Business Economics

Assignment for December-2022

1.

Introduction:-
The study of the past in order to foretell the future is known as forecasting. Forecasting and
planning ahead of time enable organisations to analyse and reduce future risks and
uncertainties. Without prediction, forward planning is useless and pointless. Demand
forecasting is an attempt to predict future demand based on historical and present knowledge
and data, with the goal of minimising both underproduction and overproduction. Forecasts of
the industry's entire demand potential can be used to support it. All marketing control
operations start with demand forecasting. It is critical in today's business. Demand forecasting
combines the concepts of "demand" and "forecasting." The external requirements of a
manufactured commodity or valuable service are defined as demand. Forecasting, in general,
entails creating an estimate of an occurrence that will occur sometime in the future in the
present instant. These forecasts are used by all firms to build their marketing and sales
strategy. It significantly contributes to the expansion of their profit margins.

We are now moving on to talk about demand forecasting, its characteristics, and its utility. It
is based on a current market assessment of previous demand for that specific commodity or
service. Forecasting demand must be done scientifically, taking into account pertinent facts,
numbers, and occurrences. Demand forecasting is a statistical technique that predicts future
demand for a commodity or service based on scientific principles and reasonable judgement.
It gathers information on a variety of market aspects, such as potential pricing adjustments,
product designs, differences in the degree of competition, marketing campaigns, consumer
purchasing power, job opportunities, population, and so on.
 Concept:-
Demand forecasting is the activity of predicting demand levels for future time periods. It is a
forecast of future revenue based on a proposed marketing plan and a collection of specific
uncontrollable and competing variables.

● Identification of Objective:
The first phase requires openly agreeing on the purpose of the analysis and thoroughly
considering sales forecasting targets. Long-term or short-term demand, the entire
market for a firm's product or just a specific portion of it, overall demand for a
product or just that product alone, firm's overall market dominance in the sector, and
so on. The demand target must be determined before beginning the demand
forecasting technique because it will lead the entire inquiry. In other words,
manufacturers set goals that are reachable through analysis and fit for their needs.

● Determining the Time Perspective:

Depending on the goal, the demand estimate can be for a short period, such as the
next two to three years, or for a long period. In this stage, the maker decides whether
the analysis will take a short or long time. Many predictions survive a very long time
because they produce more and more solid data.

● Choosing a Demand Forecasting Technique:

Once the forecast's goal and time frame are determined, the forecasting method is
chosen. Demand forecasting approaches are classified into two types: survey
techniques and statistical techniques. Along with the analysts, the manufacturer
selects the technique that will yield the best results in the next stage. The survey
approach incorporates consumer survey and opinion poll methodologies, as well as
statistical procedures such as trend projection, barometer analysis, and economic
analysis. The forecaster must determine which approach best suits his requirements.

● Collection and Analysis of Data:

After deciding on a technique, the next stage is to collect the relevant data, either
through primary, secondary, or combined primary and secondary sources. The major
data is made up of first-hand knowledge that has never been acquired before. While
primary data is the information that is currently available. The information required
for the forecast is acquired, totaled, evaluated, and cross-referenced. The data is
examined using statistical or graphical methodologies, and then applicable
conclusions are generated from them. The data is acquired based on the qualities that
will be used in the analysis.

● Estimation and Interpretation of Results:

In the final stage, the obtained data is processed to make forecasting inferences. This
approach aids in estimating demand for the specific time period. Estimates are
frequently expressed as equations, and the outcome is analysed and presented in a
straightforward and usable manner.

Conclusion:-
As a result, we can conclude that one of the essential components in every business's success
is the capacity to foresee client demand, and hence demand forecasting is critical. It can only
be done if these steps are taken in a systematic order. Demand forecasting is a scientific
undertaking. It must go in stages. At each level, critical concerns must be taken into account.
It enables the organisation to make more informed decisions about the overall volume of
sales and income over the next few years. It also aids in acquiring insight into their clients'
demands through a variety of forecasting methodologies. As a result, demand forecasting is
critical in business.
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2.
Introduction:

