Suppose That in an Effort to Explain the Demand for Pineapples,you

question 21

Essay

Suppose that in an effort to explain the demand for pineapples,you collect a weekly time series data set with 780 total observations and you propose the following demand and supply equations for pineapples $$\begin{array} { c } \text { Pineapples } _ { t } ^ { d } = \beta _ { 0 } + \beta _ { 1 } \text { Price } _ { t } + \beta _ { 2 } \text { Income } _ { t } + \varepsilon _ { t } \\\text { Pineapples } _ { t } ^ { s } = \delta _ { 0 } + \delta _ { 1 } \text { Price } _ { t } + \delta _ { 2 } \text { Rain } _ { t } + \varphi _ { t }\end{array}$$
a)With a graph,explain estimating the demand equation alone would yield biased estimates.
b)Explain why this specification can be viewed as a simultaneous equation.Be as specific as possible.
c)Now with a similar graph explain how the supply shifter,rain,helps identify the demand equation.
d)Describe,using rain as an instrumental variable,how to estimate the demand equation for pineapples.
e)Describe,using income as an instrumental variable,how to estimate the supply equation for pineapples.
f)Why would this sample size be a concern for using instrumental variables in this circumstance?

---

Definitions:

Leading Cause

The primary factor or condition that is most frequently associated with a specified outcome, like a disease or death.

Unconscious Mind

The unconscious mind refers to the part of the mind that is not within one's conscious awareness, influencing thoughts, feelings, and behaviors without conscious realization.

Hypnosis

A trance-like state of focused attention, reduced peripheral awareness, and increased responsiveness to suggestions.

Drugs

Substances used to diagnose, treat, or prevent illness and affect the body's structure or functions.