Unit 3: Demand Estimation - Practice Quiz

DEECO515 60 Questions
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1 What does demand estimation primarily involve for a firm?

relevance of demand estimation for a firm Easy
A. Quantifying the relationship between demand and its determinants
B. Reducing the total cost of production
C. Setting the highest possible price for a product
D. Increasing the number of employees hired

2 Why is demand estimation important for a firm's production planning?

relevance of demand estimation for a firm Easy
A. It fixes wages of workers automatically
B. It eliminates all business risk permanently
C. It reduces taxes payable to the government
D. It helps decide how much output to produce

3 Demand forecasting mainly helps a firm to predict:

relevance of demand estimation for a firm Easy
A. Employee attendance records
B. Past profits of competitors
C. The exact inflation rate of a country
D. Future demand for its products

4 Which of the following business decisions is directly supported by demand estimation?

relevance of demand estimation for a firm Easy
A. Inventory and stock management
B. Selecting the company logo font
C. Choosing the office wall colour
D. Deciding the CEO's personal schedule

5 Demand estimation assists in pricing decisions because it reveals:

relevance of demand estimation for a firm Easy
A. The salary structure of managers
B. How sensitive demand is to price changes
C. The color preferences of employees
D. The location of raw material suppliers

6 Qualitative forecasting methods rely mainly on:

demand forecasting using qualitative forecast and time series analysis Easy
A. Complex regression equations
B. Large historical numerical datasets
C. Random number generation
D. Expert opinions and judgment

7 The Delphi method is an example of which type of forecasting?

demand forecasting using qualitative forecast and time series analysis Easy
A. Qualitative forecasting
B. Regression forecasting
C. Barometric forecasting
D. Time series forecasting

8 Which method involves asking a panel of experts and reaching consensus through repeated anonymous questionnaires?

demand forecasting using qualitative forecast and time series analysis Easy
A. Delphi method
B. Simple moving average
C. Trend projection
D. Exponential smoothing

9 A time series is a set of data arranged in order of:

demand forecasting using qualitative forecast and time series analysis Easy
A. Time
B. Price
C. Size
D. Alphabet

10 Which of the following is a component of a time series?

demand forecasting using qualitative forecast and time series analysis Easy
A. Elasticity
B. Consumer surplus
C. Marginal cost
D. Trend

11 The long-term general movement of data in a time series is called the:

demand forecasting using qualitative forecast and time series analysis Easy
A. Trend
B. Noise
C. Cycle
D. Season

12 Regular fluctuations that repeat within a year, such as higher ice-cream sales in summer, are called:

demand forecasting using qualitative forecast and time series analysis Easy
A. Random variations
B. Seasonal variations
C. Trend variations
D. Cyclical variations

13 Wave-like fluctuations that occur over periods longer than a year, linked to business booms and recessions, are called:

demand forecasting using qualitative forecast and time series analysis Easy
A. Cyclical variations
B. Seasonal variations
C. Secular variations
D. Trend variations

14 Unpredictable, irregular changes in a time series caused by events like floods or strikes are known as:

demand forecasting using qualitative forecast and time series analysis Easy
A. Seasonal variations
B. Trend variations
C. Random (irregular) variations
D. Cyclical variations

15 The moving average method in time series analysis is mainly used to:

demand forecasting using qualitative forecast and time series analysis Easy
A. Eliminate all future demand
B. Increase random noise in data
C. Calculate marginal revenue
D. Smooth out short-term fluctuations

16 In the consumer survey method of forecasting, information is collected by:

demand forecasting using qualitative forecast and time series analysis Easy
A. Directly asking consumers about buying intentions
B. Fitting a regression line to sales data
C. Applying exponential smoothing formulas
D. Analyzing years of production records

17 Which of the following is a qualitative forecasting technique?

demand forecasting using qualitative forecast and time series analysis Easy
A. Moving average method
B. Sales force opinion method
C. Exponential smoothing method
D. Least squares trend method

18 The trend line fitted using the least squares method takes the general form:

demand forecasting using qualitative forecast and time series analysis Easy
A.
B.
C.
D.

