ECO 550
Assignment 1: Demand Estimation
04/23/14
Joel Chagadama
Dr. Bernadette West
Eco 550
1
ECO 550
Demand estimation is one of the most critical practical exercises carried out by economists. It is
therefore critical that we understand the demand and pricing environment facing companies and
its implications.
Using regression analysis and standard error will test if the independent variables that make up
our demand function are statistically significant. Rule of thumb is that the coefficient is
statistically significant if the t-statistic is greater than the absolute value of 2 or if the “probability
t” statistic is less than 0.05. (McGuigan et al. 2014). The t-statistic is arrived at by dividing the
coefficient by the standard error in parenthesis.
Q = – 2,000 – 100P + 15A +25PX + 10Y
(5,234) (2.29) (525) (1.75) (1.5)
