# Correlation and Dependence and Disposable Income

Topics: Correlation and dependence Pages: 3 (489 words) Published: November 21, 2011
Question no. 01
Should average disposable income be used to predict sales based on the sample of 14 sunflowers stores?

Answer to the question no. 01
➢ Average disposanble income should be used to predict sales. ➢ John Meynard Keynes, “The higher the income the higher the consumption is”. ➢ Consumption has a positive relation with disposable income. ➢ From the scatter diagram made by the given data, it is noted that as the disposable income increases the annual sales also increases.

[pic]

➢ Again, We know that the coefficient correlation is,
r = [pic][pic]

Here,
r = [pic]
= [pic]
= 0.70
Therefore, there is a strong positive correlation between the disposable income and the annual sales.

➢ The regression coefficient is 0.193. That means sales will increase by \$0.193 if disposable income increase by \$1.00.

“Based on these points we can conclude that, the average disposable income should be used to predict sales based on the sample of 14 sunflowers stores.”

Question no. 02
Should the management of Sunflowers accept the claims of Triangle’s leasing agents? Why or why not?

Answer to the question no. 02
The management should accept the claims of Triangle leasing agents.
The reasons are:
➢ There is a strong positive correlation between disposable income and sales, so it is easily predictable that there is a direct relationship between these two variables. ➢ Value of the coefficient of correlation is 0.70 and it is near to 1.00. That is if one variable, the disposal income increases, another variable, the annual sales will also increase. ➢ The regression coefficient is 0.193. Which means that, if the average disposable income increases by \$1, annual sales will increase by \$0.193.

Question no. 03
Is it possible that the average disposable income of the surrounding area is not an important factor in leasing new locations?...