Bus 640 Ch7-Ap-1

Topics: Household income in the United States, Supply and demand, Statistical hypothesis testing Pages: 2 (415 words) Published: September 24, 2012
A. Discuss the statistical significance of the parameter estimates a, b, c, and d, using the p-values. Are the signs of b, c and d consistent with the theory of demand? 

The p-value associated with b is consistent with the theory of demand - if the prices rise, the quantity sold will then drop.  The p-value associated with c is consistent with the theory of demand – when consumers have more (increase in income) they may purchase more tennis balls.  The p-value associated with d is consistent with the theory of demand – if Wilpen increase the price of their tennis rackets then they will sell less of them and consumers will buy less, as well as less tennis balls. 

B. What is the estimated number of cans of tennis balls demanded?  Q = a + b*P + c*M + d*Pr 
Q = 425120 – 37260.6 P + 1.46 M – 1456 PR 
Q = 425120 – 37260.6 * 1.65 + 1.46 * 24600 – 1456 * 110  Q = 239396.01 

C. At the values of P, M, and Pr given, what are the estimated values of the price (E), income (Em), and cross-price elasticity (Exr) of demand?  The estimated value for the price elasticity is 
E -37260.6(1.65/Q) = -37260.6(1.65/ 239396.01) = -0.257 

The estimated values of the income (EM) of demand is 
EM = 1.46(24600/Q) = 1.46(24600/239396.01) = 0.150 

The estimated values of the cross-price elasticity (EXr) of demand is  EXr = -1456.0(110/Q) = -1456.0(110/ 239396.01) = -0.669 

D. What will happen, in percentage terms, to the number of cans of tennis balls demanded if the price of tennis balls decreases 15 percent?  Percentage change in Q = E * percentage change in price = -0.257 * (-15%) = 0.04  The number of cans of tennis balls demanded will rise by 4% 

E. What will happen, in percentage terms, to the number of cans of tennis balls demanded if average household income increase by 20 percent?  Percentage change in Q = EM * percentage change in income = 0.150 *20% = 0.03  The number of cans of tennis balls demanded will rise by 3% 

F. What will happen, in percentage...
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