Elasticity of demand

Change in demand

Change in quantity demanded

Demand for resources

Price elasticity

The influence and dependence of demand on supply

Demand(in economics) - This the quantity of a product that buyers are able and willing to buy at a given price. In full demand for product is the totality of demands for this product according to various prices.

The concept of demand, its elasticity

Demand is determined by the purchasing power of buyers. Demand is depicted as a graph showing the quantity of a good that consumers are willing and able to buy at a certain price. price of possible prices during a certain period of time. It shows the quantity of goods that will be demanded at different prices and the quantity that consumers will buy at different possible prices. demand - the maximum at which acquirer ready to buy this product. Quantities of demand must have a certain value and relate to a certain period of time. The fundamental property of demand is the following: with all other parameters remaining constant, a decrease in price leads to a corresponding increase in the quantity demanded. There are times when practical data contradicts law demand, but this does not mean its violation, but only a violation of the assumption, all other things being equal. Any price set by the company will, one way or another, affect the level of demand for the product. The relationship between price and the resulting level of demand is represented by the well-known demand curve. The curve shows how much of a product will be sold per market during a specific period of time at different prices that may be charged within that period of time. In a normal situation, demand and price are inversely proportional, i.e. the higher the price, the lower the demand. And accordingly, the lower the price, the higher the demand. So by raising the price of a product, less of the product will be sold. Consumers on a limited budget, faced with a choice of alternative products, will buy more those products whose prices are acceptable to them.

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

typical for consumer goods. However, in cases with prestigious goods, the demand curve has a positive slope, that is, when the price of a product increases, the quantity of its sales increases. In this case, consumers perceived a higher price as an indication of higher quality or greater desirability of the perfume. However, if the price increases further, the demand for goods may fall.

To the activist market it is necessary to know how sensitive demand is to price changes. Elasticity of demand - changes in demand for a given product under the influence of economic and social factors associated with changes in prices; demand can be elastic if the percentage change in its volume exceeds the decrease in the price level, and inelastic if the degree of price decrease is greater than the increase in demand. Economists use the concept of price elasticity to measure the sensitivity of consumers to changes in the price of a product. If small changes in price lead to significant changes in the quantity purchased, then such demand is called relatively elastic or simply elastic. If a large change in price leads to a small change in the quantity purchased, then such demand is relatively inelastic or simply inelastic.

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

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

There is no or almost no substitute for the product or there are no competitors;

buyers do not immediately notice price increases;

buyers are slowly changing their shopping habits and

do not rush to look for cheaper goods;

buyers believe that the increased price is justified

improving product quality, natural growth inflation and so on.

Quantity of demand

It is necessary to distinguish between the concepts of quantity demanded and demand. Quantity demand represents the willingness to buy a certain quantity of a product at one specific price, and the total demand for a product is a set of quantities demanded at all possible prices, that is, a functional dependence of the quantity demanded on price. As a rule, the higher the price, the lower the quantity demanded, and vice versa. In some cases, the so-called paradoxical demand (Giffen product) is observed - an increase in the quantity of demand with an increase in price. Demand is also characterized by elasticity. If, when the price increases or decreases, a product is purchased in almost the same quantities, then such demand is called inelastic. If a change in price leads to a sharp change in the quantity of demand, it is elastic.

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

There are:

individual demand,

market demand,

aggregate demand.

For managers company(company) it is important to know more or less reliably the volume of market demand, market capacity, expected demand for those goods that firm(organization) will offer on the market. Depending on the level of demand, the following types are distinguished:

negative demand,

hidden demand,

falling demand,

irregular demand,

full demand,

excessive demand

irrational demand,

lack of product.

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

Market and the law of demand

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

A market is an instrument or mechanism that brings together buyers (demand providers) and sellers (suppliers) of individual goods and services. Some markets are local, while others are international or national in nature. Some are characterized by personal contact between the demander and the supplier, while others are impersonal - they are the buyer and salesman never see or don’t know each other at all,

The state of the market is determined by the ratio of demand and offers

Ask offer- interdependent elements of the market mechanism, where demand is determined by the solvent need of buyers (consumers), and - by the totality of goods offered sellers(manufacturers); the relationship between them develops into an inversely proportional relationship, determining the corresponding changes in the level of prices for goods.

