Supply and demand. Equilibrium price

Price, supply and demand.

Market balance.

Demand and the factors that determine it.

The action of the market is due to the functioning of the market mechanism. The main elements of the market mechanism are: demand, supply, market price and competition.

Demand is the desire and ability of consumers to buy a certain amount of goods.

The concept of demand is dual, since on the one hand it is a variety of desires, and on the other hand, opportunities provided by money. Hence the demand is qualitative and quantitative aspects.

quality side demand characterizes the dependence of demand on a variety of needs and is influenced by factors such as climatic conditions, the existing social, national, religious environment and the general economic level of development of society.

quantitative side demand is always associated with money, that is, with the payment capabilities of the population. Demand supported by the purchasing power of the population is called solvent demand .

The following factors influence the magnitude of demand: they are price and non-price. The price factor is the price of the product. Non-price factors - consumer income, types and preferences of consumers, the presence of substitute goods (substitutes), the presence of complementary goods (compliment), the number of buyers in this market, the expectations of buyers (inflationary and scarce).

Thus, demand is a multifactorial phenomenon, which is always supported by money. In the absence of payment opportunities, demand does not manifest itself as an element of the market mechanism.

Distinguish between individual and market demand.

individual demand - the demand of an individual buyer for a separate, specific product.

market demand - the total demand of all buyers for this product at a certain price.

Individual and market demand are inversely related to price. Distinguish between the dependence of demand on price and non-price factors.

The dependence of demand on price is described by the demand function.

Q d = f(P), where Q d- volume of demand, P– price, f is the demand function.

The demand function shows the quantity of goods that consumers are willing to buy at a given price level. The quantity of a good that consumers are willing to buy at a given price level is called the quantity demanded.

The demand curve has a downward slope D and shows the inverse relationship between the volume of demand d from the price. In other words, the higher the price, the lower the quantity demanded, but as the price falls, the quantity demanded increases. ( Rice. one)

Rice. one

The dependence in which the volume of demand (purchases) is inversely proportional to the level is called the law of demand. According to the law of demand, consumers, ceteris paribus, will buy more goods, the lower their price. In this case, the relationship between price, volume, demand is direct, that is, with an increase in prices, the volume of demand also increases from Q 1 before Q 2 (Rice. 2)

Rice. 2

This situation occurs in three cases:

goods are designed for rich people, for which the price does not really matter;

buyers judge a product by its price (the higher the price, the better the product);

the product is a Giffen good, that is, there is only one good that the population can buy at their extremely low income.

In practice, management is dominated by the usual curve, which is associated with the rational, efficient behavior of the consumer, his full awareness of the price and nature of the purchased goods. When the demand curve changes, the demand curve changes graphically. It is necessary to distinguish between movement along the demand curve and movements of the demand curve itself. ( Rice. 3)

Movement along the demand curve means a change in the magnitude (volume) of demand caused by a change in the price factor. The action of non-price factors, that is, all the rest, leads to a change in demand and a shift in the demand curve upwards or downwards.

For example, during the hot summer months, the demand for soft drinks and ice cream increases. In this case, the curve D will move to a new position, that is, to a curve D 1 , i.e. to the right. And in the winter months, demand decreases, then the curve turns into D 2 . what if average income buyers will increase, then, ceteris paribus, the curve D move to the right and to the same price level P 1 will correspond to the increased level Q 1 , as shown in the graph (P is. 3)

Rice. 3

Demand characterizes the demand price. it maximum price, which can be paid by the consumer when buying a given quantity of goods. It is determined by the consumer's income and remains fixed, since the buyer can no longer pay for the goods, that is, the higher the demand price, the less goods will be sold. Thus, demand is one of the necessary elements of the market mechanism that characterizes human behavior.

Offers and factors influencing it.

The second essential element of the market mechanism is supply. This is the desire and ability of manufacturers (sellers) to supply the market with a certain amount of goods and services at a given price. The offer is the result of production and reflects the desires and capabilities of the manufacturer to produce and sell their goods.

