I don't like the word "demand"

Discussion in 'Economics & Trade' started by kazenatsu, Jun 13, 2019.

  1. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I don't really like the words "supply" or "demand" because they're almost so non-specific they don't really mean anything.
    It's very often hard to apply them into many real life situations, especially ones that have political implications.

    Lots of "demand" can exist, but sellers may not be able to supply that the demand per unit is too low.
    When referring to demand, are we talking about quantity or price?

    Same thing with corporations hiring CEOs. They get paid a lot of money, so the overall demand is mathematically big, but they are not demanding many workers in terms of quantity.

    Then there's "demand" for "affordable housing". Yes, of course there's lots of "demand", but that's only because the quantity demanded is very high, not the price for that housing. Businesses oftentimes do not find it profitable to provide it.

    I think when we talk about demand, we have to talk more specifically about the quality of that demand.
    In economics, they refer to a demand curve, which tend to take on certain characteristic shapes. This is how quantity "demanded" varies with different prices.

    In some cases it's almost nonsensical to talk about demand, as if it were a single quantity or amount. I'm sure there would probably be a lot more "demand" for diamond rings if the price was lower. Sometimes there can be lots of demand but the supply is already so high it's not really a good idea for a business to be trying to provide that product. The prices go down to a level where the profit margins are not that high.

    So when just talking about simple "demand", what do we actually mean?
    It's kind of meaningless and nonsensical, and there's no simple linear way to mathematically quantify it.

    There is of course a demand curve, but it can be difficult to quantify that into a single metric.

    And then of course there are often all sorts of subcategories within a type of supply or demand.
    For example, when referring to the labor supply there are various different groups, teenagers & young adults, older people, educated people, those with prior job experience in the field. It's overlooking a lot just to talk about labor metrics overall. When it comes to products/services, there often tends to be different price categories. Can there be more demand for higher tier products/services even though there are fewer customers buying them, simply because they cost more? Does "demand" consist of the end price, or the profit margins for the business?
    You see it can be kind of vague.
     
  2. Ritter

    Ritter Well-Known Member

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    The conventional theory of supply and demand is entirely based on imaginary curves and does not ask the true questions of reality. It is based on a highly mechanical and narrow understanding of human action. It is a generalised abstraction that does not see that a neighbour who buys a glass of lemonade from the neighbour's daughter is not agreeing to the price of a glass of lemonade as a generalised quantity. Rather is he agreeing to the price of that specific glass of lemonade at that specific time and setting.

    In other words; prices are not fixed. Supply and demand curves do not exist in reality. For a glass of lemonade to have a price, so,ebody has to set the price. So, how supply and demand actually works is that the producer adjust the price at a high enough level so that the consumer is prepared to pay and they themselves can still profit from the exchange. The process is not automated and it is thus a bit foolish to speak of it as such.

    We are individuals with individual preferences. In every voluntary exchange, both seller and buyer come out as winners. In every such exchange, the previous wish to sell it to as high of a price as possible and the latter to buy it for as low of a price as possible; Think of a Middle Eastern bazaar where parties heckle for the price of onions and you have the purest illustration of market prices there is.

    Supply and demand works if you wish to give a simplistic, generalised explanation to prices. However, it is a theory that is very easy to corrupt and manipulate which is why we often see our (economically illiterate) politicians misunderstand and overtrust the concept, causing busts, inflation and crisis.

    The general rules of supply and demand are still very uselful to understand and explain the general rules of the market.
     
  3. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I was just pointing out that demand is not a simple linear thing. It's not just more or less demand.
    There is the demand curve, so demand is really two-dimensional. There are different types of demand, and demand has to be understood in terms of quantity and price (and also quality, but I won't go into that right now). There can be a type of demand where something is demanded but only below a certain price; or there can be the type of demand where a very high price can be paid for something but not a very big quantity of that is being demanded. The type of demand will determine how the supply responds to it.

    I'm just tired of hearing policy-makers or economists say there's a "big demand" for something in the economy, and then wondering why the economy isn't automatically fulfilling that demand. One could ask whether there's really a "big demand" if the price per quantity demanded isn't very great. Although to speak simply of a "big demand" is kind of meaningless and non-specific.

    I just think in certain situations it's time we stop understanding the economy in terms of "demand". (or at least simple linear demand)
     
  4. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    HOW ECONOMIES WORK

    In fact, it is very easy to apply them econometrically aggregately:
    Gross Domestic Product* = Consumption + Investment + Government,
    all of which are expenditures and thus qualify as the fundamentals of national Demand.

    Of course, without Demand there is no reason for Supply - which is a key-element of any economy, and thus to our well-being or lack of it.

