Scandinavians – 8/10, and for Europeans 1/10.
For sale of milk these numbers speak volumes.
1. The propensity for milk consumption in Scandinavia is close to saturation. As we showed research, selling products in a saturated market leads to big losses that are higher the closer the value of the relative consumption to the value 1. This means that the needs of this market are completely satisfied.
2. Judging the relative consumption for the sale of milk are higher Europe prospects because the market is not saturated.
However, it is necessary to make a reservation. Keynes divided the propensity to consume on two categories – objective and subjective factors. He wrote [ THE BOOK THIRD. THE PROPENSITY TO CONSUME. CHAPTER 8 ].
“In order to make our analysis clearer, it is advisable to divide these motives into two big groups: first of them we will include subjective and the second objective factors. Subjective factors, those describe psychological features of human character, and also those public habits and institutes, which though are not invariable, nevertheless hardly whether are subject to significant change over short time periods (excluding any coming out of the ordinary circumstances or revolutionary shocks)”.
In our example, the low level of relative consumption indicates the presence in the European behavior of the subjective factor, but at the same time indicates for the prospect of overcoming it (advertising, development of appropriate European tastes dairy products).
3. Relative consumption can be used to measure the level of poverty and wealth.
Saturation of the population with vital goods is usually calculated by the amount of consumption per person over a certain period (month, year). Relative consumption indicates the degree of saturation (ratio of maximum consumption to real consumption). This example cannot serve as such an indicator because it has a large share of subjective factors.
The low value of the relative consumption indicates poverty if this if this is happens due to the lack of material resources.
The last thing you should specify is the role of relative food consumption. In most cases, this value may wear a medical evaluation.
In this case, the relative consumption indicates that some products, not can provide a normal life, and some goods are consumed excessively,
1.3. Factors affecting relative consumption
1.3. 1.Maximum consumption
Based on statistical data (or on basis common sense) is determined by the maximum possible acquisition of the goods (measured in units that characteristic of this product) for a specified period of time (week, month, year). This quantity we will call the maximum consumption (Pmax)
When choosing the amount of maximum consumption should take into account two types of factors.
The OBJECTIVE restriction and FORMAL restriction.
1. Objective restrictions limit the maximum consumption is that it is limited to physiological causes (for example, a person can’t eat more than 10 cakes in a day) or technical reasons (this car consumes 25 miles/gallon. These parameters can be chosen so that the probability of their change for a short period of time will be small.
Certain goods are restricted to natural causes. For example, the maximum of the index of goods – “park the car in a period of 1 hour” is limited to one hour.
2. A formal limit of maximum consumption – consist that its value is arbitrarily is assigned by the researcher or for harmonization (standardization) with other stakeholders (e.g. maximum consumption of cakes one person 100 cakes per day). Further consideration will show that unrealistically high values of maximum consumption does not affect the main results, does not change the resulting estimates, but complicates the calculations by increasing or decreasing the values of the processed variables.
1.3. 2.Real consumption (demand)
The main ideas are the following:
1. The consumer buys for a certain period (week, month, year) a certain quantity of goods, measured in units characteristic for this product, taking into account needs and price for this item. This is the number we will call real consumption (Preal)
2. After purchase, the buyer consumes it within a certain time of usage.
The reason for the refusal of the purchase may determine subjective reasons.
For example, the impossibility (or unwillingness) every day to eat burgers, or objective reasons, for example, the capacity of the fuel tank is designed for a week.
WHILE WE EXCLUDE THE FACTOR OF SAVINGS “IN RESERVE” (A DELAY SYSTEM).
The time of consumption is different from the time possession of the goods. For example, a car purchased 3 years ago; the owner can use by but if the owner started looking for another car, the time of consumption is 3 years.
1.3. 3. The dependence of demand in units of relative consumption from the price
We determined the relative consumption as
a=Preal/Pmax
We will assume that the unit price the real and maximum consumption is equal; in this case the specific relative consumption does not depend on prices.
If these prices are different, it is possible to introduce coefficients.
Real consumption constitutes the sum of values relative consumption of certain groups of consumers.
Additivity of real consumption will be shown below.
A =Σ niai
Where n is the number of groups of consumers.
The increase in demand can have two sources:
1. The increase in the consumption of individual consumers Preal.
2. The increase in consumption due to the increase in the number of consumer groups.
3. Or the increase of both factors
When prices increase, real consumption is reduced, this leads to lower relative consumption. Conservation measures of the market require an increase in numbers buyers – n. If consumption is reducing then this can only be done by increasing the number of buyers, either through advertising or through the expansion of sales territory.
If prices fall, then real consumption is increases, then same number of buyers buys more goods. The limit this growth is Pmax.
At the stage when the market is not saturated with goods, the factors of maintaining the input flow are valid.
In case of market saturation (overproduction stage) Preal stops growth (every consumer receives the goods close to the maximum consumption). A numbers of groups of consumption at the saturation point, in most cases, cease to grow.
