a) Assume that the Japanese car maker, Toyota has successfully established an assembling plant of cars at Okahandja and its annual production is unknown. Assume that the demand function for the automobile industry is: Q = -450P + 155PI + 155I + 5,500Pop - 2,500,000i + 100A....................equation 1 where Q is the quantity of cars demanded (dependent variable) and is a linear function of all the independent variables; P is the average price of new domestic cars (in N$); PI is the average price for new import cars (in N$); I is disposable income per household (in N$); Pop is population (in millions); i is average interest rate on car loans (in percent); and A is industry advertising expenditures (in N$ millions). (A) The terms ?_1, ?_2, ..., ?_3 are parameters of the demand function. Using equation 1, explain the effects of the changes in the independent variables on the dependent variable. (10) b) The information below show the estimated value for independent variables during the coming year. Set up a table to estimate the industry demand for new automobiles.

Independent variable Average price for new cars (P) (N$) Average price for new luxury cars (PI) (N$) Disposable income, per household (I) (N$) Population (Pop) (millions) Average interest rate (i) (percent) Industry advertising expenditures (A) (N$ million) Estimated value for independent variable 25,000 55,000 40,000 350 7% 5,000

Independent variable Average price for new cars (P) (N$) Average price for new luxury cars (PI) (N$) Disposable income, per household (I) (N$) Population (Pop) (millions) Average interest rate (i) (percent) Industry advertising expenditures (A) (N$ million)

Independent variable Estimated value for independent variable Average price for new cars (P) (N$) 25,000 Average price for new luxury cars (PD) (N$) 55,000 Disposable income, per household (I) (N$) 40,000 Population (Pop) (millions) 350 Average interest rate (@) (percent) 7% Industry advertising expenditures (A) (N$ 5,000 million)