Answer to Question #316499 in Macroeconomics for Hes

Question

1. One of the most difficult tasks in regression analysis is to obtain the data suitable for quan-

titative studies of this kind. Suppose you are trying to estimate the demand for home fur-

niture. Suggest the kinds of variables that could be used to represent the following factors,

which are believed to affect the demand for any product. Be as specific as possible about

how the variables are going to be measured. Do you anticipate any difficulty in securing

such data? Explain.

Answer 1

Solution

Price

As price falls, demand rises. As demand rises, price falls.

Taste and preferences

This will have a positive relationship with the demand for furniture Price of related products: if the furniture has substitutes, there will be a positive correlation between the furniture and another commodity.

Income

As income rises, demand for furniture will increase as it is considered a luxury good.

Cost or availability of credit

As price rises, demand falls. As supply falls, price rises. 

Number of buyers

There is a positive correlation between total number of buyers and the demand of furniture. As buyers increase, so does the demand for furniture.

Future expectations

There may be good expectations about future prices. Therefore, there may be a positive correlation between demand of furniture and future expectations.

Other possible factors

I do not anticipate a problem obtaining the necessary data because it is available from various sources online such as ACNielsen, IRI, and other government sites.