19 Which forecasting approach is most suitable when there is no historical data for a brand-new product?

demand forecasting using qualitative forecast and time series analysis Easy
A. Time series analysis
B. Trend projection method
C. Qualitative methods
D. Moving average method

20 Accurate demand estimation helps a firm reduce:

relevance of demand estimation for a firm Easy
A. The demand for its goods
B. The quality of its products
C. The number of customers permanently
D. The risk of wrong decisions

21 A firm launching a new product wants to decide on plant capacity for the next five years. Which use of demand estimation is MOST directly relevant to this decision?

relevance of demand estimation for a firm Medium
A. Choosing the office layout for the sales team
B. Long-term production planning and capacity investment
C. Setting the daily cash register float
D. Deciding the color of product packaging

22 Why is accurate demand estimation particularly important for a firm holding perishable inventory?

relevance of demand estimation for a firm Medium
A. It increases the shelf life of the product automatically
B. It removes the need to advertise the product entirely
C. It minimizes losses from spoilage due to over-stocking while avoiding stock-outs
D. It guarantees a fixed selling price throughout the year

23 A manager uses demand estimates to schedule raw material purchases and labor shifts for the coming quarter. This reflects the role of demand estimation in:

relevance of demand estimation for a firm Medium
A. Short-term operational planning
B. Long-run merger strategy
C. Corporate tax filing
D. Brand trademark registration

24 Which statement BEST explains how demand estimation supports pricing decisions?

relevance of demand estimation for a firm Medium
A. It eliminates competition from the market
B. It replaces the need for a marketing department
C. Knowing the price elasticity of demand helps the firm predict how a price change affects quantity sold and total revenue
D. It fixes the cost of production regardless of output

25 A firm entering a brand-new market with no historical sales data would MOST appropriately use which forecasting approach?

demand forecasting using qualitative forecast and time series analysis Medium
A. Qualitative methods such as expert opinion or Delphi
B. Least-squares trend line
C. Exponential smoothing
D. Moving average of past sales

26 In the Delphi method, why are experts kept anonymous during the rounds of questioning?

demand forecasting using qualitative forecast and time series analysis Medium
A. To avoid the need for multiple survey rounds
B. To lower the cost of hiring the experts
C. To reduce the influence of dominant personalities and group pressure on the responses
D. To speed up the mathematical calculations

27 A time series is typically decomposed into four components. Which of the following is NOT one of them?

demand forecasting using qualitative forecast and time series analysis Medium
A. Cyclical variation
B. Trend
C. Seasonal variation
D. Elasticity

28 Sales of umbrellas rise sharply every monsoon and fall in dry months, repeating each year. This pattern is an example of which time series component?

demand forecasting using qualitative forecast and time series analysis Medium
A. Seasonal variation
B. Secular trend
C. Irregular variation
D. Cyclical variation

29 The following are quarterly sales (in units): 40, 44, 48, 52. Using a 4-quarter simple moving average, the forecast for the next period is:

demand forecasting using qualitative forecast and time series analysis Medium
A. 48
B. 44
C. 46
D. 52

30 In exponential smoothing, the forecast for the next period is . What does a smoothing constant close to 1 imply?

demand forecasting using qualitative forecast and time series analysis Medium
A. The forecast ignores recent demand completely
B. The forecast reacts strongly to recent actual demand
C. The forecast equals the long-run trend line
D. The forecast is a simple unweighted average

31 Given the last forecast , actual demand , and smoothing constant , the exponential smoothing forecast for the next period is:

demand forecasting using qualitative forecast and time series analysis Medium
A. 120
B. 106
C. 110
D. 114

32 A least-squares trend line estimated from annual data is , where in the base year. The forecast sales for is:

demand forecasting using qualitative forecast and time series analysis Medium
A. 260
B. 215
C. 290
D. 306

33 Which situation reflects the cyclical component of a time series rather than the seasonal component?

demand forecasting using qualitative forecast and time series analysis Medium
A. Increased toy sales during festival weeks
B. Higher ice-cream sales each summer
C. A multi-year swing in car sales linked to the general expansion and recession of the economy
D. A jump in gift sales every December

34 A major limitation of the simple moving average method for demand forecasting is that it:

demand forecasting using qualitative forecast and time series analysis Medium
A. Gives equal weight to all periods and lags behind sharp turning points in demand
B. Requires no historical data at all to compute
C. Predicts turning points before they occur
D. Automatically adjusts for seasonal factors

