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Demand Estimation and Forecasting

Facilitators : Mr. John Michael G. Favila Mr. Jose Miguel G. Catan

Learning Objectives

* Identify a wide range of Demand Estimation and Forecast Methods. * Understand the nature of Demand Function * Understand that the Demand Estimation and Forecasting is all about minimizing risk.

Demand Estimation and Demand Forecasting; distinguished. * Demand Estimation attempts to quantify the link between the level of for a product and the variables which determines it whereas the Demand Forecasting simply attempts to predict the level of sales at some particular future date.

7 stages of Demand Estimation

1. Statement of a Theory or Hypothesis : This usually comes from a mixture of economic Theory and previous empherical studies.

2. Model Specification : This means determining what variables should be included in the demand model and what mathematical form or forms such a relationship should take.

3. Data Collection : Gathering necessary information. a. Cross-sectional data : Provide information on a group opf entities at a given time. b. Time-serie data: Provide information on the entity over time. i. Quantitative: Data that are expressed in nominal in either ordinal or cardinal. ii. Qualitative: Expressed in categories.

4. Estimation of Parameters : This means computing the value of the coefficient of the variables in the model.

5. Checking goodness of fit : Once a model or may be several alternatives models have been estimated, it is necessary to determine how well the model fits the data and to determine whicg model fits best.

6. Hypothesis Testing : Having determined the best model, we want to test the hypothesis stated in the first step.

7. Forecasting : This is the

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