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Business Economics
December 2023 Examination
Q1. “Demand forecasting plays a vital role and enables
organisations to arrange for the required input as per the predicted demand, without
any wastage of material and time”
Substantiate your view on demand forecasting and
discuss the various factors influencing demand forecasting. (10 Marks)
Ans 1.
Introduction
Demand
forecasting is the systematic process of estimating the future demand for a
product or service. It functions as the cornerstone for many critical business
decisions, be it production, financial planning, or human resource management.
In a rapidly changing and highly competitive global marketplace, businesses
cannot rely merely on historical data or gut instinct. The implications of
overestimating or underestimating demand can be severe, affecting a company's
profitability, market reputation, and operational efficiency. Overestimation
can lead to inventory piling up, increased carrying costs, and eventual losses
upon clearance sales. Conversely, underestimation can result in stockouts, loss
of market share, and reduced customer
Q2. Define the term “Elasticity of demand.” Discuss
different types of elasticity of demand. Also, explain why this concept should
be of interest to anyone in business who has a choice to determine the price at
which to sell their products. (10 Marks)
Ans 2.
Introduction
Elasticity of
demand is a central concept in the realm of economics and business. At its
essence, it gauges how sensitively consumer demand responds to changes in
various determinants, most notably price. In a market-driven economy where
prices oscillate due to numerous factors, understanding how these fluctuations
impact consumer buying behavior is paramount. For businesses, elasticity isn't
just an abstract concept; it's a vital metric that directly influences their
pricing strategies, revenue models, and market positioning. This importance
stems from its direct relationship with a firm's revenue and profitability.
Understanding demand elasticity aids businesses in making informed decisions
about pricing their products, anticipating market reactions, and strategizing
marketing efforts. In this discourse, we'll
Q3 A) “The root of the economic problem is the
scarcity of resources while our wants are infinite”. Elaborate the given
statement explaining the three types of economic problems faced by an economy in
achieving in production and distribution.
(5 Marks)
Ans 3a.
Introduction
One of the
foundational principles in economics revolves around the concept of scarcity.
The quintessential dilemma is that resources – time, money, land, labor, and
others – are limited, while human wants and needs are virtually endless. This
disparity between limited resources and unlimited desires propels the need for
making choices, leading to various economic problems. Economies, regardless of
their development stages, grapple with determining what to produce, how to
Q3b) Complete the hypothetical table - compute and show steps
on Average Product and Marginal product.
(5 Marks)
|
Quantity |
Total Product |
Average Product |
Marginal product |
|
1 |
10 |
|
|
|
2 |
30 |
|
|
|
3 |
48 |
|
|
|
4 |
56 |
|
|
|
5 |
56 |
|
|
|
6 |
52 |
|
|
Ans 3b.
Introduction
The concepts
of Average Product (AP) and Marginal Product (MP) are fundamental in
understanding the law of diminishing returns in production economics. The
Average Product is the output per unit of the variable factor employed, while
the Marginal Product is the additional output resulting from employing an
additional unit of the variable factor, keeping all other factors constant. By
computing these values, we can identify patterns and assess the efficiency of
productio
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