Correlation and Dependence and Disposable Income Essay Example

Correlation and Dependence and Disposable Income Essay Example Correlation and Dependence and Disposable Income Paper Correlation and Dependence and Disposable Income Paper Question no. 01 Should average disposable income be used to predict sales based on the sample of 14 sunflowers stores? Answer to the question no. 01 ? Average disposanble income should be used to predict sales. ? John Meynard Keynes, â€Å"The higher the income the higher the consumption is†. ? Consumption has a positive relation with disposable income. ? From the scatter diagram made by the given data, it is noted that as the disposable income increases the annual sales also increases. [pic] ? Again, We know that the coefficient correlation is, r = [pic][pic] Here, r = [pic] = [pic] = 0. 70 Therefore, there is a strong positive correlation between the disposable income and the annual sales. ? The regression coefficient is 0. 193. That means sales will increase by $0. 193 if disposable income increase by $1. 00. â€Å"Based on these points we can conclude that, the average disposable income should be used to predict sales based on the sample of 14 sunflowers stores. † Question no. 02 Should the management of Sunflowers accept the claims of Triangle’s leasing agents? Why or why not? Answer to the question no. 02 The management should accept the claims of Triangle leasing agents. The reasons are: ? There is a strong positive correlation between disposable income and sales, so it is easily predictable that there is a direct relationship between these two variables. ? Value of the coefficient of correlation is 0. 70 and it is near to 1. 00. That is if one variable, the disposal income increases, another variable, the annual sales will also increase. ? The regression coefficient is 0. 193. Which means that, if the average disposable income increases by $1, annual sales will increase by $0. 193. Question no. 03 Is it possible that the average disposable income of the surrounding area is not an important factor in leasing new locations? Explain. Answer to the question no. 03 ? The average disposable income is very important sign for a business to operate in a particular area. ? But not the average disposable income is the only factor in consideration in making business decision. ? The term Average is relative. It does not represent the actual income to be considered of the total population. It is better to use weighted average. ? Also the demand of the local area is a prime consideration for the business firm to make leasing decision. Question no. 04 Are there any other factors not mentioned by the leasing agents that might be relevant to the store leasing decision? Ans the question no. 4: Factors other than income that influence business decision are as follows: ? Standard of Living. How much do people usually spend? ? Consumption Tendency. How much do they consume; more or less? ? Saving Tendency. What percent of their income do they save? ? The Lifestyle of the People. How luxurious do the people live? ? Willingness to buy. Should they buy my product? ? Demand of the products. How much is their demand for my product?