Offer amount - this 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 must always be determined for a specific period of time.

Supply factors are price and non-price.

Price Factors - the price of the good itself and the price of the resources used in the production of the good.

Non-price factors - this is the level of technology, production costs, company goals, the amount of tax subsidies, prices for related goods, producers' expectations, the number of goods producers. Thus, the proposal is multifactorial, the factors that determine the magnitude of the proposal are at the same time the motivation for entrepreneurial activity.

Distinguish between the dependence of supply on price and non-price factors. This dependence is described by the function Q s = f (P) , where Q s- volume of offer, P- price, f - function.

The relationship between supply and price is expressed in law of supply, the essence of which is as follows: the value 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 occurring in the market. When prices rise, producers use spare capacities or introduce new ones, which leads to an increase in supply. In addition, the presence of rising prices attracts other manufacturers to the industry, which further increases production and supply. It should be noted that in the short term, an increase in supply does not always follow immediately after a price increase. Everything depends on the available production reserves (availability of equipment, labor, etc.) since the expansion of capacities and the transfer of capital from other industries usually cannot be carried out in a short time. AT long term an increase in supply almost always favors an increase in price.

Supply curve ( Rice. four)

Rice. four

The supply curve defines the relationship between the volume of supply and price and shows the desire of producers to sell more goods at a high price.

The most important factor influencing the price of the offer is the price of this product. The income of sellers and producers depends on the level of market prices. Thus, the higher the price of a given good, the greater the quantity supplied and vice versa.

Offer price - the minimum price at which sellers agree to supply the product to the market. The lower the bid price, the less the product will be on the market. At the same time, the number of producers cannot be infinitely large, since the market is saturated with goods.

The main reason for the reduction in supply is the limited resources, that is, the lack of raw materials, etc. Therefore, the market supply curve is the supply price curve that reflects the cost of production. The larger the volume of production, the greater its costs. Thus, the supply curve shows more favorable conditions for the production and sale of products.

Offer changes.

When a product changes, the corresponding point of the market conjuncture moves along the supply curve, that is, there is a change in the supply. Non-price factors affect changes in all the functions of the offer. ( Rice. 5)

As supply increases, the curve S 1 will move to a new position S 2 - that is, to the right, and when decreasing to the left - S 3 .

1. Demand and its function. To build a clear market model, it is necessary to study under ideal conditions (with perfect competition) the interaction of the most important categories of the market - supply and demand, behind which are buyers and sellers.

Demand is the quantity of goods (services) that buyers are willing to purchase in the market.

The amount of demand depends on a number of factors. This dependence is called demand function.

Qda= f (Pa, Pb...z, K, L, M, N, T),(10.1)

where Qda is the demand function for the product; Pa- the price of the product; Pb...z– prices of other goods, including substitute goods and related goods; K- cash income of buyers; L– tastes and preferences of people; M– consumer expectations; N- the total number of buyers; T- the accumulated property of people.

The main factor in demand is the price of goods, so the dependence can be simplified:

Qda= f(Pa).(10.2)

The demand function can also be represented in the form of a graph (Fig. 10.1).

Rice. 10.1.Demand function

The connection of points on the graph, each of which is a specific combination of price and quantity, allows you to build a demand curve D.

2. Offer and its function.Sentence is the quantity of goods (services) that sellers are willing to sell in the market. Like demand, it depends on a number of factors and can be formalized.

Qsa = f( Pa, Pb...z, C, K, R, N), ( 10.3)

where Qsa- offer of goods; Pa- the price of the product; Pb...z – prices of other goods, including substitute and related goods; C– availability of production resources; K– applied technology (time); R- taxes and subsidies from manufacturers; N- the number of sellers.

The main factor of supply is the same as demand - price.

Qsa= f(Pa). (10.4)

The supply function can also be set using a table that is easy to translate into a graph (Fig. 10.2).

Rice. 10.2.Offer function

Connecting the points on the graph allows you to build a supply curve S, which is ascending.

