RGDP for Angola

RGDP for Angola

Submit the project as a Word document with Excel file that includes the estimation results and the complete dataset you have used.

The following table gives information on the quantity demanded of commodity X (Qx), its price (Px), and the price of related good Y (Py) from 1980 to 2011.

Qx    Px    Py    Income    Advertising
1980    120.5    280    230
1981    140.2    240    250
1982    135.1    265    240
1983    163.7    250    250
1984    142.4    240    240
1985    131.6    270    245
1986    180.8    240    220
1987    201.7    215    280
1988    164.8    250    276
1989    133.6    265    250
1990    137.8    265    249
1991    183.3    240    240
1992    211.7    230    240
1993    237.5    225    234
1994    209.5    225    250
1995    196.8    220    235
1996    159.5    230    240
1997    183.2    235    250
1998    190.5    245    249
1999    205.5    240    240
2000    175.7    250    289
2001    191.6    240    230
2002    212.7    240    250
2003    202.2    235    240
2004    220.8    220    231
2005    221.2    218.7    239
2006    223.9    220    257
2007    225.1    219    236
2008    229    216.5    230
2009    231.9    215.6    230
2010    233    213    256
2011    234.5    212.5    245

the Income and Advertising variables must be filled in by each student as follows:

•    Income variable: RGDP data for Angola

The data for this variable must come from the Penn World Tables. Go to: http://www.rug.nl/research/ggdc/data/penn-world-table and from the Excel file available on that

page (middle of page under Expert Data Access), copy and paste the RGDP data for Angolafrom 1980-2011 (use the RGDP variable with the name ‘RGDPna’ from this

database). (Please remember to cite your source.)

•    Advertising: For this variable each student must fill in the table with whatever random 3-digit values he wants.

REQUIREMENTS;

(1)    (i) UsingExcel, estimate using regression analysis the linear demand equation of Qx on Px, Py, Income and Advertising. Write down this estimated equation.

(ii) Assume that in 2012 Px, Py, Income, and Advertising are all 10% greater than their 2011 value.Using the estimated equation in the previous part, calculate all the

point elasticities of demand (price, income, cross price, and advertising elasticities) in Year 2012. Comment on your results (e.g. is demand for X elastic or

inelastic; are X and Y substitutes or complements; is X a normal or an inferior good; is X a luxury or a necessity; is X sensitive to advertising or not).

(iii) Explain how a business may utilize these elasticities to inform its decision-making process.

(2)    (i) Using Excel, transform all variables into natural logarithms (ln). Then use these variables to estimate the demand equation in log-linear form (i.e. ln(Qx)

on ln(Px), ln(Py), ln(Income) and ln(Advertising). Write down this estimated equation.

(ii) Based on the estimated log-linear model, what are the elasticities of demand (price, income, cross price, and advertising elasticities)? Do the conclusions you

have reached in Part 1(ii) still hold?Explain your answer.

(3)    (i) For each model (linear and log-linear model), investigate which of the explanatory variables are individually statistically significant at the 5%

significance level. Explain your answer.

(ii) Conduct an F-test (at the 1% significance level) for each model and comment on the results.

(iii) Based on economic theory and the statistical tests you have conducted, which model do you consider preferable (the linear or log-linear model)? Explain fully

your answer.

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