ECONOMIC ANALYSIS ECO 740 CASE STUDY OF SOFT DRINK DEMAND ESTIMATION (PAGE 123)

PREPARED BY: AMIRUL FARID BIN YATIM MUSTAFA (2012956435) NURUL AIN BTE ABDUL LATIF (2012989663) AMALINA ZAHIRAH BTE MOHD AZAM (2012337243) NURFARAH AIN BTE ABU BAKAR (2012504625) PREPARED FOR: PROF. DR. SAADIAH MOHAMAD

Question 1
Dependent Variable: CAN Method: Least Squares Date: 03/29/13 Time: 11:39 Sample: 1 48 Included observations: 48 Variable C PACK INC TEMP Coefficient 514.2669 -242.9708 1.224164 2.931228 Std. Error 113.3315 43.52628 1.522613 0.711458 t-Statistic 4.537722 -5.582162 0.803989 4.120027 Prob. 0.0000 0.0000 0.4257 0.0002

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic)

Mean dependent 0.698024 var S.D. dependent 0.677435 var Akaike info 38.26108 criterion 64412.06 Schwarz criterion Hannan-Quinn -240.9536 criter. Durbin-Watson 33.90231 stat 0.000000

158.2083 67.36719 10.20640 10.36233 10.26533 1.980543

Estimate the demand for soft drink using a multiple regression program available on your computer. 1) Estimated Demand for soft drink: Multiple Regression: Demand of soft drink: constant + 6-pack price + income per capita + mean temp + error : 514.27 242.97 6pack price + 1.22 income per capita + 2.93 mean.Temp

QUESTION 2
Interpret the coefficient and calculate the price elasticity of soft drink demand.
1) The coefficient for demand for soft drink and price of soft drink is inverse relationship. 2) The quantity demand for soft drink per capita will change in opposite direction as the price of soft drink change. 3) Demand for soft drink will reduce by 242.97 when price of soft drink change in the opposite direction or inverse direction. 4) The coefficient for demand for soft drink and income and demand for soft drink and mean temperature is positively relationship. 5) The quantity demand of soft drink will change in same direction as the income and mean temperature change. So that, demand for soft drink will increase by 1.22 when income per capita increase, and demand for soft drink also will increase by 2.93 when mean temperature increase.

Mean Median Maximum Minimum Std. Dev. Skewness Kurtosis Jarque-Bera Probability Sum Sum Sq. Dev. Observations

CAN 158.2083 143.0000 330.0000 63.00000 67.36719 0.591533 2.411111 3.492871 0.174394 7594.000 213301.9 48

PACK 2.202500 2.210000 2.590000 1.890000 0.163036 -0.208796 2.571311 0.716314 0.698963 105.7200 1.249300 48

INC 17.93750 17.50000 28.00000 10.00000 4.194253 0.427224 2.678414 1.666998 0.434526 861.0000 826.8125 48

TEMP 53.60417 52.00000 82.00000 35.00000 9.243145 0.700693 3.625636 4.710607 0.094865 2573.000 4015.479 48

Mean 6-pack price : 2.2025 Mean can/capita : 158.2083 dQ/dP : -242.97 Price elasticity of demand ED = (dQ/dP)(mean Price/mean can per capita) ED =242.97(2.2025/158.2083 ED = -3.38 (elastic)

Question 3
Variable Coefficient Std. Error t-Statistic Prob. C INC TEMP -56.61441 -2.054390 4.695034 63.11655 1.815498 0.823817 -0.896982 -1.131584 5.699123 0.3745 0.2638 0.0000

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic)

0.484166 0.461240 49.44768 110028.3 -253.8041 21.11872 0.000000

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat

158.2083 67.36719 10.70017 10.81712 10.74436 2.089038

Omit price from the regression equation and observe the bias introduced into the parameter estimate for income.

Demand for soft drink = -56.61 2.054income + 4.69mean temperature

Question 4
Dependent Variable: CAN Method: Least Squares Date: 04/01/13 Time: 17:49 Sample: 1 48 Included observations: 48

Variable

Coefficient

Std. Error

t-Statistic

Prob.

C INC

254.5629 -5.371683

41.09082 2.231815

6.195129 -2.406867

0.0000 0.0202

R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic)

0.111849 0.092542 64.17440 189444.3 -266.8446 5.793010 0.020162

Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat

158.2083 67.36719 11.20186 11.27983 11.23132 2.313418

Now omit both price and temperature from the regression equation. Should a marketing plan for soft drink be designed that relocates most canned drink machines into low-income neighbourhoods? Why or why not?
Demand for soft drink: 254.56 5.37income

No.