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INTRODUCTION

Managerial Economics consists of that part of economic theory which helps thebusiness manager to take rationalecisions! Economic theories help to analyse the practical problems face by a business firm! Managerial Economicsintegrates economic theory with business practice! It is a special branch of economics that briges the between abstracttheory an business practice! It eals with the use of economic concepts an principles for ecision making in a businessunit It is o"er wise calle #usiness Economics or Economics of the $irm! The terms Managerial Economics an #usinessEconomics are use interchangably! The term Managerial Economics is more in use nowa%ays! Managerial Economics iseconomics applie in business ecision%making!

&ence it is also calle 'pplie Economics!

Definition of Business Economics

In simple wors( business economics is the iscipline which helps a business manager in ecision making for achei"ingthe esire results! In other wors( it eals with the application of economic theory to business management!

'ccoring to )pencer an )iegelman( #usiness economics is *the integration of economic theory with business practise forthe purpose of facilitating ecision%making an forwar planning by management*!

'ccoring to Mc Nair an Meriam( *#usiness economics eals with the use of economic moes of thought to analysebusiness situation*!

$rom the abo"e sai efinitions( we can safely say that business economics makes in epth stuy of the following

ob+ecti"es,

ii- E.planation of nature an form of economic analysis

/ii- Ientification of the business areas where economic analysis can be applie

/&i- )pell out the relationship between Managerial Economics an other isciplines outline the methoology ofmanagerial economics!

CHARACTERISTICS OF BUSINESS ECONOMICS

The following characteristics of business economics will inicate its nature,

0! Micro economics, Managerial economics ,s micro economic in character! This is so because it stuies the problems of anini"iual business unit! It oes not stuy the problems of the entire economy!

1! Normati"e science, Managerial economics is a normati"e science! It is concerne with what management shoul ouner particular circumstances! It etermines the goals of the enterprise! Then it e"elops the ways to achie"e these goals!

2! 3ragmatic, Managerial economics is pragmatic! It concentrates on making economic theory more application orienteIt tries to sol"e the managerial problems in their ay%toay functioning!

4! 3rescripti"e, Managerial economics is prescripti"e rather than escripti"e! It prescribes solutions to "arious businessproblems!

5! Uses macro economics, Marco economics is also useful to business economics! Macro%economics pro"ies an intelligentunerstaning of the en"ironment in which the business operates! Managerial economics takes the help of macro%economics to unerstan the e.ternal conitions such as business cycle( national income( economic policies of6o"ernment etc!

7! Uses theory of firm, Managerial economics largely uses the boy of economic concepts an principles towars sol"ingthe business problems! Managerial economics is special branch of economics to brige the gap between economic theoryan managerial practice!

8! Management oriente, The main aim of managerial economics is to help the management in taking correct ecisionsan preparing plans an policies for future! Managerial economics analyses the problems an gi"e solutions +ust as octortries to gi"e relief to the patient!

9! Multi isciplinary, Managerial economics makes use of most moern tools of mathematics( statistics an operationresearch! In ecision making an planning principles such accounting( finance( marketing( prouction an personnel etc!

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:! 'rt an science!%Managerial economics is both a science an an art! 's a science( it establishes relationship betweencause an effect by collecting( classifying an analy;ing the facts on the basis of certain principles! It points out to theob+ecti"es an also shows the way to attain the sai ob+ecti"es!

OBJECTIVES OF BUSINESS ECONOMICS

Managerial economics pro"ies such tools necessary for business ecisions!Managerial economics answers the fi"efunamental problems of ecision making! These

problem are ,

/a- what shoul be the prouct mi.

/b- which is the least cost prouction techni

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0! Deman analysis an forecasting! The foremost aspect regaring scope is eman analysis an forecasting! ' businessfirm is an economic unit which transforms proucti"e resources into saleable goos! )ince all output is meant to be sol(accurate estimates of eman help a firm in minimising its costs of prouction an storage! ' firm must ecie its totaloutput before preparing its prouction scheule an eciing on the resources to be employe! Deman forecasts ser"esas a guie to the management for maintaining its market share in competition with its ri"als( thereby securing its profit!

