Demand - Analysis & Forecasting

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Concept
Price plays an important role in determining the demand of a commodity apart from other factors (like income, tastes & preferences, habits, fashion, etc). The analysis of demand tries to identify how demand changes due to effect of price & also due to other factors. The two ways to identify the demand are: 1. Extension & Contraction of Demand 2. Increase & Decrease of Demand

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Extension & Contraction of Demand

The movement along the demand curve is referred to as extension & contraction of demand. Contraction in demand is due to increase in the price of the commodity, which results in decrease in the demand for a commodity. Extension in demand is due to decrease in the price of the commodity, which results in increase in the demand for a commodity.
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FHRAI Institute of Hospitality Management Economics

Increase & Decrease in Demand

The change in the demand due to the influence of other factors (like income, tastes & preferences, habits, fashion, etc) apart from the main factor price is known as increase and decrease of demand.

Increase of demand implies that at any given price a larger quantity is demanded because of its utility to the consumer. Decrease of demand implies that at any given price a lesser quantity is demanded because of not being preferred by the consumer.
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FHRAI Institute of Hospitality Management Economics

Nature of Demand & its classification

Derived demand & Autonomous demand e.g. Vegetables & Breads Producer goods & Consumer goods e.g. Cloth & Shirt Durable & Non-durable goods e.g. Refrigerators & Fruits Industry demand & Company demand e.g. n lakh tons of coal & n tons of coal Short-run demand & long-run demand e.g. Coolers in hostel rooms & training hotel
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Demand Forecasting
Demand results in sales of the produced products which constitute the main source of revenue to business. Thus production & sales planning requires forecast of the market conditions & their relationship to demand. Though the forecasting of demand may not be exact at all times, but it gives an rough idea of the demand for the product in the future.
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Classification of demand forecasting Short-term demand forecasting

Long-term demand forecasting

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Short-term demand forecasting

This refers to a short period not exceeding one year. It concerns with policies relating to sales.

It helps in deciding suitable prices of the product for its marketing & advertising. e.g. meeting demand of TV sets during world cup season.
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Long term demand forecasting

It refers to the assessment of demand for the product & expansion of production units for a long period of time. It helps in taking major strategic business decisions. It also helps in saving the wastages in material, man-hours, machine time & capacity.

e.g. 1. LIC taking decision of not accepting out station cheques at the time of policy forging. 2. Fiat taking decision of distributing it cars through the distribution channel of Tata motors.
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Methods of Demand Forecasting Survey method 1.Opinion survey method 2.Consumers interview

Statistical method
1.Trend projection

2.Economic indicators
3.Correlation & Regression
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Queries ?

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Thank You

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