2 (30) ()(15) Given that two discrete random variables whose joint dis- tribatio

Question

2 (30) ()(15) Given that two discrete random variables whose joint dis- tribation is given in the table beiow. Caleulate the unconditional expectation E(Y) and the conditional expectaon E(YX) for different values of X. Show EEYXl fwhicb tr de the Law of Iterated Expectation). X-1 03 0 X=203 0.2 b) Suppose that you model the drmand of college education through a re- pmeion tnodel: D Pagncome + U. Suppose you use logs on both D(quantity demanded) and P (tuition per credit). What is the sconomic tterpretation for a,? Now suppo e 14 you tise logs on Dr, but Psy]evel data P Whst is the economic interpretation for a2? Comment on the potential mistakes you can make by running regression using the model.

Explanation / Answer

Ans a: Please refer to the distribution table. the solutions to the outcomes are given adjacent to the values.

y=2 y=3 f(x) x=1 .1 .4 .5 .1+.4 x=2 .3 .2 .5 .2+.3 f(y) .4 .6 .1+.3 .4+.2 y 2 3 P(Y=y) .4 .6 f(y=2) f(y=3) E(Y) 2.6 2*.4+3*.6

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