(a) Compute the multiple regression of per capita consumption of gasoline

on per capita income, the price of gasoline, all other prices and a time
trend. Report all the results. Do the signs of the estimates agree with
your expectations?

lx on income: When income increases by one dollar, the percapita

consumption of gasoline on per capita income increases by 0.0038%.
The sign if income agrees with our expectation because when income
rises, individuals would have more disposable income to spend on
gasoline.

lx on gasp: when gas price increases by a dollar the the percapita

consumption of gasoline on per capita income decreases by 0.1247%
We agree with the sign because when price gas price increases, the
demand for gasoline will fall hence the consumption will decrease.

lx on pnc: when price of new cars increases the percapita consumption

of gasoline on per capita income increases by 0.0640%. The sign does
not match our expectation because when the price of new cars
increases, the demand for new cars will decrease and hence the
demand for gasoline will drop. However the price of new cars does not
seems significant because of it’s big p-value.

lx on puc: when price of used cars increases by a dollar the percapita

consumption of gasoline on per capita income decreases by 0.1947%.
This meets our expectations because when price of used cars
increases, the demand of of used cars will decrease and so will the
demand for gasoline.

lx on ppt: when price of public transportation increases by a dollar, the

 percapita consumption of gasoline on per capita income increases by
0.1964%. This meets our satisfaction because when the price of public
transportation increases, people are more likely to drive a car. Hence
the consumption of gasoline will increase.

lx on pd: when price of durable goods increases by a dollar the

percapita consumption of gasoline on per capita income increases by
0.1475%. This does not meet our expectation because we expect
individuals to consume less gasoline when the price of of durables
increases. This is because individuals will have less disposable income
after the price rise.

lx on pn : when price of non durable goods increases by a dollar the

the percapita consumption of gasoline on per capita income decreases
by 0.1190%. This meets our expectation and this is because of the
same reason above. Individuals will have less disposable income after
the price rise.

lx on ps: when price of services increases by a dollar the the percapita

consumption of gasoline on per capita income decreases by 0.5906%.
This meets our expectation because o the same reason above.

b) Test the hypothesis that at least in regard to demand for gasoline,

consumers do not differentiate between changes in the prices of new and
used cars.

T-value is 4.7630 and it is above the critical value of 5% and 1%

significant test. This shows that consumers do differentiate between
changes in the price of new and used cars. New cars and used cars
may be substitutes but they are not perfect substitutes. If both the price
of old cars and new cars were to drop, people would more like buy a
new car as it seems to offer more value.

(b) estimate the own price elasticity of demand, the income elasticity, and
the cross price elasticity with respect to changes in the price of public
 transportation. Do the computations at the 2004 point in the data.

Own Price elasticity of demand=

% quantity demanded/% own price)*( own price/quantity demanded)

= -.0012406 * (123.901/ -11.9768)

= 0.013

 Income elasticity =
(% quantity demanded/% income)*( income/quantity demanded)

= .0000375*( 27113/-11.9768)

=-0.085

Cross price elasticity =

(% quantity demanded/% ppt)*( ppt/quantity demanded)

= .0019642 * (209.1/-11.9768)
=-0.034.

note: this is the result of the elasticity from using the log x form into the
equation. Even if I use x, the answers are so extreme like -6 and stuff
like that.

(c) Reestimate the regression in logarithms so that the coefficients are

direct esti- mates of the elasticities. (Do not use the log of the time
trend.) How do your estimates compare with the results in the previous
question? Which specification do you prefer?
Own price elasticity = 0.61*(123.901/ -11.9768)
=-6

Income elasticity = 0.9929*( 27113/-11.9768)

= -2247

Cross price elasticity = 0.192716*(209.1/-11.9768)

= -3.364

note: it says in the text book that when the regression is in log to log
form, the coefficients are the direct elasticity of dependent variable
with respect to x. Since it’s already a direct elasticity, do I still need to
multiply the coefficient with the price/quantity demanded or with
income/quantity demanded and such to find the elasticity?