Suppose demand for a product is determined by its price, consumers’ income, and
ID: 1166044 • Letter: S
Question
Suppose demand for a product is determined by its price, consumers’ income, and the price of a related good. Use Q for demand, P for price, M for income, and PR for price of related good. The demand function is estimated using regression analysis. The results are reported below:
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.814752135
R Square
0.663821042
Adjusted R Square
0.159552605
Standard Error
530.2842631
Observations
66
Coefficients
Standard Error
t Stat
P-value
Intercept
125.56
15.87
P
-5.39
2.19
???
M
0.069
0.046
PR
-10.98
2.73
Test whether the effect of P on Q is significant at the 5% significance level.
Show your work.
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.814752135
R Square
0.663821042
Adjusted R Square
0.159552605
Standard Error
530.2842631
Observations
66
Coefficients
Standard Error
t Stat
P-value
Intercept
125.56
15.87
P
-5.39
2.19
???
M
0.069
0.046
PR
-10.98
2.73
Explanation / Answer
The absolute value of t-stat for price, P is 5.39/2.19 = 2.46
The critical value at 5% level of significance for 63 degrees of freedom is 1.998 which is less than the observed value. Thus we fail to reject the null hypothesis and the effect of P on Q is not statistically significant.
Thanks!