Problem Set 3

Econ 122B Problem Set 3 Name(Print)______________________
Due in class on March 3 UCI ID____________________________

1. In class, we have talked about the following simple wage equation

wage     female  u , where female is a dummy that is equal to 1 if female, and 0 otherwise.
Given the OLS estimates ˆ and ˆ for the above model, what are the OLS estimates for a model with a male dummy instead of a female dummy, i.e., what are aˆ and bˆ for wage  a  bmale  u ? (Hint: female = 1‐ male)

2. Consider the following model: log(Y )     X  1 D1   2 D2  u , where Y = annual earnings of MBA graduates,
X = years of experience,
D1=1 if Harvard MBA; =0 otherwise,
D2=1 if Wharton MBA; =0 otherwise.
(1) What are the expected signs of  , 1 and  2 ?

(2) How would you interpret 1 and  2 (hint: what is the base group here; note that earnings are in the log form)?
(3) If 1   2 , what conclusion would you draw?

3. Suppose you are interested in learning if there are seasonal patterns in party supply sales in OC, that is, you would like to know if sales in a particular season are significantly different from other seasons. Suppose the following model is estimated: sales    1 D1   2 D2   3 D3  u ,

1

where sales is the quarterly party supply sales in thousands of dollars in OC;
D1, D2, and D3 are dummies indicating the first, the second, and the third quarter respectively.
(1) How would you interpret the estimated intercept and slopes?

(2) How would you test if sales in the third quarter are significantly different from those in the fourth quarter? Write down the null hypothesis and decide whether you need to do a t or an F test.

(3) How would you test if sales in the first quarter are significantly different from those in the second quarter? Write down the null