What determines supply and demand. Demand and supply - Economic theory (Vasilyeva E.V.)

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 goods for which demand is presented increases when the price of this goods 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 maintaining 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 occurring in the market: when prices rise, producers use reserve capacities or introduce new ones, which leads to an increase in supply. In addition, the upward trend in prices attracts other producers to the industry, which further increases production and supply.

It should be noted that in short term an increase in supply does not always follow immediately after an increase in price. It all depends on the available production reserves (availability and workload of equipment, work force etc.), since the expansion of capacities and the transfer of capital from other industries usually cannot be carried out in 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 rose sharply, this led to an increase in energy prices for producers, an increase in their production costs and downgrading their offer.

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 machine manufacturers to profit from production 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 price of his product to rise, he may start increasing production capacity already today in the hope of subsequent 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, for certain types of products (skis, roller skates, products Agriculture etc.) the weather has a great influence.

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 of the supply curve to the right - with an increase in supply, and to the left - with its decrease.

Today, almost any developed country in the world is characterized by a market economy, in which state intervention is minimal or completely absent. Prices for goods, their assortment, volumes of production and sales - all this is formed spontaneously as a result of the work of market mechanisms, the most important of which are law of supply and demand. Therefore, let us consider at least briefly the basic concepts of economic theory in this area: supply and demand, their elasticity, the demand curve and the supply curve, as well as the factors that determine them, market equilibrium.

Demand: concept, function, graph

Very often one hears (sees) that such concepts as demand and the magnitude of demand are confused, considering them synonyms. This is wrong - demand and its value (volume) are completely different concepts! Let's consider them.

Demand (English Demand) - the solvent need of buyers for a certain product at a certain price level for it.

Demand quantity(volume demanded) - the quantity of goods that buyers are willing and able to purchase at a given price.

So, demand is the need of buyers for a certain product, provided by their solvency (that is, they have money to satisfy their need). And the magnitude of demand is the specific amount of goods that buyers want and can (they have the money to buy) to buy.

Example: Dasha wants apples and she has money to buy them - this is a demand. Dasha goes to the store and buys 3 apples, because she wants to buy exactly 3 apples and she has enough money for this purchase - this is the amount (volume) of demand.

There are the following types of demand:

• individual demand- an individual specific buyer;
• total (aggregate) demand- all buyers available on the market.

Demand, the relationship between its value and price (as well as other factors) can be expressed mathematically, as a function of demand and a demand curve (graphical interpretation).

Demand function- the law of dependence of the magnitude of demand on various factors influencing it.

- a graphical expression of the dependence of the quantity demanded for a certain product on the price of it.

In the simplest case, the demand function is the dependence of its value on one price factor:

P is the price of this product.

The graphic expression of this function (the demand curve) is a straight line with a negative slope. Describes such a demand curve the usual linear equation:

where: Q D - the amount of demand for this product;
P is the price for this product;
a is the coefficient that specifies the offset of the beginning of the line along the abscissa axis (X);
b – coefficient specifying the line slope angle (negative number).

The line graph of demand expresses the inverse relationship between the price of a good (P) and the number of purchases of this good (Q)

But, in reality, of course, everything is much more complicated and the amount of demand is affected not only by the price, but also by many non-price factors. In this case, the demand function takes the following form:

where: Q D - the amount of demand for this product;
P X is the price for this product;
P is the price of other related goods (substitutes, complements);
I - income of buyers;
E - expectations of buyers regarding price increases in the future;
N is the number of possible buyers in this region;
T - tastes and preferences of buyers (habits, following fashion, traditions, etc.);
and other factors.

Graphically, such a demand curve can be represented as an arc, but this is again a simplification - in reality, the demand curve can have any of the most bizarre shapes.

In reality, demand depends on many factors and the dependence of its magnitude on price is non-linear.

In this way, factors affecting demand:
1. Price factor demand- the price of this product;
2. Non-price factors of demand:

• the presence of interrelated goods (substitutes, complements);
• income level of buyers (their solvency);
• the number of buyers in a given region;
• tastes and preferences of buyers;
• customer expectations (regarding price increases, future needs, etc.);
• other factors.

