1. What is the dependent variable in this demand study? Weekly rides, QX.

2. What are the independent variables? PX, I, and PZ.

3. What are the expected signs (before the regression) of the variables thought to affect
transit ridership on TTA? Indicate why do you think so.
Coefficient of Expected sign Explanation
The constant We expect that the constant to be a positive number
term (i.e. the Positive of weekly rides when all independent variables are
intercept): a1 equal to zero.
For demand relations, we usually expect an inverse
PX: a2 Negative
relationship between price and quantity demanded.
We expect that the weekly rides is an inferior good.
I: a3 Negative In other words, when income increases, the demand
for weekly rides decline.
We expect weekly rides and parking are substitute
PZ: a4 Positive
goods.
Note: I used the letter a with number subscript to describe the coefficients. You could have used
any other symbol or letter.
4. Using the multiple linear regression facility of Excel, estimate the coefficients of the
demand model for the data given in the table above. When you submit your solution,
please remember to submit the Excel sheet of the results. Excel sheet of results is on the
page after the last question.
Standard
Coefficients Error t Stat
Intercept 69.880938 27.12519794 2.57623698
Px -6.4124077 1.748700628 -3.66695568
I 0.02192203 0.0076902 2.85064507
Pz 3.08783123 1.272668399 2.42626534
We can write the estimated the equation as follows:
QX = 69.881 – 6.412PX + 0.022I + 3.088PZ
5. Provide an economic interpretation for each of the coefficients in the regression
equation you have estimated.
a1: means that QX = 69.881 thousands weekly rides if all independent variables were equal
to zero.
a2: it means if PX increases by one yen, QX will declines by 6.412 thousands rides a week
ceteris paribus.
a3: it means if I increases by one yen, QX will increase by 0.022 thousands rides a week
ceteris paribus.

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 a4: it means if PZ increases by one yen, QX will increase by 3.088 thousands rides a week
ceteris paribus.
All coefficients are statistically significant because their t-statistics are greater than than
critical t-statistic of 2.12.

6. What is the value of the adjusted value of coefficient of determination? How would you
interpret this result?
Adjusted R2 = 97.6%. It means that the variations in the independent variables (or that the
estimated regression equation) explain 97.6% of the variations in Q X. Only 2.4% of the
variations in QX can be explained by other variables.

7. Perform an F-test (at the 0.05 significance level) and give an interpretation of the result.
F = 255.3 which is greater than the critical value of F (=3.24). This means that the estimated
model explains a significant proportion of the variations in QX.

8. Calculate the price elasticity of demand for transit ridership using the 2019 data. What
is your conclusion about it? Does your conclusion justify the board of directors’
decision to raise the price per ride?

P = -6.412 X 4/200 = -0.128 which is less than 1 in absolute terms. This means that the
demand for weekly rides is price inelastic. Therefore, the decision to raise the P X is correct
because TR will increase and the TC will decline due to lower rides, which will lead to
increase in the profits of the TTA.

9. Calculate the income elasticity of demand for transit ridership using the 2019 data. What
is your conclusion about the kind of the transit ridership?

I = 0.022 X 3900/200 = 0.429 or 0.43 which is greater than zero but less than one which
means that weekly rides is a normal and a necessity good.

10. The Durbin-Watson statistic for this regression was reported equal to 2. What does this
indicate about the presence of positive autocorrelation in the data? How about the
presence of a negative autocorrelation?
There is neither positive nor negative autocorrelation because the DW statistic = 2.

11. Based on the regression results, what can you say about the presence of multicollinearity
in the model?
There is no multicollinearity because the standard error (SE) is not exaggerated and the t-
values are not low.

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12. If the fare (i.e. PX) is increased to ¥5.5, what is the expected impact on the weekly
revenues to the transit system if all other variables remain at their 2019 levels (as
compared to the actual revenue from weekly rides in 2019)? Again, does your answer
justify the board of directors’ decision to raise the price per ride?
Expected revenue = PX X QX = 5.5 (69.881 –{6.412 X 5.5} + {0.022 X 3900} + {3.088 X
20}) X 1000 units = 5.5 X 182175 = ¥1,001,962.5 (Remember that QX is in thousand units,
that is why I multiplied the answer for QX by 1000 to find TR).
Actual revenue = 4 X 200,000 = ¥800,000.
Therefore, TR will rise by ¥201,962.5, or an increase by 25.3%. therefore the decision to
raise PX is justified.

13. If the regression of QX on PX, I and PZ is run on in double-log form from the data above, the results
are as follows
Ln QX = 2.186 - 0.313 Ln PX + 0.246 Ln I + 0.494 Ln PZ
(2.046) (-4.992) (1.753) (6.351)

And the adjusted R2 = 98.7%, and the F-statistic = 482.5

(a) Write the estimated equation in its power format.

LnQX = Lna1 – 0.31LnPX + 0.26LnI + 0.49LnPZ

We have to find the antilog of Lna1, and then write the equation in its power function format.

