Terminology

Demand- one of the sides of market pricing reflects the desire to purchase a certain amount of goods at a given price.

Law of demand- ceteris paribus, an increase in price causes a decrease in the quantity demanded; price decrease - an increase in the quantity demanded, that is, it reflects an inverse relationship between price and quantity of goods.

Non-price factors affecting demand:

1. The level of income in society.

2. Market size.

3. Fashion, seasonality.

4. Availability of substitute goods (substitutes)

5. Inflation expectations

Offer- reflects the desire of producers to introduce a certain amount of goods to the market at a given price.

Law of supply- ceteris paribus, an increase in price leads to an increase in the supply; price reduction - to reduce the supply.

Factors affecting the offer:

1. Availability of substitute products.

2. Availability of complementary goods (complementary).

3. The level of technology.

4. Volume and availability of resources.

5. Taxes and subsidies.

6. Natural conditions

7. Expectations (inflationary, socio-political)

8. Market size

Description

market economy can be seen as an endless interaction of supply and demand, where supply reflects the quantity of goods that sellers are willing to offer for sale at a given price at a given time.

Law of supply- an economic law according to which the value of the supply of goods on the market increases with an increase in its price, all other things being equal (production costs, inflationary expectations, product quality).

In essence, the law of supply expresses the category that more goods are offered at high prices than at low prices. If we represent the supply as a function of price from the quantity of goods offered, the law of supply characterizes the increase in the supply function over the entire domain of definition.

Examples

Food

In order to circumvent the law of supply and demand in the European Union, overproduction of butter is stored in warehouses, on the so-called "mountain of butter" (it. Butterberg). Thus, there is an artificial containment of supply and the price remains stable.)

Stocks, currency, financial pyramids

Links

Supply and Demand

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See what the "Law of Demand" is in other dictionaries:

An economic law according to which an increase in prices leads to a decrease in the magnitude of demand for goods, all other things being equal, i.e. the demand for goods and the level of prices for them are inversely proportional. Business vocabulary ... ... Glossary of business terms

An economic law proposed by the British economist A. Marshall, according to which the amount of demand for a product or service over a certain period of time is inversely proportional to its price. Dictionary of business terms. Akademik.ru… … Glossary of business terms

The law according to which an increase in prices leads to a decrease in the quantity demanded for goods, other things being equal. Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B. Modern economic dictionary. 2nd ed., rev. M .: INFRA M. 479 s .. 1999 ... Economic dictionary

Manageability of pricing in the distribution channel (net and gross pricing). The strategic goal of the company as a pricing factor

On the other hand, there are also forces that could prevent the natural law of supply and demand from working so effectively and quickly as is sometimes attributed to it. The long time it takes to obtain oil substitutes or discover new sources of oil, as well as the engineering and construction effort required to obtain adequate production, still remain a huge obstacle to the development of a new energy supply structure in the West.

The law of supply and demand is one of the most important in the system of a market economy. When the supply (of a ready-to-sell product) outnumbers the number of people willing to buy it, prices are lowered or the product is just sitting on the store shelves. When prices are low enough that the product does not stagnate, then a correspondence is established between supply and demand.

intellectual labor are bound by the laws of supply and demand. The use of the innovative approach proposed by us will allow the university to assess the prospective needs of the enterprise for knowledge workers in order to train the necessary personnel for the enterprise.

The university as a manufacturer and the enterprise as a consumer of intellectual labor are bound by the laws of supply and demand, that is, they are subject to general economic laws. Nevertheless, these relations have their own specifics; their subject is a piece and live goods. Consequently, the gaps between supply and demand will cause serious consequences, the main of which are the presence of an excess labor force or its lack, unemployment, the use of highly skilled labor for other purposes, the discrepancy between the available personnel and the needs of the enterprise, which leads to a general decrease in labor productivity and the efficiency of the enterprise. . The main task of cooperation between the university and the enterprise is to bring supply and demand into line.

As world experience testifies, in a market economy, market and state regulation of international monetary relations is carried out. In the foreign exchange market, the demand and supply of currencies and their exchange rate are formed. Market regulation is subject to the law of value, the law of supply and demand. The operation of these laws in the conditions of competition in the foreign exchange markets ensures the relative equivalence of the exchange of currencies, the correspondence of international financial flows to the needs of the world economy associated with the movement of goods, services, capital, and loans. Through the price mechanism and signals of the exchange rate dynamics in the market, economic agents learn about the requests of buyers of currencies and the possibilities of their supply. Thus, the market acts as a state of foreign exchange transactions.

The most important property of demand is the inverse, or negative, relationship between the price of a product and the demand for it, with all other factors unchanged. This relationship is called the law of demand. In other words, ceteris paribus, a decrease in price leads to an increase in the quantity demanded and, conversely, an increase in price leads to a decrease in the quantity demanded for products.

