Question

“Demetra” is a herbicide manufacturing company, based in Athens, Greece. A year ago “Demetra” branded a new herbicide call “Super-H” in 30 regional markets following the success of a pre-test. You are the chief economist of “Demetra”. The president of the company wants you to indicate how the demand for the new product is affected by a number of factors. Using the data set on the excel file answer the following questions:

Regression equation-

Demand in cases=  1398.151 - 5.1518 Price per case+3.450833 Competitor Price+0.266443 Advertising+ 0.000139 household

1. Are the findings of the regression equation in line with the economic theory? (Hint: think about the signs of the coefficients for this one)–( 10 points)

Answer 1

Finding is inconsistent.

Coefficient of price is negative, which is consistent with law of demand (which states that price and quantity demanded are inversely related).

Coefficient of Competitor price is positive, which means that as price of rival good increases (decreases), demand for Super-H increases (decreases).

Coefficient of Advertising is positive, which is consistent since in general, Higher (lower) advertising increases (decreases) demand.

Coefficient of Household is positive, which is consistent since in general, Higher (lower) Household income increases (decreases) demand, unless it is an inferior good.