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Cross Elasticity of Demand

Cross elasticity of demand measures the responsiveness of the quantity demanded of one product to a change in the price of another related product. It is positive if the products are substitutes and negative if they are complements. Advertising elasticity of demand measures the change in demand from a change in advertising expenditures. Demand forecasting predicts future demand based on past and present data using quantitative techniques like time series analysis and barometric analysis, or qualitative techniques like expert opinions, surveys, and market experiments.

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79 views15 pages

Cross Elasticity of Demand

Cross elasticity of demand measures the responsiveness of the quantity demanded of one product to a change in the price of another related product. It is positive if the products are substitutes and negative if they are complements. Advertising elasticity of demand measures the change in demand from a change in advertising expenditures. Demand forecasting predicts future demand based on past and present data using quantitative techniques like time series analysis and barometric analysis, or qualitative techniques like expert opinions, surveys, and market experiments.

Uploaded by

prashantsagar26
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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CROSS ELASTICITY OF DEMAND

 Cross elasticity of demand can be defined as the


ratio of percentage change in the quantity
demanded of one product to a percentage change
in the price of another related products with other
factors remain constant. Cross elasticity for a
product will be positive when the two products are
substitutes and negative when the products are
complementary
 E cp= %change in Quantity demanded of product X

%change in price demanded of product Y


ADVERTISING OR PROMOTIONAL
ELASTICITY OF DEMAND
 Advertising elasticity of demand can be
defined as the degree in the quantity
demanded of a product to a given change in
the expenditure of the advertisement and
other promotional activities. Some of the
important factors affecting advertising
elasticity of demand are: the type pf product,
stage of the product in the product life cycle
and the reaction of competitors of the firm to
its advertising campaigns.
DEMAND FORECASTING
 Demand forecasting cab be described as
prediction of future level of demand on the
basis of past and present knowledge and
experience, with a view to avoiding
underproduction and overproduction. Various
types of demand techniques are used to
estimates demand.
 There are quantitative and qualitative
techniques in demand forecasting
QUANTITATIVE TECHNIQUES
 TIME SERIES
 BAROMETRIC ANALYSIS
TIME SERIES
 This is widely known method in which past
sales demand are taken into accounts. Time
series are classified into four categories- trends,
seasonal variations, cyclical variations, and
random fluctuations. There are two types of
time series analysis-
 Moving average:-
 Exponential smoothing:-
 Moving average:- The moving average is a
series of arithmetic averages. One can use
simple moving average. In the simple moving
average method, we have to sum up the sales
for a specified period of time (eg, week,
months) and then divide the total sales by the
number of period used. In the weighted
moving average method, weight are assigned
to the periods, but the sum of weights must be
equal to one.
BAROMETRIC ANALYSIS
 Barometric analysis can be defined as “the prediction of
turning point in one economic time series through the use of
observation on another time series called the barometer or
the indicator.” the economic time series of barometric
analysis is categorized into two groups- leading indicators
and lagging indicators.
 Leading indicators compare the existing data available.
 Lagging indicators composite includes labor cost per unit,
ratio of inventory to sales and figures on installment credit
and loans, among other items. These indicators provides
signals of change in economic activities
QUALITATIVE TECHNIQUES
 Expert opinion:- The expert opinion method
is also known as expert on senses method . In
this method, the finding of market research and
the opinions of management executive,
consultant, trade association officials and sector
analysts are considered, and based on these
the demand is estimated.
 Survey:- Survey are forecasting method where
information is collected through mail, e-mail,
telephone or personally interaction with
respondent in determine demand and
questionnaire also
 Market experiment: There two types of
market experiments. They are-
 Test marketing:- it is method where a test
area, which represents the whole market, is
chosn to launch the product. The consumers
response is measured and the demand for the
market as a whole is determined.
 Controlled experiments:- this is a method
where a sample of consumers of the target
market is selected and controlled experiments
are conducted to test the demand for a new
product launched or to test the demand for
various brands of a product.
THE END

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