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The 2009-2014 World Outlook for 60-Milligram Containers of Fromage Frais Paperback – September 27, 2008

ISBN-13: 978-0497929503 ISBN-10: 0497929503

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Product Details

  • Paperback: 190 pages
  • Publisher: ICON Group International, Inc. (September 27, 2008)
  • Language: English
  • ISBN-10: 0497929503
  • ISBN-13: 978-0497929503
  • Product Dimensions: 10.2 x 8 x 0.4 inches
  • Shipping Weight: 1.1 pounds (View shipping rates and policies)
  • Average Customer Review: 3.5 out of 5 stars  See all reviews (4 customer reviews)

Editorial Reviews

Excerpt. © Reprinted by permission. All rights reserved.

WHAT IS LATENT DEMAND AND THE P.I.E.?

The concept of latent demand is rather subtle. The term latent typically refers to something that is dormant, not observable, or not yet realized. Demand is the notion of an economic quantity that a target population or market requires under different assumptions of price, quality, and distribution, among other factors. Latent demand, therefore, is commonly defined by economists as the industry earnings of a market when that market becomes accessible and attractive to serve by competing firms. It is a measure, therefore, of potential industry earnings (P.I.E.) or total revenues (not profit) if a market is served in an efficient manner. It is typically expressed as the total revenues potentially extracted by firms. The "market" is defined at a given level in the value chain. There can be latent demand at the retail level, at the wholesale level, the manufacturing level, and the raw materials level (the P.I.E. of higher levels of the value chain being always smaller than the P.I.E. of levels at lower levels of the same value chain, assuming all levels maintain minimum profitability).

The latent demand for 60-milligram containers of fromage frais is not actual or historic sales. Nor is latent demand future sales. In fact, latent demand can be lower either lower or higher than actual sales if a market is inefficient (i.e., not representative of relatively competitive levels). Inefficiencies arise from a number of factors, including the lack of international openness, cultural barriers to consumption, regulations, and cartel-like behavior on the part of firms. In general, however, latent demand is typically larger than actual sales in a country market.

For reasons discussed later, this report does not consider the notion of "unit quantities", only total latent revenues (i.e., a calculation of price times quantity is never made, though one is implied). The units used in this report are U.S. dollars not adjusted for inflation (i.e., the figures incorporate inflationary trends) and not adjusted for future dynamics in exchange rates. If inflation rates or exchange rates vary in a substantial way compared to recent experience, actually sales can also exceed latent demand (when expressed in U.S. dollars, not adjusted for inflation). On the other hand, latent demand can be typically higher than actual sales as there are often distribution inefficiencies that reduce actual sales below the level of latent demand.

As mentioned in the introduction, this study is strategic in nature, taking an aggregate and long-run view, irrespective of the players or products involved. If fact, all the current products or services on the market can cease to exist in their present form (i.e., at a brand-, R&D specification, or corporate-image level) and all the players can be replaced by other firms (i.e., via exits, entries, mergers, bankruptcies, etc.), and there will still be an international latent demand for 60-milligram containers of fromage frais at the aggregate level. Product and service offering details, and the actual identity of the players involved, while important for certain issues, are relatively unimportant for estimates of latent demand.

THE METHODOLOGY

In order to estimate the latent demand for 60-milligram containers of fromage frais on a worldwide basis, I used a multi-stage approach. Before applying the approach, one needs a basic theory from which such estimates are created. In this case, I heavily rely on the use of certain basic economic assumptions. In particular, there is an assumption governing the shape and type of aggregate latent demand functions. Latent demand functions relate the income of a country, city, state, household, or individual to realized consumption. Latent demand (often realized as consumption when an industry is efficient), at any level of the value chain, takes place if an equilibrium is realized. For firms to serve a market, they must perceive a latent demand and be able to serve that demand at a minimal return. The single most important variable determining consumption, assuming latent demand exists, is income (or other financial resources at higher levels of the value chain). Other factors that can pivot or shape demand curves include external or exogenous shocks (i.e., business cycles), and or changes in utility for the product in question.

Ignoring, for the moment, exogenous shocks and variations in utility across countries, the aggregate relation between income and consumption has been a central theme in economics. The figure below concisely summarizes one aspect of problem. In the 1930s, John Meynard Keynes conjectured that as incomes rise, the average propensity to consume would fall. The average propensity to consume is the level of consumption divided by the level of income, or the slope of the line from the origin to the consumption function. He estimated this relationship empirically and found it to be true in the short-run (mostly based on cross-sectional data). The higher the income, the lower the average propensity to consume. This type of consumption function is labeled "A" in the figure below (note the rather flat slope of the curve). In the 1940s, another macroeconomist, Simon Kuznets, estimated long-run consumption functions which indicated that the marginal propensity to consume was rather constant (using time series data across countries). This type of consumption function is show as "B" in the figure below (note the higher slope and zero-zero intercept). The average propensity to consume is constant.















