Economics ECP 6115- Spring 2014- Economic Analysis of Firm

Assignment: DEMAND ESTIMATION

By: Alfredo Arias




















February 4, 2014

Consumer survey provides the data about apple demand. Among the variables in the
file, QECO, QREG= quantity demanded of eco-labeled and regular apples
(pounds/month); PECO, PREG = prices per pound of eco-labeled and regular apples;
FAMINC= annual family income (thousand dollars); HHSIZE= number of persons in
household; AGE= age of survey respondent (years); EDUC= years of completed
schooling of survey respondent; MALE= 1 if respondent male, 0 otherwise.

1. Estimate a linear demand equation for the quantity of eco-labeled apples as a
function of own-price, cross-price (regular apples), income, household size, age,
education and gender.

The estimated linear demand equation is as follows:

Q d(ECO)=B0+B1Pd(ECO)+B2(PREG)+B3(FAMINC)+B4(HHSIZE)+B5(AGE)+B6(EDUC)+MALE+St.e


Results from the analysis regression ran through excel:



a. Evaluate the estimated demand equation:
First, The R-Square statistic near the top of the output represents the percent of the
total variation in the dependent variable that is explained by the independent
variables, i.e., the model's overall goodness of fit. This we can see is at or around
.04051 which boils down to only 4% of the variation in Quantity demand for eco-
based apples being explained by the variables in the equation.