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) logistic regression
B) least-squares forecasting with monthly or quarterly data
C) quadratic regression model
D) autoregressive modeling for trend fitting and forecasting

Question

Quizplus · Accepted Answer

A quadratic regression model would be the most appropriate analysis to perform in this scenario as it allows for a curved relationship between price and demand, which aligns with the theory that demand increases at very high prices due to the status symbol value of the gem. Logistic regression may be appropriate if the data were binary (e.g. purchased vs. not purchased), but that is not the case here. Least-squares forecasting and autoregressive modeling are not suitable for analyzing the relationship between price and demand.

A Certain Type of Rare Gem Serves as a Status