Demand Forecasting
Demand forecasting deals with the following issues:
1. Estimating demand relationship: This is concerned with deriving the best specification of the demand faction that, with explaining the relationship between the quantity of the product demand by consumers and the factor that influence this demand. For example, how sales change as advertising expenditure increases based on actual past data on sales and advertising spend. Economists refer of this analysis as interpolation.
2. Forecasting demand: Forecasting can form the basis of both short-term and long-term decision. For example, a study of the pattern of sales for the past few weeks will help the firm to plan short-term production, inventory or advertising expenditure over the next few weeks. At the same time, demand estimation of a longer time span (many months and years) will enable the firm to determine the requirements for new production capacity, say, over the next decade and to plane the development and introduction of new product lines and market. Forecasting is thus concerned with the extrapolation or projection of future behavior on the basis of past behavior.
The demand estimation and forecasting, both in the Short-term and in the long-term, can provide a useful basis for the strategic development of any business. In the context, determinants of demand faction measurement of demand effects and demand elasticities are very useful.
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