Introduction

Demand. Law of demand

1 Change in demand

2 Elasticity of demand

2.1 Price elasticity of demand

2.2 Income elasticity of demand. Cross elasticity

Sentence. Law of supply

1 Change of offer

2 Elasticity of supply

2.1 Time elasticity of supply

Market equilibrium

1 Equilibrium mechanism

Bibliography

Introduction

In our complex world, we all need to understand marketing. Whether we're selling a car, looking for a job, raising money for a charity, or promoting an idea, we're marketing. We need to know what the market is, who operates on it, how it functions, what its needs are.

The study of supply and demand, as well as the motives that guide when making purchases or sales, is the most important task of a company in a competitive environment. Having the most complete information about supply and demand allows the company to market its products, expand production and compete successfully in the market.

In this term paper, it is necessary to consider not only the "theory of elasticity of supply and demand", but to start with the theory of supply and demand. Also understand what determines the change in supply and demand, and under what conditions a market equilibrium is established.

1. Demand. Law of demand

The main problem of the market organization of production is solved through the mechanism of supply and demand.

Demand is the quantity of a product that consumers are willing and able to buy at some of the possible prices in a given period of time.

Together with this definition, demand is characterized by a number of properties and quantitative parameters, of which, first of all, it is necessary to single out the volume or magnitude of demand.

From the standpoint of quantitative measurement, the demand for a product, understood as the volume of demand, means the amount of this product that buyers (consumers) desire, are ready and have the financial opportunity to purchase over a certain period at certain prices.

Demand is the quantity of a good or service of a particular type and quality that a buyer is willing to buy at a given price over a given period of time. The magnitude of demand depends on the income of buyers, the prices of goods and services, the prices of goods - substitutes and complementary goods, the expectations of buyers, their tastes and preferences.

Law of Demand: Other things being constant, a decrease in price leads to an increase in quantity demanded and vice versa

.1 Change in demand

A change in demand for a product occurs not only as a result of changes in prices for it, but also under the influence of other, so-called "non-price" factors. Let's take a closer look at these factors.

Consumer income. If the money income of consumers increases, then the quantity of goods purchased also increases, and vice versa, if the income of buyers decreases, then at the same prices, the volume of purchases decreases. This rule applies to normal goods.

A normal good is a good for which demand rises as consumer income rises.

Inferior good - a good for which demand falls with an increase in the income of buyers, this includes cheap low-quality items, such as cheap sausages, low-quality clothes, etc.

Prices and availability of other goods and services, among which there are interchangeable (substitute goods) and complementary goods (complement goods).

Fungible goods are characterized by the fact that an increase in the price of one of the goods leads to an increase in demand for the other. For example, an increase in the price of meat may increase the demand for fish, and the demand for tea may increase if coffee is not available to all segments of the population.

For complementary goods, an increase in the price of one good leads to a fall in demand for the other. For example, an increase in the price of gasoline will cause a fall in the demand for cars, and an increase in the price of cameras will lead to a decrease in the demand for photographic film.

Consumer tastes and preferences. Production development, fashion, cultural and historical features affect people's tastes and preferences. An important role is also played by competition among consumers, consumer psychology (a person seeks to buy a product that all his friends buy), etc.

Buyer expectations. Here they distinguish: expectations and forecasts associated with a possible change in prices (if prices for a certain product are expected to rise, this causes an increase in demand for it at the moment); expectations and forecasts associated with the influence of a non-price factor (for example, the expectation of a better product).

The number of buyers. Obviously, the more people who consume a product, the higher the demand for it. Accordingly, an increase (decrease) in the number of buyers causes an increase (decrease) in demand.

Special factors - rains increase the demand for umbrellas, in winter the demand for skis and sleds increases, etc.

When considering demand, it is necessary to distinguish between changes in the magnitude of demand and demand itself.

A change in the magnitude of demand occurs when the price of a given product changes and is expressed only by movement along the points of the demand curve (along the demand line (Fig. 1)).

Rice. 1 Shift in the demand curve.

Non-price factors cause changes in the demand for goods itself, regardless of the level of their prices. Graphically, this might look like this: a change in non-price factors causes a shift in the demand curve to the left or right, showing a change in the quantity of goods purchased at the same price.

An increase in demand caused by some non-price factor can be shown by a shift of the entire demand curve to the right and up, and a decrease in consumer demand will be illustrated by a shift of the demand curve to the left and down (Fig. 2).

Fig.2. Shift in the demand curve.

1.2 Elasticity of demand

For a firm, when planning the volume and structure of production, it is extremely important to know what determines the demand for its products. As we have already found out, the magnitude of demand depends on the price of the product, the income of potential consumers, as well as the prices of goods that are either complementary (for example, cars and gasoline) or interchangeable (for example, butter and margarine, certain types of meat, etc. .). Other factors also influence demand.

With an increase in prices for the firm's products, we can expect, with other equal conditions, reducing demand for it, while the vigorous activity of competitors producing substitute products and selling them at lower prices can also lead to a decrease in demand for the company's products. At the same time, with the growth of incomes of the population, the company can count on the expansion of consumer demand and, accordingly, an increase in the sales of the products offered.

However, we are interested not only in the direction, but also in the magnitude of the change in demand. How will the quantity demanded change with an increase (decrease) in the price of products by 1, 10, 100 rubles? Typically, the company, raising the price, expects an increase in sales revenue. However, a situation is possible when a price increase will lead not to an increase in revenue, but, on the contrary, to its decrease due to a decrease in the magnitude of demand and, accordingly, a decrease in sales.

Therefore, it is important for the firm to determine what quantitative impact on the magnitude of demand can have a change in the price of products, consumer incomes or prices for substitute goods produced by competitors.

To determine the "rate of change" of demand and supply of goods on the market, economists introduced the concept of "elasticity".

The concept of elasticity was first introduced into economics by Alfred Marshall (1842-1924).

Elasticity should be understood as the percentage change in the value of one variable as a result of a change by one unit in the value of another variable. Thus, elasticity shows the percentage change in one economic variable when another changes by one percent.

The ability of consumption and demand to change within certain limits under the influence of economic factors is called the elasticity of consumption and demand. Elasticity of supply and demand is necessary for the preparation of economic development projects and economic forecasts.

Without this, not a single market (mixed) economic system is functioning now.

Elasticity of demand refers to the degree to which demand changes in response to price changes.

The elasticity of supply should be understood as the relative changes in the prices of goods and their quantity offered for sale.

1.2.1 Price elasticity of demand

Exist the following types elasticity of demand:

Elastic demand is considered as such if, with minor price increases, sales volume increases significantly;

Demand is unit elasticity. When a 17% change in price causes a 1% change in demand for a good;

Inelastic demand. It manifests itself in the fact that with significant changes in price, the volume of sales changes slightly;

Infinitely elastic demand. There is only one price at which consumers buy a good;

Perfectly inelastic demand. When consumers purchase a fixed quantity of goods regardless of their price.

Price elasticity of demand, or price elasticity of demand, measures the percentage change in demand for a product when its price changes by 1%.

The elasticity of demand increases with the presence of substitute goods - the more substitutes, the more elastic demand is, and decreases with increased consumer demand for a given product, i.e., the degree of elasticity is lower, the more the product is needed.

Similarly, you can define the elasticity of income or some other economic value.

The indicator of price elasticity of demand for all goods is a negative value. Indeed, if the price of a commodity decreases, the quantity demanded increases, and vice versa. However, to assess elasticity, it is often used absolute value indicator (the minus sign is omitted). For example, a 2% decrease in the price of sunflower oil caused an increase in demand for it by 10%. The elasticity index will be equal to:

If the absolute value of the price elasticity of demand is greater than 1, then we are dealing with relatively elastic demand: a change in price in this case will lead to a greater quantitative change in the quantity demanded.

If the absolute value of the price elasticity of demand is less than 1, then demand is relatively inelastic: a change in price will entail a smaller change in the quantity demanded.

If the coefficient of elasticity is equal to 1 - this is a unit elasticity. In this case, a change in price leads to the same quantitative change in the quantity demanded.

There are two extreme cases. In the first, there can be only one price at which the goods will be purchased by buyers. Any change in price will either lead to a complete refusal to purchase this product (if the price rises), or to an unlimited increase in demand (if the price falls) - demand is absolutely elastic, the elasticity index is infinite. Graphically, this case can be represented as a straight line parallel to the horizontal axis. For example, the demand for lactic acid products sold by an individual trader in a city market is perfectly elastic. However market demand for lactic acid products is not considered elastic. The other extreme case is an example of perfectly inelastic demand, when a change in price does not affect the quantity demanded. A perfectly inelastic demand graph looks like a straight line perpendicular to the horizontal axis. An example is the demand for certain types drugs, without which the patient cannot do, etc.

It can be seen from formula (1) that the elasticity index depends not only on the ratio of price and volume increases or on the slope of the demand curve, but also on their actual values. Even if the slope of the demand curve is constant, the elasticity will be different for different points on the curve.

There is another circumstance that should be taken into account when determining elasticity. In areas of elastic demand, a decrease in price and an increase in sales volume lead to an increase in the total revenue from the sale of the company's products, in the area of ​​inelastic demand - to its decrease. Therefore, each firm will tend to avoid that sector of demand for its products, where the coefficient of elasticity is less than one.

.2.2 Income elasticity of demand. Cross elasticity

Income elasticity of demand refers to the change in demand for a product due to changes in consumer income. If income growth leads to an increase in demand for a product, then this product belongs to the category of “normal”, with a decrease in consumer income and an increase in demand for a product, the product belongs to the category of “lower”. For the most part, consumer goods are classified as normal.

Measures of income elasticity show whether a given good is in the “normal” or “inferior” category.

The income elasticity of demand is equal to the ratio of the percentage change in the quantity demanded of a good to the percentage change in income and can be expressed as the following formula:

where E1D is the income elasticity of demand; and Q1 is the amount of demand before and after the change in income; and I1 is the income before and after the change.

The elasticity of demand is greatly influenced by the presence on the market of goods designed to satisfy the same need, i.e., substitute goods. The elasticity of demand for a product is the higher, the more opportunities the buyer has to refuse to purchase this particular product in the event of an increase in its price.

