CONTENTS

1.0 Market Forecast Overview

2.0 Assignment Details

2.1 Improved Market Definition

2.2 Additional Methods

2.3 Fundamental Market Analysis

2.4 Economic Theory

2.5 Expected Shifts

2.6 Relative Weights and Joint Effects

2.7 Forecasted Changes

2.8 Caveats and Limitations

1.0 MARKET FORECAST OVERVIEW

The Market Forecast assignment is the second of two content-focused assignments. This assignment is a continuation of the first assignment. As such, you must include an updated and improved version of your Market Definition assignment with your Market Forecast assignment. Combine the two assignments into a single document for submission.

The goal of the Market Forecast assignment is to forecast the expected direction of change (i.e., increase or decrease) in the market's current equilibrium price and quantity over a specified period of time, specifically five to 15 years into the future. Your forecast will require you to identify six factors that you think are most likely over the specified time to affect either the market's supply or demand. The number of supply shift factors and demand shift factors must add to six with no less than two of each.

The Market Forecast assignment must include the following components which are described in detail in the "Market Forecast" chapter:

1. An updated and improved version of your Market Definition assignment.

2. A transition paragraph, adapted as prescribed, that describes the additional methods you will use in your analysis. (1P) 

3. A description of the fundamental market analysis approach to forecasting adapted appropriately as prescribed. This description must include a statement of the forecasting objective and references to the current market equilibrium (Figure 6) and the selected analytical time period. (2P)

4. A description of the relevant economic theory adapted appropriately as prescribed. (1P)

5. A description of six factors that you expect will affect either the supply or demand in your market during the stated period for your analysis. For each factor, you must identify an actual (not hypothetical), evidence-based rationale for some underlying change you expect will occur in the market during the period of your analysis, identify whether that change would affect supply or demand, name whether the change would shift the curve left or right, and then name how the shift would independently (i.e., ceteris paribus) affect the market's current equilibrium price and quantity. The total number of supply and demand shift factors must add to six with no less than two of each (1P and 1F per shift factor; 6P and 6F total).

6. Describe and justify the relative importance of the six expected changes in the market and quantify how those changes are jointly expected to impact market supply and demand. (2-3P and 1T) 

7. Describe and show graphically the joint effects of the six expected market supply and demand changes. (1-2P and 1F)

8. Identify important caveats and limitations that limit the accuracy of your analysis, including resource constraints, and specific aspects of your analysis that you would invest more resources to improve if more resources were available. (1P)

2.0 ASSIGNMENT DETAILS

Study and follow the detailed instructions given below for each of the prescribed sections of this assignment. 

2.1 Improved Market Definition

The document file that you submit for Part Two of your analysis (i.e., the Market Forecast) must start with your improved version of Part One (i.e., the Market Definition).     

Recall that the Market Definition assignment was the first part (i.e., Part One) of your global commodity market analysis report. In that part, you defined the analytical context of the market. You defined the market characteristically in time and space, making sure that the product characteristics and market space aligned in logical ways. In Part One, you also defined the typical producers and consumers in the market, you described the marketing chain, and you identified or estimated a current market price and quantity.

If you have crafted Part One of your analysis successfully, your readers should now be clear about two key issues. Your readers should now be clear what you as the analyst mean by "the global commodity market for _____________" [fill in the name of your commodity, e.g., cotton, crude oil, gold, soybeans, etc.]. And, your readers should be clear that you are a trustworthy and capable analyst who can successfully guide your readers though your analysis, ensuring that your readers are comfortable with and understand what you are doing and what you plan to do.

In Part Two of your analysis, you will guide your readers step-by-step through your analysis, leading them through your efforts to forecast the future direction of equilibrium price and quantity in your market. Before you do that in Part Two, you need to polish and improve Part One. This is a good time to solicit feedback from your instructor and others. In the Resources chapter of this textbook, you will find suggestions for "Self and Peer Review". This is a good time to study and consider those suggestions.

