Description
a) Produce a scatterplot of price and quantity demanded of Cod. Set aside the variable “average water temperature.” Estimate the household demand function for Cod as a function of the price of Cod, weekly Income, the price of Beef, and some or all of the other provided variables. Carry out and report the necessary statistical tests to choose your specification. Report the estimated own price elasticity, estimated income elasticity of demand, and the cross – price elasticity of demand with Beef. Discuss any found issues with respect to omitted variable bias.
(b) Suppose the price of Cod is determined by simultaneous solution of the market supply and demand of Cod. Discuss how this is problematic for your estimate of the own price of elasticity for Cod. Use the variable “average water temperature” to obtain a new estimate of the own price elasticity of Cod. Evaluate whether “average water temperature” is an appropriate instrument.