Week 3

Question 1

Define Empirical Demand functions

Answer 1

Demand equations derived from actual market data, useful in making product and pricing decisions.

Question 2

In the formula Q = F (P,M,Pr,N) what do the letters stand for?

Answer 2

Q = Quantity Demanded
P = Price of the good or service
M = Consumer Income
Pr = Price of a related good
N = Number of Buyers

Question 3

What is the formula for elasticity?

Answer 3

E = Percentage change in quantity demanded / percentage change in price

%🔺Q / %🔺P

• E is always negative

Question 4

What is b = 🔺P/🔺Q?

Answer 4

Price elasticity of demand formula.

Question 5

What is c = %🔺M/%🔺Q

Answer 5

Income elasticity of demand.

Question 6

What is d = 🔺Pr/🔺Q?

Answer 6

Change in cross-price elasticity.

Question 7

Is b expected to be negative or positive?

Answer 7

Negative.

Question 8

Is C positive or negative?

Answer 8

Positive for normal goods, negative for inferior goods.

Question 9

Is d positive or negative?

Answer 9

D is positive for substitutes, negative for complements.

Question 10

What are the three potential problems with consumer interviews?

Answer 10

Representative sample
Response bias
Inability of the respondent to answer accurately.

Question 11

What is the equation for time-series forecasting?

Answer 11

Qt = a + bt

Question 12

What is the demand function equation?

Answer 12

Q=a+bP+cM+dPr

Question 13

If b is > 0, sales are increasing or decreasing?

Answer 13

Increasing.

Question 14

In the formula e = %🔺Q / %🔺P. What does %🔺Q / %🔺P equal?

Answer 14

b^

Question 15

In a non-linear demand function equation, b^ equals what?

Answer 15

b^ equals the price elasticity of demand formula : E = %🔺P / %🔺Q

Question 16

True or False:

In log-linear form, the coefficients are the elasticities.

Answer 16

True.

Question 17

True or False:

A Negative sign in front of M means the good is inferior?

Answer 17

True. - = false, + = normal.

Question 18

True or False:

A positive sign in front of Pr means the good is a substitute?

Answer 18

True. +=Substitute, - = complimentary.

Question 19

True or False:

In log linear form, to solve a demand equation, you use the “ex” button on “a” because there is no coefficient on the parameter.

Answer 19

True. You use the “ex” button and then multiply all parameters and coefficients together.

Question 20

Is b^ negative in Emperical demand functions?

Answer 20

Yes.

Question 21

What is n-K?

Answer 21

Number of parameters minus one.

Question 22

What is Qt = a + bt?

Answer 22

A linear trend equation.

Question 23

True or False:

Dummy variables do not count in the degrees of freedom calculation.

Answer 23

False, they count.

Question 24

How do you calculate the intercept including dummy variables?

Answer 24

You add the dummy variable amount to the original intercept.

Question 25

An equation that shows the quantity supplied as a function of the only price of the good is called?

Answer 25

Direct supply curve.

Question 26

A graph that shows the relation between quantity supplied and price, holding all else constant is?

Answer 26

A supply curve

Question 27

The supply function when price is expressed as a function of quantity is?

Answer 27

The inverse supply function.

Quantity is expressed as a function price = general demand function.

Question 28

A table, graph or equation that shows how quantity supplied is related to product price, holding fixed the five other variables that influence supply is called?

Answer 28

The general supply function.

Question 29

A table showing a list of possible product prices and the corresponding quantities supplied is?

Answer 29

A supply schedule

Question 30

The amount of a good bought and sold at market equilibrium is?

Answer 30

Equilibrium quantity

Question 31

A government imposed minimum price is called?

Answer 31

A price ceiling

Question 32

If both supply and demand decrease, equilibrium price will ———— and equilibrium quantity will ————?

Answer 32

Change in an indeterminate way; decrease

Question 33

If supply increases and demand remains the same, equilibrium price will ————- and equilibrium quantity will————.

Answer 33

Decrease ; increase

Question 34

A price floor will likely result in?

Answer 34

Excess supply.