Demand Forecasting Methods Quiz
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Questions and Answers

What is the primary purpose of survey methods in demand forecasting?

The primary purpose is to make short-run forecasts of demand.

List one advantage and one disadvantage of consumer survey methods.

One advantage is that it's the most direct way to assess future demand. One disadvantage is that consumers may be unwilling to answer questions or may not know their future demand.

Explain why the complete enumeration method can be challenging.

It can be costly and time-consuming and is only effective if consumers are concentrated in a specific area.

Identify the main advantage of the sample survey method compared to complete enumeration.

<p>The main advantage is that it is simpler, cheaper, and less time-consuming.</p> Signup and view all the answers

What is the focus of the end-use method in demand forecasting?

<p>The end-use method focuses on forecasting demand for inputs.</p> Signup and view all the answers

How do opinion polls of experts contribute to demand forecasting?

<p>They provide valuable insights from market experts and sales representatives regarding market trends.</p> Signup and view all the answers

Why might consumer responses in surveys not accurately reflect real demand?

<p>Consumers may provide hypothetical answers, be biased by expectations, or change their plans based on unforeseen events.</p> Signup and view all the answers

What is one common use case for sample surveys in businesses?

<p>Sample surveys are commonly used to estimate short-term demand.</p> Signup and view all the answers

What is the primary requirement for the successful implementation of the estimation method described?

<p>A thorough understanding of the product and its uses is essential.</p> Signup and view all the answers

List the four distinct stages of estimation in order.

<ol> <li>Identification of users 2. Establishing norms of consumption 3. Applying norms 4. Aggregating results</li> </ol> Signup and view all the answers

What is one major disadvantage of the opinion poll method for forecasting demand?

<p>The accuracy of forecasts largely depends on the skill of the market analysts.</p> Signup and view all the answers

Explain the Delphi Method in demand estimation.

<p>The Delphi Method involves consulting different experts in a field to gather insights on a topic.</p> Signup and view all the answers

What advantage does the statistical method of demand estimation have over opinion-based methods?

<p>Statistical methods are more reliable, accurate, and minimize subjectivity.</p> Signup and view all the answers

What challenge does collecting data pose when identifying users for demand estimation?

<p>Data collection can be difficult from large numbers of users, often located in a dispersed network.</p> Signup and view all the answers

Why is it crucial to establish norms of consumption in the demand estimation process?

<p>Setting per unit norms of consumption is vital for accurately forecasting future demand.</p> Signup and view all the answers

Mention one benefit of the demand estimation method that involves aggregating results.

<p>It allows for detailed determination of demand by product type and size.</p> Signup and view all the answers

What is demand forecasting and why is it important for businesses?

<p>Demand forecasting is predicting future demand for a product, essential for planning production, purchasing raw materials, and marketing.</p> Signup and view all the answers

List two challenges that large-scale firms face in demand forecasting.

<p>Large-scale firms face challenges in obtaining accurate information and must consider variable factors like price and advertisement expenditure.</p> Signup and view all the answers

How does demand forecasting influence production planning?

<p>It helps businesses determine how much to produce based on predicted sales, ensuring resources are used efficiently.</p> Signup and view all the answers

What are some factors that must be considered when forecasting demand?

<p>Factors include price, advertisement expenditure, credit terms, and prices of competing products.</p> Signup and view all the answers

In what scenarios might small firms rely on past experience for forecasting rather than detailed methods?

<p>Small firms catering to small shares of total demand or facing seasonal demand may rely on past experience for planning.</p> Signup and view all the answers

Explain the significance of acquiring a rough estimate of future demand for large firms.

<p>A rough estimate of future demand is crucial for large firms for planning inputs, organizing production, and establishing sales channels.</p> Signup and view all the answers

What is a prerequisite for achieving high reliability in demand forecasting?

<p>A high degree of reliability is essential, though forecasting often involves risks of inaccuracy.</p> Signup and view all the answers

How can accurate demand forecasting support marketing efforts?

<p>Accurate demand forecasting allows businesses to tailor their marketing strategies based on expected product demand.</p> Signup and view all the answers

What are econometric methods used for in the context of economic analysis?

<p>Econometric methods are used to determine economic variables and forecast them using statistical tools.</p> Signup and view all the answers

How does a regression method combine economic theory with statistical techniques?

<p>A regression method uses economic theory to define the general form of the demand function and statistical techniques to estimate the values of its parameters.</p> Signup and view all the answers

What distinguishes multi-variable demand functions from single-variable demand functions?

<p>Multi-variable demand functions depend on multiple variables, while single-variable demand functions are determined by only one variable.</p> Signup and view all the answers

What are the advantages of using simultaneous equations models in demand forecasting?

<p>Simultaneous equations models are more reliable than regression methods and can forecast demand for products or the economy as a whole.</p> Signup and view all the answers

What is the main application of bivariate regression technique in economic analysis?

<p>The bivariate regression technique is used to estimate the value of a dependent variable based on a single independent variable.</p> Signup and view all the answers

What are some key factors that affect the reliability of demand forecasting methods?

<p>The reliability of demand forecasting methods depends on the selected methodology and the understanding of the product, market, business, and external factors.</p> Signup and view all the answers

What is a disadvantage of complex econometric models in demand forecasting?

<p>Complex econometric models can be difficult to understand and require specialized statistical expertise.</p> Signup and view all the answers

For what purposes can demand forecasting methods be applied according to the content provided?

