ESTIMATING DEMAND USING REGRESSION

METHOD
WHEN WE HAVE DATA ON Q
AND P

Q P
100 30
110 26
128 20
145 12
160 1
WE CAN CALCULATE SLOPE(Q-q)(P-
Q P(Q-q) (P-p) (Q-q)2 (P-p)2 p)
100 30 -28.6 12.2 817.96 148.84 -348.92
110 26 -18.6 8.2 345.96 67.24 -152.52
128 20 -0.6 2.2 0.36 4.84 -1.32
145 12 16.4 -5.8 268.96 33.64 -95.12
160 1 31.4 -16.8 985.96 282.24 -527.52
Average 128.6 17.8
SUM 0 0 2419.2 536.8 -1125.4
q= p=avarag
average e of P
of Q
Slope = Σ(Q-q)(P-p)/ Σ(P-p)2
USING SOFTWARE
But we can do it easily by using software.
If software like SPSS, EVIEWS, SAS, R, not available, we can at least use MS
Excel.
PREPARATION FOR USE OF
EXCEL
Steps:
1. Go to Excel option
2. Select Add-ins
3. Click Go
4. A new dialogue box comes. Check the first two.
5. Now you can find Data Analysis in Data Menu
CLICK DATA ANALYSIS AND
SELECT REGRESSION
SELECT RANGE OF Y AND X.
HIT OK
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.987562
R Square 0.975280
Adjusted R
Square 0.967046

Standard Error 4.464729

Observations 5
ANOVA

  Df SS MS F Significance F
Regression 1 2359.39 2359.39 118.361 0.00166
Residual 3 59.84 19.938
Total 4 2419.2     

Standard Upper Lower Upper

  Coefficients Error t Stat P-value Lower 95% 95% 95.0% 95.0%
Intercept 165.91 3.968 41.804 3.012 153.286 178.54 153.28 178.54
X Variable 1 -2.096 0.192 -10.879 0.001 -2.709 -1.483 -2.709 -1.483
IF YOU WANT ELASTICITY THEN
CONVERT THE DATA TO LOG(LN)
AND RUN REGRESSION AGAIN

Data converted to LN

Q P ln Q ln P
100 30 4.6 3.4
110 26 4.7 3.3
128 20 4.9 3
145 12 5 2.5
160 1 5.1 0
PREPARATION FOR RUNNING
REGRESSION
Go to Data Menu
Find Data Analysis and click
Select Regression
Select Data for Y and X
Hit OK
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.8332
R Square 0.6942
Adjusted R Square 0.5923
Standard Error 0.1231
Observations 5
ANOVA
  df SS MS F Significance F

Regression 1 0.10326 0.10326 6.81217 0.07968

Residual 3 0.04547 0.01515
Total 4 0.14873     

Coefficient Standard Upper Lower

s Error t Stat P-value Lower 95% 95% 95.0% Upper 95.0%

Intercept 5.1202 0.12002 42.6608 2.83482 4.7383 5.5022 4.73830 5.50223

X Variable 1 -0.1146 0.04392 -2.61001 0.07968 -0.2544 0.0251 -0.25442 0.02514

RULE OF THUMB
1. When value of t-statistics is equal to or more than 2, it is acceptable.
2. When F statistics equal to or more than 2, it is acceptable
3. Adjusted R2 should be near to 1
 HOW TO WRITE THE RESULTS
LQ = 5.12 – 0.115LP  

t-test = 42.66 -2.61  

Adj R2= 0.59 F =6.81 D.W. = 2.14    

COMPARE 3 EQUATIONS AND
INTERPRET
Table
Equation 1
LG = 4.19 – 1.51 LP - 1.35 LY   0.03 LST
t-test = 3.10 -3.54 -2.74   2.00
Adj R2= 0.17 F = 0.67 D.W. = 1.18    
Equation 2
LG = 4.54 – 1.45 LP - 1.16 LY + 1.02 LPz + 0.09 LST
t-test = 3.17 -5.28 -2.13 1.01 0.03
Adj R2= 0.952 F = 12.85 D.W. = 0.54    
Equation 3
LG = 4.25 – 1.75 LP - 1.65 LY + 1.12 LPz  
t-test = 3.20 -3.73 -2.76 2.11  
Adj R2= 0.922 F = 2.55 D.W. = 2.14    
FOR INTERPRETATION YOU
MAY USE NEXT TO SLIDES
ELASTICITY
When When The Demand
(In Theory) (in Absolute is Called
Sense)
ξ < -1 ξ>1 Elastic
ξ = -1 ξ=1 Unitary
Elastic
-1 < ξ ≤ 0 ξ<1 Inelastic
 Elastic/Unit elastic Inelastic

Positive Negative
Price Exceptional Normal Normal
Elasticity (negative)
Income Normal Inferior Basic
Elasticity (luxury) Necessity
Goods
Cross Substitute Complementary
Elasticity