SUMMARY OUTPUT

Regression Statistics
Multiple R 0.998281753
R Square 0.996566459
Adjusted R Square 0.995509984
Standard Error 1.001766854
Observations 18
ANOVA
df SS MS F Significance F
Regression 4 3786.523466 946.6309 943.2946 7.17946E-16
Residual 13 13.04597878 1.003537
Total 17 3799.569444
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 5.119473714 7.9069606 0.647464 0.5286 -11.9624761 22.20142353 -11.9624761 22.20142353
Px -0.32395922 0.155485138 -2.08354 0.057504 -0.659864438 0.011945999 -0.659864438 0.011945999 statistical significance at the 5% level
M 0.207662882 0.155759044 1.333232 0.205349 -0.128834074 0.544159839 -0.128834074 0.544159839 no significance
Py 0.248212681 0.23056592 1.076537 0.30126 -0.249894704 0.746320067 -0.249894704 0.746320067 no significance
Lagged Q 0.593553057 0.150835871 3.935092 0.001709 0.267691971 0.919414144 0.267691971 0.919414144 statistical significance at the 1% level.
Qxt = 5.12 - 0.324 Pxt + 0.208 It + 0.248Pyt + 0.594 Qt-1
(0.65) (-2.08) (1.33) (1.08) (3.94)
Statistical significance of T-statistics is given by the P-values. There are three levels of significance: 1%, 5% and 10%.
Ignore the P-values given in this output because the sample period is very small. Instead, use the following standard significance levels
If t-statistics < 1.63 (plus or minus) then there is no statistical significance at any level.
If 1.63 < t-statistics < 1.96, there is statistical significance at the 10% level.
If 1.96 < t-statistics < 2.54, there is statistical significance at the 5% level
If t-statistics > 2.54, there is statistical significance at the 1% level.
CALCULATING ELASTICITIES FROM THE REGRESSION EQUATIONS
Short run price elasticity of demand = The slope of the price * (Average price / Average quantity)
= (-0.324*(11.84/25.19))
= -0.152
Long run price elasticity of demand = The slope of the price / [(1 - slope of lagged Q) * (Average price / Average quantity)]
= -0.152/(1-0.594)
= -0.374 [This is equivalent to dividing S/R elastcity over (1-slope of lagged Q)]
The Income elasticities can be estimated the same way.
Short run income elasticity of demand = The slope of income * (Average income / Average quantity)
= 0.208 * (20.39/ 25.189)
= 0.168
Income elasticity is positive and thus this good is a normal good. Since this elasticity is less than 1, this good is necessary in the short run.
Long run Income elasticity of demand can be rewritten as the ratio of the short run elasticity over (1 - the slope of lagged Q)
Long run Income elasticity of demand = 0.1684/(1-0.59355)
= 0.414
CROSS PRICE ELASTICITIES
Short run cross price elasticity of demand = The slope of the cross price * Average cross price / Average quantity
= 0.248*(24.61/25.19)
= 0.242
Long run cross price elasticity of demand = (The slope of the cross price) / [(1 - slope of lagged Q) * (Average cross price / Average quantity)]
= 0.2423/(1-0.594)
= 0.597
Question 3
The estimated equation is a demand equation. Thus we can add independent variables that are determinants of demand.
One of these determinant is the price of subsitiutes. We have Py as the price of one of the substitues. We can add another one if available.
That is, if this could be Raspberry, then prices of bluberries and strawberrys fit in here.
We can add the price of a components such as price of whipcream. We can add spending on advertising or taxes as independent variables.
Year Q
x
P
x
M P
y
Lagged Q
1984 4 30 5 15
1985 5 27 8 16 4
1986 5 26 8 18 5
1987 6 26 9 18 5
1988 7 25 10 19 6
1989 11 23 10 22 7
1990 13 20 11 24 11
1991 16 14 15 24 13
1992 21 11 15 25 16
1993 24 9 18 27 21
1994 28 7 20 27 24
1995 33 5 22 27.5 28
1996 36 4 25 27.5 33
1997 36.5 3.8 26 27.5 36
1998 39 3 30 27.5 36.5
1999 40 2.9 31 28 39
2000 42 2.4 33 28 40
2001 45 2.1 36 28.5 42
2002 46 2 40 28.5 45
Average 25.19 11.84 20.39 24.61