Deck 3: Topics in Demand Analysis and Estimation

Question 1

A market survey is a questionnaire, either filled out by respondents or administered by an interviewer, which provides information on how consumers actually react to certain changes in demand variables.

Answer 1

False

Question 2

Using linear regression analysis, Tim's Home Supply Company estimated its demand function for paint with the following results.

Answer 2

Where:
Q_P = Gallons of paint sold per year at Tim's
P_P = price per gallon of paint
P_W = price of wallpaper
Y = Average annual household income
Given the above information, as income increases, people will buy more wallpaper.
False

Question 3

A statistical technique used to "fit" an equation to empirical data in order to estimate the relationship between a dependent variable and more than one independent variable is called multiple regression.

Answer 3

True

Question 4

Market surveys can be quite useful even when questionnaires require very fine discrimination by the respondents.

Question 5

A log form demand function for carpet was estimated with the following results:

Question 6

Regression analysis is a statistical technique used to "fit" an equation to empirical data in order to estimate the relationship between a dependent variable and one or more independent variables.

Question 7

In demand estimation, when regression analysis is employed, the dependent variable is the quantity of some product purchased or sold per unit of time; and the independent variables usually include such items as price of the product, prices of related goods, consumer income, advertising expenditure and credit terms.

Question 8

Market surveys can be quite useful when questionnaires do not call for very fine discrimination by the respondents.

Question 9

A log form demand function for carpet was estimated with the following results:

Question 10

R², the coefficient of determination, measures the proportion of the total variation in the dependent variable that is "explained" by the variation of the independent variables).

Question 11

When R² = .87, this means that the variation of the independent variables) explains 87% of the total variation in the dependent variable.

Question 12

We can have a greater confidence in the predictive accuracy of the regression model, the closer the observed data points lie to the regression line.

Question 13

A market survey is a questionnaire, either filled out by respondents or administered by an interviewer, which tells how consumers think they will react if certain changes in demand variables take place.

Question 14

Using linear regression analysis, Tim's Home Supply Company estimated its demand function for paint with the following results.

Question 15

R², the coefficient of determination, does not necessarily mean that variation in the independent variables) caused the variation in the dependent variable.

Question 16

Management must be careful in its use of statistically estimated demand functions because variables that are related statistically do not necessarily have a cause-effect relationship to one another and because important variables may have been excluded.

Question 17

R² indicates how the variation in the independent variables caused the variation in the dependent variable.

Question 18

When the independent variables are expressed in log form and not squared in order to use linear regression to estimate the coefficients, then we are assuming that the elasticity of demand for that variable is constant.

Question 19

A statistical technique used to "fit" an equation to empirical data in order to estimate the relationship between several dependent variables and more than one independent variable is called multiple regression.

Question 20

When R² = .95 this means that independent variables are not just correlated, but that they caused 95% of the variation in the independent variables.

Question 21

In a market experiment, those variables that are anticipated to be determinants of the quantity sold of a product are:

A) changed by the buyer.
B) held constant while other variables are changed.
C) changed by the seller
D) allowed to float up or down to "market" rates.
E) used to form a new demand function, which is then tested against historical data.

Question 22

In a market experiment:

A) the seller changes those variables that are anticipated to be determinants of the quantity sold of a product.
B) consumers fill out questionnaires that ask how they would react if the seller changes those variables that are anticipated to be determinants of the quantity sold of a product.
C) interviewers fill out questionnaires that ask how consumers would react if the seller changes those variables that are anticipated to be determinants of the quantity sold of a product.
D) those variables that are anticipated to be determinants of the quantity sold of a product are held constant by the seller while other variables within the demand function are changed.
E) non-price variables within the demand function are changed to see how consumers will react.

Question 23

R², the coefficient of determination:

A) is a statistical technique used to "fit" an equation to empirical data in order to estimate the relationship between a dependent variable and more than one independent variable.
B) indicates how the variation in the independent variables) caused the variation in the dependent variable.
C) measures the proportion of the total variation in the dependent variable that is "caused" by the variation of the independent variables).
D) measures the proportion of the total variation in the independent variables) that is "explained" by the variation of the dependent variable.
E) measures the proportion of the total variation in the dependent variable that is "explained" by the variation of the independent variables).

Question 24

In market experiments, those variables that are anticipated to be determinants of the quantity sold of a product are changed by the seller.

