Question

A linear industry demand function of the form Q = a + bP + cM + dP_R were estimated using regress analysis. The results of this estimation are as follows:

DEPENDENT VARIABLE : Q R- SQUARE F-RATIO P-VALUE ON F

OBSERVATIONS: 24 0.8118 28.75 0.0001

VARIABLE PARAMETER STANDARD

ESTIMATE ERROR T-RATIO P-VALUE

INTERCEPT 68.38 12.65 5.41 0.0001

P -6.50 3.15 -2.06 0.0492

M 0.13926 0.0131 10.63 0.0001

PR -10.77 2.45 -4.40 0.0002

a. Is the sign of b as would be predicted theoretically? Why?

b. What does the sign c of imply about the good?

c. What does the sign of d imply about the relation between the commodity and the related good R?

d. Are the parameter estimates, a, b, c, and d statistically significant at the 5 percent level of significance?

e. Using the values P = 225, M= 24,000, and P_R = 60, calculate estimates of

(1) The price elasticity of demand (E)

(2) The income elasticity of demand (E_M)

(3) The cross-price elasticity (E_XR)

Note: I could not recreate the ^ over b and d