Economic Report

In economics, we need to use terms a little more cargonfully than they are sometimes used in ordinary discussions. In general use, Demand is a word that can have more than one meaning, but in microeconomics we define it more carefully so that it has only one meaning. Here is the definitionDefinition DemandDemand is the human relationship between price and bar demanded for a particular good and service in particular circumstances. For each price the demand relationship tells the quantity the buyers want to buy at that similar price. The quantity the buyers want to buy at a particular price is called the Quantity Demanded.The key point is to distinguish between demand (the relationship) and quantity demanded. That government note is important for microeconomics, although people often do not make it in ordinary discussion.Demand and enquireTo keep it simple, we may think of the buyers as consumers. (Later we willing look at markets for inputs to production, in which the buyers ar e producers of other goods and services). Clearly, the buyers are the people who want or need the product or service but at that place is more to it than that. The word demand refers to the willingness and ability of people to purchase the good or service in the market. The demand relationship expresses that willingness and ability for the whole orbit of prices. To say that a person has a demand for a particular product is to say that the person has bills with which to buy and is willing to exchange the money for the good. People will not demand what they do not want or need, but a want or a need unsupported by purchasing power is not a demand.Similarly, it is not enough that the suppliers possess the good or (the capacity to perform) the service. Supply also means willingness to sell. some of us have experience living in the market economic system, and that makes economics seem like a common-sense field but sometimes that common-sense receive can be deceptive. People sometim es use the term demand ambiguously as if demand were the same thing as need. But it is not. Need without purchasing power will not create useful demand in the marketplace. Economists sometimes stress this point by using the term effective demand in place of simple demand.As we have seen, economists think of the demand for a good or service as a relationship between the price of the good or service and the quantity demanded of that good or service. Common sense says that the relationship is an inverse one that is, that an increase in price will result in a decrease in the quantity demanded. In this, common sense is absolutely right. The higher the price, the less quantity demanded, and conversely, the lower the price, the more quantity demanded.Many economics textbooks use examples establish on hypothetical (made-up) numbers. There is nothing wrong with that and we shall use some of them later on. But why not use a real example? Several years ago, the author estimated the demand r elationship for beer. Here is an example based on that estimate. The prices quoted are wholesale prices, in cents of 1972 purchasing power. Quantity demanded is measured in millions of gallons, for the United States as a whole.