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Quantitative Demand Analysis
Quantitative Demand Analysis
© 2017 by McGraw-Hill Education. All Rights Reserved. Authorized only for instructor use in the classroom. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Learning Objectives
1. Apply various elasticities of demand as a quantitative tool
to forecast changes in revenues, prices, and/or units sold.
2. Illustrate the relationship between the elasticity of demand
and total revenues.
3. Discuss three factors that influence whether the demand
for a given product is relatively elastic or inelastic.
4. Explain the relationship between marginal revenue and the
own price elasticity of demand.
5. Show how to determine elasticities from linear and log-
linear demand functions.
6. Explain how regression analysis may be used to estimate
demand functions, and how to interpret and use the output
of a regression. © 2017 by McGraw-Hill Education. All Rights Reserved. 2
The Elasticity Concept
$10
$5
Demand
0 10 20 30 40 50 60 70 80 Quantity
𝐸𝑄 𝑑
, 𝑃𝑋
=0
𝑋
Perfectly Demand
elastic 𝐸𝑄 =−∞
𝑑
𝑋
, 𝑃𝑋
– When then, .
– When then, .
– When then, .
© 2017 by McGraw-Hill Education. All Rights Reserved. 3-11
Own Price Elasticity of Demand
MR
Ine
las
tic
Demand
0 1 3 6 Quantity
Cross-Price Elasticity
• Cross-price elasticity (Độ Co Giãn Chéo Của Lượng Cầu Theo Giá )
– Measures responsiveness of a percent change in
demand for good X due to a percent change in the
price of good Y.
Cross-Price Elasticity
• Cross-price
elasticity is important for firms
selling multiple products.
– Price changes for one product impact demand for
other products.
• Assessing the overall change in revenue from
a price change for one good when a firm sells
two goods is:
Income Elasticity
• Income elasticity(Hệ số co giãn thu nhập của nhu cầu)
– Measures responsiveness of a percent change in
demand for good X due to a percent change in
income.
Other Elasticities
• Own advertising elasticity of demand for good
X is the ratio of the percentage change in the
consumption of X to the percentage change in
advertising spent on X.
• Cross-advertising elasticity between goods X
and Y would measure the percentage change in
the consumption of X that results from a 1
percent change in advertising toward Y.
Regression Analysis
• How does one obtain information on the
demand function?
– Published studies
– Hire consultant
– Statistical technique called regression analysis
using data on quantity, price, income and other
important variables.
ANOVA
Df SS MS F Significance F
Regression 1 301470.89 301470.89 23.94 0.0012
Residual 8 100751.61 12593.95
Total 9 402222.50
Regression Statistics (^
𝑠𝑒 𝑎)=243.97
Multiple R 0.87 𝑠𝑒 ^
(𝑏)=0.53
R Square 0.75
Adjusted R Square 0.72 , the intercept is different
Standard Error 112.22 from zero.
Observations 10.00 , the intercept is different
from zero.
ANOVA
Df SS MS F Significance F
Regression 1 301470.89 301470.89 23.94 0.0012
Residual 8 100751.61 12593.95
Total 9 402222.50
– is total observations.
– is the number of estimated coefficients.
– is the degrees of freedom for the regression.
Regression Statistics
Multiple R 0.87
R Square 0.75
Adjusted R Square 0.72
Standard Error 112.22
Observations 10.00
ANOVA
Df SS MS F Significance F
Regression 1 301470.89 301470.89 23.94 0.0012
Residual 8 100751.61 12593.95
Total 9 402222.50
or
Regression Statistics
Multiple R 0.89
R Square 0.79
Adjusted R Square 0.69
Standard Error 9.18
Observations 10.00
ANOVA
Df SS MS F Significance F
Regression 3 1920.99 640.33 7.59 0.182
Residual 6 505.91 84.32
Total 9 2426.90