Question

Consider a Log-Linear Model where the dependent variable is the quantity of sales as the number of sales in a month. One independent variable is price in dollars. The coefficient on price is −0.038. What do the results of the Log-Linear Model suggest?

Group of answer choices

On average, a $1 increase in price results in a 0.038 decrease in the number of sales in a month

On average, a 1% increase in price results in a 0.038% decrease in the number of sales in a month

On average, a 1% increase in price results in a 0.038 decrease in the number of sales in a month

On average, a $1 increase in price results in a 3.8% decrease in the number of sales in a month

Answer 1

log (Y) = a + bX

Where Y is the dependent variable and X is the independent variable.

b is the coefficient of variable X.

The above equation is the example of the Log-Linear regression model.

The coefficient of variable 'X' implies one unit change in X leads to 100 * b percent change in Y.

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Now consider a Log-Linear model where the dependent variable is the quantity of sales and the independent variable is a price in dollar. The coefficient on price is -0.038.

Hence on average, a $1 increase in price results in a 3.8% decrease in the number of sales in a month.

(i.e., 100 * -0.038 = -3.8 percent)

Answer: Option (D) i.e., On average, a $1 increase in price results in a 3.8% decrease in the number of sales in a month