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# Identify an economic theory or relationship you could estimate via OLS (1).docx

Identify an economic theory or relationship you could estimate via OLS and describe the hypothesis you would test for that theory or relationship.
Solution
OLS
The Production Possibilities Curve (PPC) models a two-good economy by mapping production of one good on the x-axis and production of the other good on the y-axis. The combinations of outputs produced using the best technology and all available resources make up the PPC. Points inside the PPC result from inefficiency; output combinations outside the PPC are impossible to produce. The guns and butter PPC, for example, illustrates tradeoffs between producing goods for peaceful and military purposes. This PPC illustrates opportunity cost in that more guns cannot be produced without reducing butter output; further, the slope of the PPC indicates the nature of the tradeoff between guns and butter (that is, how many guns must be given up to obtain an additional ton of butter).
.

Identify an economic theory or relationship you could estimate via OLS and describe the hypothesis you would test for that theory or relationship.
Solution
OLS
The Production Possibilities Curve (PPC) models a two-good economy by mapping production of one good on the x-axis and production of the other good on the y-axis. The combinations of outputs produced using the best technology and all available resources make up the PPC. Points inside the PPC result from inefficiency; output combinations outside the PPC are impossible to produce. The guns and butter PPC, for example, illustrates tradeoffs between producing goods for peaceful and military purposes. This PPC illustrates opportunity cost in that more guns cannot be produced without reducing butter output; further, the slope of the PPC indicates the nature of the tradeoff between guns and butter (that is, how many guns must be given up to obtain an additional ton of butter).
.

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### Identify an economic theory or relationship you could estimate via OLS (1).docx

1. 1. Identify an economic theory or relationship you could estimate via OLS and describe the hypothesis you would test for that theory or relationship. Solution OLS The Production Possibilities Curve (PPC) models a two-good economy by mapping production of one good on the x-axis and production of the other good on the y-axis. The combinations of outputs produced using the best technology and all available resources make up the PPC. Points inside the PPC result from inefficiency; output combinations outside the PPC are impossible to produce. The guns and butter PPC, for example, illustrates tradeoffs between producing goods for peaceful and military purposes. This PPC illustrates opportunity cost in that more guns cannot be produced without reducing butter output; further, the slope of the PPC indicates the nature of the tradeoff between guns and butter (that is, how many guns must be given up to obtain an additional ton of butter).