Summary: Tasks in economic theory. Analysis of individual markets: supply and demand T. Market equilibrium

Teach your parrot to pronounce the words "supply and demand" - and here is an economist! This caustic joke contains a lot of truth, since, in fact, the simplest economic levers - supply and demand - can give us a deep understanding not only of individual economic problems, but also of work. economic system generally.

In this chapter, we will explore the nature of the market and the process of price and output formation. The circuit model presented in Chapter 2 introduced us to the participants in both markets — resources and goods. But there we assumed that the prices of resources and products are "given"; we will now explain how prices are set, or determined, by expanding on the concept of the market.

Defining markets

Market is an institution, or a mechanism, bringing together buyers (bearers of demand) and sellers (those who provide supply) of individual goods and services. And markets take on a wide variety of forms. The nearest gas station, snack bar, music store, farmer's roadside stall are all common markets. The New York Stock Exchange and the Chicago Grain Exchange are already highly developed markets in which buyers and sellers of stocks, bonds and agricultural products, respectively, from all over the world interact with each other. Likewise, auction organizers bring potential buyers and sellers of art, livestock, used agricultural equipment, and sometimes real estate together. The famous American footballer and his agent are negotiating a contract with the owner of the National Football League team. A finance alumnus speaks with Citicorp or Chase Manhattan at the university bureau helping alumni get jobs.

All of these situations, which link potential buyers to potential sellers, form markets. As the examples show, some markets are local, while others are national or international. Some are distinguished by personal contact between the bearer of the demand and the supplier, while others are impersonal - in them the buyer and seller never see or do not know each other at all.

This chapter focuses on purely competitive markets. Such markets involve a large number of independent buyers and sellers exchanging standardized goods. These markets are not like a record store or a nearby gas station where all goods are tagged, but competitive markets such as a central grain exchange, stock exchange, or foreign exchange market, where the equilibrium price is "discovered" through the interaction of buyers and sellers decisions.

Demand

Demand can be represented as a scale showing the amount of a product that consumers are willing and able to buy at each specific price from a range of possible ones within a certain period of time. Demand reflects a number of alternative options that can be presented in the form of a table. It shows the amount of a product that will be demanded at different prices, all other things being equal.

We usually look at demand in terms of price; in other words, we believe that demand indicates the quantity of a product that consumers will buy at different possible prices. It is equally correct, and sometimes more useful, to consider demand from a quantitative point of view. Instead of asking how many can be sold at different prices, one can ask at what prices consumers are willing to buy different quantities of a product. Table 3-1 shows a hypothetical scale of demand for one consumer who buys a certain number of bushels of corn.

This tabular pattern of demand reflects the relationship between the price of corn and the quantity that our mythical consumer is willing and able to buy at each of these prices. We say “willing” and “able” because desire alone is not enough in the market. I may wish to buy a Porsche, but if this desire is not supported by the ability to buy, that is, by the necessary amount of money, it will be invalid and, accordingly, will not be embodied in the market. As you can see from the table. 3-1, if the price per bushel in the market is $ 5, our consumer will be ready and able to buy 10 bushels a week; if the price is $ 4, the consumer will be ready and able to buy 20 bushels a week, and so on.

The demand scale by itself does not answer the question of which of the five possible prices actually exists on the corn market. As stated, it depends on supply and demand. Hence, demand is simply the buyer's plans or intentions, expressed in tabular form, to purchase a product.

In order for the quantities of demand to have any value, they must relate to a certain period of time - day, week, month, etc. A statement that “a consumer can buy 10 bushels of corn for $ 5. per bushel ”, is vague and meaningless. And here is the statement that “the consumer will buy 10 bushels of corn at $ 5 a week. per bushel ”, is clear and full of great meaning. Without knowing what specific period of time we are talking about, we will not be able to say whether the demand for the product is large or small.

Demand law

The fundamental property of demand is as follows: with all other parameters unchanged, a decrease in price leads to a corresponding increase in the amount of demand. Conversely, all other things being equal, an increase in price leads to a corresponding decrease in the quantity demanded. In short, there is a negative, or inverse, relationship between price and quantity demanded. Economists have called this inverse relationship the law of demand.

The assumption "ceteris paribus" is of fundamental importance here. In addition to the price of the product in question, many other factors influence the quantity of the purchased item. The number of Nike sneakers purchased will depend not only on their price, but also on the price of such substitutes for this product as Reebok, Adidas, L.A. Gear sneakers. The law of demand in this case states that Nike sneakers will be purchased less if their price rises, while the price of sneakers from Reebok, Adidas, L.A. Gear remains constant. In short, if the relative price of Nike sneakers rises, fewer of them will be purchased. However, if the price of Nike sneakers, like all other competing sneakers, increases by a certain amount, such as $ 5, consumers can buy more, less, or the same amount of Nike sneakers.

What is the basis of the law of demand? This question can be answered with varying degrees of depth in scientific analysis.

1. Common sense and elementary observation of real life are consistent with what the downward demand curve shows us. Usually people actually buy a given product more at a low price than at a high price. For consumers, price is a barrier preventing them from making a purchase. The higher this barrier, the less product they will buy, and the lower the price barrier, the more goods they will buy. In other words, a high price discourages consumers from buying, and a low price increases their desire to make a purchase. The very fact that firms are organizing "sales" is clear evidence of their belief in the law of demand. Discount Trading Days are based on the law of demand. Firms reduce their inventories not by raising prices, but by lowering them.

2. In any given period of time, each purchaser of the product receives less satisfaction, or benefit, or utility, from each successive unit of the product. For example, the second Big Mac gives the consumer less satisfaction than the first; the third brings even less pleasure or usefulness than the second, and so on. It follows that since consumption is subject to the principle of diminishing marginal utility - that is, the principle that successive units of a given product are less and less satisfying - consumers buy additional units only if the price of the product falls.

3. The law of demand can also be explained by the effects of income and substitution. Income effect indicates that. that at a lower price a person can afford to buy more of a given product without refusing to purchase any alternative goods. In other words, a decrease in the price of a product increases the purchasing power of the consumer's money income, and therefore he is able to buy more of this product than before. A higher price tag has the opposite effect.

Substitution effect is expressed in the fact that at a lower price a person has an incentive to buy a cheap product instead of similar products that are now relatively more expensive. Consumers tend to replace expensive products with cheaper ones.

To illustrate the following example: lowering the price of beef increases the purchasing power of a consumer's income and allows him to buy more beef (income effect). At a lower price for beef, it becomes relatively more tempting to buy, and is bought instead of pork, lamb, chicken and fish (substitution effect). Income and substitution effects combine to give consumers the ability and desire to buy more of a product at a lower price than at a higher price.

Demand curve

The inverse relationship between the price of a product and the amount demanded can be plotted as a simple graph showing the amount demanded on the horizontal axis and price on the vertical axis. Let's place on the chart those five options "price - quantity", which are shown in table. 3-1 by drawing perpendiculars to the corresponding points on the two axes. So, for plotting the option: “at a price of $ 5. the amount of demand is 10 bushels "- we draw a perpendicular to point 10 on the horizontal axis (quantity), which should meet the perpendicular drawn to point 5 dollars. on the vertical axis (price). If this operation is done for each of the five possible options, we will end up with a series of points, which are shown in Fig. 3-1. Each dot represents a specific price and the corresponding quantity of a product that a consumer is willing to buy at that price.

Assuming that the same feedback between price and demand exists at any other point on the chart, one can draw a general conclusion about the feedback between price and demand and construct a curve representing all possible options price / demand ratio within the limits shown in the graph. The curve obtained in this way is called the demand curve (denoted by the letters DD in Figure 3-1). It is directed downward and to the right, since the relationship it reflects between price and the amount of demand is negative, or inverse. The law of demand - people buy more of a product at a low price than at a high price - is reflected in the downward direction of the demand curve.

