The total amount of some product that consumers in the relevant market
want to buy during a given time period is influenced by the following
important variables: [ 2 ]
Product’s own price
Consumers’ income
Prices of other products
Consumers’ tastes
Population
Significant changes in weatherWe will discuss the separate effects of each of these variables later in the
chapter. For now, we focus on the effects of changes in the product’s own
price. But how do we analyze the distinct effect of changes in this one
variable when all variables are likely to be changing at once? Since this is
difficult to do, we consider the influence of the variables one at a time. To
do this in our theory, we hold all variables constant except the product’s
The amount of income earned is a flow; it is so much per year
or per month or per hour. The amount of a consumer’s
expenditure is also a flow—so much spent per week or per
month or per year. The amount of money in a bank account
(earned, perhaps, in the past but unspent) is a stock—just so
many thousands of dollars. The key test is always whether a
time dimension is required to give the variable meaning.