CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production
Sharma Textiles is deciding the price of a new fabric and the quantity to produce. It needs to estimate how sales will change when the price changes. Which area of the scope of business economics is chiefly involved?
Demand analysis and forecasting is the area involved. The firm needs to know how the quantity demanded of its fabric responds to price changes, which is studied under demand analysis. Capital budgeting deals with long-term investment decisions and does not address the price-quantity relationship that the firm is trying to estimate.
- ADemand analysis and forecastingCorrect
- BCapital budgeting
- CInflation accounting
- DForeign exchange regulation
Explanation
Estimating how quantity sold responds to price changes is the core of demand analysis, which is a key scope area along with cost, production, pricing and profit. Capital budgeting concerns long-term investment choices, which is not the issue in this case.
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