A certain type of rare gem serves as a status symbol for many of its owners. In theory, for low prices, the demand increases and it decreases as the price of the gem increases. However, experts hypothesize that when the gem is valued at very high prices, the demand increases with price due to the status owners believe they gain in obtaining the gem. Data on price and quantity sold were collected for a sample of 35 rare gems of this type. Which of the following would be the most appropriate analysis to perform?
A) quadratic regression model
B) exponential smoothing
C) autoregressive modeling for trend fitting and forecasting
D) least-squares forecasting with monthly or quarterly data

Question

Quizplus · Accepted Answer

A quadratic regression model would be the most appropriate analysis to perform because it can capture the non-linear relationship between price and demand that is hypothetically present at very high prices due to the status symbol effect. This model would allow for the examination of the relationship between price and demand and provide insight into how changes in price affect demand at different price levels.

A Certain Type of Rare Gem Serves as a Status