Demand is depicted as a graph showing the quantity of a good that consumers are willing and able to buy at some price available over a period of time. Demand expresses a number of alternative possibilities that can be presented in the form of a table. It shows the quantity of goods for which (other things being equal) will be demanded at different prices. Demand shows the quantity of a good that consumers will buy at different possible prices. The demand price is the maximum price at which the buyer is willing to buy the product.

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

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

1. Usually people actually buy more of a given product at a low price than at a high price. The very fact that companies organize “sales” serves as clear evidence of their faith in the law of demand. Enterprises reduce their inventories not by raising prices, but by lowering them.

Investor Encyclopedia. 2013 .

Synonyms:

Antonyms:

See what “Demand” is in other dictionaries:

demand- demand, and... Russian spelling dictionary

Demand- Law of supply and demand Demand (in economics) is the relationship between price (P) and the quantity of goods (Q) that buyers can and are willing to buy at a strictly defined price, in a certain period of time. In full demand for the product... ... Wikipedia

DEMAND- (demand) The quantity of goods and services that buyers wish to purchase. The demand function establishes the relationship between the volume of demand and its determining factors, which include: consumer income, the price of a given product and prices... ... Economic dictionary

DEMAND- DEMAND, demand, husband. 1. Action under Ch. ask in 1, 2 and 3 digits. ask (colloquial). “Trying is not torture, demand is not a problem.” (last) “You didn’t miss answering the demand.” Nekrasov. “They embarrassed me with incessant demand about the master: what, they say, and how... ... Ushakov's Explanatory Dictionary

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

To purchase goods using the funds available to him, which are intended for this purchase. Demand reflects, on the one hand, the buyer’s need for certain goods or services, the desire to purchase these goods or services in a certain quantity and, on the other hand, the ability to pay for the purchase at a price within the “affordable” range.

Along with these generalized definitions, demand is characterized by a number of properties and quantitative parameters, of which we should first of all highlight volume or size demand.

From the standpoint of quantitative measurement, demand for a product is understood as the volume of demand, meaning the quantity of a given product that buyers (consumers) are willing, ready and have the financial ability to purchase over a certain period at certain prices.

Quantity demand is the quantity of a good or service of a certain type and quality that a buyer wants to buy at a given price over a certain period of time. The amount of demand depends on the income of buyers, prices for goods and services, prices for substitute goods and complementary goods, buyer expectations, their tastes and preferences.

Non-price characteristics of the product

But in addition to price, the quantity demanded is also influenced by a number of other factors, which are sometimes called non-price. These are, first of all, consumer tastes, fashion, income (purchasing power), prices for other goods, and the possibility of replacing a given product with others.

Law of Demand

Law of Demand- the quantity (volume) of demand decreases as the price of the product 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 = 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 complicated. If the buyer has a certain amount of money to purchase a given product, then he will be able to buy less of the product, the higher the price and vice versa. Of course, the real picture is much more complicated, since the buyer can raise additional funds and buy another product instead of this one -.

Non-price factors influencing demand:

• Income level 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 income, then with an increase in the price of this good, the demand for it should decrease.

This amendment is due to the existence of Giffen goods, the amount of demand for which increases as prices rise. But for the vast majority of cases (due to the rarity of Giffen goods), the above pattern applies.

Elasticity of demand

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

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

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.

Elasticity of demand can be associated not only with changes in the price of a product, but also with changes in consumer income. Therefore, a distinction is made between price elasticity and income elasticity. There is also demand with unit elasticity. 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 changes in the price of a product can be strong, weak, or neutral. Each of them generates a corresponding demand: elastic, inelastic, single. Options are possible when demand turns out to be completely elastic or completely inelastic.

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

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

Typically, there are products with different price elasticities. 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 the price in order to sharply increase sales volume and make more profit than if the price of the product were higher.

For goods with low elasticity of demand, such pricing practice is unacceptable - if the price decreases, the sales volume will change little and will not compensate for lost profits.

If there are a large number of sellers, the demand for any product will be elastic, since even a slight increase in price by one of the competitors will force consumers to turn to other sellers who offer the same product cheaper.

