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Economics for Managers by Paul Farnham y Chapter 4:
Techniques for
Understanding Consumer
Demand and Behavior
© 2005 Prentice Hall, Inc.

4.1

Getting Information
About C
Ab t Consumer Behavior
B h i
Expert opinion
Consumer surveys
Test marketing and price experiments i t Analyses of census and other y historical data
Regression analysis
© 2005 Prentice Hall, Inc.

4.2

Managerial Rule of Thumb:
Analyzing C
A l i
Consumer Behavior
B h i
Managers must consider
1.

2.

3.

Whether the participating groups are truly representative of the larger population Whether the answers given in these formats represent actual market behavior How to isolate the effect of different g variables influencing demand

© 2005 Prentice Hall, Inc.

4.3

Economic Approaches to
Consumer Behavior
C
B h i
Multiple regression analysis
• Estimates the relationship

between a dependent variable and an independent variable holding p g constant the effects of all other variables • Can be done with spreadsheet

software
© 2005 Prentice Hall, Inc.

4.4

Economic Approaches to
Consumer Behavior
C
B h i
Simple regression analysis
• Cross-sectional data
• Time series data
• Panel data

Provides an equation that “best best fits” the data

© 2005 Prentice Hall, Inc.

4.5

Pr rice (c cents/lb.) Hypothetical Demand for O f Oranges
Figure 4.1
150
100
50
0

50

100

150

Quantity (lb.)
© 2005 Prentice Hall, Inc.

4.6

Quantitative Measure
Linear demand relationship can be shown as this equation: q Q = a - bP

where

Q = the quantity demanded a = vertical intercept b = the slope of the line = ΔQ / ΔP
P = price
© 2005 Prentice Hall, Inc.

4.7

Simple Regression
Analysis
A l i
Form of regression analysis that analyzes the relationship between y p one dependent and one independent variable
Can be done easily using the
Microsoft Excel Regression g feature

©