1! Cost an prouction analysis! ' firm?s profitability epens much on its costs of prouction! ' wise manager woulprepare cost estimates of a range of output( ientify the factors causing "ariations in costs an choose the cost%minimisingoutput le"el( taking also into consieration the egree of uncertainty in prouction an cost calculations! 3rouctionprocess are uner the charge of engineers but the business manager works to carry out the prouction function analysis inorer to a"oi wastages of materials an time! )oun pricing policies epen much on cost control! The main topicsiscusse uner cost an prouction analysis are, Cost concepts( cost%output relationships( Economies an Diseconomiesof scale an cost control!

2! 3ricing ecisions( policies an practices! 'nother task before a business manager is the pricing of a prouct! )ince afirm?s income an profit epen mainly on the price ecision( the pricing policies an all such ecisions are to be takenafter careful analysis of the nature of the market in which the firm operates! The important topics co"ere in this fiel ofstuy are , Market )tructure 'nalysis( 3ricing 3ractices an 3rice $orecasting!

4! 3rofit management! Each an e"ery business firms are tene for earning profit( it is profit which pro"ies the chiefmeasure of success of a firm in the long perio! Economists tells us that profits are the rewar for uncertainity bearing anrisk taking! ' successful business manager is one who can form more or less correct estimates of costs an re"enues atifferent le"els of output! The more successful a manager is in reucing uncertainity( the higher are the profits earne by

him! It is therefore( profit%planning an profit measurement constitute the most challenging area of business economics!

5! Capital management! )till another most challenging problem for a moern business manager is of planning capitalin"estment! In"estments are mae in the plant an machinery an builings which are "ery high! Therefore( capitalmanagement re

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people liken to buy more ue to fall in price an "ice "ersa! This is true for all commoities an uner all conitions! Theeconomists call it as !" of #em!n#! In simple wors the law of eman states that other things being e>

4 1>>

2 2>>

1 4>>

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The table shows the eman of all the consumers in a market! Ahen the price ecreases there is increase in eman forgoos an "ice "ersa! Ahen price is B5 eman is 0>> kilograms! Ahen the price is B4 eman is 1>> kilograms! Thus thetable shows the total amount emane by all consumers "arious price le"els!

Di!'(!m

There is same price in the market! 'll consumers purchase commoity accoring to their nees! The market eman cur"eis the total amount emane by all consumers at ifferent prices! The market eman cur"e slopes from left own to the

right!

E&ce$tions to t%e !"

Infe(io( 'oo#s

The law of eman oes not apply in case of inferior goos! Ahen price of inferior commoity ecreases an its emanalso ecrease an amount so sa"e in spent on superior commoity! The wheat an rice are superior foo grains whilemai;e is inferior foo grain!

Demonst(!tion effect

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The law of eman oes not apply in case of iamon an +ewelry! There is more eman when prices are high! There isless eman ue to low prices! The rich people like to emonstrate such items that only they ha"e such commoities!

I'no(!nce of consume(s

The consumer usually +uge the

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Me!nin'*

The elasticity of eman is the egree of responsi"eness of eman to change in price! In the wors of 3rof! @ipsey,

Elasticity of eman may be efine as the ratio of the percentage change in eman to the percentage change in price!

Mrs! RobinsonFs efinition is more clear, The elasticity of eman at any priceG! is the proportional change of amount

purchase in response to a small change in price( i"ie by the proportional change of price!Thus( price elasticity of

eman is the ratio of percentage change in amount emane to a percentage change in price! It may be written as Ep H

3ercentage change in amount emane 3ercentage change in price If we use J /elta- for a change( < for amount

emane an p for price( the algebraic eK change in price causes 1>K change in eman( E H 1>K1>K H

0! In the iagrams of $igure 0( Jp represents change in price( J< change in emanL 'n DD the eman cur"e! 3rice

elasticity on the first eman cur"e in 3anel /'- is unity( for J

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Ahen the change in eman is more than proportionate to the change in price( price elasticity of eman is greater than

unity! If the change in eman is 4>K when price changes by 1>K then E H 4>K1>K H 1( in 3anel /#-( i!e! J< J 0! It

is also known as relati"ely elastic eman!

