ch2.1

• The term 'demand' refers to the quantity of a good or service that buyers are willing and able to purchase at various prices during a given period of time.
• Demand, in Economics, is something more than the desire to purchase, though desire is one element of it.
• People may desire much bigger houses, luxurious cars etc.
• The effective demand for a thing depends on desire, means to purchase and willingness to use those means for that purchase.
• Unless desire is backed by purchasing power or ability to pay and willingness to pay, it does not constitute demand.
• Effective demand alone would figure in economic analysis and business decisions.
• The quantity demanded is always expressed at a given price.
• At different prices different quantities of a commodity are generally demanded.
• The quantity demanded is a flow.
• Perfectly (or infinitely) elastic demand means that purchasers are prepared to buy all they can obtain at some price and none at all at an even slightly higher price.
• The horizontal demand curve in figure 8 (c) represents perfectly or infinitely elastic demand.
• Zero quantity demanded does not change as price changes, indicating perfectly or completely inelastic demand.
• Elasticity measures the numerical measure of elasticity, meaning and nomenclature, and terminology.
• One quantity demanded changes by exactly the same percentage as does price, indicating unit elasticity.
• Greater than one, but less than infinity quantity demanded changes by a larger percentage than does price, indicating elastic demand.
• Greater than zero, but less than one quantity demanded changes by a smaller percentage than does price, indicating inelastic demand.
• We are concerned not with a single isolated purchase, but with a continuous flow of purchases and we must therefore express demand as 'so much per period of time' i.e., one thousand dozens of oranges per day, seven thousand dozens of oranges per week and so on.
• Market experiments can also be replaced by 'controlled laboratory experiments' or 'consumer clinics' under which consumers are given a specified sum of money and asked to spend in a store on goods with varying prices, packages, displays etc.
• The responses of the consumers are studied and used for demand forecasting.
• The coincidental indicators, however, move up and down simultaneously and are witnessed at around the same time the changes they signal occur.
• For example, Figures on retail sales, rate of unemployment and Index of Industrial Production (IIP) are coincidental indicators.
• The leading indicators move up or down ahead of some other series.
• For this purpose, an index of relevant economic indicators is constructed.
• Movements in these indicators are used as basis for forecasting the likely economic environment in the near future.
• There are leading indicators, coincidental indicators and lagging indicators.
• The lagging indicators follow a change after some time lag.
• In order to find out these turning points, it is necessary to find out the general behaviour of the economy.
• The heavy household electrical connections confirm the fact that heavy construction work was undertaken during the past with a lag of some time.
• Such projection is not effective where there are economic ups and downs.
• Since these happen almost in real time, they do not offer much predictive insight, but provide a fair reading of the current scenario.
• Just as meteorologists use the barometer to forecast weather, the economists use economic indicators to forecast trends in business activities.
• Barometric method of forecasting: The various methods suggested till now are related with the product concerned.
• These methods are based on past experience and try to project the past into the future.
• This information is then used to forecast demand prospects of a product, though not the actual quantity demanded.
• For example, the heavy advance orders for capital goods give an advance indication of economic prosperity.
• Increase in the number of construction permits for new houses will be reflected in corresponding increase in the number of sheets of glass ordered several months later.
• The projection of trend cannot indicate the turning point from slump to recovery or from boom to recession.
• If these factors which determine demand also undergo a change, then the inverse price-demand relationship may not hold good.
• The demand curve hits the horizontal quantity axis at 12, the amount ice-cream that the consumer wants if the price is zero.
• The negative sign of this slope is consistent with the law of demand.