MANAGEARIAL ECONOMICS

2. CASE STUDY An empirical study by Pascua, Penamante and Tan estimated a demand function for coffee in th Philippines between 1961 and 1977, using quarterly time-series data. The results were: In Q = 1.2789 - 0.1647 InP, + 0.5115 InY, (-2.14) (1.23) + 0.1483 InP - 0.0089 7 - 0.0961 D, (0.55 (-3.326) (-3.74) 0.1570D2 - 0.0097 D (-6.03) (-0.37) R2 =0.80 Where: Q = pounds of coffee consumed per head P = the relative price of coffee per pound at 1967 prices Y = per capita personal disposable income (in P1,000 at 1967 prices) P'= the relative price of tea per quarter pound at 1967 prices T= the trend factor, with T = 1 for 1961-I to T = 66 for 1977-Il D1 = 1 for the first quarter; D2 = 1 for the second quarter; D3 = 1 for the third quarter Questions: 1. Interpret the PED for coffee; does price significantly affect consumption? (5 points) 2. Interpret the YED for coffee; does income significantly affect consumption? (5 points) 3. Interpret the CED between tea and coffee; does the price of tea significantly affect the consumption of coffee? (5 points) 4. Why do you think that advertising expenditure is omitted from the equation? (5 points) 5. Interpret the trend factor. (5 points) 6. Interpret the seasonal pattern in coffee consumption in the Philippines. (5 points) 7. How well does the model fit the data? (10 points)