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FORECASTING TECHNIQUES
1 - Simple Average
1 132 13 152
2 163 14 170
3 171 15 131
4 148 16 153
5 135 17 137
6 162 18 172
7 107 19 122
8 144 20 142
9 127 21 189
10 193 22 138
11 142 23 161
12 163 24 133
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FORECASTING TECHNIQUES
2 - Moving Average
• In simple averages method, it is the disadvantage that as the process continues,
there is more and more data to store, and all are given equal weights in
estimating the demand in the next period.
• It is possible to get round this, by introducing the idea of a moving average, only
including a fixed number of the most recent values.
• Considering a 5-point moving average, the forecast for week 6 is simply, 132 + 163
+ 171 + 148 + 135 = 749/5 = 149.8.
• When the requirement for week 6 is known, it is possible to forecast the
requirement for week 7 as the average of the 5 most recent values: 163 + 171 +
148 + 135 + 162 = 779/5 = 155.8. Alternatively, note that 132 was dropped and
162 was added.
• The remainder of the values, together with the forecasts based on an 11-point
moving average, are presented in last column of the Table.
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FORECASTING TECHNIQUES
FORECASTING TECHNIQUES
4- Exponentially Weighted Moving Averages
• The previous approaches either gave each of a fixed number of most recent values, equal
weight or differential weights, in arriving at an average.
• This approach uses all available historical data, with the weights applied to each getting
smaller as the data gets older.
• The formula for this approach is:
Forecast for next period = Forecast for last period + α (actual for last period –
forecast for last period)
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FORECASTING TECHNIQUES
• Illustrating this method with the data from the previous example, it is
necessary to obtain the first forecast before the formula can be applied.
• Initially, this is normally taken to be the straightforward arithmetic mean.
• Let the value of α used is 0.1. So forecast for week 11 = average
requirements for first 10 weeks = (132 +163 + 171 +148 + 135 + 162 + 107 +
144 + 127 + 193) / 10 = 148.2. So forecast for week 12 = 148.2 + 0.1 (142 –
148.2) = 147.6 forecast for week 13 = 147.6 + 0.1 (163 – 147.6) = 149.0 and
so on.
• The calculations are summarized for both α = 0.1 and α = 0.2 in Table .
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“when the price of a good is raised (at the same time that all other
things are held constant), less of it is demanded. Or in other words: if
a greater quantity of a good is put on the market, then other things
remain equal, its price decreases or it can be sold only at a lower
price.”
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EQUILIBRIUM OF
SUPPLY AND DEMAND
• Let us look at the two curves together as given in last Fig .
Can the situation ‘A’ as given in the table prevail for long?
The answer is clear, No.
• At Rs:500/00, the producers will be supplying 18 million
bags to the market every month. But the amount
demanded by the consumers is only 9 million bags per
month. As stocks of wheat pile up, the competitive sellers
will cut the price a little.
• Thus as column (4) shows price will tend to fall downwards.
But it will not fall indefinitely to zero.
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EQUILIBRIUM OF
SUPPLY AND DEMAND
EQUILIBRIUM OF
SUPPLY AND DEMAND
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THANKS
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MARKETS
• In the ordinary language the term “market” is used to denote
a specified place or area where buyers and sellers come
together for purchase and sale of goods.
• In economics, this term is used to a wider sense.
• According to the French economist Cournet’:
• “Economists understand by the term market not any
particular market place in which things are bought and sold,
but the whole of any region in which buyers and sellers are in
such a free interaction with one another that the prices of
the same goods tend to equality easily and quickly.”
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MARKETS (-CTD-)
• From this definition the essentials of a market can be
deduced as:
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2. On Functional Basis:
A general commodity market, a specialist (commodity) market;
e.g., a market where commodities are marketed by sample or a market
where commodities are marketed by grades.
3. On Geographical Basis:
Local markets, regional markets: and international markets.
The area or extent of market will depend upon factors like the character
of the commodity itself, the nature of demand for the commodity means
of communication and transport, peace and security, currency and credit
system, the state policy.
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1 - Perfect Market :
• Perfect market is the one in which buying and selling take
place under conditions of ‘perfect competition’.
• In such a market the same price tends to prevail for the same
commodity in all parts of the market at the same time.
• If there is any difference in prices in different parts of the
market, forces come into operation at once to remove such a
difference, except the difference which is due to the cost of
transporting the commodity from one part of the market to
the other.
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COMPETITION
• In day to day life, the word competition means a state of affairs in which
a number of persons are in rivalry with each other to achieve the same
objective.
• However, in commercial world, sellers may be in competition with each
other to make the largest amount of sales at the highest price. Similarly,
buyers may be in competition with each other to secure goods they want
at the lowest price.
• Competition amongst the sellers will, then tend to lower the prices.
While competition amongst the buyers will tend to raise the prices.
• Although competition can prevail both on sellers as well as buyers side, it
is the former (sellers), which is more important from the point of view of
price determination.
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1. Homogeneity of Product
Every unit of the commodity on sale must be exactly like every other unit
or, in other words, the units must be perfect substitutes of each other.
The buyers will be ready to pay the same price for every unit of the
commodity.
2. Atomism
Atomism is derived from atom which means very small. This condition
implies that the number of sellers in the market should be very large. As a
result each seller supplies such a small proportion of the total supply that
whether he is willing to sell more or less does not have any effect on the
price prevailing in the market.
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COMPETITION
3. Free Entry
The market must be free or open, so that there is no restriction on new
sellers or firms to enter the market or to leave the market, as their interest
may dictate.
4. Perfect Knowledge
Those taking part in the buying and selling must have perfect knowledge of
all the relevant facts of market. For instance, buyers should not pay a
higher price and sellers should not charge a lower price due to ignorance of
the fact that the same commodity could be exchanged in another part of
the market at a different price.
5. Elastic Supply of Factors
All the factors of production which are used in the production of a good
commodity must be available in any amount at current price, or in other
words, the factors of production must be perfectly elastic in supply or
flexible.
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PERFECT COMPETITION
PERFECT COMPETITION
• When the conditions prevail in the market, we
call it pure competition.
• As a result of pure competition conditions, the
demand for the product of a firm would be
perfectly elastic.
• This means that the seller can sell any amount of
the commodity, he likes at the prevailing price.
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IMPERFECT COMPETITION
IMPERFECT COMPETITION
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MONOPOLY
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