Law of demand

To understand market mechanisms, it is very important to know the basic laws of the market, which include the law of supply and demand.

Law of demand- when the price of a product rises, the demand for it decreases, with other factors unchanged, and vice versa.

Mathematically, the law of demand means that there is an inverse relationship between the quantity demanded and the price.

From a philistine point of view, the law of demand is completely logical - the lower the price of a product, the more attractive its purchase and the greater the number of units of the product will be bought. But, oddly enough, there are paradoxical situations in which the law of demand fails and acts in the opposite direction. This is manifested in the fact that the quantity demanded increases as the price rises! Examples are the Veblen effect or Giffen goods.

The law of demand has theoretical background. It is based on the following mechanisms:
1. Income effect- the desire of the buyer to purchase more of this product at a lower price for it, while not reducing the volume of consumption of other goods.
2. Substitution effect- the willingness of the buyer to reduce the price of this product to give preference to him, abandoning other more expensive products.
3. Law of diminishing marginal utility- as the product is consumed, each additional unit of it will bring less and less satisfaction (the product "gets bored"). Therefore, the consumer will be ready to continue buying this product only if its price decreases.

Thus, a change in price (price factor) leads to change in demand. Graphically, this is expressed as a movement along the demand curve.

Change in the magnitude of demand on the chart: moving along the demand line from D to D1 - an increase in the volume of demand; from D to D2 - decrease in demand

The impact of other (non-price) factors leads to a shift in the demand curve - change in demand. With an increase in demand, the graph shifts to the right and up; with a decrease in demand, it shifts to the left and down. Growth is called expansion of demand, decrease - contraction of demand.

Change in demand on the chart: shift of the demand line from D to D1 - demand narrowing; from D to D2 - expansion of demand

Elasticity of demand

When the price of a good increases, the demand for it decreases. When the price goes down, it goes up. But this happens in different ways: in some cases, a slight fluctuation in the price level can cause a sharp increase (fall) in demand, in others, a change in price over a very wide range will have practically no effect on demand. The degree of such dependence, the sensitivity of the quantity demanded to changes in price or other factors is called the elasticity of demand.

Elasticity of demand- the degree of change in the quantity demanded when the price (or other factor) changes in response to a change in price or other factor.

A numerical indicator reflecting the degree of such a change - elasticity of demand.

Respectively, price elasticity of demand shows how much the quantity demanded will change when the price changes by 1%.

Arc price elasticity of demand- used when you need to calculate the approximate elasticity of demand between two points on the arc demand curve. The more convex the demand curve is, the higher the elasticity error will be.

where: E P D - price elasticity of demand;
P 1 - the initial price of the goods;
Q 1 - the initial value of demand for goods;
P 2 - new price;
Q 2 - the new value of demand;
ΔP – price increment;
ΔQ is the increment in demand;
P cf. – average price;
Q cf. - average value demand.

Point elasticity of demand with respect to price- is applied when the demand function is given and there are values ​​of the initial quantity of demand and the price level. It characterizes the relative change in the quantity demanded with an infinitesimal change in price.

where: dQ is the demand differential;
dP – price differential;
P 1 , Q 1 - the value of the price and the magnitude of demand at the analyzed point.

The elasticity of demand can be calculated not only in terms of price, but also in terms of income of buyers, as well as other factors. There is also a cross elasticity of demand. But we will not consider this topic so deeply here, a separate article will be devoted to it.

Depending on the absolute value of the elasticity coefficient, the following types of demand are distinguished ( types of elasticity of demand):

• Perfectly inelastic demand or absolute inelasticity (|E| = 0). When the price changes, the quantity demanded practically does not change. Close examples are essential goods (bread, salt, medicines). But in reality there are no goods with a perfectly inelastic demand for them;
• Inelastic demand (0 < |E| < 1). Величина спроса меняется в меньшей степени, чем цена. Примеры: товары повседневного спроса; товары, не имеющие аналогов.
• Demand with unit elasticity or unit elasticity (|E| = -1). Changes in price and quantity demanded are fully proportional. The quantity demanded rises (falls) at exactly the same rate as the price.
• elastic demand (1 < |E| < ∞). Величина спроса изменяется в большей степени, чем цена. Примеры: товары, имеющие аналоги; предметы роскоши.
• Perfectly elastic demand or absolute elasticity (|E| = ∞). A slight change in price immediately raises (lowers) the quantity demanded by an unlimited amount. In reality, there is no product with absolute elasticity. A more or less close example: liquid financial instruments traded on the stock exchange (for example, currency pairs on Forex), when a small price fluctuation can cause a sharp increase or decrease in demand.

