The Law of Demand 77 



But unlike the classical theory of demand which was 

 limited to the simple enunciation of this one character- 

 istic, cozteris paribus, the statistical laws that have just 

 been derived apply to the average changes that society 

 is actually undergoing. They summarize the changes 

 in prices that are to be expected from changes in the 

 supply of the commodity, thus enabling one to predict 

 the probable variation in price that wdll follow upon an 

 assigned variation in the amount of the commodity. 

 They exhibit the connection of probable results not 

 only in a qualitative but also in a quantitative form. 



The Prediction of Prices 



It has been said that the statistical laws of demand 

 enable the economist to predict the probable variation 

 in price that will follow upon an assigned variation in 

 the quantity of commodity that is to be sold. How 

 accurate are the results of prediction that are based 

 upon the statistical law of demand? 



The accuracy of the prediction in the case of any 

 given commodity will vary according to the degree of 

 fit of the type of curve that is assumed to represent the 

 relation between the relative change in price and the 

 relative change in the quantity of the commodity. If, 

 for example, the commodity in question is corn in the 

 United States, and the type of demand curve is assumed 

 to be linear, then, according to the results in foregoing 

 pages, the correlation between the two variables is 

 r= — .789, and the regression equation is y = — .8896.T. 

 +7.79, the origin being at (o,o). (Figure 16 will facili- 



