Solution:

What is Methods of Demand Forecasting?

• Demand forecasting is a very absorbing and difficult exercise. Consumer‘s behaviour is the most unpredictable thing in the world because it is motivated and influenced by multiplicity.

• Moreover economist and statisticians over the years have developed several methods of demand forecasting. Each of these methods has its relative merits and demerits.

• Selection of the right method is essential to make demand forecasting accurate and credible. The methods of demand forecasting can be summarized in the form of a chart as follows.

Qualitative Method:-

• (1) Expert Opinion Method:

• Under this method the researcher identifies the experts on the commodity whose demand forecast is being attempted and probes with them on the likely demand for the product in the forecast period.

• The word Expert‘ is a high powered term but it should be taken to stand for those who possess the requisite expertise on the subject.

• A specialised form of panel opinion is the Delphi method, Instead of going in for direct identification. This method seeks the opinion of a group of experts through mail about the expected level of demand.

• The responses so received are analysed by an independent body. The method thus takes care of the disadvantage of panel consensus where some powerful individual could have influenced the consensus.

• (2) Survey Method:

• According to this method a few consumers are selected and their views on the probable demand are collected.

• The sample is considered to be a true representation of the entire population. The demand of the sample so ascertained is then magnified to generate the total demand of all the consumers for that commodity in the forecast period.

• The selection of an opinion sample size is crucial to this method, while a small sample would be easily managed and less costly.

• (3) Enumeration Survy Method:-

• Under this technique either consumers are divided in several groups on the basis of income, caste, sex, education or any other variable or they may be divided according to geographical regions.

• Through appropriately selected sample design, sample units are selected and data are collected either through direct interview or by mailing questionnaires or filling up schedules.

• The results of sample survey may be reliable provided the sample is representative of the population.

• (4) Sample Survey Method:-

• Under this method only a few consumers are selected and their views on the probable demand are collected.

• The sample is considered to by a true representation of the entire population.

• The demand of the sample so ascertained is then magnified to generate the total demand of all consumers for that commodity in the forecast period.

• (5) End Use Survey Method:-

• Under this method commodity that is used for the production of someother finally consumable goods is also known as an intermediary good.

• While the demand for goods used for final consumption can be forecasted using any other method the end use method focuses on forecasting the demand for intermediary goods.

• Such goods can also be exported or imported besides being used for domestic production of other goods.

• For example milk is a commodity which can be used as an intermediary good for the production of ICE Cream, paneer and other dairy products. We can analyze end use method with the help of following formula:-

$$Dm= Dmc+Dme-Im+X1 .OI+ XP. OP+- - - + XN+ON$$