If( howe"er( the change in eman is less than proportionate to the change in price( price elasticity of eman is less than

unity! Ahen a 1>K change in price causes 0>K change in eman( then E pH 0>K1>K H 01 H0( in 3anel /C-( i!e!

J

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5 0>

S 4 1>

D 2 2>

E 1 4>

$ 0 5>

6 > 7>

@et us first take combinations an D!

/i-)uppose the price of commoity falls from Rs! 5 per kg! to Rs! 2 per kg! an its

kgs! to 2> kgs! Then

This shows elastic eman or elasticity of eman greater than unitary!

Note*

T%e fo(mu! c!n -e un#e(stoo# i3e t%is*

J< H

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/i"- Take the re"erse orer when the price rises from Re! 0 per kg! to Rs! 2 per kg! 'n the kgs! to 2> kgs! Then

This shows inelastic eman or less than unitary!

The "alue of Epagain iffers in this e.ample than that gi"en in e.ample /iii- for the reason state abo"e!

+-, T%e Point Met%o#*

3rof! Marshall e"ise a geometrical metho for measuring elasticity at a point on the eman cur"e! @et R) be a straight

line eman cur"e in $igure! 1! If the price falls from 3# /H O'- to MD /H S-( the

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< H O#

Su-stitutin' t%ese 4!ues in t%e e!sticit) fo(mu!*

E3H WM3WV 3#O#

Moreo"er( WM3W V #)3#

X3WMH3#) are similar JsY

... #)3#V 3#O# H #)O#

)ince( J 3#) an JRO) are similar(

Ep at point p H #)O# H O''R H 3)3R H@ower )egmentUpper )egment

Aith the help of the point metho( it is easy to point out elasticity at any point along a eman cur"e! )uppose that the

straight line eman cur"e DC in $igure! 2 is 7 centimeters! $i"e points @( M( N( 3 an W are taken on this eman cur"e!

The elasticity of eman at each point can be known with the help of the abo"e metho! @et point N be in the mile of the

eman cur"e! )o elasticity of eman at point!

N H CN /@ower )egment- ND /Upper )egment- H 22 H 0 /Unity-

Elasticity of eman at point

M H CMMD H 50 H 5 or 0!

/6reater than Unity-

Elasticity of eman at point

@ H C@@D H 7> H Z /infinity-!

Elasticity of eman at 3oint

3 H C33D H 05 H /@ess than Unity-!

Elasticity of eman at point

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W H CWWD H >7 H >/Pero-

Ae arri"e at the conclusion that at the mi%point on the eman cur"e( the elasticity of eman is unity! Mo"ing up the

eman cur"e from the mi%point( elasticity becomes greater! Ahen the eman cur"e touches the [% a.is( elasticity is

infinity! Ipso facto( any point below the mipoint towars the %a.is will show elastic eman! Elasticity becomes ;ero

when the eman cur"e touches the %a.is!

+c, T%e A(c met%o#*

Ae ha"e stuie the measurement of elasticity at a point on a eman cur"e! #ut when elasticity is measure between two

points on the same eman cur"e( it is known as arc elasticity! In the wors of 3rof! #aumol( 'rc elasticity is a measure of

the a"erage responsi"eness to price change e.hibite by a eman cur"e o"er some finite stretch of the cur"e!

'ny two points on a eman cur"e make an arc! The area between 3 an M on the DD cur"e in $igure! 4 is an arc which

measures elasticity o"er a certain range of price an

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/0>%1>- /7%9- V 701 H %11 V 701 H %01

Thus the point metho of measuring elasticity at two points on a eman cur"e gi"es ifferent elasticity coefficients

because we use a ifferent base in computing the percentage change in each case!

