MICRO ECONOMICS ASSIGNMENT

SUBMITTED BY- TANYA AGGARWAL, C049, 80012100798

ANSWER 1. Forecasting is a method of making well-informed predictions about the direction of future

trends using historical data as inputs. Businesses use forecasting to figure out how to distribute their
budgets and plan for projected spending in the future. This is usually determined by the anticipated
demand for the goods and services provided. This establishes the needed level of precision and aids in
the selection of the best forecasting tools. A broad choice, such as whether or not to enter a new
market, can be made by projecting the market's future size. A more delicate decision, such as
determining the appropriate budget for each department, on the other hand, necessitates a more
detailed and accurate method. While precise forecasting is always desirable, it is rarely required.
Forecasting is crucial because it allows us to hope for a better future.

Methods of forecasting:

 Straight-line approach: This is the most straightforward way for predicting, both in terms of
learning and application. Financial analysts generally use it to forecast future revenue based on
historical trends and numbers.
 Moving average: This technique estimates future values by analyzing the underlying pattern of a
dataset. The three-month and five-month moving averages are the most commonly utilized.
 Simple linear regression is particularly beneficial for determining the relationship between
multiple variables in order to make more accurate predictions.
 Multiple linear regression is mostly utilized for revenue forecasting when two or more
independent variables are required for the prediction.

Even though making accurate forecasts is difficult and forecasts are often far off the mark, it is important
to make them due to the following reasons-

1. When it comes to starting a new business, forecasting is crucial. Starting a new business is not
an easy endeavor because it is fraught with uncertainty and hazards. The promoter can use
forecasting to determine whether he can succeed in the new business, whether he can compete
with existing competitors, and whether there is a potential of developing demand for the
proposed product, among other things.
2. The importance of forecasting cannot be overstated when assessing a company's financial
needs. The management faces a complex issue in the efficient use of capital. Without proper
money, no firm can survive. However, the availability of either fixed or working capital is totally
dependent on accurate financial forecasts.
3. Earnings forecasting supports a smooth and continuing operation of a business, especially for
freshly created businesses. These businesses can foresee their expected revenues or losses via
forecasting. The goal of a prediction is to reduce the workings of a company to black and white.
4. Changes in situations occur, whether the company is huge or little; staff shifts occur, and
unforeseen contingencies occur. Furthermore, decisions must be made only to begin the wheels
rolling and to keep them turning. This demonstrates that the decision-making process is ongoing
throughout the company's existence. Forecasting is crucial in many areas of business. As in the
 case of production planning, management has to decide what to produce and with what
resources.
5. Accurate sales forecasting aids in the procurement of necessary raw materials, which are used in
a variety of corporate activities. Accurate sales forecasting serves as the foundation for a
number of other budgets. It is difficult to determine how much production should be done in
the absence of good sales predictions. Thus, the budgets of other departments are heavily
reliant on compilations based on sales projections, and the accuracy of these budgets is also
reliant on the accuracy of sales forecasting. As a result, a business unit's performance is
dependent on precise forecasting by numerous divisions.
6. The critical role that accurate forecasting plays in planning demonstrates the importance of
accurate forecasting. It should not be overlooked that forecasting is an important component of
planning, as certain planning premises incorporate forecasts. Forecast data of a true type has a
significant impact on sound premises.
7. Forecasting is a prerequisite for planning, and it is the bedrock upon which planning is built. In
truth, planning entails a significant amount of predicting in all scenarios and situations, i.e.,
assessing the future in light of current conditions and the surrounding environment. Forecasting
and planning are inextricably linked. Under all circumstances and on all occasions, planning
entails a significant amount of forecasting, or assessing the future in light of current events and
surroundings.
8. Forecasting gives data that aids in the implementation of effective control. During forecasting,
managers become aware of their flaws, which they can overcome by applying greater effective
control.

As long as forecasting can get you "in the ballpark," and thereby improve your decision making, it has
demonstrated its value even if they are not always accurate.

