Business Economics

Answer 1

Forecasting is the study of the past to predict the future. Forecasting and forward planning
allow businesses to assess and reduce future risks and uncertainties. Planning ahead can be
worthless and directionless without forecasting. Demand forecasting is an attempt to
anticipate future demand based on historical as well as current information and data, to
minimize underproduction and overproduction. This can be built on forecasts of overall
industry demand potential. Demand forecasting is the starting point for all marketing control
activities. This is important in today's industry. Demand forecasting combines the words
"demand" and "forecasting," which are two different concepts. Demand is defined as the
external requirements of a produced good or valuable service. In general, forecasting involves
making an estimate of an event that will happen sometime in the future at the present
moment. All businesses build their marketing and sales strategies using these estimates. This
makes a significant contribution to increasing their profit margins. Here, we proceed to
discuss demand forecasting, its characteristics, and its uses. It is based on a real-time study of
historical demand for that specific good or service in the current market. Demand forecasting
must be done using a scientific method, taking into account relevant facts, figures, and
events. Demand forecasting is a statistical technique that uses scientific principles and good
judgment to anticipate future demand for a good or service. It collects data on a variety of
market factors, including possible changes in sales prices, product designs, differences in the
level of competition, marketing campaigns, spending power of the consumers, job
possibilities, population, etc.

Demand forecasting is the practice of determining demand levels for future time frames. It is
an estimate of future income based on a proposed marketing strategy and a set of specific
uncontrolled and competing variables.

Identification of the Objective: The first phase involves agreeing on the objective of the
analysis clearly and fully considering the objectives of the sales estimate. The objective can
be described in terms of long-term or short-term demand, the entire market for a company's
product or only a specific part of it, general demand for a product or only for that product
alone, the company's overall market dominance in the sector. , and so on. Before starting the
demand forecasting process, the demand objective must be established because it will guide
the entire investigation. In other words, manufacturers set targets that can be achieved
through analysis and are suitable for their purposes.

Determining the Time Perspective: The demand estimate can be for the short term, such as
the next two to three years, or long term, depending on the purpose defined. The creator
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chooses whether the analysis will be performed for a short or long period of time in this
stage. Because they provide more and more reliable data, many projections last longer.

Choosing a Demand Forecasting Technique: The forecasting method is chosen once the
forecast objective and temporal perspective have been established. There are several methods
of forecasting demand, which can be divided into two groups: survey techniques and
statistical methods. The manufacturer chooses the method that will give the greatest results in
the next stage together with the analysts. Consumer survey and opinion poll methods are
included in the survey method, and statistical methods including trend projection, barometer
analysis, and economic analysis are included. The forecaster must decide which method best
meets his needs.

Data Collection and Analysis: Once a technique has been chosen, the next step is to gather
the necessary data, through primary, secondary, or both primary and secondary sources. First-
hand information that has never been collected before is primary data. While primary data is
the information at hand. The necessary information for forecasting is gathered, tallied,
analyzed, and cross-referenced. By using statistical or graphical methods, the data are
evaluated, and then relevant conclusions are drawn from them. The information is gathered
according to the qualities that will be used in the analysis.

Estimation and Interpretation of Results: The obtained data are analyzed to make inferences
for the forecast in the final stage. This process helps to estimate the demand for a specific
period of time. Estimates are often in the form of equations, and the output is interpreted and
presented in a way that is easy to understand and useful.

Therefore, we can conclude that one of the key success factors of every business is the ability
to predict customer demand, and therefore demand forecasting is very important. If these
stages are done in a systematic order it can be done. Demand projection is a scientific
endeavor. There are many stages that need to be done. There must be important
considerations taken into account at each stage. It helps the company to make more informed
choices that plan the total number of sales and profits in the next years. Through several
forecasting methods, it also helps to gain an understanding of what their customers are asking
for. Therefore, demand forecasting is essential in corporate organizations.