The law of demand is based, firstly, on the psychology of the buyer, which consists in the fact that large volumes of a particular product are bought at a lower price than at a higher one. This is confirmed by the demand curve. Secondly, the subordination of consumption to the principle of diminishing marginal utility, according to which subsequent units of a particular good bring less and less satisfaction. For example, a second television set is not as useful in the home as the first one because basic needs are met, a third one is even less useful, and so on. So the customer buys additional units as long as their price goes down. Thirdly, the operation of the law of demand is associated with the income effect, which is expressed in the fact that, ceteris paribus and constant income, a buyer at a lower price can purchase more of a given product. On the contrary, a higher price leads to a decrease in consumer demand.

The so-called Giffen paradox is known, which is an exception to the law of demand. In this case, the change in price and quantity demanded occurs in the same direction. For example, a total rise in prices will cause an increase in the amount of demand for cheap margarine, since butter will be more expensive.

It must also be borne in mind that, according to the law of demand, a relative price can also be implied, that is, calculated in relation to other goods. During a period of inflation, the general price level rises. Therefore, it is important to distinguish between changes in comparable prices and changes in current prices. At high level inflation, a good can become relatively cheaper even if its current price rises, if the prices of other goods rise faster. There is also a substitution effect here.

Obviously, the law of demand is not only theoretical. Its action should be taken into account by enterprises when developing their strategy.

The seeming contradiction of such cases with the law of demand is easy to explain.

Thus, the analysis of the influence of the factor under consideration on the magnitude of demand confirms the operation of the law of demand.

Is it correct to say that the law of demand relates changes in demand to changes in consumers' incomes?

In accordance with the law of demand, other things being equal, a decrease in price leads to a corresponding increase in the quantity demanded. On the contrary, ceteris paribus, an increase in price leads to a corresponding decrease in the quantity demanded. It is important for any market entity to know this value, or the degree of sensitivity of demand to price changes, which is measured using the price elasticity indicator.

In accordance with the law of demand, as the price increases, the demand for products decreases, and the elasticity coefficient will almost always have a negative sign. The exceptions are the demand for prestigious goods and some economic conditions, for example, a constant increase in prices in the long run, forcing stocks for future use, which is expressed in an increase in demand for products. Since economists are interested in the value of the elasticity coefficient, in order to avoid confusion when interpreting this indicator in economic analysis, it is customary to omit its sign.

If we proceed not from supply, but from demand, then, in accordance with the law of demand, price is the primary and one of the most important factors determining the quantity of products in demand. This approach corresponds to the second method.

The reasons causing the action of the law of demand are especially relevant in the production and offer for sale of new products. With a high price for it, the presence of a buyer and on the market of products similar in purpose, as well as a decrease in real incomes of both the population and manufacturing enterprises, consumers of industrial and technical products, the demand for new products may not arise or fall below a critical value, covering the costs of its production, which are initial stage production is usually quite high compared to the cost of producing traditional products.

The law of demand - ceteris paribus, a decrease in price leads to an increase in demand, and, conversely, an increase in price causes a decrease in the magnitude of demand for products (clause 1.3).

Stage 1. The most important significant factors influencing the performance indicator are selected. When selecting factors, causal relationships between indicators are taken into account, and all factors must be quantitatively measurable. Of great help in selecting factors for the correlation model are analytical groupings, a way to compare parallel and dynamic series, line graphs. The selection of indicators for analysis and giving them the status of a factor or an effective value are carried out on the basis of knowledge of economic laws. For example, knowledge of the law of supply and demand helps to study the influence of the price factor on changes in demand. The indicators selected for analysis and the results of observing their changes are placed in a table in which factor signs are arranged in ascending or descending order, i.e. are ranked.

Whether gold is used as money or for other purposes, it has a price, which is determined by the amount of other goods and services that must be given up for a given amount of gold. Let's denote this price as RS, it is measured by the number of units of goods and services per weight unit of gold. (Recall that in the system of commodity money, which uses gold, there are no dollars, francs, yen, etc., which could be used as a unit of account for determining the price of gold or other goods and services.) In addition, suppose that gold is subject to the law of demand, which applies to all other commodities, as the price of gold rises, other things being equal, the demand for it decreases, regardless of the purpose for which it is used.

As in the example above, the fact that depository managers do not directly calculate important indicators such as marginal cost does not mean that economic laws such as the law of supply and demand do not apply to their behavior. Therefore, the economic theory of bank management discussed in the previous chapter suggests that depository managers should and will behave as if they were consciously using all relevant concepts.

