Suppose demand for a product is determined by its price
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1. Suppose demand for a product is determined by its price, consumers’ income, and the price of a related good. Use Q for demand, P for price, M for income, and PR for price of related good. The demand function is estimated using regression analysis. The results are reported below:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.814752135
R Square 0.663821042
Adjusted R Square 0.159552605
Standard Error 530.2842631
Observations 66
Coefficients Standard Error t Stat P-value Intercept 125.56 15.87
P -5.39 2.19 7.1001
M 0.069
0.046 PR -10.98 2.73
1) What is the of this regression? (5pts) R² is how statistically close by measure the data is to the regression line. 0.663821042
2) What is the degrees of freedom of this regression? (5pts) 66-2 = 64 degrees at .05 = 1.669
3) What is the effect of a one-dollar increase in price (P) on demand (Q)? (5pts)
4) What is the effect of a one-dollar increase in income (M) on demand (Q)? (5pts)
5) What is the effect of a one-dollar increase in price of related good (PR) on demand (Q)? (5pts)
6) Calculate the t Stat (or t ratio marked with “???” in the table) for the coefficient on P? (5pts) t= 7.1007992 7) Test whether the effect of P on Q is significant at the 5% significance level. Show your work. (5pts)
8) Using the p-value 0.046 in the table, test if the effect of M on Q is significant at the 5% significance level. (5pts)
9) Using the values P=100, M=35,000, and PR=40, predict the demand (Q)? (5pts)
10) Using the value of predicted Q you just calculated for part 9), calculate the estimates of The price elasticity of demand. Show your work. (5pts) The income elasticity of demand. Show your work. (5pts) The cross-price elasticity of demand. Show your work. (5pts) 2. Suppose the following is an estimated log-linear demand function: ln Q = 8.99 – 3.78 ln P – 1.77 ln M – 2.03 ln PR All parameter estimates are significant. 1) Is this good a normal or an inferior good? (5pts) Normal Good 2) Is this good a complement of or substitute for the related good? (5pts) Complement 3) What is the price elasticity of demand for this good? (5pts) 4) What is the income elasticity of demand for this good? (5pts)
Regression Statistics
Multiple R 0.814752135
R Square 0.663821042
Adjusted R Square 0.159552605
Standard Error 530.2842631
Observations 66
Coefficients Standard Error t Stat P-value Intercept 125.56 15.87
P -5.39 2.19 7.1001
M 0.069
0.046 PR -10.98 2.73
1) What is the of this regression? (5pts) R² is how statistically close by measure the data is to the regression line. 0.663821042
2) What is the degrees of freedom of this regression? (5pts) 66-2 = 64 degrees at .05 = 1.669
3) What is the effect of a one-dollar increase in price (P) on demand (Q)? (5pts)
4) What is the effect of a one-dollar increase in income (M) on demand (Q)? (5pts)
5) What is the effect of a one-dollar increase in price of related good (PR) on demand (Q)? (5pts)
6) Calculate the t Stat (or t ratio marked with “???” in the table) for the coefficient on P? (5pts) t= 7.1007992 7) Test whether the effect of P on Q is significant at the 5% significance level. Show your work. (5pts)
8) Using the p-value 0.046 in the table, test if the effect of M on Q is significant at the 5% significance level. (5pts)
9) Using the values P=100, M=35,000, and PR=40, predict the demand (Q)? (5pts)
10) Using the value of predicted Q you just calculated for part 9), calculate the estimates of The price elasticity of demand. Show your work. (5pts) The income elasticity of demand. Show your work. (5pts) The cross-price elasticity of demand. Show your work. (5pts) 2. Suppose the following is an estimated log-linear demand function: ln Q = 8.99 – 3.78 ln P – 1.77 ln M – 2.03 ln PR All parameter estimates are significant. 1) Is this good a normal or an inferior good? (5pts) Normal Good 2) Is this good a complement of or substitute for the related good? (5pts) Complement 3) What is the price elasticity of demand for this good? (5pts) 4) What is the income elasticity of demand for this good? (5pts)
11 years ago
Answer for: Suppose demand for a product is determined by its price
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