Which of the following best defines the derived demand method of forecasting in economics?

• A. It relies on expert opinions to forecast demand for new products.
• B. It predicts future demand by analyzing past sales trends and seasonal variations.
• C. It uses consumer surveys to directly measure future demand for a product.
• D. It estimates the demand for a product based on the demand for related goods or inputs.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of derived demand in economics. Derived demand refers to the demand for a good or service that arises not from the good itself, but from the demand for another related good or service. For example, the demand for steel is derived from the demand for cars, since steel is an input in car production.
2. Step 2: Recognize that the derived demand method of forecasting uses this relationship to predict demand. Instead of directly measuring consumer demand for the product, it estimates demand based on the demand for related goods or inputs that the product depends on.
3. Step 3: Compare this method with other forecasting methods mentioned: expert opinions (qualitative), past sales trends and seasonal variations (time series analysis), and consumer surveys (direct measurement). These methods focus on direct or historical data about the product itself, not on related goods.
4. Step 4: Identify that the derived demand method is particularly useful when the product is an intermediate good or input, whose demand depends on the demand for final goods.
5. Step 5: Conclude that the best definition of the derived demand method of forecasting is that it estimates the demand for a product based on the demand for related goods or inputs, reflecting the indirect nature of demand in this context.