Question
A company notices an increase in sales every December
due to holiday shopping. Which component of time series data does this represent?Solution
Seasonality refers to periodic fluctuations in time series data occurring at regular intervals, such as months, quarters, or seasons. The observed increase in sales every December due to holiday shopping is a clear example of seasonality. This pattern is predictable and repeats annually. Seasonality helps businesses plan for recurring events like holiday demand, ensuring better inventory and resource management. Why Other Options Are Wrong : A) Trend : Trends show long-term movement in data, such as increasing annual sales, but do not explain periodic patterns like seasonality. C) Residuals : Residuals represent the noise or unexplained variation in data after accounting for trend and seasonality. They do not include predictable patterns. D) Irregular Component : This refers to unpredictable fluctuations, like sudden demand spikes due to unforeseen events, not regular seasonal patterns. E) Cyclical Component : Cyclical patterns are long-term fluctuations linked to economic or business cycles, typically spanning years, unlike seasonal patterns tied to specific times of the year.
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