Why is the demand scale better represented graphically? Generally speaking, tab. 3-1 and fig. 3-1 contain the same data and reflect the same relationship between price and quantity demanded. The advantage of the graphic is that it allows us to clearly represent this connection - in this case the law of demand - more in a simple way than if we had to use a verbal or tabular description of it. With the help of one curve, having understood its meaning, it is easier to define such a relationship and manipulate its various combinations than with the help of tables and verbose texts. Charts are invaluable tools for economic analysis. They allow you to clearly depict and combine often very complex relationships.

Individual and market demand

So far, we've looked at the problem from the perspective of a single consumer. Recognition of competition obliges us to consider a situation in which there are many buyers in the market. It is possible to go from the scale of individual demand to the scale of market demand by summing up the values ​​of demand presented by each consumer at different possible prices. If there were only three buyers in the market, as shown in table. 3-2, it would be easy to determine the total demand at each price. In fig. 3-2 this summation process is shown graphically, and for this only one price is used - $ 3. Note that we are simply combining the three individual demand curves horizontally to get the overall demand curve.

Of course, competition implies a much larger number of buyers for the product in the market. Therefore, to avoid a lengthy summation process, suppose there are 200 corn buyers in the market, and each of them decides to purchase the same amount of corn at each of the different prices, as our original consumer did. Thus, we can determine the total market demand by multiplying the quantities of demand given in table. 3-1, by 200. Curve D in fig. 3-3 shows this market demand curve from 200 buyers.

Determinants of demand

When an economist constructs a demand curve - say, such as D 1 in Fig. 3-3, he assumes that price is the most important determinant of the quantity of any product purchased. However, the economist knows that there are other factors that can and do affect the volume of purchases. Thus, when constructing the demand curve D, one should also assume that “other conditions are equal,” that is, that the determinants of the amount of demand are unchanged. When any of these determinants of demand actually change, the demand curve shifts some new position to the right or left of D 1. Therefore, these determinants are called factors of change in demand.

The main determinants of market demand are as follows: 1) tastes, or preferences, of consumers; 2) the number of consumers in the market; 3) consumer cash income; 4) prices for related goods; 5) consumer expectations about future prices and income.

Change in demand

Changes in one or more determinants of demand change the scale of demand presented in table. 3-3, and hence the position of the demand curve in Fig. 3-3. Such a change in the scale of demand or - graphically - a shift in the position of the demand curve is called a change in demand.

If consumers show a desire and ability to buy more of a given product at each of the possible prices than shown in column (4) of Table. 3-3, it is clear that there has been an increase in demand. In fig. 3-3 this increase in demand is expressed in a shift in the demand curve to the right, for example from D to D 2. And vice versa, a decrease in demand occurs when, due to a change in one of its determinants (or several), consumers buy less product at each of the possible prices than indicated in column (4) of Table. 3-3. Graphically, the drop in demand is expressed in a shift in the demand curve to the left, for example, from D 1 to D 3 in Fig. 3-3.

Now consider the impact that each of the above determinants has on demand.

1. Consumer tastes. A favorable change in consumer tastes or preferences for a given product, driven by advertising or changes in fashion, will mean that demand will increase at any price. Unfavorable changes in consumer preferences will cause a decrease in demand and a shift in the demand curve to the left. Consumer tastes can be influenced by technological changes embodied in a new product. For example, the advent of compact discs has greatly reduced the demand for LPs. Consumers worried about the health risks of cholesterol and obesity have increased demand for broccoli, low-calorie sweeteners and fresh fruit, while reducing demand for beef, veal, eggs and whole milk. Medical research showing that beta-carotene prevents cardiovascular disease and the occurrence of certain types of cancer has greatly increased the demand for carrots.

2. The number of buyers. It is obvious that an increase in the number of consumers in the market also contributes to an increase in demand. And a decrease in the number of consumers is reflected in a decrease in demand. Here are some examples. Improvements in communications have dramatically expanded the boundaries of the international financial markets and led to an increase in demand for stocks, bonds and other financial assets. The surge in fertility after World War II boosted demand for diapers, baby lotions, and midwife services. When the babies born during this spike in fertility reached their twenties in the 1970s, the demand for housing increased. And the growing up of this generation, on the contrary, caused a decline in demand for housing in the 80s and 90s. The rise in life expectancy has increased the need for medical care, nursing services and nursing homes. Recent international trade agreements, such as the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT), have lowered foreign trade barriers to US agricultural products, increasing demand for these products.

Table 3-8 columns (I) and (2) reproduce the scale of the market supply of corn (from Tables 3-6), and columns (2) and (3) - the scale of market demand for corn (from Table 3-3). Note that in column (2) we are using a regular price series. At the same time, we assume the presence of competition, that is, the presence of a large number of buyers and sellers on the market.

Excess

Which of the five possible prices at which corn can be traded in the market will actually be recognized as the market price for corn? Let's try to get the answer by an elementary search method. Without any particular reason, let's start with a price of $ 5. Could this price be the main market price for corn? We answer “no” for the simple reason that producers are willing to produce and offer for sale on the market at this price of about 12 thousand bushels, while buyers, for their part, want to purchase only 2 thousand bushels at this price. Price $ 5 encourages farmers to grow large quantities of corn, but discourages consumers from buying that corn. With the price of corn so high, buying other products seems like a better deal. As a result, there is a 10,000 bushels of corn surplus in the market, or an oversupply of corn. This excess, shown in column (4) table. 3-8, represents the excess of supply over demand at a price of $ 5. The corn farmers have an unnecessary stock of produce on their hands.

The price of $ 5, even if it temporarily existed in the corn market, is not able to stay there for any period of time. A very large corn surplus would force competing sellers to drive down the price in order to induce buyers to rid them of the surplus.

Let's say the price drops to $ 4. The lower price pushed buyers to buy more corn from the market, but also encouraged producers to use fewer inputs to grow corn. As a result, the surplus dropped to 6,000 bushels. However, the surplus, or oversupply, still persists and competition between sellers drives the price down again. It can therefore be concluded that the prices of 5 and 4 dollars. will be unstable because they are too high. The market price for corn should be slightly below $ 4. Table 3-8. Market supply and demand for corn (in thousand bushels)

a lack of

Let's now "jump" to the end of column (4) and consider as a possible market price of $ 1. It can be seen that at this price the value of demand exceeds the value of supply by 15 thousand units. This price discourages farmers from spending their resources on growing corn, but at the same time encourages consumers to buy more corn than is available on the market. As a result, there is a shortage (deficit) of corn in the amount of 15 thousand bushels, or excess demand for it. Price $ 1 also unable to stay in the market as a market price. Competition between buyers will push the price above $ 1. Many consumers, who wanted and could afford to buy corn for $ 1, will find themselves "overboard" in this situation. And many other consumers will be willing to pay more than $ 1 for corn. in order to still be able to buy it.

Suppose such competition between buyers raises the price to $ 2. This higher price reduces, but does not eliminate, the corn shortage. At a price of $ 2. farmers are ready to channel more resources into corn production, and some buyers who want to pay $ 1 per bushel will prefer not to buy corn at $ 2. However, the shortage, or deficit, of corn on the market in the amount of 7 thousand bushels will still remain. Therefore, it can be concluded that competition between buyers will raise the market price above $ 2.

Equilibrium

By the brute-force method, we excluded all prices, except for the price of $ 3. At a price of $ 3, and only at this price, the amount of corn that farmers are willing to grow and offer for sale on the market is equal to the amount that consumers are willing and able to buy. As a result, there is no surplus or shortage of corn at this price in the market. A surplus of a product pushes the price down, and a shortage causes a price increase.

