French wine company sells wine in U.S. market. Assume that the demand is a linea
ID: 3175558 • Letter: F
Question
French wine company sells wine in U.S. market. Assume that the demand is a linear function of price and consumer income, i.e. Q = a + bP + cI , where P is price and I is income. The marketing department estimates the parameters a , b and c using ordinary linear regression and obtains the following summary output. Suppose that the current wine price is $25 per bottle and average income is $30,000.
Regression Statistics:
Multiple R 0.63049531
R Square 0.39752434
Adusted R Square 0.37188707
Standard error 10.5852444
Observations 50
Anova
df ss MS F Significance F
Regression 2 34.74.752276 1737.376 15.50572 0.000007
Residual 47 5266.227724 112.0474
Total 49 8740.98
Coefficiencts Standard Error t-Stat P-value
Intecept 182.435475 16.24865628 11.22773 0
Price -1.0226182 0.311627481 -3.28154 0.001951
Income 1.41177654 0.34526032 4.089021 0.000168
Which of the following statement is correct?
The own price elasticity of demand is approximately 0.6.
The own price elasticity of demand is approximately 1.5.
The income elasticity of demand is approximately 1.
Explanation / Answer
The own price elasticity of demand is approximately 0.6.
Price elasticity of demand =1/b = 1/-1.027 = -.973
The own price elasticity of demand is approximately 1.5.
Price elasticity of demand =1/b = 1/-1.027 = -.973
The income elasticity of demand is approximately 1.
Price elasticity of demand =1/c = 1/1.412 = .708
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