Consider the Following Model of Demand and Supply of Coffee

question 17

Essay

Consider the following model of demand and supply of coffee:
Demand: = β1 + β2 + ui
Supply: = β3 + β4 + β5Weather + vi
(variables are measure in deviations from means,so that the constant is omitted).
What are the expected signs of the various coefficients this model? Assume that the price of tea and Weather are exogenous variables.Are the coefficients in the supply equation identified? Are the coefficients in the demand equation identified? Are they overidentified? Is this result surprising given that there are more exogenous regressors in the second equation?

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Definitions:

SSR

Stands for Sum of Squares due to Regression, which quantifies the variation explained by the regression model, comparing the estimated values to the mean of the dependent variable.

SST

Total sum of squares in statistical analysis, representing the total variation in the observed data relative to the mean.

Multiple Linear Regression

A statistical technique that models the relationship between a dependent variable and two or more independent variables by fitting a linear equation to observed data.

Partial Regression Slope Coefficients

Quantitative measures in multiple regression models that represent the rate of change in the dependent variable for one-unit change in the predictor variable, holding other variables constant.