Demand can be estimated with experimental data, time-series data, or cross-section data. ABC Corporation generates experimental data in test stores where the effect of a NFL-licensed Carolina Panthers logo on Champion sweatshirt sales can be carefully monitored. Demand forecasts usually rely on time-series data. In contrast, cross-section data appear in Table 1. Soft drink consumption in cans per capita per year is related to six-pack price, income per capita, and mean temperature across the 48 contiguous states in the United States.
Questions
1. Estimate the demand for soft drinks using a multiple regression program available on your computer.
2. Interpret the coefficients and calculate the price elasticity of soft drink demand.
3. Omit price from the regression equation and observe the bias introduced into the parameter estimate for income.
4. Now omit both price and temperature from the regression equation. Should a marketing plan for soft drinks be designed that relocates most canned drink machines into low-income neighborhoods? Why or why not?
SOFT DRINK DEMAND
State Annual Price per Income per Mean Temp
Cans per Capita Six Pack Capita
Alabama 200 2.19 13 66
Arizona 150 1.99 17 62
Arkansas 237 1.93 11 63
California 135 2.59 25 56
Colorado 121 2.29 19 52
Connecticut 118 2.49 27 50
Delaware 217 1.99 28 52
Florida 242 2.29 18 72
Georgia 295 1.89 14 64
Idaho 85 2.39 16 46
Illinois 114 2.35 24 52
Indiana 184 2.19 20 52
Iowa 104 2.21 16 50
Kansas 143 2.17 17 56
Kentucky 230 2.05 13 56
Louisiana 269 1.97 15 69
Maine 111 2.19 16 41
Maryland 217 2.11 21 54
Massachusetts 114 2.29 22 47
Michigan 108 2.25 21 47
Minnesota 108 2.31 18 41
Mississippi 248 1.98 10 65
Missouri 203 1.94 19 57
Montana 77 2.31 19 44
Nebraska 97 2.28 16 49
Nevada 166 2.19 24 48
New Hampshire177 2.27 18 35
New Jersey 143 2.31 24 54
New Mexico 157 2.17 15 56
New York 111 2.43 25 48
North Carolina 330 1.89 13 59
North Dakota 63 2.33 14 39
Ohio 165 2.21 22 51
Oklahoma 184 2.19 16 82
Oregon 68 2.25 19 51
Pennsylvania 121 2.31 20 50
Rhode Island 138 2.23 20 50
South Carolina 237 1.93 12 65
South Dakota 95 2.34 13 45
Tennessee 236 2.19 13 60
Texas 222 2.08 17 69
Utah 100 2.37 16 50
Vermont 64 2.36 16 44
Virginia 270 2.04 16 58
Washington 77 2.19 20 49
West Virginia 144 2.11 15 55
Wisconsin 97 2.38 19 46
Wyoming 102 2.31 19 46
