Consider the Population Regression of Log Earnings [Y_i, Where Y_i

question 12

Multiple Choice

Consider the population regression of log earnings [Y_i, where Y_i = ln(Earnings_i) ] against two binary variables: whether a worker is married (D_1i, where D_1i=1 if the i^th person is married) and the worker's gender (D_2i, where D_2i=1 if the i^th person is female) , and the product of the two binary variables Y_i = β₀ + β₁D_1i + β₂D_2i + β₃(D_1i×D_2i) + u_i. The interaction term

• A)allows the population effect on log earnings of being married to depend on gender
• B)does not make sense since it could be zero for married males
• C)indicates the effect of being married on log earnings
• D)cannot be estimated without the presence of a continuous variable

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Definitions:

Substitution Effect

The economic understanding that as prices rise or incomes decrease, consumers replace more expensive items with less costly alternatives.

Output Effect

The change in total output resulting from a specific economic policy or condition, such as an increase in demand.

MRP

Marginal Revenue Product, the additional revenue generated by the employment of one additional unit of a factor of production.

MPP

Marginal Physical Product, the change in total output of a good that results from a one-unit change in input, holding all other inputs constant.