Suggestion: concept, function, graph

Now let's talk about another market phenomenon, without which demand is impossible, its inseparable companion and opposing force - supply. Here one should also distinguish between the offer itself and its size (volume).

Sentence (English "Supply") - the ability and willingness of sellers to sell goods at a given price.

Offer amount(volume of supply) - the quantity of goods that sellers are willing and able to sell at a given price.

There are the following offer types:

• individual offer– a specific individual seller;
• total (cumulative) supply– all sellers present on the market.

Offer function- the law of the dependence of the magnitude of the proposal on various factors influencing it.

- a graphical expression of the dependence of the supply of a certain product on the price of it.

Simplified, the supply function is the dependence of its value on the price (price factor):

P is the price of this product.

The supply curve in this case is a straight line with a positive slope. The following linear equation describes this supply curve:

where: Q S - the value of the proposal for this product;
P is the price for this product;
c is the coefficient that specifies the offset of the beginning of the line along the abscissa axis (X);
d is the coefficient specifying the line slope angle.

The supply line graph expresses a direct relationship between the price of a product (P) and the number of purchases of this product (Q)

The supply function, in its more complex form, which takes into account the influence of non-price factors, is presented below:

where Q S is the value of the offer;
P X is the price of this product;
P 1 ...P n - prices of other related goods (substitutes, complements);
R is the presence and nature of production resources;
K - applied technologies;
C - taxes and subsidies;
X - natural and climatic conditions;
and other factors.

In this case, the supply curve will be in the form of an arc (although this is again a simplification).

AT real conditions the supply depends on many factors and the dependence of the volume of supply on the price is non-linear

In this way, supply factors:
1. Price factor- the price of this product;
2. Non-price factors:

• availability of complementary and substitute goods;
• level of technology development;
• quantity and availability necessary resources;
• natural conditions;
• expectations of sellers (manufacturers): social, political, inflationary;
• taxes and subsidies;
• market type and its capacity;
• other factors.

Law of supply

Law of supply- when the price of a product rises, the supply for it increases, other factors remaining unchanged, and vice versa.

Mathematically, the law of supply means that there is a direct relationship between supply and price.

The law of supply, like the law of demand, is very logical. Naturally, any seller (manufacturer) seeks to sell their product at a higher price. If the price level in the market rises, it is profitable for sellers to sell more; if it falls, it is not.

A change in the price of a commodity leads to change in supply. On the graph, this is shown as a movement along the supply curve.

Change in supply on the chart: moving along the supply line from S to S1 - an increase in supply; from S to S2 - decrease in supply

A change in non-price factors leads to a shift in the supply curve ( change the proposal itself). Offer expansion- shift of the supply curve to the right and down. Supply narrowing- shift to the left and up.

Supply change on the chart: supply line shift from S to S1 - supply narrowing; from S to S2 - sentence expansion

Supply elasticity

Supply, like demand, can be in varying degrees depending on price changes and other factors. In this case, we talk about the elasticity of supply.

Supply elasticity- the degree of change in the supply quantity (the number of goods offered) in response to a change in price or other factor.

A numerical indicator reflecting the degree of such a change - supply elasticity coefficient.

Respectively, price elasticity of supply shows how much the supply will change when the price changes by 1%.

The formulas for calculating the arc and point elasticity of supply at a price (Eps) are completely similar to the formulas for demand.

