Terminology
Demand- one of the sides of market pricing reflects the desire to purchase a certain amount of goods at a given price.
Law of demand- ceteris paribus, an increase in price causes a decrease in the quantity demanded; price decrease - an increase in the quantity demanded, that is, it reflects an inverse relationship between price and quantity of goods.
Non-price factors affecting demand:
1. The level of income in society.
2. Market size.
3. Fashion, seasonality.
4. Availability of substitute goods (substitutes)
5. Inflation expectations
Sentence- reflects the desire of producers to introduce a certain amount of goods to the market at a given price.
Law of supply- ceteris paribus, an increase in price leads to an increase in the supply; price reduction - to reduce the supply.
Factors affecting the offer:
1. Availability of substitute products.
2. Availability of complementary goods (complementary).
3. The level of technology.
4. Volume and availability of resources.
5. Taxes and subsidies.
6. Natural conditions
7. Expectations (inflationary, socio-political)
8. Market size
Description
market economy can be seen as an endless interaction of supply and demand, where supply reflects the quantity of goods that sellers are willing to offer for sale at a given price at a given time.
Law of supply- an economic law, according to which the supply of goods on the market increases with an increase in its price, all other things being equal (production costs, inflationary expectations, product quality).
In essence, the law of supply expresses the category that more goods are offered at high prices than at low prices. If we represent the supply as a function of price from the quantity of goods offered, the law of supply characterizes the increase in the supply function over the entire domain of definition.
Examples
Food
In order to circumvent the law of supply and demand in the European Union, overproduction of butter is stored in warehouses, on the so-called "mountain of butter" (it. Butterberg). Thus, there is an artificial containment of supply and the price remains stable.)
Stocks, currency, financial pyramids
Links
Supply and Demand
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Buyers are only one side of the market. In addition, sellers play an active role in the market by influencing supply.
Supply is the quantity of goods that sellers are willing and able to offer to the market over a certain period of time at all possible prices for this product (the relationship between the quantity of goods that sellers are willing and able to sell and the prices of this product).
The graphical relationship between price and supply is called the supply curve S. Movement along the supply curve is called a change in the supply:
The law of supply - 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.
The reliability of the law is confirmed by the arguments:
If the price of a commodity rises, then producers will expand production in pursuit of profit. This will increase the offer.
An increase in supply is associated with an increase in the price of a good because the production of each additional unit of a good requires additional costs. Additional output will be produced if the price of the commodity rises.
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 a graph, the effect of non-price factors on supply can be depicted as a shift in the supply curve to the right (an increase in supply) or to the left (a decrease in supply).
An important characteristic of supply and demand:
1) Elasticity of demand - the degree of change in demand in response to price changes. An indicator that measures elasticity - the price elasticity coefficient shows how many percent the quantity demanded will change when the price changes by 1%:
Esp = Growth in demand (%) / Decrease in prices (%)
Types of elasticity of demand:
Demand is elastic - with a slight increase in price, the volume of sales will increase significantly.
Demand is unit elasticity - a 1% change in price causes a 1% demand for a good.
Inelastic demand - with significant changes in price, the volume of sales will change slightly.
Infinitely elastic demand - there is only one price at which consumers buy a good.
Demand is perfectly inelastic when consumers purchase a fixed quantity of a good regardless of its price.
Factors affecting the elasticity of demand:
Availability of substitute goods - the more substitutes, the more elastic the demand.
The degree of need for a given product for the consumer - the more necessary the product, the lower the degree of elasticity.
2) Elasticity of supply - relative changes in the prices of goods and their quantity offered for sale. An indicator that measures elasticity - the price elasticity coefficient shows how much% the supply will change when the price changes by 1%. It always has a positive sign, because there is always a direct relationship between price and supply. Types of supply elasticity:
Elastic supply - A 1% increase in price causes a significant increase in the supply of goods.
Unit elasticity supply - A 1% increase in price leads to a 1% increase in the supply of concoctions in the market.
Inelastic supply - an increase in price does not affect the quantity of goods offered for sale.
Elasticity of supply in the instantaneous period (the period of time is short, producers do not have time to respond to changes) - the supply is fixed.
Elasticity of supply in the long run (a period sufficient to create new production capacities) - the supply is the most elastic.
Factors affecting the elasticity of supply:
The presence or absence of production reserves - if there are reserves, then in the short run the supply is elastic.
It is possible to store stocks of finished products - the offer is elastic.
Practical application - the ability to build a pricing strategy for an enterprise, determine the tax policy of the state.
№2 Laws of the market and their characteristics.