2.2 Additional Methods

Insert a section heading (use bold text) titled "Additional Methods." Your analysis will have a significant transition from Part One to Part Two, and for this reason it will be useful to orient your readers again at the start of Part Two. You may not remember, but you have already signaled to your readers some information about what you will do in Part Two of your analysis. In your earlier methods statement paragraph (i.e., the second paragraph of Part One), you wrote, "In Part Two of this report, the author identifies expected future shifts in market supply and demand and their impact on market quantity and price from ____________ to ____________," where the two blanks were the start and ending calendars years you choose for your analysis, respectively. 

Now, at the start of Part Two, you need to give your readers more information about the particular analytical methods you plan to use in Part Two.

As before, this textbook prescribes specific language that you should use. The paragraph below provides a clear, succinct, and ordered list of what readers can expect to find in the remainder of the report. This is your additional methods statement. 

• Basic economic principles provide that market quantity and price are determined by the interaction of supply and demand. Part two of this analysis examines supply and demand interactions in the ________[1]_______. After a brief introduction to the fundamental market analysis approach to forecasting and some related economic theory, the author identifies and examines several individual supply and demand shift factors that are expected to be relevant to this market over the proposed analytical time period. The author then evaluates the relative significance of each individual market shift factor. Finally, the author considers how these individual supply and demand shifts are expected jointly to impact market quantity and price given their relative significance. This analysis provides the rationale for conclusions about the likely future movement, if any, of the market's equilibrium quantity and price.

In the blank [1], insert the name of your market (e.g., "...current global commodity market for cotton."). Again, you are expected to adopt the above prescribed language as closely as possible but not necessarily the formatting (e.g., font type, font size, etc.).

2.3 Fundamental Market Analysis

Insert a section heading (use bold text) titled "Fundamental Market Analysis." Your task in Part Two of your analysis is to forecast (i.e., predict) what will happen in your market in the future, specifically whether market price and quantity will increase, decrease, or stay same over the period of time that you have identified for your analysis. There are two basic approaches to market forecasting. One approach uses something called technical analysis, and the other uses an approach called fundamental analysis. In this section of your report, you need to distinguish these two approaches, identify which approach you will use, and clarify both the time period over which you will conduct your forecast and the market equilibrium in the starting calendar year. To do this, you are again expected to adapt the prescribed language below as indicated and place the following two paragraphs in your report.   

• This analysis seeks to forecast what will happen to the market price and quantity in the global market for ________[1]_______ over the future period ________[2]_______ to ________[3]_______. As noted in Figure 6, the current market price and quantity in this market in ________[4]_______ was ________[5]_______ and ________[6]_______, respectively. The forecasting approach used in this analysis is fundamental rather than technical in the sense that the analysist focuses on expected shifts in market supply and demand rather than on extrapolating price and quantity trends to predict future market changes.[X]     

• Markets exist when buyers and sellers are organized for the purposes of exchanging a good or service. In economics, the interests of buyers are represented by the demand schedule or the demand curve (D). The interests of sellers are represented by the supply schedule or the supply curve (S). See Figure 6. Basic economic theory defines demand as the willingness and ability of individuals to buy and consume a good or service at various prices, holding all else constant (i.e., ceteris paribus). At higher market prices, consumers are willing and able to consume less. At lower prices, they are willing and able to consumer more. Economics similarly defines supply (S) as the willingness and ability of firms to produce and sell a good or service at various prices, ceteris paribus. At higher market prices, producers are willing and able to supply more. And at lower prices, they are willing and able to supply less. The equilibrium market price (P) is that one particular price that elicits an equivalent interest in consumers to buy and producers to sell the same quantity of the good or service. The equilibrium quantity (Q) is the specific quantity that producers and consumers are willing and able to exchange at the equilibrium market price.

You should make the wording of your paragraph as similar as possible to the wording of the paragraphs above though you do not necessarily need to adopt the same formatting (e.g., font type, font size, etc.). In the first blank [1], insert the name of your global commodity (e.g., "bananas", "maize", or "platinum"). In the second [2] and third [3] blanks, insert the starting and ending calendar years for your proposed period of analysis, respectively. In the fourth blank [4], insert the starting calendar year of your analytical time period. In the fifth [5] and sixth [6] blanks, insert your estimated initial market price and quantity, respectively.

