R E Just and W S Chern claimed that the buyers of California

R. E. Just and W. S. Chern claimed that the buyers of California canning tomatoes exercised market power to fix prices. As proof, the investigators estimated the price elasticity of demand for tomatoes in two periodsbefore and after the introduction of mechanical harvesters. (An elasticity of 5, for instance, means that a 1% increase in prices causes a 5% drop in demand.)

They put standard errors on the estimates. In a competitive market, the harvester should make no difference in demand elasticity. However, the difference between the two estimated elasticitiespre-harvester and post-harvesterwas almost statistically significant (z = 1.56, P = 5.9%, one-tailed). The investigators tried several ways of estimating the price elasticity before settling on the final version. Comment briefly on the use of statistical tests.

Solution

Given that,

z=1.56 and P=5.9% one-tailed

Our calculated Z value is 1.56 with P-value 0.059

So the difference between two estimated elasticities wassignificant at 0.10 level of significance

Your assumption is wrong , Here we can use only one tailedtest.

In your assumption the difference between two estimatedelasticities was insignificant at 0.10 level of significance So itis wrong.