1. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Managerial Economics in a Global Economy Chapter 5 Demand Forecasting

2. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. 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

3. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Time-Series Analysis Secular Trend –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

4. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved.

5. Trend Projection Linear Trend: S t = S 0 + b t b = Growth per time period Constant Growth Rate S t = S 0 (1 + g) t g = Growth rate Estimation of Growth Rate lnS t = lnS 0 + t ln(1 + g)

6. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. 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

7. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. 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

8. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Moving Average Forecasts Forecast is the average of data from w periods prior to the forecast data point.

9. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Exponential Smoothing Forecasts Forecast is the weighted average of of the forecast and the actual value from the prior period.

10. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Root Mean Square Error Measures the Accuracy of a Forecasting Method

11. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Barometric Methods National Bureau of Economic Research Department of Commerce Leading Indicators Lagging Indicators Coincident Indicators Composite Index Diffusion Index

12. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Econometric Models Single Equation Model of the Demand For Cereal (Good X) Q X = a 0 + a 1 P X + a 2 Y + a 3 N + a 4 P S + a 5 P C + a 6 A + e Q X = Quantity of X P X = Price of Good X Y = Consumer Income N = Size of Population P S = Price of Muffins P C = Price of Milk A = Advertising e = Random Error

13. PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. Econometric Models Multiple Equation Model of GNP Reduced Form Equation