Types of supply elasticity by price:

• perfectly inelastic supply(|E|=0). A change in price does not affect the quantity supplied at all. This is possible in the short term;
• inelastic supply (0 < |E| < 1). Величина предложения изменяется в меньшей степени, чем цена. Присуще краткосрочному периоду;
• unit elasticity supply(|E| = 1);
• elastic supply (1 < |E| < ∞). Величина предложения изменяется в большей степени, чем соответствующее изменение цены. Характерно для долгосрочного периода;
• perfectly elastic offer(|E| = ∞). The quantity supplied changes indefinitely for a slightly small change in price. Also typical for the long term.

Remarkably, situations with perfectly elastic and perfectly inelastic supply are quite real (unlike similar types of elasticity of demand) and are encountered in practice.

Demand and supply "meeting" in the market interact with each other. Under free market relations without rigid state regulation sooner or later they will balance each other (an 18th-century French economist spoke about this). This state is called market equilibrium.

A market situation where demand equals supply.

Graphically, the market equilibrium is expressed market equilibrium point- the point of intersection of the demand curve and the supply curve.

If supply and demand do not change, the market equilibrium point tends to stay the same.

The price corresponding to the market equilibrium point is called equilibrium price, quantity of goods - equilibrium volume.

Market equilibrium is graphically expressed by the intersection of demand (D) and supply (S) graphs at one point. This point of market equilibrium corresponds to: P E - equilibrium price, and Q E - equilibrium volume.

There are different theories and approaches explaining exactly how the market equilibrium is established. The most famous are the approach of L. Walras and A. Marshall. But this, as well as the cobweb-like model of equilibrium, the seller's market and the buyer's market, is a topic for a separate article.

If very short and simplified, then the mechanism of market equilibrium can be explained as follows. At the equilibrium point, everyone (both buyers and sellers) is happy. If one of the parties gains an advantage (the deviation of the market from the equilibrium point in one direction or another), the other party will be dissatisfied and the first party will have to make concessions.

For example: the price is higher than the equilibrium price. It is profitable for sellers to sell goods at a higher price and the supply rises, there is an excess of goods. And buyers will be dissatisfied with the increase in the price of goods. In addition, competition is high, supply is excessive, and sellers will have to lower the price in order to sell the product until it reaches the equilibrium value. At the same time, the volume of supply will also decrease to the equilibrium volume.

Or other example: the quantity of goods offered on the market is less than the equilibrium quantity. That is, there is a shortage of goods in the market. In such circumstances, buyers are willing to pay a higher price for the product than that at which it is sold in this moment. This will encourage sellers to increase supply volumes while raising prices. As a result, the price and volume of supply/demand will come to an equilibrium value.

In fact, it was an illustration of the theories of market equilibrium by Walras and Marshall, but as already mentioned, we will consider them in more detail in another article.

Galyautdinov R.R.

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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 winter months demand decreases, the curve changes to D 2 . and if the average income of buyers increases, 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. This is the maximum price that a consumer can pay for a given quantity of goods. It is determined by the income of the consumer 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. In the long run, 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 .

What is demand?

Demand is the quantity of a good that buyers are willing and able to purchase in a given period of time at all possible prices for that good.

In market conditions, the so-called law of demand, which can be expressed as follows. Ceteris paribus, the higher the demand for a product, the lower the price of this product, and vice versa, the higher the price, the lower the demand for the product. 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 buy more of the good. The substitution effect is that when the price of a product decreases, the consumer seeks to replace this cheap product with others whose prices have not changed.

The concept of "demand" reflects the desire and ability to purchase goods. If one of these characteristics is missing, there is no demand. For example, a consumer wants to buy a car for $15,000 but does not have that amount. In this case, there is a desire, but no opportunity, so there is no demand for a car from this consumer. The effect of the law of demand is limited in the following cases:

• with rush demand caused by the expectation of price increases;
• for some rare and expensive goods, the purchase of which is a means of accumulation (gold, silver, precious stones, antiques, etc.);
• when switching demand to newer and quality goods(for example, from typewriters to home computers; a decrease in the price of typewriters will not lead to an increase in demand for them).

The change in the quantity of a good that buyers are willing and able to buy, depending on the change in the price of this good, is called change in demand. On fig. 6.1 graphically depicts the relationship between the price of a suit and the amount demanded for it in a store. A change in demand is a movement along the demand curve.