Be sure to notice the footnote [X] at the end of the last sentence in the first prescribed paragraph. I have inserted an "X" for the footnote number, because the actual number of your footnote will be specific to your report. In your report, insert a footnote at that location indicated with an appropriate number that reads:

• • In his widely-used textbook on the subject titled Technical Analysis of the Financial Markets (1999), John Murphy distinguishes technical versus fundamental market analysis. He writes: While technical analysis concentrates on the study of market action, fundamental analysis focuses on the economic forces of supply and demand that cause prices to move higher, lower, or stay the same. ... Both of these approaches to market forecasting attempt to solve the same problem, that is, to determine the direction prices are likely to move. They just approach the problem from different directions. The fundamentalist studies the cause of market movement, while the technician studies the effect. The technician, of course, believes that the effect is all that he or she wants or needs to know and that the reasons, or the causes, are unnecessary. The fundamentalist always has to know why.

While the wording of your paragraphs and footnote should be as similar as possible to the wording given above, you do not necessarily need to adopt the given formatting (e.g., font type, font size, etc.). In particular, note that the prescribed wording in this textbook appears in italics to help you distinguish it from non-prescribed wording, but of course most of the wording should not appear as italicized text in your report. A clear exception is that the titles of books are always italicized (e.g., the book title Technical Analysis of the Financial Markets in the prescribed footnote above should be italicized in your report). 

Note also that if you have followed the prescribed outline for Part One, it will be true that your sixth figure (i.e., "Figure 6") will the figure showing your current (i.e., starting calendar year) estimates for market price and quantity.  

2.4 Economic Theory

Insert a section heading (use bold text) titled "Economic Theory." After you insert your additional prescribed methods statement paragraph and a prescribed paragraph describing the fundamental approach to forecasting, you then need to describe the relevant theoretical factors that shift the market demand and supply curves. Do this by inserting the one prescribed paragraph below. 

• Basic economic theory identifies specific factors that shift market supply and demand curves. There are five primary market supply curve shift factors. Market supply curves shift when there are changes in (1) factor prices, (2) technology, (3) prices of goods related in production, (4) the number of producers, and (5) any associated producer expectations. Also, if supply shifts in an input or other upstream market, derived changes in supply will occur in all downstream markets. On the demand side, there are also five primary shift factors. Market demand curves shift when there are changes in (1) consumer incomes, (2) prices of goods related in consumption, (3) consumer tastes and preferences, (4) the number or demographic composition of consumers, and (5) any associated consumer expectations. Also, if demand shifts in a retail or other downstream market, derived changes in demand will occur in all upstream markets.

You are expected to use the above prescribed language but not necessarily the formatting (e.g., font style, font size, etc.).

Before prescribing more details about what to put into your report, I want to review the underlying changes in markets that are theoretically associated with and cause changes in supply and demand and how those changes affect equilibrium market price and quantity, ceteris paribus. There are five factors that shift market demand and five factors that shift market supply (Figure 1).

Theoretical Demand Shift Factors. Most basic economic textbooks identify four primary demand curve shift factors and typically only consider demand shifts that occur in markets at the retail level of the marketing chain. While perhaps too basic, this still seems like a good place to start your review of these concepts. Watch this short video.

Four Primary Demand Shift Factors Video (11:13)

This video discussed how demand shifts left or right due to four underlying changes in a market, namely (1) changes in consumer incomes, (2) changes in the prices of other goods related in consumption, (3) changes in consumer tastes, and (4) changes in the number of consumers. 

If consumers have more (less) income, they can afford (not afford) to allocate more money toward those goods for which they have stronger preferences, ceteris paribus. However, the effect of income is not always the same. Normal goods are those goods for which a rise (fall) in consumer incomes leads to an increase (decrease) in quantity demanded.  Most goods are normal goods. Examples include gasoline, housing, and steak. Inferior goods are those goods for which a rise (fall) in consumer incomes leads to a decrease (increase) in quantity demanded. Examples include ramen noodles and generic toilet paper. 

If the price changes for a good that is related in consumption to the good under consideration, demand for the good under consideration will also change, ceteris paribus. Goods related in consumption include those goods that consumers typically either consume together (complements) or those that consumers typically view as similar (substitutes). Two goods are complements in consumption if consumers typically consume them at the same time, such as peanut butter and jelly or rum and Coke. Two goods are substitutes in consumption if consumers tend to substitute one good for the other good as prices change. Examples include Coke and Pepsi or chicken and pork (i.e., “the other white meat”).