The inverse relationship between the expected volume of investment and the interest rate is shown in Fig. 18-14. The negative slope of the total investment curve is due to the law of demand, and there is a reason for this. Firms receive an average

LAW OF DEMAND - the principle according to which there is an inverse relationship between the price of a product and the amount of consumer demand for this product (ceteris paribus). LAW OF DISCHARGING RETURN - The principle that if one cost increases and all other costs remain unchanged, a point will be reached at which the marginal physical product of variable costs will begin to decline. LAWS OF THE MARKET ECONOMY - objectively operating laws of the market, ignoring which does not lead society to social and economic progress. These include 1) complete administrative independence and independence of the commodity producer 2) the commodity producer must be the owner of the results of his labor 3) free choice of suppliers of raw materials and consumers of products 4) demonopolization of the production of goods 5) progressive tax policy, etc. RECEIVING IT FOR PAYMENT - as long as the bill remains negotiable and does not contain anything that would make it invalid, as far as it is known to the person to whom this bill is transferred, such person is the legal holder, provided that he has provided a counter satisfaction . Any holder of a promissory note who receives it under circumstances other than those set forth above becomes nothing more than a holder of a promissory note who has received it in return.

However, speaking of the

Testing on the topic market system management”, 3 options consisting of 3 tasks.

for grade 10 profile study

Exercise2. Read the following statements and indicate which of them are true and which are false. Why?

Exercise 3. Indicate which (which) of the above statements is correct and explain why.

Answers are attached.

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Option Ι

Task 1. Match the concept and definition.

Household Demand quantity Interchangeable goods. The amount of the offer. Equilibrium amount. Price elasticity of demand. Price elasticity of supply.

1. The income of the owner of the land is called interest.

2. Decrease in demand is reflected in the downward movement along the demand curve.

3. If the price of skis increases, the demand for ski boots decreases.

4. Reducing the cost of production usually leads to a decrease in supply.

5. Decrease in supply, other things being equal, will lead to an increase in price.

1. The following economic phenomena are not reflected in the model of economic circulation:

a) the formation of cash income;

b) the costs of firms for the purchase of factors of production;

c) household purchases of goods and services;

d) activity of the banking system

2. The state has set a "ceiling" for meat prices. Which of the following actions of the government will not contradict the decision made earlier on price regulation:

a) the introduction of a rationed distribution of meat;

b) raising taxes to limit meat production;

c) payment of subsidies to low-income buyers;

d) organizing the purchase of surplus meat.

3. Price elasticity of supply is directly dependent on:

a) the length of the period under review;

b) fashion changes;

c) the tax policy of the state;

D) income of buyers.

4. A shift in the demand curve for a normal product to the left can be caused by:

a) a decrease in demand for it;

b) an increase in the price of the goods produced;

c) an increase in the income of buyers;

d) the expectation of increased inflation;

e) reduction of subsidies to low-income strata of the population.

Verification work on the topic "Market management system"

Variant ΙΙ

Task 1. Match the concept and definition.

Firm Law of demand Complementary goods. The law of supply. Commodity deficit. elastic demand. Flexible offer.

A. The law according to which the quantity supplied of a commodity is directly dependent on the price of that commodity. B. Demand, in which the degree of change in its value is less than the degree of change in the price of this product. B. Subject market economy, which uses factors of production to produce goods and services for the purpose of selling them in the market for a profit. D. The quantity of goods that are bought (sold) at the equilibrium price. D. Goods that are consumed together; one without the other, as a rule, cannot be consumed. E. The situation when the supply of a product exceeds the demand due to the fact that the price of the product is higher than the equilibrium price. G Products that can be used in place of other products with similar properties. H. The quantity of a good that buyers are willing and able to purchase at a given price in a given time. I. The principle according to which the consumption of each subsequent unit of a good brings less utility to the consumer than the consumption of the previous one. K. The law according to which the quantity demanded for a good is inversely related to the price of that good. L. The degree of change in the magnitude of demand, depending on the change in the price of a given product. M. An offer in which the degree of change in its value is less than the degree of change in the price of the goods offered. H. The quantity of a good that a firm is able and willing to produce and sell at a given price at a given time. O. The subject of a market economy, represented by an individual or family, who owns the factors of production and does not participate in the production of goods and services. P. A measure of the response of the magnitude of the supply to a change in the price of the offered product. R. The situation when the demand for a product exceeds the supply due to the fact that the price of the product is below the equilibrium price C. Relationship between the amount of a good a producer wants and is able to produce and sell and the prices of that good. T. The price at which the quantity demanded is equal to the quantity supplied. U. Demand, in which the degree of change in its value is greater than the degree of change in the price of this product. F. An offer in which the degree of change in its value exceeds the degree of change in the price of the goods offered. X. The relationship between the quantity of a good that a buyer is willing and able to buy and the prices of that good.

Task 2. Read the following statements and indicate which of them are true and which are false. Why?