Demand curve

Demand Schedule (Demand Curve)- the relationship between the market price of a product and the monetary expression of 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 set for the product. Elasticity of demand is the market’s reaction to the lack 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 and other factors.

Market influence

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

Offer

Offer- the ability and desire of the seller (manufacturer) to offer their goods for sale on the market at certain prices. This definition describes the proposal and reflects its essence from the qualitative side. In quantitative terms, supply is characterized by its size and volume. Volume, quantity of supply is the quantity of a product (goods, services) that the seller (manufacturer) is willing, able and able, in accordance with availability or productive capabilities, to offer for sale on the market over a certain period of time at a certain price.

Like the volume of demand, the quantity of supply depends not only on price, but also on a number of non-price factors, including production possibilities (see Production Possibilities Curve), the state of technology, resource supply, price levels for other goods, and inflation expectations.

Law of supply

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

An increase in the supply of a product with an increase in its price is generally due to the fact that, with constant costs per unit of product, as the price increases, profit increases and it becomes profitable for the manufacturer (seller) to sell more goods. The real picture on the market is more complex than this simple diagram, but the trend expressed in it does take place.

Factors influencing supply:

1. Availability of substitute goods.

2. Availability of complementary (complementary) goods.

3. Level of technology.

4. Volume and availability of resources.

5. Taxes and subsidies.

6. Natural conditions

7. Expectations (inflationary, socio-political)

8. Market size

Elasticity of supply

Elasticity of supply- an indicator that reproduces changes in aggregate supply that occur in connection with rising prices. In the case when the increase in supply exceeds the increase in prices, the latter is characterized as elastic (elasticity of supply is greater than one - E> 1). If the increase in supply is equal to the increase in prices, supply is called unit, and the elasticity indicator 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 (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 using the formula:

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

The elasticity of supply depends on factors such as the specifics of the production process, the time of production of the product and its ability to be stored for a long time. Features of the production process allow the manufacturer to expand production of a product when the price increases, and when its 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 hour factor, when the manufacturer is not able to quickly respond to price changes, since additional production of the product requires significant time. For example, it is almost impossible to increase the production of cars in a week, although their price can increase many times over. In such cases, supply is inelastic. For a good that cannot be stored for a long time (for example, products that spoil quickly), the elasticity of supply will be low.

Many economists identify the following factors that change supply:

• Changes in production costs due to resource prices, changes in taxes and subsidies, advances in science and technology, and new technologies. Reducing costs allows the manufacturer to deliver more goods to the market. An increase in cost leads to the opposite result - supply decreases.
• Changes in prices for other goods, in particular for substitute goods.
• Individual tastes of consumers.
• Prospective expectations of manufacturers. With forecasts for future price increases, producers may reduce supply in order to soon sell the product at a higher price, and conversely, 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 producers directly affects supply, since the more suppliers of goods, the higher the supply and vice versa, with a decrease in the number of producers, supply decreases sharply.

Supply curve

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

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

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

Researcher Oreste Popescu notes 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 viewed 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 a product on the market increases with an increase in its price, all other things being equal (production costs, inflation expectations, quality of the product).

Essentially, the law of supply says that when prices are high, more goods are supplied than when prices are low. If we imagine supply as a function of price and the quantity of goods supplied, the law of supply characterizes the increase in the supply function throughout the entire domain of definition.

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

Examples

Food

To circumvent the law of supply and demand in the European Union, the overproduction of oil is stored in warehouses, on the so-called “butter mountain” (German). Butterberg ). Thus, supply is artificially restrained and the price remains stable.

Stocks, currency, financial pyramids

Shares traded and traded on a stock exchange can be in strong demand as businesses pass on a portion of their profits to shareholders in the form of dividends. When supply exceeds demand (the number of sellers has increased or there are no more buyers), the price decreases. As a rule, after moving in one of the directions, the price lingers near a certain level. Dividends continue to flow even after the transition to equilibrium and after declines, so demand for shares is sooner or later restored.

Foreign exchange transactions do not have internal returns in the form of dividends, discounts or interest. The supply and demand of currencies for exchange operations is formed not by traders, but by enterprises and financial organizations that need exchange to carry out their main activities.