If consumers change their tastes and preferences for a good or service (e.g., due to advertising or in response to new research), the demand for the good or service in question will change, ceteris paribus.  And, if the number of consumers increases, that too will increase the total market demand, ceteris paribus and vice versa.

The above video did not, however, mention or discuss three other important aspects of demand shifts: (1) upstream market effects, (2) derived demand effects, and (3) the role of expectations. Consider these three omissions.

First, this video did not mention how demand changes in markets that are upstream from the retail market level. Like me, you probably have a lot of experience as a retail consumer buying goods and services at the retail level, but you probably have relatively less experience as a consumer in most upstream markets. While you may need to think extra carefully to conceptualize who the consumers are at each of those other upstream marketing levels, the shift factors are still the same for those other levels (e.g., the input level, farm level, processor level, and wholesale level). When the income or profits of wheat processors change (e.g., increase), that will change the demand curve for wheat (e.g., shifting it to the right) in the market level where wheat processors are the consumers (i.e., the farm-level market where farmers are the sellers). 

Two, this video did not mention how changes in derived demand (i.e., changes in demand that occur in downstream markets) flow upstream through the marketing channel, causing demand at each upstream level to shift in the same direction, ceteris paribus. Anytime a demand curve shifts at any marketing level, that change in demand at that market level causes in derived fashion the demand to change in the same direction in all upstream markets. For example, if consumer tastes and preferences for gold change in one or more local retail markets causing gold demand at the retail level to increase and shift right (e.g., because the popularity of gold jewelry is increasing), that will in derived fashion change the demand in the same way (i.e., increase and shift gold demand rightward) in the upstream wholesale markets for gold and then also in the extraction-level markets for gold.

Third, this video did not mention how changing consumer expectations also shifts the demand curve left or right. This probably already makes sense to you if you think about it. For example, suppose that the government says that it will provide cash payments (i.e., subsidies) to corn processors starting in three months (i.e., not immediately). As soon as the subsidy plan is announced, corn processors will increase their demand for corn (e.g., from farmers in the farm-level market) in anticipation that the government subsidy payments will, in fact, arrive soon. In other words, even though the corn processors will not experience a change in consumer incomes (due to the forthcoming subsidy) for several more months. the mere expectation that the government payments will arrive prompts the farm-level consumers (i.e., the corn processors) to respond.

Theoretical Supply Shift Factors. Supply shift factors are similar to demand shift factors. Here is a quick review of the four basic supply curve shift factors. Watch this video.

Four Primary Supply Shift Factors Video ( 11:42)

As with demand, this video discussed how supply shifts left or right due to three underlying changes in a market, namely (1) changes in costs of production or factor prices, (2) changes in the price of a good related in production, and (3) changes in the number of producers. 

On the supply side, outputs may be either substitutes in production (e.g., corn and soybeans), complements in production (beef and leather), or unrelated (e.g., bananas and garlic). Substitutes in production exist when, for example, farm-level producers have choices about what to produce. If the market price of corn increases, some farmers will stop producing or will produce fewer soybeans, ceteris paribus. Substitutes in production occur when producers ( e.g., farmers) can produce two or more products by re-organizing or re-engineering their inputs and/or production methods. Complements in production exist when any by-products of production have their own market. If the market price of beef increases and all else remains constant, leather production will increase. An increase in the market price of beef will induce beef producers to increase the quantity of beef supplied and that, in turn, will increase in the supply of leather, a related output.       

If the costs of production (e.g., input costs or factor prices) change, the marginal cost curve (along with the average total cost and average variable cost curves) will all shift up, resulting in a decline in the affected producer's (e.g., farmer’s) supply (i.e., the profit maximizing output level is lowered). Costs of production may change due to government intervention (e.g., a subsidy—i.e., the government paying part of the costs of production—or a tax). Improvements in technology also tend to increase productivity (i.e., output / input) and thus lower production costs.

If the number of producers in a market increases, ceteris paribus, the total market output and thus the market supply curve will increase. The most influential factor affecting the number of producers in markets is the strength of profit opportunities (higher profit opportunities increase the number of producers). Disease (e.g., blue mold on tobacco or salmonella in peanut butter) and extreme weather events (e.g., hurricanes and floods) may also affect the number of producers.  

