a. A number of employment measures are lagging indicators. Consider
the following variables: (1) increased use of temporary workers, (2)
increases in new hires, (3) a decline in the number of workers laid off,
and (4) an increase in overtime hours. In an economic recovery from
a recession, which of these variables would have the shortest and
longest lags?
b. Top management of a company that produces luxury yachts has been
waiting anxiously for the end of the recession and a resurgence in
orders. Why might the company pay more attention to lagging
indicators than to leading indicators? Explain.- A chemical company uses large amounts of shredded steel scrap metal in
its production processes. Most of this scrap comes from 12-ounce
beverage cans (soft-drink and beer cans). On behalf of the company, you
are responsible for forecasting the availability (and price) of this type of
scrap over the next decade.
a. What kinds of information would you need to make such a
forecast?
b. What factors—demographic, economic, technological, or political—
might be important in your projection? Which could you most easily
predict? Which would be highly uncertain? - Studies of automobile demand suggest that unit sales of compact cars
depend principally on their average price and consumers’ real
personal income. Consider the historical record of sales shown in the
table.
Sales Average Price Personal Income
Year (Millions of Cars) (Thousands of Dollars) (2006100)
2006 2.00 20.0 100
2007 1.86 20.8 95
2008 1.94 20.0 97
2009 1.90 22.0 100
2010 1.90 24.0 105a. Estimate the point elasticity of demand with respect to price. (Be sure
to choose two years in which all other factors are constant.)
b. Estimate the income elasticity of demand.
c. Given the elasticities in parts (a) and (b), what change in sales do you
expect between 2009 and 2010? How closely does your prediction
match the historical record?
d. Estimate a linear demand equation that best fits the data using a
regression program. Comment on the accuracy of your equation. Is
this degree of accuracy realistic?174 Chapter 4 Estimating and Forecasting Demandc04EstimatingandForecastingDemand.qxd 9/5/11 5:49 PM Page 174