THE MONTHLY DEMAND FOR CHICKEN
IN A RURAL VS AN URBAN AREA
The demand for chicken refers to the quantity of chicken demanded by households (in lbs) in the identified areas (one rural and one urban), at the available prices within the specified areas. It must be noted at this point, that the true population in any given situation is never really known. As such samples are usually collected and estimated using econometric methods. The results are then used to infer or make judgments about the true population.
Basically, econometrics is based on economic theory, mathematical economics and statistics. Where the relationships among variables are measured using numerical values and estimates are then interpreted. This assignment has been embarked on to apply the theoretical knowledge learnt in the classroom to real world situations using actual data. I.e. the quantity of chicken demanded (dependent variable), subject to constraints such as the selling price of chicken, available substitutes, etc.
In doing an econometric research, there are four stages. These stages are 1. Specification of the model.
2. Estimation of the model.
3. Evaluation of the estimates.
4. Evaluation of the model.
These steps will be further explained in the proposal.
REVIEW OF LITERATURE
This comprises of two parts;
1. The general theory of demand
2. Previous models done and comparisons.
Theory of Demand
A fundamental characteristic of demand is….”All else equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls.” What this implies is that there is a negative or inverse relationship between price and quantity demanded. However, price is not the only factor that affects or determines the quantity of a product demanded. Other factors such as the taste and preferences of consumers, the prices of related goods, number of buyers in the market, changing expectations (of price, availability, income) etc.
The prices of related goods can increase or decrease the demand for a good depending on whether the related good is a substitute (can be used in place of another) or complement (used together with another). Example, assuming that good (A) is a complement of good (B), as the price of good B rises; the demand for good A will decrease, I.e., a negative relationship exist. On the other hand, if the goods are substitutes of each other, as the price of one good rises, the quantity demanded of the other good will also increase because the consumers will substitute the more expensive good with a cheaper substitute.
A change in consumers’ taste and preferences also affects demand. For instance, if the good becomes more desirable to consumers, the quantity demanded will increase and vice versa. In the same way, if the number of buyers in the market increases, the quantity demanded will also increase and vice versa.
Should consumers expect the future price of a commodity to increase, the present demand will more than likely increase because persons will purchase more in anticipation of the price increase and the opposite will apply for an expected decrease in prices. Additionally, if consumers expect the availability of the product to change, they will also change their demand. E.g., should consumers expect a shortage of chicken in February; they are likely to increase their demand in January to stock up in expectation of the shortage. Changes in the income status of consumers may also prompt consumers to change their current spending pattern. Whereby, they may increase or decrease the amount purchased, depending on if there is an increase or decrease in their income levels. So in essence, the quantity of a product demanded depends on the price of the product, prices of related goods, changes in consumers’ taste and preferences, changing expectations in prices, availability of the product and income etc....
Please join StudyMode to read the full document