For any product or service, this is the consumer’s desire and ability to buy a certain quantity of a product or service at a certain price in a certain period of time.

There are:

• individual demand is the demand of a specific subject;
• market demand is the demand of all buyers for a given product.

Volume of demand- this is the quantity of a good or service that consumers agree to buy at a certain price during a certain period of time.

A change in quantity demanded is a movement along the demand curve. Occurs when the price of a product or service changes, all other things being equal.

Law of Demand: other things being equal, as a rule, the lower the price of a product, the more the consumer is willing to buy it, and vice versa, the higher the price of the product, the less the consumer is willing to buy it.

What factors influence demand?

Factors influencing demand:

• consumer income;
• tastes and preferences of consumers;
• prices for interchangeable and complementary goods;
• inventories of goods from consumers (consumer expectations);
• product information;
• time spent on consumption.

If other factors change and the price of the product remains constant, the demand itself will change. As a result of changes in demand, consumers are willing to buy more (or fewer) goods than before at the same price, or are willing to pay a higher price for the same quantity of goods.

What is an offer?

Offer of any good or service is the willingness of the producer to sell a certain quantity of a good or service at a certain price over a certain period of time.

Supply volume- the quantity of a good or service that sellers are willing to sell at a certain price during a certain period of time.

The relationship between volume and supply price is expressed in law of supply: Other things being equal, the quantity supplied of a good increases if the price of the good increases and vice versa.

What factors influence supply?

Factors influencing proposals:

• changes in prices for factors of production;
• technical progress;
• seasonal changes;
• taxes and subsidies;
• manufacturers' expectations;
• changes in prices for related products.

A change in the volume of supply occurs if all the factors determining the supply of a product remain constant, and only the price of the product in question changes. Thus, if the price changes, then there is a movement along the supply line.

When other factors that determine supply change and the price of the product remains constant, the supply itself changes, and the supply line on the graph shifts.

What is market equilibrium?

The supply and demand lines intersect at the point where the price at which buyers are willing to buy a certain quantity of a good equals the price at which producers are willing to sell the same quantity of a good. The point of intersection of the supply (S) and demand lines, 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 its change. This state of the market is called market equilibrium.

The sales volume at this point is called the equilibrium market volume (Qе). The price at this point is called the equilibrium (market) price (Pe).

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

If the price prevailing on the market differs from the equilibrium price, then under the influence of market mechanisms it will change until it is established at an equilibrium level and the volume of demand becomes equal to the volume of supply.

Demand - this is the quantity of a product that buyers want and can purchase over a certain period of time at all possible prices for this product.

In economics there is a so-called law of demand the essence of which can be expressed as follows: all other things being equal, the lower the price of this product, the higher the quantity of demand for a product, and vice versa, the higher the price, the lower the quantity of demand for the product. The operation of the law of demand is explained by the existence of the income effect and the substitution effect. The income effect is expressed in the fact that when the price of a good decreases, the consumer feels richer and wants to purchase more of the good. The substitution effect is that when the price of a product decreases, the consumer tends to replace this cheaper product with others whose prices have not changed.

The concept of “demand” reflects not only the desire, but also the ability to purchase a product, i.e., as a rule, it implies not just a need for a product, but an effective demand for this product. If there is a need for a product, but there is no opportunity to purchase the product, then there is no demand (effective demand) for this product. For example, a certain consumer wants to buy a car for 1 million rubles, but he does not have that amount. In this case, we have the desire, but do not have the ability to pay, so there is no demand for the car from this consumer.

The law of demand is limited in the following cases:

• in case of rush demand caused by buyers’ expectation of price increases;
• for some rare and expensive goods, the purchase of which remains a means of accumulation (gold, silver, precious stones, antiques, etc.);
• when demand switches to newer and better goods (for example, when demand switches from typewriters to home computers, reducing the price of typewriters will not lead to an increase in demand for them).

A change in the quantity of a good that buyers are willing and able to purchase depending on a change in the price of that good is called changes in the quantity of demand. In Fig. Figure 4.1 graphically shows the relationship between the price of a vacuum cleaner and the amount of demand for it. A change in quantity demanded is a movement along the demand curve.

