Question

1. The following demand function has been estimated for product A:

Q_A= aP_A^bI^cP_B^dP_op^eA_B^fA_A^g

where Q_A=quantity ofA demanded in units

            P_A=price ofA

           P_B= price of B

           I= per capita income

          P_op= total population

         A_A= advertising expenditures for A

         A_B= advertising expenditures for B

How would you interpret the values for e, f, and g?

Answer 1

Given regression equation:

QA = a.PA + bI + c.PB + d.POP + e.AB + f.AA + g

E: Negative sign: Because an increase in advertisement of B will increase sales of B and people will start consuming more of B instead of A

F: Positive sign: As higher advertisement of A will increase sales of A

G: positive sign: As it represents intercept term or Q when all factors are fixed and 0