We discussed linear and exponential trendlines. Another
popular choice is a power trendline, also called a constant elasticity
trendline. This trendline has the form y =axb , and it has the
property that when x increases by 1%, y changes by a constant percentage. In
fact, this constant percentage is approximately equal to the exponent b (which
could be positive or negative). The power trendline is often cited in the
economics literature, where, for example, x might be price and y might be
demand. Fortunately, it can be found through Excels Trendline tool; the power
trendline is just
»
We discussed linear and exponential trendlines. Another
popular choice is a power trendline, also called a constant elasticity
trendline. This trendline has the form y =axb , and it has the
property that when x increases by 1%, y changes by a constant percentage. In
fact, this constant percentage is approximately equal to the exponent b (which
could be positive or negative). The power trendline is often cited in the
economics literature, where, for example, x might be price and y might be
demand. Fortunately, it can be found through Excels Trendline tool; the power
trendline is just another option. Estimate and interpret a power trendline for
the data on demand and price of some commodity listed in the file P16_09.xlsx.
In particular, if price increases by 1%, what do you expect to happen to
demand? Calculate the MAPE for this power trendline. Would you say it provides
a good fit?
»
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