Dhruv Killawala

dkillawala@umassd.edu
Noopur Gandhi
ngandhi@umassd.edu

Assignment on Demand estimation

Q1. What is the dependent variable in this demand study?
Ans. The dependent variable of the demand study is the number of weekly
riders.

Q2. What are the independent variables?

Ans. The independent variables of the study are the Prices, Population,
Parking rate and Per Capita Income.

Q3. What are the expected signs of the variables thought to affect transit
ridership on STA?
Ans. The equation is QD = a-bP+cPop+-dInc+ePark
For price, the relation or sign is negative because an increase in price
will result in a fall in demand.
For population, the relation or sign is positive because a rise in the no.
of people travelling by the train will lead to a rise in demand.
As far as income is concerned, the relation could be either or positive,
depending on commuter preference.
Rail transportation could be a factor depending on the type of product
it is, if its a normal good, the relation or sign will be positive, else it will
be negative.
Parking rates have an inverse relation with the train ridership as a
higher parking rate will result in increase in the no. of riders who
commute by train.

Q4. Using a multiple regression program available on a computer to which

you have access, estimate the coefficients of the demand model for the data
given in Table 1.
Ans. On the separate excel sheet

Dhruv Killawala
dkillawala@umassd.edu
Noopur Gandhi
ngandhi@umassd.edu

Q5. Provide an economic interpretation for each of the coefficients in the

regression equation
you have computed.
Ans. Since price is negative the weekly riders shall go down. Population is
positive, Income is negative so it is considered as an inferior goods because
people prefer to travel by public transport which is much cheaper. As parking
fees go up people prefer more of public transport.

Q6. What is the value of the coefficient of determination? How would you
interpret this result?
Ans. The coefficient of determination is 0.96, according to the data the
coefficient of determination is defined as the ratio of the sum of the squared
errors from the regression effect to the total sum of squared errors. 0.96 will
mean that there was no cut off point for the value of the R2 statistic.

Q7. Calculate the price elasticity using the 1992 data?

Ans. The price elasticity is calculated using the following formula:
Ep = Change in Quantity X Price
Change in Price
Quantity
Using the 1992 data we know that, Ep = Change in Quantity is -1.62, Price is
100 and Quantity is
955.
Change in
Price
Ep = -1.62 x 100

955
Ep = -0.16 Therefore, Demand is inelastic.

Q8. Calculate the income elasticity using 1992 data.

Ans. EI = Change in Quantity X Income
Change in Income
Quantity

Dhruv Killawala
dkillawala@umassd.edu
Noopur Gandhi
ngandhi@umassd.edu

Using the 1992 data we know that, EI = Change in Quantity is -0.55, Income
is 8,100 and Qunatity is 955.
Change in Income

EI = -0.05 X 8100
955
EI = -0.43 Therefore, demand is quite inelastic.

Q9. If the fare is increased to $1.50, what is the expected impact on weekly
revenues to the transit
system if all other variables remain at their 1992 levels?
Ans. The impact on weekly revenues to the transit system if the fare is increased to
$1.50 can be
assessed by substituting the 1992 data in the equation.
Original Data: Fare = $1.00
QD = 85.44 1.62 (100) + 0.64 (1.610) 0.05 (8100) + 1.94 (200)
QD = 85.44 162 + 1030.40 405 + 388
QD = 936.84
Revised Data: Fare = $1.50
QD = 85.44 1.62 (150) + 0.64 (1.610) 0.05 (8100) + 1.94 (200)
QD = 85.44 243 + 1030.40 405 + 388
QD = 855.84
Weekly revenue is (1.5) (855.84) = $1783.76
Therefore, when price is raised to $1.50, the weekly revenue is also higher.

Dhruv Killawala
dkillawala@umassd.edu
Noopur Gandhi
ngandhi@umassd.edu