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Home Solutions You have been commissioned to write a report for Royal Dutch Shell PLC relating to the demand ofpetroleum in different countries.

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The ACC2002/ACC2063 Assignment requires you to use OLS linear regression analysis to estimate two models – a demand function and a multivariate demand function, and answer the questions in Part B.

Part A

You have been commissioned to write a report for Royal Dutch Shell PLC relating to the demand ofpetroleum in different countries. Details regarding the format for the report are presented on page 3.

Model 1 Price elasticity demand estimation:

Downloadthe price and quantity (petroleum consumption) data from Blackboard.

The demand function takes the general form:

….(1)

where e< 0 and A is a constant

Note: Equation 1 above may be linearized using the following transformations:

….(2)

Model 2 Multivariate demand estimation

A new team of analysts has been employed by Royal Dutch Shell PLC, and they report that, having obtained more data, the demand for petroleum, is best represented by a multivariate demand equation:

….(3)

All variables are expressed in logarithms.

where Q_{x}is the quantity demanded of product X; P_{x}, is the price of X; P_{y} is the price of product Y;M is income and ε is a random error term.

Using the data given below, and using the EXCEL DATA-ANALYSIS tool (or a similar package such as SPSS, SAS, Eviews, Minitab, STATA, R,or MATLAB), estimate the demand equation given above.

Sample:

Petroleum consumption: US (EIA2005); UK (EIA1959); Canada (EIA1961); France (EIA1956); Germany (EIA1957); Italy (EIA1958); Japan (EIA1962); South Korea (EIA1963).

Petroleum Price: Crude Oil-Brent Spot FOB (EIACRBR).

Coal & Gas Price: International Coal & Gas Price Index (USIPE059F).

Income: US GDP (USGDP...D); UK GDP (UKGDP...D); Canada GDP (CNGDP...D); France GDP (FRGDP...D); Germany GDP (BDGDP...D); Italy GDP (ITGDP...D); Japan GDP (JPGDP...D); South Korea GDP (KOGDP...D).

Time period: Q1 2000 – Q2 2017

INSTRUCTIONS FOR PRESENTATION OF DATA :

Model (1) Ordinary Least Squares (OLS) Bi-variate Linear Regression

and

Model (2) Ordinary Least Squares (OLS) Multivariate Linear Regression

Your report should take the general form:

A brief introductory statement.

A brief concluding statement.

(Total words DO NOT include any words in this part.)

Part B

The book store in Newcastle recently advertised that “buy one, get one free–limit one free book per customer”. You stepped into the store and asked a clerk, “Will you sell me one book for half price?” The clerk answered, "I can`t do that."When you started to leave the store, the clerk hastily offered, "However, I am authorized to give you a 40 percent discount on any book in the store." Assuming you have £100 to spend on books (X) or all other goods (Y), and that books cost £50 per book, answer the following questions:

a. Illustrate the consumer`s opportunity set with the "buy one, get one free" deal and with a 50 percent discount, and explain your answer.

b. Why was the 40 percent discount offered only after the consumer rejected the "buy one, get one free" deal and started to leave the store?

c. Why was the clerk willing to offer a "buy one, get one free" deal, but unwilling to sell a book for half price?

d. The management of this book store is considering a plan to terminate a new employee. The action stemmed from documented evidence supplied by the store`s accounting department that this new employee did not add as much to the store`s overall output as did a worker hired two weeks earlier. Based on this evidence, do you agree that the latest worker hired should be fired? Explain.