    Yes again, the above is not applicable (easily) to clarify real-life situations. Because Supply&Demand are "economic twins". Without consumer Demand, there is no need to supply products or services. And, without the need to Supply the economy, there is no need to work and thus pay workers, which means ipso-facto a diminishing of Consumer Income (and thus Demand).

    It is generally recognized (by economists) that the above qualifies/quantifies the General Economic Situation of any country. Particularly when GDP-growth stagnates or falls (which, the last time it happened, brought about what we call the Great Recession).

    It is generally true that what happens to how well or not we live depends VERY LARGELY on Consumer Income, itself dependent upon the general economy (that is, the GDP!)

    Iow, the Consumer-Demand is central key to any economy. But we should be very careful about how Demand happens. Pre-2008, Demand for housing became wildly hysterical and thus the SubPrime Mess occurred. Largely because banks were lending a great deal of money to very highly risky people - who were buying-&-reselling property in a market-frenzy.

    A consideration of the economic turmoil that led to that Mess is appropriate. From here:
    Can't happen again? OH, YES IT CAN ... !

    *US GDP breakdown in 2018: 69% personal Consumption, 18% business Investment, 17% Government spending, and negative 5% net exports. The largest generator of GDP is clearly Consumer Demand.
     
    Last edited: Jun 29, 2019
  5. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I was explaining that you can't predict how Supply will respond to Demand when you're only using a linear metric for that Demand.

    There are different quality types of Demand.

    Demand alone is not sufficient to stimulate Supply, there needs to be a certain minimum per-unit demand.
    You could easily have a situation where less Demand leads to more Supply, and more Demand leads to less Supply, if you've increased Unit Demand (quantity) at the cost of Per-Unit Demand (available buying money per each of those units demanded).

    This obviously has big implications for increasing the size of the population. More demand isn't necessarily going to stimulate the economy, if there are more poor people the economy might have more trouble meeting that demand.

    As a business, my total profits are going to be bigger selling a lot fewer things at a slightly higher price because my profit margins will be bigger. (For many things in the economy, businesses operate on tight profit margins)
     
    Last edited: Jun 30, 2019
  6. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    The "prediction" of Supply (aka GDP) is virtually impossible in any short-term period. (Meaning from one year to the next.)

    One only sees that "something is wrong" when GDP data show it happening over a sufficiently lengthy period of time.

    Which is how the SubPrime Mess happened in 2008 to commence a fundamental change in GDP.

    Better yet, as an indicator, is quite simply the unemployment rate ...
     
  7. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    Supply&Demand is not an abstraction. It is a succinct but clear attribution of market-exchange. Iow, getting something in return for having paid for it by something.

    Once upon a time, that something was not money. It was more so an exchange at local markets of whatever could be produced.Today it is just money or "liquidity"(Liquidity: the fact of a goods/services being available by means of a money-payment, rather than investments or property; or the quality of being able to be changed into money easily.)

    (When's the last time you exchanged the chickens you raise for the cake you bought at the bakery? ;^)

    I beg to differ, yet again. To my mind, it is not simplistic. It means - as regards an exchange of goods/services for money - that S&D is of an aggregate and not an individual nature. And in understanding economics, that distinction is CAPITAL (meaning "very important".) Whyzat?

    Because there are two natures to economic theory (unfortunately). One is the action of the individual and the other is the action of individuals in an economic circumstance!

    Though the aggregated number is easily assimilated/exchanged/understood (because it is statistical), the former (individual action) is far more ambiguous because of human nature. It is relatively easy to aggregate numbers displaying the result of S&D, and virtually impossible to do the same for (say) taste or necessity or desire or impulse to acquire.

    And yet, it is these "impulses" that motivate our actions as human beings in a common economy. And their extended variety defy often "explanation".

    Methinks ...
     
  8. HonestJoe

    HonestJoe Well-Known Member Past Donor

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    In the context of economics you’re talking about, the terms are defined to mean specific things but they’re just part of a larger and more complex set of systems and concepts which are then applied to a whole range of different contexts in the real world, with all the messy variation and inconsistency that involves. I don’t think the problem you’re referring to is the fault of the words but to fault of people misusing them and treating them as simplistic isolated concepts rather than part of a large whole.
     
    kazenatsu likes this.
  9. Curious Always

    Curious Always Well-Known Member Past Donor

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    Someone has 10 widgets. 30 people want one. Supply can't meet demand. Price goes up.
    Someone has 10 widgets. One person wants it. Supply exceeds demand. Price goes down.

    Not sure what's difficult about this concept.
     
  10. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    The idea that if we add more people who want a widget, that that's necessarily going to make the supply go up.

    Price does not always go up in proportion to how much you increase demand. That usual economic view assumes a normal-shaped, fairly linear, demand curve.

