Deck 5: Demand Estimation and Forecasting Appendices 5A and 5B

Question 1

For the regression equation Q = 100 - 10X + 0.25X²,which of the following statements is true?

A)X² is the more important variable because it is positive.
B)When X decreases by one unit,Q decreases by 10 units.
C)When X increases by 10 units,Q decreases by 1 unit.
D)The change in Q associated with a one unit increase in X depends on the initial level of X.

Answer 1

D

Question 2

A one-tail test of significance would be used to determine whether

A)demand for a good is price elastic.
B)two goods are substitutes for each other in supply.
C)two goods are unrelated to each other in demand.
D)supply of a good is price inelastic.

Answer 2

B

Question 3

Regression analysis can best be described as

A)a statistical technique for estimating the best relationship between one variable and a set of other selected variables.
B)a statistical technique for determining the true values of variables.
C)a statistical technique for creating functional relationships among variables.
D)None of the above

Answer 3

A

Question 4

When the R² of a regression equation is very high,it indicates that

A)all the coefficients are statistically significant.
B)the intercept term has no economic meaning.
C)a high proportion of the variation in the dependent variable can be accounted for by the variation in the independent variables.
D)there is a good chance of serial correlation and so the equation must be discarded.

Question 5

For which of the following variables should a "two tail" t-test be applied?

A)P_A
B)I
C)P_B
D)Should be applied for all.

Question 6

Which indicator shows how well a regression line fits through the scatter of data points?

A)F-test
B)R²
C)t-test
D)Durbin-Watson test

Question 7

Which of the following is a test of the statistical significance of a particular regression coefficient?

A)t-test
B)R²
C)F-test
D)Durbin-Watson test

Question 8

In using regression analysis to estimate demand,which of the following problems is most directly a result of insufficient data?

A)the identification problem
B)the problem of a low R²
C)the problem of high standard errors
D)the problem of insignificant F-statistics

Question 9

The t-statistic is computed by

A)dividing the regression coefficient by the standard error of the estimate.
B)dividing the regression coefficient by the standard error of the coefficient.
C)dividing the standard error of the coefficient by the regression coefficient.
D)dividing the R² by the F-statistic.

Question 10

Which of the following is a measure of the explanatory power of the regression model?

A)t-test
B)R²
C)F-test
D)Durbin-Watson test

Question 11

Which of the following indicators will always improve when more variables are added to a regression equation?

A)the magnitudes of the coefficients
B)the t-test
C)R²
D)the standard errors of the coefficients

Question 12

The t-test is a statistical measure which

A)tests the true value of a variable.
B)tests the statistical significance of a regression coefficient.
C)tests the statistical significance of a regression equation.
D)None of the above

Question 13

R² is a statistical measure which

A)determines how important one variable is in explaining the value of another variable.
B)tests the true value of a variable.
C)determines how well an equation can estimate the relationship between one variable and a set of other variables.
D)All of the above

Question 14

The F-test is used to determine if

A)a regression coefficient is significant.
B)multicollinearity exists.
C)a regression equation significantly accounts for the variation in the value of a dependent variable.
D)an identification problem is present.

Question 15

The coefficient of a linear regression equation indicates

A)the change in the dependent variable relative to a unit change in the independent variable.
B)the change in the independent variable relative to a unit change in the dependent variable.
C)the percentage change in the dependent variable relative to a unit change in the independent variable.
D)the percentage change in the independent variable relative to a unit change in the dependent variable.

Question 16

The use of a dummy variable in regression analysis indicates

A)that a researcher does not really know what to include in the equation.
B)that a categorical variable is expected to have an impact on a dependent variable.
C)that insufficient data is available for the analysis.
D)the use of hypothetical data.

Question 17

When using regression analysis for forecasting,the confidence interval indicates

A)the degree of confidence that one has in the equation's R².
B)the range in which the value of the dependent variable is expected to lie with a given degree of probability.
C)the degree of confidence that one has in the regression coefficients.
D)the range in which the actual outcome of a forecast is going to lie.