1. The model of economic circulation shows that the main role in mixed economy firms perform.

2. According to the law of demand, the lower the price of a product, the more buyers buy it.

3. Goods with hidden defects are classified as inferior goods.

4. An increase in taxes on income leads to a shift in the supply curve to the left.

5. The prices of interchangeable goods move in the same direction.

1. The law of demand assumes that:

a) if buyers' incomes decrease, they buy less of the product;

b) when the price rises, the volume of production increases;

c) when the price of a good goes down, the demand for that good goes up.

d) When the price of a good goes up, demand goes down.

2. If the demand for a product is price elastic, then:

a) if the price falls by 40%, the quantity demanded can increase by 55%;

b) if the price increases by 30%, the quantity demanded can decrease by 10%;

c) if the price decreases, the sales revenue will decrease;

d) When the price rises, the sales revenue will increase.

3. The third cup of coffee brings less pleasure than the second. That's an example:

a) the operation of the law of demand;

b) excess supply;

c) decrease in marginal utility;

D) increasing opportunity costs.

4. The supply curve for legal services has shifted to the right.

This could be caused by:

a) an increase in the rent for the premises where legal offices are located;

b) an increase in the number of law school graduates;

c) the introduction of preferential taxation of this type of activity;

d) lower costs for the provision of this type of service due to the widespread use of computers;

e) the expectation of income growth in this field of activity.

Verification work on the topic "Market management system"

Variant ΙΙΙ

Task 1. Match the concept and definition.

Demand The principle of diminishing marginal utility. Offer. Equilibrium price. Surplus goods. Inelastic demand. Inelastic supply.

A. The law according to which the quantity supplied of a commodity is directly dependent on the price of that commodity. B. Demand, in which the degree of change in its value is less than the degree of change in the price of this product. C. An entity in a market economy that uses factors of production to produce goods and services to be sold on the market for profit. D. The quantity of goods that are bought (sold) at the equilibrium price. D. Goods that are consumed together; one without the other, as a rule, cannot be consumed. E. The situation when the supply of a product exceeds the demand due to the fact that the price of the product is higher than the equilibrium price. G Products that can be used in place of other products with similar properties. H. The quantity of a good that buyers are willing and able to purchase at a given price in a given time. I. The principle according to which the consumption of each subsequent unit of a good brings less utility to the consumer than the consumption of the previous one. K. The law according to which the quantity demanded for a good is inversely related to the price of that good. L. The degree of change in the magnitude of demand, depending on the change in the price of a given product. M. An offer in which the degree of change in its value is less than the degree of change in the price of the goods offered. H. The quantity of a good that a firm is able and willing to produce and sell at a given price at a given time. O. The subject of a market economy, represented by an individual or family, who owns the factors of production and does not participate in the production of goods and services. P. A measure of the response of the magnitude of the supply to a change in the price of the offered product. R. The situation when the demand for a product exceeds the supply due to the fact that the price of the product is below the equilibrium price C. Relationship between the amount of a good a producer wants and is able to produce and sell and the prices of that good. T. The price at which the quantity demanded is equal to the quantity supplied. U. Demand, in which the degree of change in its value is greater than the degree of change in the price of this product. F. An offer in which the degree of change in its value exceeds the degree of change in the price of the goods offered. X. The relationship between the quantity of a good that a buyer is willing and able to buy and the prices of that good.

Task 2. Read the following statements and indicate which of them are true and which are false. Why?

1. An increase in the price of jeans can lead to a decrease in the demand for them, all other things being equal.

2. With an increase in the income of buyers, the demand curve for pearl barley shifts to the right.

3. An increase in price usually leads to an increase in supply.

4. Rising prices for children's dresses lead to a decrease in the supply of dresses for women.

5. If the price has risen by 16%, and the quantity demanded has decreased by 4%, we are dealing with a product whose demand is inelastic.

Task3. Indicate which of the following statements is correct and explain why.

1. When the demand for lumber increases, the demand for nails also increases, as these are:

a) unrelated goods;

b) complementary goods;

c) normal goods;

d) interchangeable goods.

2. Demand for which of the following goods is most likely to be price elastic:

a) baby food

b) washing powder of a specific brand;

c) toothpaste;

d) services of preschool institutions?

3. An increase in supply and demand at the same time can lead to:

a) an increase in the equilibrium quantity;

b) a decrease in the equilibrium quantity;

c) an increase in the equilibrium price;

d) a decrease in the equilibrium price;

e) that the equilibrium price will not change.

4. Determine in which cases the supply is completely inelastic in price (when the price changes, the supply does not change):

a) seats in the Bolshoi Theater;

b) Mercedes cars;

c) a car of watermelons delivered to the Central Market;

d) a pearl necklace from the "Golden Pantry" of the Hermitage;

e) pearl necklaces made by a well-known Japanese jewelry company.

Verification work on the topic "Market management system" Option Ι

Task 1. Match the concept and definition.

