04 Jun Question You are given data on food expenditur
Question
You are given data on food expenditure, income and demographic characteristics of 150 married couples, where the husband is a manual worker and is aged 30-50. All survey interviews take place in the same month.
You decide to estimate an Engel curve and regress the ratio of food expenditure to income (wfoy) on the logarithm of net current income (ncy), the number of children aged 6-10 (kids2), the number of children aged 11-17 (kids3) and an indicator for London (london=1 if the couple lives in Greater London, and 0 otherwise).
Your estimates are:
OLS Estimation, Dependent variable is wfoy, 150 observations
Variable
Coefficient
Standard error
constant
0.877
0.065
ncy
-0.155
0.014
kids2
0.026
0.006
kids3
0.138
0.032
london
0.047
0.018
R2
0.496
Mean of wfoy
0.189
Mean of ncy
4.473
(a) On the basis of the above estimates, establish if food is a necessity or a luxury.
(b) Establish the statistical significance of the coefficient on london.
(c) Further, compute the income elasticity for a hypothetical couple living outside London, with mean log income and no children.
(d) It has been suggested that share of budget spent on food is a good indicator of household living standard. Households
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