1. Estimate the demand for soft drinks using a multiple linear regression in both linear and multiplicative forms.

LINEAR FORM
Regression Statistics
Multiple R
0.848558821
R Square
0.720052073
Adjusted R Square
0.700055792
Standard Error
37.64110945
Observations
46
ANOVA
df
Regression
Residual
Total

SS
3

153059.6689

42
45

59507.83108
212567.5

Coefficients
Intercept

Standard
Error

422.249733

122.0152769

Price Per Six-Pack

(P )
Income Per Capita (
Y)

-218.590142

44.79631003

1.076624514

1.516969503

Mean Temp (T )

3.722542416

0.82053325

MS
51019.
89
1416.8
53

t Stat
3.4606
3
4.8796
5
0.7097
21
4.5367
36

F
36.009
3

Pvalue
0.0012
5
1.57E05
0.4817
99
4.72E05

Significance F
1.10228E-11

Lower 95%
176.0129352
-308.9927556
-1.984743884
2.066639278

Upper
95%
668.48
65
128.18
8
4.1379
93
5.3784
46

Lower
95.0%
176.012
9

Upper 95.0%
668.486530
9
128.187528
308.993
4
4.13799291
1.98474
3
2.06663
5.37844555
9
4

Demand Function

Q = 422.25 - 218.59P + 1.07Y +

3.72T
MULTIPLICATIVE FORM
Regression Statistics
0.8242201
Multiple R
6
0.6793388
R Square
71
0.6564345
Adjusted R Square
05
0.2579999
Standard Error
19
Observations
46
ANOVA
df
Regression

Residual

42

Total

45
Coefficien

SS
5.922820
585
2.795686
238
8.718506
822

MS
1.9742
74
0.0665
64

F
29.659
8

Standard

t Stat

P-

Significance
F
1.85696E-10

Lower 95%

Upper

Lower

Upper

ts
Intercept
Ln Price Per Six-Pack
( ln P )
Ln Income Per Capita (
ln Y )
Ln Mean Temp (ln T)

Error

value

95%

1.7543379
27
2.9926655
19

1.559033
058

1.1252
73

0.2668
63

1.391918161

0.676155
431

-4.426

6.7E05

4.357202422

0.1982289
88
1.2630118
23

0.188044
293
0.297713
751

1.0541
61
4.2423
7

0.2978
36
0.0001
19

0.181259758
0.662201149

4.900594
015
1.628128
615
0.577717
734
1.863822
496

95.0%
1.391918
16
4.357202
42
0.181259
76
0.662201
149

95.0%
4.900594
015
1.628128
615
0.577717
734
1.863822
496

Demand Function

ln Q = 1.75 - 2.99 ln P + 0.198 ln Y +

1.26 ln T

2. Provide an economic interpretation for each of the estimated coefficients.

ANSWER :
We have chosen the linear form function to do the interpretation for each of the estimated coefficients.
Interpretation for each coefficients are as below :

Price per Six-Pack, P : For a unit increase in Price ( P) will result in 218.59 units decrease in annual cans per capita consumption.

Income per Capita, Y : For a unit increase in Income, ( Y ) will result in 1.07 unit increase in annual cans per capita.

Mean Temperature, T : For a unit increase in Temperature, ( T ) will result in 3.72 units increase in annual cans per capita consumption.

For the linear regression model, the coefficient shows that a unit increase in Price per Six-Pack (P) will result in 218.59 units decrease in annual
cans per capita consumption. For a unit increase in Income per Capita, (Y) will result in 1.07 unit increase in annual cans per capita. For a unit
increase in Temperature (T) will result in 3.72 units increase in annual cans per capita consumption. From the Adjusted R Square, we can see that
the independent variable explain 70.01% of the dependent variable. The Standard Error of 37.64 shows there is a difference of 37.64 between the
actual and predicted value of the dependent variables.
We can use t-test to indicate if there is significant impact of the independent variable to the dependent variable. If the estimated t is more than
critical t, we can conclude there is significant impact between the variables.
Estimated t

Price Per Six-Pack (P)

Income Per Capita (Y)
Mean Temp. (T)

