ECON 306 HOMEWORK 5 QUESTIONS AND ANSWERS 2022

he following two problems will require a lot of calculations in STATA. It will generate many pages of output. Here is how your should organize it. The first pages should contain your answers to all the questions, along with showing any key algebraic equations or explanations you need to use along the way. After that, include a printout of the output from the regressions you executed in support of your answers. Highlight any numbers in this output that you used in the first section. (You are encouraged to save paper here, you may print this section with a small font, double-sided and/or with 2-up format.) Last, include a copy of the DO file that contains the commands you asked STATA to execute. Be sure you organize these in a way that will be clear to the reader. ECON 306 HOMEWORK 5 QUESTIONS AND ANSWERS 2022 Problem 1(50 points total) In the dataset Smoker, there is information on 1196 males from the United States. Data from this sample includes the variables: smoke= 1 for smokers, and 0 for nonsmokers age=age in years educ= number of years of schooling income= family income pcigs= price of cigarettes in the individual’s state Part 1) a) Generate a dummy variable “hi_ed” that is a 1 if a person has 16 or more years of education. b) (5 Points) Estimate a linear regression (which in this context is called a linear probability model (LPM)) for the binary variable smoke on the independent variable hi_ed. Report the beta coefficient on the dummy variable and its p-value. In words, express what the beta coefficient means in this case. -.225. p=.000. Moving from the hi_ed=0 group to hi_ed=1 (that is, moving from low ed to high ed) lowers the probability of smoking by .225. c) Create a frequency table for the smoke and hi_ed variables. The command in STATA is tabulate smoke hi_ed. d) (5 Points) Calculate the probability that a person smokes if high education. Calculate the probability for smoking for low edcuation. There are 103 high ed people, and 18 of them smoke, that is a probability of .1748. There are 1093 low ed people, and 437 of them smoke. That is a probability of .3998. e) (5 Points) What is the relationship between the results for parts b and d? The difference in the probabilities for part d is -.225. This is precisely the value of the beta coefficient from part b. [Also, the value of the constant term in the regression is .3998, which is precisely the probability that a low ed person smokes.]