The above video did not, however, mention or discuss four other important aspects of supply shifts: (1) the effect of technology changes, (2) downstream market effects, (3) derived supply effects, and (4) the role of expectations. Consider each of these omissions.

First, this video did not mention how changes in the level of technology or productivity affects market supply. When firms discover or adopt more efficient production practices that means they are able to produce more output with the same or less input. Technological improvements in production is a common reason for productivity improvements. Less often, producers in some markets may also experience a decrease in the level of technology (e.g., firms in war zones or firms damaged by natural disasters), ceteris paribus. If so, such decreases in technology usually lower firms' productivity and cause the market supply curve to shit to the left, again, assuming all else is held constant (i.e., ceteris paribus).  

Second, this video did not mention how supply changes in markets that are upstream from the retail market level. At the retail level, we are all aware that grocery stores (e.g., Walmart and Kroger) produce steaks, mashed potatoes, and apple pie. If the number of grocery stores increases, the local market supply of these grocery items will likely increase shifting supply to the right. We may not think about it as often, but if similar increases occur at other marketing levels (e.g., if the number of cattle, potato, and apply farmers increases), that too will shift the supply in those farm-level markets to the right. 

Third, this video did not mention how changes in derived supply (i.e., changes in supply that occur in upstream markets) flow downstream through the marketing channel, causing supply at each downstream level to shift in the same direction, ceteris paribus. Any time a supply curve shifts at any marketing level, that change in supply at that market level causes the supply to change in the same direction in all downstream markets. For example, if there is a widespread adverse weather event (e.g., a hard, late-spring freeze), that will reduce the supply of soybeans that are available in the regional farm-level market which, in turn, will reduce supply in the downstream soybean processing market and in the retail markets for soybean-derived food products that are further still down the marketing channel.   

Fourth, this video did not mention how changing producer expectations also shifts the supply curve left or right. Again, this concept probably already makes sense to you. For example, if a large silver mining or oil production firm discovers rich new veins of silver or significant new reserves of previously unknown oil, those discoveries may shift the supply curves to the right even before the firms extract the silver and oil. The mere expectation that the silver or oil market may soon flood the market is enough to prompt other market participants (e.g., other silver and oil extraction firms) to accelerate their own production and/or release their reserves more quickly than planned.

Additional Clarifications. Notice in this discussion that I talk only about demand and supply curves shifting left or right; I never talk about a demand or supply curve shifting up or down. This is intentional, and I advise you to do the same. The reason for using the "left-right" language rather than the "up-down" language is because when the supply curve shifts left (i.e., when supply decreases), it can mistakenly appear that the supply curve is shifting up. The same confusion can occur when supply increases (i.e.,, shifts rightward).

Be aware that the six shift factors that you are required to identify and describe in your analysis must not be based on underlying changes that are merely hypothetical or theoretical. You have already included in your report a paragraph that describes the theoretical reasons why supply and demand shift left or right (i.e., the prescribed paragraph on "Economic Theory"). Here, in this section, your focus is on explaining and giving evidence to support the underlying market changes that you actually believe will or at least believe are likely to occur. That means that you should look to the real world and tell your readers about actual and specific reasons why you the analyst think the demand and supply curves will actually change in the future.

The evidence that you provide to substantiate these underlying changes that you think will most significantly affect your market must be changes that you think will occur--or possibly already have occurred--during your chosen analytical time period. Naturally, most of your analytical time period will be in the future since this is, after all, a market forecast. That is, you will be looking primarily for underlying changes that you think will occur in the future. However, you must consider any changes that have occurred or that you think will occur throughout your entire analytical time period. Some small part of that analytical time period may (now) be in the recent past. You may recall that your analytical time period should start with the calendar year just after the one you used for your "current" price and quantity data and should end with some calendar year in the future, typically either five, ten, or 15 years after the start period. Thus, you must not forget to consider if there were any significant underlying market changes that occurred during that small amount of time since your analytical time period began and right now (today).  