<p>Demand forecasting methods can be used to forecast demand for a product, a group of products, or the economy as a whole.</p> Signup and view all the answers

What is the main assumption behind the trend projection method in demand forecasting?

<p>The main assumption is that past demand trends will continue into the future.</p> Signup and view all the answers

List one advantage and one disadvantage of the trend projection method.

<p>An advantage is that it is simple and inexpensive; a disadvantage is that it is not very reliable.</p> Signup and view all the answers

What are barometric methods used for in demand forecasting?

<p>Barometric methods use economic indicators to forecast trends in business activities.</p> Signup and view all the answers

Describe the role of leading indicators in economic forecasting.

<p>Leading indicators shift up or down ahead of other economic series, helping predict future economic activity.</p> Signup and view all the answers

What distinguishes lagging indicators from leading indicators?

<p>Lagging indicators follow changes in other economic series, while leading indicators anticipate changes.</p> Signup and view all the answers

Why were barometric methods initially abandoned after their development in the 1920s?

<p>They were abandoned due to inaccurate forecasts during the Great Depression.</p> Signup and view all the answers

What factors should be considered when selecting time series data for economic indicators?

<p>Factors include economic significance, statistical adequacy, and consistency with overall economic activity.</p> Signup and view all the answers

Explain one challenge faced when applying the trend projection method in cyclical situations.

<p>The challenge is that it may not accurately reflect changes when trends are cyclical rather than linear.</p> Signup and view all the answers

Study Notes

Demand Forecasting

  • Demand forecasting is predicting future demand for a product.
  • Accuracy of the forecast reduces risk and uncertainty, increasing the chance of achieving business objectives.
  • Important for planning and scheduling production, purchasing raw materials, financing, and advertising.
  • Crucial for large-scale production with long gestation periods to avoid under or overproduction.

Meaning and Purpose of Demand Forecasting

  • Essential for firms to estimate future demand to function effectively, avoid uncertainty, and achieve objectives.
  • Small firms may rely on experience, but large firms need accurate forecasts for input acquisition, production organization, and sales efforts.
  • Accurate forecasts minimize the risks associated with production planning in unpredictable markets.

Prerequisites of Good Demand Forecasting

  • Achieving high reliability in forecasting demand is difficult.
  • Essential prerequisites are needed to improve forecast reliability.

Survey Methods

  • Used for short-term demand forecasts.
  • Consumer surveys collect information about current and future consumer purchase plans, including surveys of consumers, opinions of market experts and sales representatives.
  • Consumer Survey Methods: Direct interviews (complete enumeration or sample survey), end-use method, are employed collecting data from potential consumers or users about purchasing intentions.

Complete Enumeration Method

  • Interviews all potential consumers to obtain demand data.
  • Adds together quantities reported to calculate total product demand.
  • Suitable in localized markets where consumers are concentrated.

Sample Survey Method

  • Interviewing a representative sample of consumers. Uses of survey results via calculation. More cost effective and faster than complete enumeration for large dispersed markets.

End-Use Method

  • Used to estimate demand for inputs.
  • Identifies all potential users of a product.
  • Establishes norms for consumption (e.g., per unit of investment, product, or capita).
  • Aggregates consumption data to estimate overall demand.
  • Advantages: detailed forecasts by type and size; identification of deviations from projected demand.

Opinion Poll Methods

  • Collects opinions from knowledgeable individuals in the market. These incorporate sales reps, sales executives, marketing experts, and consultants.
  • Expert Opinion Method: Sales representatives offer insights into market conditions and consumer preferences across their regions.
  • Delphi Method: Combines divergent expert opinions, gathers initial estimations, revises estimates in light of others', and arrives at a consensus forecast.
  • Market Studies and Experiments: Conduct experiments (consumer clinics or controlled lab experiments) assessing consumer reactions to price, packaging, or product availability.

Statistical Methods

  • Utilizes historical data (time series) and cross-sectional data.
  • More reliable and objective than other approaches.

Trend Projection Method

  • Identifies trends in demand over a period.
  • Requires long-term historical sales data.
  • Assumes past trends continue in the future.
  • Graphical method involves plotting data on a graph and drawing a trend line through the points.
  • Trend fitting or least squares method mathematically fits a trend equation to data to estimate future values.
  • Box-Jenkins method analyzes time-series data to model and forecast short-term demand in stationary series (not exhibiting a long-term trend).

Barometric Method

  • Uses economic indicators (lead-lag indicators and diffusion indices) to forecast general economic trends.
  • Lead-lag indicators (leading, coincidental, or lagging) indicate patterns in business.
  • Diffusion indices—show the percentage of rising indicators in a category.

Econometric Methods

  • Combines economic theories and statistical techniques.
  • Single-equation regression models predict dependent variable based on a single independent variable.
  • Multi-variable models predict dependent variable based on multiple independent variables.
  • Aims for accuracy through mathematical relationships.
  • Simultaneous Equations Model: Predicts dependent variables by creating a system of equations which involve multiple interrelated variables. It captures the interdependence of variables more comprehensively than the regression method.

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Demand Forecasting PDF

Description

This quiz explores various survey methods used in demand forecasting, their advantages, disadvantages, and challenges. You will learn about consumer surveys, the complete enumeration method, sample surveys, and expert opinion polls in the context of demand estimation. Test your understanding of these concepts and improve your forecasting skills.

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