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Unformatted text preview: Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 11 Lecture 1 22 Lecture 1 Announcements n Todays reading: n Reading on CTools: Supply and Demand Functions n Chapter 6 n Problem set 6 available on CTools Lecture 1 33 Lecture 1 Linear demand function: Qd= b0 + b1P + b2Pother+ b3Y + b4Pop + Where: P = own price of the good Pother = price of some other good Y = income (e.g. average household income) Pop = population etc Equivalently: Qd = a + b1 P where a = [b0 + b2Pother + b3Y + b4Pop + ] A general linear model of demand Lecture 1 44 Lecture 1 Q Q4 Q1 Q2 Q3 Q5 P1 P2 P3 P4 P5 P 1 2 3 4 5 Estimating the Demand Curve Lecture 1 55 Lecture 1 Ordinary least squares estimation Suppose we knew (or believed) the demand function to have the form Qd = a + b P + a + b P : deterministic (predictable) variation in Qd : random (unpredictable) variation in Qd n This term explains why the data dont appear to fall on a linear demand curve Lecture 1 66 Lecture 1 Q P1 P2 P3 P4 P5 P 1 2 4 5 Qd = a + b P a Deterministic and random Lecture 1 77 Lecture 1 Estimating the Demand Curve Make use of available information n i.e. observed pricequantity pairs n Any observations should have been generated by the demand function Attempt to estimate the deterministic portion of demand n i.e. which deterministic, linear demand curve is most likely to have generated the observed data? Estimated function: P b a P Q ) ( + = a < b Lecture 1 88 Lecture 1 Estimated Functions and Residuals Create an estimated demand curve by choosing any values n ....
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This note was uploaded on 04/20/2010 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.
 Winter '08
 Gerson
 Microeconomics, Supply And Demand

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