Parametric model ORDINARY LEAST SQUARES (OLS) Assuming that we have satisfied all of the requirements for the given demand and supply equations for a commodity Y below, we can have two (2) ols equations expressed as: Yd=a +bX .... Equation (1) Where: Yd=quantity demanded for Y X = price of commodity Y a, b = parameters tested at 5% level e = intentionally not included to make the problem simple Ys = c + DX-1 Equation (2) Where: Ys = quantity supplied for Y X. 1 = price of commodity Y (lagged one year to distinguish it from the price of demand Y) c, d = parameters tested at 5% level e = intentionally not included to make the problem simple Given for demand: a = 45.4 b= -0.54 Given for supply: c=4.81 d = 0.12 Requirements (4 points): 1. If demand = supply, then derive the demand price (P.) equation. Price is X in the equation. 2. If the price of supply (X.1) in a certain year is P45/kg, what is the quantity supplied (Ys) at the given price? 3. Equate the derived quantity supplied (from #2 above) to the demand equation, determine the current price of demand (X). 4. Using the current price of demand (X) in #3, determine or check the value of quantity supplied (in kg) if it is the same as the quantity demanded