The diagram shows what happened to the consumption of lamb in the UK over the period 1974– 2015. How can we explain this dramatic fall in consumption? One way of exploring this issue is to make use of a regression model, which should help us to see which variables are relevant and how they are likely to affect 140 130 120 110 100 90 80 70 60 50 40 30 20 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 Note: Data from 2015 based on end of financial year. Source: Based on data in Family Food datasets UK consumption of lamb: 1974–2017 The following is an initial model fitted to annual data for the years 1974–2010. QL = 144.0 – 0.137PL – 0.034PB + 0.214PP – 0.00513Y + e (1) where: QL is the quantity of lamb sold in grams per person per week; PL is the ‘real’ price of lamb (in pence per kg, 2000 prices); PB is the ‘real’ price of beef (in pence per kg, 2000 prices); PP is the ‘real’ price of pork (in pence per kg, 2000 prices); Y is households’ real disposable income per head (£ per year, 2000 prices); e is the error term that attempts to capture the impact of any other variables that have an impact on the demand for lamb. This model makes it possible to predict what would happen to the demand for lamb if any one of the four explanatory variables changed, assuming that the other variables remained constant. We will assume that the estimated coefficients used throughout this box are all statistically significant. Using equation 1, calculate what would happen, other things being equal, to the demand for lamb if: The real price of lamb went up by 10p per kg; The real price of beef went up by 10p per kg; The real price of pork fell by 10p per kg; Real disposable income per head rose by by £100 per annum.
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- The diagram shows what happened to the consumption of lamb in the UK over the period 1974– 2015. How can we explain this dramatic fall in consumption? One way of exploring this issue is to make use of a regression model, which should help us to see which variables are relevant and how they are likely to affect
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1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
Note: Data from 2015 based on end of financial year.
Source: Based on data in Family Food datasets
UK consumption of lamb: 1974–2017
The following is an initial model fitted to annual data for the years 1974–2010.
QL = 144.0 – 0.137PL – 0.034PB + 0.214PP – 0.00513Y + e (1)
where:
QL is the quantity of lamb sold in grams per person per week; PL is the ‘real’
price of lamb (in pence per kg, 2000 prices); PB is the ‘real’ price of beef (in pence per kg, 2000 prices); PP is the ‘real’ price of pork (in pence per kg, 2000 prices);Y is households’ real disposable income per head (£ per year, 2000 prices);
e is the error term that attempts to capture the impact of any other variables that have an impact on the demand for lamb.
This model makes it possible to predict what would happen to the demand for lamb if any one of the four explanatory variables changed, assuming that the other variables remained constant. We will assume that the estimated coefficients used throughout this box are all statistically significant.
Using equation 1, calculate what would happen, other things being equal, to the demand for lamb if:
- The real price of lamb went up by 10p per kg;
- The real price of beef went up by 10p per kg;
- The real price of pork fell by 10p per kg;
- Real disposable income per head rose by by £100 per annum.
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