economics

economics

Estimating Industry Demand for Fresh Market Carrots
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"?o2000 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),1 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 production data do not account for imports and exports of carrots. During the period of this sample, however, net exports of carrots (exportsminus imports) were quite small in every year.
t
Q
P
W
1983
7,242
10.03
100.0
1984
8,220
6.62
108.3
1985
8,886
10.47
109.5
1986
9,300
12.59
96.3
1987
9,593
11.54
98.3
1988
10,758
10.56
101.2
1989
10,356
13.88
101.5
1990
11,322
14.01
100.6
1991
11,741
14.71
111.8
1992
12,486
13.15
109.0
1993
13,927
13.16
112.3
1994
15,072
16.14
115.4
1995
14,969
18.06
107.2
1996
14,163
19.45
90.5
1997
15,589
19.65
92.5
1998
16,192
17.29
95.6
1999
15,479
19.22
94.8
2000
17,992
19.24
98.7
Consider the following specification of empirical demand and supply functions in the fresh market segment of the carrot industry:2
sdQQabPctdePfW=++=++
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?
a11x1+a12x2
a21x1+a22x2
a31 x1 + a32 x2
b....

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