Empirical Project 7 Solutions

These are not model answers. They are provided to help students, including those doing the project outside a formal class, to check their progress while working through the questions using the Excel or R walk-throughs. There are also brief notes for the more interpretive questions. Students taking courses using Doing Economics should follow the guidance of their instructors.

Part 7.1 Drawing supply and demand diagrams

Year log (Q) log (P) Q P
1930 4.45 4.76 85.51 116.95
1931 4.36 4.61 77.99 100.93
1932 4.20 4.37 66.99 78.89
1933 4.03 4.53 56.37 92.90
1934 4.10 4.64 60.12 104.00
1935 4.20 4.56 66.38 95.94
1936 4.14 4.85 62.52 127.94
1937 4.26 4.66 70.96 105.93
1938 4.26 4.69 70.80 108.90
1939 4.14 4.78 63.10 118.85
1940 4.35 4.69 77.09 108.90
1941 4.17 4.90 64.42 133.97
1942 4.03 5.48 56.50 239.89
1943 3.88 6.10 48.53 444.65
1944 4.26 5.91 70.80 368.14
1945 4.29 6.02 72.95 410.22
1946 4.39 5.95 80.91 383.72
1947 4.40 5.77 81.10 319.17
1948 4.30 5.96 73.79 389.06
1949 4.36 5.74 78.35 311.90
1950 4.41 5.78 82.42 322.86
1951 4.42 5.91 83.37 368.99

Prices and quantities of watermelons (values rounded to two decimal places).

Solution figure 7.1 Prices and quantities of watermelons (values rounded to two decimal places).

Price of watermelons (USD per 1,000, 1931–1950).

Solution figure 7.2 Price of watermelons (USD per 1,000, 1931–1950).

Quantity of watermelons planted (millions, 1931–1950).

Solution figure 7.3 Quantity of watermelons planted (millions, 1931–1950).

Q Log Q Supply (log Q) Demand (log P) Supply (P) Demand (P)
500 6.21 –5.44 0.40 0.00 1.50
1,000 6.91 –4.26 –0.16 0.01 0.85
1,500 7.31 –3.57 –0.50 0.03 0.61
2,000 7.60 –3.08 –0.73 0.05 0.48
2,500 7.82 –2.70 –0.92 0.07 0.40
3,000 8.01 –2.39 –1.07 0.09 0.34
3,500 8.16 –2.13 –1.19 0.12 0.30
4,000 8.29 –1.90 –1.30 0.15 0.27
4,500 8.41 –1.70 –1.40 0.18 0.25
5,000 8.52 –1.52 –1.48 0.22 0.23
5,500 8.61 –1.36 –1.56 0.26 0.21
6,000 8.70 –1.21 –1.63 0.30 0.20
6,500 8.78 –1.07 –1.70 0.34 0.18
7,000 8.85 –0.95 –1.76 0.39 0.17
7,500 8.92 –0.83 –1.82 0.44 0.16
8,000 8.99 –0.72 –1.87 0.49 0.15
8,500 9.05 –0.62 –1.92 0.54 0.15
9,000 9.10 –0.52 –1.97 0.59 0.14
9,500 9.16 –0.43 –2.01 0.65 0.13
10,000 9.21 –0.34 –2.05 0.71 0.13

Calculated prices and quantities (in natural logs and base 10).

Solution figure 7.4 Calculated prices and quantities (in natural logs and base 10).

Supply and demand diagram.

Solution figure 7.5 Supply and demand diagram.

Q Log Q Supply (log P) Demand (log P) Supply (P) Demand (P) New supply (log P) New supply (P)
500 6.21 −5.44 0.40 0.00 1.50 −4.84 0.01
1,000 6.91 −4.26 −0.16 0.01 0.85 −3.66 0.03
1,500 7.31 −3.57 −0.50 0.03 0.61 −2.97 0.05
2,000 7.60 −3.08 −0.73 0.05 0.48 −2.48 0.08
2,500 7.82 −2.70 −0.92 0.07 0.40 −2.10 0.12
3,000 8.01 −2.39 −1.07 0.09 0.34 −1.79 0.17
3,500 8.16 −2.13 −1.19 0.12 0.30 −1.53 0.22
4,000 8.29 −1.90 −1.30 0.15 0.27 −1.30 0.27
4,500 8.41 −1.70 −1.40 0.18 0.25 −1.10 0.33
5,000 8.52 −1.52 −1.48 0.22 0.23 −0.92 0.40
5,500 8.61 −1.36 −1.56 0.26 0.21 −0.76 0.47
6,000 8.70 −1.21 −1.63 0.30 0.20 −0.61 0.54
6,500 8.78 −1.07 −1.70 0.34 0.18 −0.47 0.62
7,000 8.85 −0.95 −1.76 0.39 0.17 −0.35 0.71
7,500 8.92 −0.83 −1.82 0.44 0.16 −0.23 0.79
8,000 8.99 −0.72 −1.87 0.49 0.15 −0.12 0.89
8,500 9.05 −0.62 −1.92 0.54 0.15 −0.02 0.98
9,000 9.10 −0.52 −1.97 0.59 0.14 0.08 1.08
9,500 9.16 −0.43 −2.01 0.65 0.13 0.17 1.19
10,000 9.21 −0.34 −2.05 0.71 0.13 0.26 1.29

New supply after the shock.

Solution figure 7.6 New supply after the shock.

Supply and demand after a negative supply shock.

Solution figure 7.7 Supply and demand after a negative supply shock.

Part 7.2 Interpreting supply and demand curves

Note: This data exercise highlights why it is necessary to calculate the elasticities of supply and demand from the data rather than simply looking at the shapes of the supply and demand curves as they appear with the chosen scales for the horizontal and vertical axes.

  1. Economic interpretation, elasticity (where relevant), and statistical significance of given coefficients:
  1. Economic interpretation, elasticity (where relevant), and statistical significance of given coefficients:
  1. Many possible examples, including: