Demand Estimation and Forecasting
Demand Estimation
Demand Curve Estimation
■ Simple Linear Demand Curves
■ The best estimation method balances marginal costs and marginal benefits.
■ Simple linear relations are useful for demand estimation.
■ Using Simple Linear Demand Curves
■ Straight-line relations give useful approximations.
Identification Problem
■ Changing Nature of Demand Relations
■ Demand relations are dynamic.
■ Interplay of Supply and Demand
■ Economic conditions affect demand and supply.
■ Shifts in Demand and Supply
■ Curve shifts can be estimated.
Simultaneous Relations
[pic]
Interview and Experimental Methods
■ Consumer Interviews
■ Interviews can solicit useful information when market data is scarce.
■ Interview opinions often differ from actual market transaction data.
■ Market Experiments
■ Controlled experiments can generate useful insight.
Experiments can become expensive
Regression Analysis
■ What Is a Statistical Relation?
■ A statistical relation exists when averages are related.
■ A deterministic relation is true by definition.
■ Specifying the Regression Model
■ Dependent variable Y is caused by X.
■ X variables are independently determined from Y.
■ Least Squares Method
■ Minimize sum of squared residuals.
[pic]
[pic]
Measuring Regression Model Significance
■ Standard Error of the Estimate SEE) increases with scatter about the regression line.
[pic]
Goodness of Fit, r and R2
■ r = 1 means perfect correlation; r = 0 means no correlation.
■ R2 = 1 means perfect fit; R2 = 0 means no relation.
■ Corrected Coefficient of Determination, R2
Adjusts R2 downward for small samples
[pic]
F statistic
Tells if R2 is statistically significant
[pic]
Measures of Individual Variable Significance
t statistics
■ t statistics compare a sample
Demand Curve Estimation
■ Simple Linear Demand Curves
■ The best estimation method balances marginal costs and marginal benefits.
■ Simple linear relations are useful for demand estimation.
■ Using Simple Linear Demand Curves
■ Straight-line relations give useful approximations.
Identification Problem
■ Changing Nature of Demand Relations
■ Demand relations are dynamic.
■ Interplay of Supply and Demand
■ Economic conditions affect demand and supply.
■ Shifts in Demand and Supply
■ Curve shifts can be estimated.
Simultaneous Relations
[pic]
Interview and Experimental Methods
■ Consumer Interviews
■ Interviews can solicit useful information when market data is scarce.
■ Interview opinions often differ from actual market transaction data.
■ Market Experiments
■ Controlled experiments can generate useful insight.
Experiments can become expensive
Regression Analysis
■ What Is a Statistical Relation?
■ A statistical relation exists when averages are related.
■ A deterministic relation is true by definition.
■ Specifying the Regression Model
■ Dependent variable Y is caused by X.
■ X variables are independently determined from Y.
■ Least Squares Method
■ Minimize sum of squared residuals.
[pic]
[pic]
Measuring Regression Model Significance
■ Standard Error of the Estimate SEE) increases with scatter about the regression line.
[pic]
Goodness of Fit, r and R2
■ r = 1 means perfect correlation; r = 0 means no correlation.
■ R2 = 1 means perfect fit; R2 = 0 means no relation.
■ Corrected Coefficient of Determination, R2
Adjusts R2 downward for small samples
[pic]
F statistic
Tells if R2 is statistically significant
[pic]
Measures of Individual Variable Significance
t statistics
■ t statistics compare a sample