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NMIMS
Master of
Business Administration - MBA Semester 1
Business Economics
Q1. The concept of elasticity for demand is
importance for determining the prices of various factors of production. Discuss
the various factors that influence the price elasticity of demand.
Answer. The term elasticity is borrowed from physics.
It shows the reaction of one variable with respect to a change in other
variables on which it is dependent. Elasticity is an index of reaction.
In economics the
term elasticity refers to a ratio of the relative changes in two quantities. It
measures the responsiveness of one variable to the changes in another variable.
Elasticity of
demand is generally defined as the responsiveness or sensitiveness of demand to
a given change in the price of a commodity. It refers to the capacity of demand
either to stretch or shrink to a given change in price. Elasticity of demand
indicates a ratio of relative changes in two quantities.ie, price and demand.
Accordingly “Elasticity of demand measures the responsiveness of demand to
changes in price” 1 In the words of Marshall,” The elasticity (or
responsiveness) of demand in a market is great or small according to the
Q3. Demand forecasting in an organisations
plays a vital role in business organisations. It provides reasonable data for
the organization's capital investment and expansion decision.
a. Keeping the above statement in
consideration. Discuss the various steps involved in demand forecasting.
b. Discuss the various needs for demand
forecasting in business organisations?
Answer. a)
Demand forecasting seeks to investigate and measure the forces that determine
sales for existing and new products. Generally, companies plan their business -
production or sales in anticipation of future demand. Hence forecasting future
demand becomes important. The art of successful business lies in avoiding or
minimizing the risks involved as far as possible and face the uncertainties in
a most befitting manner. Thus Demand Forecasting refers to an estimation of
most likely future demand for product under given conditions.
Various steps
involved in demand forecasting
1. Determining
the objectives: The first step in this regard is to consider the objectives of
sales forecasting carefully.
2. Period of
forecasting: Before taking up forecasting, the company has to decide the period
of forecasting.
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