How To Understand Impact of Demographics in Economic Models

First of all, what are economic market models? In general terms, market models or industry models provide an estimation or a market report on how high or low the profits particular businesses, stock, products, or any other enterprise could collect. These estimations would be based on such analytic measurements as investment analysis, financial reporting, and national economic conditions. The results that these tools for analysis provide are, of course, dependent on several factors, and that includes social demographics.

Social demographics refers to the make-up of the population: how many are old versus young (also grouped according to age ranges), male versus female, city versus rural dwellers; the ethnic groups, the socio-economic backgrounds, the educational backgrounds, among many other factors. Social demographics have power over market models; in fact, government modeling industry standards based on  current social demographics are possible.

So how does social demographics impact economic market models?

  1. It can help determine rate of supply and demand.  Let’s say that more people within the 60-year old age and above make up more of the population than any other age group. Now what would this group of people need most? The answer to that would determine the rate of supply and demand. Medicine and health-care services would need to be at a maximum supply, as well as other services for the aged, such as those provided in retirement homes.
  2. It can determine how a product is designed. How a product is designed or how a service is delivered will depend hugely on the social demographics of that area. This is because big companies would usually form a research market first to determine the population’s preference for products and services, to ensure that it would be attractive to as large a population as possible. If the research market group members for example are teenagers, that could mean that the product is designed with “coolness” in mind – tiny, multi-colored, “fun” gadgets are a prime example.
  3. It can determine value of stocks. Stock and trading of course is a very complex science with so many factors involved; however, social demographics is a large determining element to a stock’s value, since stocks are dependent on market movements and patterns.
  4. It can determine the success of a business. A good businessman should know his customers, and his wisest move is to put up a business that would cater to their needs (see number 1). For example, a business selling rare and expensive jewelry will not likely thrive in a poor community; but it has a better chance of being successful in a high-end neighborhood.
  5. It could determine other factors of the product. These other factors could include advertising and promotions, packaging and distribution.

Though there are many tools for analysis that could determine financial and market returns based on given factors (such as in this case, social demographics), there are possibilities of abnormal (this means, contrary to predictions and market models) returns on investments, commerce and trade. This shows that though social demographics has a big impact on market models, it should not be taken in isolation, but should be viewed in light of other factors as well.


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