Eco 550 Assignment 1 Demand Estimation

 

Running head: DEMAND ESTIMATION 2

Introduction

Supply and demand is a model for understanding how prices and quantities are determined in a market system. To better understand this, two groups of people will be considered, consumers and sellers/producers. The supply and demand model is dependent on a high degree of competition between consumers and producers. Competition among consumers raises the price, while sellers compete with each other and thereby lowering the price. The equilibrium is a point where the demand and supply curves intersect each other. At this point, equilibrium price is often called the "market-clearing" price because both buyers and sellers are satisfied at this price. The supply and demand model applies most accurately when there is perfect competition. In reality, few markets are perfectly competitive. However, the supply and demand framework still provides a good approximation for what is happening much of the time. Elasticity is a measure of the responsiveness of one variable to changes in another variable; the  percentage change in one variable that arises due to a given percentage change in another variable.

1. Computation

If P= 500, PX=600, I=5,500, A=10,000, and M=5000, Then using the regression equation and pugging in the variables, QD= - 5200 – 

42(500) + 20(600) + 5.2(5500) + 0.20(10000) + 0.25(5000) =17,650

DEMAND ESTIMATIONTimes have changed when it comes to the way families eat their meals on a daily basis. Most families are always on the run. Whether it they are parents who are working long hours, kids are involved in multiple sports or after school academic activities, or just not being able to settle down for a regular family meal, it’s just not enough time in the day to cook. Everything in life has become very fast. It’s easier and sometimes cheaper to just grab something to eat on the run at a fast food restaurant than it is to go shopping and prepare a meal. It is also easier to just throw something in the microwave for 1.5 minutes and have to do nothing else to it but eat. These have become very popular and affordable meal choices as well. In this assignment, I will compute the elasticities for each independent variable, plot the demand and supply curves, and identify crucial factors that would case shifts in the demand and supply curve for this low calorie, frozen microwavable food. Computation of Elasticities for Each Independent Variable QD =-2000 – 100P + 15A + 25PX + 10I(5234)(2.29)(525)(1.75)(1.5)R2 = 0.85n = 120F = 35.25Q =Quantity demanded of 3-pack unitsP (in cents) =Price of the product = 200 cents per 3-pack unitPX (in cents) =Price of leading competitor’s product = 300 cents per 3-pack unitI (in dollars)=Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarkets are located = $5000A (in dollars)=Monthly advertising expenditures = $640Solution:QD =-2000 – 100P + 15A + 25PX + 10I

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