UNIT – II

Demand Analysis:
Elasticity of Demand: Elasticity, Types of Elasticity, Law of Demand, Measurement and Significance of Elasticity
of Demand, Factors affecting Elasticity of Demand, Elasticity of Demand in decision making, Demand Forecasting:
Steps in Demand Forecasting, Methods of Demand Forecasting.

DEMAND in economics means the desire backed by the willingness to buy a commodity and the
purchasing power to pay.
In the words of ―Benham‖ ―The demand for anything at a given price is the amount of it which will be
bought per unit of time at that Price‖.
Hence, demand refers to the amount of commodity which an individual consumer is willing to purchase at
given price in a given period. The demand is said to exist when the following three conditions are fulfilled.
1. Desire to purchase
2. Ability to pay
3. Willing to pay

LAW OF DEMAND:

Law of demand shows the relationship between price and quantity demanded of a commodity in the market. In the
words of Marshall, ―the amount demand increases with a fall in price and diminishes with arise in price.
The law of demand states that “ other things remaining constant, the higher the price of the commodity, the lower
is the demand and lower the price, higher is the demand”.

A rise in the price of a commodity is followed by a reduction in demand and a fall in price is followed by an increase in demand,
if a condition of demand remains constant.

The law of demand may be explained with the help of the following demand schedule.

Assumptions:
Law of demand is based on certain assumptions:
1. There is no change in consumers taste and preferences.
2. Income should remain constant.
3. Prices of other goods should not change.
4. There should be no substitute for the commodity
5. The commodity should not confer at any distinction
6. The demand for the commodity should be continuous
7. People should not expect any change in the price of the commodity
Demand Schedule.
Price of Apple Quantity
(In. Rs.) Demanded
2 6
3 4
4 3
5 2
6 1
When the price falls from Rs. 6 to 5, quantity demand increases from 1 to 2. In the same way as pricefalls, quantity
demanded increases. On the basis of the demand schedule, we can draw the demand curve.
Demand Curve:

The above demand curve shows the inverse relationship between price and quantity demanded of apple.
It is downward sloping.

EXCEPTIONS TO LAW OF DEMAND

According to law of demand, other things being constant, as the price increases, the demand for the
commodity decreases and vice-versa. But this is not true all the time. In some cases, as the price increases,
the demand for the commodity will also increase and the demand decreases when the price decreases. All
these cases are considered as exceptions to the law of demand.
The following are the exceptions to the law of demand.

1. Giffen goods or Giffen paradox:

The Giffen good or inferior good or cheap good is an exception to the law of demand. The demand for these
goods varies directly with the variations in prices i.e., there exists direct relation between the quantity
demanded and the price of the commodity. Giffen goods may or may not exist in the real world.
Giffen goods are named after Sir Robert Giffen. He has conducted a survey on American laboring families
who consume bread and meat. The survey revealed that they spend more of their income onbread
because it is their staple food or main food and less of their income on meat. When price of bread increases,
after purchasing bread, they don‘t have surplus money to buy meat. So, the rise in the price of bread forced
the people to buy more bread by reducing the consumption of meat and thus raised the demand for bread.
The goods like bajra, barley, gram, millets, and vegetables fall under the category of Giffen goods.
2. Veblen or Goods of status

Veblan’ has explained the exceptional demand curve through his doctrine of conspicuous consumption. Rich people
buy certain good because it gives social distinction or prestige for example diamonds are bought by the richer class for
the prestige it possess. It the price of diamonds falls poor also will buy is hence they will not give prestige. Therefore,
rich people may stop buying this commodity.

3. Ignorance:
Sometimes, the quality of the commodity is judged by its price. Consumers think that the product is superior
if the price is high. As such they buy more at a higher price.
4.Consumer expectations of future prices
If the price of the commodity is increasing, the consumers will buy more of it because of the fear that it
increase still further. Similarly, if the consumer expects the future prices to decrease, he may not purchase
the commodity thinking that the good may be of bad quality. This violates the law of demand.
5. Fear of shortage:
During the times of emergency of war, People may expect shortage of a commodity. At that time, they may
buy more at a higher price to keep stocks for the future.
6. Necessaries:
In the case of necessaries like rice, vegetables etc. people buy more even at a higher price.