3. Market equilibrium. The market brings together buyers and sellers, as a result of which supply and demand tend to intersect.

If the interests of sellers and buyers coincide, then there is a market equilibrium.

Equilibrium price is the result a large number transactions in the market (although it appears to each of the sellers and buyers as pre-established) (Fig. 10.3).

Rice. 10.3.Market equilibrium

P- price, rub); D- demand; Q- goods (pcs.); S- sentence.

The price equilibrium of the market is stable, since any volitional actions to change the price on the part of sellers cause an opposite reaction on the part of buyers and vice versa. Overpricing leads to overstocking and causes the need to lower the price, while underpricing leads to shortages and subsequent price increases.

4. The economic law of supply and demand. The inverse relationship between price and demand is called the law of demand which, like all other economic laws, is not absolute and manifests itself only en masse.

The law of demand has an exception: essential goods are not subject to its action, with an increase in prices for which demand does not decrease (salt, bread, etc.). The range of such goods depends on national characteristics and consumption traditions. AT economic theory they are called Giffen goods, named after an English explorer of the 19th century.

The manifestation of the law of demand is also complicated:

- the effect of prestigious consumption (Veble effect), when people specifically buy expensive goods to stand out from the rest;

- rush demand for scarce goods, etc. The operation of the law of demand in conjunction with supply is often called the law of supply and demand.

5. Change in supply and demand. If the price changes, then supply and demand do not change, but only increase or decrease, moving along the curve to a new position (Fig. 10.4).

Rice. 10.4.Increase and decrease in supply and demand

Supply and demand are influenced by other factors besides price. If other factors change, supply and demand change, which is expressed in a shift of the curves to the right or left (Fig. 10.5).

Rice. 10.5. Change in supply and demand

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

Building a demand curve

Demand and its factors

The amount of a good that all buyers are able and willing to purchase during a given time period is called certain conditions. These conditions are called demand factors.

Main demand factors:

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

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

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

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

This law can be expressed in different ways: 1. The first way is with the help of a table. Let's make a table of the dependence of the quantity demanded on the price, using conditional figures taken at random (Table 4.1).

Table 4.1. Law of demand

It can be seen from the table that at the highest price (10 rubles) the goods are not bought at all, but as the price decreases, the quantity demanded increases; the law of demand is thus observed.

The second way is graphic. Let's plot these numbers on a chart, plotting demand on the horizontal axis and price on the vertical axis (Figure 4.1a). We see that the resulting demand line (D) has a negative slope, i.e. the price and quantity demanded change in different directions: when the price falls, demand rises, and vice versa. This again testifies to the observance of the law of demand. The linear function of demand presented in fig. 4.1a - special case. Often the demand curve has the form of a curve, as can be seen in Fig. 4.16, which does not cancel the law of demand.

The third way is analytical, which allows you to show the demand function in the form of an equation. With a linear demand function, its equation in general view will be:

P \u003d a - b * q, where a and b are some given parameters.

It is easy to see that the parameter a determines the point of intersection of the demand line with the axis Y. The economic meaning of this parameter is the maximum price at which demand becomes zero. At the same time, the parameter b"responsible" for the slope of the demand curve about the axis X; the higher it is, the steeper the slope. Finally, the minus sign in the equation indicates a negative slope of the curve, which, as noted, is typical for the demand curve. Based on the figures above, the demand curve equation would be: P \u003d 10 - q.

Rice. 4.1. Law of demand

Shifts in the demand curve

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

Rice. 4.2. Shifts in the demand curve

Let's say consumer incomes have risen. This means that at all possible prices, they will buy more units of this product than before, and the demand curve will move from position D 0 to position D 1, (Fig. 4.2). On the contrary, when income falls, the demand line will shift to the left, taking the form D 2 .

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

It is interesting to see the effect of changes in the prices of substitute and complementary goods on the demand for that good. For example, the price of imported cars has increased. As a result, they began to buy less; there was an upward movement along the demand curve on them. At the same time, however, the demand for Zhiguli is growing at the same price. The demand curve for Zhiguli shifts, therefore, to the right - up (Fig. 4.3).

