<p>If you multiply out any one of the equations,</p>

<p>$$w_{clothes}= \beta _ {clothes} + \alpha_{clothes} \cdot \ kids + (\gamma _{0.clothes} + \gamma _{1.clothes} \cdot \ kids)\cdot\ income + u_{clothes}$$</p>

<p>$$=\beta _ {clothes} + \alpha_{clothes} \cdot \ kids + \gamma _{0.clothes}\cdot  income + \gamma _{1.clothes} \cdot \ kids\cdot\ income + u_{clothes}$$</p>

<p>it is evident that you have "kids" and "income" as regressors, plus an interaction term</p>

CC BY-SA 3.0
2016-01-01T21:16:59.033Z
@ÜbelYildmar We all get to ask those.
Alecos Papadopoulos
CC BY-SA 3.0
2016-01-01T21:09:50.003Z
2016-01-01T21:09:50.003Z
Alecos Papadopoulos
<p>I have the following demand equation system (expenditure ratio model): </p>

<p>$w_{clothes}= \beta _ {clothes} + \alpha_{clothes} * \ kids + (\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)* \ income + u_{clothes}$</p>

<p>$w_{food}= \beta _ {food} + \alpha_{food} * \ kids + (\gamma _{0.food} + \gamma _{1.food} * \ kids)* \ income + u_{food}$</p>

<p>...</p>

<p>$w_{other}= \beta _ {other} + \alpha_{other} * \ kids + (\gamma _{0.other} + \gamma _{1.other} * \ kids)* \ income + u_{other}$</p>

<p>where $\beta_i$ and $u_i$ denotes the constants and the residuals, kids is a dummy variable (1, if the consumer has got kids), and $w_{"product"}$ is the proportion of "product" consumption of the total expenditure.</p>

<p>My question is, how can I <strong>interpret</strong> the term, for example, <strong>$(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$</strong>? Is this a dummy variable, or interaction or other? It looks like an other regression's coefficients in this equation. I have no idea, please help.</p>

<p>Thank you for your time and help.</p>

<microeconomics><econometrics><consumer-theory><supply-and-demand>
What does this $(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$ term mean in my linear demand equation?
Übel Yildmar
# What does this $(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$ term mean in my linear demand equation?

(Asked by: username_0 on 2016-01-01)

I have the following demand equation system (expenditure ratio model):

$w\_{clothes}= \beta \_ {clothes} + \alpha\_{clothes} \* \ kids + (\gamma \_{0.clothes} + \gamma \_{1.clothes} \* \ kids)\* \ income + u\_{clothes}$

$w\_{food}= \beta \_ {food} + \alpha\_{food} \* \ kids + (\gamma \_{0.food} + \gamma \_{1.food} \* \ kids)\* \ income + u\_{food}$

...

$w\_{other}= \beta \_ {other} + \alpha\_{other} \* \ kids + (\gamma \_{0.other} + \gamma \_{1.other} \* \ kids)\* \ income + u\_{other}$

where $\beta\_i$ and $u\_i$ denotes the constants and the residuals, kids is a dummy variable (1, if the consumer has got kids), and $w\_{"product"}$ is the proportion of "product" consumption of the total expenditure.

My question is, how can I **interpret** the term, for example, **$(\gamma \_{0.clothes} + \gamma \_{1.clothes} \* \ kids)$**? Is this a dummy variable, or interaction or other? It looks like an other regression's coefficients in this equation. I have no idea, please help.

Thank you for your time and help.

**Tags:** microeconomics, econometrics, consumer-theory, supply-and-demand


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## 1 answers

### Answer by username_1 on 2016-01-01. Score: 2 | Accepted answer

If you multiply out any one of the equations,

$$w\_{clothes}= \beta \_ {clothes} + \alpha\_{clothes} \cdot \ kids + (\gamma \_{0.clothes} + \gamma \_{1.clothes} \cdot \ kids)\cdot\ income + u\_{clothes}$$

$$=\beta \_ {clothes} + \alpha\_{clothes} \cdot \ kids + \gamma \_{0.clothes}\cdot income + \gamma \_{1.clothes} \cdot \ kids\cdot\ income + u\_{clothes}$$

it is evident that you have "kids" and "income" as regressors, plus an interaction term

> **Comments:**
> **username_1**: @ÜbelYildmar We all get to ask those.  

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