NMIMS Global Access:

Year: 2018; Internal Assignment.

Student ID: 77117758461

Course: Business Economics.

1. Suppose the demand equation for computers by Teetan Ltd for the year 2017 is given by Qd=
1200-P and the supply equation is given by Qs= 120+3P. Find equilibrium price and analyse
what would be the excess demand or supply if price changes to ₹400 and ₹120.

Answer:

Equilibrium Price: Qd = Qs;

Where: Qd = 1200-P and Qs = 120+3P;

Equilibrium Price = 1200-P = 120+3P

Equilibrium Price = 1200 – 120 = 3P + P

Equilibrium Price = 1080 = 4P

Equilibrium Price = P = 1080 / 4

Equilibrium Price = EP = 270

Quantity Demanded at Equilibrium Price = 1200-270 = 930.

Excess Demand occur when price becomes lower then Equilibrium Price.

Qd = 1200 – 120 = 1080

Excess Demand = Quantity Demanded at Price i.e. 120 – Quantity Demanded at Equilibrium Price i.e. 270

Excess Demand = 1080 – 930

Excess Demand = 150

Quantity Supplied at Equilibrium Price = 120 + 3 (270) = 930.

Excess Supply occur when price becomes more then Equilibrium Price.

Qs = 120 + 3 (400) = 1320

Excess Supply = Quantity Supplied at Price i.e. 400 – Quantity Supplied at Equilibrium Price i.e. 270

Excess Supply = 1320 – 930

Excess Supply = 390

Therefore, Equilibrium Price = 270;

Excess Demand = 150;
Excess Supply = 390;
 2. Assume that at the price of ₹75, the demand for the product is 250 units. If the price of the
product increases to ₹90, the demand decreases to 150 units. Calculate and analyse the
difference in the value of price elasticity using Arc Elasticity Method and Percentage Method.

Answer:

Arc Elasticity Method:

Here Price 1 = ₹75; Price 2 = ₹90;

Quantity 1 = 250 Units; Quantity 2 = 150 Units.

Arc Elasticity Ed= ΔQ * P1 + P2

ΔP Q1 + Q2

Where, ΔQ = Change in Quantity;

ΔP = Change in Price;
P1+P2 = Initial Price + New Price;
Q1 + Q2 = Initial Quantity + New Quantity;

Ed = 250-150 * 75 + 90
75-90 250+150

Ed = 100 * 165
-15 400

Ed = -11
4

Ed = -2.75

Percentage Method:

Here Price 1 = ₹75; Price 2 = ₹90;

Quantity 1 = 250 Units; Quantity 2 = 150 Units.

PEd = % Change in Quantity Demanded

% Change in Price

Where,

% Change in Quantity Demanded = New Quantity (Q2) – Initial Quantity (Q1) * 100
Initial Quantity (Q1)
% Change in Quantity Demanded = 150 – 250 * 100
250
% Change in Quantity Demanded = -40 %

% Change in Price = New Price (P2) – Initial Price (P1) * 100

Initial Price (P1)
% Change in Price = 90 – 75 * 100
75
% Change in Price = 20 %

Therefore PEd = ΔQ * P1
ΔP Q1
PEd = -40 * 75
20 250

PEd = -0.6
 3. Alpha Ltd was planning to start production next year. Different departments of the company
were working together to forecast the demand of the product in the market.
a) If you are manager of the company mention the steps and the factors that would be
relevant for forecasting the demand of rice in the market.
b) The price of rice and its demand (in kg) produced by Alpha Ltd in 2018 is given in the
table. Fit a linear regression line and estimate and analyse the demand for rice when
price is Rs 50 per kg.

Price (Rs / Kg) 17 20 24 28 32

Demand (Kg) 80 75 65 60 54

A: Introduction to Demand Forecasting:

Demand forecasting is the art and science of forecasting customer demand to drive holistic execution of such
demand by corporate supply chain and business management. Demand forecasting involves techniques
including both informal methods, such as educated guesses, and quantitative methods, such as the use of
historical sales data and statistical techniques or current data from test markets. Demand forecasting may
be used in production planning, inventory management, and at times in assessing future capacity
requirements, or in making decisions on whether to enter a new market. Demand forecasting is predicting
future demand for the product. In other words, it refers to the prediction of a future demand for a product or
a service on the basis of the past events and prevailing trends in the present.

Steps and Factors of Demand Forecasting:

Level of Forecasting: In this particular scenario, the level of forecasting will be done at industry level. At the
industry level, the collective demand for the products and services of all organisations in a particular
industry is forecasted.

Time Period involved: In this particular scenario, short term Forecasting will be used. Short term forecasting
involves anticipating demand for a period not exceeding one year.

Nature of Products: In this particular scenario, the nature of products is consumer goods. The goods that are
meant for final consumption by end users are called consumer goods. Rice has a direct demand.

Selection of Forecasting method: The main challenge to forecast demand is to select an effective technique.
There is no particular method that enables organizations to anticipate risks and uncertainties in future.
Generally, there are two approaches to demand forecasting. The first approach involves forecasting demand
by collecting information regarding the buying behaviour of consumers from experts or through conducting
surveys. On the other hand, the second method is to forecast demand by using the past data through
statistical techniques.

Collecting and analysing data: After selecting the demand forecasting method, the data needs to be collected.
Data can be gathered either from primary sources or secondary sources or both. As data is collected in the
raw form, it needs to be analysed in order to derive meaningful information out of it

Interpreting Outcomes: After the data is analysed, it is used to estimate demand for the predetermined years.
Generally the results obtained are in the form of equations, which needs to be presented in a comprehensible
format.
B:

x y x- y–ȳ (x - ) * (y – ȳ) (x - )2
17 80 -7.2 13.2 -95.04 51.84
20 75 -4.2 8.2 -34.44 17.64
24 65 -0.2 -1.8 0.36 0.04
28 60 4.2 -6.8 -28.56 17.64
32 54 7.8 -12.8 -98.84 60.84
Total (Σ): -257.52 130.36

= Σ xi
n

= 121
5

= 24.2

ȳ = Σ yi
n

ȳ = 334
5

ȳ = 66.8

Regression coefficient of X and Y:

byx= (x - ) * (y – ȳ)
(x - )2

byx= -257.52
130.36

byx= -1.97

Regression line of Y on X:

y – ȳ = byx (x - )

y – 66.8 = -1.97 (50-24.2)

y – 66.8 = -1.97 (25.8)

y – 66.8 = -50.82

y = -50.82 + 66.8

y = 15.98 ≅ 16