Real effects on cigarette consumption

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A study of cigarette demand resulted in the following regression equation:

log(Q) = 2.55 - 0.29log(P) - 0.09log(Y) + 0.08log(A) - 0.1W (-2.07) (-1.05) (4.48) (-5.2)

Here, Q denotes annual cigarette consumption; P is the average price of cigarettes, Y is per capita income, A is total spending on cigarette advertising, and W is a dummy variable whose value is 1 for years after 1963 (when the American Cancer Society linked smoking to lung cancer) and 0 for earlier years. The t-statistic for each coefficient is shown in parentheses. The R² of the equation is 0.94.

(a) Which of the explanatory variables have real effects on cigarette consumption? Explain.

b:- What does the coefficient of log(P) represent? If cigarette prices increase by 1 percent, how will this affect consumption?

(c) Are cigarette purchases sensitive to income? Explain

Reference no: EM132600778

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