ANSWER 2. The problems in building a plan for organizations to respond to and function efficiently
during times of emergency or disaster are referred to as managing through emergency and disaster.
Whether it's a natural disaster like a severe weather event or a health crisis, or a disaster caused by
human actions like terrorism or war, it's vital that businesses have strategies in place to manage
operations with minimal losses and disruptions to normal business flow.

1. Take precautions immediately to protect yourself. Create multi-year budgets that amortize the
high initial costs of risk-mitigation measures over time, allowing the predicted long-term
benefits of such investments to be justified now.
2. Learn from your own and others' disasters and near-misses. Take advantage of disasters at other
organizations to redesign your company now to avert disasters.
3. Think in a long-term perspective. Executive pay tied to multiyear performance-based incentives
like stock options can serve as a reminder to those in charge of the company's performance of
the importance of long-term planning.
4. Think about the worst-case scenarios. Due to the high level of uncertainty associated with low
probability risks, companies should assess worst-case scenarios and their chance of occurring
over various timeframes.
 5. Identify responsibilities. Determine the responsibilities of the workforce in the event of a crisis.
The following are just a few of the responsibilities that must be fulfilled in the event of a natural
disaster:
 Asset safeguarding
 Employees' communication
 Customers' communication
 Recovery
 Creating a strategy
 Providing disaster relief supplies
6. Recognize that disasters are becoming more common, and your company might be next. Instead
of pretending it won't happen to you, picture at least five major disruptions that could
jeopardize your entire business.
7. When executives feel that the next disruptive event will be similar to the last, they are more
likely to be unprepared for the next one. When conducting after-action assessments,
organizations can resist the temptation to focus on their most recent unpleasant occurrence by
thinking broadly about future eventualities.
8. Secure the assets. In a disaster, there are two sorts of assets: recoverable and non-recoverable.
Consider uploading non-recoverable assets including systems, servers, software, and
documentation to a secure cloud. You and your team will be able to access everything needed
remotely as a result of this. Discuss the structural integrity of your structure or furniture
placement for swift protection/evacuation of recoverable assets like furniture and building.
9. Communicate. Make sure to protect your staff, as they are most likely your most expensive
asset. When a n unexpected event strikes, many businesses have their employees check in with
the company to provide them an update on their position. Someone should be in charge of
keeping track of everyone. Keep your customers informed about what's going on with your
company. When are you going to start doing business again? When will their goods or service be
delivered? What effect does this calamity have on them? As best you can, respond to all of their
questions. Most firms have a difficult time resuming their normal operations. Simply keep your
clients informed about what's going on and why.

ANSWER 3. In the year 2008, A global financial crises occurred. Many economists and business leaders
forecast the 2008 financial crisis, but they were mocked for doing so. Among the evidences that were
overlooked by people when economists made predictions are:

1. Banks, according to Michael Mayo, rely too heavily on asset-backed securities, and if home
prices collapse, we'll witness "a self-fulfilling prophecy of falling home prices and lower
collateral, not to mention unique political fallout.
2. Housing prices in the United States, according to Nouriel Roubini, were riding a speculative wave
that was going to swamp the economy. In a speech to the International Monetary Fund (IMF) in
2006, he predicted that the US economy was on the approach of a housing catastrophe and
extended recession, with severe consequences for the rest of the world.
In addition, a number of well-known individuals, including William Poole, Raghuram Rajan, Christopher
Thornberg, Janet Yellen, Warren Buffet, and Andrew Redleaf, had foreseen the crisis based on their
competence in their respective industries.