Rice. 4.3. Interaction of markets for substitute goods

The reverse situation arises in the case of complementary goods. If the price of automobiles increases, the quantity demanded for them therefore falls. Therefore, the demand for gasoline also decreases at the same price, i.e. the demand curve for it goes to the left - down (Fig. 4.4).

Economists distinguish between concepts demand and the amount of demand. If consumers buy more or less of a product because of a change in its price, it is called a change the magnitude of the demand. This is shown on the chart moving along the demand curve. If the change in purchases occurs under the influence of all other factors, we speak of a change demand. This is shown on the chart shift in the demand curve.

Rice. 4.4. Interaction of markets for complementary goods

Within the "available" range.

Together with these generalized definitions, demand is characterized by a number of properties and quantitative parameters, of which, first of all, one should single out volume or value 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 substitute goods and complementary goods, the expectations of buyers, their tastes and preferences.

Non-price characteristics of the goods

But besides the price, a number of other factors also affect the quantity demanded, which are sometimes called non-price. These are, first of all, consumer tastes, fashion, the amount of income (purchasing power), the value of prices for other goods, the possibility of replacing this product with others.

Law of demand

Law of demand- the value (volume) of demand decreases as the price of goods increases. Mathematically, this means that there is an inverse relationship between the quantity demanded and the price (however, not necessarily in the form of a hyperbola represented by the formula y \u003d a / x). That is, an increase in price causes a decrease in the quantity demanded, while a decrease in price causes an increase in the quantity demanded.

The nature of the law of demand is not complex. If the buyer has a certain amount of money to purchase this product, then he will be able to buy the less product, the higher the price and vice versa. Of course, the real picture is much more complicated, since the buyer can raise additional funds, buy another instead of this product -.

Non-price factors affecting demand:

• The level of income in society;
• Market size;
• Fashion, seasonality;
• Availability of substitute goods (substitutes);
• inflation expectations.

In a number of microeconomics courses, the law of demand is formulated more strictly: If the demand for a good increases with an increase in income, then the demand for that good must decrease with an increase in the price of that good..

This amendment is due to the existence of Giffen goods, the amount of demand for which increases with an increase in price. But for the vast majority of cases (due to the rarity of Giffen goods), the above pattern works.

Elasticity of demand

Elasticity of demand is an indicator expressing fluctuations in aggregate demand caused by changes in prices for goods and services. Elastic demand is called, formed under the condition that the change in its volume (in%) exceeds the percentage reduction in prices.

If the indicators of falling prices and increasing demand, expressed as a percentage, are equal, that is, an increase in the volume of demand only compensates for a decrease in the price level, then the elasticity of demand is equal to one.

In the case when the degree of price reduction exceeds the demand for goods and services, demand is inelastic. Consequently, the elasticity of demand is an indicator of the degree of sensitivity (reaction) of consumers to changes in the price of a product.

The elasticity of demand can be associated not only with a change in the price of a product, but also with a change in consumer income. Therefore, a distinction is made between price and income elasticity of demand. There is also unit elasticity demand. This is a situation in which both income and quantity demanded change by the same percentage, so that total income remains constant as price changes.

The reaction of consumers to a change in the price of a product can be strong, weak, or neutral. Each of them generates a corresponding demand: elastic, inelastic, single. There are options when demand is perfectly elastic or perfectly inelastic.

The elasticity of demand is measured quantitatively through the coefficient of elasticity according to the formula:

• K o - demand elasticity coefficient
• Q - percent change in sales quantity
• P - price change percentage

As a rule, there are goods with different price elasticity. In particular, bread and salt are examples of inelastic demand. Raising or lowering their prices generally does not affect the quantity of their consumption.

Knowing the degree of elasticity of demand for a product is of great practical importance. For example, sellers of a product with a high elasticity of demand may lower their price in order to increase sales dramatically and make more profit than if the price of the product were higher.