Cost is a method of calculating the opportunities lost when one good or activity is preferred
over another. This critical expense is frequently referred to as a "opportunity cost." The word
"whole cost" refers to the complete production cost, which includes both fixed and variable
costs. In economics, the total cost is the cost of manufacturing a good. Total cost is
comprised of two components: Fixed expense: This is a constant cost. In other words, these
are the costs that remain constant regardless of the number of units manufactured. For
example, a monthly lease for an apartment or a building lease. Variable cost: A variable cost
is one that changes (increases or lowers) depending on the number of goods produced by a
company or the service needs of its consumers. Total cost is an important indicator of a
company's financial performance. This can indicate whether a corporation is spending too
much money on certain procedures and whether there is a need to minimise expenditures.
Total cost can be stated mathematically as Total Cost = Total Fixed Cost + Total Variable
Cost. Total Cost = (Average fixed cost + Average variable cost) x Number of units is a more
complex representation. The average total cost is the sum of all production expenses divided
by the number of units produced. The end result is considered the most comprehensive
costing collection for a manufacturing run since it incorporates all fixed and variable
expenses connected with producing the units.

This information is typically used to set the minimum value of a pricing point. Any price that
is lower than the average total cost precludes a corporation from recouping its expenses,
resulting in a loss. It is also useful to plot this cost on a trend line to demonstrate how it
changes over time. To calculate the average total cost, add all fixed and variable expenses
and divide the total by the number of units produced. The following is the equation: Total
average cost = (Total fixed costs + Total variable costs) / number of units produced Fixed
costs are expenses that will be incurred regardless of output. The number of units produced
has a direct impact on the amount of variable expenditures spent. In contrast to the lease on a
manufacturing plant, the expense of direct materials required to manufacture a product is
classified as a variable cost. The phrase "marginal cost" refers to the price increase or
decrease associated with manufacturing or supplying services to a new customer. It is
sometimes referred to as incremental cost.

Concept:-
The financial cost includes both direct spending (accounting costs) and opportunity costs.
When determining the costs incurred to develop a good, purchase an asset, or procure
machinery, total cost includes both the initial cash outlay and the potential cost of the
decision-makers' options. The average total cost is the cost per unit of the full number of
manufactured goods. This information is critical for making any pricing decisions. The
product must be priced higher than the normal overall cost for the firm to be profitable. The
average total costs include both fixed and variable costs.

Average
Average Total
Total Total Total Fixed Average Cost=
Fixed Variable Cost=TF Cost= Variable AFC+AV Marginal
Quantity Cost Cost C+ TVC TFC/Q Cost=TVC/Q C Cost
0 100 0 100 0 0 0 20
1 100 20 120 100 20 120 10
2 100 30 130 50 15 65 10
3 100 40 140 33.33 13.33 46.66 10
4 100 50 150 25 12.5 37.5 10
5 100 60 160 20 12 32 10

Conclusion:-
As a result, we can argue that costs are important in the subject of economics since they
assess decisions. We may make judgments that will help us acquire what we want by
balancing our infinite wants against our finite resources. As a result, we might define cost as
a method of calculating the potential lost by choosing one product or activity over another.
Cost is the price paid, which is frequently assessed based on the resources sacrificed to
achieve a specific goal. It is a monetary exchange for specified goods or services. Cost also
aids in the planning of future activities and the allocation of expenses to services or products.

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3. (A)
Introduction:-
Demand is the amount of clients that are able and willing to buy things at a variety of prices
over a given time period. Demand for any good or service suggests that people desire it and
are willing and able to pay for it. It is the primary driving force behind financial development
and expansion. If there was no demand, no corporation would bother manufacturing
anything. In economics, demand refers to the amount of a commodity or service that
customers are willing to buy at a given price. Demand can be inelastic, meaning that it
changes very little independent of price change, or elastic, meaning that it changes by roughly
the same amount as price changes. The concept of elasticity in economics refers to the
influence of modifying one economic variable on another. Demand elasticity, on the other
hand, precisely measures the influence of fluctuation in an economic variable on the amount
of a desired product. A variety of factors determine the quantity demanded for a product,
including consumer income levels, the product's price, the pricing of competing commodities
in the market, and a number of others. The term "income elasticity of demand" expresses how
responsive a given good's quantity demand is to changes in the actual income of the
customers who buy it. The formula for determining the income elasticity of demand is the
percent change in quantity demanded divided by the percent change in income.

