The full model of Example 2.3 may be written in logarithmic terms as ln G/pop = + p ln

Chapter 6, Problem 10

(choose chapter or problem)

The full model of Example 2.3 may be written in logarithmic terms as ln G/pop = + p ln Pg + y ln Y + nc ln Pnc + uc ln Puc + pt ln Ppt + year + d ln Pd + n ln Pn + s ln Ps + . Consider the hypothesis that the microelasticities are a constant proportion of the elasticity with respect to their corresponding aggregate. Thus, for some positive (presumably between 0 and 1), nc = d, uc = d, pt = s. The first two imply the simple linear restriction nc = uc. By taking ratios, the first (or second) and third imply the nonlinear restriction nc pt = d s or ncs ptd = 0. a. Describe in detail how you would test the validity of the restriction. b. Using the gasoline market data in Table F2.2 , test the restrictions separately and jointly.