Quiz 5: Demand Estimation


A. True. In the case of a linear model, it is assumed that the demand elasticity changes at every point. This is because in a linear model the effect on demand of a unit change in say price or income is assumed to be constant. B. False. Price and quantity are simultaneously determined by supply and demand. C. False. The demand curve is revealed only when the prices fall and the demand conditions are held constant. D. True. In the case of a log-linear model, it is assumed that the demand elasticity is constant at every point. This is because in a log-linear model the effect on demand of a unit change in the same variables is assumed to change. E. True. Consumer interviews are a means to gain first hand information about consumer preferences and behavior.

Some of the limitations of the market experiments include the high level of costs involved. Because the market size is so big, it is generally not possible to take a large sample. So a small sample is taken which may not always give us accurate results. Further market experiments may not give us long run effects of a phenomenon unless they are carried on for a sufficiently long period of time which is not feasible. While conducting market experiments some of the factors are not in our control like the changes taking place in the economy due to which the tastes and preferences of buyers and sellers may also change. In addition there is a possibility of getting inaccurate results in case the employers don't show up due to heavy rains or hot weather.

A. True. A parameter is a population characteristic that can be estimated by a coefficient derived from a sample of data. B. False. A one tail t-test is not used to indicate whether the independent variables as a group explain a significant share of demand variation. It is the F-test which does that. C. True. The estimated demand relation can be used to derive a predicted value for demand given values for independent variables. D. False. It is the one-tail t-test which is used as a test of direction of the influences of independent variables. E. False. The coefficient of determination shows the share of total variation in demand that can be explained by the regression model.