Question #58547

When estimating a demand function, explain why fitting a line of best fit through observed price and quantity combinations over time is not likely to yield good estimates

Expert's answer

Demand curve represents the relationship between the quantity of a product demanded and its price. It is usually downward-sloping. For a given product, a demand curve may be estimated by first conducting a survey and then performing a regression analysis.

A line of best fit is a straight line that best represents the data on a scatter plot may pass through some of the points, none of the points, or all of the points. As it is a straight line it gives only average estimates, so this method is not very correct for estimation of a demand function.

A line of best fit is a straight line that best represents the data on a scatter plot may pass through some of the points, none of the points, or all of the points. As it is a straight line it gives only average estimates, so this method is not very correct for estimation of a demand function.

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