ECO 302 Lecture Notes - Dependent And Independent Variables

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14 Mar 2014

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Equation of straight line: y = mx + b, m: slope, b: y-intercept, x: independent variable, y: dependent variable, y = f(x) Q = f(p: p (price): independent variable, q (quantity): dependent variable. Demand equation: qd = a b*p, qs = c + d*p, a, b, c, and d are constants (they take a fixed value, example. 2*p: qd = 10 , qs = 5 + 3*p, solve for p* and q, set. B*p = c + d*p (a c)/(d + b) = p o. Q* = a - b*((a-c)/(d+b)) (a*d + b*c) / (d + b: example. 5 = 5p: p* = 1, q* = 10 2p, q* = 10 2(1) = 8 o.

Related Questions

A linear industry demand function of the form Q = a + bP + cM + dP_R were estimated using regress analysis. The results of this estimation are as follows:

DEPENDENT VARIABLE : Q R- SQUARE F-RATIO P-VALUE ON F

OBSERVATIONS: 24 0.8118 28.75 0.0001

VARIABLE PARAMETER STANDARD

ESTIMATE ERROR T-RATIO P-VALUE

INTERCEPT 68.38 12.65 5.41 0.0001

P -6.50 3.15 -2.06 0.0492

M 0.13926 0.0131 10.63 0.0001

PR -10.77 2.45 -4.40 0.0002

a. Is the sign of b as would be predicted theoretically? Why?

b. What does the sign c of imply about the good?

c. What does the sign of d imply about the relation between the commodity and the related good R?

d. Are the parameter estimates, a, b, c, and d statistically significant at the 5 percent level of significance?

e. Using the values P = 225, M= 24,000, and P_R = 60, calculate estimates of

(1) The price elasticity of demand (E)

(2) The income elasticity of demand (E_M)

(3) The cross-price elasticity (E_XR)

Note: I could not recreate the ^ over b and d

An MBA student has proposed the following demand equation for good Y.

Q_d^Y = a + b P_Y + c M

where: Q_d^Y = quantity demanded of good Y in millions of tons per year

P_Y = Price of good Y in dollars per ton

M = Average consumer income in thousands of dollars

A) What sign should this student expect a, b, and c to have? Explain.

The regression output from the computer is as follows:

Dependent Variable: Q_d^Y R-Square F-ratio p-value on F

Observations: 90 .4 12.84 0.015

Variable Parameter Estimate Standard Error T-ratio P-Value

Intercept 200.00 5468.32 3.12 0.0082

P_Y -2.00 1.65 -1.66 0.1145

M 0.01 3.29 1.12 0.2831

This economist is confortable using parameter estimates that are statistically significant at the 10 percent level or better.

B) Does P_Y have a statistically significant effect on the quantity demanded of good Y? Explain, using the appropriate p-value.

C) Does M have a statistically significant effect on the quantity demanded of good Y? Explain, using the appropriate p-value.

D) What fraction of the total variation in the quantity demanded of good Y remains unexplained? What can the student do to increase the explanatory power of his demand equation? What other variables might he add to his demand equation?

E)What is the expected quantity demanded of good y when P_Y = 100 and M = 10,000?

An MBA student has proposed the following demand equation for good Y. QdY = a + b PY + c M

where: QdY = quantity demanded of good Y in millions of tons per year PY = Price of good Y in dollars per ton M = Average consumer income in thousands of dollars

What sign should this student expect a, b, and c to have? Explain.

The regression output from the computer is as follows:

Dependent Variable:

QdY R-Square F-ratio p-value on F

Observations: 90 .4 12.84 0.015

Variable Parameter Estimate Standard Error T-ratio P-Value

Intercept 60.00 5468.32 3.12 0.0082

PY -1.00 0.65 -1.27 0.2145

M 0.02 3.29 5 .12 0.0121

This economist is confortable using parameter estimates that are statistically significant at the 10 percent level or better.

Does PY have a statistically significant effect on the quantity demanded of good Y? Explain, using the appropriate p-value.

Does M have a statistically significant effect on the quantity demanded of good Y? Explain, using the appropriate p-value.

What fraction of the total variation in the quantity demanded of good Y remains unexplained? What can the student do to increase the explanatory power of his demand equation? What other variables might he add to his demand equation?

What is the expected quantity demanded of good y when PY = 200 and M = 10,000?

If demand decreases and supply increases simultaneously then for sure a. Prices will increase b. Prices will decrease c. Quantities will increase d. Quantities will decrease e. None of the above

Which of the following will increase the demand for chicken? a. An increase in the price of red meats b. A decrease in the price of red meats c. An increase in the price of chicken d. A decrease in the price of chicken e. None of the above

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ECO 302 Lecture Notes - Dependent And Independent Variables

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