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THE ESTIMATED DEMAND FUNCTION FOR SWEET POTATOES IN THE UNITED
STATES FOR THE PERIOD OF 1949-1972

QDs = 7609 1606Ps + 59N + 947I + 479Pw 271t

Where :
QDs = quantity of sweet potatoes sold per year in the United States per 1000 hundred weight
(cwt)
Ps = real-dollar price of sweet potatoes per hundredweight received by farmers
N = two-year moving average of total U.S. population, in millions
I = real per capita personal disposable income, in thousands of dollars
Pw = real-dollar price of white potatoes per hundredweight received by farmers
t = time trend (t = 1 for 1949, t = 2 for 1950, up to t = 24 for 1972)
THE ESTIMATED DEMAND FUNCTION FOR SWEET
POTATOES IN THE UNITED STATES FOR THE PERIOD OF
1949-1972
QD declines by 1,606 for each $1 increase in its price (P ),
5 s

Increases by 59 for each 1 million increase in population (N),

increases by 947 for each $1,000 increase in real income (1),
Increases by 479 for each $1 increase in the real price of white potatoes (Pw),
but falls by 271 with each passing year (the coefficient of t, the time trend
variable).
Thus, the demand curve for sweet potatoes is negatively sloped, and it shifts to
the right with an increase in
population, in income, and in the price of white potatoes, but shifts to the left
with each passing year. Since the
demand for sweet potatoes increases (i.e., shifts to the right) with an increase in
income, sweet potatoes are a
normal good (even though we usually think of potatoes as being an inferior
good).
IN 1949
The actual values of N = 150.73, I = 1.76, Pw = 2.94, t = 1
The following equation for the U.S demand curve for sweet potatoes in 1949:
QDs = 7609 1606Ps + 59 (150.73) + 947 (1.76) + 479 (2.94) 271 (1)
= 7609 1606Ps + 8893 + 1667 + 1408 271
= 19306 1606Ps
Since QD5 increases with an increase in P and declines with a reduction in Pw, white
potatoes are a substitute for sweet potatoes. Finally, the negative coefficient of t
can be taken to reflect the declining tastes for sweet potatoes over time.
By then substituting the value of $7 for Ps we get QD, = 8,064.
If Ps = $5.60 (the actual real price of sweet potatoes in the United States in 1949),
QD5 = 10,312. Finally, if P5 = $4, QD5 = 12,882.
IN 1972
The actual values of N = 280.78, I = 3.19, Pw = 2.41, t = 24
The following equation for the U.S demand curve for sweet potatoes in 1972:
QDs = 7609 1606Ps + 59 (280.78) + 947 (3.19) + 479 (2.41) 271 (24)

= 17598 - 1606Ps
Note that the reduction in tastes for sweet potatoes between 1949 and 1972 and
In Pw tends to shift Dx to the left, while the increase in N and 1 tends to shift Dx to
the right.
Since the first set of forces overwhelms the second, D' xis to the left of Dx.
In general, it is the average value of the independent or explanatory variables
over the entire period that is substituted into the estimated demand equation to
get the equation of the average demand curve for the period .
Ps (S/cwt)

7
QDs = 19.306 1.606Ps

5 QDs = 17.598 1.606Ps

D's Dx

6 7 8 9 10 11 12 13 Thousand cwt

Figure 4-3 The Market Demand Curve for Sweet Potatoes in the United States
FINALLY,
In order to estimate demand correctly , would have to include explanatory
variables to estimate the market demand .
However because firms do not want to diclose knowledge and strategies to
market and competitor , demand faced by a firm is given in problem 2.
WHY DO THE PRICES OF NEWSPAPERS RISES?

There is risen in average prices between year

2006 2007 :
In 2006 the average prices $0.50
In 2007 the average prices $0.75
EXPLANATION FOR THE HIGHER EQUILIBRIUM PRICES
Analyst 1 :
The price rises is good makes citizen to have a new,
increased regard for newspapers
Citizen taste have changed in favor of newspapers.
Thats why demand curve shift to the right, and
supply is upward-slopping means the price is risen
GRAPH 1:
Demand Shift to the Right

Price of News Papers When demand

shift to the right
P2
the price rise, so
does the
P1
quantity

D1

D0

Q1 Q2
Quantity of News
Papers
EXPLANATION FOR THE HIGHER EQUILIBRIUM PRICES

Analyst 2 :
The price rises is bad because he cost of
paper, ink, distribution
This will diminish the population awareness
Thats why demand curve shift to the left and
supply is downward-slopping means the price
is risen
GRAPH 2
Supply Shift to the Left

S0
When supply shift to the
S1
Price of News Papers left the price rise, but the
quantity falls. Based on
newspaper circulation , in
P2 most market quantity of
newspapers bought have
P1
been
falling, so analyst 2 is
more correct.
D

Q1 Q2
Quantity of News
Papers
EXPLANATION FOR THE HIGHER EQUILIBRIUM PRICES
Analyst 3 :
The price rises because newspaper trying to make
money , to win from the internet
Citizen taste have changed in favor of
newspapers.
Thats why demand curve shift to the right, and
supply is upward-slopping means the price is
risen
CONCLUSION
Locost mean higher profit --- thus individual firms determine how to produce
their products, with no central decision
When a good is in short supply, price rises. As they do, those who are willing and
able to continue buying do so; others stop buying
Analyst 3 could be wrong because a decrease in price of the substitute [internet]
should shift the demand to the left which would make lower price not price
increase.
Analyst 1 + 2 could be correct In
Price
* If demand shift to the right greater
Quantity sold
* If supply shift to the left amount