Pent Up Demand - Explained
What is Pent Up Demand?
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What is Pent Up Demand?
Pent up demand is a build-up of demand for goods and services in an economy where consumers are unable or unwilling to make purchases to satisfy the demand at the present time.
Pent up demand happens during periods when consumers are reluctant or unable to make needed or desired purchases. This generally occurs during times of economic uncertainty - such as a recession.
Economists use this measure to forecast consumer spending once consumers are collectively ready to purchase goods or supplies to meet the pent up demand. This normally occurs at the end of the period of economic uncertainty.
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How does Pent Up Demand Happen?
During periods of economic uncertainty, consumers often defer making purchases and save more of their financial resources.
When the economic uncertainty subsides, consumers purchase at a higher rate because of the pent-up demand for the goods or services. This increased rate of purchase creates a cycle of increased economic activity.
Pent up demand is most evident in durable consumer goods. For example, consumers may forgo purchasing an automobile during uncertain economic times. They repair or otherwise make do with their vehicle until economic conditions improve.
Once conditions improve, there is a surge in spending.
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- Indifference Curve
- Time Preference Theory of Interest
- Diminishing Marginal Utility
- Sunk Costs
- Production Possibilities Frontier
- Law of Diminishing Returns
- Economic Efficiency
- Efficiency Theory
- Productive Efficiency
- Capacity Utilization Rate
- Pareto Efficient
- Comparative Advantage
- Criticisms of the Economic Approach
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- Invisible Hand
- Sunk cost