Question 18

When a regression coefficient is significant at the .05 level,it means that

A)there is only a five percent chance that there will be an error in a forecast.
B)there is 95 percent chance that the regression coefficient is the true population coefficient.
C)there is a five percent chance or less that the estimated coefficient is zero.
D)there is a five percent chance or less that the regression coefficient is not the true population coefficient.

Question 19

If a regression coefficient passes the t-test,it means that

A)the regression equation is valid.
B)the regression coefficient is significantly different from zero.
C)the regression coefficient can be used for forecasting.
D)the regression coefficient should be included in the regression equation.

Question 20

Which of the following is a test of the statistical significance of the entire regression equation?

A)t-test
B)R²
C)F-test
D)Durbin-Watson test

Question 21

The forecasting technique,which predicts technological trends and is carried out by a sequential series of written questions and answers is

A)the Delphi method.
B)the market research method.
C)opinion polling.
D)the jury of executive opinion approach.

Question 22

$$\mathrm { Q } = - 6,500 - 100 \mathrm { P } _ { \mathrm { A } } + 50 \mathrm {~PB} + .3 \mathrm { I } + .2 \mathrm {~A} ; \mathrm { R } ^ { 2 } = .12 , ( 2,500 ) ( 50 ) ( 30 ) ( .1 ) ( .08 )$$
$\text {where \(Q\) is the quantity demanded of good \(A ; P A = \$ 10\), price of good \(A ; P _ { B } = \$ 8\), price of good }$
$\text {\(B ; I = \$ 12,000\), per capita income; and \(A = \$ 20,000\), monthly advertising expenditures.}$

-Which of the following cannot be determined on the basis of the above regression results?

A)the degree of price elasticity of good B
B)whether or not good A is "normal"
C)the degree of competition between A and B
D)All of the above can be determined.

Question 23

One of the series included among the lagging indicators is

A)the change in sensitive material prices.
B)the index of industrial production.
C)employees on non-agricultural payrolls.
D)average duration of unemployment.

Question 24

The fact that a person with a forceful and persuasive personality but not necessarily the greatest amount of knowledge and judgment can exercise a disproportionate amount of influence is a major drawback of

A)the Delphi method of forecasting.
B)the market research method.
C)opinion polling.
D)the jury of executive opinion approach.

Question 25

Which of the following refers to a relatively high correlation among the independent variables of a regression equation?

A)autocorrelation
B)the identification problem
C)statistically insignificant regression coefficients
D)multicollinearity

Question 26

A general rule of thumb is that if,after a period of increases,the leading indicator index sustains ________ consecutive declines,a recession (or at least a slowing of the economy)will follow.

A)three
B)four
C)five
D)six

Question 27

Which of the following is a leading economic indicator?

A)average hours,manufacturing
B)money supply M₂
C)stock prices,500 common stocks
D)All of the above

Question 28

The method of forecasting with leading indicators can be criticized for

A)occasionally forecasting a recession when none ensues.
B)forecasting the direction of the economy but not the size of the change in economic activity.
C)frequent revisions of data after original publication.
D)All of the above

Question 29

Which of the following is most likely to indicate a statistically significant regression coefficient?

A)|t| > R²
B)R² > .90
C)|t| > 2
D)|t| > 4

Question 30

The F-test is used in forecasting to

A)establish confidence intervals for testing regression coefficients.
B)examine the degree of multicollinearity among independent variables.
C)determine how well a regression equation can account for dependent variable values.
D)determine whether an identification problem exists.

Question 31

$$\mathrm { Q } = - 6,500 - 100 \mathrm { P } _ { \mathrm { A } } + 50 \mathrm {~PB} + .3 \mathrm { I } + .2 \mathrm {~A} ; \mathrm { R } ^ { 2 } = .12 , ( 2,500 ) ( 50 ) ( 30 ) ( .1 ) ( .08 )$$
$\text {where \(Q\) is the quantity demanded of good \(A ; P A = \$ 10\), price of good \(A ; P _ { B } = \$ 8\), price of good }$
$\text {\(B ; I = \$ 12,000\), per capita income; and \(A = \$ 20,000\), monthly advertising expenditures.}$

-As the manager of good A,which of the following would be of greatest concern (based on the regression results above)?

