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Quantitative Tests

The quantitative test may be stated thus: The total amount of domestic manufacture, plus the total amount of importation, minus the total amount of exportation of a particular product, will show the status of the demand in a given country for that product.

The amount of a country's importation is not alone necessarily the measure of its domestic requirements. England, Germany, and other countries imported annually immense quantities of merchandise which they never used in their own country, buying for export only. They were the great international buyers and distributers for the markets of the world. Goods are often listed as coming from a certain country, when, in truth, they only come through that country. For instance, most of the American goods sold in Russia, up to the time of the European War, were imported through Germany and listed in Russia as German goods.

Qualitative Tests

To know the extent of a demand for a product in a given country is not of itself sufficient; the nature and quality of the demand must also be determined. It is not enough to know that Russia uses annually a certain number of automobiles. It is essential that the different qualities used and the approximate amount of each quality should be learned. To this end the following qualitative test may be employed: Ascertain the amount of domestic output in each different grade of goods, then add to each grade the amount of importation of a similar grade, and finally subtract from the totals of each grade the amount of similar quality that is exported. The result will show the different qualities of demand and the extent of each quality.

It must be remembered that inasmuch as statistical data

are often incorrect such tests are never conclusive. It is only when they are supplemented by a personal investigation that the extent and quality of the demand may be truly appraised.

In no country is the desire for a given product evenly distributed. The exporter should determine in each case the quantity and quality of the demand for his product in a particular locality, with a view to preparing a comparative statement of the conditions obtaining in a given market. Until this is done one is not ready to inquire into the reasons for any phenomena in the nature of demand. If it is known that one locality, with a population three times as large as another locality, uses only one-fifth as much of a certain article, there must be a reason. Such discoveries lead to a study of conditions which should enable the trader to determine whether or not there is any deferred or potential demand, and whether it is elastic or inelastic.

Potential Demand

The existence of a strong potential demand may change the whole policy of a prospective exporter in regard to a particular market. Both the immediate and the deferred demand for a commodity are affected by local conditions. A slight change in conditions may result in greater quantities being required at a higher price or less at a lower price. There are as many degrees of elasticity as there are variations in human wants or in the ability of men to satisfy these wants. If the demand is inelastic, it may be destroyed completely by any marked increase of price. Thus a definite knowledge of the possibilities of extending the demand for a product in a particular market is not only desirable but often indispensable, especially when extensive advertising is contemplated.

In some cases it is easy to determine the potential, deferred, or probable demand. For example, it is obvious that after a war which destroys railroads, bridges, buildings, and even

entire cities, great quantities of building material will immediately be required. Also, through the great European War people have learned the value of auto-trucks, and it is reasonably certain that there will now be an increased demand for these vehicles, and a corresponding increase of the secondhand supply.

As a rule, however, it is a difficult matter to estimate potential demand or to invent new wants and habits for a people. In backward and undeveloped countries a necessary preliminary to the stimulation of demand is the awakening of wants and desires that are dormant for the time being. In developed countries there is much of the force of habit in consumption, and as very few producers are capable of invention, the problem of creating a demand is never an easy one. A good illustration of an artificially created demand is that for Postum, Grape Nuts, and other similar products. Mr. Post happened to observe that the American people are subject to nerve and stomach troubles and turn readily to such food substitutes in the hope of improving their health.

In estimating a potential demand each case must be studied carefully on its merits. There must be differentiation between an absolutely new demand and the extension of an old demand, although the word "potential" may be used in both cases. Different methods must usually be employed in each case.

How to Study Demand

To enter a foreign market upon a large scale without a thorough study of the demand is like embarking upon an ocean voyage without providing oneself with a compass. Many concerns it would be surprising to know how many-have done this foolish thing and failed to accomplish their purpose. The investigation should proceed along the following lines:

I. Find out the law of demand for a product in a particular market from the aspects of that market.

2. Determine the quantity of the demand by means of the quantitative test, and its quality and extent by the qualitative test.

3. Supplement both tests by a personal investigation. among the dealers.

4. Prepare a comparative statement of demand in different localities both as to quality and quantity, and compute the quantity per capita.

5. Study the general conditions of the market and determine whether the demand is elastic or inelastic, and how much potential demand can be counted on.

6. Prepare a chart which will set out briefly all the

findings on the subject.

The study of consular reports and of articles in export journals may assist the exporter in gauging the foreign demand for his product, but only when he has followed the steps indicated has he carried out a scientific investigation.

The Relation of Demand and Supply

The fundamental tendency of all commerce is to adjust itself to the needs and desires of the consumers. Hence supply generally follows demand and constantly tends to adjust itself to it. The equilibrium of demand and supply is not a frequent occurrence and when it does occur it is merely a temporary condition. Generally speaking, one is as fluctuating as the other. Nevertheless, whatever knowledge one may have of demand helps in determining the corresponding data relative to supply; and the extent and quality of supply, under ordinary conditions, give a sure indication of the extent and quality of the existing demand.

Tests of Supply

After obtaining the correct statistical data regarding a particular line of product in a given market, there are three

important questions to consider and determine relative to supply.

1. Are there any signs of overproduction or of unused

supply?

2. What is the nature and quantity of local or domestic

supply?

3. What are the principal sources of foreign supply, and what is the extent and quality of each? That is to say, how much of a given product does the country under consideration import from other countries, and how does the quantity-and the quality-imported from each country vary?

Overproduction

Whenever there is an overproduction in a certain line it is followed by an immediate depression in the market which is felt by everyone interested in that line. The existence of overproduction can be determined by mere casual inquiry.

Unused supply or an overstocked market may exist whenever there is a temporary strain upon it, caused by local conditions. A general financial depression, poor crops, changes in the utility assigned to a commodity by its intended purchasers, the rise of substitutes, or any similar phenomena may prevent immediate absorbtion of production by the local market. Care must be exercised to differentiate between the permanent and the temporary condition. Above all, one must be careful not to mistake the signs of a temporarily overstocked market for the results of overproduction. In every case there must be a careful investigation of the causes.

Overproduction always has its source in the increased activity of capital and labor. Most often it is due to too much idle capital. On the other hand, unused supply is generally caused by a decrease in the income of the people, just as the price of a commodity which the public is willing

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