The Science of Demand (40) - Unofficial Translation of Steven Cheung's 经济解释 - 科学说需求

Section 3.  The Implication in Ignoring Quantity Transacted

Quantity demanded does not exist in the real world, only quantity produced and quantity transacted do. The invisibility of quantity demanded has therefore affixed a difficulty barrier in using the law of demand to explain real-world phenomena. Authors of innumerable economic researches, having no idea that quantity demanded is merely a concept, invented grandiose equations that were awfully embarrassing. So did experts. And so did quasi-experts to a greater extent.

Let’s use an example with which Asians are familiar – the stock market. Chart school (I term feng-shui school) commonly uses the rise and fall of turnover volume to predict the trend of the stock market, with precision not much different from that of feng-shui masters’ crystal ball. Nonetheless, this school, having been popular for so many years, like feng shui, has no shortage of followers. In principle, when the stock market has no turnover at all – volume transacted being zero – stock prices could still fluctuate dramatically.

Anyhow, the law of demand is the spirit of economics, and the center of this spirit is on understanding how to manage the abstractive concept of quantity demanded. This is a prerequisite of science. In applying the law of demand to explain behavior, we either have to logically couple quantity demanded with quantity transacted, or by ignoring quantity transacted, simply use the implication of the change in quantity demanded to interpret phenomenon. Since the latter approach is relatively straightforward, let’s illustrate with a few examples.

When analyzing consumer’s surplus in the previous chapter, we said that one way of extracting this surplus is to charge membership fee. With the imposition of this fee, food prices within the club are cheaper than their outside comparables. This is implied by the demand curve that slopes downward toward the right. If considerable membership fee had been charged yet food prices within the club were to escalate, the law of demand would have been refuted.

And in the disappearance of a $100 note example cited early in this chapter, I pointed out that the less the police around, the higher was the chance of the note disappearing. If passers-by were still rushing to snatch the note despite two policemen standing by, the law of demand would then be overruled.

Never have we seen shops on the street prominently display: “Dumping at mark-up prices!” Neither have we seen people fight while bargaining because of customers insisting on paying more. Neither have we seen people queue up to buy because of prices too high. Neither have we seen the warranty card of a watch say: “Stop working within three months!” Neither have we seen a lady at a courtship coat her face in black… These are all implied in the law of demand.

Maybe we can say: all human behavior is restrained by the law of demand. Let’s now get more thorough in the examination of phenomenon: asserting test conditions to couple quantity demanded and quantity transacted.