The basis of these predictions/ forecasts was as follows –

1. Debt accumulation: The subprime mortgage crisis, which began in 2006, indicated the start of
the Great Recession. Debt accumulation is a sign that an economic downturn is on the way. As
debt builds, the risk of default increases, limiting a person's ability to repay the amount.
Subprime mortgages grew in popularity in 2008, as these loans were aimed at those with poor
credit and limited finance.
2. Unemployment Ratio: Unemployment is a warning that the economy is on the verge of
collapsing. A high level of consumer spending necessitates a high level of revenue, which leads
to more job openings and greater pay. In 2007, unemployment hit 10%, resulting in millions of
people losing their jobs, lower consumer spending, and an economic recession cycle.
3. Housing Price: In 2006, the housing prices burst, signaling the start of a financial crises. Falling
home prices wiped out the wealth of many American families and caused a wave of mortgage
foreclosures, causing enormous losses for Wall Street corporations. Subprime lending exploded
in 1999, when the Federal National Mortgage Association launched a determined effort to make
home loans more accessible to persons with less-than-perfect credit and savings. Because these
customers were considered high-risk, their mortgages included unusual features such as
increased interest rates and variable payments, which were red flags that something was wrong.
4. Market Overvaluation: The most precise indicator of market values in respect to the economy's
underlying value is the market capitalization to GDP ratio. If this indicator rises above 100% of
GDP, most common stocks will see a price drop sooner or later. It could be an excellent indicator
of a coming slump in the economy.
5. Customer Behavior: The most important indicator is that these crises develop as a result of a
shift in people's thinking. People who spend beyond their means rack up a significant amount of
debt. It is followed by high-risk financial activities, which lead to even greater expenditure. This
type of consumer behavior may be promoted if a company's sales are expanding.

Prior to 2008, consumer behavior had changed, with people taking out huge loans to cover their capital
needs. The usage of subprime financing to purchase assets such as houses has expanded. As a result, if
economists had paid close attention to the above tendencies, they could have predicted the 2008
financial crisis and saved countless people's wealth and lives. The data presented above suggests that
the Global Financial Crisis of 2008 could have been avoided.

ANSWER 4. The key cause is the growing popularity of secondary and tertiary management education
programs. Unfortunately, this has not been matched by a similar improvement in management training
quality. Most students choose AICTE-approved courses to B-schools since they are less expensive. There
is no quality control, the accommodations do not satisfy basic standards, the teachers are not qualified,
and the infrastructure is inadequate. Every year, around 15,00,000 (15L or 1.5 million) persons in India
complete their schooling (12th standard). The 17 IITs have a total capacity of 10,000 students. There are
16,000 seats in the 30 NITs. The three BITS campuses contain a total of 2,000 seats. Around 12,000
additional places would be available at the other colleges. This equates to 40,000 seats for a total of
15,00,000 students. Less than 3% of the population. India lacks good colleges, qualified lecturers, and
dependable infrastructure. It is not a problem that the number of IITs, IIMs, and AIIMS has expanded.
The issue is that most of the new IITs, NITs, and IIMs do not yet have the necessary infrastructure. The
majority of them are enrolled in current nursing schools. A scarcity of qualified instructors exists. 

The solution for this problem is-

1. Encourage kids to take a broad range of subjects, such as arts, science, and commerce,
beginning at the elementary level.
2. Re-establishing teaching as a respected profession.
3. Fostering a research-friendly culture while balancing the requirement for industrial resources
(engineers and MBAs)
4. 4. Providing more profitable and competitive salaries and other benefits to teachers to
encourage them to stay in the field.
5. 5. A more stringent board to oversee and supervise educational quality.

These institutes' elite standing is based on a combination of quality and exclusivity. It is unquestionably
beneficial to increase the number of high-quality higher education institutions. The only reason anyone
has a problem with something as wonderful for the country as higher quality education is that with
more campuses comes a decline in exclusivity (however little it may be).

Although a decrease in exclusivity is not a reason to limit growth, it is a problem if increasing the
number of people has an adverse effect on quality. This could occur as a result of a failure to identify
qualified professors or construct adequate facilities in a timely manner. These are not arguments to limit
the number of institutes because they can be remedied if handled properly.