Rice. 6.1. Demand schedule: P-price; Q - quantity demanded

If the price of a suit falls from 2,000 to 1,000 rubles, then the demand for it will increase from 200 to 400 pieces. daily. And vice versa.

However, price is not the only factor influencing the desire and willingness of consumers to purchase a product. Changes that are caused by the influence of all factors other than price are called change in demand. All other factors (the so-called non-price ones) act both in the direction of increasing and decreasing demand.

Non-price factors include:

• changes in the income of the population. If incomes of the population grow, then buyers have a desire to purchase more goods, regardless of their prices. For example, there is a growing demand for high-quality clothing and footwear, durable goods, real estate, etc.;
• changes in the structure of the population. For example, an increase in the birth rate leads to an increase in demand for children's products; the aging of the population entails an increase in demand for medicines, care items for the elderly;
• price changes for other goods. For example, an increase in prices for beef can lead to an increase in demand for a product - a substitute - pork, etc.;
• changes in consumer tastes, changes in fashion, habits, and other factors not related to price.

On the graph, the influence of non-price factors on demand (Fig. 6.2) can be depicted as a shift in the demand curve to the right (increase in polling) or to the left (decrease in demand).

Rice. 6.2. Influence of non-price factors on demand: D - initial demand; D 1 - increased demand; D 2 - decreased demand

What is an offer?

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

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

On fig. 6.3 graphically depicts the relationship between the price of a product and its quantity, which sellers are willing to offer for sale. The movement along the supply curve is called change in the value of the offer.

Rice. 6.3. Offer schedule: P-price; O-value of the offer

As can be seen from the above graph, if the price of a suit rises from 1,000 to 2,000 rubles, then the number of suits offered will increase from 200 to 400 pieces. daily. And vice versa.

In addition to the price, the offer is also influenced by non-price factors, among which the following can be distinguished:

• change in the firm's costs. Reducing costs as a result of, for example, technical innovations or lower prices for raw materials and materials leads to an increase in supply. An increase in costs due to an increase in the price of raw materials or the imposition of additional taxes on the producer causes a decrease in supply;
• change in the number of firms in the industry. Their increase (decrease) leads to an increase (reduction) in supply;
• natural disasters, wars.

On the graph, the influence of non-price factors on supply (Fig. 6.4) can be depicted as a shift in the supply curve to the right (increase in supply) or to the left (reduction in supply). In this case, they are talking about changing the offer.

Rice. 6.4. Influence of non-price factors on supply: S - initial supply: S 1 - increased supply; S 2 - reduced supply

Equilibrium price

Equilibrium (market) price established under the influence of a survey and an offer. On fig. 6.5 shows an equilibrium graph. At a given equilibrium price, the willingness and willingness of buyers to purchase a commodity and the willingness and willingness of sellers to sell it coincide.

Rice. 6.5. Equilibrium in the market: P - equilibrium price; Q - equilibrium sales volume

Equilibrium means that all buyers who are able and willing to buy the good at price P will buy it, and all sellers who are willing and ready to sell the good at price P will sell it. At the same time, there will be neither a shortage nor a surplus of this product on the market.

What happens if the price rises and becomes equal to P 1 ?. In this case, the desires of sellers and buyers will not coincide. Buyers at this price will be willing to buy Q 1 and sellers will be willing to offer Q 2 . Production in the amount of Q 2 - Q 1 will represent a surplus in the market that will not be bought. How will sellers react? In order to sell the surplus, they will give discounts to buyers, the price will begin to fall until it settles at the level of P.

A similar picture will be created if the price is below the equilibrium, i.e. will be equal to P 2 The discrepancy between the interests of sellers and buyers will be expressed in the occurrence of a shortage of goods in the amount of Q 1 - Q 2 . Those who want to buy an unavailable good will overpay until the price rises to the level of the equilibrium price P.

The law of market pricing operates on the market, which consists in the following:

1. The price in the market tends to a level at which demand equals supply.

2. If under the influence of non-price factors there is a change in demand or supply, then a new equilibrium price will be established corresponding to the new state of supply and demand.