As incomes increase, we buy more clothes and shoes, high-quality food, household appliances. But there are goods, the demand for which is inversely proportional to the income of consumers: all second-hand products, some types of food (cereals, sugar, bread, etc.).

For basic commodities, such as bread, demand is relatively inelastic. At the same time, the demand for individual types of bread is relatively elastic. The demand for cigarettes, medicines, soap and other similar products is relatively inelastic.

If there are a significant number of competitors on the market, the demand for the products of firms that produce similar or similar products will be relatively elastic. With the growth of the competitiveness of firms, when many sellers offer the same product, the demand for the product of each firm will be perfectly elastic.

To determine the degree of influence of a change in the price of one product on a change in demand for another product, the concept of cross elasticity is used. Thus, a rise in the price of butter will cause an increase in demand for margarine, a decrease in the price of Borodino bread will lead to a reduction in demand for other varieties of black bread.

Cross elasticity - the dependence of demand on substitute goods and goods that complement each other.

The value of the coefficient depends on which goods are considered - interchangeable or complementary. The cross elasticity coefficient is positive if the goods are substitutable; is negative if the goods are complementary, such as gasoline and cars, cameras and film, the quantity demanded will change in the opposite direction to price changes.

Thus, by determining the value of the cross elasticity coefficient, one can find out whether the selected goods are considered complementary or substitutable, and accordingly, how a change in the price of one type of product that is produced by a firm can affect the demand for other types of products of the same firm. Such calculations will help the firm in making decisions on the pricing policy for its products.

Price elasticity is greatly influenced by the time factor. Demand is less elastic in the short run and more elastic in the long run. This trend of change in elasticity over time is explained by the ability of the consumer to change his consumer basket over time, to find a substitute product.

Differences in the elasticity of demand are also explained by the importance of a particular product for the consumer. Demand for basic necessities is inelastic; demand for goods that do not play an important role in the life of the consumer is usually elastic.

2. Offer. Law of supply

The offer characterizes the willingness of the seller to sell a certain amount of goods.

Distinguish concepts: the offer and the size of the offer.

Offer (S - sapply) is the willingness of producers (sellers) to supply the market with a certain amount of goods or services at a given price.

Supply is the maximum amount of goods and services that producers (sellers) are able and willing to sell at a certain price, in a certain place and at a certain time.

The value of the proposal should always be determined for a specific period of time (day, month, year, etc.).

Similar to demand, supply is influenced by a variety of both price and non-price factors, among which are the following:

the price of the product X itself (Рx);

prices of resources (Рr) used in the production of good X;

technology level (L);

company goals (A);

values ​​of taxes and subsidies (T);

prices for related goods (Pi);

producers' expectations (E);

the number of producers of goods (N).

Then the offer function, built taking into account these factors, will have the following form:

The most important factor influencing the magnitude of supply is the price of a given product. The income of sellers and producers depends on the level of market prices, thus, the higher the price of a given product, the greater the supply, and vice versa.

The bid price is the minimum price at which sellers are willing to supply the product to the market.

Assuming that all factors except the first remain unchanged:

we get a simplified sentence function:

where Q - the value of the supply of goods; P - the price of this product.

The relationship between supply and price is expressed in the law of supply, the essence of which is that the amount of supply, other things being equal, changes in direct proportion to changes in price.

The direct reaction of supply to price is explained by the fact that production responds quickly enough to any changes taking place in the market: when prices rise, producers use reserve capacities or introduce new ones, which leads to an increase in supply. In addition, the upward trend in prices attracts other producers to the industry, which further increases production and supply.

It should be noted that in short term an increase in supply does not always follow immediately after an increase in price. It all depends on the available production reserves (availability and workload of equipment, work force etc.), since the expansion of capacities and the transfer of capital from other industries usually cannot be carried out in short time. But in the long run, an increase in supply almost always follows an increase in price.

The graphical relationship between price and quantity supplied is called the supply curve S.

The supply scale and the supply curve of a good show the relationship (ceteris paribus) between the market price and the amount of this good that producers want to produce and sell.

Example. Suppose we know how many tons of potatoes can be offered by sellers in the market in a week at various prices.

Table 1 Potato supply.

This table shows how many items will be offered at the minimum and maximum price.

So, at a price of 5 rubles. for 1 kg of potatoes, the minimum amount will be sold. At such a low price, sellers will probably trade in another commodity that is more profitable than potatoes. As the price increases, the supply of potatoes will also increase.

According to the table, a supply curve S is constructed, which shows how much of the goods producers would sell at different price levels P (Fig. 3).

Rice. 3. Supply curve.

2.1 Change of offer

demand price income elasticity

Changes in supply, as well as in demand, are influenced by both price and non-price factors. When the price of a commodity changes, the corresponding point of the market situation moves along the supply curve, i.e., there is a change in the supply.

Non-price factors affect the change in the entire supply function, this can be clearly represented as a shift in the supply curve to the right - with an increase in supply, and to the left - with its decrease (Fig. 4).

Rice. 4. Shift in the supply curve.

Let's take a closer look at some of the non-price factors that affect supply.

Production costs (or production costs). If production costs are low compared to market prices, then it is advantageous for producers to supply goods in large quantities. If they are high relative to price, firms produce the good in small quantities, switch to other products, or even leave the market.

Production costs are primarily determined by the prices of economic resources: raw materials, materials, means of production, labor, and technical progress. It is clear that rising resource prices have a large impact on production costs and output levels.

Production technology. This concept encompasses everything from genuine technical discoveries and the best application of existing technologies to the usual reorganization of the workflow. Improving technology allows you to produce more products with fewer resources. Technological progress also makes it possible to reduce the amount of resources required for the same amount of output. For example, today manufacturers spend much less time on the production of one car than 10 years ago. Advances in technology allow car manufacturers to profit from producing more cars for the same price.

taxes and subsidies. The effect of taxes and subsidies manifests itself in different directions: an increase in taxes leads to an increase in production costs, increasing the price of production and reducing its supply. Tax cuts have the opposite effect. Subsidies and subsidies make it possible to reduce production costs at the expense of the state, thereby contributing to the growth of supply.

Prices for related products. The offer on the market largely depends on the availability of interchangeable and complementary goods on the market at affordable prices. For example, the use of artificial, cheaper compared to natural, raw materials allows you to reduce production costs, thereby increasing the supply of goods.

Producer expectations. Expectations of changes in the price of a product in the future can also influence the manufacturer's willingness to bring the product to market. For example, if a manufacturer expects the prices of its products to rise, it may begin to increase production capacity today in the hope of later making a profit and hold the product until the price rises. Information about the expected reduction in prices may lead to an increase in supply at the moment and a reduction in supply in the future.

The number of producers. An increase in the number of producers of a given good will lead to an increase in supply, and vice versa.

7. Special factors. For example, for certain types of products (skis, roller skates, products Agriculture etc.) the weather has a great influence.

2.2 Supply elasticity

Elasticity of supply - the sensitivity of the supply of goods to changes in the prices of these goods.

The elasticity of supply is influenced by: the presence or absence of production reserves - if there are reserves, then in the short term the supply is elastic; the ability to store stocks finished products- the offer is elastic.

There are two types of supply elasticity:

flexible offer. A 1% increase in price causes a significant increase in the supply of goods;

unit elasticity supply. A 1% increase in price leads to a 1% increase in the supply of goods on the market;

inelastic supply. The increase in price does not affect the quantity of goods offered for sale;

elasticity of supply in the instantaneous period (i.e., the period of time is short, and producers do not have time to respond to changes) - the supply is fixed;

elasticity of supply in the long run (a period of time sufficient to create new production capacity) is the most elastic supply.

In order to determine how the production of a particular product affects the change in price, price elasticity of supply is measured.

The elasticity of supply is measured by the relative (in percentages or shares) change in the supply when the price changes by 1%.

The formula for the coefficient of price elasticity of supply is similar to the calculation of the coefficient of price elasticity of demand.

Unlike demand, supply is less related to changes in the production process and more adaptable to price changes.

The elasticity of supply is influenced by: the presence or absence of production reserves - if there are reserves, then in the short term the supply is elastic; the ability to store stocks of finished products - the supply is elastic.

.2.1 Time elasticity of supply

The time factor is the most important indicator in determining elasticity. There are three time periods that affect the elasticity of supply - short-term, medium-term and long-term.

The short run is too short for the firm to make any changes in output, and in this time period supply is inelastic.

The medium-term period increases the elasticity of supply, as it makes it possible to expand or reduce production at existing production facilities, but it is not enough to introduce new capacities.

The long-term period, with an increase in demand for the products of the industry, allows for the expansion or reduction of the firm's production capacity, as well as the influx of new firms into the industry, or, with a decrease in demand for the industry's products, the closure of firms. The elasticity of supply in this period is higher than in the previous two periods.

It should be noted that the supply in the current period remains fixed, as manufacturers do not have time to respond to changes in the market.

3. Market equilibrium

The functions of supply and demand considered by us earlier interact in the commodity market. Under the influence of the competitive environment of the market, supply and demand are balanced, as a result of which the market price and quantity of the purchased goods are established.

The market price is considered the equilibrium price when it determines the level at which the seller still agrees to sell, and the buyer already agrees to buy the goods.

Market equilibrium is achieved by equality between supply and demand:

QS = Q d,

Equilibrium is reached at the intersection of supply and demand curves, where the equilibrium price is established (Fig. 5).

Rice. 5. Graph of market equilibrium.

Where E is the market equilibrium point. It corresponds to the equilibrium price - P E and number of sales - Q E sold at this price.

Equilibrium is stable and unstable. If, after an imbalance, the market comes to a state of equilibrium and the previous equilibrium price and volume are established, then the equilibrium is called stable. If, after an imbalance, a new equilibrium is established and the price level and the volume of supply and demand change, then the equilibrium is called unstable.

Equilibrium stability - the ability of the market to come to a state of equilibrium by establishing the previous equilibrium price and equilibrium volume.

.1 Balancing mechanism

Let us consider the mechanism for establishing market equilibrium, when, under the influence of changes in supply or demand factors, the market leaves this state. There are two main variants of the disproportion between supply and demand: excess and shortage of goods.

