DEMAND ESTIMATION

By Dr. SIRISHA

DEMAND ESTIMATION
b) The market simulation method: It is also know as consumer clinic or laboratory experiment method. It involves giving sum of money to the consumer with which he asked to shop in a simulated market. The consumer behaviour is studied. Limitations 1) As the consumer participates in experiment . This likely distort their shopping behaviour. 2) such experiments are very costly.

DEMAND ESTIMATION
To understand demand analysis we need to find estimation of demand .In some cases it is easy to find out and in some it is difficult The basic methods which are used to estimate the demand function are as follows 1)Market experimentation 2)Survey of consumers intentions 3)Regression analysis Market Experiment method : They are of two types a) Actual market method : Under this method consumers reactions are observed with the help of sales outlets opened at different localities. But it has some serious shortcomings. 1)It is expensive 2)It is for the short run

DEMAND ESTIMATION
2) Survey of consumers intention: In the method the consumer are contacted personally to disclose their future plans. This can be done by a) census method: It gives first hand information .Yet it has certain limitations
1)Tto contact large number of buyers is a very costly. 2) Consumer may hesitant to reveal their future plans.

b) sample method :This is done by multiplying the sample result by the ratio of the size of population.

DEMAND ESTIMATION
A variant of the survey technique is test marketing. This is done mainly for estimating demand of new product. In this method a test area is selected and product is launched in this area in the same manner in which it is intended to be launched in the market. If the product successful in the area then they estimate sales for the market as a whole. Disadvantages: It is very costly To find out test area it is not easy. This experiments are reliable only if they continue for a long period.

DEMAND ESTIMATION
3) Regression analysis. This is a statistical technique by which the demand is estimated with the help of certain independent variables (like income , price , price of related goods etc. ) The regression method involves five steps 1) specification of the variables. 2) Data collection. 3) Choice of a functional form. 4) Demand estimation. 5) Interpretation of estimated demand function.