Running Head: ECONOMIC ASSIGNMENTEconomic AssignmentName of the StudentName of the UniversityCourse ID
1ECONOMIC ASSIGNMENT Description of chosen scenarioIn the Kuwait economy, Petroleum industry is considered as the largest industry. Theindustry has significant contribution in the gross domestic product in the country. The nation hasan oil reserve of nearly 104 billion barrels. This constitutes 9% of the total oil reserve of world.Supported by huge reserve of oil Kuwait ranks seventh in terms of oil production in world. Theexcess of oil produced is exported across the world making it seventh largest exporter (Al-Sabah2017). Owing to increasing energy demand the demand for crude oil has accounted an upwardtrend. The consumption of crude oil in the middle-east nation especially in Saudi Arabia andKuwait has increased rapidly. The consumption of oil however depends on a number of factors.Of them two important factors that are taken into consideration include price and income. Theconsumption of a commodity generally adversely depend on price while income likely toincrease demand and hence consumption. In order to evaluate response of consumption to income and price a multiple linearregression is conducted. The proposed hypotheses are as follows Hypothesis 1Null Hypothesis (HA0): No statistically significant relation exist between price and consumptionof crude oil. Alternative Hypothesis (HA1): A statistically significant relation exists between average price andconsumption of crude oil Hypothesis 2
2ECONOMIC ASSIGNMENT Null Hypothesis (HB0): No statistically significant relation exits between consumption of crudeoil and that of average incomeAlternative Hypothesis (HA1): A statistically significant relation exists between average andconsumption of crude oil Influence of price and income on consumption of crude oil Price is the most significant determinant of consumption. People adjust their consumptionon the basis of price. A high price generally discourage consumption while a low priceencourages consumption. The effect of price on consumption however changes depending onnature of the product. Income by influencing purchasing power of people influencesconsumption (Baumol and Blinder 2015). In order to model relation of oil consumption and priceand income following multiple linear regression model is framed Consumption=a+(b∗income)+(c∗price)a:Constantb:Coefficient of income c:Coefficient of priceFor income, real per capita income in considered. The yearly average price of crude oil isconsidered as another independent variable.From the multiple regression result the regression equation is estimated asConsumption=389.4415−(0.0142∗income)+(7.4311∗price)
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