The Following Regression Results Are from the First Stage Regression

question 48

Multiple Choice

The following regression results are from the first stage regression of Price on income and wholesale costs-which is serving as the instrument for a particular grocery product across different markets: Price_i = 3.2(1.0) + 4.3(0.8) WholesaleCosts_i + 5.5(2.7) Income_i, where standard errors are reported in parenthesis. What conclusion can be drawn about the instrumental variable?

• A) It's unbiased.
• B) With a t-stat over 2.5 (4.3/0.8), the instrument is relevant.
• C) With a t-stat over 2.5 (4.3/0.8), the instrument is exogenous.
• D) It's under reporting the effect of income on price.

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Definitions:

Purchases Returns

Goods returned to the supplier from the buyer due to defects, inaccuracies in orders, or other reasons.

Sales Returns

Transactions where customers return previously purchased merchandise to the seller, resulting in a deduction from gross sales to arrive at net sales.

Purchases Returns

Goods returned by a buyer to the seller, often due to defects or dissatisfaction, resulting in a refund or credit.

Purchase Discounts

Discounts a buyer receives for paying suppliers early, which are used to reduce the cost of purchased goods.