3.1 DEMAND ESTIMATION AND FORECASTING Flashcards
attempts to quantify the link between the level of demand for a product and the variable which determines it
Demand estimation
attempts to predict the level of sales at some particular future date
Demand forecasting
7 stages of demand estimation
- Statement of a theory or hypothesis
- Model specification
- Data collection
- Estimation parameters
- Checking goodness of fit
- Hypothesis testing
- Forecasting
this usually comes from a mixture of economic theory and previous empirical studies
Statement of a Theory or Hypothesis
This means determining what variable should be included in the demand model and what mathematical form or forms such a relationship should take
Model specification
Gathering necessary information
Data collection
2 types of data
Cross-selection data
Time-series data
provide information on a group of entities at a given time
Cross-selection data
provide information on the entity over time
Time-series data
Data that are expressed in nominal in either ordinal or cardinal
Quantitative data
Data that are expressed in all categories
Qualitative data
This means computing the value of the coefficient of the variables in the model
Estimation of parameters
Once a model or maybe several alternative models have been estimated, it is necessary to determine how well the model fits the data and to determine which model fits best.
Checking goodness of fit
This is the ultimate focus of economic analysis
Forecasting
Methods of forecasting
Qualitative methods:
- Consumer survey
- Market experiment
- Virtual shopping
Quantitative methods:
- Statistics method
- Model specification
- Mathematical models