Market mechanism of supply and demand

How does the market mechanism of supply and demand work? What happens if the demand for a product changes as a result of the influence of non-price factors? Let us suppose that the demand for some good A has increased because that good has become more fashionable.

An increase in demand on the graph (Fig. 6.6) will be reflected as a shift in the demand curve to the right (from position D to position D 1). As a result, a new equilibrium price P 1 will be established, which is higher than the initial equilibrium price P, and sellers will begin to offer more goods (Q 1). A high market price will further attract new sellers to the production and sale of good A, which will lead to an increase in supply. The supply curve will move to the right (from position S to position S 1). The result of such changes will be a new equilibrium (P 2, Q 2). Such changes in the market occur constantly, so the concept of equilibrium price can only be applied to this particular moment.

Rice. 6.6. Demand, supply, price

Price regulation. Prices "floor" and "ceiling"

The market mechanism operates in such a way that any imbalance entails its automatic restoration. However, sometimes the balance is disturbed artificially, either as a result of state intervention or as a result of the activities of monopolies interested in maintaining monopolistically high prices.

"The Price of the Floor"- the established minimum price limiting its further reduction. "ceiling price" on the contrary, it limits the price increase.

Floor and ceiling prices can be set by the government, which regulates market pricing. For example, the state in the implementation of social policy can set maximum prices for certain types food products (price ceiling), above which sellers are not entitled to set their prices.

An example of a floor price is a ban on selling goods at prices below their cost.

Numerous instances of the overpricing of food commodities, particularly wheat and corn in the United States, can be pointed to by providing subsidies to farmers in order to save them from ruin and provide them with an adequate standard of living. However, when the price is too high, there is a surplus of unsold goods. In the United States of America, surplus grains are bought up by the federal government at the expense of the state budget and subsequently exported. Otherwise, the mere declarative setting of an inflated price would not have produced any results.

We encounter state-regulated ceiling prices more often. For example, in Russia, restrictions on railway tariffs, the cost of fuel and electricity, etc. can be considered as ceiling prices.

Ceiling prices are lower than the equilibrium price and prevent the market price from rising to the equilibrium level. Reduced prices are usually set as a result of government policy aimed at "freezing" prices, i.e. fixing them at a certain level in order to stop inflation and prevent the decline in living standards. Shortages of goods that arise as a result of lower prices than the equilibrium level are usually solved by demand rationing through the introduction of a rationing system or other rationing systems.

Many economists are supporters of the neoliberal direction in economics, i.e. adherents of unrestricted freedom market relations, object to the application of floor and ceiling prices as it violates the market mechanism. They believe that market pricing automatically eliminates surpluses and shortages. As long as prices are free to reach their equilibrium level, the quantity demanded and the quantity supplied cannot be reversed.

Adherents of other directions economics, without in the least belittling the role of the market and its laws, they propose not to wait for the automatic regulation of supply and demand. Some believe that it is necessary to regulate demand through the management of employment, credit and money supply (neo-Keynesians); others recommend regulating supply through changes in tax policy and investment (supply-side economics).

One way or another, firms entering the business must reckon with the price level that has developed on the basis of the interaction of supply and demand and, possibly, adjusted by the government setting upper and lower (one or both) limits of fluctuations. When developing a market strategy, the firm cannot deviate significantly from this level (unless it owns a significant part of the market, giving it the right to become a monopolist) and, when calculating possible profits, the market price must be taken as the basis for calculating.

Consideration of the laws of supply and demand, as well as the principle of equilibrium price formation, allows us to draw the following conclusions.

1. In a market economy, there is a mechanism that ensures the coordination of the interests of sellers and buyers in the markets:

• firms can expand and contract production depending on changes in demand, in other words, they are free to choose the volume and structure of output;
• prices are flexible, changing under the influence of supply and demand;
• the presence of competition, without which the market mechanism of supply and demand will not operate.

2. If some event occurs on the market that upsets the existing equilibrium (for example, a change in consumer tastes and a corresponding change in demand), then:

• manufacturing firms are bound to respond to change market conditions(for example, an increase in demand will lead to an increase in the price of this product, since demand will show producers where to direct their efforts);
• the process of adaptation of producers and consumers to new conditions will begin, as a result, a new market price and a new volume of production will be formed, corresponding to the changed conditions.