Rice. 4.1.

D (English) demand ) - demand; R (English) price ) – price; Q (English) Quantity ) – quantity of demand

If the price of a vacuum cleaner decreases from 30 to 20 thousand rubles, then the quantity of demand for it will increase from 200 to 400 units. daily, and vice versa.

However, price is not the only factor influencing the desire and readiness of consumers to purchase a product. Changes caused by all other factors except price are called changes in demand. All these and other factors (so-called non-price) influence both increasing and decreasing demand.

Non-price factors include changes:

• in the income of the population. If the income of the population grows, then buyers have a desire to purchase more goods, regardless of their prices. For example, the demand for high-quality clothing and footwear, durable goods, real estate, etc. is growing;
• in the population structure. For example, an increase in the birth rate leads to an increase in demand for children's products; the aging population entails an increase in demand for medicines and care products for the elderly;
• prices for other goods. For example, an increase in prices for beef can lead to an increase in demand for a substitute product - poultry, etc.;
• consumer tastes, fashion, habits, etc. and other factors not related to price;
• in customer expectations. So, if they expect that the price of a product will decrease soon, then at the moment they can reduce their demand.

In Fig. 4.2, the influence of non-price factors on demand can be depicted as a shift of the demand curve to the right (increase in demand) or to the left (decrease in demand).

Rice. 4.2.

D, D1, D2 – polls respectively initial, increased, decreased

What is an offer?

Offer - This is the quantity of a product that sellers are willing and able to offer in a certain period of time at all possible prices for this product.

Law of supply consists in the fact that, other things being equal, the higher the price of this good, the higher the price of this good, the higher the quantity of goods offered by sellers, and vice versa, the lower the price, the lower the quantity of its supply.

In Fig. Figure 4.3 graphically shows the relationship between the price of a product and the quantity that sellers are willing to offer for sale. Movement along the supply curve is called a change in quantity supplied. If the price of a vacuum cleaner increases from 20 to 30 thousand rubles, then the number of vacuum cleaners offered will increase from 200 to 400 units. daily, and vice versa.

Rice. 4.3.

S (English) supply ) - offer; R – price; Q – quantity of supply

In addition to price, supply is also influenced by non-price factors, among which the following stand out:

• change in firm costs. Reduced costs as a result, for example, of technical innovations or lower prices for raw materials lead to an increase in supply. On the contrary, rising costs as a result of rising prices for raw materials or the introduction of additional taxes on the manufacturer causes a decrease in supply;
• tax reduction for manufacturers. Helps stimulate supply growth; on the contrary, reducing government subsidies can lead to a reduction in supply;
• increase (reduction ) the number of firms in the industry. Leads to an increase (decrease) in supply.

In Fig. 4.4 the influence of non-price factors on supply is depicted as a shift of the supply curve to the right (increase in supply) or left (decrease in supply). In this case we talk about a change in supply.

Rice. 4.4.

S, S1, S2 – supply, respectively, initial, increased, decreased

Demand. Law of Demand

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

Demand is characterized by its magnitude. Under quantity of demand (Qd) It is necessary to understand the quantity of goods that the buyer is willing and able to purchase at a given price in a given period of time.

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

Ask price- This is the maximum price that a consumer is willing to pay when purchasing a given product.

There is a distinction between individual and aggregate demand. Individual demand is the demand in a given market of a specific buyer for a specific product. Aggregate demand is the total amount demanded for goods and services in a country.

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

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

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

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

Thus, there is a relationship between the price and quantity of goods purchased, which is reflected in law of demand: ceteris paribus (other factors influencing 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 any product; / – factors influencing demand; R- the price of this product.

A change in the quantity of demand for a certain product caused by an increase in its prices 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 more expensive product and its replacement with other goods with unchanged prices, since they now become relatively cheaper, and vice versa.

2. Income effect which is expressed in the following: when the price increases, buyers seem to become a little poorer than they were before, and vice versa. For example, if the price of gasoline doubles, then as a result we will have less real income and, naturally, 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 of demand, and a decrease in price may lead to a decrease in the quantity of demand, while at the same time it is possible to maintain stable demand for expensive goods.