DETERMINANTS OF DEMAND
There are several factors or determinants that affect the individual demand and market demand for a
product. These factors are economic, social as well as political factors. The effect of all the factors on the
amount demanded for the commodity is called Demand Function. These factors are as follows:
1. Price of the Commodity:
The most important factor-affecting amount demanded is the price of the
commodity. The amount of a commodity demanded at a particular price is
more properly called price demand. The relation between price and demand
is called the Law of Demand. The demand for a commodity varies inversely
with its price. A decrease in price increases the purchasing power of
consumers and an increase in the price decreases the purchasing power of the
consumers.
2. Income of the Consumer:
The second most important factor influencing demand is consumer income. Individual consumer‘s income
determines his purchasing ability. When other things remaining constant, if income increases, demand
increases and vice-versa. An increase in income makes an individual to buy many commodities. The effect
of income on demand can be analysed for normal goods, perishable goods and inferior goods.
a) Normal goods: Usually, the demand for a normal good goes
in the same direction with consumer‘s income i.e., demand for
normal goods is directly related to consumer‘s income.
Income Demand
1000 1
2000 2

b) Perishable goods: For perishable goods like foods, fruits, meat, vegetables, milk etc., whose
life is very short, the quantity demanded raises with an increase in income, but after a certain
level it remains constant even though the income raises.
Demand for
Income
milk in Kg.
1000 1
2000 2
3000 3
4000 4
5000 4

c) Inferior goods: The goods for which the demand decreases even though the income level
increases are inferior goods or cheap good or ordinary goods.
Demand for
Income (Rs.)
ordinary ice-cream
100 1
200 2
300 3
400 1

3. Prices of related goods:

In a given market, if the price of one good influences the quantity demanded
of another good, these two goods are said to be related goods. Two commodities in a given market are
related to each other either as Substitutes or Complementary goods.
a. Substitutes: When a want can be satisfied by alternative similar
goods, they are said to be substitutes to each other. Ex: Tea and
Coffee, Santhoor soap and Lux soap etc. The below graph indicates
that as the price of coffee increases, the demand for tea increases.

Price of Coffee (Rs.) Demand for Tea

5 50
6 80
 There is direct relation between price of coffee and demand for Tea.

b. Complementary goods: When a want can be satisfied by two or more

goods in a combination. These goods are termed as complementary
goods. In other words, if the price of one good increases, the demand
for another good will decrease. Ex: Bread and Butter, Pen and Ink, Car
and Petrol, Sugar and Tea and Shoe and Socks etc. The below table
and graph indicate the indirect relationship between price of one good
and demand for one good.

Price of Sugar (Rs.) Demand for Tea

30 50
50 20

4. Tastes and habits of the Consumers:

Irrespective of price of good and income levels of consumers, demand for many goods depends on
consumers ‘tastes and habits. For example, the demand for ice-creams, chocolates, alcohol, tea, cigarettes
etc depend on individual tastes and habits. In cases like, a strict vegetarian does not demand for meant at
any price, whereas a non-vegetarian will buy meat at any price.

5. Wealth:
The amount demanded of commodity is also affected by the amount of wealth as well as its distribution.
The wealthier are the people; higher is the demand for normal commodities. If wealth is more equally
distributed, the demand for necessaries and comforts is more. On the other hand, if some people are rich,
while the majorities are poor, the demand for luxuries is generally higher.

6. Population:
Increase in population increases demand for necessaries of life. The composition of population also
affects demand. Composition of population means the proportion of young and old and children as well as
the ratio of men to women. A change in composition of population has an effect on the nature of demand
for different commodities.