To a"oi this iscrepancy( elasticity for the arc /3M in $igure 4- is calculate by taking the a"erage of the two prices X/p0]

p1-01Y an the a"erage of the two

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Marshall e"ol"e the total outlay( or total re"enue or total e.peniture metho as a measure of elasticity! #y comparing

the total e.peniture of a purchaser both before an after the change in price( it can be known whether his eman for a

goo is elastic( unity or less elastic!

Tot! out!) is $(ice muti$ie# -) t%e 6u!ntit) of ! 'oo# $u(c%!se#*

Total Outlay H 3rice . Wuantity Demane! This is e.plaine with the help of the eman scheule in Table!2!

+i, E!stic Dem!n#*

Deman is elastic( when with the fall in price the total e.peniture increases an with the rise in price the total

e.peniture ecreases! Table!2 shows that when the price falls from Rs! : to Rs! 9( the total e.peniture increases from Rs

09 to Rs! 14 an when price rises from Rs! 8 to Rs! 9( the total e.peniture falls from Rs! 19 to Rs! 14! Deman is elastic

/Ep0- in this case!

+ii, Unit!() E!stic Dem!n#*

Ahen with the fall or rise in price( the total e.peniture remains unchange( the elasticity of eman is unity! This is

shown in the table when with the fall in price from Rs! 7 to Rs! 5 or with the rise in price from Rs! 4 to Rs! 5( the total

e.peniture remains unchange at Rs! 2>( i!e!( Ep H0!

+iii, Less E!stic Dem!n#*

Deman is less elastic if with the fall in price( the total e.peniture falls an with the rise in price the total e.peniture

rises! In Table 2 when the price falls from Rs! 2 to Rs! 1( total e.peniture falls from Rs! 14 to Rs 09( an when the price

rises from Re! 0 to Rs! 1( the total e.peniture also rises from Rs! 0> to Rs! 09! This is the case of inelastic or less elastic

eman( Ep 0!

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T!-e 7 summ!(ises t%ese (e!tions%i$s*

Tot! 7* Tot! Out!) Met%o#

The measurement of elasticity of eman in terms of the total outlay metho is e.plaine in $ig! 5 where we i"ie the

relationship between price elasticity of eman an total e.peniture into three stages,

In the first stage( when the price falls from O34to O32an to O31respecti"ely( the total e.peniture rises from 34E to 32D

an ^1S respecti"ely! On the other han( when the price increases from O31to O32an O34( the total e.peniture

ecreases from 31S to 32D an 34E respecti"ely!

Thus EC segment of total e.peniture cur"e shows elastic eman /Ep 0-!

In the secon stage( when the price falls from O31to O30or rises from O30to O31the total e.peniture e

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The elasticity of eman for any commoity epens upon the category to which it belongs( i!e!( whether it is a necessity(

comfort( or lu.ury! The eman for necessaries of life or con"entional necessaries is generally less elastic! $or e.ample(

the eman for necessaries like foo( salt( matches( etc! oes not change much with rise or fall in their prices! )imilar is

the case with commoities which are re

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+9, Defe((e# Consum$tion*

Commoities whose consumption can be eferre ha"e an elastic eman! This is the case with urable consumer goos(

like cloth( bicycle( fan( etc! If the price of any of these articles rises( people will postpone their consumption! 's a result(

their eman will ecrease( an "ice "ersa!

+:, H!-its*

3eople who are habituate to the consumption of a particular commoity( like coffee( tea or cigarette of a particular bran(

the eman for it will be inelastic! Ae fin that the prices of coffee( tea an cigarettes increase almost e"ery year but there

has been little effect on their eman because people are in the habit of consuming them!

+;, Income G(ou$s*

The elasticity of eman also epens on the income group to which a person belongs! 3ersons who belong to the higher

income group( their eman for commoities is less elastic! It is immaterial to a rich man whether the price of a

commoity has fallen or risen( an hence his eman for the commoity will be unaffecte!

On the other han( the eman of persons in lower income groups is generally elastic! ' rise or fall in the prices of

commoities will reuce or increase the eman on their part! #ut this oes not apply in the case of necessities( the

eman for which on the part of the poor is less elastic!