Task 2. Read the following statements and indicate which of them are true and which are false. Why? 1. False. The income of the owner of the land is called rent. Interest is the income of the owner of capital. 2. False. A decrease in demand is reflected by a shift in the demand curve to the left. 3. False. Skis and ski boots are complementary products. An increase in the price of one of them leads todecrease in demand for it. But if the volume of purchases, for example, of skis decreases, then the demand, and not the quantity of demand, also decreases for ski boots. 4. False. Decreasing the cost of producing a business makes it more profitable at constant prices and will therefore increase supply. 5. Right. You can verify this by plotting a graph.

Task 3. Indicate which (which) of the above statements is correct and explain why. 1. G The correct answer is "g". All other phenomena are reflected in the model of economic circulation. 2. Establishing a "ceiling" of prices means that a maximum price has been set for a product, above which it cannot be sold. Its level is below equilibrium. If the price is below the equilibrium price, there is a shortage of goods. In conditions of acute shortages, the government's actions to ration the distribution of meat are logical. Therefore, the correct option is "a". 3. A The correct option is "a". Other factors do not directly affect the elasticity of supply. 4. A D Answers "a" are correct AND "d". A shift in the demand curve to the left means that demand has decreased. Demand for a normal good decreases when buyers' incomes fall, which may be caused by a decrease in subsidies to low-income families. An increase in the price of a manufactured good (option "b") leads to a decrease in the demand for it! and will not affect the position of the demand curve. Expectation of increased inflation (option (F) will cause an increase in demand and lead to a shift in the demand curve to the right.

Verification work on the topic "Market management system" Variant ΙΙ

Task 1. Match the concept and definition.

Task 2. Read the following statements and indicate which of them are true and which are false. Why? 1. False. The model illustrates the equal importance of both subjects of the economy, their interdependence. The main buyers (in the scheme - the only ones) of consumer goods and services produced by firms are households. On the other hand, in a market economy, the latter would not be able to satisfy their needs if firms did not produce consumer goods. 2. True. 3. False. Hidden defects may have normal goods. The criterion for dividing goods into inferior and normal is an increase or decrease in purchases of goods with an increase in the income of buyers. 4. Right. An increase in income taxes leads to a decrease in supply, therefore, the supply curve shifts to the left. 5. Right. When the price of one of the interchangeable goods rises, the quantity demanded for it will decrease, buyers will buy more of the other. An increase in demand for it will lead to an increase in its price.

Task 3. Indicate which (which) of the above statements is correct and explain why. 1. The Law of Demand establishes the relationship between the magnitude of demand and the price of a given product. This dependence is reflected only in the answer "c". 2. A The correct answer is "a", which follows from the definition of elasticity of demand. If the demand for a product is elastic, the revenue and price of the product change in the opposite direction, so the answers are "c" And "g" are wrong. 3. In The correct option is "in". 4. BVGD Movement of the supply curve to the right means an increase in the supply of legal services. It will happen if: the number of graduates of law faculties will increase, taxes on this type of activity will decrease, the costs of providing legal services will decrease, and also in the context of expectations of an increase in the income of lawyers. Therefore, the correct options are "b", "c", "d" AND "d". An increase in rent will increase legal costs and may lead to a decrease in supply.

Verification work on the topic "Market management system" Variant ΙΙΙ

Task 1. Match the concept and definition.

Task 2. Read the following statements and indicate which of them are true and which are false. Why? 1. Right. Demand and price are inversely related. 2. False. Pearl barley is an inferior commodity, so an increase in income leads to a decrease in demand for it and a shift in the demand curve to the left. 3. False. An increase in price leads to an increase not in supply, but in its quantity. 4. True. Children's and women's dresses are usually produced using the same resources. The increase in prices for children's dresses will make their production more profitable, so their production will increase due to the attraction of additional resources, which will not allow the production of women's dresses in the same volume. 5. True by definition.

Task 3. Indicate which (which) of the above statements is correct and explain why. 1. B Nails and lumber - complementary products. If you buy more lumber, you need more nails. The correct answer is "b". But you need to keep in mind that the growth in demand for sawn timber, other things being equal, over time can lead to an increase in prices for them. This will cause a decrease in the volume of demand for sawn timber, and the demand for nails will also decrease. 2. B Demand for a particular brand of laundry detergent is likely to be elastic because substitutes are easy to find. Baby food and toothpaste are essential goods, the demand for them is inelastic. The services of preschool institutions are also needed. With a slight increase in prices for them, demand will be inelastic. If prices rise significantly, then in Russian conditions, when the incomes of most families are low, they will be forced to refuse to buy this service, trying to find a replacement for it, leaving children with their grandmothers, or looking for a nanny among unemployed or elderly women who, for a small fee, will agree to look after for the child. Therefore, option "d" does not have a clear answer. Option "b" is correct. 3. In order to correctly answer the test questions, you need to draw graphs. Option "a" is correct under any conditions. Option "b" is incorrect. Option "c" is correct: the equilibrium price will rise if demand rises by a factor of more y1 than supply. Option D is correct: the equilibrium price will decrease if supply rises more than demand. Option "e" is correct: the equilibrium price will not change if demand and supply increase by the same amount. 4. AVG The offer is absolutely inelastic in the following cases: "a" - the number of seats in the Bolshoi Theater cannot change, no matter how the price of tickets grows; "c" - At a given time, no more watermelons can be sold than delivered to the Central Market; "g" - the necklace in the Golden Storeroom of the Hermitage is unique and unique. In the event of an increase in prices for Mercedes cars and necklaces produced by a Japanese jewelry company, the volume of their supply may be increased