Okay, I have given you four prescribed paragraphs to get you started on your market forecast. It is now time for you to retake the lead. In the next section (i.e., Expected Market Shifts), you need to describe a total of six factors that you think will affect your market over the analytical time period you have specified. The number of supply shift factors and demand shift factors must add to six with no less than two of each.

2.5 Expected Shifts

Insert a section heading (use bold text) titled "Expected Shifts." You might want to divide this section into two subsections in your report with one section devoted to "Expected Supply Shifts" and the other devoted to "Expected Demand Shifts". For the purposes of giving instructions, I have combined these two sections here in this textbook.  

In each subsection (supply and demand), you need to describe at least two but not more than four factors that you think will actually--not just hypothetically--affect the supply curve in your market over the analytical time period you have specified. The total number of supply and demand shift factors must add to six with no less than two of each. The prescribed outline calls on you to describe each factor using one paragraph and one prescribed figure. These six paragraphs are ones where you will also most likely need to footnotes. See the section on Credibility, Evidence, and Footnotes in the Resources chapter for help with footnotes.

You will need to spend some time making a list of important factors that that you believe will likely affect supply and demand in your market, including associated changes in upstream and downstream markets, respectively.  I suggest that you make a list of about 15 shift factors for your market and then select the six that are you think will be most significant. To develop the larger list, ask yourself what you already know about that topic and what more you might need to investigate. For instance, on the supply side, you might ask, "Are any input or factor prices in this market or any upstream market likely to change in the future?" Next, make a list of all of the input or factor prices associated with your good or service, including (since this is the supply side) any input or factors price changes that might occur in any upstream markets. Next, look for evidence that the prices of those inputs or factors of production are likely to change over the time period you are analyzing. In this case, you want to look for a factor of production that is relatively important as a share of the overall production costs and that you also expect will experience a relatively large price change. Go through all of the supply and demand shift factors on the flowchart. Make a list of all the possible shift factors for your market and then choose the most significant six factors.

As much as possible, you should avoid in this section searching the internet for statements by other economists to quote here. The only good reason to reference the thinking of other economists in these paragraphs is to explain why you think a certain economist may be confused or incorrect in his/her thinking about your market. 

Avoid taking market analysis ideas from other market analysts. Remember, in your report, you are the analyst. Where possible, provide evidence and support (e.g., in footnotes) for a change in an underlying factor (e.g., a change in the cost of an important input or factor price). For each underlying change, find and present factual evidence that supports why you--the analyst--believe some underlying factors has or will change in your market during the period you have identified for analysis and thus shift supply or demand. For each shift factor you use, you should have at least one (probably more) citations of high-quality facts and/or data that you use as evidence to support this expected change in the underlying factor that affects supply or demand. You should support each shift factor with factual evidence/data that you--the analyst--gather from reputable sources, cite those sources clearly, and interpret them thoughtfully for your readers and listeners. Be careful to avoid sources that are not reputable. Remember, your readers and listeners are depending on you to guide them judiciously through each step of your analysis. High quality original sources will elevate and sustain your credibility. That is the goal. 

Once you have several solid sentences with evidence supporting a relevant underlying change in your market, conclude the paragraph with this sentence:

• Assuming this change in _______[1]______ occurs as expected, the _______[2]______ curve will shift to the  _______[3]______, causing market price to _______[4]______ and market quantity to _______[5]______, ceteris paribus (Figure [X]).

In the first blank [1], insert the shift factor such as “the costs of production” or “consumer incomes”. In the second blank [2], insert either "supply" or "demand", as appropriate. In the third blank [3], insert either "left" or "right", as appropriate. In the fourth [4] and fifth [5] blanks, insert either "increase" or "decrease", as appropriate. In place of the [X], place the appropriate figure reference number (e.g., "Figure 7"). Remember, the language above is prescribed but not necessarily the font type, font size, etc.  

Finally, in this section--or these sections--on supply and demand shifts, you only want to indicate in your figures the direction of change, not the magnitude of change. Do not, for example, vary the size of the shift to indicate the amount of change. You will characterize the magnitude of change in the next section when you identify the relative weights of each shift factor and the joint impacts of all six shift factors. 

The direction of change for supply (Figure 2A and 2B) can only be left or right and likewise for demand (Figure 2C and 2D). Notice that the curves that shift in the images in Figure 2 are all shown to shift left or right by the same amount. Again, that is because these figures are not designed or intended to show the magnitude of the shift, just the direction.