Concept:-
Demand Elasticity, also known as Elasticity of Demand, is a measurement of how much a
company's quantity demand fluctuates in response to changes in any market component, such
as cost, revenue, and so on. It tracks variations in demand caused by changes in those other
financial indicators. The elasticity of demand is measured by the percentage change in the
amount required. The term "income elasticity of demand," often known as "YED," explains
how sensitive the amount sought for a given commodity is to changes in the real earnings of
the people who buy it, while all other factors remain constant. Individuals' real income is
income that has been adjusted for inflation.

Income Elasticity of Demand = Percentage Change in Quantity Demanded (∆D/D) /

Percentage Change in Income (∆I/I)

Income Elasticity of Demand = (D1 – D0) / (D1 + D0) / (I1 – I0) / (I1 + I0)
where,

D0 = Initial Quantity Demanded

D1 = Final Quantity Demanded
I0 = Initial Real Income
I1 = Final Real Income

Given:
The monthly income of an individual increases from Rs 20,000 to Rs 25,000.
So, I0= 20,000; I1= 25,000, 𝛥𝐼 = 5000

Which increases his demand for clothes from 40 units to 60 units, D0=40, D1= 60, 𝛥𝐷 = 20

Income elasticity of demand= (∆D/D) / (∆I/I)

= (20/40)/ (5000/20000)
= 0.5/ 0.25
= 2units

The income elasticity of demand is 2 units

Conclusion:-
As a result, we can deduce that the higher the income elasticity of demand for an item, the
more the demand for that commodity is tied to changes in consumer revenue. The income
elasticity of demand is 2 units, indicating that people are extremely sensitive to changes in
their income when it comes to buying garments.

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3. (B)
Introduction:-

Economists define demand as the quantity of an item or service that customers are willing
and able to obtain at each price. A customer may be able to tell the difference between a need
and a want, but an economist sees them as the same thing. Needs and wants drive demand.
Demand is also influenced by one's ability to pay. Elasticity measures how sensitive one
variable is to changes in another variable, most commonly the change in amount requested in
relation to changes in other parameters, such as cost. Price elasticity of demand quantifies
demand's responsiveness to changes in cost. Elasticity describes the degree to which people,
consumers, producers, and suppliers vary demand and supply in response to changes in
factors such as income. When the elasticity number surpasses 1.0, it indicates that the price
has an effect on the demand for that commodity or service. When the elasticity score is less
than 1.0, a price adjustment has no effect on demand for the goods or services. It is also
known as inelastic. Inelastic means that, regardless of price changes, customer purchase
behaviour remains mostly unaltered. Another possible scenario is "totally inelastic." Another
possible scenario is "totally inelastic." This happens when the elasticity is zero. This implies
that even if prices were drastically changed, demand for the totally inelastic commodity
would persist. The measurement of price elasticity of demand is the change in quantity
required as a result of an increase in the price of a certain product or service.

Concept:-
Demand in economics refers to the consumer's desire to purchase a good or service. Demand
is determined by the price that customers are willing to pay for a good or service. If all other
variables remain constant, demand should increase as prices fall and fall as prices rise. This
simple concept helps to keep the market stable. Market and aggregate demand are used to
understand demand for products and services. Elasticity of demand refers to how rapidly a
good's quantity is sought in reaction to changes in a demand-affecting factor. Price elasticity
of demand refers to the amount demanded in reaction to a change in the price of a
commodity. All other commodities' income, preferences, and pricing are assumed to be
constant. It is computed by dividing the percent change in the amount demanded by the price
fluctuation. The greater the income elasticity of demand for a commodity, the more closely
that commodity's demand is connected to changes in consumer revenue.
Given:
P1= 400 , P0= 500 , Q1= 25,000 , Q0= 20,000
𝛥Q= 5000, 𝛥𝑃 = 100

Price Elasticity of Demand = Percentage change in quantity / Percentage change in price

= %𝛥𝑄/%𝛥𝑃
= 𝛥𝑄/𝛥𝑃 × 𝑃/𝑄
= 5000/100 × 500/20000
= 50 × 0.025
= 1.25units

Conclusion:-
As a result, the price elasticity of demand is 1.25 units. The answer we obtained is greater
than one, indicating that demand is elastic. As a result, demand for the product is vulnerable
to price rises.

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