Pent Up Demand Definition
Pent up demand takes place when the demand of a specific good or service becomes uncommonly strong. Economists use this term to tell how strongly the consumers start spending after a stage of spending less.
A Little More on What is Pent Up Demand
Pent up demand usually takes place after an economy revives from depression or recession. It is the stage where consumers save more, and stop making purchases because of unpredictable economic conditions. Most of the times, pent up demand speeds up the recovery process, and lets consumers to spend more, thereby increasing the economic flow of goods and services.
According to traditional economics approach, pent up demand starts taking place at the time of recession when consumers are focusing to save more. And as soon as the economy starts to recover, the rates at which consumers were saving tends to decline below average, and pent up demand comes in to the picture, resulting in more consumer expenditure. For instance, the economic event that took place in the 1990s. However, the Great Recession that took place in the 2000s won’t be considered as an example of pent up demand.
In spite of having the major components of recession, the Great Recession seemed to have more serious effects on the economy. Though the demand rose at the time of entering into the recession, but the recession was on such an extreme level that the demand was created along with the pent up demand getting worked off.
One can easily recognize the condition of pent up demand in case of durable goods. When economic conditions are not good, people prefer to save more, and sticking on to the products or items that they already have. This means people would wait for buying a new car or a TV until the economy improves, and would rather bear minute repair and maintenance expenses for making the existing appliance, vehicle, or any other durable good work. As consumers tend to wait for a longer time period for buying such items, their urge and need of replacing it with a new one increases.
Measuring Pent Up Demand
Pent up demand, not being an accurate science, is difficult to be measured in an accurate manner. Still, there are many economists who tend to observe pent up demand by analyzing durable goods. They minutely observe how long the durable goods stocks last on an average. After measuring the extent of consumption and depreciation of different types of durable products, the Bureau of Economic Analysis releases the year-end stipulations of their average ages which remain consistent over a period of time, especially from 1960 to 2007. As per the researchers, most of the durable goods’ average age started increasing with the Great Recession, and continued to increase till 2012. The average age for over 50% of the groups was more in the year 2012 as compared to its highest value ranging from 1947 to 2006.