3. Law of demand, law of supply. Market equilibrium

Demand is the amount of economic benefits ( Q ) that consumers want to buy at a given price ( P ). Demand can be nominal (needs of buyers) and solvent (based on their income). Demand increase factors:

· growth in consumer income;

· improving product quality and reducing its price.

Law of demand: ceteris paribus, the quantity demanded
is inversely related to the price level. The higher the price level, the lower the quantity demanded.

income effectAt a lower price, the consumer will buy more of the good without reducing the volume.

substitution effect - at a lower price, the buyer will buy more cheap goods, replacing more expensive goods with them.

Elasticity- the ability of supply and demand to remain constant with changes in price, income of buyers and other factors.

ED =ΔQ /ΔP - coefficient of elasticity(minus ignored)

Cross elasticity shows how much the demand for product X will change when the price of product Y changes. If the demand for product X increases with an increase in the price of product Y, then we are talking about interchangeable goods (substitute goods). If an increase in the price of good Y leads to a decrease in the demand for good X, then we are dealing with complementary goods.

The elasticity of demand with respect to income. In modern economics, the income elasticity of demand is also used, which shows how much the demand for a product will change under the influence of a change in the consumer's income.

The demand elasticity frontier for price elasticity is:

· Elastic - if even with a slight decrease in price, the quantity demanded increases to a greater extent (Δ P<Δ Q ). ED >1. (fig.1)

· Inelastic - if even with a very significant price reduction, the volume of demand increases slightly (Δ P >ΔQ ), ED<1. (рис.2)

· unit elasticity - the demand for a product will increase by the same percentage as the price decreases (Δ P =ΔQ ), ED =1. (fig.3)

· Perfectly inelastic demand - any change in price has little or no effect on demand (price is constant) ED =0 (fig.4)

· perfectly elastic demand - demand changes regardless of price (price is constant) ED =∞ (fig.4)

The price elasticity of demand is influenced by the following factors:

· Availability of substitutes. The more substitute products, the more elastic the demand for this product.

· Time factor. In the short run, demand is less elastic than in the long run, because buyers need time to find replacement products.

· The share of goods in the budget of the consumer (usually, the higher the share, the higher the price elasticity of demand).

· The importance of the product. As a rule, the demand for essential goods is inelastic, and the demand for all other groups of goods is more elastic.

Offer - the number of goods and services that the producer is ready to sell at a given price level. Supply increase factors: introduction of new technologies; increase in labor productivity.

Law of supply : with an increase in the price of a product, the volume of supply of this product increases, all other things being equal (direct connection). If the demand for a given commodity increases, it becomes rarer and its price rises. Therefore, its production becomes more profitable. The quantity supplied increases because rising profits will stimulate an increase in production. Variants of supply elasticity.

· If supply is elastic, then the change in the quantity supplied is greater than the change in the price level that caused it.

· If supply is inelastic, the price changes more than the quantity supplied.

· With unit elasticity of supply, the price level and quantity supplied change in the same way.

In addition, the elasticity of supply can also take extreme values ​​- absolutely elastic and absolutely inelastic supply.

The following factors affect the price elasticity of supply:

· the amount of costs and the possibility of storing products. If there are opportunities to store products to a better position in the market, then the supply is elastic, and vice versa;

· flexibility of production systems. If the seller can quickly respond with an increase in the quantity of goods to a relatively small change in price, then the supply is elastic;

· cost and availability of resources. If the incremental costs of production are high, then supply tends to be inelastic with respect to price, and vice versa, if additional units of goods can be produced at the same cost, then supply is elastic;

· However, the factor of time is of the utmost importance for the elasticity of supply; the period during which producers have the opportunity to adjust the volume of supply to a change in price. There are three time intervals:

An instantaneous market period that is so short that producers do not have time to respond to changes in demand and price. Because there is no time for such a reaction, supply is perfectly inelastic;

The short-term period when production capacity remains unchanged, but the intensity of their use may change. The degree of elasticity of supply is low - by increasing the load on existing capacities, only a limited increase in production can be obtained;

A long-term period sufficient for changing production capacities, organizing new enterprises. In the long run, with a favorable change in demand, there are almost no limits to increasing supply. Therefore, the curve is very elastic.

