Suppose that simple exponential smoothing with 
is used to forecast monthly wine sales at a liquor store. After April's demand is observed, the forecasted demand for May is 4500 bottles of wine.
(A) At the beginning of May, what is the forecast of July’s wine sales?
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(B) Suppose that actual demands during May and June are as follows: May, 5000 bottles of wine; June 4000 bottles of wine. After observing June’s demand, what is the forecast for July’s demand?
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(C) Based on the data from (B), the demands during May and June average (5000+4000)/2 = 4500 bottles per month. This is the same as the forecast for monthly sales before we observed the May and June data. Yet after we observe the May and June demands for wine, our forecast for July demand has decreased from what it was at the end of April. Why?
What will be an ideal response?
(A) Forecast for July is 4500 bottles.
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(B) The forecast for July’s demand is 4420 bottles of wine.
?
?
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(C) Exponential smoothing gives most recent observations more weight than older observations. Since our last two months average to current forecasts of 4500 cases, our forecast for July will be a little less than 4500 because last observation was <4500.
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