Is it declining or is it constant? A number of other economists, notably Franco Modigliani and Milton Friedman, in the 1950s (and Irving Fisher earlier), explained why the two functions were different using various assumptions on intertemporal budget constraints, savings, and wealth. The shorter the time horizon, the more consumption can depend on wealth (earned in previous years) and business cycles. In the long-run, however, the propensity to consume is more constant. Similarly, in the long run, households, industries or countries with no income eventually have no consumption (wealth is depleted). While the debate surrounding beliefs about how income and consumption are related and interesting, in this study a very particular school of thought is adopted. In particular, we are considering the latent demand for 60-milligram containers of fromage frais across some 230 countries. The smallest have fewer than 10,000 inhabitants. I assume that all of these counties fall along a "long-run" aggregate consumption function. This long-run function applies despite some of these countries having wealth, current income dominates the latent demand for 60-milligram containers of fromage frais. So, latent demand in the long-run has a zero intercept. However, I allow firms to have different propensities to consume (including being on consumption functions with differing slopes, which can account for differences in industrial organization, and end-user preferences).

Given this overriding philosophy, I will now describe the methodology used to create the latent demand estimates for 60-milligram containers of fromage frais. Since ICON Group has asked me to apply this methodology to a large number of categories, the rather academic discussion below is general and can be applied to a wide variety of categories, not just 60-milligram containers of fromage frais.

Step 1. Product Definition and Data Collection

Any study of latent demand across countries requires that some standard be established to define "efficiently served". Having implemented various alternatives and matched these with market outcomes, I have found that the optimal approach is to assume that certain key countries are more likely to be at or near efficiency than others. These countries are given greater weight than others in the estimation of latent demand compared to other countries for which no known data are available. Of the many alternatives, I have found the assumption that the world's highest aggregate income and highest income-per-capita markets reflect the best standards for "efficiency". High aggregate income alone is not sufficient (i.e., China has high aggregate income, but low income per capita and can not assumed to be efficient). Aggregate income can be operationalized in a number of ways, including gross domestic product (for industrial categories), or total disposable income (for household categories; population times average income per capita, or number of households times average household income per capita). Brunei, Nauru, Kuwait, and Lichtenstein are examples of countries... --This text refers to the Digital edition.

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7 of 8 people found the following review helpful By D. Feild on April 18, 2012
Format: Paperback
I loved this book! What a beautiful heart warming tale. I read it to my daughter, before she went to bed. It took us over a year because it is a very long book, but when it was over she said "Daddy can we read it again tomorrow?" to which I gladly nodded. What a pleasure this tome has brought into our lives.
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4 of 4 people found the following review helpful By Amazon Customer on May 20, 2010
Format: Paperback
I'm surprised that there are two reviews here (one 1-star, one 5-star) that are on opposite sides of the debate over whether this is a good book. They're missing the whole point. Author Philip M. Parker "...patented a method to automatically produce a set of similar books from a template which is filled with data from database and internet searches" (from Wikipedia). In other words, it's a book that's essentially computer-generated; one might say, written by a computer. Therefore, before any debate can be had on the book itself (if such a debate can, in fact, be had at all) one has to rate the methodology--or software--or rules--by which the book itself was created. On that front (and having skimmed through it) I rate it a three. Certainly it's a bad, bad book by any scientific or literary measure. But the ability to piece together existing articles into a quasi-cohesive and understandable tome is the first step toward truly computer generated non-fiction. Hopefully future "books" will take into account reader comprehension, trends, etc. so as to be a little further along on the meter from computer-compiled single-topic mish mosh toward insightful cohesive non-fiction that pieces together multiple articles not as closely related separate entities but further COMBINES said articles by pulling relevant and important information from each and writing it's own articles and (maybe someday) even drawing its own conclusions. Once that is accomplished, the days of computer-generated fiction (i.e. computer-generated art) cannot be far behind. And soon after that (and I say this at the risk of offending those who believe that art requires consciousness) perhaps real artificial intelligence and consciousness.
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6 of 9 people found the following review helpful By Jonathan Jones on March 27, 2009
Format: Paperback
Yes, it's boring. OK - skim the abstract. He's using 60mg containers as a example to make a point about latent demand. He's not saying there's a real world demand for 0.006g of fromage frais.

Sure, it's a bit weird, but don't give reviews saying how stupid the study if you don't understand the point.
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7 of 17 people found the following review helpful By Ken Stewart on March 27, 2009
Format: Paperback
A 60 milligram container would be 1/16 of a gram, or about 1/450 of an ounce. I can tell you exactly what the market outlook is for 60mg containers of fromage frais - none. There is no market outlook for 60mg containers of fromage frais, for the simple reason that they do not exist.
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