    Because demand is not really an inherently linear thing, it's kind of a semantic thing to talk about "demand".
    You could, for example, have lots of people constituting demand, but no sales are able to take place because the price they are able/willing to pay is just below the amount that would be required for sellers to make a profit.

    As economists, we need to realize that "demand" does not always stimulate supply in every situation.
     
    Last edited: Jul 1, 2019
  11. HonestJoe

    HonestJoe Well-Known Member Past Donor

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    Not directly relevant but an interesting video on the topic all the same (on a cool YouTube channel I'll always take a chance to promote :) );

     
    Last edited: Jul 1, 2019
  12. Curious Always

    Curious Always Well-Known Member Past Donor

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    That's why the prices go up. You are an economist and you don't understand how supply/demand works? Wow. You should probably re-take some of those classes. This is 101 level stuff.
     
  13. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Do you understand what I posted? Yes or no?
     
    Last edited: Jul 1, 2019
  14. Curious Always

    Curious Always Well-Known Member Past Donor

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    Yes. You don't understand what supply & demand is. I am agreeing with you.
     
  15. fmw

    fmw Well-Known Member

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    You are overthinking it. Supply is nothing more than people, businesses and governments with something to sell and demand is people, businesses and governments that want to buy something. What terms would you prefer?
     
  16. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    AMERICA'S DEBT HOLE

    Bad debt-habits. That's what. From a world where the "sky's the limit" and anyone can make unlimited profits by buying/reselling real-estate by employing and re-employing debt.

    Meaning - in a booming realty market- turning it over and over in order "make a profit".

    Of course, when Demand does not meet Supply in a serious economic downturn, the opposite happens. So they go wailing onto a Debate Forum about how wicked is the world around them.

    Educated simpletons who think the world should stand still (holding Our Debt) and funding THEIR economy by holding Our National Debt!

    Which is a dangerous place to live in when the economy nosedives and ruins Net Worth. And that can happen to any economy that feeds on the world's demand for its T-Notes to balance National Budgets.

    One guess of which country I am writing:
    [​IMG]

    And so who owns OUR National Debt? (from here):
    And what happens should Foreign Investors suddenly decide to Dump American-Debt? All hell breaks loose.

    We are living beyond our means. On National Debt, which cannot last forever because a significantly large portion of that debt is owned by the world.

    And the world could care less about our extravagant cost-of-living ...
     
    Last edited: Jul 2, 2019
  17. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    Posting deleted
     
    Last edited: Jul 2, 2019
  18. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    It's obvious you completely missed the point of this thread.

    If you didn't take the time to bother to try to understand what I was explaining, I don't see any reason why I should bother trying to re-explain this to you.
     
    Last edited: Jul 2, 2019
  19. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    Moving right along ...
     
  20. jay runner

    jay runner Banned

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    Take any widget/gadget on a market free of monopoly or government control which can be produced in easily varied quantities, or produced using longer or shorter factory runs.

    If the producer raises the price, the demand goes down, which is quantified by the lesser quantity sold.

    If the producer lowers the price, the demand goes up, which is quantified by the greater quantity sold.

    There are other factors, of course: good publicity, bad publicity, usefulness, effectiveness, improvements, deterioration in quality, lawsuits won, lawsuits lost, crowd hysteria to possess it, crowd hysteria to call it passe`, obsolescence, SJW attacks on the product, boycotts, etc.

    By gaining experience (and using math) a producer knows fairly well where their break even price is, and where their overall highest bottom line profit price per unit is.
     
    Last edited: Jul 2, 2019
  21. dairyair

    dairyair Well-Known Member

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    People demand food and water. And most demand shelter.
     
  22. Moonglow

    Moonglow Well-Known Member

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    I learned to do as much as I can to be self supportive and live outside the squirrel cage....
     
  23. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Which demonstrates my point clearly.

    There could be a million people demanding something, but if each of those people can only pay a small amount of money for it, it's not going to be provided for them.

    High levels of demand do not necessarily stimulate supply. It depends on the quality of that demand.

    Businesses are not motivated by demand, they are motivated by profit margins.

    If it costs the business $9 to make one widget, a business could make more profit selling 10 widgets for $13 each than it could selling 30 widgets for $10 each.
     
    Last edited: Jul 3, 2019
  24. dairyair

    dairyair Well-Known Member

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    Doesn't matter if one can afford food and water.
    It's required to survive. And most every living creature will do what is necessary to stay alive.
    Money not required. That is demand.
     
    Last edited: Jul 3, 2019
  25. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Economics defines many words very differently than they are used in normal commonplace language.

    Words have different meanings.
     
    Last edited: Jul 3, 2019

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