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Demand forecasting

Presented By :

 Hidayat ullah
 Sardar ahmad khan
 Jamshaid
 Amir rahman
 Mukhtiar ahmad
 Mustaqeem khan
managerial economics
MBA (022), section (A)
Demand
 Demand means desire to buy something and
ability to pay for it.

 Demand = desire + purchasing power


Demand schedule
 Demand schedule is
the table that shows Price of sugar Quantity
the relationship Rs/ kg demand

between price of 40 200


goods and quantity 35 300
demand . 30 400
25 500
20 600
15 700
Demand curve
Demand curve is a
graph showing the
relationship between
the price of goods
and quantity
demanded.
Elasticity
The responsiveness of one variable to an other
variable is called elasticity.

Elasticity of demand

The percentage change in quantity divided by


the percentage change in price.
Elastic demand
Elastic demand Price Demand
A small change in price
cause a big change in 10 100
quantity demanded

9 150
Inelastic demand
A large change in
price has a small Price Demand
effect on quantity
demanded. 10 100

5 110
Sardar ahmad khan
MBA(022)A

MEASUREMENT OF
ELASTICITY
MEASUREMENT OF ELASTICITY
 Total expenditure method

 Point elasticity method OR


(geometric method)

 Arc elasticity method


Total expenditure method
The price elasticity can be
measured by noting the
changes in total expenditure
brought by changes in price
and quantity demanded.

there are three condition in


total expenditure method.
Increase in total exp
 When % change in prices Quantity expenditur
e
quantity demand is
more then % change in RS 20 10 pens RS 200
price it cause increase
in T E. the demand will
RS 10 30 pens RS 300
be elastic (E>1)
No change in exp
 When % change in prices Quantity expenditur
e
price occur and T E do
not change. The RS 10 30 pens RS 300
demand will be unitary
(E=1)
RS 5 60 pens RS 300
Decrease in exp
 The % change in prices Quantity expenditur
e
quantity demand is less
then % change in price RS 5 60 pens RS 300
it cause decrease in T E
(E<1)
RS 2 100 pens RS 200
Point elasticity of demand
The measurement of elasticity at a point of
the demand curve is called point elasticity.
Point elasticity of demand is used when the
change in quantity demand is occur from a
very small change in price.

 measurement on linear demand curve

 measurement on non linear demand curve


On linear demand curve
 the formula
 (ΔQ ÷ ΔP) x (P ÷
Q)

 the point C shows


maximum revenue
On non linear demand curve
 Elasticity at a point can be measured by
drawing a tangent at the particular point.
Arc elasticity
 Arc elasticity means measuring elasticity
between any tow points on the demand curve
E= (ΔQ ÷ ΔP) ÷(p1+p2) ÷ (Q1+Q2)
Jamshaid khan
MBA(022)A

MEASUREMENT OF
ELASTICITY
Income elasticity
 Def: “income elasticity of demand is the
rate of responsiveness of demand to
changes in the income of the
consumer.”
 It is calculated as the ratio of the percent
change in demand to the percent change in
income.
= %change in Qd
%change in consumer income
ie. If, in response to a 10%increase in income,
the demand of a good increased by 20%, the
income elasticity of demand would be
20%/10%=2%
 Inferior good's demand falls as consumer
income increases.
 Negative income elasticity
 Positive income elasticity
 Zero income elasticity
Cross elasticity
 def: the rate of responsiveness of Qd of
commodity A to changes in price of
commodity B.
 CE =AB QA PB
PB QA
 SUBTITUTE GOODS

PA QdB +

COMPLEMENT GOODS

PA QdB _
Amir rahman
MBA(022)A

Demand forecasting
Demand Forecasting

 Def: The process of predicting the values


of a certain quantity, over a certain time
horizon, based on past trends and/or a
number of relevant factors.
Forecasting methods

 Qualitative techniques

 Quantitative techniques
Qualitative techniques
 Qualitative forecasting techniques are
generally more subjective than their
quantitative counterparts. Qualitative
techniques are more useful in the
earlier stages of the product life cycle,
when less past data exists for use in
quantitative methods.
Qualitative methods include