7. Government Policy:
Government policy affects the demands for commodities through taxation. Taxing a commodity increases
its price and the demand goes down. Similarly, financial help from the government increases the demand
for a commodity while lowering its price.
8. Expectations regarding the future prices and incomes:
If consumers expect changes in price of commodity in future, they will change the demand at present
even when the present price remains the same. Similarly, if consumers expect their incomes to rise in the
near future they may increase the demand for a commodity just now.

9. Climate and weather:

The climate of an area and the weather prevailing there has a decisive effect on consumer‘s demand. In
cold areas woolen cloth is demanded. During hot summer days, ice is very much in demand. On a rainy
day, ice cream is not so much demanded.
10. State of business:
The level of demand for different commodities also depends upon the business conditions in the country.
If the country is passing through boom conditions, there will be a marked increase in demand. On the other
hand, the level of demand goes down during depression.

ELASTICITY OF DEMAND

Elasticity of demand explains the relationship between a change in price and consequent change in
amount demanded. ―Marshall introduced the concept of elasticity of demand. Elasticity of demand shows the
extent of change in quantity demanded to a change in price.

Definition of Elasticity of Demand:

In the words of ―Marshall, ―The elasticity of demand in a market is great or small according as the
amount demanded increases much or little for a given fall in the price and diminishes much or little for a
given rise in Price‖

Elastic demand: A small change in price may lead to a great change in quantity demanded. In this case,
demand is elastic.

In-elastic demand: If a big change in price is followed by a small change in demanded then the demand
in ―inelastic‖.

TYPES OF ELASTICITY OF DEMAND:

There are four types of elasticity of demand:

1. Price elasticity of demand

2. Income elasticity of demand
3. Cross elasticity of demand
4. Advertisement elasticity of demand

I. Price elasticity of demand:

Marshall was the first economist to define price elasticity of demand. Price elasticity of demand measures
changes in quantity demand to a change in Price. It is the ratio of percentage change in quantitydemanded
to a percentage change in price.

Proportionate change in the quantity demand of commodity

 Ep = Price elasticity =
Proportionate change in the price of commodity

Perfectly elastic demand:

When small change in price leads to an infinitely large change is quantity demand, it is called perfectly or infinitely elastic
demand. In this case E=∞

The demand curve DD1 is horizontal straight line. It shows the at “OP” price any amount is demand and if price increases, the
consumer will not purchase the commodity.

B. Perfectly Inelastic Demand

In this case, even a large change in price fails to bring about a change in quantity demanded.

When price increases from ‘OP’ to ‘OP’, the quantity demanded remains the same. In other words the response of demand to a
change in Price is nil. In this case ‘E’=0.
C. Relatively elastic demand:

Demand changes more than proportionately to a change in price. i.e. a small change in price loads to a very big change in the
quantity demanded. In this case
E > 1. This demand curve will be flatter.
When price falls from ‘OP’ to ‘OP’, amount
demanded increase from “OQ’ to “OQ1’ which is larger than the change in price.
D. Relatively in-elastic demand.
Quantity demanded changes less than proportional to a change in price. A large change in price leads to small change in amount
demanded. Here E < 1. Demanded carve will be steeper.

When price falls from “OP’ to ‘OP1 amount demanded increases from OQ to OQ1, which is smaller than the change in price.
E. Unit elasticity of demand:
The change in demand is exactly equal to the change in price. When both are equal E=1 and elasticity if said to be unitary.
When price falls from ‘OP’ to ‘OP1’ quantity demanded increases from ‘OP’ to ‘OP1’, quantity demanded increases from ‘OQ’
to ‘OQ1’. Thus a change in price has resulted in an equal change in quantity demanded so price elasticity of demand is equal
to unity.

2. Income elasticity of demand:

Income elasticity of demand shows the change in quantity demanded as a result of a change in income. Income elasticity of
demand may be slated in the form of a formula.