Figure 3 shows an example of a shift factor graph that you might put in your analysis. In this example, you see what a supply curve shift factor graph should look like for a leftward shift (i.e., decrease) in supply due to an expected decrease in the number of producers, ceteris paribus. The arrows and subscript numbers help clarify the direction of change in supply, market price, and market quantity.

Be sure to look at the Figures and Tables section of the Resources chapter to see how to create line graphs like these. Be aware that your graphs must include the particular unit of valuation (on the Y-axis) and unit of exchange (on the X-axis) that are appropriate to your global commodity.  Given that your Market Definition has six prescribed figures, that means that the figures associated with your six shift factors will be "Figure 7" through "Figure 12".  

2.6 Relative Weights and Joint Effects

Insert a section heading (use bold text) titled "Relative Weights and Joint Effects." In the previous section, you identified the top six factors that you think will shift the supply and demand curves in your market during the analytical time period you specified. Next, you want to distinguish which of these supply and demand shifts are more or less significant than the others and by how much. These weights will determine the joint effects of all six supply or demand shifts combined. Previously, you looked at each shift holding everything else constant (i.e., ceteris paribus). Now you will look at the joint effects. This section will typically require two to three paragraphs and one required table. 

You could show the relative effects graphically. Instead, I want you to create a table (i.e., "Table 1") that shows your report of the relative magnitude of each shift. The "Table 1" that you create for your report should as similar as possible to the example "Table 1" shown below except that obviously your table must fit your particular market with the number and  kinds of supply and demand curves that you identified in the last section. 

You can read about how to create properly formatted tables in the Figures and Tables section of the Resources chapter of this textbook.

For consistency, be sure that you list all of the supply shifts together in your Table 1 and all of the demand shifts together. Be sure also that each supply and demand shift in your Table 1 appears in the same order that those shifts appeared in your earlier description of each one.

Look now more closely at what is going on in Table 1. In this hypothetical market analysis, the author has three supply curve shift factors and three demand curve shift factors. One important function that Table 1 serves is to summarize all of the supply and demand shifts from the earlier section. This author summarized each shift with a short description in parenthesis below each shift factor. When you design your Table 1, you can use a different summary approach if you prefer. 

Table 1 shows for each shift factor a number that ranges from +1 to +5 if the curve shifted in a rightward direction or -1 to -5 if the curve shifted in a leftward direction. You might ask what do these numbers mean and where did they come from? The numbers come from the author thinking about which shift factors the author thinks, based on the evidence the author presented previously, are the most significant and which ones are the least significant. One way to approach this is to ask yourself, "Which shift factor among the six I have do I think will be the most impactful over the period that I am analyzing?". Once you identify this factor, assign this shift factor a value of "5". Assign that factor a "+5" if that curve shifted rightward (increased) or assign it a "-5" if that curve shifted leftward (decreased). Next, identify which of the remaining factors that you think will be the least impactful. Assign this factor a value of "+1" if the curve shifted rightward or "-1" if the curve shifted leftward. Then, look at the remaining four shift factors. Assign them values between 1 (+ or -) and 5 (+ or -) based on their relative impact given that you've already identified the most and least impactful shift factors. Of course, it is possible that more than one shift factor might have the same impact as another shift factor. If so, those shift factors should have the same number. As noted in the description of Table 1, the signs (negative or positive) indicate the direction of change (i.e., leftward or rightward) and the number indicates the magnitude of change (i.e., very significant is closer to 5 and less significant is closer to 1).

Table 1 also shows the "joint effects" for all of the supply curve shift factors and all of the demand curve shift factors. How does that work? To determine the joint effects for supply, you simply add together all of the assigned values for supply, being sure to take account of signs. For the joint effects on the demand side, do the same for all of the assigned values for demand. The rationale for this should be clear. In the hypothetical example above, there are three factors that shifted the supply curve. An increase in the costs of production shifted the supply curve to the left a value of 3 or -3 to be more precise since the curve shifted in a leftward direction. Two other factors shifted the supply curve to the right, so these shifts get positive values, namely +5 and +2. To get the "joint effect", you add these values together (i.e., -3 plus +5 plus +2 equals +4). That means that two factors caused the supply curve to move to the right a value of +5 and +2 for a total of +7, but this rightward shift in supply was offset by a leftward shift in supply with a value of -3 for a total or "joint" effect of +4 (i.e., 7 - 3). The joint effect values for supply and demand are necessary to create "Figure 13".

