Question

Suppose you are trying to estimate the demand for a new smartphone. What variables you would include as explanatory variables? What problems would you encounter in your regression analysis with the variables you chose?

Answer 1

To estimate the demand for a new smartphone, the following explanatory variables would be ideal to be included as explanatory variables :

1. Price of the Smartphone

2. Durability

3. Hardware Features of the smartphone

4. Brand Name

5. Technology Features

The problems that can be encountered using these variables is the problem of multicollinearity, ie. two or more factors amongst this list of factors might be coorelated which can give us flawed results. For example, harware features and durability are two features whose effects on the demand of the smartphone might be coorelated.