Session 7

Things to remember

B(hat)=

COV(Xi,Yi)
-----------
VAR(Xi)

∑(Xi-X)(Yi- Y )
= -----------------
∑(Xi-X)2

Elasticity =

^{------------P(BAR)
B(HAT)*-----------
------------Q(BAR)}

R² = Coefficient of determination = ESS/TSS= ∑(Y(HAT)-Y(BAR))² /∑(Yi-Y(BAR))²

Always explain R² in EXAM

Qx=4PX^0.3.I^0.7.Py^-0.8.T^0.2

1. X and Y are substitutes
2. X and Y are complements
3. X is a luxury good
4. X is a inferior good

Here cross price elasticity = -0.8, Since it is negative it means if Price of Y decreases, quantity demanded of X increases. Hence they are complements.

In the multiplicative model, elasticity is constant