In addition to adding "Table 1" to your report, you must also be sure to explain in the body of your text what you have presented in that table. For example, you might write: 

• As shown in Table 1, two supply shift factors are expected to increase the supply of widgets and one supply factor is expected to decrease supply. Of the three supply shift factors, supply is expected to be most affected by future declines in the price of a related substitute output, do-dads. The reason that the changing price of do-dads is expected to have a relatively significant impact (i.e., +5) is because…. On the demand side,....

You will also want to provide some explanation (at least) and some logical justification (if possible) for why you, as the analyst, believe that certain shift factors are likely to have more significant impacts than others. In general, the more detailed and persuasive you are when presenting the individual shift factors in the previous section, the more persuasive your analysis will be when assigning relative significance values in Table 1. You should not need much or any additional evidence here to justify your assignment of significance values if you have already persuaded your reader that you thoughtfully and critically identified the top six individual shift factors in the earlier section. In your explanatory text associated with Table 1, you must also explain what you mean by “joint effects” and how these joint effects were obtained (i.e., explain that you sum what you are calling the significance values of all the individual effects for both sides of the market).

The purpose of Table 1 is to summarize and combine in a logical way the six individual supply and demand shift factors that you identified in the previous section. Keep in mind that the analytical logic behind Table 1 (i.e., using a -5 to +5 scale to rate the relative significance of each shift factor) is merely one way to make sense of the information gathered about individual supply and demand shifts. There is nothing particularly special about the approach, and the approach is not particular to economics. It is just one simple way among other potential ways to organize and make sense of the information. In other words, be sure that you understand clearly what is happening in Table 1 before you try to explain it. It is much simpler than it might appear initially.

2.7 Forecasted Changes

Insert a section heading (use bold text) titled "Forecasted Changes." In about one or two paragraphs, describe and show graphically the joint effects of the six expected market supply and demand changes. This section will include your final figure (i.e., "Figure 13"). 

In this section, you must provide a single market equilibrium graph that shows approximately the relative magnitude of the aggregate supply side and demand side effects. In your report and following the prescribed outline, this will be "Figure 13". My example below, following the numbered figures in this chapter of this textbook, is "Figure 4". 

In the first blank [1] in Figure 4, insert the starting calendar year of your chosen analytical time period. In the second [2] and third [3] blanks, enter the initial market price and quantity from your "Figure 6", respectively. In the fourth [4] blank, enter the ending calendar year of your chosen analytical time period. In the fifth [5] and sixth [6] blanks, enter either "increase" or "decrease" depending on the joint effects from Table 1.

Again, looking at the hypothetical widget example and the previously discussed Table 1, in this example figure you need to show the supply curve shifting about two times further to the right than the amount you show the demand curve shifting to the right since, in this example, the joint effect value for demand (+4) is twice as much as the joint effect value for supply (+2).

In other words, in this example, the conclusion from your analysis is that you expect over the period of analysis for the market equilibrium price to decrease (e.g., from P1 to P2) and the market equilibrium quantity to increase (e.g., from Q1 to Q2).  

2.8 Caveats and Limitations

Finally, insert a section heading (use bold text) titled "Caveats and Limitations." For this section, you need to identify important caveats and qualifications that limit the accuracy of your analysis, including resource constraints, and specific aspects of your analysis that you would invest more resources to improve if more resources were available. This should take about one well-crafted paragraph. 

This is where you describe how resource constraints (e.g., time and financial) affected the quality of the analysis. Remember, you did not get paid to do this analysis, and you had only one semester to complete your analysis. What weaknesses does your analysis have as a result of these resource constraints and what, if anything, would you do differently if you had more money and time for your analysis? What claims in your analysis do you think have the weakest evidence as a result of your resource constraints? Also, you should provide a general caveat that predicting future market conditions is an inexact science and opinions may differ not only about the most appropriate analytical approaches but also about the logic of the conclusions.