An excess (surplus) of a good is a situation in the market when the supply of a good at a given price exceeds the demand for it. In this case, there is competition between manufacturers, the struggle for buyers. The winner is the one who offers more favorable conditions for the sale of goods. Thus, the market tends to return to a state of equilibrium.

Shortage of goods - in this case, the quantity demanded for goods at a given price exceeds the quantity of goods offered. In this situation, competition already arises between buyers for the opportunity to purchase a scarce product. The winner is the one who offers the highest price for this product. The increased price attracts the attention of manufacturers, who begin to expand production, thereby increasing the supply of goods. As a result, the system returns to a state of equilibrium.

Thus, the price performs a balancing function, stimulating the expansion of production and supply of goods with a shortage and restraining supply, ridding the market of surpluses.

The balancing role of price is manifested both through demand and through supply.

Suppose that the equilibrium established in our market was disturbed - under the influence of some factors (for example, income growth) there was an increase in demand, as a result, its curve shifted from D1 to D2 (Fig. 6 a), and the supply remained unchanged.

If the price of a given good does not change immediately after the shift in the demand curve, then following the growth in demand, a situation will arise when, at the previous price P1, the quantity of the good that each of the buyers can now purchase (QD) exceeds the volume that producers can offer at a given price of this product (QS). The value of demand will now exceed the value of the supply of this product, which means the occurrence of a shortage of goods in the amount of Df = QD - Qs in this market.

The shortage of goods, as we already know, leads to competition between buyers for the opportunity to purchase this product, which leads to an increase in market prices. According to the law of supply, the response of sellers to an increase in price will be to increase the volume of goods offered. On the chart, this will be expressed by the movement of the market equilibrium point E1 along the supply curve until it intersects with the new demand curve D2 where a new equilibrium will be reached this market E2 with an equilibrium quantity of goods Q2 and an equilibrium price P2.

Rice. 6. Displacement of the equilibrium price point.

Consider a situation where the equilibrium state will be violated on the supply side.

Suppose that under the influence of some factors there was an increase in supply, as a result, its curve shifted to the right from position S1 to S2, while demand remained unchanged (Fig. 6 b).

Provided that the market price remains at the same level (P1), an increase in supply will lead to an excess of goods in the amount of Sp = Qs-QD. As a result, sellers compete, leading to a decrease in the market price (from P1 to P2) and an increase in the volume of goods sold. On the graph, this will be reflected by moving the market equilibrium point E1 along the demand curve until it intersects with the new supply curve, which will lead to the establishment of a new equilibrium E2 with parameters Q2 and P2.

Similarly, it is possible to identify the effect on the equilibrium price and the equilibrium quantity of goods of a decrease in demand and a decrease in supply.

In the educational literature, four rules for the interaction of supply and demand are formulated.

.An increase in demand causes an increase in the equilibrium price and the equilibrium quantity of goods.

.A decrease in demand causes a fall in both the equilibrium price and the equilibrium quantity of goods.

.An increase in supply entails a decrease in the equilibrium price and an increase in the equilibrium quantity of goods.

.A decrease in supply entails an increase in the equilibrium price and a decrease in the equilibrium quantity of goods.

Using these rules, you can find the equilibrium point for any changes in supply and demand.

The following circumstances can mainly prevent the price from returning to the market equilibrium level:

administrative regulation of prices;

monopoly of the producer or consumer, which allows to keep the monopoly price, which can be either artificially high or low.

Bibliography

1.Akulenko N.B., Burikov A.D., Volkov O.I., Garnov A.P., Devyatkin O.V., Elizarov Yu.F., Elina O.A., Klyukin I.N., Kolokolov V .A., Kukushkin S.N., Palamarchuk A.S., Perekhodov V.N., Pozdnyakov V.Ya., Prudnikov V.M. Economics of an enterprise (organization): Textbook - 4th ed., Revised. and additional - M.: INFRA-M, 2010.

.Alekseeva A.I., Vasiliev Yu.V., Maleeva A.V., Ushvitsky L.I. Complex economic analysis financial activities: tutorial- M.: KRONUS, 2007.

.Gribov V.D., Gruzinov V.P., Kuzmenkov V.A. Economics of the organization (enterprise): textbook, - 2nd ed., Sr. - M.: KRONUS, 2009

.Kondrakov N.P., Ivanova M.A. Accounting management accounting: Proc. allowance. - M.: INFRA-M, 2009.

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Introduction 2

Chapter 1: DEMAND AND SUPPLY 4

1. Demand 4

2. Proposal 6

Chapter 2: MARKET EQUILIBRIUM. EQUILIBRIUM PRICE 8

1. Market equilibrium of supply and demand prices 8

2. Models of macroeconomic equilibrium 10

2.1. Classic Model 11

2.2. Caseian Model 11

3. Equilibrium price 12

3.1. Stability and instability of equilibrium 13

3.2. Deficit and Surplus 15

4. Shift of market equilibrium 17

4.1. Shift in the market equilibrium caused by a change in demand 17

4.2. Shift in market equilibrium caused by changes in supply 18

Chapter 3: ELASTICITY OF DEMAND AND SUPPLY 20

1. Elasticity, price elasticity index 20

2. Demand elasticity options 21

3. Elasticity of supply 22

Conclusion 25

LIST OF USED LITERATURE AND SOURCES. 28

Introduction

The market economy is an endless interaction of supply and demand. The development of a simple model of such interaction constituted an epoch in the history of economic science. And although more than two centuries have passed since that time, it is with her that the theoretical acquaintance with the modern market economy begins: the fact is that all economic processes can be described through this model.

In this paper, the author will try to combine all existing knowledge about two interrelated categories - "demand" and "supply", the market equilibrium of supply and demand prices, and what the violations of the market price equilibrium lead to.

Market participants are buyers (consumers) and sellers (producers). Buyers and sellers can be both individuals and entire firms and enterprises. For example, in the truck market, buyers may be: farmers purchasing trucks in order to transport their products; individual firms engaged in the transport of goods and buying cars for their activities. In the market of agricultural products, sellers can be individual farmers, large farms, shops selling agricultural products.

Consumers, entering the market for a product, present a demand for this product, and producers of this product form the supply of the product.

In the market, buyers and sellers enter into transactions with each other, that is, they buy and sell goods at certain prices. Thus, there is an interaction of supply and demand, and the result of this interaction are the prices at which market participants enter into their transactions.

The seller, representing the interests of the manufacturer of goods and his own, seeks to raise the price, guided by a costly approach and the desire to make a significant profit. The buyer, the consumer, proceeding from the “useful” approach and the desire to reduce his expenses per unit of useful effect, strives for “his” price, which can be called the desired purchase price. The consumer in his aspirations is helped by competition between producers (under the assumption that it exists, and it must certainly exist in a normal economy). The manufacturer, the seller is helped by competition between consumers and the continuous rise of their needs.

In this complex multifactorial picture, the act of buying and selling at mutually acceptable prices can only take place in conditions where the price is set on the basis of an equalization of supply and demand, on the basis of an agreement between two parties whose interests collide in a free market.

The market spontaneously, automatically contributes to the formation of equilibrium prices (A. Smith called this process the "invisible hand" mechanism). The excess of the demand price over the supply price contributes to the redistribution of resources in favor of industries with high effective demand. High prices testify to the relative scarcity of goods, prompting them to expand their production and thereby better satisfy social needs. Since the equilibrium price significantly exceeds the costs of those producers whose costs are below average, it contributes to the redistribution of resources from the worst to the best producers, increasing the efficiency of the national economy as a whole.

This paper also considers two main approaches to the analysis of establishing an equilibrium price: L. Walras and A. Marshall.

Chapter 1: DEMAND AND SUPPLY

1. Demand

For the first time, the concepts of supply and demand in economics were studied in his works by the English economist Alfred Marshall (1842 - 1924).

The demand for any product or service is the desire and ability of the consumer to buy a certain amount of this product or service at a certain price in a certain period of time, i.e. demand is a form of expressing a need.

It is important to note that demand characterizes not just the desire of the buyer to have this product, but also his ability to pay for this product (ie, the ability to buy the product). The most important characteristics of demand are the volume of demand and the price of demand.

The quantity demanded for a good or service is the quantity of a good or service that consumers are willing to buy at a given price over a given period of time.

The bid price for a good or service is the maximum price a buyer is willing to pay for a given quantity of a good or service.

Demand is one side of the multidimensional process of market pricing. Its characteristic cause-and-effect relationships have the form of stable economic laws.

Distinguish between individual and aggregate demand. Individual demand represents the needs of the buyer, expressed in monetary terms. Aggregate demand is the solvent need of society as a whole, i.e. state, enterprises and population.

Market demand is determined by summing the quantities demanded by each consumer at different prices. It is denoted by the letter D (from the English demand - demand).

Between the volume of demand and the price of demand there is a certain relationship, which is expressed in the law of demand. one

Law of demand: the higher the price of a good, the lower the demand for it; Conversely, the lower the price of a good, the greater the demand for it. 2

In particular, the law of demand expresses:

Inverse relationship between the price and the quantity of goods purchased;

A gradual decrease in demand for a given product or service.

Picture 1

According to the law of demand, ceteris paribus, the quantity of goods or services purchased depends on the level of their prices. At the same time, the higher the price and the clearer the upward trend, the less the quantity of goods or services will be purchased by consumers. Figure 1 shows that if the price of a product increases, then the volume of sales of the product, in accordance with the fall in demand, decreases. Conversely, if the price decreases, then the volume of sales of this product or service increases. Dependencies of a similar nature arise, for example, in the following situations: when markets are scarce, that is, there is an obvious shortage of any goods or services, then the prices for these goods and services will inevitably rise. On the contrary, when more goods and services of a given type enter the market, their sale, i.e., sale, is possible only if prices are reduced.

The law of demand also reflects another important process: the gradual decrease in demand. The decrease in the number of sales of a given product or service occurs not only due to an increase in their price, but also due to the saturation of consumer demand. Decreasing demand occurs because each subsequent purchase of the same product or service brings the consumer relatively less benefit, benefit, satisfaction. 3

In addition to the price of the product itself, many other factors influence the demand. It is very difficult to take them all into account. However, it is possible to single out the most significant:

Prices for substitute goods;

Prices for complementary goods;

Buyers' income;

Fashion, tastes and preferences of buyers;

Seasonal changes in demand;

Buyer expectations.