Proportionate change in the quantity demand of commodity

Income Elasticity = ------------------------------------------------------------------

Proportionate change in the income of the people

3.Cross elasticity of Demand:

A change in the price of one commodity leads to a change in the quantity demanded of another
commodity. This is called a cross elasticity of demand. The formula for cross elasticity of demand is:

Proportionate change in the quantity demand of commodity ―X”

EC = Cross elasticity =
Proportionate change in the price of commodity ―Y”

a. In case of substitutes, cross elasticity of demand is positive. Eg: Coffee

and Tea

When the price of coffee increases, Quantity demanded of tea increases. Both
are substitutes.

b. In case of compliments, cross elasticity is negative. If an increase in the

price of one commodity leads to a decrease in the quantity demanded of another
and vice versa.

When price of car goes up, the quantity demanded of petrol decreases. The cross-
demanded curve has negative slope.
 4. Advertisement elasticity of demand:

It refers to increase in the sakes revenue because of change in the advertising expenditure. In other words,
there is a direct relationship between the amount of money spent on advertising and its impact on sales.
Advertising elasticity is always positive.

Proportionate change in the quantity demand of commodity

EA = Advertisement elasticity =
Proportionate change in advertisement costs

MEASUREMENT OF ELASTICITY OF DEMAND

1) Point Elasticity of Demand:

Point elasticity is the price elasticity o f demand at a specific point on the
demand curve instead of over a range of it. A demand curve does not have
the same elasticity throughout its entire length. In general, elasticity
differs at different points on a given demand curve. Point elasticity does
not hold good in the case of perfectly elastic and perfectly inelastic. In
these cases, the demand curves possess a single elasticity throughout its
entire length.
It can be observed that elasticity at point C where the demand curve
touches the X axis is equal to zero and at point D where the demand curve
meets the price axis, the elasticity is infinity. At mid point P, the elasticity
is equal to one. At all the points between P and C, the elasticity
is greater than zero and less than one and at all the points between P and D, the elasticity is higher than one
and less than infinity. Thus the range of values of elasticity is between zero and infinity.
The following graph simplifies the concept of point elasticity. To
calculate point elasticity at any point on the demand curve, the below
equation is used. We take mid - point of the demand curve as point C
where elasticity is one. When we move to the right direction from
point C, elasticity of demand decreases i.e., E <1 and elasticity of
demand increases i.e., E>1, when we move to the left direction from
the point C.

The elasticity at point C can be calculated as:

Ed = CE/CA = 40/40 = 1
Elasticity at point D can be calculated as under:
Ed = DE/DA = 20/60 = 0.33 ( E<1)
 Elasticity at point B can be calculated as under:
Ed = BE/BA = 60/20 = 3 (E>1)
Elasticity at point A can be calculated as under:
Ed = AE/A = 80/0 = ∞
Elasticity at point E can be calculated as under:
Ed = E/EA = 0/80 = 0
2) Arc Elasticity or Mid–Point Method:
Arc elasticity of demand is the average elasticity over a segment of the demand curve. In point elasticity,
we find elasticity on straight line demand curve. We cannot always find a demand curve in the form of
straight line. A demand curve is not linear. So, how do we find elasticity on such a curve?. What we do is
that we have to identify two points, say point A and point B and then draw a chord (a straight line joining
two points on a curve) between these two points. Join these two points with a straight line. What happens
is we get a straight line with arc (a part of a curve). Now, how do we find elasticity between these two
points?. We have a formula for that: The following graph presents the clear meaning of the arc elasticity.

Price Demand
150 6

3.Point or Geometrical Elasticity

When the demand curve is a straight line, it is said to be linear. Graphically, the point elasticity
of a linear demand curve is shown by the ratio of the segments of the line to the right and to the
left of the particular point.
Where ‘ep’ stands for point elasticity, ‘L’ stands for the lower segment and ‘U’ for the upper
segment.

FACTORS AFFECTING ELASTICITY OF DEMAND

Elasticity of demand depends on many factors.