In this sense, the market economy turned out to be more efficient than the administrative-command one, which reacted to the emergence of disproportions in a hidden form (a steady shortage of individual products, a deformed production structure, and other well-known attributes of a planned system). In other words, enterprises in the command economy turned out to be insensitive to changes due to the lack of feedback, the response of production to changes in demand.

A significant part of today's problems in Russia is largely due to the passivity of manufacturing enterprises, the expectation of the usual help "from above", the unwillingness to form a market way of thinking, the lack of information about how an enterprise should behave in a market environment.

conclusions

1. Utility is the satisfaction that benefits the consumer. Although the assessment of the utility of a good depends not only on objective, but also on subjective circumstances, it is possible to identify average utility assessments for a particular society. The law of diminishing marginal utility (Gossen's first law) states that each subsequent (marginal) portion of the good is less and less useful from the point of view of the individual, and as a result, the total utility of the whole good for him decreases.

2. Value (cost) is the consumer's monetary assessment of the usefulness of a good. Usually it is determined on the basis of the best of the goods available to him, adjusted for the properties of this product.

3. The price is the amount of money for which an economic good is sold and bought. The price is determined in the market as a result of the interaction of buyers and sellers, during which they, comparing the supply and demand for goods, set the price. The basis of this mechanism is described by a two-factor pricing model, which explains the value of the price as a compromise between production costs and the utility of the product.

4. The most important categories of microeconomic analysis are supply and demand, which are subject to the action of certain laws. According to the law of demand, consumers are willing to buy more goods at a low price than at a high price; There is an inverse relationship between price and quantity demanded. The law of supply in market conditions provides for a direct relationship between the price and the volume of goods offered for sale: at a higher price, the manufacturer is ready to produce and sell more goods than at a low one.

5. The market brings sellers and buyers together; the equilibrium price and volume of sales are established at the point where the intentions of sellers and buyers coincide. Changes in supply or demand caused by non-price factors (changes in consumer preferences, growth in money incomes, imposition of additional taxes, etc.) set in motion market forces, due to which the equilibrium in the market is established at a new point.

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Welcome to Financial Genius! Today I want to discuss a very simple but important topic - supply and demand in the market. It is these two indicators that have a tremendous impact on many others. economic values important for each individual person: prices, salaries, inflation, devaluation, jobs, return on assets and much more. What is supply and demand, how are they interconnected, what are they characterized by - you will learn about all this from today's article.

So let's start with definitions. They will be very simple.

Demand is the desire and ability of the buyer to purchase a certain product or service from the seller.

Sentence- this is the desire and ability of the seller to sell a certain product or service to the buyer.

I draw your attention right away: there are two concepts in the definitions: “desire” and “opportunity”, which must be considered together. If there is only desire and no opportunity, or vice versa, this cannot affect supply and demand in any way.

What determines supply and demand in the market?

Now let's look at what supply and demand in the market depend on, what factors affect them. We will consider them separately in the context of each category.

Factors affecting demand:

1. people's income level. The higher it is, the higher the demand for goods and services. Moreover, most of all, the level of income affects the demand for non-essential goods and services, goods and services of a high price category. But the level of income has the least influence on goods and services of daily demand.
2. Target market audience. The wider the target audience the market for a product or service, the higher the demand for it, and vice versa. For example, the demand for bread will be orders of magnitude higher than the demand for aquarium fish.
3. season and fashion. Another important factor that has a huge impact on the demand for seasonal goods and services. For example, in summer the demand for sleds will be practically zero, and with the first snowfall, it will increase significantly. As for fashion, this factor also always affects demand - this is one of the characteristic features in which we all now live.
4. The presence of analogues of goods and services, the level of monopolization of the market. If a product or service is unique in its kind, the demand for them will always be higher than for goods and services that have many analogues. Also, the demand for the products of monopoly enterprises will also always be high. For example, on .
5. Expectations of inflation and devaluation. And the last factor influencing demand, which is now becoming stronger, is expectations. When a person feels that soon the price of the product he needs will rise (inflation will occur), or his money will depreciate (devaluation will occur), he will try to buy it faster, to stock up even under current conditions. Thus, inflationary expectations always stimulate an increase in demand for almost all goods, and already actual inflation and devaluation, on the contrary, reduces demand, because. the ability to make purchases (purchasing power) is reduced.

