Topic 8 - Forecasting Demand

Question 1

Time series-data

Answer 1

show us the relationship between variables over time.

Question 2

The TWI (Trade Weighted Index to measure the exchange rate)

Answer 2

is based on the volume of currency traded.

Question 3

Cross-section data

Answer 3

shows different observations made at the same point in time.

Question 4

Determinants of demand for a product

Answer 4

• Price - Consumer income - Advertising - The prices of substitutes and complements as well as expectations - Tastes and preferences.

Question 5

3 Approaches to Gathering Data

Answer 5

• Market observations - looking at past conditions - Market surveys - cheap and easy but can be bias - Market experiments - simulation, but maybe lack of realism

Question 6

Answer 6

– inversely related to price (normal good).

– Increases with the price of substitute goods.

– Decreases with the price of complement goods.

– Positively related to income, but income inelastic.

– Positively related to future price expectations.

Question 7

Barometric Forecasting

Answer 7

based on forecasts for other industries.

For example, furniture sales and production are dependent on the number of new houses being built.

Question 8

Simple Time-series Analysis

Answer 8

estimate future demand by looking at the history of sales

Question 9

Problems with modelling demand:

Answer 9

– Regression analysis is not perfect, and so results may not be either.

– No model can fully capture all of the determinants of demand, so there will always be unexplained factors.

– Previous determinants of demand are not perfect predictors of future determinants of demand.

– Forecasts of demand are based on forecasts of the determinants, which may be inaccurate as well.

– Acknowledging that these problems exist and accounting for them when forecasting demand is important to making strategic decisions.