Objectives

1. To explain the meaning of demand estimation.

2. To examine different methods of demand estimation.

3. To explain the nature of empirical studies.

4. To illustrate the principles in drawing graphs of empirical data.

5. To explain the OLS regression model.

6. To explain and interpret measures of goodness of fit.

7. To explain different mathematical forms of the regression model.

8. To describe forecasting methods.

9. To explain the multiple regression model and its advantages compared to simple regression.

10. To examine the implications of empirical studies in terms of economic theory.

11. To enable students to perform empirical studies and test economic theories.

12. To explain a problem-solving approach that enables students to use empirical studies as an aid to managerial decision-making.

Introduction

In the previous chapter it was generally assumed that the demand function for a firm or market was known; in practice it has to be estimated from empirical data, and that is the subject of this chapter. When we speak of estimation there are a number of stages involved in this process. Some of these stages may be omitted in the simpler methods of estimation, like the first two described in the next section.