QX = 𝟖. 𝟗𝑷𝑿−𝟎.𝟑𝟏 𝑰𝟎.𝟐𝟓 𝑷𝟎.𝟒𝟗

𝒁

(b) What do the coefficients of the independent variables represent?

The coefficients of the independent variables represent constant elasticities. Therefore, the price
elasticity of demand is -0.31 meaning that demand for weekly rides is inelastic; the income
elasticity of demand for weekly rides is 0.25 meaning that it is a necessity and normal service; and
the cross price elasticity of demand is 0.49 meaning that weekly rides and parking are substitutes.

(c) Compare the above results with those of the multiple linear regression you had performed.
Which are better? Why?

The results of the two regression equations are comparable. The double log estimated
regression equation has a higher coefficient of determinate (R2) but income was found to
be statistically insignificant (because its t statistic is lower than the critical value of 2.12).
However, both equations confirm the nature of the service (i.e. the weekly rides) as being
a necessity and normal service, with price inelastic demand, and being a substitute for Z
(i.e. parking). Therefore, the results of the linear multiple regression are better than those
of the double log multiple regression.

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 Regression results provided by Excel:
Year Qx Px I Pz LnQ LnPx LnI LnPz
2000 72 10 2000 7 4.27666612 2.30258509 7.60090246 1.94591015
2001 81 9 2100 8 4.39444915 2.19722458 7.64969262 2.07944154
2002 90 10 2210 10 4.49980967 2.30258509 7.70074779 2.30258509
2003 99 9 2305 11 4.59511985 2.19722458 7.74283596 2.39789527
2004 108 8 2407 12 4.68213123 2.07944154 7.78613644 2.48490665
2005 126 7 2500 13 4.83628191 1.94591015 7.82404601 2.56494936
2006 117 7 2610 14 4.76217393 1.94591015 7.8671055 2.63905733
2007 117 9 2698 14 4.76217393 2.19722458 7.90026604 2.63905733
2008 135 6 2801 15 4.90527478 1.79175947 7.93773178 2.7080502
2009 135 6 2820 16 4.90527478 1.79175947 7.94449216 2.77258872
2010 144 6 3000 17 4.9698133 1.79175947 8.00636757 2.83321334
2011 180 4 3120 18 5.19295685 1.38629436 8.04558828 2.89037176
2012 162 5 3201 17 5.08759634 1.60943791 8.07121854 2.83321334
2013 171 4 3308 17 5.14166356 1.38629436 8.10409906 2.83321334
2014 153 5 3290 15 5.03043792 1.60943791 8.09864284 2.7080502
2015 180 4 3501 19 5.19295685 1.38629436 8.16080392 2.94443898
2016 171 5 3689 18 5.14166356 1.60943791 8.2131107 2.89037176
2017 180 4 3800 20 5.19295685 1.38629436 8.24275635 2.99573227
2018 198 4 3896 21 5.28826703 1.38629436 8.26770566 3.04452244
2019 200 4 3900 20 5.29831737 1.38629436 8.26873183 2.99573227

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.98971452
R Square 0.97953483
Adjusted R
Square 0.97569761
Standard Error 6.08525889
Observations 20

ANOVA
df SS MS F Significance F
Regression 3 28358.46399 9452.82133 255.272088 1.01785E-13
Residual 16 592.4860127 37.0303758

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 Total 19 28950.95

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 69.880938 27.12519794 2.57623698 0.02029616 12.37808713 127.3837888
Px -6.4124077 1.748700628 -3.66695568 0.00208277 -10.11948743 -2.705327971
I 0.02192203 0.0076902 2.85064507 0.01156553 0.005619535 0.038224524
Pz 3.08783123 1.272668399 2.42626534 0.02744429 0.389894743 5.785767708

Estimated Multiple Linear Regression Equation

QX = 69.9 - 6.412PX + 0.022I + 3.088PZ

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.99451842
R Square 0.98906688
Adjusted R
Square 0.98701692
Standard Error 0.03434604
Observations 20

ANOVA

df SS MS F Significance F
Regression 3 1.707476555 0.56915885 482.480987 6.78235E-16
Residual 16 0.018874405 0.00117965
Total 19 1.72635096

Standard
Coefficients Error t Stat P-value Lower 95% Upper 95%
Intercept 2.1863295 1.068613135 2.04595043 0.0575626 -0.079029148 4.451688145
LnPx -0.3130553 0.062715143 -4.9917022 0.00013308 -0.446005481 -0.180105154
LnI 0.24585446 0.14022176 1.75332602 0.09867983 -0.051402392 0.54311131
LnPz 0.49351837 0.07771244 6.35057102 9.6287E-06 0.328775356 0.658261383

Estimated Multiple Regression Equation in Power Function

LnQX = Lna1 – 0.31LnPX + 0.26LnI + 0.49LnPZ

QX = 𝟖. 𝟗𝑷𝟎.𝟑𝟏
𝑿 𝑰𝟎.𝟐𝟓 𝑷𝟎.𝟒𝟗
𝒁