Question: From the data for 46 states in the United States for 1992, Baltagi obtained the following regression results: Log C = 4.30 1.24 log

From the data for 46 states in the United States for 1992, Baltagi obtained the following regression results:

Log C = 4.30 – 1.24 log P + 0.17 log Y

se = (0.91) (0.32) (0.20) R̅2 = 0.27

where

C = cigarette consumption, packs per year

P = real price per pack

Y = real disposable income per capita

a. What is the elasticity of demand for cigarettes with respect to price? Is it statistically significant? If so, is it statistically different from 1?

b. What is the income elasticity of demand for cigarettes? Is it statistically significant? If not, what might be the reasons for it?

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