+

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Time factor plays an important role in influencing the elasticity of eman for commoities! The shorter the time in which

the consumer buys a commoity( the lesser will be the elasticity of eman tor that prouct! On the other han( the longer

the time which the consumer takes in buying a commoity( the higher will be the elasticity of eman for that prouct!

3rof! )tigler mentions three possible reasons for the long%perio elasticity being higher than the short%perio elasticity! In

the long run( the consumer has a better knowlege of the price changes( takes time to rea+ust his buget( an might

change his consumption pattern ue to possible technological changes!

+//, B(!n#*

The price of eman for a gi"en bran of prouct may be elastic! If its price increases( people turn towars the other

brans easily! This is substitution effect $or e.ample( if the price of the &ero bicycle increases( the consumer will buy the

'tlas bicycle!

+/5, Recu((in' Dem!n#*

6oos which ha"e recurring eman( their prices are more elastic than the goos which are not emane time an again

+/8, Dist(i-ution of Income*

If a country has e

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be positi"e( negati"e or ;ero which epens on the nature of relation between the goos an [! This relation may be as

substitutes( complementary or unrelate goos!

!. Su-stitute Goo#s*

If an [ are substitute goos( a fall in the price of goo [ will reuce the > 1> 5>>

[ /Coffee- 2> 5>> 4> 2>>

E.y HJW.J3y V 3y W.H 5>>% 4>>4>%2> V 2>4>>

H 0>>0> V 2>4>> H /]- 24 or /]- >!85

It is clear from the abo"e that the coefficient of cross elasticity of substitute goos such as tea /- an coffee /[- is positi"e

/]>!85- when with the rise in price of coffee( the price of tea being constant( the eman for tea also increases!

This is shown in $ig! 7 where the

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If two goos are complementary /+ointly emane-( rise in the price of one leas to a fall in the eman for the other!

Rise in the prices of cars will bring a fall in their eman together with the eman for petrol! )imilarly( a fall in the prices

of cars will raise the eman for petrol! )ince price an eman "ary in the opposite irection( the cross elasticity of

eman is negati"e!

The cross elasticity of complementary goos is e.plaine in Table 7!

T!-e :* C(oss E!sticit) of Com$ement!()*6oos #efore the 3rice Change 'fter the 3rice Change

3rice in Rs! 3er !6! Wuantity /!6!-3rice in Rs! 3er!6!

Wuantity/!6!-

/Tea- 05> 4> 05> 2>[ /)ugar-05 0>> 1> 9>

E.yH JW.J3yV 3yW.H 2>%4> 1>%05 V 054>

H %0>5 V 054> H %051> H %24 H /%- >!85!

In this case( the cross elasticity coefficient of complementary goos such as tea an sugar or car an petrol is negati"e!

This is e.plaine in $ig!8 where with the rise in the price of [ /)ugar- from O[ to O[0(the eman for /tea- falls from O

to O0! The slope of the eman cur"e ownwars to the right inicates negati"e cross elasticity!

c. Un(e!te# Goo#s*

If the two goos are unrelate( a fall in the price of goo _ has no effect whatsoe"er on the eman for goo ! In such a

case( the cross elasticity of eman is ;ero! $or e.ample( a fall in the price of tea has no effect on the

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Some Concusions*

Ae may raw certain inferences from this analysis of the cross elasticity of eman!

/a- The cross elasticity between two goos( whether substitutes or complementaries( is only a one%way traffic! The cross

elasticity between butter an +am may not be the same as the cross elasticity of +am to butter! ' 0>K fall in the price of

butter may cause a fall in the eman for +am by 5K! #ut a 0>K fall in the price of +am may lower the eman for butter by

1K! It shows that in the first case the coefficient is >!5 an in the secon case >!1! The superior the substitute whose price

changes( the higher is the cross elasticity of eman!

This rule also applies in the case of complementary goos! If the price of car falls by 5K( the eman for petrol may go up

by 05K( gi"ing a high coefficient of 2! #ut a fall in the price of petrol by 5K may lea to a rise in the eman for cars by 0K(

gi"ing a low coefficient of >!1!