Surveys techniques,

Opinion polls
Survey techniques
The survey is a non-experimental,
descriptive research method. Surveys
can be useful when a researcher wants
to collect data on phenomena that
cannot be directly observed (such as,
consumer’s decisions to purchase
houses, automobiles, TV sets etc.)
Surveys are used to forecast
consumer demand in general and the
level of consumer confidence in the
economy.
Opinion polls
The opinion
polls are used
by firms to
forecast its own
sales by polling
experts within
and outside the
firm.
Several polling techniques
 Executive polling

 Sales force polling

 Consumers intention polling


Executive polling
 The firm poll its top mgt of functional
areas( sales, production, finance etc.) on
their views on the sales outlook for the firm
during the next year.
 The Delphi method can also be used, where
experts are polled separately, and the
feedback is provided without identifying the
experts. the procedure is repeated until they
reach at some consensus forecast.
Sales force polling
 This is a forecast of the firm's
sales in each region and for each
product line. it is based on the
firm’s sale force. these are the
people closest to the market. And
their opinion can provide valuable
information to the top mgt
Consumer intention polling

 The customers are asked about their


purchasing plans and their projected
buying behavior. A large number of
respondents is needed here to be able
to generalize certain results.
Mukhtiar ahmad
MBA(022)A

Time series analysis


Time series analysis
 A time series is an arrangement of time
series in accordance with its time of
occurrence by time series data, we
mean numerical data which are
collected observed or recorded at
successive period of time,
Examples of time series
 The annual production of wheat in Pakistan
over a number of years.

 The hourly temperature recorded in a days

 The monthly rain fall recorded at a particular


place
Components of time series analysis
 There are four components of time series
 Secular trend
 Secular trend is regular smooth and long term
movements of data series. some series may
show an upward or downward trend, for
example tea which shows an upward trend now
a days. the population of Pakistan shows an
upward trend, infant death in the world shows a
downward trend
Seasonal variations
 These variations are caused due to
changes in seasons, seasonal
fluctuation are regular up and down
movements ,for example the sale of
warm clothes increases in winter and
decreases in summer,
Cyclical fluctuation
 The long term trend one complete
period is called cyclical there are the
swing to
prosperity ,recession, depression and
recovery back again to prosperity in
business and economic activities,
Irregular or random variation
 These variations are irregular or
random such as wars, floods, strikes,
earthquakes, etc these movements are
also called residual variations,
Mustaqeem khan
MBA(022)A

Smoothing techniques
Smoothing techniques
 These predict values of a time series on the
bases of some average of its past values.
 Smoothing techniques are useful when the time
series has irregular or random variation
:There are tow types of ST
 Moving averages
 Exponential smoothing
Moving averages
 The simplest smoothing techniques is
moving averages. Here the forecasted
value of a time series in a given period
(month, year. Etc) is equal to the
average value of the time series in a
number of previous periods.
Three quarter & five quarter MV
Market share 3 quarter MV A-F (A-F)2 5 quarter MV A-F (A-F)2
(A) (F) (F)
1 20 - - - - - -
2 22 - - - - - -
3 23 - - - - - -
4 24 21.67 2.33 5.43 - - -
5 18 23 -5 25 - - -
6 23 21.67 1,33 1.77 21.4 1.6 2.56
7 19 21.67 -2.67 7.13 22 -3 9
8 17 20 -3 9 21.4 -4.4 19.36
9 22 19.67 2.33 5.43 20.2 1.8 3.24
10 23 19.33 3.67 13.47 19.8 3.2 10.24
11 18 20.67 -2.67 7.13 20.8 -2.8 7.84
12 23 21 2 4 19.8 3.2 10.24
Total 78.35 Toital 62.48
13 - 21.33 20.6
Which quarter is best
 Following formula will give answer
 RMSE (root mean square error)

RMSE = √ ∑(A-F)2 ÷n
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