Question

Explain how regression analysis may be used to estimate demand functions, and how to interpret and use the output of a regression. Try these problems: 7, 20

Short answer

To estimate demand, regression analysis might be employed.

Step-by-step solution

Introduction

The regression analysis is a statistical concept, which is highly useful in business. It works when business want to forecast its business scenarios.

Product’s Demand Elasticity:

The following are some of the elements that determine a product's demand elasticity: To estimate demand, regression analysis might be employed. Assume we have information on the number of units demanded for a particular commodity at various pricing levels. This can be simulated to determine the good's demand function.

We may fit a model with the quantity demanded as the dependent variable and price as the independent variable in this situation. The formula will be as follows:$\mathrm{Q}=\mathrm{a}-\mathrm{bP}$

Where Q stands for quantity and P stands for price." $a$" and " $\mathrm{b}$" are now the coefficients.

In this equation, "a" represents autonomous demand that exists regardless of price, and "b" represents the amount by which autonomous demand exists.