/b- Cross elasticities for both substitutes an complementaries "ary between ;ero an infinity! 6enerally( cross elasticity

for substitutes is positi"e( but in e.ceptional circumstances it may also be negati"e!

/c- Commoities which are close substitutes ha"e high cross elasticity an commoities with low cross elasticities are poor

substitutes for each other! This istinction helps to efine an inustry! If some goos ha"e high cross elasticity( it means

that they are close substitutes! $irms proucing them can be regare as one inustry!

' goo ha"ing a low cross elasticity in relation to other goos may be regare a monopoly prouct an its manufacturing

firm becomes an inustry by etermining the bounary of an inustry! Thus cross elasticities are simply guielines!

!

7. Income E!sticit) of Dem!n#*

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The concept of income elasticity of eman /Ey- e.presses the responsi"eness of a consumerFs eman /or e.peniture or

consumption- for any goo to the change in his income! It may be efine as the ratio of percentage change in the

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positi"e but inelastic income eman cur"e Dy because the increase in eman W0W1is less than proportionate to the rise

in income [0[1!

In the case of comforts( the coefficient of income elasticity is unity /EyH0- when the eman for a commoity rises in the

same proportion as the increase in income! $or e.ample( a 5K increase in income leas to 5K rise in eman( E yH55 H 0!

The cur"e Dy in $igure 00 shows unitary income elasticity of eman! The increase in

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Dete(min!nts of Income E!sticit) of Dem!n#*

T%e(e !(e ce(t!in f!cto(s "%ic% #ete(mine t%e income e!sticit) of #em!n#*

/. T%e N!tu(e of Commo#it)*

Commoities are generally groupe into necessities( comforts an lu.uries! Ae ha"e seen abo"e that in the case of

necessities( Ey0( in the case of comforts( EyH 0( an in the case of lu.uries( Ey 0!

5. Income Le4e*

This grouping of commoities epens upon the income le"el of a country! ' car may be a necessity in a high%income

country an a lu.ury in a poor low%income country!

8. Time Pe(io#*

Income elasticity of eman epens on the time perio! O"er the long%run( the consumption patterns of the people may

change with changes in income with the result that a lu.ury toay may become a necessity after the lapse of a few years!

7. Demonst(!tion Effect*

The emonstration effect also plays an important role in changing the

tastes( preferences an choices of the people an hence the income elasticity of eman for ifferent types of goos!

9. F(e6uenc)*

the fre

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Me!nin'*

$orecasts are becoming the lifetime of business in a worl( where the tial wa"es of change are sweeping the mostestablishe of structures( inherite by human society! Commerce +ust happens to the one of the first casualties! )ur"i"al inthis age of economic preators( re

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/i- )hort term eman forecasting an /ii- long term eman forecasting! In a short run forecast( seasonal patterns are ofmuch importance! It may co"er a perio of three months( si. months or one year! It is one which pro"ies information fortactical ecisions!

Ahich perio is chosen epens upon the nature of business! )uch a forecast helps in preparing suitable sales policy! @ongterm forecasts are helpful in suitable capital planning! It is one which pro"ies information for ma+or strategic ecisions!It helps in sa"ing the wastages in material( man hours( machine time an capacity! 3lanning of a new unit must start withan analysis of the long term eman potential of the proucts of the firm!

T%e(e !(e -!sic!) t"o t)$es of fo(ec!st 4i.*/i- E.ternal or national group of forecast( an /ii- Internal or company group forecast! E.ternal forecast eals with trensin general business! It is usually prepare by a companyFs research wing or by outsie consultants! Internal forecastinclues all those that are relate to the operation of a particular enterprise such as sales group( prouction group( anfinancial group! The structure of internal forecast inclues forecast of annual sales( forecast of proucts cost( forecast ofoperating profit( forecast of ta.able income( forecast of cash resources( forecast of the number of employees( etc!