For goods with low elasticity of demand, such a pricing practice is unacceptable - with a decrease in price, sales volume will change slightly and will not compensate for lost profits.

In the presence of a large number of sellers, the demand for any product will be elastic, since even a slight price increase by one of the competitors will force consumers to purchase from other sellers offering the same product cheaper.

Demand curve

Demand Schedule (Demand Curve) is the relationship between the market price of a commodity and monetary terms demand for it.

The demand curve shows the probable quantity of a good that can be sold in a certain time and at a certain price. The more elastic the demand, the higher the price can be charged for the product. The elasticity of demand is the reaction of the market to the absence of a product, the possibility of replacing it, the price of competitors, lower prices, the reluctance of buyers to change their consumer habits and look for cheaper goods, improving the quality of goods, the natural increase in inflation on other factors.

Market influence

All manufacturers (sellers) on the market are united by an offer: at a low price, the seller will offer less goods or can hold it, at a high price, he will offer more product; at very high - will try to maximize production. This is how the offer price is formed - the maximum minimum price at which sellers are willing to sell their goods ...

Sentence

Sentence- the ability and desire of the seller (manufacturer) to offer their goods for sale on the market at certain prices. Such a definition describes the proposal and reflects its essence from a qualitative point of view. In quantitative terms, the supply is characterized by its size and volume. The volume, value of supply is the amount of a product (goods, services) that the seller (manufacturer) wants, can and is able to offer for sale on the market for a certain period of time at a certain price in accordance with the availability or productive capabilities.

Like the volume of demand, the amount of supply depends not only on price, but also on a number of non-price factors, including production possibilities (see Production Possibility Curve), the state of technology, resource provision, the level of prices for other goods, and inflationary expectations.

Law of supply

Law of supply- with other factors unchanged, the value (volume) of supply increases as the price of the product increases.

An increase in the supply of goods with an increase in its price is generally due to the fact that, at constant costs per unit of goods, with an increase in price, profit grows and it becomes profitable for the manufacturer (seller) to sell more goods. The real picture of the market is more complicated than this simple scheme, but the trend expressed in it takes place.

Factors affecting the offer:

1. Availability of substitute products.

2. Availability of complementary goods (complementary).

3. The level of technology.

4. Volume and availability of resources.

5. Taxes and subsidies.

6. Natural conditions

7. Expectations (inflationary, socio-political)

8. Market size

Supply elasticity

Supply elasticity- an indicator that reproduces changes in aggregate supply that occur due to price increases. In the case when the increase in supply exceeds the increase in prices, the latter is characterized as elastic (the elasticity of supply is greater than one - E> 1). If the increase in supply is equal to the increase in prices, the supply is called unit supply, and the elasticity index is equal to one (E = 1). When the increase in supply is less than the increase in prices, the so-called inelastic supply is formed (the elasticity of supply is less than one - E<1). Таким образом, эластичность предложения характеризует чувствительность (реакция) предложения товаров на изменения их цен.

Supply elasticity is calculated through the supply elasticity coefficient according to the formula:

• K m - supply elasticity coefficient
• G - percentage of change in the quantity of the offered goods
• F - price change percentage

The elasticity of supply depends on factors such as the nature of the manufacturing process, the time of manufacture of the product, and its ability to be stored for a long time. Features of the production process allow the manufacturer to expand the production of goods with an increase in price, and when the price decreases, it switches to the production of other products. The supply of such a product is elastic.

The elasticity of supply also depends on the hourly factor, when the manufacturer is not able to quickly respond to price changes, since additional production of goods requires a significant amount of time. For example, it is practically impossible to increase the production of cars in a week, although the price of cars can increase many times over. In such cases, supply is inelastic. For a good that cannot be stored for a long time (for example, foods that spoil quickly), the elasticity of supply will be low.

