ECO – Case Exercise SOFT DRINK DEMAND ESTIMATION

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.Questions1. 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 DEMANDState Annual Price per Income per Mean TempCans per Capita Six Pack CapitaAlabama 200 2.19 13 66Arizona 150 1.99 17 62Arkansas 237 1.93 11 63California 135 2.59 25 56Colorado 121 2.29 19 52Connecticut 118 2.49 27 50Delaware 217 1.99 28 52Florida 242 2.29 18 72Georgia 295 1.89 14 64Idaho 85 2.39 16 46Illinois 114 2.35 24 52Indiana 184 2.19 20 52Iowa 104 2.21 16 50Kansas 143 2.17 17 56Kentucky 230 2.05 13 56Louisiana 269 1.97 15 69Maine 111 2.19 16 41Maryland 217 2.11 21 54Massachusetts 114 2.29 22 47Michigan 108 2.25 21 47Minnesota 108 2.31 18 41Mississippi 248 1.98 10 65Missouri 203 1.94 19 57Montana 77 2.31 19 44Nebraska 97 2.28 16 49Nevada 166 2.19 24 48New Hampshire177 2.27 18 35New Jersey 143 2.31 24 54New Mexico 157 2.17 15 56New York 111 2.43 25 48North Carolina 330 1.89 13 59North Dakota 63 2.33 14 39Ohio 165 2.21 22 51Oklahoma 184 2.19 16 82Oregon 68 2.25 19 51Pennsylvania 121 2.31 20 50Rhode Island 138 2.23 20 50South Carolina 237 1.93 12 65South Dakota 95 2.34 13 45Tennessee 236 2.19 13 60Texas 222 2.08 17 69Utah 100 2.37 16 50Vermont 64 2.36 16 44Virginia 270 2.04 16 58Washington 77 2.19 20 49West Virginia 144 2.11 15 55Wisconsin 97 2.38 19 46Wyoming 102 2.31 19 46

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