1. Nature of commodity:

Elasticity or in-elasticity of demand depends on the nature of the commodity i.e. whether a commodity is
a necessity, comfort or luxury, normally; the demand for Necessaries like salt, rice etc is inelastic. On the
other band, the demand for comforts and luxuries is elastic.
2. Availability of substitutes:

Elasticity of demand depends on availability or non-availability of substitutes. In case of commodities,

which have substitutes, demand is elastic, but in case of commodities, which have no substitutes, demand
is in elastic.

3. Variety of uses:

If a commodity can be used for several purposes, than it will have elastic demand. i.e. electricity. On the
other hand, demanded is inelastic for commodities, which can be put to only one use.

4. Postponement of demand:

If the consumption of a commodity can be postponed, than it will have elastic demand. On the contrary, if
the demand for a commodity cannot be postpones, than demand is in elastic. The demand for rice or
medicine cannot be postponed, while the demand for Cycle or umbrella can be postponed.

5. Amount of money spent:

Elasticity of demand depends on the amount of money spent on the commodity. If the consumer spends a
smaller for example a consumer spends a little amount on salt and matchboxes. Even when price of salt or
matchbox goes up, demanded will not fall. Therefore, demand is in case of clothing a consumer spends a
large proportion of his income and an increase in price will reduce his demand for clothing. So the demand
is elastic.

6. Time:

Elasticity of demand varies with time. Generally, demand is inelastic during short period and elastic during
the long period. Demand is inelastic during short period because the consumers do not have enough time
to know about the change is price. Even if they are aware of the price change, they may not immediately
switch over to a new commodity, as they are accustomed to the old commodity.

7. Range of Prices:

Range of prices exerts an important influence on elasticity of demand. At a very high price, demand is
inelastic because a slight fall in price will not induce the people buy more. Similarly at a low price also
demand is inelastic. This is because at a low price all those who want to buy the commodity would have
bought it and a further fall in price will not increase the demand. Therefore, elasticity is low at very him
and very low prices.
 SIGNIFICANCE/IMPORTANCE OF ELASTICITY OF DEMAND

(or)

ELASTICITY OF DEMAND IN DECISION-MAKING

The concept of elasticity is very useful to the producers and policy makers alike. It is very valuable tool to
decide the extent of increase or decrease in price for a desired change in the quantity demanded for the
products and services in the firm or the economy. The practical importance of this concept will be clear
from the following application.
1. Price fixation:
A knowledge of elasticity of demand may help the businessman to make a decision whether to cut or
increase, the price of his product or to shift the burden of any additional cost of production on to the
consumers by charging high price. Each seller under monopoly and imperfect competition has to take into
account elasticity of demand while fixing the price for his product. If the demand for the product is inelastic,
he can fix a higher price.

2. Production:
The elasticity of demand helps the businessman to decide about production. A businessman choose the
optimum product mix on the basis of elasticity of demand for various products. The products having more
elastic demand are preferred by the businessman. The sale of such products can be increased with a little
reduction in their prices. Hence elasticity of demand helps the producers to take correct decision regarding
the level of output to be produced.

3. Prices of factors of production:

A factor with an inelastic demand can always command a higher price as compared to a factor relatively
elastic demand. This helps the trade unions in knowing that where they can easily get the wage rate
increased. Bargaining capacity of trade unions depend upon elasticity of demand for workers services.
Elasticity of demand also helps in the determination of rewards for factors of production. For example, if
the demand for labour is inelastic, trade unions will be successful in raising wages. It is applicable to other
factors of production.

