Principles and Worldwide Applications, 7th Edition

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Presentation transcript:

Principles and Worldwide Applications, 7th Edition Managerial Economics Principles and Worldwide Applications, 7th Edition Dominick Salvatore & Ravikesh Srivastava

Chapter 5: Demand Forecasting

Qualitative Forecasts Survey Techniques Planned Plant and Equipment Spending Expected Sales and Inventory Changes Consumers’ Expenditure Plans Opinion Polls Business Executives Sales Force Consumer Intentions

Time-Series Analysis Secular Trend Cyclical Fluctuations Long-Run Increase or Decrease in Data Cyclical Fluctuations Long-Run Cycles of Expansion and Contraction Seasonal Variation Regularly Occurring Fluctuations Irregular or Random Influences

Trend Projection Linear Trend: St = S0 + b t b = Growth per time period Constant Growth Rate St = S0 (1 + g)t g = Growth rate Estimation of Growth Rate lnSt = lnS0 + t ln(1 + g)

Average of Ratios for Each Seasonal Period Seasonal Variation Ratio to Trend Method Actual Trend Forecast Ratio = Seasonal Adjustment = Average of Ratios for Each Seasonal Period Adjusted Forecast Trend Forecast Seasonal Adjustment =

Seasonal Variation Ratio to Trend Method: Example Calculation for Quarter 1 Trend Forecast for 1996.1 = 11.90 + (0.394)(17) = 18.60 Seasonally Adjusted Forecast for 1996.1 = (18.60)(0.8869) = 16.50

Moving Average Forecasts Forecast is the average of data from w periods prior to the forecast data point.

Exponential Smoothing Forecasts Forecast is the weighted average of of the forecast and the actual value from the prior period.

Measures the Accuracy of a Forecasting Method Root Mean Square Error Measures the Accuracy of a Forecasting Method

Barometric Methods National Bureau of Economic Research Department of Commerce Leading Indicators Lagging Indicators Coincident Indicators Composite Index Diffusion Index

Econometric Models Single Equation Model of the Demand for Cereal (Good X) QX = a0 + a1PX + a2Y + a3N + a4PS + a5PC + a6A + e QX = Quantity of X PX = Price of Good X Y = Consumer Income N = Size of Population PS = Price of Muffins PC = Price of Milk A = Advertising e = Random Error

Multiple Equation Model of GNP Econometric Models Multiple Equation Model of GNP Reduced Form Equation

Input-Output Forecasting Three-Sector Input-Output Flow Table

Input-Output Forecasting Direct Requirements Matrix Direct Requirements Input Requirements Column Total =

Input-Output Forecasting Total Requirements Matrix

Input-Output Forecasting Total Requirements Matrix Final Demand Vector Total Demand Vector =

Input-Output Forecasting Revised Input-Output Flow Table

Chapter 5 Appendix

INTEGRATING CASE STUDY 3 Estimating and Forecasting the U.S. Demand for Electricity

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