In microeconomics: Is the demand of all individuals actually measurable or infered on a reliable basis?

Question

I mean, when you see a demand curve the theory tells you that you can show the actual demand for a good and put it in a graph. Is it really possible? Or is it just a theorethical device with no application in real life?

Answer 1

It depends how the demand curve you are looking at was constructed. Ideally, you would ask everyperson what is the maximum that they would be willing to pay for one, two, three etc units of whatever, get honest responses, sort the responses by price and then plot the demand curve.
However, in practice, you can rarely do a survey of every possible purchaser of an item and it is difficult to know how much someone really is prepared to pay for something unless they do so.

In practice, demand curves are estimated by looking at the current price and quantity being sold, to get one point on the demand curve. Econometric techniques can then be used to estimate the elasticity of demand around that point, which gives you the slope of the demand curve for slightly different quantities and quantities, since the slope of most demand curves change only slowly. When used within this limited range, demand curves are extremely useful, since you can have a reasonable degree of conifidence in them.

The two problems are when other factors are changing (ie cet par doesn't hold) so that the demand curve is moving over time. Once again, econometrics may be able to assist, but usually your results become less certain the greater these other changes are.

The other problem is for commodities where reason suggests that the elasticity isn't constant, such as when you get large changes in quantity/price. In these cases, you need to guess where the demand curve goes using whatever information and logic you can, and then get price and quantityabout right, so that you can observe consumer behaviour near the new equilibrium and gradually move your price to the optimal point.

So yes, demand curves have practical use, but you need remember that they are usually just estimates. Therefore, like any estimate, you need to consider how precise your estimate is of each demand curve and interpret your analysis accordingly.

Answer 2

The 'demands' can only be hypothesized. It has nothing to do with real life. Statistics is a numbers game that can be manipulated for the benefit of those who use them.