When at a price of 3 dollars. there is no shortage, no surplus, there is no reason for the real price of corn to change. The economist calls this price a purely market price, or equilibrium price, and equilibrium here means "harmony" or "peace." At a price of $ 3. the amount of supply and the amount of demand are balanced, that is, the equilibrium amount is 7 thousand bushels. Therefore, the price is $ 3. acts as the only stable price for corn in the conditions of supply and demand, shown in table. 3-8. In other words, the price of corn is set at a level at which producers 'sell decisions and consumers' buy decisions are mutually consistent. Such solutions are consistent with each other only at a price of $ 3. At any higher price, suppliers tend to sell more product than consumers are willing to buy — the result is a surplus; at any lower price, consumers want to buy more than producers are willing to sell, as evidenced by the emerging shortages. The discrepancies between the supply of sellers and the demand of buyers lead to a change in price, which ultimately ends with the reconciliation of these two opposite desires.

Graphical analysis of supply and demand leads us to the same conclusions. In fig. 3-5, the market supply curve and the market demand curve are combined, and the indicators of both demand and supply are now plotted on the horizontal axis.

For any price exceeding the equilibrium price of $ 3, the supply will be greater than the demand. This surplus will cause competitive price knocking down by sellers seeking to get rid of their surplus. Reducing the price will reduce the supply of corn and at the same time encourage consumers to buy more of it.

Any price below the equilibrium price entails a shortage of product, that is, the amount of demand exceeds the amount of supply. Price markups offered by competing buyers will push the price towards the equilibrium level. And such a price increase simultaneously forces producers to increase supply and "pushes" unnecessary buyers out of the market; as a result, the deficit disappears. Graphically: the point of intersection of the supply curve with the demand curve for a product is the equilibrium point. Here the equilibrium price is $ 3, and the supply and demand are equal to 7 thousand bushels.

Price balancing function

The ability of the competitive forces of supply and demand to set a price at a level at which buy and sell decisions are consistent, or synchronized, is called the price balancing function. In this case, the equilibrium price is $ 3. unloads the market without leaving a burdensome surplus for sellers and without creating tangible product shortages for potential buyers. Essentially, the market mechanism for supply and demand "asserts" the following: any buyer who is willing and able to pay $ 3. for a bushel of corn, can buy it; those who are unwilling and unable to, cannot. Likewise, any seller who is willing and able to grow corn and offer it for sale at the price of $ 3 can do it with success; those who are unwilling and unable to grow corn. (Key question 7.)

Changes in supply and demand

We already know that demand can change due to fluctuations in consumer tastes or incomes, changes in consumer expectations or the prices of related goods. On the other hand, supply may change due to changes in technology, resource prices or taxes. Now we will look at how changes in supply and demand affect the equilibrium price.

Change in demand... Let us first analyze the consequences of changes in demand, assuming that supply remains constant. Suppose that demand increases as shown in Fig. 3-ba. How will this affect the price? Noting that the new intersection of the supply and demand curves has higher values ​​on both the price and quantity axes, we can conclude that an increase in demand, all other things being equal (supply), gives rise to the effect of a price increase and the effect of an increase in the quantity of a product. (The importance of graphical analysis becomes especially obvious; you no longer need to fiddle with columns of numbers to determine the impact of the required indicator on the price and quantity of the product, here it is enough to compare the position of the new point with the position of the old intersection point on the graph.)

As shown in fig. 3-6b, a decrease in demand reveals both the effect of lowering prices and the effect of reducing the quantity of a product. The price goes down, the quantity of the product also goes down. In short, we find a direct relationship between a change in demand and the resulting changes in both the equilibrium price and the quantity of the product.

Changing the offer... Now let's do the opposite procedure and analyze the impact of changes in supply on price, assuming that demand is constant. When the supply increases, as shown in Fig. 3-bc, the new point of intersection of the supply and demand curves is located below the equilibrium price. However, the equilibrium amount of the product increases. On the other hand, when the supply decreases, this leads to an increase in the price of the product, but a decrease in its quantity. Rice. 3-bg illustrates a similar situation.

The increase in supply gives rise to the effect of lowering prices and the effect of increasing the quantity of the product. Reduced supply produces the effects of price increases and product reductions. Thus, there is an inverse relationship between the change in supply and the resulting change in the equilibrium price, but the relationship between the change in supply and the change in the quantity of the product remains direct.

Difficult cases. The situation becomes much more complicated when supply and demand change at the same time.

1. Supply increases, demand decreases. First, suppose supply increases and demand decreases. What effect will this have on the equilibrium price? This example combines the two effects of price declines, and ultimately the price will fall more than each of these events taken separately.

But what about the equilibrium amount of the product? Here, the effects of changes in supply and demand are multidirectional: an increase in supply leads to an increase in the equilibrium quantity of a product, while a decrease in demand leads to a decrease in the equilibrium quantity of a product. The direction of change in the quantity of a product depends on the relative parameters of changes in supply and demand. If the growth in supply exceeds the decline in demand, then the equilibrium quantity of the product will be greater than the initial one. However, if the relative increase in supply is less than the scale of the decrease in demand, then the equilibrium quantity of the product will decrease. In order to verify the truth of these conclusions, you can use the graphs.

2. Supply falls, demand increases. The second possible case is when supply decreases and demand increases. There is a double effect of price increases here. It can be foreseen that the increase in the equilibrium price will be greater than if it were caused by any of these factors alone. The effects on the equilibrium quantity of a product in this case are again multidirectional and the final result depends on the relative parameters of changes in supply and demand. If the decrease in supply is relatively greater than the increase in demand, the equilibrium quantity of the product will be less than the initial one. However, if the supply decreases on a relatively smaller scale than the demand increases, the equilibrium quantity of the product will increase as a result of these changes. You can draw these two cases graphically to support our conclusions.

3. Supply grows, demand grows. What happens when both supply and demand increase? How will this affect the equilibrium price? This question cannot be answered unequivocally. Here we have to compare two opposite effects on price - the effect of a decrease in price as a result of an increase in supply and the effect of an increase in price as a result of an increase in demand. If the scale of the increase in supply is greater than the increase in demand, the equilibrium price will ultimately fall. Otherwise, the equilibrium price will rise.

The impact on the equilibrium quantity of a product is unambiguous: an increase in both supply and demand leads to an increase in the quantity of a product. This means that the equilibrium amount of the product will increase in this case by a greater amount than under the influence of each of the factors taken separately.

4. Supply falls, demand falls. The simultaneous decrease in supply and demand can be subjected to the same analysis. When the magnitude of the decline in supply exceeds the magnitude of the decline in demand, the equilibrium price rises.

In the opposite situation, the equilibrium price decreases. Since both a decrease in supply and a decrease in demand have a decreasing effect on the quantity of the product, it is safe to expect that the equilibrium quantity of the product will be less than the initial quantity.

Table 3-9 these four cases are summarized. You should plot supply and demand for each of these cases to ensure that the corresponding changes in the equilibrium price and equilibrium quantity of the product are shown in table. 3-9 is correct.

There may be special cases when a decrease in demand and supply, on the one hand, and an increase in demand and supply, on the other, completely neutralize each other. In both these cases, the final impact on the equilibrium price turns out to be zero, the price does not change. (Key question 8.)

Resource market

As in the product market, supply curves for resources are generally upward and demand curves for resources are downward.

Resource supply curves reflect a direct relationship between the price of a resource and the volume of its supply, since it is in the interests of the resource owners themselves - to supply more of a particular resource at a high rather than a low price. The high incomes of workers in certain professions or industries encourage households to supply there as much human and material resources... Low incomes work in the opposite direction: they induce resource owners not to supply them to these specific areas of employment or industries, but actually encourages resources to be directed towards other purposes.