A change in non-price factors of demand causes a shift and change in the configuration, the slope of the demand curve, expressing a change in the quantity of goods sold at the same price. Demand is not static, it is constantly changing under the influence of non-price factors, as evidenced by this or that shift in the demand curve.

2. Offer

Changes in demand for goods causes an adequate response from the market supply of these goods.

The supply of a good or service is the willingness of producers to sell a certain quantity of that good or service at a certain price over a certain period of time. Otherwise, supply is the desire and ability of sellers to supply goods and services to the market for sale, depending on their price.

Supply is the quantity of a good or service that sellers are willing to sell at a given price over a given period of time.

The bid price is the minimum price at which sellers are willing to sell a given quantity of a good or service.

The relationship between volume and supply price is expressed in the law of supply.

Law of supply: the higher the price of a good, the greater the amount of its supply; The lower the price of a good, the lower its supply. four

The law of supply shows that there is a direct relationship between price and quantity supplied. The fact that the volume of goods offered increases with the increase in the price of it is explained by the desire of manufacturers to increase their profits. The higher the price, the more incentive they have to produce and sell their product.

The main, leading factor in the law of supply is the price. For the seller, the price is an incentive and an incentive to produce and sell their goods on the market. For the consumer, prices are a deterrent, since a high price forces them to buy a smaller quantity of a product.

P

Figure 2

The supply of goods has the form of a curve with a positive slope, reflecting a direct relationship between two variables - the price of a product and its quantity, or volume, for sale on the market (Fig. 2) .

According to the law of supply, ceteris paribus, the higher the price of goods, the greater their quantity can be produced and presented for sale in the markets.

The quantity and volume of goods change in accordance with changes in their price without shifting the supply curve of goods. The concept of "changing supply of goods" implies a shift of the curve in one direction or another. The shift of curves, which means a change in the supply of goods in the markets, occurs under the influence of the following conditions:

Change in prices for factors of production;

Technical progress;

Seasonal changes;

Taxes and subsidies;

Increase in demand for other goods;

All of these factors affect the production costs of a given product, which has a decisive influence on changes in the supply of this product on the market.

Chapter 2: MARKET EQUILIBRIUM. EQUILIBRIUM PRICE

1. Market equilibrium of supply and demand prices

The market pricing process is governed by the laws of supply and demand. Establishing an equilibrium price occurs in the market under the influence of trends and specific features of both supply and demand. They are illustrated in the corresponding graphs of Fig. 1 and Fig. 2 with the help of curves. However, the market forces are much richer than the models that have been presented.

Let's combine supply and demand lines on the same chart.

Figure 3

Ak can be seen from Fig. 3, the supply and demand lines intersect at one point (point E). At this price point, the price at which buyers are willing to buy a certain quantity of a good is equal to the price at which producers are willing to sell that same quantity of a good. The point of intersection of lines S and D - point E, is called the equilibrium point. When the market is at this point, the established price suits both buyers and sellers and they have no reason to demand a change. This state of the market is called market equilibrium.

The volume of sales at this point is called the equilibrium market volume (QE).

The price at this point is called the equilibrium (market) price (PE).

Thus, market equilibrium is a state of the market in which the volume of demand is equal to the volume of supply.

Distinguish between partial and general equilibrium.

Partial equilibrium - equilibrium in a single market for goods and services of factors of production.

The general economic equilibrium is such a state of the national economy, in which all markets simultaneously ensure the equality of supply and demand, and none of these economic agents is interested in changing the volume of their purchases and sales. 5

The concept of general equilibrium was developed by Walras. In his interpretation, this is a state in which efficient supply and efficient demand are equalized in the service market. 6

The equilibrium of the entire economic system as a whole is called economic equilibrium and manifests itself in the form of proportionality:

Between the production of products and their consumption;

Between the resources involved in the turnover and their use;

Between the supply of goods and their demand;

Between material and financial flows.

The consistency of these proportions of social production leads to a balanced development of the economic system as a whole. However, each production unit has a certain autonomy, therefore proportionality in the national economy makes its way as a trend and implies a deviation from equilibrium, which is timed differently in different economic schools.

2. Models of macroeconomic equilibrium

According to fig. four:

I. Horizontal (Keysian) segment

II. Intermediate segment

III. Vertical (classic) segment

Figure 4

What approach was first formulated by A. Smith. His followers, neoclassical economists, proceed from the fact that the market system ensures the full use of resources, and the disproportion that sometimes arises is resolved on the basis of automatic self-regulation. Thanks to Smith, the economy always reaches the level of production at full employment in the classical segment.

Distinguish between the approaches of the two economic schools.

2.1. classic model

The classical point of view corresponds to a vertical segment. This model is based on the idea that a change in aggregate supply generates exactly the same aggregate demand (Say's law). But then the question arises: what happens if part of the income goes into savings? The classics believe that this is not scary, because what was saved will be spent in the form of investments, and if there is a lot of savings, then interest rates will fall, which in turn will stimulate the use of savings in the form of investments.

Thus, the balance of savings and investment is the main condition for a self-regulating economy in the neoclassical model.

2.2. Caseian model

The economic crisis of the 1920s and 1930s buried the illusion of a self-correcting economy. It was recognized that if there is not enough demand during a crisis, then even the lowest rates will not stimulate the desired level of investment and thereby increase demand.

The Keynesian concept rejected the position of the classical theory, according to which supply creates its own demand. If aggregate demand is insufficient, then the volume of production will not be equal to potential. If supply or real output is determined by demand, then it can be argued that a decrease in aggregate demand will lead to a decrease in real output. In such a situation, aggregate demand and aggregate supply will be balanced at a level far from the potential volume, i.e., not the full level of resource employment.

Such a system may persist and not change by itself. Large losses and long-term unemployment can be avoided only through an active macroeconomic policy of the state aimed at stimulating aggregate demand.

Keynes believed that the state should help bring the economy out of the crisis. Keynesian politics was the theoretical justification for a new approach to the role of the state in market economy. This model proves the need for coordinating intervention in the state (regulation of customs tariffs). 7

3. Equilibrium price

The equilibrium market price is the price at which the quantities demanded and supplied for a good coincide. She is relatively stable; there is no surplus or shortage in the market for any given good. eight

At one time, an interesting attempt to deeply reveal the nature of the equilibrium price from the standpoint of the labor theory of value was made by K. Marx. He noticed that supply and demand regulate only temporary fluctuations in market prices. According to him, "at the very moment when these opposing forces become equal, they mutually paralyze each other and cease to act in one direction or another. At the moment when an equilibrium is established between supply and demand and therefore they cease to act, the market price commodity coincides with its actual value, with the normal price around which its market prices fluctuate.

Supply and demand are balanced under the influence of the competitive environment of the market, as a result of which the price is spoken of as a competitive market equilibrium. In any case, in a competitive market, the equilibrium price and the corresponding quantity of goods are determined by market demand and supply. Ceteris paribus, the equilibrium market price is established at such a ratio of supply and demand, when the amount of goods that buyers want to buy corresponds to the amount that producers offer on the market. At the same time, there are no trends in prices and quantity of goods on the market.

3.1. Stability and instability of equilibrium

Figure 5

A market equilibrium is said to be stable if, when there is a deviation from the equilibrium state, market forces come into play to restore it. Otherwise, the equilibrium is unstable. To test whether the equilibrium shown in the figure is stable, let us assume that the price has risen from P0 to P1. As a result, the market has an excess in the amount of Q2 - Q1. Regarding what will happen after this, there are two versions - L. Walras and A. Marshall (Fig. 5).

According to L. Walras, with an excess, there is competition between sellers. To attract buyers, sellers will begin to reduce the price. As the price decreases, the quantity demanded will increase and the quantity supplied will decrease until the initial equilibrium is restored. If the price deviates downward from its equilibrium value, demand will exceed supply. Buyers will compete for scarce goods. They will offer sellers a higher price, which will increase the supply. This will continue until the price returns to the equilibrium level P0. Therefore, according to Walras, the combination P0, Q0 represents a stable market equilibrium. 9

A. Marshall argued differently. If the price rises to P1, then the quantity demanded will decrease to Q1. Entrepreneurs agree to offer such a quantity of products at the price P2. Since the demand price (P1) exceeds the supply price (P2), firms receive a large amount of profit, which stimulates the expansion of production and the growth of supply. When the supply reaches Q0, then the demand price equals the supply price, profit disappears and output stabilizes. If the equilibrium supply is exceeded, the demand price will be lower than the supply price. In such a situation, entrepreneurs incur losses, which will lead to a reduction in production to an equilibrium breakeven volume. Therefore, according to Marshall, the point of intersection of the supply and demand curves in the figure represents a stable market equilibrium.

According to Walras, in conditions of scarcity, the active side of the market is buyers, and in conditions of excess, sellers.

According to Marshall, entrepreneurs are always the dominant force in shaping the market.

Differences in the description of the market functioning mechanism stem from the fact that, according to the first, market prices are completely flexible and instantly react to any changes in the market situation, and according to the second, prices are not flexible enough, and as a result, if there are imbalances between supply and demand, the volume of market transactions respond faster to this disproportion than prices. Therefore, the interpretation of the process of establishing market equilibrium according to Walras corresponds to the conditions of perfect competition, and according to Marshall - to the conditions of imperfect competition in the short period. ten

3.2. Scarcity and surplus

Market equilibrium can only be considered with respect to a fixed unit of time. At each subsequent moment of time, market equilibrium can be established as some new value of the market equilibrium price and the number of sales of goods at this price, which are formed during a month, season, year, series of years, etc. but market equilibrium is always a state of the market in which QD = QS. Any deviation from this state sets in motion forces that can return the market to a state of equilibrium: eliminate the shortage (QD > QS) or excess (surplus) of goods on the market (QD< QS) (рис.3). 11

Thus, a surplus occurs if, at a certain price, the supply of a good exceeds the demand for it.

