Let the following LPM describe the relationship of interest. What are the includ
ID: 3006719 • Letter: L
Question
Let the following LPM describe the relationship of interest. What are the included exogenous variables. Why might CathHS, be correlated with u,? The authors of this article have data on a standardized test taken when each student was a sophomore. How might they use this data to improve their estimates of the effects of attending a Catholic school? Let CathRel, be equal to 1 if the student Is Catholic, and 0 otherwise. Discuss the validity of this variable as a possible instrument for attending Catholic school. Being Catholic has a significant efFect on the probability of attending a Catholic high school, and the t for the null that the coefficient on being Catholic is 0 against a two sided null is o. Do I have a weak instrument? Suppose another instrument is the availability of privately funded scholarships to attend Catholic school. Describe how I can test whether both instruments are exogenous, givenExplanation / Answer
Ans-
Price supports benefit farmers, harm consumers, impose
costs on society, and contribute to problems in world agriculturmers benefit because the prices they receive and the output
they produce both increase, expanding their gross incomes. sumers lose because the prices they pay for farm products rand quantities purchased decline. Society as a whole bears
veral costs. Surpluses of farm products will have to be bought
and stored, leading to a greater burden on taxpayers. Domestic
economic efficiency is lessened as the artificially high pricesm products lead to an overallocation of resources to agture. The environment suffers: the greater use of pesticides and
tilizers contributes to water pollution; farm policies discoucrop rotation; and price supports encourage farming of environmentally
sensitive
land.
The efficient use of world resources is
also distorted because of the import tariffs or quotas which suprograms often require. Finally, domestic overproduction leads tsupply increases in international markets, decreasing prices ancausing a declined in the gross incomes of foreign producers
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