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  3. in class i discussed how one can potentially estimate the...

Question: in class i discussed how one can potentially estimate the...

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In class, I discussed how one can potentially estimate the demand for health care services using an experiment: take a big group of people (the population) and randomly assign them to plans with different coverage levels. This will actually create random variation in the set of prices faced by these individuals and eliminate the selection bias. Hence, we can record the amount or quantity demanded for each individual to estimate the demand curve (i.e.how quantity changes as the price faced by the consumer is changing) a) What is the selection bias problem that we discussed in class? Since this is an economics class and demand estimation is rarely discussed in the clases you take, I wanted to provide an easy and intuitive reading on how economists estimate demand functions, why it is challenging and what are some ways they estimate them. Please read up to page 170 (just before the multiple regression section) of the document Estimating Demand Functions I posted on Moodle along with this problem set Answer the following questions: b) c) What is the identification problem when we estimate a demand function? In class, we talked about price elasticities and their importance to make predictions in the percentage change of quantity demanded of a good. According to the document, why is it a bad idea to just assume the demand curve is DD? Provide the explanation given in page 155 and make sure you understand it in the light of what we discussed in class. List a few of the methods that can be used to estimate demand functions that are mentioned in the document d) Note: you are free to read the whole document if you want. But the objective of this reading is to make you realize why it can be hard to estimate a demand function and another objective is to make you aware that experiments (the approach we discussed in class) are not the only way to estimate the demand function for a health care service or good.
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