econometrics: the empirical branch of economics which utilizes math and statistics tools to test...

Econometrics:The empirical branch of economics which utilizes math and statistics tools to test hypotheses.

Special courses are taught in econometrics, which present in detail the manner in which hypotheses are developed and tested.

Some texts in Managerial Economics explore basic econometrics techniques to show how the firm could estimate its demand curve. Rather than take time to do this, we look merely at the intuition.

Regression Analysis:Quantitatively measures relationships between two (or more) variables.

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Scatter Diagram

Econometrics:We use econometrics to determine a and b, to get a regression equation, i.e., to estimate a curve that best represents scatter diagram data, and to show how well it represents the data.

R2, the “coefficient of determination,” does this.

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Line of “best fit”

Econometrics:R2 indicates the percentage of variance in the dependent variable that can be accounted for by variations in the independent variable.

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Econometrics:

v{ }v

y=a+bx

Regression calculates y=a+bx such that v2 is a minimum. No other line has v2 as low.

(x,y)