---
title: "Short note: statistical approach to demand analysis"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:short-note-statistical-demand-analysis"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/short-note-statistical-demand-analysis
site: BCT Engineering
---

# Short note: statistical approach to demand analysis

Engineering Economics · Chapter 1: Introduction

- Asked in: 2068 Jestha, 4 marks
- Video: ["Demand Forecasting Methods" In Economics](https://www.youtube.com/watch?v=5eSZGC9iEwI) — Devika's Commerce & Management Academy
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/short-note-statistical-demand-analysis
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

Write a short note on the statistical approach to demand analysis.

## Short answer

Statistical demand analysis uses past data and mathematical methods (trend projection, regression) to forecast demand. It is objective but assumes patterns continue. Techniques: time-series least squares and causal regression with variables like price and income.

## Answer

The statistical approach uses past data of demand and its determinants to estimate the demand function mathematically and to forecast future demand. It is objective and based on numbers rather than opinion.

#### Main techniques
1. **Trend (time-series) analysis.** Demand is plotted against time and a trend line is fitted, e.g. by the least squares method: Y = a + bX, where
 b = (nΣXY − ΣXΣY) / (nΣX² − (ΣX)²) and a = (ΣY − bΣX) / n.
 Other forms are moving average, exponential smoothing and exponential growth curves. The line is extended to the future years.
2. **Regression (causal) analysis.** Demand is related to explanatory variables such as price, income and price of substitutes:
 Q = a + b₁P + b₂Y + ...
 The sign and size of the coefficients show how demand responds. Used for elasticity estimates.
3. **Correlation analysis.** The coefficient r (−1 to +1) measures how strongly demand and a factor move together, and R² how well the equation fits.
4. **Econometric models.** A set of simultaneous equations for the market.

#### Merits and limits
- Merits: scientific, can be tested for accuracy, uses large amounts of data.
- Limits: needs reliable past data, assumes past patterns continue, and sudden changes in tastes or policy are not captured.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. In least squares trend Y = a + bX, b is:
   A. (nΣXY - ΣXΣY) / (nΣX^2 - (ΣX)^2)
   B. ΣY / n
   C. (ΣY - bΣX)/n
   D. nΣXY + ΣXΣY
   Answer: A. This is the slope; a is the intercept. (Key point: Trend line)

2. Regression (causal) analysis relates demand to:
   A. Opinions of experts
   B. Explanatory variables such as price, income and price of substitutes
   C. Population of competitors only
   D. Time alone
   Answer: B. Q = a + b1 P + b2 Y + ... (Key point: Regression)

3. The correlation coefficient r ranges between:
   A. -100 and 100
   B. 0 and 100
   C. -1 and +1
   D. 0 and 1 only
   Answer: C. It measures strength of association. (Key point: Correlation)

4. A limitation of the statistical approach is that:
   A. It is based only on opinion
   B. It cannot be tested
   C. It needs no data
   D. It assumes past patterns continue and misses sudden changes
   Answer: D. It relies on reliable past data. (Key point: Limitation)

## Related in Engineering Economics

- [Short note: methods of demand analysis](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Ashort-note-methods-demand-analysis) — Engineering Economics, chapter 1
- [Replacement analysis, defender vs challenger by AEC](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Areplacement-analysis-defender-challenger-aec) — Engineering Economics, chapter 5

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