(218.5901-0)/44.7963
(1.0766-0)/1.5270
(3.7225-0)/0.8201

=
=
=

4.879646156
0.709720605
4.536735612

Critical t is equal to 2 as the sample size is more than 30. Based on the result, we can see that for the Price per Six-Pack (P) and Temperature (T)
have significant impacts on the demand for the annual cans per capita consumption.
Meanwhile for the multiplicative regression model the coefficient shows that a unit increase in Price per Six-Pack (P) will result in 2.99 units
decrease in annual cans per capita consumption. For a unit increase in Income per Capita, (Y) will result in 0.20 unit increase in annual cans per
capita. For a unit increase in Temperature (T) will result in 1.26 units increase in annual cans per capita consumption. From the Adjusted R
Square, we can see that the independent variable explain 65.64% of the dependent variable. The Standard Error of 0.258 shows there is a
difference of 0.258 between the actual and predicted value of the dependent variables.
We can use t-test to indicate if there is significant impact of the independent variable to the dependent variable. If the estimated t is more than
critical t, we can conclude there is significant impact between the variables.
Estimated t Price Per Six-Pack (P)
(2.9927-0)/0.6762
=
4.426002338
Income Per Capita (Y)
(0.1982-0)/0.1880
=
1.05416115
Mean Temp. (T)
(1.2630-0)/0.2977
=
4.24236979

Critical t is equal to 2 as the sample size is more than 30. Based on the result, we can see that for the Price per Six-Pack (P) and Temperature (T)
have significant impacts on the demand for the annual cans per capita consumption

3. Calculate the price and income elasticity and interpret them.

ANSWER :

Linear Model

Q = 422.25 - 218.59P + 1.07Y + 3.72T

Price elasticity, Ep = Q/P x P/Q
= -218.59*(2.20/157.5)
= -3.05

Multiplicative Model

ln Q = 1.75 - 2.99 ln P + 0.198 ln Y + 1.26 ln T

Price elasticity, Ep = -2.99
Interpretation on Price Elasticity: Based on the calculated price elasticity, the consumption on soft drink is price
elastic in nature. This means that for a 1% increase in price will result in more than 1% decrease in quantity demanded
for soft drinks.

Linear Model

Q = 422.25 - 218.59P + 1.07Y + 3.72T

Income elasticity, Ey = Q/Y x Y/Q
= 1.07*(17.89/157.5)
= 0.121
Multiplicative Model

ln Q = 1.75 - 2.99 ln P + 0.198 ln Y + 1.26 ln T

Income elasticity, Ey = 0.198

Interpretation on Income Elasticity: Based on the calculated income elasticity, positive income elasticity indicates
that soft drink is a normal goods.

4.

Price
3
2.5
f(x) = - 0x + 2.49
R = 0.58

Price Per Six-Pack

Linear (Price Per Six-Pack)

1.5
1
0.5
0
0

50

100

150

200

250

300

350

Based on the graph, it show moderate strong correlation as the when price get lower, the annual can per capita get higher.

Income
30
25
20

Income Per Capita

f(x) = - 0.02x + 21.17

R = 0.11

15

Linear (Income Per Capita)

10
5
0
0

50

100

150

200

250

300

350

Based on the graph, it show weak correlation as the when income get higher, the annual can per capita should get higher.

Temp
80
70
f(x) = 0.09x + 38.73
R = 0.55

60
50

Mean Temp.
Linear (Mean Temp.)

40
30
20
10
0
0

50

100

150

200

250

300

350

Based on the graph, it show moderate strong correlation as the when temperature get higher, the annual can per capita get
higher.
Conclusion: As the income per capita showing a weak correlation, it is the best demand specification to remove it from the
regression equation.

6.

Version 1
6. The above graph shows poor relationship between income and quantity demanded. Therefore, the marketing plan should
not be designed to relocate canned drink machines into low-income neighborhood. This is said because, the regression
coefficient on income has been predisposition descending when the price is omitted, and in order to form an insignificant
element seems negative and significant in its impact on quantity demanded. This represents the discriminating criticalness of
analytical reasoning and demand theory to precisely determine a regression model. Some variable such as price and
temperature were removed from equation, it is unwise to rely on only income factor to design the marketing plan as it might
bring issue of biasness.
Version 2
The graph above shows the weak relationship between Income and Quantity Demanded. Thus, the marketing plan should not
be designed based on the income per capita factor as it does not strongly correlated with the demand of soft drink cans.
Whether they market the product at low income groups or otherwise, it will not affect the quantity demanded that much. We
strongly believe that the company should not design their marketing plan to relocate most canned drink machines into lowincome neighborhood.
In addition, as some variables i.e. price and temperature was removed from the equation, it is unwise to rely solely on income
factor to design on marketing plan as there exists a bias.
Instead of wasting resources in trying to influence a variable that is weakly related to the dependant variable, the company
should focus on other variables such as pricing as the critical component of their marketing plan. Since price is strongly
related to Quantity demanded, the company can stimulate the demand for their soft drink by giving discounts and "buy one,
free one" promotions.