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Baye 9e Chapter 03
Baye 9e Chapter 03
© 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.
The Angelite Prayer
2
Part of the elasticity that you need, in order to
continue to try to create, is the foregone conclusion
that not all of it is going to be fabulously
successful. But it's all going to be part of a long
lifetime body of experimentation. -
Elizabeth Gilbert
$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. 3-14
Own Price Elasticity of Demand
MR
Ine
las
tic
Demand
0 1 3 6 Quantity
Cross-Price Elasticity
• Cross-price elasticity
– 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
– 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
38
THANK YOU …
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