Two of the primary tasks in the world of Economics are prediction and evaluation. This assignment illustrates, at a rudimentary level, how models, techniques and methods constructed or borrowed from Economic Theory or other Sciences respectively are used to help accomplish these tasks. To do so, we consider a standard theoretical model of consumer choices in an economy in which the only activity is the exchange of goods.
Due to the above-mentioned we can say that the most powerful technique used to predict the consequences of policies or future trends is modeling. A model is an abstraction intended to convey the essence of some particular aspect of the real world. Most economic models assume the existence of adequate information, yet information is a costly and scarce resource. Good models predict well enough to increase our understanding of certain situations, even though they may not predict them perfectly and there may be related situations in which the same models do not predict as well as expected. Last but not least there are models that constructed without using any numerical data; these are based entirely on economic theory.
We shall begin by looking at some of the ways in which forecasting techniques can help us to predict future trends. Most business and economic decisions rest upon forecasts of future conditions. Methods of forecasting may be roughly categorized as follows:
Statistical and econometric methods
Finally, forecasting techniques vary widely in their accuracy and sophistication. The most accurate technique is to be preferred, subject to the availability of data, expertise and finance and to the nature of the forecast required.
The assumption here is that by asking people who are likely to be directly involved, such as consumers or the sales force, attitudes and opinions which affect economic decisions can be assessed and predicted in advance. Opinion polling is a subjective method of forecasting made up largely of a weighted or unweighted averaging of expectations and attitudes.
This general idea of developing informed and deliberated polling opinion has had a relatively length history successful experimentation beginning roughly during the 1970s in the U.S.A. In statistics polling is about probability sampling. A good poll:
locates people who fairly represent the population we're interested in;
asks them fair, comprehensible and useful questions;
calculates results fairly, without reaching beyond the data;
is reported so people can understand where it does and does not apply.
The importance of opinion polling and the way it can be done is shown in the below Figure:
Opinion polling is a very powerful technique used...