A good is in short supply if the quantity demanded for the good is greater than the quantity supplied.

Consumers do not always believe that existing prices are optimal. The fact is that the imperfection of the social structure of production appears on the surface as the imperfection of the price system. Public dissatisfaction with existing equilibrium prices forms a fertile ground for government intervention in market pricing. In practice, this results in the establishment of maximum or minimum prices. If the maximum price set by the state ("price ceiling") is below the equilibrium level, then a deficit is formed, if the state sets a minimum price above the equilibrium level (the so-called subsidized price), then a surplus is formed. Fixing prices means turning off the mechanism of market coordination. In conditions when the price is below the equilibrium level, the deficit does not weaken, but increases, moreover, non-monetary costs are added to the consumer's monetary costs. The latter are associated with the search for goods, standing in lines, etc. - they are all deadweight costs that do not serve to expand the production of scarce goods. They settle in the sphere of distribution of a scarce commodity, and do not reach those who actually produce it. The price ceiling "cuts" the surplus of producers and thereby reduces the incentives for its production at those enterprises that have the lowest production costs of this product. Therefore, the deficit does not decrease. On the contrary, those who sell (or distribute) a scarce product are interested in preserving it, so how it becomes a source of their income (because it increases the size of non-monetary costs.) Therefore, they will in every possible way promote state regulation of prices under various “plausible” pretexts.

In cases where the price is above the equilibrium, there is a need for additional incentives to restrict supply and increase demand in order to reduce the gap between the subsidized and equilibrium prices. In both cases, the market economy begins to function less efficiently than in conditions of perfect competition. 12

The balancing function is performed by the price, which stimulates the growth of supply when there is a shortage of goods and unloads the market from surpluses, holding back supply. According to Walras, in conditions of scarcity, the active side of the market is buyers, and in conditions of excess, sellers. According to Marshall, entrepreneurs are always the dominant force in shaping the market.

As shown in Figure 3, any surplus of goods, i.e. commodity surplus, pushes the price of goods down to the equilibrium point E. Any shortage of goods, the lack of goods on the market will push the price of goods up to the equilibrium point of supply and demand E. Ultimately, an equilibrium price PE will be established, at which QE of goods will be sold at market.

Now consider what happens in the market if demand or supply changes.

4. Shift of market equilibrium

4.1. Shift in the market equilibrium caused by a change in demand

Imagine that there is an increase in demand for a product.

The balancing function is performed by the price, which stimulates the growth of supply when there is a shortage of goods and unloads the market from surpluses, holding back supply. If demand grows, i.e. if the supply of goods remains unchanged, the entire demand curve shifts to the right upwards, then a new, higher equilibrium price level and a new, larger volume of sales of goods are established. Conversely, a decrease in demand, when the entire demand curve shifts downwards to the left with the same supply, leads to the establishment of a lower equilibrium price and a smaller volume of commodity sales. Let's look at this with an example.

P

Figure 6

Suppose that as a result of an increase in income or the emergence of a fashion for a product, the demand for it has increased. This will lead to a right-upward shift in the demand curve (Fig. 6). Specifically, we are talking about the fact that the volume of goods of this type required on the market at each price level has increased. If the market price remains for some time at the previous equilibrium level (Pe), then there will be a shortage, since the quantity demanded will increase from Qe to Qd1, and the supply will remain at the same level Qe.

Active demand, exceeding supply, will stimulate price increases and output expansion. At the same time, as the price rises, demand activity will fall. This will continue until the system reaches a new equilibrium state E1. The effect obtained from such a shift in the demand curve is to increase production while increasing the price (Qe1 > Qe and Pe1 > Pe) and increasing producers' profits. The reverse reaction of the market will be observed when the demand curve shifts to the left and down.

As we can see, a decrease in demand for a product, other things being equal, will cause a decrease in the equilibrium price and a decrease in the equilibrium volume of sales. 13

4.2. Shift in market equilibrium caused by a change in supply

Consider what happens in the market if the supply of a product changes.

P

Figure 7

Ri changing supply and constant demand will also establish a different level of market equilibrium. Thus, an increase in supply, which means a shift of its entire curve to the right, will give a new point of lower equilibrium price with an increasing number of sales of the product. Decrease in supply, i.e. shifting the entire curve to the left will establish a higher equilibrium price and fewer sales of the good.

Suppose now that there has been an increase in the cost of raw materials (or the state has introduced strict requirements for environmental protection). The cost of production will rise, and some of its producers will begin to incur losses. Their departure from the industry will lead to a reduction in supply, and at every price level. In short, there will be a left-up shift in the supply curve (Figure 7). Maintaining the market price, at least temporarily, at the previous equilibrium level (Pe) will cause a shortage of this product, since the supply will be reduced to QS1, while demand will remain at the same level Qe. The excess of demand over the falling supply will force consumers to accept a higher market price. At the same time, the volume of demand will begin to decline. In response to an increase in the demand price, producers will begin to expand output. As a result, the market will come to a new equilibrium state E1 at price Pe1 and volume Qe1.

In a competitive market for any product, the balance of supply and demand is established precisely according to this scheme. Equilibrium is the law for every competitive market. Thanks to the balance in each commodity market, the balance of the economic system as a whole is maintained. fourteen

Chapter 3: ELASTICITY OF SUPPLY AND DEMAND

1. Elasticity, an indicator of price elasticity

In which direction the equilibrium price changes during the transition to a new equilibrium depends on the scale of the change and the elasticity of supply and demand. Knowing the coefficients of direct elasticity of supply and demand, it is possible to predict the new value of the equilibrium price with small changes in supply and demand. In economic practice, elasticity analysis allows you to determine the size of the production of individual goods and services, study consumer behavior, plan pricing policy firms, form a strategy for firms in the short and long term to maximize profits and minimize losses, predict changes in consumer spending and producer income due to changes in prices for goods and services.

The term "elasticity", which came to economics from physics, is used to measure the ratio of interdependent variables: prices and the quantity, or volume, of goods sold. For example, if the price of a car increased by 10%, how much would the number of their sales change over a given time interval? Or: how will the demand for cars change if the income of the population increases by 12% per month, per year?

The most convenient, unified unit of elasticity is the percentage. Percentage calculation is able to show the degree of change in any economic variable, regardless of what the original units of measurement were - in money, in tons, meters, pieces, etc. in business practice, the percentage change in one variable as a result of a 1% change in another is most often used.

Measurement of price elasticity of demand is carried out in order to find out how many percent the volume of sales of goods has changed due to a 1% change in the price per unit of these goods. The technique of such measurement is simple and is the determination of the quotient of the percentage change in the quantity demanded per 1% change in price. fifteen

2. Variants of elasticity of demand

In practice, there may be at least five different options for price elasticity of demand:

1. demand is elastic, when, with slight price increases, sales volume increases significantly;

2. demand has a unit elasticity when a 1% change in price causes a 1% change in sales of goods;

3. demand is inelastic if, with very significant price reductions, the volume of sales changes inelastically;

4. Demand is infinitely elastic when it has only one price at which consumers buy a good (for example, insulin for diabetics);

Demand is perfectly inelastic when consumers purchase a fixed quantity of a good, regardless of its price.

AT All variants of elasticity of demand can be shown in the graphs of Fig.8.

Each option shown in Fig. 8, has its own coefficient of elasticity:

Figure 8 A - inelastic demand; curve B - unit elasticity; curve C - elastic demand.

The coefficient of inelasticity of demand is less than one;

With elastic demand, when a 1% decrease in price causes an increase in sales by more than 1%, the elasticity coefficient is greater than one;

Finally, with unit elasticity, the coefficient is equal to one.

For example, if an increase in the price of a product by 100% leads to a decrease in sales by 50%, then the elasticity of demand is 50%, dividing by 100%, we get a coefficient of 0.5.

In a strict mathematical sense, this coefficient is minus, since the price and quantity of sales change in the opposite direction (inverse dependence of the variables). But for ease of analysis, elasticity coefficients are considered as a positive value, especially since this value acquires real significance in terms of the volume of proceeds from sales of goods, i.e. cash trade income.

Therefore, when the percentage of price reduction causes such an increase in the percentage of sales that the total trading revenue(the product of the price and the quantity of goods sold) increases, then the elasticity of demand acquires the practical meaning of a positive coefficient.

With unit elasticity, when the coefficient is equal to one, the decrease is exactly compensated by the volume of sales that does not change the trading revenue.

In the case of inelastic demand, a decrease in price causes an increase in sales of the product so small that the total sales revenue decreases. 16

3. Supply elasticity

Are the concepts of "elasticity" and "elasticity coefficient" applicable to the supply of goods? Yes, applicable.

The concept of the elasticity of the supply of goods characterizes the relative changes in the prices of goods and their quantity offered for sale. The intensity of these changes also varies, and in practice the following situations may occur:

Elastic supply;

Unit elasticity proposals;

- inelastic supply.

Figure 9 curve A - unit elasticity; curve B - elastic supply; curve C - inelastic supply

The price elasticity of supply acts as a direct linear relationship between economic variables showing the percentage change in price and the resulting percentage change in the volume of goods offered for sale. These dependencies are determined by the position of supply elasticity curves shown in Fig. 9.

With unit elasticity of supply, a 1% increase in the price of goods causes a 1% increase in their supply for sale in the market. In this case, there is an equal change in prices and the quantity of goods offered, the coefficient of which is equal to one.

In the case of elastic supply, a 1% increase in price can cause an increase in the quantity of goods offered for sale that is well over 1%. The elasticity coefficient here is greater than unity.

With elastic supply, an increase in price does not have any effect on an increase in the number of goods offered for sale.

Theoretically, another extreme case can be envisaged: an infinite elastic supply, which looks like an absolutely horizontal line on the chart. An infinitely elastic supply is an increase in the supply of goods to the market with a very small increase in the prices of these goods.