With regard to the demand for resources, firms tend to buy less of the resource, the price of which rises, and replace it with other, relatively cheap resources. Entrepreneurs seeking to reduce production costs find it beneficial to replace expensive resources with cheap ones. The demand for a particular resource is higher when the price for it is lower. And what is the result? Downward curve of demand for various resources.

Just as the supply-side decisions of entrepreneurial firms and the demand-side consumer decisions determine the price in the product market, so in the resource market price is set by household decisions about supply and demand decisions by households. firms.

Ticket speculation: is reselling evil?

Some market deals have an unfairly bad reputation.

Tickets for sports and concerts are sometimes resold at higher prices; such market transactions are referred to as “speculation”. For example, a $ 40 ticket to a high school baseball game can be resold for $ 200 or $ 250, and sometimes more. The press often accuses speculators of “ripping off” buyers by setting “sky-high prices”. In the minds of some people, speculation and extortion are synonymous.

But is speculation really an unacceptable evil? First, we must point out that the resale is a voluntary and not a compulsory transaction. It follows that both the seller and the buyer benefit from the exchange, otherwise it would not have happened. The seller can value $ 200. above the opportunity to watch the game, and the buyer, on the contrary, can appreciate the opportunity to watch the game above $ 200. There are no losers or victims here: both the seller and the buyer both benefit from the deal. A “speculative” market simply redistributes assets (tickets to the game) between those who value them lower and those who value them higher.

Is speculation damaging other parties - in particular, sponsors of a competition or concert? If sponsors suffered damage, it was because they originally charged tickets below the equilibrium level. As a result, they incurred economic losses in the form of lost profits, that is, they received less profit than they could have received otherwise. But they inflicted this damage on themselves by setting the wrong price. This mistake of theirs has nothing to do with the fact that some of the tickets were later resold at a higher price.

What about viewers? Does speculation cause a decrease in the quality of the audience? Not! The people who most wanted to watch the game - mainly those who are most interested in the game and who understand it - will pay a high speculative price. Sportsmen and artists also benefit from ticket speculation by performing in front of a more understanding and interested audience.

So, is ticket speculation undesirable? From an economic point of view, no. Both the seller and the buyer of the “speculative” ticket benefit from the deal, and the result is a more understanding and interested audience. The sponsors of the game or concert may be making less profit, but this is due to their own fault - their misjudgment of the equilibrium price.

Again on the "ceteris paribus" assumption

In Chapter 1, The Subject and Method of Economics, it was already noted that economists compensate for the inability to conduct control experiments by using the "ceteris paribus" assumption in their research. We have seen in this chapter that supply and demand are influenced by a number of factors. Therefore, when constructing specific supply and demand curves, such as D 1 D 1 and SS in Fig. 3-ba, economists isolate the influence of the factor that they consider the most important determinant of supply and demand, namely the price of the particular product in question. Thus, representing the laws of supply and demand in the form of descending and ascending curves, respectively, the economist assumes that all other determinants of demand (income, consumer tastes, etc.) and supply (prices of resources, technology, etc.) remain constant, or unchanged. In other words, the price and the amount of demand, all other things being equal, are inversely related. In turn, the price and the amount of supply are in direct relationship, all other things being equal.

Ignoring the "ceteris paribus" assumption can lead to confusing situations that seemingly conflict with the laws of supply and demand. Suppose, for example, that Ford sold 200,000 escort cars in 1993 at a price of $ 10,000, in 1994 - 300,000 vehicles at a price of $ 11,000. and in 1995 - 400 thousand cars at a price of 12 thousand dollars. The price and the number of cars sold change in direct proportion, that is, in the same direction, and these data of the real market, it would seem, contradict the law of demand. But in reality there is no contradiction here. These data do not disprove the law of demand at all. The catch is that during the three years covered by our example, the "ceteris paribus" assumption was not respected. Specifically: just because, for example, the increase in income, population growth and relatively high fuel prices increased the attractiveness of compact models for consumers, the demand curve for "escorts" was creeping up from year to year, shifting to the right, as in Fig. 3-ba from D 1 to D 2, which caused an increase in prices and at the same time an increase in sales.

The opposite trend is shown in Fig. 3-bg. Comparing the initial equilibrium

Analysis of individual markets: supply and demand state S 1 D with a new S 2 D, we note that at a higher price less product is sold or offered, that is, the price and the amount of supply are characterized by an inverse, and not a direct relationship, as dictated by the law suggestions. And in this case, the catch also lies in the fact that the assumption "ceteris paribus" underlying the construction of the upward curve is not met. Perhaps the cost of production increased or the product was taxed specifically, which shifted the supply curve from S 1 to S 2.

These examples also highlight the distinction noted above between “changes in the quantity of demand (or supply)” and “changes in demand (or supply)”. In fig. 3-bg "change in supply" entailed a "change in the amount of demand."

Brief review 3-3

• In competitive markets, price comes to an equilibrium level at which demand equals supply.
• A change in demand changes the equilibrium price and the equilibrium quantity of a product in the same direction as demand itself changes.
• A change in supply leads to a change in the equilibrium price in the opposite direction, and the equilibrium quantity in the same direction in which the supply itself changes.
• Over time, the equilibrium price and the equilibrium quantity of a product may change in a direction that seems to contradict the law of supply and demand, since the “ceteris paribus” assumption is violated.

SUMMARY

1. Market is an institution or mechanism that brings together buyers and sellers of a product or service.
2. Demand is described by a scale that reflects the willingness of consumers to buy a given product over a certain period of time at each of the different prices at which it can be sold. According to the law of demand, consumers usually buy more of a product at a low price than at a high price. Therefore, all other things being equal, the relationship between price and the amount of demand is negative, or inverse, and demand is graphically depicted as a downward curve.
3. Changes in one or more of the main determinants of demand — consumer tastes, the number of buyers in the market, consumer cash income, prices of related goods, and consumer expectations — cause the market demand curve to shift. A shift to the right means an increase in demand, and a shift to the left means a decrease in demand. A change in demand should be distinguished from a change in the magnitude of demand; the latter entails a movement from one point to another on a fixed demand curve as a result of a change in the price of the product in question.
4. The offer is described by a scale showing the volumes of a product that manufacturers are ready to offer for sale on the market for a certain period of time at each of the possible prices at which this product can be bought. The law of demand states that, other things being equal, manufacturers offer for sale more products at a high price than at a low price. As a result, the relationship between price and supply is straight, and the supply curve is ascending.
5. Changes in resource prices, production technologies, taxes or subsidies, prices of other goods, expectations of price changes, or the number of buyers in the market will cause a shift in the demand curve for a product. Its shift to the right means an increase in supply, and a shift to the left means a decrease in supply. In contrast, a change in the price of a given product leads to a change in the amount of supply, that is, to a movement from one point to another on a constant supply curve.
6. In a competitive environment, the interaction of market demand and market supply adjusts the price until the moment when the amount of demand and the amount of supply coincide. This is the equilibrium price. The corresponding amount of product is the equilibrium amount.
7. The ability of market forces to synchronize buying and selling decisions in such a way that potential surplus and shortages of product are eliminated is called the price balancing function.
8. A change in either demand or supply entails a change in the equilibrium price and the equilibrium quantity of the product. There is a positive, or direct, relationship between a change in demand and a concomitant change in the equilibrium price and quantity of a product. The relationship between the change in supply and the accompanying change in the equilibrium price is the opposite, but the relationship between the change in the amount of supply and the equilibrium amount of product is direct.
9. Supply and demand concepts also apply to the resource market.

