Demand and Supply Estimation Essay
Assignment 1: Demand and Supply Estimation
Varney Momo Bafalie
Dr. Emmanuel Obi
Managerial Economics and Globalization
April 26, 2014
References
Managerial Economics: Applications, Strategies and Tactics, Mcguigan/Moyer/Harris 13th Edition, 2014
Imagine that you work for the maker of a leading brand of lowcalorie, frozen microwavable food that estimates the following demand equation for their product using data from 26 supermarkets around the country for the month of April.
Option 1:
Note: The following is a regression equation. Standard errors are in parenthesis for the demand of widgets.
QD=  5200  42P + 20Px + 5.2I + 0.20A + 0.25M
(2.002) (17.5) (6.2) (2.5) …show more content…
Price Elasticity is – 1.19. That is a 1% increase in price of the product will make quantity demanded to drop by 1.19%. Thus, the demand for this product is somewhat elastic. Consequently, increase in income may drive consumers away.
Cross price elasticity is 0.68 that is if the price of the competitor’s product goes up by 1%, then quantity demanded of this product with increase by 0.68%. This product is fairly inelastic to a competitor’s price and there exists no need to be concerned about the competitor since their pricing won’t affect sales.
Incomeelasticity is 1.62. This indicates that a 1% rise in the average area income will boost the quantity demanded by 1.62%. In this aspect, the product is elastic and the company can make the decision to raise the price if the average income rises.
Advertisementelasticity is 0.11, which means that A 1% increase in advertising expense will raise the quantity demanded by 0.11%. Therefore, demand is rather inelastic to advertising. For that reason, more advertisement doesn’t automatically means a company can raise the price because that still could drive consumers away.
With respect to microwave ovens in the area, elasticity is 0.07, which shows an elevation of 1% in the number of ovens in the area increasing the quantity demanded by a mere 0.07%. Therefore, in this…

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