Market equilibrium- such a ratio of supply and demand, in which the quantity of goods that they want to buy at a given price and at a given moment corresponds to the volume of supply of a given economic good that producers are ready to sell at a given price and at a given moment.

Market equilibrium price is the price at which supply and demand are equal. The equilibrium volume of production is the volume of production that ensures the equality of supply and demand. imbalance:

According to the law of equilibrium: MV=PQ

where M - money in circulation V - circulation speed, P - average prices for goods and services, Q - the volume of production, i.e. GDP.

Thus, when real output falls, inflation is faster for any given amount of money in circulation and velocity of circulation. In other words, all manipulations with money, securities, etc. practically do not affect the growth and decline in prices. And vice versa, it is possible to really reduce prices, and consequently, inflation, only through a sharp increase in commodity production.

“Other things being equal” is a very important part of the wording. We can say with some certainty that there will be more demand for a good when its price falls if (and only if) we assume that other factors do not change.

There is a negative, or inverse, relationship between price and quantity demanded.

The inverse relationship between the price of a product and the magnitude of demand can be depicted as a graph showing the magnitude of demand on the horizontal (Q), and the price on the vertical axis (P) (Fig. 1). The downward direction of the demand curve means that people buy more of a product at a low price than at a high one.

The demand curve D shows how much consumers are willing to buy at each price. The curve goes down because the consumer generally prefers to buy more if the price is lower. For example, a lower price will allow buyers who purchase a product to buy even more and enable consumers who previously could not afford to buy the product.

WHAT DEPENDS ON THE CHANGE OF DEMAND?

The fundamental property of the law of demand is as follows: with all other parameters unchanged, a decrease in price leads to a corresponding increase in the quantity demanded.

Conversely, ceteris paribus, an increase in price leads to a corresponding decrease in the quantity demanded.

However, there are other factors that influence purchases. They are called non-price factors of changes in demand. These include:

1. Consumer tastes. The appearance of a new product often leads to a change in demand for other goods. For example, the advent of CDs has led to a reduction in the demand for records.

Rice. 1. Individual demand curve

2. Number of buyers. An increase in the number of buyers in the market causes an increase in demand, and a decrease in their number - a decrease in demand.

3. Consumer income. When incomes rise, consumers tend to buy more goods. And vice versa.

4. Related Products. When two products are interchangeable, there is a direct relationship between the price of one and the demand for the other. This is the case with sugar and its substitute, tea and coffee, and so on. When two goods are complementary, there is an inverse relationship between the price of one and the demand for the other. For example, the demand for gasoline and motor oil are conjugated - these are goods that complement each other. Many pairs of goods are not related at all. These are independent products. For such pairs of goods, such as bananas and watches, a change in price can be considered to have very little or no effect on the price of the other good.

5. Consumer expectations about future prices and earnings. Consumer expectations about factors such as future commodity prices, product availability, and future income can change demand. Consumers' expectations of the possibility of higher prices in the future may encourage them to buy now in order to "anticipate" threatening price increases; conversely, the expectation of falling prices and falling incomes leads to a reduction in the current demand for goods.

A change in the magnitude of demand under the influence of non-price factors of demand means that the demand curve changes its position either to the right (an increase in demand) or to the left (a decrease in demand).

ELASTICITY OF DEMAND AND ITS SIGNIFICANCE FOR CONSUMERS

Economists measure the response (sensitivity) of consumers to changes in the price of a product using the concept of price elasticity of demand.

The elasticity of demand is the response of the quantity demanded to a change in price.

The elasticity of demand (Ed) is measured as the ratio of the percentage change in quantity demanded to the percentage change in price:

Demand is called elastic when a slight change in price has a significant impact on the quantity demanded.

For example, if a 2% price decrease leads to a 4% increase in demand, then demand is elastic. With elastic demand, the elasticity coefficient will always be greater than one, i.e. Ed > 1. In this case, it is equal to 4/2 = 2.

Demand is inelastic when the percentage change in demand is less than the percentage change in price. If a 3% price decrease results in a 1% increase in quantity demanded, then demand is inelastic. With inelastic demand, the elasticity coefficient will always be less than one, i.e. Ed > 1. In this case, it will be 1/3.

Demand can be unit elastic when the percentage application of price and the subsequent percentage change in quantity are equal in magnitude.

THE CONCEPT OF THE OFFER. LAW OF SUPPLY. SUPPLY CURVE

Supply refers to the desire of producers to produce and sell certain goods and services at a certain price.

Firms will produce only those goods and services, the income from which will not only cover costs, but also make a profit. No one will produce goods and services just because people need them. Owners of capital care little about this.

Supply quantity is the amount of a product that is offered for sale at a certain price during a certain period of time.

The law of supply states that there is a direct relationship between price and quantity supplied.

