1. Estimate the demand for soft drinks using a multiple regression program available on your computer.

2. Interpret the coefficients and calculate the price elasticity of soft drink demand.

3. Omit price from the regression equation and observe the bias introduced into the parameter estimate for income.

4. Now omit both price and temperature from the regression equation. Should a marketing plan for soft drinks be designed that relocates most canned drink machines into low-income neighborhoods? Why or why not?

Demand can be estimated with experimental data, time-series data, or cross-section data. Sara Lee Corporation generates experimental data in test stores where the effect of an NFL-licensed Carolina Panthers logo on Champion sweatshirt sales can be carefully examined. Demand forecasts usually rely on time-series data. In contrast, cross-section data appear in Table 1. Soft drink consumption in cans per capita per year is related to six-pack price, income per capita, and mean temperature across the 48 contiguous states in the UnitedStates.

CANS/ CAPITA/YR INCOMES CAPITA 6-PACK PRICE 241 1.89 2.33 MEAN TEMP. F New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah 330 2.19 121 138 237 2.31 1.93 1% 2.19 2.08 100 Virginia Washington West Virginia Wisconsin Wyoming 2.04 2.19 2.11 58 144 102 2.31