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FUNCTION &
FORECASTING
DEMAND USING
REGRESSION MODEL
Revision..
Law of demand: PRICE & QUANTITY of demanded
are inversely related.
Qdx 1/Px
As the price of good increase (decrease) and all
other things remain constant, the quantity
demanded of the good will decrease (increase)
Demand Curve
Demand shifters
Other variables that influence the demand.
Revise change in quantity demanded & change
in demand.
Change in quantity demanded: changes in the
price of good leads to a change in quantity
demanded. Movement along the the demand
curve.
Change in demand: change in other variables
other than price lead to change in demand.
Shift in the demand curve.
Demand shifters (cont)
Consumer income
Normal goods change in demand (increase) R shift
Inferior goods decrease in demand. L shift
Price of related/substitute goods
Substitute: price of good - Q for substitute
Complement: Price of good - Q for complement
Advertising
Consumer tastes
Population
Consumer expectations
Other factors e.g health scare
Can AFFECT demand
Demand function
A function that describes how much of a good
will be purchased at alternative price of that
good and related goods, alternative income
levels, and alternative values of other variables
affecting the demand.
Demand function
M = income
Qdx = 0 + XPX + Y PY + MM + HH
Demand function
Qdx = 0 + XPX + Y PY + MM + HH
fixed number given
By law of demand: increase in Px leads to
decrease in Qdx . So X < 0
PX = price of good X
PY = price of good Y
M = income
H = advertising
EXAMPLE
Qdx = 14,000 + 4PX + 5PY + (-1)M + 2H
PY = RM 20
M= RM 12, 000
H = RM 2000