Question

Which of the following regression models will you choose to explore how population and income determine the demand on pizza and obtain the estimation of “constant” income elasticity of demand on pizza? Please brief explain your choice.

Simple linear model

Multiple linear model

Quadratic model

Log-linear model

Answer 1

The correct answer would be D. Here we regress a function of demand for pizza on the variables such as population and income. Since the coefficient of the income variable needs to give an estimate of the income elasticity of demand the best model in this case would be a log linear model as the coefficient would then be what percentage change the demand for pizza would change as income changes by 1 unit. Thus we need a log variant model here and so the correct answer is D.