You have been consulted as a researcher to study the factors affecting the demand for breads among BSC. Economics II students and you have found the demand of bread is function several factors. Thus, you have presented the following demand equation:
𝑸𝒅=𝒃𝟏+𝒃𝟐𝑷+𝒃𝟑𝑷𝒓+𝒃𝟒𝒀 +𝒃𝟓𝑨+𝒃𝟔𝑮 +𝒃𝟕𝑷𝒒 +𝒖 𝒕𝒕
Where
𝑄𝑑 = 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑎𝑡 𝑡𝑖𝑚𝑒 𝑡, 𝑏1 = 𝑎 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡, 𝑏2 − 𝑏7 = 𝑡
𝑐𝑜𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑡 𝑜𝑓 𝑡h𝑒 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑠, 𝑃 = 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑏𝑟𝑒𝑎𝑑, 𝑃𝑟 = 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑖𝑡𝑠 𝑟𝑒𝑙𝑎𝑡𝑒𝑑 𝑔𝑜𝑜𝑑, 𝑌 = 𝑖𝑛𝑐𝑜𝑚𝑒 𝑜𝑓 𝑡h𝑒 𝑠𝑡𝑢𝑑𝑒𝑛𝑡, 𝐴 = 𝑎𝑔𝑒 𝑜𝑓 𝑠𝑡𝑢𝑑𝑒𝑛𝑡, 𝐺 = 𝑔𝑒𝑛𝑑𝑒𝑟 𝑜𝑓 𝑠𝑡𝑢𝑑𝑒𝑛𝑡, 𝑃𝑞 =
𝑃𝑒𝑟𝑐𝑒𝑝𝑡𝑖𝑜𝑛𝑠 𝑜𝑛 𝑞𝑢𝑎𝑙𝑖𝑡𝑦 𝑜𝑓 𝑏𝑟𝑒𝑎𝑑 𝑏𝑦 𝑠𝑡𝑢𝑑𝑒𝑛𝑡 𝑎𝑛𝑑 𝑢𝑡 = 𝑒𝑟𝑟𝑜𝑟 𝑡𝑒𝑟𝑚
a) Mention types of the variables in demand equation
b) Mention the measurement scale of each variable used in the demand equation
a) The variables in the demand equation are:
- 𝑄𝑑: Quantity demanded of bread
- 𝑃: Price of bread
- 𝑃𝑟: Price of related good (interpreted as a complement or substitute for bread)
- 𝑌: Income of the student
- 𝐴: Age of the student
- 𝐺: Gender of the student
- 𝑃𝑞: Price expectations of the student
- 𝑢𝑡: Error term
b) The measurement scale of each variable used in the demand equation can vary. Generally, the measurement scales are as follows:
- 𝑄𝑑: Interval or ratio scale
- 𝑃: Ratio scale
- 𝑃𝑟: Ratio scale
- 𝑌: Ratio scale
- 𝐴: Ratio scale (but sometimes ordinal)
- 𝐺: Nominal scale
- 𝑃𝑞: Interval or ratio scale
- 𝑢𝑡: No specific measurement scale
a) The types of variables in the demand equation are as follows:
- 𝑄𝑑: Quantity demanded of bread (dependent variable)
- 𝑃: Price of bread
- 𝑃𝑟: Price of its related good
- 𝑌: Income of the student
- 𝐴: Age of the student
- 𝐺: Gender of the student
- 𝑃𝑞: Perceptions on quality of bread by students
- 𝑡: Time
b) The measurement scale of each variable used in the demand equation can vary, depending on the specific nature of the data collected. However, here are some possibilities:
- 𝑄𝑑: Ratio or interval scale
- 𝑃: Ordinal or interval scale
- 𝑃𝑟: Ordinal or interval scale
- 𝑌: Ratio or interval scale
- 𝐴: Ordinal or interval scale
- 𝐺: Nominal scale
- 𝑃𝑞: Interval or ordinal scale
- 𝑡: Interval or ordinal scale