Many economists identify the following factors that change supply:

• Changes in the cost of production due to resource prices, changes in taxes and subsidies, achievements in science and technology, new technologies. Cost reduction allows the manufacturer to bring more products to market. An increase in cost leads to the opposite result - the supply decreases.
• Price changes for other goods, in particular for substitute goods.
• Individual tastes of consumers.
• Prospective expectations of manufacturers. When prices are forecast to rise in the future, producers may reduce supply in order to sell the product at a higher price soon, and vice versa, the expectation of falling prices forces producers to get rid of the product as soon as possible so as not to incur losses in the future.
• Number of commodity producers directly affects the supply, since the more suppliers of goods, the higher the supply, and vice versa, with a decrease in the number of producers, the supply is sharply reduced.

Supply curve

His subjective value theory leads to a distinction between elements of supply and demand within the market. Matienso uses the term " competition' to describe the rivalry within the free market. This served as the basis for defining the concepts of public auction and rivalry between buyers and sellers.

In addition to supply and demand, Matienso also considered other factors that affect the definition of fair price, and describing such a variable morphology of the market. In a posthumously published treatise, Commentaria Ioannis Matienzo Regii senatoris in cancellaria Argentina Regni Peru in librum quintum recollectionis legum Hispaniae. - Mantuae Carpentanae: Excudebat Franciscus Sanctius," lists:

• abundance or scarcity of goods
• abundance of buyers and sellers
• need for a product
• work and production costs
• raw material conversion
• transport and wear costs
• abundance or lack of money
• geographic and weather factors
• subjective opinion of market participants
• the presence or absence of monopoly structures
• expectation of the future state of all the above factors

Researcher Oreste Popescu remarks about this list: “ Europe was not even ready to fruitfully use such a treasure of knowledge in the 16th century.

Description

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

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

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

Likewise, law of demand means that buyers are willing to buy more at a low price than at a high price. The demand function as a function of the price of the quantity of goods purchased decreases over the entire domain of definition

Examples

Food

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

Demand. Law of demand

Demand (D- from English. demand) is the intention of consumers, secured by means of payment, to purchase this product.

Demand is characterized by its size. Under quantity demanded (Qd) the quantity of a commodity that a buyer is willing and able to purchase at a given price in a given period of time.

The presence of a demand for a product means the buyer's consent to pay a specified price for it.

Ask price is the maximum price a consumer is willing to pay for a given good.

Distinguish between individual and aggregate demand. Individual demand is the demand in a given market by a specific buyer for a specific product. Aggregate demand is the total demand for goods and services in a country.

The magnitude of demand is influenced by both price and non-price factors, which can be grouped as follows:

• the price of the product itself X (Px);
• prices for substitute goods (pi);
• consumers' money income (Y);
• consumer tastes and preferences (Z);
• consumer expectations (E);
• number of consumers (N).

Then the demand function, which characterizes its dependence on these factors, will look like this:

The main factor determining demand is price. A high price of a good limits the quantity demanded for that good, and a decrease in price leads to an increase in the quantity demanded for it. From the foregoing, it follows that the quantity demanded and the price are inversely related.

Thus, there is a relationship between the price and the quantity of the purchased goods, which is reflected in the law of demand: all other things being equal (other factors affecting demand are unchanged), the quantity of a good for which demand is presented increases when the price of this good falls, and vice versa.

Mathematically, the law of demand has the following form:

where Qd- the amount of demand for a product; / - factors influencing demand; R- the price of this product.

A change in the quantity demanded of a particular product caused by an increase in its price can be explained by the following reasons:

1. substitution effect. If the price of a product increases, then consumers try to replace it with a similar product (for example, if the price of beef and pork rises, then the demand for poultry meat and fish increases). The substitution effect is a change in the structure of demand, which is caused by a decrease in purchases of a commodity that has risen in price and its replacement with other goods with unchanged prices, since they are now becoming relatively cheaper, and vice versa.

2. income effect, which is expressed as follows: when the price rises, buyers become, as it were, a little poorer than they were before, and vice versa. For example, if the price of gasoline doubles, then we will have less real income as a result and, naturally, we will reduce the consumption of gasoline and other goods. The income effect is a change in the structure of consumer demand caused by a change in income from price changes.