So far, we have talked mainly about the demand curve of the individual consumer. How is it formed market demand curve? In this section, we show that market demand curves can be obtained by summing the individual demand curves of all consumers in a particular market.

From individual to market demand

To simplify the problem, suppose there are only three consumers in the food market (A, B, and C). Table 4.1 shows several sets for each of the three demand curves for these customers. The total quantity demanded by consumers at each price, that is, the data in the market demand column (5), is obtained by adding the data in columns 2, 3, and 4. For example, when the price of a good is $ 3, the quantity demanded in the market is: 2 + 6 + 10, or 18.

In fig. 4.8 depicts the same consumer demand curves for food. The market demand curve is the curve resulting from summation of abscissa values the demand of each of the consumers (marked as D A, D B, O C). We add up the abscissas, answering the question, how much total quantity of goods three consumers will need at a given price. This amount can be determined by "horizontal summation" of the charts at each price level. For example, when the price of a good is $ 4, the market demand (11 units) is the sum of the requested quantity from A (0 units), B (4 units), and C (7 units). Since all individual demand curves slope downward, the market demand curve also slopes downward. However, the market demand curve does not have to be a straight line, although every individual curve is. In our example, the market demand curve has bend because some consumers are unwilling to shop at prices that other consumers find acceptable (over $ 4).

Two points should be noted. First, the market demand curve shifts to the right as more consumers enter the market. Second, the factors that influence the demand of many consumers will also influence market demand. Suppose, for example, that the majority of consumers in a particular market increase their income and, as a result, their demand for food increases. Since the demand curve of each consumer is shifted to the right, the same will happen with the market demand curve.

Aggregating individual demand into market demand is not just a theoretical exercise. It becomes important in practice when market demand is formed based on the demand of different demographic groups or from the demand of consumers living in different areas. For example, we can obtain information about the demand for personal computers by summing up independently of each other the information received: 1) about families with children; 2) about families without children; 3) about lonely people. Or we can determine the US demand for natural gas by summing the demand for natural gas across large regions (East, South, Middle East, West, for example).

Price elasticity of demand

We saw in chap. 2 that the price elasticity of demand measures the sensitivity of demand to changes in the price of a product. In fact, price elasticity can be used to describe both individual and market demand curves. By denoting the quantity of a product by Q and its price by P, we define the price elasticity as

When the price elasticity of demand is greater than 1, we say that demand is elastic therefore this percentage decrease in the quantity required is greater than the percentage increase in price. If the price elasticity is less than one, this means that demand is inelastic.

In general, the elasticity of demand for a certain good depends on the availability of other goods that can replace it. When homogeneous goods or substitutes are available, an increase in the price of a certain good will force the consumer to buy fewer and more substitute goods. Then the demand is more elastic from the price. When there are no substitute products, demand tends to be price inelastic.

The elasticity of demand is related to the total amount of money a consumer spends on a particular product. When demand is inelastic, the quantity demanded is relatively insensitive to price changes. As a result, the total cost of a product rises as the price rises. For example, suppose a family currently consumes 1,000 gallons of gasoline a year at $ 1 a gallon. Suppose further that the family's price elasticity of demand is --0.5. Then, if the price of gasoline rises to $ 1.10 (10% increase), gasoline consumption drops to 950 gallons (5% decrease). Total gasoline costs, however, will rise from $ 1,000 (1,000 gallons x $ 1 / gallon) to $ 1,045 (950 gallons x $ 1.10 / gallon).

But when demand is elastic, the total cost of a product decreases as prices rise. Suppose a family buys 100 pounds of chickens per year at $ 2.00 per pound and the price elasticity of demand for chickens is -1.5. Then, if the price of chickens increases to $ 2.20 (10% increase), family consumption of chicks drops to 85 pounds per year (15% decrease). The total cost of buying chicks will also drop from $ 200 (£ 100 - $ 2.00 / lb) to $ 187 (£ 85 X $ 2.20 per lb).

In the intermediate case, in which the total costs remain unchanged when the price changes, the elasticity of demand for the good is called single... In this case, an increase in price leads to a decrease in the quantity to be demanded, and this is enough for the total consumer spending to remain unchanged.

Table 4.2 shows all three cases of relationships between the price elasticity of demand and consumer costs. It is helpful to look at the table from the perspective of the seller of the item, not just the buyer. When demand is inelastic, an increase in price leads only to a small decrease in the quantity demanded, and thus the seller's total revenue increases. But when demand is inelastic, an increase in price leads to a large decrease in the size of demand and total revenues are reduced.

Point and arc elasticity of demand

The calculations of the price elasticity of demand for a straight line of demand, which we performed in Ch. 2, were straightforward, since, firstly, we counted point elasticity, which is the elasticity measured at one point on the demand curve and, second, ΔQ / ΔP is constant throughout the demand line. When the demand curve is not a straight line, the calculation of the elasticity of demand may not be accurate. Suppose, for example, that we are dealing with a segment of a demand curve in which the price of a good rises from $ 10 to $ 11, while demand falls from 100 to 95 units. How should the price elasticity of demand be calculated? We can determine that ΔQ = - 5 and ΔР = 1, but what values ​​should be taken for Р and Q in the formula Е Р = (ΔQ / ΔP) (P / Q)?

If we take the most low price$ 10, we find that EP = (- 5) (10/100) = - 0.50. However, if we take the highest price ($ 11), the price elasticity EP = (- 5) (11/95) = - 0.58. The difference between these two elasticities is small, but it makes it difficult to choose one of the two values. To solve this problem, when we are dealing with relatively large price changes, we use the arc elasticity of demand:

Е Р = (ΔQ / ΔP) (P ′ / Q ′),

where Р ′ - arithmetic mean two prices; Q ′ - arithmetic mean two quantities.

In our example, the average price is $ 10.5, the average quantity is 97.5, so the elasticity of demand, calculated using the arc elasticity formula, will be: EP = (- 5) (10.5 / 97.5) = - 0, 54. The arc elasticity index always lies somewhere (but not always in the middle) between the two point elasticity indexes for low and high prices.

Example 4.2. Aggregate demand for wheat

In ch. 2 (example 2.2), we considered two components of wheat demand - domestic demand (American consumers) and export demand (foreign consumers). Let's see how the world demand for wheat in 1981 can be determined based on domestic and foreign demand. Domestic demand for wheat is given by the equation Q DD = 1000 - 46P, where Q DD is the number of bushels (in millions) in demand domestically, and P is the price per bushel in dollars. External demand is equal to: Q DE = 2550 - 220Р, where Q DE is the number of bushels (in millions) for which demand is presented abroad. As shown in fig. 4.9, domestic demand for wheat, expressed by direct AB, is relatively price inelastic. Statistical studies have shown that the coefficient of price elasticity of domestic demand is about - 0.2. However, external demand - direct CD - has a higher price elasticity. Elasticity is equal to - 0.4 to - 0.5. External demand is more resilient than domestic demand because many poorer states importing US wheat start consuming other crops when wheat prices rise.

To determine the global demand for wheat, we simply - simply add up the values ​​of both demand term-by-term. To do this, we transfer the amount of wheat (variable on the horizontal axis) to the left side of each demand equation. Then we add the right and left sides of the equations. Therefore, Q D = Q DD + Q DE = (1000 - 46Р) + (2550 - 220Р) = 3550 - 266Р. At any prices above point C, external demand is simply absent, and therefore world demand coincides with domestic demand. However, below C, there is both internal and external demand. Ultimately, demand is obtained by adding the required amount of wheat domestically and the amount of wheat exported for each price level. As the figure shows, global demand for wheat has a bend and a kink. A kink occurs at a price above which external demand does not exist.

