Which of the Following Is True About Weak Instruments

question 21

Multiple Choice

Which of the following is true about weak instruments?

• A) A weak instrument is correlated with the error term.
• B) The larger the sample size, the bigger the problem (bias) caused by the use of a weak instrument.
• C) A weak instrument is an instrument that does a poor job of explaining X.
• D) A weak instrument fails the exclusion condition.

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Definitions:

Equilibrium Price

This is the price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in a state of market balance.

Quantity Discounts

Reductions in price offered by sellers to buyers who purchase large volumes or quantities of a product, incentivizing bulk purchasing.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity has the power to influence the market prices significantly.

Profit-maximizing

The process or goal of adjusting the production and sale of goods or services to achieve the highest possible profit.