Supply elasticity indicators confirm a very important pattern: over a long period of time, when demand has already adapted to the increased price, supply elasticity contributes to the establishment of the so-called normal equilibrium price (as opposed to instantaneous and short-term equilibrium prices). 17

Conclusion

In his term paper, the author tried to reveal the concepts of supply and demand, the balance of supply and demand, the equilibrium price, surpluses and shortages, and also showed what effect certain factors have on supply and demand in a market economy. Indeed, any act of sale is preceded by two phenomena - "demand" and "supply", the values ​​of which determine the volume of transactions and the level of prices in the market. And since the market economy is the dynamics of prices and the volume of transactions, it is possible to achieve their desired change by adjusting the amount of demand (consumers' income) and the amount of supply (producers' profit).

So, as a result of the interaction of market demand with market supply, an equilibrium price is established that provides the maximum possible sales volume in this market under the existing plans of consumers and producers. Only the market price leads to the fact that there is neither a surplus of a product nor a shortage in the market. Any price above the equilibrium price induces sellers to produce more of the product. But this high price discourages consumers from buying the offered quantity of the product. There is an excess supply in the market that exceeds demand. Excess supply leads to a decrease in prices to the equilibrium level. Any price below the equilibrium price results in a shortage of the product. There is an unsatisfied demand in the market that exceeds the supply. And it, in turn, leads to higher prices, which will continue until demand becomes equal to supply.

Prices will rise or fall until sellers and buyers succeed in clarifying the situation in the market, i.e. achieve a price level at which the supply and demand for the product exactly match. When transactions are carried out at the equilibrium price, the sum of consumer and producer surpluses reaches a maximum. The established market equilibrium is disturbed when demand or supply changes, and the process of adaptation to a new equilibrium begins. Depending on what reacts faster to the disproportion between the volume of demand and the volume of supply - price or quantity - they distinguish between the mechanism of adaptation according to Walras and according to Marshall.

Market equilibrium can only be considered with respect to a fixed unit of time. At each subsequent moment of time, market equilibrium can be established as some new value of the market equilibrium price and the number of sales of goods at this price, which are formed during a month, season, year, series of years, etc.

In a competitive system, the equality of supply and demand leads to equilibrium in all markets. And yet, the equilibrium price can change (the equilibrium point shifts in one direction or another). Some impacts on the market equilibrium of prices cannot be foreseen, the impact of others is difficult to take into account, since they only move the equilibrium point without violating the laws of supply and demand. The latter impacts include, for example, taxation. Through the system of taxation and subsidies, the state influences the process of market pricing and the value of the equilibrium price. The introduction of an excise raises the equilibrium price and reduces the equilibrium quantity, and the establishment of a subsidy per unit of product sold reduces the equilibrium price and increases the equilibrium sales volume. However, in both cases, there are net losses to society, since with the introduction of a tax, the reduction in the total surplus of consumers and producers exceeds the amount of tax revenues, and with the introduction of subsidies, the amount of the latter exceeds the increase in the total surplus of participants in market transactions.

The latest research in the field of equilibrium makes it possible to make a number of significant additions to the works of Walras. Economic theory does not deal with a stable equilibrium, but with its constant violation, which is figuratively called "equilibrium - disequilibrium". Three important conclusions follow from this:

1. Equilibrium should be considered as an abstract model ideal. It has never been and cannot be, but it is always necessary to start research with it.

2. Equilibrium - dynamic, optimal disequilibrium, i.e. it is a deviation of prices from cost, results from costs.

3. Equilibrium as disequilibrium plays a destructive role, forcing economic agents to act both contrary to their deepest interests and the interests of society as a whole.

LIST OF USED LITERATURE AND SOURCES.

1. Marx K. Salary, price and profit. 1. 2nd ed. T.16. S.120.1990.

2. Raizberg B. A. Market economy. - M. 1991.

3. Kamaev VD Textbook on the basics of economic theory. - M., 1992.

4. McConnell K., Bru S. Economics 1 vol. - M., 1992.

5. McConnell K., Brew S. Economics 2 vol. - M., 1992.

6. Stenlake JF Economics for beginners. - M., 1994.

7. Mamedov O. Modern economy. Public course. - Rostov-on-Don, 1996.

8. Shishkin A. Economic theory, textbook for students of economic specialties of higher educational institutions. - M., 1996.

9. Ryabikina A. A., Bykova T. V. Fundamentals of microeconomics. Demand and supply. - St. Petersburg, 1997.

10. Galperin V. M., Ignatiev S. M., Morgunov V. I. Microeconomics. - St. Petersburg, 1998.

11. The course of economics. / Ed. Raizberg B. A. - M. 2000.

12. Economic theory. / Ed. Nikolaeva I.P. - M., 2000.

13 Avtonomov V. S. Introduction to the economy. - M., 2002.

14. Course economic theory: Proc. / M.I. Plotnitsky, E.I. Lobkovich, M.G. Mutalimov and others; Ed. M.I. Plotnitsky. - Minsk: "Interpressservice"; "Misanta", 2003.

Demand , sentence, market equilibrium 4 1.1. Demand 4 1.2. Sentence 7 1.3. Market equilibrium prices demand and suggestions 9 2. Models of macroeconomic equilibrium 10 2.1. Classic model...

For a firm, when planning the volume and structure of production, it is extremely important to know what determines the demand for its products.

Therefore, it is important for the firm to determine what quantitative impact on the magnitude of demand can have a change in the price of products, consumer incomes or prices for substitute goods produced by competitors.

The measure of the response of one quantity to a change in another is called elasticity. Elasticity measures the percentage change in one economic variable when another changes by one percent. An example is price elasticity of demand, or price elasticity of demand, which shows how much the percentage of demand for a product will change when its price changes by one percent.

The price elasticity of demand for all goods is negative. Indeed, if the price of a commodity decreases, the quantity demanded increases, and vice versa. However, the absolute value of the indicator is often used to assess elasticity (the minus sign is omitted).

If the absolute value of the price elasticity of demand is greater than 1, then we are dealing with a relatively elastic demand. In other words, a change in price in this case will lead to a greater quantitative change in the quantity demanded.

If the absolute value of the price elasticity of demand is less than 1, then demand is relatively inelastic. In this case, a change in price will entail a smaller change in the quantity demanded.

With an elasticity coefficient equal to 1, one speaks of unit elasticity.

By measuring the price elasticity of supply, we can get an answer to the question of how the production of a particular product responds to price changes. The coefficient of price elasticity of supply is calculated using the same formula as the coefficient of price elasticity of demand.

Supply, because it is associated with a change in the production process, is slower to adapt to price changes than demand. Therefore, the time factor is the most important in determining the elasticity index.

Usually, when assessing the elasticity of supply, three time periods are considered: short-term, medium-term and long-term.

A short run is a period that is too short for any change in output to take place. For example, a gardener who has grown apples and comes to the market to sell them cannot change the number of apples he offers, no matter what the market price is. In this case, the supply is inelastic.

The medium term is sufficient to expand or reduce production at existing production facilities, but not enough to introduce new facilities. In this case, the elasticity of supply increases.

The long-term period involves the expansion or reduction of the company's production capacity, as well as the influx of new firms into the industry when the demand for this product expands or leaves it when the latter is reduced. The elasticity of supply will be higher than in the two previous cases.

The theory of elasticity of supply and demand has an important practical value. The elasticity of demand is an important factor influencing a firm's pricing policy.

On the other hand, depending on the elasticity of supply and demand for individual goods, the tax burden will be distributed differently between producers and consumers of products.

The theory of production and costs in a market economy. production effect

Each enterprise, firm is subject to the law of ensuring reliable and stable development by increasing production. Both revenue and costs depend on the volume of production. In theoretical and practical terms, it is important to identify the relationship between the change in production costs per unit of output depending on the change in production volume. The costs that a firm incurs in the production process depend on the amount of resources employed. Resources such as labor, raw materials, fuel, energy, etc. can be changed quickly and easily. It can take several years to change the resources of production facilities in heavy industry. Due to the fact that there are features and limitations in attracting additional resources to expand the volume of production at the enterprise, short-term and long-term periods are distinguished in the economy. In a short period, factors of production such as technology and production capacity remain unchanged, while all other factors are variable. Over a long period, all factors of production are variable. The volume of production in the short run can be changed by using more or less living labor, raw materials and other resources, while the production capacity remains unchanged, but can be used more or less intensively. The long-term period is associated with changing capacities, it is a long period of time sufficient to change the amount of all occupied resources. From an industry point of view, the long run also includes enough time for incumbents to break up and leave the industry and for new firms to emerge and enter the industry. Within a short period of time, the firm can combine fixed capacities with varying amounts of other inputs. Law of diminishing returns consists in the fact that in the short period, when the value of production capacity is fixed, the marginal productivity of a variable factor will decrease, starting from a certain level of costs of this variable factor. The marginal product (productivity) of a variable factor of production, such as labor, is the increase in output resulting from the use of an additional unit of this factor.

Supply is on the production side, demand is on the consumption side. These two elements are inextricably linked, although they are opposed to each other in the market. Depending on the specific market conditions, supply and demand are balanced for a more or less long period. This equalization of supply and demand can occur spontaneously and under the regulatory influence of the state. Market mechanism acts as a coercive mechanism forcing entrepreneurs, pursuing their own goal (profit), to act in the end for the benefit of consumers. Unsatisfied demand for a fashionable product raises the price of demand, but does not fully satisfy the need. Producers have an alternative: either expand production and lower prices and thus satisfy the needs of a larger number of buyers, or keep a high price until competitors fill this niche in the market and take away the clientele, and with it not only excess profits (from high prices ), but also profit. This danger prompts the manufacturer to expand production in a timely manner, to reduce the price of his product until the market is completely saturated. This mechanism operates subject to the presence of competitors. Demand- this is a form of expression of solvent need, that is, the amount of money that buyers can and intend to pay for the goods they need. Demand is influenced by the income of buyers, their tastes and preferences. The law of demand: C=F (C), where - F is an indicator of quantitative dependence. The higher the price of a product, the less demand for it, and vice versa, the lower the price, the greater the demand. The degree of quantitative change in demand in response to price dynamics characterizes the elasticity (or inelasticity) of demand. The elasticity of demand refers to the degree to which demand changes with price. Elastic demand occurs when the quantity demanded changes by a greater percentage than the price. Inelastic demand manifests itself if the solvency of buyers is not sensitive to price changes. Let's say, no matter how the price of salt rises or falls, the demand for it remains unchanged. The elasticity of demand has importance to predict the volume of demand when prices change. Sentence- a set of goods and services on the market or can be delivered to it. The sale is carried out in the form of an offer, and the purchase is carried out in the form of a demand. Supply becomes elastic when its value changes by a greater percentage than the price. The coefficient of elasticity of supply, under the condition of equilibrium of prices and over a long period, tends to increase (that is, an increase in prices by a certain amount causes an increase in production to a slightly greater extent).