Example 4.3. Housing demand

Housing demand can vary significantly depending on the age of the family members and the situation of the family making the purchase decision. One approach to housing demand is to relate the number of rooms in a family home (the number required) to the price of an extra room, as well as to the family's income. (Room prices vary in the US due to differences in building costs.)

Table 4.3 provides data on the elasticity of demand on price and income for different demographic groups.

In general, the elasticity of demand shows that the size of homes in demand by consumers (as measured by the number of rooms) is relatively independent of changes in both income and price. But the differences between subgroups of the population are significant. For example, if the head of the family is young, the coefficient of elasticity of demand on the price is - 0.221, which is significantly higher than if the head of the family is elderly. Families are presumably more price sensitive when buying houses when parents and their children are young and parents are planning to have more children. The income elasticity of demand also increases with the age of the head of the household, because, apparently, more "older" families have more income and extra room for them is more a luxury than a necessity.

The elasticity of demand on price and income when buying a home can also differ depending on the place of residence. Demand in central cities is much more price elastic than in the outskirts. The income elasticity of demand, however, increases with distance from the center. Consequently, poor (or middle-income) residents central city(who live where land prices are relatively high) are more price sensitive when choosing housing than their wealthier “competitors” in the outskirts. It is not surprising that residents of the outskirts have higher income elasticities of demand due to their wealth and the fact that more and more diversified housing can be built in their areas.

Problem 1

Exercise:

There are three investment projects:

A: The cost is $ 150. Future profit = $ 1 per year.

B: Cost is $ 150. Future profit = $ 15 per year.

Q: The cost is $ 1000. Future profit = $ 75 per year.

a. Calculate the rate of return for each project (A, B, C).

b. If the level of interest for capital received on credit is 5%, 7% and 11%, then at what level of these interest rates the implementation of projects A, B, C will be profitable (C) or not profitable (H) for the entrepreneur.

Solution:

a.) The rate of return is calculated as the ratio of profit to costs:

A:

B:

V:

b.) Let's compose a table where B is profitable and H is not profitable:

Task 2

Exercise:

Table 1 presents data characterizing various situations in the canned beans market.

Table 1

a. Draw the demand curve and the supply curve according to table 1.

b. If the market price for a can of beans is 8 pence, is that market surplus or deficit? What is their volume?

v. If the equilibrium price for a can of beans is 32p, is this market surplus or deficit? What is their volume?

d. What is the equilibrium price in this market?

e. Rising consumer spending boosted consumption of canned beans by 15 million cans at each price level. What will be the equilibrium price and equilibrium output?

Solution:

a.) Draw the demand curve and the supply curve:

Answer: with a constant supply and an increase in demand at each price level of 15 million cans, the intersection of the curves shifts towards an increase in the equilibrium price, from 24 to 28 pence. And the equilibrium volume will be 60.

Problem 3

Based on the data in Table 3, complete the following tasks:

Table 3

a) Draw the demand curves for consumers X, Y, Z.

b) Draw the market demand curve. Explain how you
built a market demand curve.

c) Suppose that the demand for this product from consumers X and Y will double, but it will be reduced by half from the Z side. Change the demand curves X, Y, Z and the market demand curve accordingly.

a) Let's build the graphs:

b) Let's build a graph of market demand:

a) Determine the average constant, average variable, average total and marginal costs in the short run.

b) Draw the SAVC, SATC and SMC curves; check if the SMC curve passes through the minimum points of the other two curves.

c) The volume of production in the firm has increased from 5 to 6 pieces per week, short-term marginal costs should increase. Explain why this will happen. Indicate what role the marginal product of labor plays in this.

Solution:

a.) Find the average variables, average constant, average total and marginal costs in the short run:

Draw curves SAVC, SATC and SMC

b.) Draw curves SAVC, SATC and SMC

The SMC marginal cost curve passes through the minimums of the average curves variable costs SAVC and SATC Average Total Costs.

v. Starting from the production of the 3rd unit, the law of diminishing returns begins to operate, each additional unit of resource gives a smaller additional product than the previous one. The costs are rising.

Problem 5

Exercise:

a. What period are the data given in table. 4.

The data in Table 4 refer to the short-term period, since the initial data does not provide for the expansion of production capacities, but only considers cases of changes in the number of workers.

b. Fill in the table. 4.

Table 4

v. Draw the curves TP, AP |, MP |.

d. Draw vehicle curves. TVC and TFC.

e. Draw the curves for ATC, AVC, AFC and MC.

e. At what total volume of the product produced does the marginal product of labor increase? Remains unchanged? Is decreasing?

The marginal product of labor increases at 0

Remains the same at Q = 75

The limiting product decreases at Q> 75

Problem 6

Exercise:

The firm plans to publish the textbook "Economics". The average cost of producing a book is $ 4 + $ 4000 / Q, where Q is the number of textbooks produced in a year. The planned price of the book is $ 80. What should be the annual circulation of the textbook corresponding to the break-even point?

a) 500 b) 750 c) 1,000 d) 2,000 e) 3,000

Rice. 8.2. Cost curves of a competitive firm in the short run

Solution:

Let's find the break-even point:

4 + 4000 / Q = 8 => Q = 1000

Problem 7

Exercise:

There are 1000 companies in the industry. Each firm has a marginal cost of producing 5th units per month $ 2, 6th units $ 3, 7th units $ 5. If the market price per unit is $ 3, then industry output per month is:

a. no more than 5000 units

b. 5000 units

c. 6000 units

7000 units

more than 7000 units.

Solution:

There are 1000 companies in the industry, if we assume that they are all the same, then there is perfect competition in the market.

Industry output per month will amount to 6,000 units

Problem 8

Table 8.1 contains data on the costs and revenues of a firm operating in a market of perfect competition. Using this information, complete the following tasks,
a) Calculate the corresponding indicators and fill in the table.

Table 8.1

b) At what volume of output does the firm maximize profits or minimize losses?

c) Plot curves AR, MR, ATC, AVC, AFC, MC. Show the optimal production volume. Explain your choice.

Solution:

Table 8.2

Profit maximization condition:

MR = MC, which means in our case with Q = 120 units there will be the maximum profit.

Plot curves AR, MR, ATC, AVC, AFC, MC:

Figure 8.1

The optimal production volume will be achieved with Q = 120 units. In this case, the firm incurs a minimum loss (310-240 = 70), and the condition for maximizing profit MR = MC is fulfilled.

Problem 9

Exercise:

Let's say a firm has completely monopolized the production of corks.
The following information reflects the position of the firm:
Marginal income MR = 1000 - 20Q
Total income TR = 1000Q - 10Q 2
Marginal cost MC = 100 + 10Q

where Q is the volume of kwork production; P is the price of one kwork (in dollars).

How many corks will be sold and at what price, if:

a. Does the firm function like a simple monopoly?

b. is the industry (firm) operating in perfect competition?

Solution:

a. the firm functions as a simple monopoly:

Determine the volume:

1000-20Q = 100 + 10Q

b. the industry (firm) operates in perfect competition:

The condition for maximizing profit in this case is fulfilled subject to the following equality:

Determine the volume:

1000-10Q = 100 + 10Q

Total income:. Then we express the price P:

Problem 10

Exercise:

Table 6 presents a map of demand in two markets monopolized by one monopoly. Let's pretend that ATC = MC = $ 4 at any volume of production. Using this information, answer the following questions.

Solution:

a. Let us assume that the monopoly does not discriminate on price. Plot the graphs of market demand, marginal income and marginal costs of monopoly, having previously calculated the corresponding values.

Market demand graph:

b. Based on the previous assumption, determine the volume of output that gives the maximum profit, the price of the product, and the value of the monopoly's profit.

