Notes On Economics

Submitted By zlin11
Words: 583
Pages: 3
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I. GRAPHING BASICS

1.

a) The dependent variable Y is the demanded quantity and variable we care about knowing. The demanded quantity is determined by the independent variables which is the price of the product such as X and Z. Dependent Variable => Y(quantity demanded for product p)

b) The independent variables are X and Z which are the prices of the products. Price is the variable that can produce a movement along the curve because it affects the value of the demanded quantity. If prices goes down then people buy more product

Independent Variables => X(price of product x), Z(Price of product z)

c) When β= -1.5, this represents the slope of the line and it means a $1.50 change in price which would lead to a decrease in demanded quantity.

d) When α=24, this means the intercept 24 represents the maximum value of the demanded quantity when the price is zero.

e) The curve is a measure of total market demand because it illustrates the relationship of the price of the own good on the quantity demanded of the own good. Quantity demanded of a good increases when the price of that good decreases. The curve doesn’t tell us about who is the consumer, what and why.

2.

a) It’s always much easier to estimate a linear model, a natural log transformation makes a non-linear model linear, and thus easier to estimate. In this model, the natural log of Y and the natural log of X have a linear relationship. That’s why the model is “log linear”.

b) “Own” price elasticity is a measure used in economics to show the responsiveness or elasticity of quantity demanded of a good or service to change in price. That is, it gives us the percent change in quantity demanded in response to a percent change in price.

To derive: є = [pic]=[pic]

c) No. From the perspective of a statistician, the graphical representation of economic supply and demand models is incorrect.

In the case of Statistics the independent variable (the Price of a product: P) should be on the X-axis while the dependent variable (the Quantity Demand for a product: Q) should be on the Y-axis.

d) For normal goods, when income increases, the quantity demanded increases keeping other variables constant.

[The income elasticity
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