The law of supply shows that manufacturers want to make and sell more of their product at a high price than they would like to do at a low price.

As with the law of demand, let's represent the law of supply in a graphical representation (Fig. 2). The plotting technique is the same as described above, but, of course, the quantitative data and the relationships that arise between them are different.

The shape of the supply curve S is determined by the desire of firms to maximize profits.

The supply curve S shows how much and at what price producers can sell in the market. The curve rises because the higher the price, the more firms are able to produce and sell the good.

WHAT DEPENDS ON THE MODIFICATION OF THE OFFER?

The change in supply, like the change in demand, depends on the price. But the quantity supplied is greater at high prices and less at low prices. And the quantity demanded is greater at low prices and less at high prices.

If the price of a given commodity increases, then its production becomes more profitable. Rising profits will stimulate the growth of production and attract other firms into this industry.

The fundamental property of the law of supply is this: as prices rise, so does the quantity supplied. Conversely, as prices fall, supply decreases.

Non-price supply factors include:

Figure 2. Supply curve

1. Resource prices. The firm's supply is based on production costs. Here the following pattern operates: a decrease in resource prices reduces production costs and increases supply, that is, it shifts the supply curve to the right. Conversely, an increase in resource prices will increase production costs and reduce supply, i.e., shift the supply curve to the left.

2. Technology. Improvement in technology means that the discovery of new knowledge makes it possible to produce a unit of output more efficiently, i.e., with less expenditure of resources.

3. Taxes and subsidies. Businesses treat most taxes as costs of production. Therefore, raising taxes on, say, sales or property increases the cost of production and reduces supply. On the contrary, subsidies are considered a "tax in reverse". When the state subsidizes the production of a good, it actually reduces costs and increases its supply.

4. Prices for other goods. Changes in the prices of other goods can also shift the supply curve of a product. A decrease in the price of wheat may encourage a farmer to grow and sell more corn at every possible price. Conversely, an increase in the price of wheat may force farmers to reduce production and supply of corn. A sporting goods firm may cut the supply of basketballs when the price of footballs rises.

5. expectations. Expectations of changes in the price of a product in the future can also influence a manufacturer's willingness to bring the product to market at the present time. For example, the expectation of a significant increase in the price of a car firm's products may induce firms to increase production capacity and thereby cause an increase in supply.

6. The number of sellers. The greater the number of sellers (suppliers), the greater the market supply. As more firms enter the industry, the supply curve will shift to the right. The fewer firms in the industry, the smaller the market supply. This means that as firms exit the industry, the supply curve will shift to the left.

ELASTICITY OF SUPPLY AND ITS SIGNIFICANCE FOR MANUFACTURERS

The concept of price elasticity of supply refers to the response of supply to price changes.

Its essence is as follows: if producers are sensitive to price changes, then the supply will be elastic. Conversely, if producers are insensitive to price changes, then supply will be inelastic.

We will consider the elasticity of supply in the same way as the elasticity of demand, remembering that in this case there is a direct relationship between supply and price.

To measure the elasticity of supply (Es), you can use the same formula as for determining the elasticity of demand:

1. The offer is called elastic when the percentage of change in its value is greater than the percentage of price change, i.e. if Es > 1, then the offer is elastic.

2. The offer is called inelastic when the percentage change in its value is less than the percentage change in price, i.e. if Es< 1, то предложение неэластично.

3. Unit elasticity of supply, perfectly inelastic and perfectly elastic supply.

What affects the elasticity of supply? Why is the supply of some goods elastic and others inelastic?

Supply is elastic when firms can easily and quickly change the quantity supplied of a good in response to a change in its price.

Supply is inelastic when it is not possible to quickly and easily change the volume of a product offered due to a change in its price.

THE CONCEPT OF THE EQUILIBRIUM QUANTITY OF GOODS AND THE EQUILIBRIUM PRICE

Now we can bring together the concepts of supply and demand to find out how the market determines the price of a product and the quantity that is actually bought and sold. If we bring together the supply and demand curves in one diagram, we will see that they intersect at only one point A - the equilibrium point of supply and demand, which is the market, or equilibrium, price (see Fig. 3). Only at this price is the quantity demanded equal to the quantity supplied.

Fig.3. The equilibrium price and equilibrium quantity of a product are determined by market demand and offer

From the analysis of the figure, it can be seen that the point of intersection of the downward demand curve D and the ascending curve S shows the equilibrium price and quantity of the product. It is only at this price that the quantity produced is equal to the quantity that consumers are willing and able to buy. At the intersection point A, the quantity supplied and the quantity demanded are balanced. This is called the equilibrium price. It acts as the only stable price. The equilibrium, or market, price is set gradually. If these competitive prices did not automatically reconcile supply and demand decisions with each other, then some form of administrative control by the government would be needed to eliminate or regulate shortages or surpluses that might otherwise occur.