Evaluate the estimated demand model. - Economics questions

Results and Discussion

We begin with the equation we are trying to fill or build.

QDx = a – b(Pp) + c(Pb) + d(M)

Where

“a” equals some number

“Pp” equals coefficient of US pork price

“Pb” equals coefficient of US beef price

“M” equals coefficient of US household income

Using a multiple linear regression model (REFERENCE EXHIBIT NUMBER), we can estimate the demand equation as follows:

QDx = 63.63 - 13.01(Pp) + 1.95(Pb) + 0.24(M)

“QDx” equals per capita consumption of pork

“Pp” equals US average price per pound of pork

“Pb” equals US average price per pound of beef

“M” equals US household income

Interpret Results:

To interpret this data, we will first discuss the coefficients we found using regression analysis.

First, the coefficient of negative “Pp” (-13.01) means that there is an inverse relationship between the price of pork and the consumption of pork. This is expected given the law of demand. To explain further, if all other factors are held constant and the price of pork increases $0.10, then the quantity of pork demanded will decrease by 1.301 pounds. Conversely, if the price of pork decreases by $0.10, the then quantity of pork demanded will increase by 1.301 pounds.

The coefficient of “Pb” is positive (1.95) which means that if all other factors are held constant the quantity demanded of work will move in the same direction as the price of beef. For instance, if the price of beef increases by $1.00, then the quantity demanded of pork increases by 1.95 pounds. If the price of beef decreases by $1.00, then the quantity demanded of pork decreases by 1.95 pounds.

When looking at the coefficient of income “M”, it is a positive (0.24). Like beef, this means that the quantity demanded of pork will move in the same direction as household income, when holding all other factors constant. Using this interpretation, we know that if household income increases by $1,000.00, then the quantity of pork demanded will increase 0.24 pounds. Additionally, because there is a positive relationship between the 2 variables, we know that pork is a normal good.