Back to Homepage Income Measures Income: Saving and Investment Methods of Buying That Save Money The Choice of Goods Methods of Buying That Reduce Mistakes In Selection Methods of Securing Information Concerning Goods Plans and Motives of Consumers Consuming the Product Who Is the Consumer? The Consumer in the Market Priorities and Preferences in Consuming Decisions The Consumer as User of Wealth The Consumer as a Buyer Consumers as Self-Conscious Agents Criteria of a Good Market Information Versus Persuasion of the Buyer The Rate of Interest Interest Rates and Economic Activity Saving, Investment, and Income Saving Motives Saving Plans and their Realization Total Spending Is the Key to Prosperity The More We Spend, The More We Have Spending by Private Enterprise

The Consumer in the Market The Derivation of Consumer Demand The concept of demand is widely known in a vague sort of way, hence is widely used and misused. It needs defining and development to make its meaning unmistakably clear. Now, it turns out that the concept of demand grows out of the theory of consumer behavior. The concept of demand can be derived logically by either the utility or the indifference approach; and the precise demand relation of some Consumer A for some commodity X can be derived if either the utility function or the indifference map of Consumer A for commodity X is known. But we know that the theory of consumer behavior involving either utility or indifference techniques is nonoperational (i.e., we are unable to obtain the relevant utility or indifference data); hence, we are unable to derive empirical demand relations. Thus, the question may be asked: "What is the use of deriving a concept where the process involved does not admit of measurement?" The first answer to this question is that the process, in terms of either the utility approach or the indifference approach, does yield the concept of consumer demand. And this concept becomes a powerful analytical tool for thinking and reasoning logically about many economic problems. Second, knowing the concept of demand inside and out-knowing how to work with it and bend it to our needswe are able to derive measures of market demand from market data by various types of statistical analyses. CONCEPT AND DEFINITION As the name implies, consumer demand involves the wanting of some good or service by the consumer. But by demand the economist means more. He has in mind that the consumer wants and is willing (or has the ability) to buy the good or service in question. Thus, by consumer demand the economist means the quantity which the consumer stands ready to buy -- or take -- under certain conditions. Now, these conditions may be listed as follows: 1.  As price varies   2.  As all other conditions are constant, unchanging   Thus, by consumer demand we mean the quantity of a good or a service that the consumer stands ready to buy -- to take -- at varying prices where all other conditions are constant.There are many things besides the price of a product that may influence the quantity of it taken by a consumer (the more important nonprice influencing factors will be considered in later chapters of this part), but the demand relation is concerned exclusively with the variation in the quantity of a commodity taken associated with the variation in the price of that commodity. To derive the demand relation, then, all factors other than price which influence the quantity taken must hold, or be held, constant. Where this is not the case, it is impossible to know which part of the variation in the quantity taken is attributable to a change in price and which part to a change in some other factor. In the development of statistical demand functions from market data, this problem is not easily, and never perfectly, solved. But the successes that have been realized in this direction (i.e., holding all independent variables other than price constant) result from the fact that these other factors seem to subsume under three principal headings: 1.  Consumer income   2.  Consumer tastes and preferences   3.  Prices of substitute goods or services These are the "other" conditions that must hold constant in order that the true relation associating quantities taken with varying prices for any consumer may be measured. When we undertake to derive the demand relation of some Consumer A for some commodity X, by either the utility approach or the indifference approach, we know now what conditions bearing on Consumer A must be held constant. His income must not change, his tastes and preferences must not change, and prices of competing goods and services must not change during the period in which the utility data or the indifference map of the consumer is obtained. These factors held constant, the quantity of commodity X which Consumer A stands ready to buy -- to take -- at varying prices may be ascertained. And this is what we mean by consumer demand.   Home