Final answer:
Forecasting future demand is crucial to prevent overproduction and underproduction. It aids in inventory balance and long-term planning, despite challenges like high and variable inflation affecting market equilibrium.
Step-by-step explanation:
Future demand should be forecasted to avoid overproduction and underproduction. This is essential because accurate demand projections help businesses balance their inventory levels, ensuring that they have the right amount of product available to meet consumer demand without incurring unnecessary storage costs or stockouts. High and variable inflation can disrupt the delicate balance of markets, leading to more frequent surpluses and shortages, which makes long-term planning challenging.
On the supply side, expanding production is typically more feasible in the long term; thus, accurate demand forecasting is a critical component to guide expansion plans and investment decisions. Factors like changes in consumer income, potential product price increases, fluctuations in buyer numbers, and availability of related products must all be considered when forecasting.