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    Market research is often concerned with how consumers adjust their expenditure on various commodities as their level of income increases. In this example we focus on households that consist of two adults and no children, and we examine how a change in income changes expenditure on food and transportation. Observations on weekly expenditure for these two commodities, as well as weekly income (x), number of children (k) and number of adults (a), for 1000 households, appear in the file hhsurvey.xls Questions appear in the ms word document file.

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    Solution Preview

    (a) From the sample of 1000 households, how many households have 2 adults and no children.
    By EXCEL filtering, we find that 312 households have 2 adults and no children.

    (b) Let y1 = weekly expenditure on food, y2 = weekly expenditure on transport. For the subsample of households in part (a), estimate the following two expenditure functions
    y1t = β1 + β2ln(xt) + e1t

    y2t = α1 + α2ln(xt) + e2t

    Report the estimated coefficients, their standard errors, and the R2 for each equation. Briefly and clearly comment on the results (Each point you make in your comment state it clearly as, ...

    Solution Summary

    Market research is examined. Household expenditure functions are examined.