4. International Trade:
Elasticity of demand helps in finding out the terms of trade between two countries. Terms of trade refers
to the rate at which domestic commodity is exchanged for foreign commodities. Terms of trade depends
upon the elasticity of demand of the two countries for each other goods. A country will benefit from
international trade when it fixes lower price for exports items whose demand is price elastic and high price
for those exports whose demand is inelastic. The demand for imports should be elastic for a fall in price
and inelastic for raise in price. The terms of trade between the two countries also depends upon the elasticity
of demand of exports and imports. If the demand is inelastic, the terms of trade will be in favour of the seller
country. If the demand is elastic, the terms of trade will be in favour of the buyer country.
 5. Tax policies:
The government can impose higher taxes and collect more revenue if the demand for the commodity on
which a tax is to be levied is inelastic. On the other hand, in case of a commodity with elastic demand
high tax rates may fail to bring in the required revenue for the government. Elasticity of demand helps the
government in formulating tax policies. For example, for imposing tax on a commodity, the Finance
Minister has to take into account the elasticity of demand.

6. Nationalization of public utilities:

The nationalization of public utility services can also be justified with the help of elasticity of demand.
Demand for public utilities such as electricity, water supply, post and telegraph, public transportation etc.,
is generally inelastic in nature. If the operation of such utilities is left in the hands of private individuals,
they may exploit the consumers by charging high prices. Therefore, in the interest of general public, the
government owns and runs such services.

Demand Forecasting

Introduction:

The information about the future is essential for both new firms and those planning to expand the scale of their production.
Demand forecasting refers to an estimate of future demand for the product.

It is an ‘objective assessment of the future course of demand”. In recent times, forecasting plays an important role in business
decision-making. Demand forecasting has an important influence on production planning. It is essential for a firm to produce
the required quantities at the right time.

It is essential to distinguish between forecasts of demand and forecasts of sales. Sales forecast is important for estimating
revenue cash requirements and expenses. Demand forecasts relate to production, inventory control, timing, reliability of forecast
etc. However, there is not much difference between these two terms.

Types of demand Forecasting:

Based on the time span and planning requirements of business firms, demand forecasting can be classified in to 1. Short-term
demand forecasting and
2. Long – term demand forecasting.

1. Short-term demand forecasting:

Short-term demand forecasting is limited to short periods, usually for one year. It relates to policies regarding sales, purchase,
price and finances. It refers to existing production capacity of the firm. Short-term forecasting is essential for formulating is
essential for formulating a suitable price policy. If the business people expect of rise in the prices of raw materials of shortages,
they may buy early. This price forecasting helps in sale policy formulation. Production may be undertaken based on expected
sales and not on actual sales. Further, demand forecasting assists in financial forecasting also. Prior information about
production and sales is essential to provide additional funds on reasonable terms.
2. Long – term forecasting:

In long-term forecasting, the businessmen should now about the long-term demand for the product. Planning of a new plant or
expansion of an existing unit depends on long-term demand. Similarly a multi-product firm must take into account the demand
for different items. When forecast are mode covering long periods, the probability of error is high. It is vary difficult to forecast
the production, the trend of prices and the nature of competition. Hence quality and competent forecasts are essential.
Prof. C. I. Savage and T.R. Small classify demand forecasting into time types. They are 1. Economic forecasting, 2. Industry
forecasting, 3. Firm level forecasting. Economics forecasting is concerned with the economics, while industrial level forecasting
is used for inter-industry comparisons and is being supplied by trade association or chamber of commerce. Firm level forecasting
relates to individual firm.
Methods of forecasting:

Several methods are employed for forecasting demand. All these methods can be grouped under survey method and statistical
method. Survey methods and statistical methods are further subdivided in to different categories.

