Lecture 10-131010 Flashcards
Describe what the relationship between price and quantity of own price and subsitute
If the price of the competitors product or service goes up, the demand for your product or price will go up (because the demand for the competitors product or service will go down). The sign of the numerator is + and the denominator (changePy) is positive
Explain a complementary good
Complementary products go hand in hand. If the price of a complementary product goes up, the demand for the complementary product and own product will go down. The sign of the numerator is - and the denominator (changePy) is positive
Explain the relationship between quantity demanded for own product and interest rates
Interest rates are real. If interest rates go up, the demand will go down (numerator will be negative and denominator will be positive. Real estate agents and contractors will suffer. If elasticity is “0” there is no impact on business because the quantity did not change relative to the interest rate change
Explain the elasticity measures of advertising
If the elasticity of advertising is 0, there was no impact to the change in advertising on quantity demanded of the product. If greater than 0, the change in advertising led to an increase in demand. If the elasticity measure was less than 0, there was a decrease in demand as a result of the change in advertising (NOT GOOD)
Define cross price elasticity
The measure of the response change quantity demanded for own product when compared to the change in price for another product or service. The SIGN IS IMPORTANT because it will tell whether it is a substitute or complement produc or service
Explain the characteristics of an independent good
The elasticity measure for the another product is 0 because there is the is no change to quantity demanded (ceterus paribus) with no change in the other products price.
Define Econometrics
It is a field of study in economics dealing with developing and applying statistical tools and techniques to test for the validity of and the measurement of possible economic relationships.
Econometrics helps to understand whether or not an independent variable has an impact on the demand function; otherwise, it is irrelevant. Once the validity of the results is considered reliant enough, they need to start being quantified. In addition, econometrics can show if others variable have been missed.
What is the first step in developing a quantity function
Hypothesis testing-Definition: Possible or potential relationship between two variables. It helps to determine how strong or how weak are the relationships between QDDx as opposed to/respect to (Px, Py, Y,… etc.)
Explain the relationship of variables in a quantity demanded function
QDDx=100-.3(Px)+.1(Py)-.2(Pz)+0.05 (Y)+.03 (A)-.1 (R)+.1 (Pop)-.01(#unN)
(.1) (.02) (.1) (.01) (.03) (.01) (.02) (.02)
