1. Estimating Car Demand Demand Function for Car Industry Q = a 1 P + a 2 P x + a 3 I + a 4 Pop + a 5 i + a 6 A Demand Equation for Car Industry Q = -500P + 210P x + 200I + 20,000Pop - 1,000,000i + 600A

2. Estimating Industry Demand for New Cars Independent VariableParameter Estimate (i) Estimated Value for Independent Variable During the Coming Year (ii) Estimated Demand (i x ii) Average Price for New Cars in $ (P) -500$25,000-12,500,000 Average Price for New Import Luxury Cars in $ (Px) 210$50,00010,500,000 Disposable Income per Household in $ (I) 200$45,0009,000,000 Population in millions (pop) 20,0003006,000,000 Average Interest Rate in % (i) -1,000,0008%-8,000,000 Industry Advertising Expenditures in $ millions (A) 600$5,0003,000,000 Total Demand (cars)8,000,000

3. Demand function specifies relation between Quantity Demanded and all variables affecting Demand Demand Curve – relation between price and quantity demanded, holding all else constant Q = - 500P + 210 (50,000) + 200(45,000) + 20,000 (300) - 1,000,000(8) + 600(5,000) Equation of Demand Curve Q = 20,500,000 - 500P