1. Survey Method:
Under this method, information about the desires of the consumer and opinion of exports are collected by interviewing them.
Survey method can be divided into four type’s viz., Option survey method; expert opinion; Delphi method and consumers
interview methods.
a. Opinion survey method:
This method is also known as sales-force composite method (or) collective opinion method. Under this method, the company
asks its salesman to submit estimate of future sales in their respective territories. Since the forecasts of the salesmen are biased
due to their optimistic or pessimistic attitude ignorance about economic developments etc. these estimates are consolidated,
reviewed and adjusted by the top executives. In case of wide differences, an average is struck to make the forecasts realistic.
This method is more useful and appropriate because the salesmen are more knowledge. They can be important source of
information. They are cooperative. The implementation within unbiased or their basic can be corrected.
B. Expert opinion method:
Apart from salesmen and consumers, distributors or outside experts may also e used for forecasting. In the United States of
America, the automobile companies get sales estimates directly from their dealers. Firms in advanced countries make use of
outside experts for estimating future demand. Various public and private agencies all periodic forecasts of short or long term
business conditions.
C. Delphi Method:
A variant of the survey method is Delphi method. It is a sophisticated method to arrive at a consensus. Under this method, a
panel is selected to give suggestions to solve the problems in hand. Both internal and external experts can be the members of
the panel. Panel members one kept apart from each other and express their views in an anonymous manner. There is also a
coordinator who acts as an intermediary among the panelists. He prepares the questionnaire and sends it to the panelist. At the
end of each round, he prepares a summary report. On the basis of the summary report the panel members have to give
suggestions. This method has been used in the area of technological forecasting. It has proved more popular in forecasting. It
has provided more popular in forecasting non-economic rather than economic variables.
D. Consumers interview method:
In this method the consumers are contacted personally to know about their plans and preference regarding the consumption of
the product. A list of all potential buyers would be drawn and each buyer will be approached and asked how much he plans to
buy the listed product in future. He would be asked the proportion in which he intends to buy. This method seems to be the
most ideal method for forecasting demand.
2. Statistical Methods:
Statistical method is used for long run forecasting. In this method, statistical and mathematical techniques are used to forecast
demand. This method relies on post data.
a. Time series analysis or trend projection methods:
A well-established firm would have accumulated data. These data are analyzed to determine the nature of existing trend. Then,
this trend is projected in to the future and the results are used as the basis for forecast. This is called as time series analysis. This
data can be presented either in a tabular form or a graph. In the time series post data of sales are used to forecast future.
b. Barometric Technique:
Simple trend projections are not capable of forecasting turning paints. Under Barometric method, present events are used to
predict the directions of change in future. This is done with the help of economics and statistical indicators. Those are (1)
Construction Contracts awarded for building materials (2) Personal income (3) Agricultural Income. (4) Employment (5) Gross
national income (6) Industrial Production (7) Bank Deposits etc.
c. Regression and correlation method:
Regression and correlation are used for forecasting demand. Based on post data the future data trend is
forecasted. If the functional relationship is analyzed with the independent variable it is simple correction. When
there are several independent variables it is multiple correlation. In correlation we analyze the nature of relation
between the variables while in regression; the extent of relation between the variables is analyzed. The results
are expressed in mathematical form. Therefore, it is called as econometric model building. The main advantage
of this method is that it provides the values of the independent variables from within the model itself.

3.Other Methods
a) Experts opinion:
Well-informed persons are called experts. Experts constitute yet another source of information.
These persons are generally the outside experts and they do not have any vested interests in the
results of a particular survey.
 b) Test marketing:

It is likely that opinions given by buyers, salesmen or other experts may be, at times, misleading.
This is the reason why most of the manufacturers favour to test their product or service in a limited
market as test-run before they launch their products nationwide. Based on the results of test
marketing, valuable lessons can be learnt on how consumers react to the given product and
necessary changes can beintroduced to gain wider acceptability. To forecast the sales of a new
product or the likely sales of an established product in a new channel of distribution or territory, it
is customary to find test marketing in practice.

c) Controlled experiments:
Controlled experiments refer to such exercises where some of the major determinants of demand
are manipulated to suit to the customers with different tastes and preferences, income groups, and
such others. It is further assumed that all other factors remain the same. In this method, the product
is introduced with different packages, different prices in different markets or same markets to
assess which combination appeals to the customer most.

d) Judgment approach:
When none of the above methods are directly related to the given products or services, the
management has no alternative other than using its own judgment.