GROUP 6: STATISTICAL ESTIMATION OF

DEMAND FUNCTION

⋄ REPORTERS: COLLATOR: PPT MAKER:

*MADRONERO, JOHN
MICHAEL
*OFQUELA, JOHN *LECERA,RICHELLE
LLOYD *MEDILLO, JAMAICA
*GATCHALIAN, MA.
*PASON, EUTHEA MAY THERESA
QUIZ MAKER:
*ALMOSA, MARIA
ANGELA
STATISTICAL
ESTIMATION OF
DEMAND
FUNCTION
WHAT IS DEMAND?

In economics, demand is the quantity of a good that are

consumers are willing and able to purchase at various
prices during a given period of time. The relationship
between price and quantity demanded is also called the
DEMAND CURVE.
IMPORTANCE OF
DEMAND
Supply and demand are both important for the economy
because they impact the prices of consumer good and
services within an economy. According to market economy
theory, the relationship between supply and demand
balances out at a point in the future; this point is called
EQUILIBRIUM PRICE.
ESTIMATION OF
DEMAND
FUNCTION
Estimating demand for the firms product is an
essential and continuing process. After all, decisions
to enter new market decisions concerning
productions, planning production capacity, and
investment in fixed asset inventory plans as well as
pricing and investment strategies are all depends on
DEMAND ESTIMATION.
EMPIRICAL
ESTIMATION OF
DEMAND: TOP 6
TECHNIQUES
TECHNIQUE # 1:
Problems with Theoretical Analysis:

It is known that demand functions are have two impotent

properties: (1) The demand for any commodity is a single-
valued function of prices and income (i.e., a single commodity
combination corresponds to a given set of prices and income).
(2) Demand functions are homogenous of degree zero in prices
and income (i.e., if all prices and income change in the same
direction and proportion, there is no change in the purchase
plan of a consumer).
TECHNIQUE # 2:
Estimating Demand Curves:

Suppose due to changes in income,

population, and other factors, the
theoretical demand curve shifts from D1
to D2, D2 to D3 to D4 in figure 11.1.
TECHNIQUE # 3:

The Identification Problem:

It now appears that "the problem of

simultaneous relationships in demand analysis
can be overcome only if one has enough
information to identify the interrelated
functions so that shifts in one curve can be
distinguished from shifts in the other".
TECHNIQUE # 4:
Consumer Surveys:

Consumer surveys involve questioning a sample of

representative consumers to determine such factors as their
willingness to buy, their responsiveness to price changes or to
relative price levels and their awareness of advertising campaigns
and various other variables considered to be important for the
marketing and profit planning functions.

For example, most consumers are unable to say how would react
to a 1,2, or 30% increase (or decrease) in the price of a colour T.V.
set. This makes if difficult to use such a technique to estimate the
demand relationships for most consumer goods
TECHNIQUE # 5:
Consumer Clinics:

An alternative means of recording consumer response to

changes in demand determinants is through the use of
consumer clinics. This is like a laboratory test in physics
and chemistry.
TECHNIQUE # 6:
Market Experiment:

The market experiment method which is often used to

gather information about the demand function involves
examining the way consumers behave in real life markets.
WHAT IS
SIMPLE LINEAR
REGRESSION
MODEL?
Regression models describe the relationship between
variables by fitting a line to the observed data. Linear
regression models use a straight line, while logistic
and nonlinear regression models use a curved line.
Regression allows you to estimate how a dependent
variable changes as the independent variable(s)
change.
Used to estimate the relationship between two quantitative
variable.

You can use simple linear regression when you want to

know:
*How strong the relationship is between two variables (e.g.
the relationship between rainfall and soil erosion).

*The value of the dependent variable at a certain value of the

independent variable (e.g. the amount of soil erosion at a
certain level of rainfall).
 EXAMPLE:
You are a social researcher interested in the relationship
between income and happiness. You survey 500 people
whose incomes range from 15,000 to 75,000 pesos and ask
them to rank their happiness on a scale 1 to 10.

 Regression analysis is commonly used by economists to

estimate demand for a good or service.
SIMPLE
REGRESSION
ANALYSIS
Regression analysis- is a statistical technique for
finding the best relationship between dependent
variables and selected independent variables.

Dependent variables- depends on the value of other

variables and the primary interest of researchers.

Independent variables- used to explain the variation

in dependent variable.
TWO TYPES OF
REGRESSION
ANALYSIS

*SIMPLE REGRESSION ANALYSIS

* MULTIPLE REGRESSION ANALYSIS
*SIMPLE REGRESSION ANALYSIS
-use of one independent variable.
Y=a+bX μ

*MULTIPLE REGRESSION ANALYSIS

-use of more than one independent variable
Y=a+ b1+  X1+b2+X2+…… bp+ Xp+ μ
 HOW REGRESSION ANALYSIS IS DONE?
There are certain steps to conduct regression analysis:

1. Identify the relevant variables.

2. Obtain data on the variables.
3. Specify the regression model.
4. Estimate the parameters (coefficients).
5. Interpret the results.
6. Statistical evaluation of the results (testing statistical significance of
model).
7. Use the results in decision making (forecasting using regression
results).
THANK YOU &
GOD BLESS!