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Thread: an economic question

  1. #1
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    an economic question

    Hi there,

    could you please help me solve this question. I have a equation from the logit regression: prob(drinking=1)=intercept-2.4 log(price)+0.14gender+0.67race+0.29 state_rule+e

    How can I find the Price elasticity? Many thanks for your help in advance!!!

    Jeniffer
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  2. #2
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    Re: an economic question

    Hey LWUT.

    You should define what the elasticity is but given that you have a variable you will have to re-arrange it so that your price function is in terms of the other variables.

    I.e. - something like Price = f(gender,race,state_rule) and then find the expectation of the price random variable.
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  3. #3
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    Re: an economic question

    Thanks very much, chiro! I would like to find the price elasticity of drinking participation. After running the multivariable logit regression, I got the coefficient of log(price)is -2.4, I don't know how to calculate the price elasticity based on this.
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  4. #4
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    Re: an economic question

    How is it defined? (This is the question I was trying to ask you)

    If you are using the price variable above then you will need to use an expectation.

    Note - the expectation will be (for a binary random variable):

    E[X] = p1*x1 + (1-p1)*x2 where x1 and x2 are the values of the random variable with corresponding probabilities.

    You have a formula for the probabilities and you can use the logit to get the values corresponding to your x1 and x2 variables.
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  5. #5
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    Re: an economic question

    Thanks so much, Chiro! I will try.
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