Answer 2

Cost is a way of calculating the opportunities lost by choosing one good or activity over
another. The term "opportunity cost" is often used to describe this important cost. Total cost
is the term used to describe the total cost of production, which consists of both fixed and
variable costs. The cost required to produce something is called the total cost of the economy.
The two parts that make up the total cost are: Fixed cost: This is a cost that does not change.
In other words, they are costs that are constant regardless of the number of units produced.
For example, the monthly rent for an apartment or the rent for a building . Variable cost: A
variable cost is a cost that changes (increases or decreases) based on the number of item
produced by a company or the service requirements of customers. Total cost is an important
indicator of the financial performance of a company. It can show if a company is spending
too much money on certain processes and if costs need to be cut. Mathematically, the total
cost formula can be represented as ,Total Cost = Total Fixed Cost + Total Variable Cost. It
can also be represented in a more advanced way like, Total Cost = (Average fixed cost +
Average variable cost) x Number of units. Average total cost is the sum of all production
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costs divided by the number of units produced. The result is considered the most complete
collection of costs for a production run because it combines all fixed costs and variable costs
involved in producing the units. Setting the minimum price point value is often done using
this information. Any price below average total cost prevents a firm from recovering its costs,
resulting in losses. To show how this cost changes over time, it's also helpful to chart it on a
trend line . The equation reads as follows: Average total cost = (Total fixed cost + Total
variable cost) / Number of units produced. Fixed costs are costs that are sustained regardless
of the amount of production. The number of units produced directly affects the amount of
variable costs incurred. For example, the cost of direct materials used to make a product is
categorized as a variable cost as opposed to the lease of a manufacturing plant. The term
"marginal cost" describes the increase or decrease in price associated with producing or
providing services to more consumers. It is also called by the name of incremental cost.

Actual direct costs (accounting costs) and opportunity costs are both included in financial
costs. Total cost is an economic measure that includes the initial outlay of money and the
opportunity cost of decision-makers' options to calculate the costs incurred in producing a
good, purchasing an asset, or acquiring a piece of machinery. The cost per unit of the entire
quantity of goods produced is the average total cost. For any pricing-related options, this
information is essential. For the business to be successful, the product must be priced higher
than the average total cost. Fixed and variable costs are included in the average total cost.

Therefore, we can conclude that costs play an important role in the discipline of economics
because they evaluate decisions. Balancing our infinite wants against our finite resources
allows us to make decisions that help us get the things we desire . Therefore, we can say that
the cost is a way of calculating the opportunities lost when choosing one product or activity
over another. Cost is the price paid, which is usually calculated based on the resources
provided to accomplish a specific goal. It is a price paid in exchange for certain goods or
services. Costing also helps in planning future actions as well as costs incurred for services or
products.

Answer 3a

Demand is the number of customers who are able and willing to buy goods at different prices
within a certain period of time. Demand for any good or service indicates that people want it
and are willing and able to pay for it. This is the fundamental driving force behind financial
growth and expansion. No company will bother to make anything if there is no demand.
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Economic demand refers to the amount of a product or service that customers are willing to
buy at a certain price. It is possible for demand to be inelastic, meaning that demand changes
very little regardless of changes in price, or elastic, meaning that demand changes by
approximately the same amount as price. fluctuations. The concept of economic elasticity
refers to the effect of a change in one economic variable on another. On the other hand,
demand elasticity accurately assesses the effect of variation in an economic variable on the
amount of a product that is desired. The quantity demanded for a product is influenced by
many variables, including the level of income of consumers, the price of the product, the
price of competing goods in the market, etc. The term "income elasticity of demand"
describes how responsive a given quantity demanded is to changes in the real income of the
customers who buy it. The percentage change in quantity demanded divided by the
percentage change in income is the formula for determining the income elasticity of demand.