Question 25

One of the problems with market experiments is that there are almost always some relevant variables that the experimenters cannot control.

Question 26

While limited in terms of what kind of information can be determined, large-scale market surveys:

A) can be quite expensive.
B) can be relatively inexpensive.
C) can easily be undertaken by small businesses.
D) are vastly superior to regression analysis using historical data.
E) are vastly superior to smaller-scale market surveys.

Question 27

Developing an accurate mathematical expression for a demand function is a matter of:

A) applying linear regression analysis to estimate the coefficients.
B) identifying the best set of independent variables.
C) determining whether or not to use logarithms.
D) conducting the right market experiments.
E) all of the above.

Question 28

Using linear regression analysis, Tim's Home Supply Company estimated its demand function for paint with the following results.
Where:

Q_P = Gallons of paint sold per year at Tim's
P_P = price per gallon of paint
P_W = price of wallpaper
Y = Average annual household income
Given the above information:

A) when income rises, people will buy more wallpaper
B) when income decreases, people will buy more paint
C) when income rises, people will buy more paint
D) paint and wallpaper are complementary goods
E) none of the above

Question 29

Using linear regression analysis, Empire Roofing Company estimated its demand function for flat rolled roofing and achieved the following results:
Q_R = 244 - .1057P_R + 1.35P_C + .025I
where:
Q_R = quantity in thousands of square feet per year
P_R = price in thousands per roofing job
P_C = price of a competing company's average bid in thousands)
I = average annual household income
a. How can Empire use this information to find its price, income and cross price elasticity of demand?
b. What would an R² of 0.72 indicate?
c. Can you think of a potentially important variable that Empire has ignored in its demand analysis?

Question 30

A log form demand function for carpet was estimated with the following results:
Where Q = square feet of carpet
P = Price of carpet
W = average price of wood flooring
Y = Median Income
R = average size of housing units
Using the above information:

A) when income increases, people will purchase more carpet
B) when income increases, people will purchase less wood flooring
C) wood flooring and carpet are complementary goods
D) wood flooring and carpet are substitute goods
E) none of the above

Question 31

Greater confidence can be placed in market experiments as opposed to surveys because:

A) market experiments are easier to conduct than market surveys.
B) market experiments are cheaper to conduct than market surveys.
C) market experiments indicate how consumers react while market surveys indicate how consumers think they will react.
D) market experiments are inherently risky and expensive
E) None of the above

Question 32

Which of the following is NOT a practical strategy for small businesses to assess market demand:

A) historical market data
B) data from smaller-scale market surveys
C) statistical programs in spread sheet software
D) data from trade shows
E) direct survey research

Question 33

In a market experiment, consumers fill out questionnaires which ask how they would react if the seller changes those variables that are anticipated to be determinants of the quantity sold of a product.

Question 34

Multiple regression analysis is a statistical technique used to "fit" an equation to empirical data in order to estimate the relationship between:

A) a dependent variable and one or more independent variables.
B) a dependent variable and more than one independent variable.
C) an independent variable and one or more dependent variables.
D) a dependent variable and specific independent variables within a function.
E) a dependent variable and only a single independent variables.

Question 35

Using linear regression analysis, Jack's Boot Company estimated its demand function for a popular riding boot and achieved the following results:
Q_B = 445 - 6.57P_B + 1.35P_C + .25A
where
Q_B = quantity sold per month of the riding boots
P_B = price of the riding boot
P_C = price of a competing company's boot
A = monthly advertising expenditures
a. How can Jack's use this information to find its price, income and cross price elasticity of demand?
b. What would an R² of 0.92 indicate?
c. Can you think of a potentially important variable that Jack's has ignored in its demand analysis?

Question 36

Linear regression analysis is a statistical technique used to "fit" an equation to empirical data in order to estimate the relationship between:

A) an independent variable and one or more dependent variables.
B) a dependent variable and only a single independent variables.
C) a dependent variable and specific independent variables within a function while leaving other independent variables constant.
D) dependent variable and one or more independent variables.
E) none of the above.

Question 37

Market surveys can be quite useful when:

A) questionnaires call for fine discrimination by the respondents.
B) the questionnaires contain no more than three questions.
C) questionnaires do not call for very fine discrimination by the respondents.
D) substantial funds are expended on the survey.
E) questionnaires are combined with advertising.