Econ 6012 - Demand Estimation Project

Demand Estimation Project

Liquid Body Wash

Weishu Xiang

Professor Adam Kessler

ECON 6012

Oct 13, 2015

1. Product:

My project estimates the demand for liquid body wash consumption per person for last 20 years (1995-2014) by using four independent variables.

2. Independent Variables:

Average price of body wash – It is important to know the average price when estimate demand, because high or low price will have effect the quantity of demand.

Income per capita – Average personal income is an important variable to determine the demand because the individuals with more disposable income will prefer more premium body wash with higher price.

Population – It is an important variable because the demand of product might increase with increasingly population.

Average price for soap– it is the substitute for body wash, which means the price change will indirectly affect the demand of body wash consumption

3. Form of Demand Model

I use Linear Demand Model (Regression Analysis) to estimate demand for body wash and use Time Series of annual data from 1995-2014.

4. Coefficients

A: the coefficient of average price for body wash. It shows a positive sign (0.085), which means the demand of body wash increase when price of body wash arise. It might because the body wash is a daily necessity. Even though the price increase, people still want to buy it since it might contain better ingredients and better to use.

B: the coefficient of income per capita. It shows a positive sign (3.13), which means that the demand for body wash will increase because individuals have higher income.

C: the coefficient of population. It shows a positive sign (0.0042) since the larger population boosts larger consumption.

D: the coefficient of average price for soap. It shows a positive sign(0.0145) which means that when the price of soap increase, demand of soap will decrease. And as a substitute of soap, body wash consumption will increase.

5. Proxies

To represent and measure Y variable body wash consumption, I use terms of bottle consumption per person.

To represent and measure the average price for body wash, I use terms of dollars.

To represent and measure income per capita, I use terms of dollars.

To represent and measure population, I use terms of millions.

To represent and measure the price for soap, I use terms of dollars.

6. Results

[pic 1]

Linear Demand Equation:

Q=3.67+0.085Real P+3.13Real Inc+0.0042Pop+0.0145soap P

7. Description of Results