35 The "survey of buyers' intentions" method of forecasting is classified as which type of technique?

demand forecasting using qualitative forecast and time series analysis Medium
A. Econometric
B. Barometric
C. Time series
D. Qualitative

36 How does reliable demand estimation help a firm control its inventory costs?

relevance of demand estimation for a firm Medium
A. It converts fixed costs into variable costs
B. It removes the need to store any inventory
C. It fixes supplier prices for the whole year
D. It allows the firm to align stock levels with expected sales, reducing both carrying and shortage costs

37 In the "sales force composite" method, forecasts are built by:

demand forecasting using qualitative forecast and time series analysis Medium
A. Aggregating estimates made by field salespeople about their territories
B. Using leading economic indicators to signal turning points
C. Applying exponential smoothing to past sales
D. Fitting a regression line to national income data

38 Annual sales grow by a roughly constant amount each year over a long period with no reversals. This long-run movement is best captured by which time series component?

demand forecasting using qualitative forecast and time series analysis Medium
A. Secular trend
B. Seasonal variation
C. Cyclical variation
D. Irregular variation

39 A one-time drop in sales caused by an unexpected flood that closed the factory would be recorded in a time series as:

demand forecasting using qualitative forecast and time series analysis Medium
A. Irregular (random) variation
B. Seasonal variation
C. Trend
D. Cyclical variation

40 A firm wants a short-run forecast that responds quickly to recent demand shifts using minimal past data. Which method is most suitable?

demand forecasting using qualitative forecast and time series analysis Medium
A. Survey of buyers' intentions
B. Exponential smoothing
C. Delphi method
D. Long-run least-squares trend projection

41 A firm fits a multiplicative time series model . If the trend value for Q3 is , the seasonal index for Q3 is , and the cyclical relative is , what is the deseasonalized-and-detrended cyclical-adjusted expected value (ignoring the irregular component)?

demand forecasting using qualitative forecast and time series analysis Hard
A.
B.
C.
D.

42 In the ratio-to-moving-average method, a quarterly seasonal index is computed as . If the sum of the four raw quarterly indices is instead of , what is the adjusted index for that quarter?

demand forecasting using qualitative forecast and time series analysis Hard
A.
B.
C.
D.

43 A linear trend is fitted using coded time where at 2020. The multiplicative seasonal index for Q2 is . What is the forecast for Q2 of 2024 if increments by 1 per year and the annual trend must be divided across quarters equally?

demand forecasting using qualitative forecast and time series analysis Hard
A.
B.
C.
D.

44 Using exponential smoothing with , the forecast for period was and actual demand was . Applying the same smoothing constant, what is the forecast error's contribution to the next forecast?

demand forecasting using qualitative forecast and time series analysis Hard
A. An increase of over the prior forecast
B. A decrease of from the prior forecast
C. An increase of over the prior forecast
D. An increase of over the prior forecast

45 A firm compares two exponential smoothing models with and . During a period of sudden, sustained level shift in demand, which statement is most accurate?

demand forecasting using qualitative forecast and time series analysis Hard
A. smooths out random noise more effectively
B. Both models converge to the new level at the same speed
C. adapts faster but produces noisier forecasts under random fluctuation
D. adapts faster and is more stable

46 A firm with high fixed costs and long production lead times most critically depends on accurate demand estimation primarily because:

relevance of demand estimation for a firm Hard
A. It eliminates the need for inventory management entirely
B. Forecast errors translate into costly excess capacity or stockouts that cannot be quickly corrected
C. It guarantees that marginal cost equals marginal revenue
D. It allows the firm to raise prices above the competitive level

47 In the Delphi method, why is controlled feedback with anonymity considered superior to a face-to-face expert panel for demand forecasting?

demand forecasting using qualitative forecast and time series analysis Hard
A. It removes the need for multiple forecasting rounds
B. It reduces bandwagon effects and dominance by high-status individuals while retaining information exchange
C. It replaces subjective judgment with statistical regression
D. It always produces a single unanimous point estimate

48 A 4-period centered moving average is used on quarterly data. Why must the average be centered (using a 2-step averaging of successive 4-quarter means) rather than used directly?

demand forecasting using qualitative forecast and time series analysis Hard
A. A raw 4-period average overweights the most recent quarter
B. A 4-period average falls between two quarters, so centering realigns it to a specific quarter
C. Centering doubles the effective sample size
D. Centering removes the trend component from the series

49 Given the semi-log trend model , what is the estimated compound growth rate of demand per period?

demand forecasting using qualitative forecast and time series analysis Hard
A.
B. Exactly
C.
D.

