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Comm 295
Estimation (3.2)
3.2 REGRESSION ANALYSIS
Regression analysis
: a statistical technique used to estimate the mathematical relationship between a
dependent variable
(such as
Qd) and one or more
explanatory variables
(eg price, income)
•
Usually
p
is dependent variable (changes to clear market based on
Qd
)
Dependent variable
: variable whose variation is to be explained
Explanatory variables
: factors that are thought to affect the value of the dependent variable
Econometrics
: use of regression analysis and related statistical methods in economics and business
SIMPLE LINEAR REGRESSION

Simple
: dependent variable depends on only ONE explanatory variable

Linear
: relationship between 2 variables (such as Qd and p) is linear – drawn as straight line
Linear Demand Curves
Q = a + bp

Where
Q
is quantity demanded

p
is price

a
and
b
are parameters are coefficients that determine exact properties of demand curve
o
a
> 0 and = Qd if
p
= 0
o
b < 0
and = change in Qd if
p
increases by 1 unit (eg 1 dollar)
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 Winter '09
 RATNA

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