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

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

Example. Let us have a demand scale that reflects the state of affairs on 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. If the price decreases, the quantity demanded will increase, and vice versa.

Based on these data, you can build demand curve.

Axis X let's put aside the quantity of demand (Q), along the axis Y- appropriate price (R). The graph shows several options for the demand for potatoes depending on their 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, while other factors influencing demand remain constant, 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 also reveals another feature - diminishing marginal utility since the decrease in the volume of purchases of goods 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 same product has a less and less useful consumer effect.

Offer. Law of supply

The offer characterizes the seller’s willingness to sell a certain quantity of goods.

There are two concepts: supply and quantity supplied.

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

Supply quantity- this is the maximum quantity 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 supply must always be determined for a specific period of time (day, month, year, etc.).

Similar to demand, the quantity of supply is influenced by many price and non-price factors, among which the following can be distinguished:

• price of the product itself X(Px);
• resource prices (Pr), used in the production of goods X;
• technology level (L);
• company goals (A);
• amounts of taxes and subsidies (T);
• prices for related goods (Pi);
• Manufacturers' expectations (E);
• number of goods manufacturers (N).

Then the supply function, constructed taking into account these factors, will have the following form:

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

Offer price- this is the minimum price at which sellers agree to supply this product to the market.

Assuming that all factors except the first remain unchanged:

we get a simplified proposal function:

Where Q- the amount of supply of goods; R- the price of this product.

The relationship between supply and price is expressed in 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 response of supply to price is explained by the fact that production responds quite quickly to any changes occurring in the market: when prices increase, commodity producers use reserve capacity or introduce new ones, which leads to an increase in supply. In addition, the presence of a trend towards rising prices attracts other producers to this 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 capacity 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 supply curve for a good shows the relationship (other things being equal) between the market price and the quantity of this good that producers want to produce and sell.

Example. Let's say we know how many tons of potatoes can be offered by sellers on the market in a week at different prices.

Table 3.2. Potato offer

This table shows how many goods will be offered at the minimum and maximum prices.

So, at a price of 5 rubles. For 1 kg of potatoes a minimum quantity will be sold. At such a low price, sellers may sell another product that is more profitable than potatoes. As the price increases, the supply of potatoes will also increase.

Based on the data in 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 due to 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 - and technical progress. Obviously, rising resource prices have a major impact on production costs and output levels. For example, when in the 1970s. Oil prices have risen sharply, leading to higher energy prices for producers, increasing their production costs and reducing their supply.

2. Production technology. This concept covers everything from genuine technical breakthroughs and better use of existing technologies to the usual reorganization of work processes. Improved technology makes it possible to produce more products with fewer resources. Technical progress also allows you to reduce the number of resources required for the same output. For example, today manufacturers spend much less time producing 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 is manifested in different directions: increasing 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 goods. Market supply largely depends on the availability of interchangeable and complementary goods on the market at reasonable prices. For example, the use of artificial raw materials, which are cheaper than natural ones, makes it possible to reduce production costs, thereby increasing the supply of goods.

5. Manufacturers' expectations. Expectations of future price changes for a product may also affect a manufacturer's willingness to supply the product to the market. For example, if a manufacturer expects prices for its products to rise, it can begin to increase production capacity today in the hope of making a profit later and hold the product until prices rise. Information about expected price reductions may lead to an increase in supply now and a decrease in supply in the future.

6. Number of commodity producers. An increase in the number of producers of a given product 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. Quantity 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 the quantity demanded, and vice versa.

2. Supply is the willingness of producers (sellers) to supply a certain amount of goods or services to the market at a given price. Quantity supplied is the maximum quantity of goods and services that producers (sellers) are willing to sell at a certain price during a certain 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 quantity 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 the graph, this will be expressed by the demand curve shifting to the right if demand is rising, and to the left if demand is falling.

4. A change in the price of a given product affects a change in the supply of that product. Graphically, this can be expressed by moving along the supply line. Non-price factors influence changes in the entire supply function; this can be clearly represented in the form of a shift of the supply curve to the right - when supply increases, and to the left - when it decreases.