The volume of products that gives the maximum profit is determined by the condition:

MR = MC - whence Q = 48 units. the price of the product is P = 75.

Monopoly income TR = P * Q

TC = 4 * Q = 48 * 4 = $ 188

Profit = 336 $ -188 $ = 148 $

v. Let's say now that the monopoly is pursuing a policy of price discrimination by segmenting the market. Plot the graphs of demand, marginal income and marginal costs of monopoly in markets A and B, after calculating the corresponding values.

For market A:

Market demand graph:

Marginal revenue and marginal cost graphs:

d. Based on the previous assumption (see point (c)), determine the volume of output that gives the maximum profit, the price of the product and the amount of the monopoly's profit in each market.

For market A:

MR = MC - whence Q = 40 units. the price of the product is P = 7.

Monopoly A income:

TR = P * Q = 40 * 7 = 280 $

The monopoly profit is posted as the difference between TR and TC.

TC = MC * Q = 4 * 40 = 160 $

Profit A = TR-TC = 280 $ -160 $ ​​= 120 $

For market B:

MR = MC - whence Q = 32 units. the price of the product is P = 5.

Monopoly A income:

TR = P * Q = 32 * 5 = 160 $

The monopoly profit is posted as the difference between TR and TC.

TC = MC * Q = 4 * 32 = $ 128

Profit A = TR-TC = 160 $ ​​-128 $ = 32 $

How much more profit does the monopoly make by discriminating against prices?

By performing price discrimination, the company makes a profit:

(120$+32$)-148$=12$.

Assignment 11

Exercise:

The oligopolistic market is operated by two firms that produce a homogeneous product. Both firms have equal market shares and set the same product prices. Below is information about the demand for the product and the costs of each firm:

a. What price will be set in the market if we assume that each firm, when determining the price of its goods, is confident that its competitor will choose the same price?

b. If this assumption holds, then how much output would each firm choose?

v. Will new firms enter the market in the long term?

d. Does each of these two firms have an incentive to price their product below the price of a competitor? If so, what is it like?

Solution:

a.) If oligopolistic firms face the same conditions cost and demand, they will collude and maximize overall profits. The final price and volume of output will be the same as in a pure monopoly. Each oligopolist will assign a price Po and produce an output Qo.

Optimal output volume: MR = MC

b.) According to the obtained schedule on the market, both firms will choose the volume of output Q o = 6.7 units.

According to the resulting chart, both firms will set a price P o = $ 8.3 on the market.

c.) Most likely, new firms will not appear on the market even in the long term, since oligopolists are likely to enter into a secret conspiracy and in every possible way will prevent the emergence of new competitive manufacturers.

d) The oligopolist does not have an incentive to set a price for products lower than the price of a competitor, since most likely his competitor will react with the same price decrease. Therefore, the benefits will not last long.

Assignment 12

Exercise:

The student has $ 100 and decides whether to save it or spend it. If he puts money in the bank, then in a year he will receive $ 112. Inflation is 14% per year.

Solution:

a. What is the nominal interest rate?

b. What is the real interest rate?

v. What advice would you give a student?

In this case, I would advise the student to spend the money.

d. How would a reduction in inflation to 10% at a constant nominal interest rate affect your council?

The percentage of this deposit exceeds the inflation rate, while the money brings a yield of 2% per annum. In this case, I would advise you to put your money in the bank.

Relationships between economic agents are carried out through a voluntary exchange of goods belonging to them. The rate of exchange of one good for another is called the price. In this regard, the importance of studying the pricing mechanism in market conditions is obvious. The price is formed under the influence of the demand for the product and its supply. Therefore, it is necessary first to consider how the demand and supply of goods are determined, and then to show how their interaction forms the market price. This topic is devoted to these questions.

Plotting the demand curve

Demand and its drivers

The quantity of the good that all buyers can and want to purchase during a given time and under certain conditions is called. These conditions are called demand factors.

Key demand factors:

• the price of this product;
• prices and quantity of substitute products;
• prices and quantity of complementary products;
• income and their distribution among different categories of consumers;
• consumer habits and tastes;
• number of consumers;
• natural and climatic conditions;
• consumer expectations.

Note that the quality of the product is not listed among the demand factors. This is because when the quality changes, we are already dealing with other goods, the demand for which is formed under the influence of the same listed factors. So, meat of the first and second grade, FASHIONABLE AND NOT fashionable suits, "Zhiguli" of various models - different benefits.

Suppose first that all demand factors except the first (product foam) are given (unchanged). This allows us to show how a change in the price of a product affects the amount of demand for it.

: the lower the price of a given product, the more buyers want to purchase it during a given time and with other unchanged conditions.

This law can be expressed different ways: 1. The first method is using a table. Let's compose a table of the dependence of the value of demand on the price, using arbitrary numbers taken at random (Table 1).

Table 1. Law of demand

The table shows that at the highest price (10 rubles), the goods are not bought at all, and as the price decreases, the value of demand increases; the law of demand is thus observed.

The second way is graphical. Let's put the given figures on the graph, postponing the amount of demand along the horizontal axis, and the price - along the vertical (Fig. 1a). We see that the resulting demand line (D) has a negative slope, i.e. the price and the amount of demand change in different directions: when the price falls, demand rises, and vice versa. This again testifies to the observance of the law of demand. The linear demand function shown in Fig. 1a is a special case. Often, the demand graph is in the form of a curve, as can be seen in Fig. 4.16, which does not negate the law of demand.

The third method is analytical, which allows showing the demand function in the form of an equation. With a linear demand function, its equation in general view will:

P = a - b * q, where a and b are some given parameters.

It is easy to see that the parameter a defines the point of intersection of the demand line with the axis Y... The economic meaning of this parameter is the maximum price at which demand becomes zero. At the same time, the parameter b"Responsible" for the slope of the demand curve about the axis X; the higher it is, the steeper the slope. Finally, the minus sign in the equation indicates a negative slope of the curve, which, as noted, is characteristic of the demand curve. Based on the numbers above, the demand curve equation would be: P = 10 - q.

Rice. 1. Law of demand

Demand curve shifts

The impact of all other factors on demand is manifested in shift demand curve right - up with increasing demand and left - down when it decreases. Let's make sure of this.

Rice. 2. Shifts in the demand curve

Let's say consumer income has gone up. This means that at all possible prices, they will buy more units of this product than before, and the demand curve will move from position D 0 to position D 1 (Fig. 2). On the contrary, with a fall in income, the demand line will shift to the left, taking the form D 2 .

Suppose now that consumers have discovered new useful (harmful) properties of this good. In these cases, they will buy more (less) of such a good at the same prices, i.e. the entire demand curve will again go to the right (left). Absolutely the same result will be in the case of certain consumer expectations. So, if consumers expect an increase (decrease) in the price of a product in the near future, they will tend to buy more or, conversely, less of this product today, while the price is still the same, contributing to the same shifts in the demand curve.

It is interesting to trace the impact of changes in the prices of substitute and complementary goods on the demand for a given good. For example, the price of imported cars has increased. As a result, they began to be bought less, i.e. there was an upward movement along the demand curve on them. At the same time, however, the demand for Zhiguli is growing at the same price. The demand curve for Zhiguli is shifting, therefore, to the right - upward (Fig. 3).

Rice. 3. Interaction of substitute markets

The opposite situation arises in the case of complementary goods. Let the price of cars increase, the amount of demand for them, therefore, falls. Therefore, the demand for gasoline decreases when the same price, i.e. the demand curve for it goes to the left - down (Fig. 4).

Economists distinguish between concepts demand and the amount of demand. If consumers buy more or less of a product due to a change in its price, then they talk about a change the magnitude of the demand. This is reflected in the graphics movement along the demand curve. If the change in purchases occurs under the influence of all other factors, they speak of a change demand. This is reflected in the graph. a shift in the demand curve.

