Consider a product market with a supply function Qs i = b0 +
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Consider a product market with a supply function Qs i = b0 + b1Pi + us i, a demand function Qd i = g0 + ud i , and a mar
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Consider a product market with a supply function Qs i = b0 + b1Pi + us i, a demand function Qd i = g0 + ud i , and a market equilibrium condition Qs i = Qd i , where us i and ud i are mutually independent i.i.d. random variables, both with a mean of zero. a. Show that Pi and us i are correlated. b. Show that the OLS estimator of b1 is inconsistent. c. How would you estimate b0, b1, and g0?
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