Why does a country's imports not completely measure the market potential for a product?

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justaguide | College Teacher | (Level 2) Distinguished Educator

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The imports of a product into a country cannot provide a very accurate market potential of the product. There are several reasons why this is the case.

The market potential of a product manufactured by a firm depends on the total demand of the product and the total supply of the product.

The quantity demanded of any product by customers is not constant. It varies with the price of the product; a decrease in price usually increases the quantity demanded. When a product is imported into a country there is an increase in its price due to the  additional costs of shipping the product from the country it is being manufactured in and also the import duty and other taxes imposed by the nation that is importing the product which have to be borne by the exporter. If a firm in the nation where the product is being imported has the technology, access to raw materials at a reasonable price, the right to sell the product, etc. it could manufacture the product at a lower cost. The decrease in price may lead to an increase in the quantity demanded if it was the high price of the product that was the reason why many did not buy it. On the other hand, in the case of many products it is the fact that it is not manufactured in the country and has to be imported at a high price that motivates buyers. These products would see a drop in demand. 

To estimate the market potential of a product it is essential to look at who the actual customers of the product are, the reason why they prefer they product and how its price affects them.

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