1.

The four major activities of demand management are:

1. Demand Capacity: This activity involves analyzing the current and future demand for

a product or service and determining the capacity needed to meet that demand. This

includes evaluating the capacity of production facilities, suppliers, and logistics

operations. By understanding the demand capacity, businesses can ensure they have

the resources and capabilities to meet the expected demand.

2. Demand Chain: This activity involves managing the entire demand chain, from

suppliers to customers. It includes identifying and managing the various stages of the

supply chain, such as procurement, production, distribution, and delivery. By

effectively managing the demand chain, businesses can optimize their operations and

ensure that products and services are delivered efficiently and effectively to

customers.

3. Demand Communication and Modeling: This activity involves communicating

demand forecasts and modeling scenarios to stakeholders within the organization,

including sales teams, production managers, and senior executives. This helps ensure

that everyone is aligned on the expected demand and can work together to meet

customer needs. It also enables businesses to make data-driven decisions based on the

latest demand forecasts and scenarios.

4. Demand Shaping, Sensing, and Prioritizing: This activity involves shaping demand

by influencing consumer behavior, sensing changes in the market, and prioritizing

demand based on the organization's goals and objectives. This includes implementing

pricing strategies, promotional campaigns, and other tactics to influence consumer

 behavior. It also involves monitoring market trends and adjusting demand forecasts as

needed. By prioritizing demand based on the organization's goals and objectives,

businesses can optimize their resources and deliver the highest value to customers.

Overall, these four major activities in demand management are critical for businesses to

effectively manage demand, optimize their operations, and meet the needs of their customers. By

understanding these activities and implementing effective demand management strategies,

businesses can improve their competitiveness and profitability.

2. Price of product: The most significant factor that affects the demand for a product is its price.

Typically, there is a clear correlation between the price of an item and its demand. Higher prices

lead to lower demand, while lower prices lead to higher demand.

Consumer’s income: Generally, the more money consumers have, the more inclined they are to

spend it and purchase more goods. Wealthier individuals not only shop more frequently, but they

also prefer higher-quality, more expensive products.

Tastes and preferences: Consumer tastes and preferences have a direct impact on the demand for

consumer goods. However, preferences can change within a market due to various reasons, both

intrinsic and external.

Consumer’s expectations: Anticipating demand is also challenging because it requires

considering both habits and expectations of consumers. Predicting or comprehending these

expectations is difficult. It is much easier to analyze past data to determine potential future

demand.

3. Independent demand refers to the demand for finished goods or products that are sold to

customers. These finished products are consumed or used directly by the end-users. For example,

a customer might purchase a bicycle or a computer as a finished product. The demand for these

finished products is typically influenced by factors such as consumer preferences, advertising,

pricing, and competition.

On the other hand, dependent demand is the demand for components or subassemblies that are

used in the production of finished goods. These components and subassemblies are not sold

directly to customers, but instead, they are used as inputs in the production process. For example,

the demand for bicycle wheels or computer processors is dependent on the demand for bicycles

or computers. In other words, the demand for these components is derived from the demand for

the finished products.

Managing independent demand and dependent demand are different tasks. Independent demand

is typically managed through marketing, sales, and pricing strategies. Dependent demand, on the

other hand, is managed through inventory management and production planning. The goal is to

ensure that there is enough inventory of the components and subassemblies to support production

of the finished products, without having too much excess inventory that can tie up capital and

storage space.
In summary, understanding the difference between independent demand and dependent demand

is essential for businesses to manage their inventory and production processes efficiently. By

distinguishing between these two types of demand, businesses can better plan for production,

manage inventory levels, and meet customer demand for their finished products.

4.

a. Law of Demand: The Law of Demand is an economic principle that states that as the price of a

product or service increases, the quantity demanded by consumers will decrease, assuming that

all other factors remain constant. Conversely, as the price of a product or service decreases, the

quantity demanded by consumers will increase. This principle is based on the idea that as the

price of a product increases, it becomes less affordable for consumers, and they will seek

alternative products or reduce their consumption.

b. Income Effect: The Income Effect is an economic concept that explains how changes in

consumer income affect the demand for goods and services. When consumers experience an

increase in income, they are likely to increase their consumption of goods and services.

Conversely, when consumers experience a decrease in income, they are likely to reduce their

consumption of goods and services.

c. Substitution Effect: The Substitution Effect is an economic principle that explains how the

availability of alternative products changes consumer buying behavior. If the price of a product
increases, consumers may seek alternative products that are cheaper and offer similar benefits.

This can lead to a decrease in the demand for the original product and an increase in the demand

for substitute products.

d. Law of Diminishing Marginal Utility: The Law of Diminishing Marginal Utility is an

economic principle that states that as consumers buy more products, the additional satisfaction

they derive from each additional unit decreases. This principle is based on the idea that as

consumers consume more of a product, they may become less interested or satisfied with it, and

may seek alternative products. This principle is important for businesses to consider when setting

prices and marketing their products, as they need to ensure that the marginal utility of their

product remains high enough to justify its price.