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Credits
Managerial Economics, 8e
Chapters
Ebook
News
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
Study Plan
Ebook
Chapter Outline
Diagnostic/Quiz+ Multiple-Choice Quizzes
Quiz Result
Chapter Review
Vocabulary Flashcards
Sentence Completion Exercises
Spreadsheet Exercises
In This Chapter
Study Plan
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Chapter 4
Estimating Demand Functions
Chapter Review
This chapter presents basic statistical techniques in estimating demand functions. Since both demand and supply curves in the real world shift, it is extremely difficult to estimate just a demand or a supply curve. This is the well know "identification" problem.
While consumer interviews and market experiments are sketched out, the primary focus is on regression. The method of least squares is examined with the goal of estimating the sample regression line as distinct from the population regression line. The method of least squares provides for an estimate of the intercept term and the slope coefficient by minimizing the sum of the squared residuals.
One measure of the goodness of fit is the coefficient of determination, designated by
R
2
. The coefficient of determination is the square of the correlation coefficient,
r
. While
r
can vary between 1 and +1, the coefficient of determination,
R
2
varies between 0 and 1. The closer it is to 1, the better the fit of the estimated line. Alternatively, more of the variability in the dependent variable, y, is explained by the variability in the independent variable, x.
With more than one independent variable, the focus shifts to a multiple linear regression model. Just as in the case of the simple linear regression model, least squares estimates are found by minimizing the sum of the squared residuals.
Software such as
SAS
and
MINITAB
are some of the programs used. Output from these packages includes the
standard error of the estimate
, the
F
-Statistic, and the
t
-statistic. The standard error provides a measurement of the scatter of observations around the estimated line. It is also used in constructing "prediction" intervals.
The
F
-Statistic measures the likelihood that at least one of the independent variables has an effect on the dependent variable. The p-value, the probability that the observed statistic could have arisen by chance alone is discussed. Small
p-values
, generally under 5% or 1% allow the rejection of chance as an explanation.
The
t
-statistic allows a determination of which one of the independent variables influences the dependent variable. Once again, use is made of the
p-value
. Small
p-values
tend to allow us to ignore chance as the reason for what is observed. Note that in the simple linear regression model, the square of the
t
-statistic is the
F
-Statistic.
Multicollinearity, serial correlation, and other issues regarding estimation of regression models are introduced. In general, multicollinearity arises when two or more independent variables are highly collinear. In this case, it is often difficult for software (or humans) to independently determine which one of the independent variables influences the dependent variable! Multicollinearity is often seen when there is a significant
F
-Statistic, but the t-statistics are insignificant.
When error terms are not independent, serial correlation occurs. Examination of serial correlation occurs through the use of the Durbin-Watson statistic. Running the regression model by taking first differences of all the variables is one technique for dealing with the problem