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Demand for Jets and Elasticity


Using data from the 1980′s two economists, using regression analysis, estimated the demand for new corporate jets. The demand function hypothesized that the demand for corporate jets (Qd) depended upon the price of new jets (P), the price of used jets (Pr), corporate profits (M) and a dummy variable representing corporate tax laws (D). The equation estimated was Qd = a + bP +cPr +dM +eD.
1. What do the results tell you about regression estimation and the demand for new corporate jets?
Qd =17.33 – .00016P + .0005Pr – .85M + 31.99D
(0.40) (-3.9) (4.81) (-1.17) (3.66)
R2 =.86 and F = 20.35
2. Using the data and regression results the authors estimated both their own price elasticity and cross-price elasticity of demand; ep = -3.95 and epr = 6.41. What information does this provide about the demand for jets?
3. If you were to replicate this study today would you expect similar results? Why or why not? What variable would you add to improve the significance of the estimation? Why?
4.Briefly explain the relevance of each independent variable to Qd and the expected signs for each variable’s coefficient.

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