Starting to study the theory of supply and demand, it should be noted that it has undergone certain changes that have a positive impact on the interaction with other theoretical concepts of value, value and price. Initially, attempts were made to justify the position according to which the price is determined solely by the ratio of supply and demand. However, with this approach, the question of the substance of price remained open when supply and demand were equal. In addition, supply and demand, in turn, depend on market prices. The higher the price, the lower the demand and more offer The lower the price, the greater the demand and the less supply. Therefore, at this level of generalization, a vicious circle arises, where cause and effect are reversed: supply and demand form the price, at the same time, the price determines the relationship between supply and demand. Therefore, price is a component of both supply and demand.

In the future, supply and demand began to be considered in unity with utility (marginal utility) and production costs. As a result, demand received significant theoretical support to justify demand prices based on the utility of goods, and supply received a theoretical justification of supply prices in the form of production costs.

As for the labor theory of value, within its framework, supply and demand are the most important tool for identifying social significance, the value of labor costs incurred for the production of certain goods. As we already know, it is through supply and demand that the social content of abstract labor is manifested. At the same time, the law of value performs the function of a regulator of social production exclusively through supply and demand.

Demand

Now, after such overall assessment this theory, let's move on to a detailed consideration of supply and demand. Demand expresses only the needs that are confirmed by the solvency of consumers. Therefore, in the framework of the theory of demand, consumers are buyers with certain funds. The market does not recognize a need that is not confirmed by the solvency of the buyer. In this regard, we can say that needs are our desires and aspirations to possess certain goods, while demand is our ability to acquire these goods.

Consider the relationship between demand and price, i.e. dependence of demand on price. Let's put on the abscissa axis the volumes of products Q, for which demand is presented, and on the ordinate axis - the prices for this product C and draw a line expressing the relationship between them (Fig. 10.1).

Rice. 10.1. Demand curve

The demand curve (C) represents the inverse functional dependence of demand changes on price dynamics. Therefore, any demand curve in itself expresses the functional dependence of the quantity demanded on the price: when the price moves in one direction (up or down), the quantity demanded changes in the opposite direction (respectively, downward or upward). In this regard, we can say that the quantity demanded is a specific quantitative certainty, dictated or imposed by the price. Sliding up or down the curve and stopping at certain points, we can say that in the current market situation, a given price corresponds to a certain amount of demand equal to a certain amount of this good.

At the same time, the demand curve does not express the inverse functional dependence of price changes under the influence of demand dynamics. Otherwise, this would mean that as demand increases, prices fall. This is contrary to the law of demand, which states that a decrease in prices causes an increase in demand, and an increase in demand leads to an increase in prices. Therefore, for a graphical reflection of the functional dependence of price on demand, i.e. when the independent variable is demand and the dependent variable is price, the method of shifting the demand curve up and to the right or down and to the left is used. This is due to the fact that the demand function changes when factors that were previously taken as constants change - this is a change in income, tastes and preferences of buyers, product quality, etc.

Many consumers believe that the price accurately reflects the quality of the product. In fact, the relationship "price - quality" is not so unambiguous. A special place is occupied by the Veblen effect, which means the purchase of goods of a special kind for prestigious reasons, which should indicate a high position, the status of the buyer. Prestigious price - the price of the products is very High Quality having some special, unsurpassed properties or features. If consumers stop perceiving the product as unique, special, then the demand curve will invariably return to its original position.

Finally, the price dynamics and their level are influenced by the effect of adaptive inflationary expectations, which is manifested in the growing demand for products in the conditions of constant expectation of their price growth.

Demand and magnitude of demand

It is necessary to distinguish between demand and quantity demanded. Suppose that under the influence of certain factors (increase in income, hype, stabilization or destabilization of the socio-economic situation) there are changes in demand. Let's say people tend to buy a certain product for the future. The market will begin to experience pressure from buyers, from the side of demand. And, as we already know, the demand curve will have to move up and to the right, thereby describing its changed state. In our case, a change in demand will cause both an increase in prices and an increase in the quantity demanded.

In principle, the opposite situation may also arise: under the influence of a reduction in demand, both prices and the magnitude of demand will fall. Referring to the graph (see Fig. 10.1.), You can see two signs that indicate whether there is or is not a change in demand. If the demand curve remains in its previous state, then any quantitative change in the acquisition of a particular good will indicate a change only in the quantity demanded. Any shift in the demand curve indicates a change in the market situation on the demand side, which can lead either to maintaining the same value of demand, or to its increase, or to a decrease.

The problem of studying demand is not only the problem of buyers and sellers, who must have sufficient information about the dynamics of demand for manufactured goods. Demand is also of interest to government agencies, primarily the tax system, since it is necessary to know how an increase or decrease in tax rates can affect a change in demand, which will ultimately affect the reduction or increase in tax revenues to the budget. In this case, we are talking about indirect taxes, or taxes that are included in the prices of goods. These are excise taxes on goods of low elastic demand (salt, matches), or goods that are considered harmful from the point of view of society (alcohol, tobacco), or value added tax. This aspect of demand elasticity is discussed below in relation to supply elasticity.

Consumer profit

In studying demand prices, consumer benefit is important. Profit, or surplus, of the consumer is the difference between the maximum amount that the consumer is willing to pay for the amount of the good for which he makes a demand, and the amount actually paid. Consider the formation of consumer surplus on a conditional example (Fig. 10.4).

Rice. 10.4. Profit or consumer surplus

The ascending nature of the supply curve reflects the operation of the law of supply, which lies in the fact that for the vast majority of goods, the higher the price for them, the more of the corresponding goods will be produced and offered on the market. This is due to the fact that the proceeds received from the sale of goods at a higher price contain a large share of the profit, since the production costs for its release remained unchanged. The difference between the proceeds from the sale of goods and its costs is nothing but profit.

The concave nature of the supply curve demonstrates the process in which an initial increase in the price of a good provokes the involvement of all more enterprises, which causes a certain surge in the supply of this product. A further rise in price will eventually saturate the supply, for the reserves for expanding production are gradually exhausted and the quantity of the commodity offered is relatively stabilized. Controversy remains among economists regarding the nature of the location of the supply curve. Some of them believe that, although slowly, it is constantly shifting upward to the right. Others believe that it then transforms into a vertical line and a further change (increase) in price remains without attention, because there are certain limited resources and restrictions in improving production.

Inverse functional relationship between supply and price, i.e. when the independent variable is the offer, and the dependent variable is the price, is expressed in Fig. 10.5 by shifting the supply curve in the plane of the coordinate axes (curves П′ and П″). A shift in the supply curve to the right means an increase in the supply of a good, to the left a decrease in its supply. In addition, this indicates the influence of non-price factors on the supply of this product.

The offer and the amount of the offer

In this case, it is important to provoke a change in the situation on the market from the supply side, regardless of the factors that influenced it. At the same time, the offer should not be confused with the size of the offer. The first expresses the direction, position

curve, while supply quantities are the locus of points along the supply curve. It is a matter of distinguishing sliding, moving along a curve, from its displacement. If the price changes, and other factors affecting the supply remain unchanged, then the supply of the goods does not change, while the quantity of the offered goods changes under the influence of the price factor (for example, movement along the supply curve P′ from point A to point B).

We can say that the supply expresses the functional relationship between the price and the amount of supply, while the amount of supply is a quantitative certainty. The volume of supply changes under the influence of changes in the price of goods; the supply function changes when factors that were previously taken as constants change.

Supply elasticity

Along with the elasticity of demand, which expresses the reaction of buyers to changes in prices for goods and services, the elasticity of supply also manifests itself, which characterizes the relative changes between the price and supply of goods for sale. The coefficient of supply elasticity expresses the change in the production and supply of goods with an increase or decrease in the price of goods by 1%. If, with an increase (decrease) in price by 1%, its supply also increased by 1%, then such elasticity of supply is called unit elasticity. The slope of supply curves gives some indication of the degree of elasticity of supply with respect to the price of a commodity. The flatter the supply curve for a product, the more elastic it is. The steeper the supply curve, the less elastic the supply of a commodity.

Elasticity and tax burden

The elasticity of the supply of goods depends on many factors: the differentiation of individual costs at different enterprises, the degree of utilization of production capacities, the availability of free labor, the speed of capital flow from one industry to another, etc.

Supply, because it is associated with a change in the production process, is slower to adapt to price changes than demand. Therefore, when assessing the elasticity of supply, it is necessary to distinguish between three periods: short-term, medium-term and long-term. In the short run, the company fails to achieve any changes in the volume of output. In this case, the supply is inelastic. In the medium term, an enterprise can expand or maintain production on the basis of existing production facilities, but cannot introduce new facilities. This increases the elasticity of supply. In the long run, the company has enough time to expand or reduce its production capacity. In addition, there may be the creation of new enterprises. The elasticity of supply in this case will be greater than in the previous two.

The tax policy of the state deserves special attention, and above all in the field of indirect taxes. Indirect taxes are included in the price of goods and withdrawn to the budget after the sale of the latter. Depending on the elasticity of supply and demand for certain types of goods and services, the tax burden will be distributed differently between producers and consumers of products.

Consider the case of distribution of the tax burden with elastic and inelastic demand for products. On fig. 10.6 shows how the price and volume of sales will change after the introduction of the tax.

The proposal before the introduction of the tax is characterized by the line P, after the introduction of the tax - P, i.e. the supply line has shifted to the left by the amount of the tax. The equilibrium state has moved from point K to point N, indicating both an increase in price and a decrease in output. However, the manufacturer cannot set the price above the equilibrium price, since in the conditions of competition it will be forced out of the market. The only thing he can do is raise the price to the equilibrium level.

