The market for carrots is comprised of two segments: fresh market carrots, which have excellent, uniform color and a small core, and processing carrots, which are larger than fresh market carrots but still have good flavor, color, and sweetness. Annual data for the years 1983–2000 in the fresh market segment of the carrot industry are presented below. Q is total annual fresh market carrot production (measured in thousands of hundred weight units, which are 100,000 pound units), P is average annual real price per hundred weight of fresh market carrots (in constant 1991 dollars), and W is a weather index based on temperature and rainfall (W varies directly with conduciveness of weather for growing carrots). To account for the increasing popularity of carrots during the sample period, the time variable t is added to the demand equation to reflect growing popularity of carrots.
The purpose of this project is to see if there is a correlation between the price, time, and weather for fresh market carrots. The data is taken from a regression that was computed in excel.
Consider the following specification of empirical demand and supply functions in the fresh market segment of the carrot industry:2
a. Should the ordinary least-squares (OLS) method or the two-stage least-squares method (2SLS) method be employed to estimate market demand for carrots? Explain briefly.
b. Which variables are endogenous variables in the system? Which variables are exogenous? For the model specified above, is the demand for fresh market carrots identified? Explain why or why not?
c. Using statistical software, estimate the parameters of the empirical demand function specified in part a. Write the estimated industry demand equation for carrots.
d. Are the estimated slope parameters of demand statistically significant at the 15 percent level of significance? Are the algebraic signs of the parameter estimates bˆ and cˆ...