Question

1. Please show how to do in Excel
2. Using Log-log model to estimate the demand function

• Model: log(sales) = a + b * log(price) + error
• Explain the results in term of how price affects sales.

Market ID	Sales	Price	Advertising
1	367	2.2	Yes
2	165	2.7	No
3	366	2.4	Yes
4	148	2.9	No
5	152	2.8	No
6	198	2.2	No
7	390	2	Yes
8	367	2.3	Yes
9	210	2.1	No
10	353	2.7	Yes
11	151	2.8	No
12	348	2.6	Yes
13	168	2.6	No
14	147	2.9	No
15	351	2.6	Yes

Answer 1

Sol:

Take the logarithms and take ln(price ) and ln (sales )in excel and drag for the entire data.

Then go to

Install analysis tool pak in excel

Go to Data >data analysis>regression

Select Y as log(sales)

X as log(Price)

Click ok

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.56325
R Square	0.317251
Adjusted R Square	0.264731
Standard Error	0.356917
Observations	15
ANOVA
	df	SS	MS	F	Significance F
Regression	1	0.769517	0.769517	6.040661	0.028789
Residual	13	1.656065	0.12739
Total	14	2.425582
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	7.242937	0.724449	9.997863	1.8E-07	5.677861	8.808013
log(price)	-1.92493	0.783199	-2.45778	0.028789	-3.61693	-0.23293

ln(sales) = 7.242937 -1.92493 ln(price)

There is a negative relationship as price decreases ,sales increases and vice versa.