In some cases, certain deviations from the rigid dependence formulated by the law of demand are possible: an increase in price may be accompanied by an increase in the quantity demanded, and its decrease may lead to a decrease in the quantity of demand, while at the same time it is possible to maintain a stable demand for expensive goods.

These deviations from the law of demand do not contradict it: an increase in prices can increase the demand for goods if buyers expect their further increase; lower prices can reduce demand if they are expected to fall even more in the future; the acquisition of sustainable expensive goods is associated with the desire of consumers to profitably invest their savings.

Demand can be represented as a table showing the quantity of a good that consumers are willing and able to buy over a given period. This dependency is called demand scale.

Example. Suppose we have a demand scale that reflects the state of affairs in the potato market (Table 3.1).

Table 3.1. demand for potatoes

At each market price, consumers will want to buy a certain amount of potatoes. When the price of it decreases, the quantity demanded will increase, and vice versa.

Based on these data, one can build demand curve.

Axis X set aside the demand (Q) along the axis Y- appropriate price (R). The graph contains several variants of the demand for potatoes, depending on its price.

Connecting these points, we get the demand curve (D) having a negative slope, which indicates an inversely proportional relationship between price and quantity demanded.

Thus, the demand curve shows that, with other factors influencing demand unchanged, a decrease in price leads to an increase in the quantity demanded, and vice versa, illustrating the law of demand.

Rice. 3.1. Demand curve.

The law of demand reveals another feature - diminishing marginal utility since the decrease in the volume of purchases of a product occurs not only due to an increase in prices, but also as a result of the saturation of the needs of buyers, since each additional unit of the product of the same name has an ever smaller useful consumer effect.

Sentence. 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.

Offer amount- this 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 itself X(Px);
• resource prices (Pr), used in the production of goods x;
• technology level (L);
• firm goals (BUT);
• amounts of taxes and subsidies (T);
• prices for related products (Pi);
• producers' expectations (E);
• number of manufacturers of goods (N).

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

The most important factor influencing the amount of supply is the price of this 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.

Offer 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; R- 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 quantity supplied, other things being equal, changes in direct proportion to the change 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 manufacturers 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. Everything depends on the available production reserves (availability and workload of equipment, labor, etc.), since the expansion of capacities and the transfer of capital from other industries usually cannot be carried out in a short time. But in long term 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 3.2. Potato offer

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 is constructed S, which shows how much of a good producers would sell at different price levels R(Fig. 3.2).

Rice. 3.2. supply curve.

Changes 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.

Production costs are primarily determined prices for economic resources: raw materials, materials, means of production, labor force - and technical progress. It is clear that rising resource prices have a large impact on production costs and output levels. For example, when in the 1970s. oil prices have risen sharply, this has led to higher energy prices for producers, increasing their production costs and lowering their supply.

2. 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. Technical progress also allows you 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.

3. 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.

4. 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.

5. 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 start increasing 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.

6. 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, certain types of products (skis, roller skates, agricultural products, etc.) are greatly influenced by the weather.

1. Demand is the intention of consumers, secured by means of payment, to purchase a given product. Demand is the quantity of a good that a buyer is willing and able to purchase at a given price in a given period of time. According to the law of demand, a decrease in price leads to an increase in quantity demanded, and vice versa.

2. Supply 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 quantity of goods and services that producers (sellers) are willing to sell at a given price in a given period of time. According to the law of supply, an increase in price leads to an increase in the quantity supplied, and vice versa.

3. Changes in demand are caused by both price factors - in this case, there is a change in the magnitude of demand, which is expressed by movement along the points of the demand curve (along the demand line), and non-price factors, which will lead to a change in the demand function itself. On a graph, this will be expressed as a shift in the demand curve to the right if demand is rising and to the left if demand is falling.

4. A change in the price of a given commodity affects the change in the supply of this commodity. Graphically, this can be expressed by moving along the supply line. Non-price factors affect the change in the entire supply function, this can be visualized as a shift in the supply curve to the right - with an increase in supply, and to the left - with its decrease.