Factors affecting the offer:

1. production possibilities. The more goods or services allow resources, capacities, technologies to be released to the market, the greater the offer can be. However, the offer will not necessarily be the maximum, since it also depends on further factors.
2. Tax policy. The softer tax system for producers of goods and services - the more they will be produced, and the higher their offer on the market.
3. Proposal of accompanying, supplementing, replacing goods. If goods or services act as some kind of link in a more complex production chain, or somehow complement other goods and services, then the supply of the main and additional goods will always be comparable. For example, the offer of bottles for lemonade will be focused on the volume of production of lemonade itself. Also, the more substitutes there are on the market, the smaller the supply of a particular product will be.
4. Target market audience. This factor simultaneously affects supply and demand in the market. It does not make sense to offer a product or service more than they are in demand, therefore, the narrower the target audience, the smaller the offer will be, and vice versa.
5. Availability for business. And the last supply-side factor I want to consider is the real opportunity to create goods and services. This includes both the level and the ease of opening and running a business, and everything connected with this. The easier it is to open and run a business, the higher the supply of goods and services will be.

Now that you have an idea of ​​what supply and demand in the market depend on, let's move on.

The law of supply and demand.

In economic theory, there is such a thing as the law of supply and demand (sometimes it is broken down into separate components: the law of demand and the law of supply). It is as follows.

The law of supply and demand: as the cost of goods and services increases, demand for them falls, and supply increases, other factors remaining unchanged.

Of course, this law is not perfect, and cannot be exactly fulfilled in all conditions. Since a decrease in demand and an increase in supply with an increase in prices will contradict each other, and at some point the reverse process may begin.

Therefore, there is such a thing as balance of supply and demand- this is a market situation in which these 2 parameters are optimally combined with each other.

The search for a point of equilibrium between supply and demand is to increase the price of a product and the quantity of goods produced as much as possible, but until this leads to a drop in demand. This can be visualized in the following graph:

Here you see supply and demand curves(as a rule, they are in just such an inverse, non-linear relationship). Supply and demand curves show the dependence of these parameters on the quantity of a good or service and the price.

The graph clearly shows how the law of supply and demand is observed: with an increase in the price of a product, supply increases, and demand falls. However, it is immediately clear that with an excessive increase in the price, the supply of goods will absolutely not correspond to the demand for it, and the higher the price increases, the stronger this discrepancy will be.

Therefore, the manufacturer of a product or service is looking for the balance of supply and demand in the market, that is, the point on the graph where the supply and demand curves intersect. It is at this point that the manufacturer will earn the most, and the consumer will be satisfied with the price.

However, all this is good in theory. In practice, it often happens that a manufacturer or seller simply cannot keep the price at the level of equilibrium between supply and demand in the market, because, due to the action of other factors affecting supply, such a price will be unprofitable for him, since it will not even cover the cost.

Demand determines supply or supply determines demand?

In conclusion, I would like to give my answer to this tricky question. What depends more on what: supply from demand or demand from supply?

In economic theory, the first answer has always been assumed: demand determines supply, the greater the demand, the greater the supply. In general, everything here is correct and logical.

However, in modern conditions, in the society of consumers, which I mentioned above, it is often the other way around. That is, first a certain offer appears on the market, for which there is absolutely no demand yet, which in general may even be unknown to consumers, and this offer already generates demand. Roughly speaking, demand can thus be imposed on consumers.

A typical example of such a situation would be a selfie monopod. A few years ago, no one even knew what it was, the demand for this product was zero. And look how popular this thing is now!

Now you know what supply and demand are in the market, how they are formed, what factors influence them, and how they depend on each other. I hope that this information was useful to you and will contribute to the development of your financial literacy.

Stay on - here you will find a huge amount of other informative and interesting materials in the field of finance and economics. See you soon!