At #iffe(ent e4es fo(ec!stin' m!) -e c!ssifie# into*/i- Macro%le"el forecasting(

/ii- Inustry% le"el forecasting(

/iii- $irm% le"el forecasting an

/i"- 3rouct%line forecasting!

Macro%le"el forecasting is concerne with business conitions o"er the whole economy! It is measure by an appropriateine. of inustrial prouction( national income or e.peniture! Inustry%le"el forecasting is prepare by ifferent traeassociations!

This is base on sur"ey of consumersF intention an analysis of statistical trens! $irm%le"el forecasting is relate to anini"iual firm! It is most important from managerial "iew point! 3rouct%line forecasting helps the firm to ecie whichof the prouct or proucts shoul ha"e priority in the allocation of firmFs limite resources!

!

Fo(ec!stin' Tec%ni6ues*

Deman forecasting is a ifficult e.ercise! Making estimates for future uner the changing conitions is a &erculean task!ConsumersF beha"iour is the most unpreictable one because it is moti"ate an influence by a multiplicity of forces!There is no easy metho or a simple formula which enables the manager to preict the future!

Economists an statisticians ha"e e"elope se"eral methos of eman forecasting! Each of these methos has itsrelati"e a"antages an isa"antages! )election of the right metho is essential to make eman forecasting accurate! Ineman forecasting( a +uicious combination of statistical skill an rational +ugement is neee!

Mathematical an statistical techni

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/. O$inion Poin' Met%o#*In this metho( the opinion of the buyers( sales force an e.perts coul be gathere to etermine the emerging tren in themarket!

T%e o$inion $oin' met%o#s of #em!n# fo(ec!stin' !(e of t%(ee 3in#s*+!, Consume(@s Su(4e) Met%o# o( Su(4e) of Bu)e(@s Intentions*In this metho( the consumers are irectly approache to isclose their future purchase plans! I his is one byinter"iewing all consumers or a selecte group of consumers out of the rele"ant population! This is the irect metho ofestimating eman in the short run! &ere the buren of forecasting is shifte to the buyer! The firm may go in for

complete enumeration or for sample sur"eys! If the commoity uner consieration is an intermeiate prouct then theinustries using it as an en prouct are sur"eye!

+i, Com$ete Enume(!tion Su(4e)*Uner the Complete Enumeration )ur"ey( the firm has to go for a oor to oor sur"ey for the forecast perio by contactingall the househols in the area! This metho has an a"antage of first han( unbiase information( yet it has its share ofisa"antages also! The ma+or limitation of this metho is that it re

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The metho is use for long term forecasting to estimate potential sales for new proucts! This metho presumes twoconitions, $irstly( the panellists must be rich in their e.pertise( possess wie range of knowlege an e.perience!)econly( its conuctors are ob+ecti"e in their +ob! This metho has some e.clusi"e a"antages of sa"ing time an otherresources!

5. St!tistic! Met%o#*)tatistical methos ha"e pro"e to be immensely useful in eman forecasting! In orer to maintain ob+ecti"ity( that is( byconsieration of all implications an "iewing the problem from an e.ternal point of "iew( the statistical methos are use!

T%e im$o(t!nt st!tistic! met%o#s !(e*+i, T(en# P(oection Met%o#,

' firm e.isting for a long time will ha"e its own ata regaring sales for past years! )uch ata when arrangechronologically yiel what is referre to as `time seriesF! Time series shows the past sales with effecti"e eman for aparticular prouct uner normal conitions! )uch ata can be gi"en in a tabular or graphic form for further analysis! Thisis the most popular metho among business firms( partly because it is simple an ine.pensi"e an partly because timeseries ata often e.hibit a persistent growth tren!

Time series has got four types of components namely( )ecular Tren /T-( )ecular Qariation /)-( Cyclical Element /C-( anan Irregular or Ranom Qariation /I-! These elements are e.presse by the e

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+-, Le!st S6u!(e Met%o#*

Uner the least s

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Ahere a( b( c( are the constants which show the effect of corresponing "ariables as sales! The constant u represents theeffect of all the "ariables which ha"e been left out in the e