Answer to Question #69430 in Macroeconomics for Michael Pendleton

Question

interpreting multivariate demand

Answer 1

Multivariate demand affects not only the price of this product. General view of the multivariate demand function on the example of the airline market:
Dx = D (Px, Py, Pz, B, W, A, E, T, U)
Dx , stands for demand for item x (air ticket)
Px, its own price (of the air ticket)
Py, the price of its substitutes (other airlines or even other type of transport)
Pz, the price of its complements (like taxi to the airport)
B, the income of consumer
W, the wealth of purchaser (business class or economy class)
A, the advertisement for the product
E, the price expectation of the consumer
T, taste or preferences of consumer
U, all other factors.
Multivariate demand can be used in regression analysis as multivariate regression model.
P = g + hQ + iY + e
This is an inverse demand function that incorporates both quantity (Q) and income (Y) as explanatory variables.
g, h and I are coefficients to be estimated, e is a random error.