law of demand Free Essay, Term Paper and Book Report
As price falls, the quantity demand rises and as price rises quantity demand falls. Thus there is a inverse relationship between price and quantity demanded. Economists call this inverse relationship "The law of Demand." If all factors remain equal but price of goods increases, less people demand for that good and visa versa. As a result of this people obviously avoid buying a product that will force them to forgo the consumption of something else they value more.
In this part of assignment, I will shred some light on the demand equation for consumer using annual US time series data and test a hypotheses generated by the economic theory of the consumer.
The equations we use have a log-linear form,
logx𝑡 = 𝛽𝑜+𝛽𝑝 logp𝑡 +𝛽𝑞 logq𝑡 +𝛽𝑦 logy𝑡 +u𝑡
xt = real expenditure on the good
pt = price index of the good
qt = price index of other goods
yt = consumers' real income
ut = disturbance term
Word Count: 15694
Page Count: 62.7 (250 words a page / double spaced)
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