If demand is elastic, the producer's losses will be higher, the burden of the tax will fall mainly on him. On fig. 10.6, and the selected rectangle shows the amount of the tax. Its part below the dashed line is the loss of the producer as a result of the introduction of the tax. The buyer's loss is at the top of the dashed line of this rectangle. In addition, the manufacturer will be forced to reduce production from k to n, losing some buyers of his products due to a higher price for it.

Rice. 10.6. Distribution of the tax burden between producers and consumers depending on the elasticity of demand

If demand is inelastic (Fig. 10.6, b), the tax burden will fall mainly on the consumer. On the graph, this is evidenced by the fact that most of the rectangle is above the dashed line. In addition, the absolute tax rate will also be higher if demand is inelastic. That is why the state imposes excise and other indirect taxes on goods for which demand is inelastic. On fig. In Figure 10.7, the shaded triangles highlight the value of products that would be produced and purchased if the government had not imposed the tax. These are those potential consumers who would like to but cannot buy the product, and those potential producers who would like to but cannot produce it as a result of the tax pressure. This is a direct consequence of the established tax and represents a loss to society. Moreover, these losses will be the greater, the higher the elasticity of demand for this product.

Rice. 10.7. Distribution of the tax burden between producers and consumers depending on the elasticity of supply

Let us now consider the dependence of the distribution of the tax burden on the elasticity of supply. This situation is reflected in Fig. 10.7 for

cases before and after the imposition of the tax. Let us turn again to the distinguished quadrangles. With an elastic supply (Fig. 10.7, a), the tax burden falls mainly on the consumer, the price increase and the reduction in production will be significant, the tax amount will be relatively less than with an inelastic supply, society's losses are higher. With inelastic supply (Fig. 10.7, b), the reverse picture is observed: the main tax burden is borne by the producer.

Equilibrium price

A reduction in the number of commodity producers in the future may cause a gradual increase in prices due to a reduction in the number of products entering the market and initiate the formation of imperfect competition. And in conditions of imperfect competition, as a rule, the price is too high.

An increase in supply prices, on the contrary, draws into production activity an ever-increasing number of commodity producers who previously could not participate in it because of their high production costs. This involvement will lead to an increase in the overall level of production costs, a decrease in its efficiency.

Equilibrium price and time factor

To understand the equilibrium price, the time factor is of great importance. It is important for both buyers and sellers to know what kind of equilibrium is established: instantaneous, short-term or long-term. Depending on the length of the period, either no effort will be made, or temporary factors of production will be involved, or large-scale production transformation activities will be carried out in order to increase supply.

Instant equilibrium is characterized by a fixed, unchanging quantity of goods offered, since production is not able to instantly respond to a changed market situation.

Short-term equilibrium is due to the possibility of increasing production and supply based on the use of temporarily acting factors, without increasing the number of equipment, expanding production capacities. These time factors include overtime work, weekend work and holidays, increase in shift work. This indicates the involvement of the labor factor.

Long-term equilibrium is due to the use of long-term factors. As a rule, in this case we are talking about investments related to the renewal, modernization of production, getting rid of worn out and obsolete equipment, the creation of new or additional production facilities. In this case, we are talking about the involvement of such a factor as capital, primarily fixed capital, which is spent on the acquisition of means of production.

Market Equilibrium Mechanisms

Having general ideas about the state of market equilibrium, consider the mechanisms of its establishment in dynamics.

Instant Balance Mechanism

Suppose the demand for some product has increased dramatically, for which production was not ready. It cannot instantly expand the supply, and if it can, then in a minimal amount. Therefore, in this case, the proposal will remain unchanged, fixed. On fig. 10.10 supply curve (P 1 ) takes a vertical position - P 2 , thereby emphasizing the unchanged supply of goods in the new conditions.

Rice. 10.10 Instant balance

As you can see, due to the mismatch between supply and demand, the equilibrium price (C k) corresponding to the intersection of the supply curve (П 1 ) and the demand curve (C 1 ) at point K is violated. This is due to the fact that at a given price in the changed conditions, a significantly increased number of buyers wants to purchase this product. However, the offer remained the same. There was an imbalance between effective demand and the volume of goods offered. The elimination of this imbalance and the restoration of a new equilibrium in the market occurs by increasing the price of this product. A sharp increase prices "compartment" that contingent of buyers who were ready to pay the regular price (C k), but is unable or unwilling to make purchases at the new price (C m). This is fixed in Fig. 10.10 by moving the demand curve from position C 1 to position C 1 . A new equilibrium price has been established (C m) corresponding to the instantly changed market situation.

Mechanism of short run equilibrium

Now let's analyze the situation when commodity producers have the opportunity to mobilize additional variable factors (Fig. 10.11). Suppose the price of a certain product has increased. Higher prices than before stimulate commodity producers to organize overtime work, work on weekends, and postpone vacations for workers to a later period. At the same time, the entrepreneur in all cases will increase the monetary remuneration for labor - wages, since a high price allows not only to cover additional costs, but also to receive additional profit.

Rice. 10.11. short term balance.

Price increase to the level of C m, caused by an increase in demand, will push commodity producers to expand the output of goods and contribute to the growth of its supply up to size n. The supply curve will take position P 3 . Thus, due to the timely reaction of commodity producers to the increased demand, a new equilibrium price was established n, according to which the quantity of the offered goods began to correspond to the quantity of the requested goods - n. Curve C 2 remained in the same place, since an increase in supply caused a price decrease from the level of C m up to level C n

Mechanism of long-run equilibrium

As the price continues to be held at a relatively high level, despite the efforts of entrepreneurs in the field of using short-term factors, new capital will rush into this industry. This will lead to technical re-equipment, expansion of production capacities and a significant increase in output, i.e. her suggestions.

Let's turn to Fig. 10.12. Suppose that point N at the intersection of the demand and supply curves reflected the short-term equilibrium between the quantity of the requested and offered goods at a price equal to P n. Its high level causes an increase in investment. The involvement of capital and other resources causes an increase in supply. This increase in supply is reflected on the graph by a shift in the supply curve from position P 3 to position P 4 . The bias is caused, as we already know, by an inverse functional relationship, when the offer acts as an independent variable (argument), and the price as a dependent variable (function).

Rice. 10.12. Long term balance.

Thus, the gradual saturation of the market for this product will lead to a decrease in price and a new long-term equilibrium will be established at point T, which will correspond to the "normal price", or the price long run equilibrium C t . . As for the demand curve, it remains in the same position (C 2 ) corresponding to the short-run equilibrium. The invariance of the position of the demand curve is due to the fact that here a functional relationship is established between demand and price, in which demand acts as a dependent variable on the price (independent variable). An increase in the quantity demanded (sliding along the demand curve from point N to point T) is associated with a decrease in price caused by an increase in the supply of this product. At the same time, provoking an expansion in demand is associated with a decrease in price, so there is no shift in the demand curve.

Unified balance mechanism

In accordance with the analysis of the equilibrium mechanisms of the instantaneous, short-term and long-term action of market forces, we will try to integrate them into a single process by combining the identified trends in a single graphic image (Fig. 10.13).

Rice. 10.13. Combination of charts of instantaneous, short-term and long-term equilibrium

So, the initial point of long-term equilibrium K corresponded to a stable "normal price". The next stage is a sharp surge in demand with the remaining supply unchanged (which is expressed by a shift in the supply curve from position P 1 to position P 2 ) led to an increase in price from the level of C k up to level C m. As you can see, this movement is associated with a shift in the demand curve from position C 1 to position C 2 .

High price (C m) contributed to the involvement of temporary variable factors in production, which caused an increase in the supply of goods from m to n . This increase in supply caused the price to drop from the CM level to the CN level. The result of the price reduction was an increase in demand from product m to n. Demand curve C 2 remains unchanged, which indicates the continuation of the trend towards an increase in demand under the influence of price reduction.

Finally, maintaining a relatively high price (C n) compared to the original "normal" price (C k) prompted entrepreneurs to invest, use the long-term factor. The expansion of production capacity made it possible to offer a product in the amount of t to the market, which caused a decrease in its price from the level C n up to level C T. Curve C 2 remains in the same position, thereby expressing the functional dependence of demand on the dynamics of price changes under the influence of changes in the supply of goods.

conclusions

1. Demand- These are the needs provided by the solvency of buyers. According to the law of demand, an increase in price causes a decrease in demand, and an increase in demand leads to an increase in prices. Therefore, the functional relationship between price (independent variable) and demand (dependent variable) is inverse.

2. The elasticity of demand expresses the reaction of demand (buyers) to a change in price. Price elasticity of demand measures the percentage change in demand for a 1% change in the price of a product. The coefficient of elasticity of demand can be equal to one (unit elasticity), more than one (high elasticity) less than one (low elasticity). In addition, a distinction is made between income elasticity of demand and cross elasticity of demand. Income elasticity measures the change in demand for a 1% change in income. Cross elasticity expresses the degree of sensitivity of demand for a certain product to a change in the price of another.

3. Sentence are goods that are on the market. The relationship between price and supply is direct: the higher the prices in the market, the more of this product will be offered. This shows the economic interest of the commodity producer and the essence of the law of supply.

The elasticity of supply is expressed in the change in the goods offered for sale when the price changes by 1%.

4. Equilibrium price indicates the equality of supply and demand for goods on the market, i.e. the demand price is equal to the offer price. On the chart, this is the price corresponding to the point of intersection of the supply and demand curves.

5. There are mechanisms of instantaneous, short-term and long-term equilibrium in the market. With an instant change in the situation on the market as a result of an increase or decrease in demand, the supply does not have time to respond to it and remains unchanged (fixed). Equilibrium is established by respectively raising or lowering the price of the commodity. In case of a short-term imbalance between supply and demand as a result of an increase in demand, commodity producers use the labor factor to increase supply (work on weekends, overtime, increased shifts, cancellation of holidays). As a result, a new, more low price compared to the instantaneous equilibrium price due to the increase in supply.

In case of a long-term disruption of the market equilibrium, the balance of supply and demand is established by increasing production on the basis of investments (capital investment in the reconstruction and modernization of production, expansion of production capacities). As a result, a new equilibrium price is established, but in terms of its level it is lower than the equilibrium price of the short-term period.