Question

The identification problem would not prevent estimation of a demand curve from price and quality data if, over the time period sampled, the only things that varied was the ?

A. technology of production

B.level of consumer income

C. price of subtitution and complements

D. level of advertising expenditude

Answer 1

Option A.

• The identification problem in determining a demand curve occurs when different equilibrium points occurs at different points of time.
• Still this problem would not prevent Economists in estimating the demand curve from the prices and quality data but this data keeps changing over time.
• The main reason behind this is the changes or evolution in technology of production which produces varying quantities and price's.
• These varying quantities and price's may not lie on a single Demand curve but rather on many demand curves. This leads to an identification problem in the estimation of demand curve.