ECON 151 Lecture Notes - Lecture 24: General Linear Model, Absenteeism, Randomized Experiment
22 Nov 2020
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Price elasticity of schooling how sensitive you are as price increases. For the same tuition fee increase, decrease in schooling is higher in second case; Demand is more sensitive to a change in c; What determines this sensibility is the elasticity: the percentage increase in s divided by the percentage increase in c ie in the linear case. E= ( s/s)/( c/c) < 0, sometimes we do |e| When demand and supply curve are not linear, elasticity is calculated for an infinitesimal increase in s, so :e ( s/s)/( c/c) dlog(s)/ dlog (c ) Log-log regression: log(schooling) = 0 + 1log(cost) + 2x + where 1 measures the price (cost) elasticity of schooling demand. Missing variable bias: x may not include all factor explaining school participation. A variation in tuition fee that does not affect demand. A variation in the opportunity cost that does not affect demand. Best done using social experiments - aka rct/randomized experiment/clinical trials.