A)None of the factors below would be of concern.
B)an impending recession
C)pressure on you by your salespersons to lower the price so that they can boost their sales
D)a price reduction by the makers of good B

Question 32

A manager will have the least confidence in an explanatory variable that

A)does not pass the F-test.
B)is expressed as a dummy variable.
C)does not pass the t-test.
D)constitutes only a small part of R².

Question 33

$$\mathrm { Q } = - 6,500 - 100 \mathrm { P } _ { \mathrm { A } } + 50 \mathrm {~PB} + .3 \mathrm { I } + .2 \mathrm {~A} ; \mathrm { R } ^ { 2 } = .12 , ( 2,500 ) ( 50 ) ( 30 ) ( .1 ) ( .08 )$$
$\text {where \(Q\) is the quantity demanded of good \(A ; P A = \$ 10\), price of good \(A ; P _ { B } = \$ 8\), price of good }$
$\text {\(B ; I = \$ 12,000\), per capita income; and \(A = \$ 20,000\), monthly advertising expenditures.}$

-As a researcher,which aspect of the results would be of greatest concern?

A)the negative value of the constant
B)the relatively low impact of the competitor's price
C)the fact that not all of the variables are statistically significant
D)the poor fit of the regression line

Question 34

Average weekly claims for unemployment insurance,money supply and the index of stock prices are all examples of

A)leading indicators.
B)coincident indicators.
C)lagging indicators.
D)None of the above

Question 35

A dummy variable is also called

A)an approximate variable.
B)a discrete variable.
C)a zero-sum variable.
D)an improper variable.

Question 36

The problem of autocorrelation refers to

A)independent variables in a regression equation whose values are closely related to each other.
B)insufficient data to estimate regression coefficient values.
C)regression coefficient values which are not significantly different from zero.
D)regression equation variables which exhibit a similar pattern in their values over a number of time periods.

Question 37

Which of the following is not one of the leading indicators?

A)index of consumer expectations,U.of Michigan
B)change in consumer price index for services
C)vendor performance,slower deliveries diffusion index
D)manufacturers' new orders,nondefense capital goods

Question 38

The forecasting technique which involves the use of the least squares statistical method to examine trends,and takes into account seasonal and cyclical fluctuations,is known as

A)compound growth rate projection.
B)the Delphi method.
C)time series projection.
D)exponential smoothing projection.

Question 39

From a management policy perspective,which regression result is the most useful?

A)a regression equation that passes the F-test
B)a regression equation whose explanatory variables all pass the t-test
C)a regression equation that has the highest R²
D)a regression equation that has the least number of dummy variables

Question 40

In the estimation of demand,the "identification problem" refers to

A)the problem of selecting the proper level of significance.
B)the problem of deciding whether to use time series or cross-sectional data.
C)the problem of separating out the effects of price on the quantity demanded when supply cannot be held constant.
D)the problem of having insufficient variation in prices.

Question 41

Which of the following is a Lagging Economic Indicator?

A)change in average labor costs in manufacturing
B)M₂ measure of the money supply
C)industrial production
D)None of the above

Question 42

The forecasting method that involves using an average of past observations to predict the future (if the forecaster feels that the future is a reflection of some average of past results)is the

A)moving average method.
B)econometric forecasting method.
C)exponential smoothing method.
D)Both A and B
E)Both A and C

Question 43

Which of the following is the exponential trend equation to forecast sales (S)?

A)S = a + b(t)
B)S = a + b^t
C)S = a + b(t)+ c(t)²
D)None of the above

Question 44

Charting observations on a semi-logarithmic graph will help the analyst to ascertain whether

A)absolute changes from period to period are constant.
B)whether percentage changes from period to period are constant.
C)whether percentage changes from period to period are declining.
D)Both B and C

Question 45

Among the advantages of the least-squares trend analysis techniques is

A)the ease of calculation.
B)relatively little analytical skill required.
C)its ability to provide information regarding the statistical significance of the results.
D)All of the above

Question 46

Calculate t-statistics for each variable and explain what this tells you.