Demand Elasticity, also known as Elasticity of Demand, is a measure of how much a firm's
quantity demanded changes in reaction to changes in any market factors, such as cost,
income, and so on. It tracks changes in demand brought about by changes in other financial
indicators. The percentage change in quantity demanded measures the percentage change in
another economic indicator known as the elasticity of demand. The term "income elasticity of
demand," commonly known as "YED," describes how sensitive the amount demanded for a
good is to changes in the real income of the people who buy it, holding with all other factors
constant. Real income is the income generated by an individual after adjusting for inflation.

Income Elasticity of Demand = Percentage Change in Quantity Demanded (∆D/D) /

Percentage Change in Income (∆I/I)

Income Elasticity of Demand = (D1 – D0) / (D1 + D0) / (I1 – I0) / (I1 + I0)
where ,

D0 = Initial Demand Demand

D1 = Final Demand Demand
I0 = Initial Real Income
I1 = Final Real Income

Given:
The monthly income of an individual will increase from Rs 20,000 to Rs 25,000. Therefore,
I0= 20,000; I1= 25,000, Δ I =5000
which increases his demand for clothes from 40 units to 60 units, D0=40 , D1= 60, Δ D=20

of income demand= (∆D/D) / (∆I/I)

= (20/40)/ (5000/20000)
= 0.5/ 0.25
= 2 units
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The income elasticity of demand is 2 units

Therefore, we can conclude that the higher the income elasticity of demand for a product, the
more the demand for that product is linked to changes in consumer income. The income
elasticity of demand is 2 units which means that individuals are more sensitive to changes in
their income when it comes to buying clothes.

Answer 3b

The amount of a good or service that customers are willing to pay for each cost is called
demand by economists. A customer may be able to distinguish between a need and a want,
but from the standpoint of an economist, they are the same thing. Demand is based on needs
and wants. Capacity to pay also affects demand. Elasticity measures how sensitive a variable
is to changes in another variable, usually the change in the amount demanded relative to
changes in other parameters, such as cost. The response of demand to a change in cost is
considered economically as the price elasticity of demand. Elasticity describes the extent to
which people, consumers, producers, and suppliers change demand and supply in response to
changes in factors such as income. If the elasticity number exceeds 1.0, it means that the
price has an effect on the demand for that good or service. The demand for products or
services does not change with a change in price however, if the elasticity score is less than
1.0. It is also known as inelastic. Inelastic indicates that, regardless of price changes,
consumer buying behavior generally remains unchanged. Another hypothetical case, known
as "perfectly inelastic," exists. Another hypothetical case, known as "perfectly inelastic,"
exists. This happens when the elasticity equals zero. This means that even if prices fluctuate
greatly, the demand for the perfectly inelastic commodity still exists. The price elasticity of
demand is a measure of the change in quantity demanded as a result of an increase in the
price of a particular product or service.

The economic concept of demand describes the consumer's desire to buy a good or service.
The price consumers are willing to pay for a good or service is used to determine demand.
Demand should increase as prices decrease and decrease as prices increase, if all other
variables remain constant. This straightforward idea maintains market stability. To
understand the demand for products and services, market and aggregate demand are used.
Elasticity of demand refers to how quickly the amount of a good demanded in response to
changes in a factor that affects demand. The quantity required in response to changes in the
price of a commodity is called the price elasticity of demand. Consumer income , demand,
and price for all other goods are assumed to be constant. It is calculated by dividing the
percentage change in demand by the percentage change in price. The greater the income
elasticity of demand for a commodity, the more the demand for that commodity is linked to
changes in consumer income.

Given:
P1= 400 , P0= 500 , Q1= 25,000 , Q0= 20,000
Δ Q = 5000, Δ P=100

Price Elasticity of Demand = Percentage change in quantity / Percentage change in price

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= % ΔQ /%ΔP
= Δ Q / ΔP × P/Q
= 5000/100×500 /20000
= 50× 0.025
= 1.25 units

Therefore, we can conclude that the price elasticity of demand is 1.25 units. The demand is
said to be elastic because the answer we got is greater than 1. So the demand for the product
is easily affected by the price increase.