Sofa specialist, Deepseat, estimates its demand function and thinks that the demand for its sofas depends on the sofa's price Pd, the price of sofas sold by Furniture4Us Pf, the volume of carpet sales V and consumer income Y. Which of the following would you expect to be the estimated demand function?

Question

Quizplus · Accepted Answer

The correct demand function is likely to be Qd = a - bPd + cPf + dV + eY because it reflects that demand decreases with an increase in the price of Deepseat's sofas (bPd), increases with an increase in the price of competitors' sofas (cPf), increases with an increase in the volume of carpet sales (dV), and increases with an increase in consumer income (eY). This aligns with basic economic principles of demand.

Sofa Specialist, Deepseat, Estimates Its Demand Function and Thinks That