Question 47

The firm is considering changing its price to $900.Predict the quantity demanded at that price,all other things equal and provide a 95% confidence interval on your estimate.(In doing this,explain the value of t-critical you will use in developing your 95% confidence interval.)

Question 48

How would you evaluate the quality of this equation overall? Do you have any concerns? Explain.

Question 49

When would you use a one-tailed rather than a two-tailed t-test when checking significance levels?

Question 50

Quantitative forecasting that projects past data without explaining the reasons for future trends is called

A)scientific forecasting.
B)dumb forecasting.
C)empirical forecasting.
D)naïve forecasting.

Question 51

The Delphi method is a

A)smoothing technique in forecasting.
B)consensual forecast based on expert opinions.
C)compound growth approach to forecasting.
D)naïve forecasting approach.

Question 52

Which of the following is not a drawback of forecasting using the compound growth rate method?

A)only considers first and last observations
B)considers only equal absolute changes
C)disregards fluctuations between the original and terminal observations
D)does not consider any trends in the data

Question 53

A major problem in projecting with a trend line is that

A)only straight-line projections can be accommodated.
B)it is valid only if the trend is upward.
C)it will not forecast turning points in activity.
D)it is a very complex method of forecasting.

Question 54

The Trend Projection approach to forecasting is represented by

A)time-series regressions.
B)exponential smoothing.
C)opinion polls.
D)All of the above

Question 55

When the more recent observations are more relevant to the estimate of the next period than previous observations,the naïve forecasting method to employ is

A)exponential smoothing.
B)compound growth rate.
C)trend analysis.
D)moving averages.

Question 56

What is multicollinearity? In general,how would you know if you had a problem with multicollinearity,and how could you correct it?

Question 57

Among the advantages of the ________ technique of forecasting are ease of calculation,relatively little requirement for analytical skills,and the ability to provide the analyst with information regarding the statistical significance of results and the size of statistical errors.

A)least-squares trend analysis
B)compound growth rate
C)visual trend-fitting
D)expert opinion

Question 58

Which of the following is a Leading Economic Indicator?

A)commercial and industrial loans outstanding
B)industrial production
C)average weekly duration of unemployment
D)None of the above

Question 59

How is the R² value calculated,and what information does this give you?

Question 60

An explanatory forecasting technique in which the analyst must select independent variables that help determine the dependent variable is called

A)exponential smoothing.
B)regression analysis.
C)trend analysis.
D)moving average method.

Question 61

Use the equation
Qd = 5,000 - 15P + 50A + 3Px - 4I,(2,117)(2.7)(15)(2)(3)
where Qd = Quantity Demanded,P = Good Price,A = Advertising Expenditures,Px = Price of a Competitive Good,A = Advertising Expenditures,I = Average Monthly Income,and the Standard Errors of the Regression Coefficients are shown in Parentheses.
Calculate the t-statistics for each variable and explain what inferences can be drawn from them.If R² of this equation is 0.25,what inference can be drawn from it?

Question 62

Why is the identification problem more likely with time-series estimates of demand?

Question 63

Explain the difference between the Moving Average and Exponential Smoothing approaches to forecasting.

Question 64

What are the key steps for analyzing Demand functions based on Regression results?

Question 65

The demand equation for the Widget Company has been estimated to be:
Q = 20,000 + 10 I - 50P + 20 P_C
where Q = monthly number of widgets sold,I = average monthly income,P = price of widgets,and P_C = average price of competing goods.
a.If next month's income is forecast to be 2,000,the price of competing goods is forecast to be $20,and the price of widgets will be set at $30,forecast sales.
b.What will sales be if the price is dropped to $20?

Question 66

What are the four different characteristics that data exhibit when undertaking time-series forecasts?

Question 67

Explain the difference between Cross-Section and Time-Series Regression Analysis.

Question 68

What are the prerequisites of a good forecast?

Question 69

How could a manager use the information contained in this regression equation?

Question 70

Based on annual data from 2000-2010,the Gadget Company estimates that sales are growing according to a linear trend:
Q = 50,000 + 200t
where t is time and t = 0 in 2000.
a.Forecast sales for 2013.
b.Do you see any problems with this forecasting method?