0.39415 0.42912 0.59627 0.45543 0.37387 0.71370 0.59765 0.48335 0.43657 0.41842 0.47952 0.42500 0.50302 0.49490 0.49692 0.63718 0.61963 0.33860 0.53390 0.50608 0.48340 0.38583 0.52187 0.52982 0.63408 0.48148 0.41075 0.59375 L E Per Cap Inc ($1000) 2015 $38.97 $55.94 $39.06 $39.11 $52.65 $50.41 $66.97 $47.66 $44.10 $40.55 $47.75 $37.51 $49.47 $41.00 $44.97 $45.88 $38.99 $43.25 $42.08 $56.13 $61.03 $42.43 $50.54 $35.44 $42.75 $41.28 $48.01 $42.19 $54.82 $59.78 $38.46 $57.71 $40.66 $54.38 $43.48 $44.27 $42.97 $49.18 $50.08 $38.04 $45.00 $42.07 $46.75 $39.05 $47.86 $52.14 $51.15 $37.05 $45.62 $55.30 F Westem State 1 = yes 0 1 1 0 1 1 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 0 0 1 0 0 0 0 0 1 0 0 0 0 0 0 1 HOOHOO 0 0 0