Rice. 4. Interaction of markets for complementary goods

Elasticity of demand

Change in demand

Change in demand

Resource demand

Price elasticity

Influence and dependence of demand on supply

Demand(in economics) - it the quantity of a product that customers can and are willing to buy at a given price. Full demand for product is the set of demands for this product on various prices.

The concept of demand, its elasticity

Demand is determined by the solvent needs of buyers. Demand is plotted in the form of a graph showing the quantity of goods that consumers are willing and able to buy for some the price of the possible prices for a certain period of time. It shows the quantity of goods for which demand will be presented at different prices and the quantity which consumers will buy at different possible prices. demand is the maximum, according to which acquirer ready to buy this product. Demand quantities must have a certain value and relate to a certain period of time. The fundamental property of demand is as follows: with all other parameters unchanged, a decrease in price leads to a corresponding increase in the amount of demand. There are times when the evidence contradicts the law demand, but this does not mean its violation, but only a violation of the assumption, other things being equal. Any price set by the firm, one way or another, will affect the level of demand for the product. The relationship between price and the resulting level of demand is represented by the well-known demand curve. The curve shows how much of the product will be sold at the market for a specific period of time at different prices that may be charged within a given period of time. In a normal situation, demand and price are inversely proportional, that is, the higher the price, the lower the demand. And accordingly, the lower the price, the higher the demand. So by raising the price of a product, it will sell less of the product. Consumers with limited budgets, when faced with a choice of alternative products, will buy more of those products whose prices are acceptable to them.

Most demand curves tend downward in a straight or curved line, which

typical for consumer goods. However, in the case of prestigious goods, the demand curve has a positive slope, that is, as the price of a product rises, the quantity of its sales increases. In this case, consumers considered the higher price to be an indicator of more High Quality or the greater desirability of these spirits. However, if the price rises further, the demand for goods may fall.

To the activist market you need to know how sensitive the demand is to price changes. Elasticity of demand - a change in demand for a given product under the influence of economic and social factors related to price changes; demand can be elastic if the percentage change in its volume exceeds the decline in the price level, and inelastic if the rate of decline in prices is higher than the increase in demand. Economists use the concept of price elasticity to determine the sensitivity of consumers to changes in the price of a product. If small changes in price lead to significant changes in the amount of purchased products, then such demand is called relatively elastic or simply elastic. If significant change in price leads to a small change in the number of purchases, then such a demand is relatively inelastic or simply inelastic.

If a change in price does not lead to any change in the quantity of products requested, then such demand is completely inelastic. If the least price drop encourages buyers to increase purchases from zero to the limit of their capabilities, then such demand is completely elastic.

What will determine the price elasticity of demand? demand is likely to be less elastic under the following circumstances:

There is little or no replacement for the product, or there are no competitors;

buyers do not immediately notice the increase in prices;

shoppers are slowly changing their buying habits and

are in no hurry to look for cheaper goods;

buyers believe the increased price is justified

improved product quality, natural growth inflation etc.

Demand value

It is necessary to distinguish between the concepts of demand and demand. The amount of demand represents the willingness to buy a certain amount of a product at one specific price, and the total demand for a commodity is a set of quantities of demand at all possible prices, that is, the functional dependence of the quantity of demand on the price. Typically, the higher the price, the lower the amount demanded, and vice versa. In some cases, the so-called paradoxical demand (Giffen's product) is noted - an increase in the value of demand with an increase in price. Demand is also characterized by elasticity. If, when the price rises or falls, the product is bought in practically the same quantities, then such demand is called inelastic. If the change in price leads to a sharp change in the amount of demand, then it is elastic.

As a rule, the demand for basic necessities is inelastic, the demand for other goods is usually more elastic. The demand for luxury goods or status trappings is often paradoxical. One of the fundamental concepts of the market economy, meaning the desire, the intention of buyers, consumers, supported by a monetary opportunity, to purchase a given product. S. is characterized by its value, meaning the amount of product that is willing and able to purchase at a given price at a given period time. The volume and structure of S. depend both on product prices and on other, non-price factors, such as fashion, consumer income, and so on. on the price of other goods, including substitute goods and related goods, related products... There are the following types of C: individual - C. of one person, market - C. published on the market and aggregate - C in all markets for a given product or for all produced and sold goods. Demand is characterized by its value, which means the amount of the product that the buyer is willing and able to purchase at a given price at a given period time. The volume and structure of demand depend on both product prices and non-price factors such as fashion, income consumers, as well as on the price of other goods, including substitute goods.

Distinguish:

individual demand,

market demand,

aggregate demand.

For managers company(by the firm), it is important to know more or less reliably the volume of market demand, the size of the market, the expected demand for those goods that firm(the organization) will offer to the market. The following types of demand differ depending on the level of demand:

negative demand,

latent demand,

falling demand,

irregular demand,

full demand,

excessive demand

irrational demand,

lack of product.

The given conditions of demand correspond to a certain type of marketing. For managers According to the analysis of market conditions, an important task is not only knowledge about the availability of demand, but the need to determine the amount of demand, both current (at a given time) and expected in the future (prospective), in order to reasonably determine the development of production of goods. The level of individual (individual purchaser) demand and market demand depends on numerous factors that must be taken into account in marketing management, in the management of a firm (firm).

Market and the law of demand

Market - an indirect, mediated relationship between manufacturers and consumers of products in the form of sale and purchase of goods, the sphere of sales and commodity-money relations, as well as the entire set of means, methods, tools, organizational and legal norms, structures, etc., ensuring the functioning of such relationships. The market is the only system of purchase and sale relations, the structural elements of which are markets for goods, capital, work force, securities, ideas, information etc. The market is the backbone of a market economy.

A market is an instrument or mechanism that brings together buyers (bearers of demand) and sellers (suppliers) of certain goods and services. Some markets are local, while others are international or national. Some are distinguished by personal contact between the bearer of the demand and the supplier, while others are impersonal - on them the buyer and salesman never see or do not know each other at all,

The state of the market is determined by the ratio of the amount of demand and suggestions

Ask sentence- interdependent elements of the market mechanism, where demand is determined by the solvent need of buyers (consumers), and - by a set of goods offered sellers(by manufacturers); the ratio between them adds up to an inversely proportional relationship, determining the corresponding changes in the level of prices for goods.

Demand is plotted in the form of a graph showing the amount of goods that consumers are willing and able to buy at a certain price from the possible prices over a certain period of time. Demand expresses a number of alternative possibilities that can be presented in the form of a table. It shows the amount of goods for which (all other things being equal) demand will be presented at different prices. Demand indicates the quantity of a product that consumers will buy at different possible prices. Bid price is the maximum price at which the purchaser is willing to buy the given product.

Demand quantities must have a certain value and relate to a certain period of time. The fundamental property of demand is as follows: with all other parameters unchanged price drop leads to a corresponding increase in the amount of demand. There are times when practical data contradict the law of demand, but this does not mean its violation, but only a violation of the assumption, other things being equal.

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The existence of the law of demand is confirmed by some facts:

1. Usually people actually buy a given product more at a low price than at a high price. The fact that companies are doing “sales” is a clear indication of their belief in the law of demand. Enterprises reduce their inventories not by raising prices, but by lowering them.

Investor encyclopedia. 2013 .

Antonyms:

See what "Demand" is in other dictionaries:

demand- demand, and for ... Russian spelling dictionary

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DEMAND- the need for goods and services, secured by the necessary monetary and other means of payment (purchasing power). Dictionary of financial terms. Demand Demand is a specific need supported by purchasing power. ... ... Financial vocabulary