50 Two forecasting models yield the following errors over 4 periods: Model A , Model B . Comparing on MAD, which is preferred and why?

demand forecasting using qualitative forecast and time series analysis Hard
A. Model A because its errors sum closer to zero
B. Model B (MAD ) beats Model A (MAD )
C. Model A (MAD ) beats Model B (MAD )
D. Both have identical MAD of

51 A firm's demand series shows errors that consistently under-forecast (positive errors accumulate). Which tracking measure best detects this bias, and what does it reveal that MAD hides?

demand forecasting using qualitative forecast and time series analysis Hard
A. MAPE reveals the direction of error
B. The coefficient of determination reveals the seasonal pattern
C. The variance reveals persistent under-forecasting
D. The tracking signal (cumulative error / MAD) reveals systematic bias that MAD cannot

52 A firm estimates demand elasticity to guide pricing. It finds . If it wrongly treats demand as elastic and cuts price to boost revenue, the likely outcome is:

relevance of demand estimation for a firm Hard
A. Total revenue falls because demand is inelastic
B. Total revenue rises because quantity increases sharply
C. Marginal revenue becomes positive and revenue rises
D. Total revenue stays constant regardless of the price cut

53 A least-squares linear trend is fitted with coded time so that . Given , , , and , what is the fitted trend equation?

demand forecasting using qualitative forecast and time series analysis Hard
A.
B.
C.
D.

54 Why can extrapolating a fitted time-series trend far into the future be dangerous even when the historical fit () is very high?

demand forecasting using qualitative forecast and time series analysis Hard
A. Extrapolation always produces negative values eventually
B. A high guarantees the wrong slope
C. It assumes the underlying structural relationships remain unchanged, which may fail
D. Trend models cannot include a seasonal component

55 A quadratic trend is estimated (coded time). At what value of does forecasted demand peak, and what is the peak value?

demand forecasting using qualitative forecast and time series analysis Hard
A. Peak at , value
B. Peak at , value
C. Peak at , value
D. Peak at , value

56 For a firm launching a genuinely new product with no historical sales data, which forecasting approach is most defensible and why?

relevance of demand estimation for a firm Hard
A. Exponential smoothing initialized at zero
B. A centered moving average of competitor prices
C. Qualitative methods such as market surveys and expert opinion, since no time series exists
D. Naive time series extrapolation of the launch month

57 A firm uses a weighted moving average with weights (most recent to oldest) on demand ordered oldest to newest. What is the forecast for the next period?

demand forecasting using qualitative forecast and time series analysis Hard
A.
B.
C.
D.

58 Under the additive time series model versus the multiplicative model , which situation favors the multiplicative form?

demand forecasting using qualitative forecast and time series analysis Hard
A. When the irregular component dominates
B. When seasonal swings are constant in absolute size regardless of level
C. When there is no trend at all
D. When seasonal swings grow proportionally as the trend level rises

59 A demand series has actual and forecast pairs giving absolute percentage errors of over four periods. What is the MAPE, and what is its key interpretive limitation here?

demand forecasting using qualitative forecast and time series analysis Hard
A. MAPE ; it is scale-dependent
B. MAPE ; it ignores the sign of errors only
C. MAPE ; it is dominated by the maximum error
D. MAPE ; it can be distorted when any actual value is small

60 A manager argues that because demand estimation is always subject to error, the firm should abandon forecasting and simply react to realized demand. The strongest counterargument is:

relevance of demand estimation for a firm Hard
A. Estimation errors always cancel out over time
B. Reacting to realized demand guarantees zero holding cost
C. Forecasting eliminates all uncertainty in the market
D. Even imperfect forecasts reduce the expected cost of capacity, inventory, and procurement decisions made under lead times