Posted: March 6th, 2017

interpret the economic significance of the coefficients of the estimated demand equation for beer.

Stage 1 Theory and Hypotheses

1. discuss the basic assumptions economists make when they model consumer behavior.
2. Using the marginal utility theory of demand as a guide, predict the impacts of the determinants on the quantity of beer that individual households will demand.
3. Propose a methodology for testing your hypothesis; describe data sources that could be utilized.

Stage II Data Analysis & Interpretation

Refer to the file “DEMAND.xlsx” which contains data for the quantities consumed by 30 randomly chosen households of beer, liquor, and other related goods” consumed; prices of beer, liquor and other related goods; and consumers’ incomes. Regression analysis was performed on the variables to reveal the following predicted linear demand function.

Q beer=70.524 – 29.533(P beer)- 4.467(P liquor)+9.786(P other)+3.124 (Income)

interpret the economic significance of the coefficients of the estimated demand equation for beer. For a consumer with an average income, and facing average prices, calculate the following:

1. estimated price elasticity of demand for beer.
2. the estimated cross-elasticity of beer with liquor;
3. the estimated cross-elasticity of beer with “other goods.”

Interpret the economic significance of your answer for each of the above calculations.