Economic laws operating in the markets[edit | edit wiki text]
The law of value
The law of supply and demand
The law of competition
· Price- the basis of quantitative ratios in the voluntary exchange of goods between owners. Different economic schools explain the nature of value in different ways: by the cost of working time, the balance of supply and demand, production costs, marginal utility, etc.
· Price in accounting - the value of something expressed in money or the amount of costs for something.
· Price in statistics, the product of the price of a good and its quantity.
· Price in everyday speech - the price of goods ( "how much do matches cost?"), acquisition costs ( “It cost me 1000 rubles.”). Close to the terms costs, cost.
Theories of value
· Being a fundamental economic category, value, however, is extremely difficult to understand and analyze.
Classical economists such as Adam Smith and David Ricardo developed the basic elements labor theory of value. This theory received its most complete form in the economic writings of Karl Marx.
Many modern economists deny the labor nature of value. They focus on the utility (use value) of a product as the main motive for exchange. They believe that the proportion of exchange dictates utility and rarity, as well as the desire to possess useful and rare items.
· Labor theory of value [edit | edit wiki text]
· Main article:Labor theory of value
· According to this theory, the cost is based on the socially necessary labor time (labor costs) for the reproduction of goods. Marx noted that the value of commodities depends not so much on the expenditure of labor time in their direct production, but on the expenditure of labor time for the production of similar commodities under present conditions. At the same time, labor is not meant to be concrete, but abstract - simplified and averaged for current typical production conditions. Complex, skilled labor can create more value per unit of time than simple, unskilled labor.
· According to the Nobel Laureate in Economics V. V. Leontiev, the labor theory of value most comprehensively explains the basic economic phenomena.
The theory of marginal utility [edit | edit wiki text]
· Main article:The theory of marginal utility
· The term "marginal utility" was introduced into economics by Friedrich von Wieser (1851-1926). According to this theory, the value of goods is determined by their marginal utility based on subjective assessments of the ability of goods to satisfy human needs. The marginal utility of a good is the utility that the last unit of that good consumes from a set of similar goods. As the needs of the subject are gradually satisfied, the utility of the next new thing decreases.
· Subjective value is a personal assessment of the goods by the consumer and the seller; objective value is exchange proportions, prices that are formed in the course of competition in the market. In this case, the rarity of the goods is declared a cost factor.
· A variation of the theory of marginal utility are Gossen's Laws.
Perhaps, at present, it is the theory of marginal utility (eng. marginal value theory) adheres to the bulk of Western economists.
cost theories [edit | edit wiki text]
· Quite popular are theories that derive value from production costs. But all of them are forced to operate with prices expressed in the amount of money. The same goes for the cost of labor. The difficulty for such theories is to explain the nature of the value of money itself and the formation of the value of labor.
· Value transfer to products[edit | edit wiki text]
· For theories that recognize the objective nature of value (labor theory of value, cost theories), it is characteristic to consider the transfer of cost costs to production results. Essential is the question of the integral or partial inclusion of costs in the cost of production.
One-time transfer of value [edit | edit wiki text]
· See also: working capital
· Part of the cost of production is associated with the acquisition or manufacture of items that are completely used directly. Examples of such use are raw materials, product packaging, energy for the operation of production equipment.
Transferring the cost in installments [edit | edit wiki text]
· Main articles:fixed assets , Depreciation (accounting)
· Many items are used in the manufacturing process while retaining their natural shape. They are usually used to produce several units of a good and remain almost unchanged. Examples are buildings, equipment, tools, reusable forms, patents, transport. For such objects, it is considered that their cost is evenly distributed over all the products in the production of which they participated.
· In practice, it is extremely difficult to make such a distribution. Therefore, the life of an object is often determined, the cost is divided by the number of accounting time intervals (for example, by the number of years of operation or planned production cycles) and the resulting part of the cost is evenly distributed among the products manufactured in this period. This process is called depreciation. It is generally believed that the residual value of such objects gradually decreases.
Competition(lat. concurrentia, from lat. concurro- I run, I collide) is a struggle between economic entities for the most efficient use of factors of production.
In economics, they talk about the business competition of business entities, each of which, by its actions, limits the ability of a competitor to unilaterally influence the conditions for the circulation of goods on the market, that is, the degree of dependence of market conditions on the behavior of individual market participants. In accordance with the Law of the Russian Federation of July 26, 2006 No. 135-FZ "On Protection of Competition", competition is the rivalry of economic entities, in which the independent actions of each of them exclude or limit the ability of each of them to unilaterally influence the general conditions for the circulation of goods on the corresponding commodity market.
From an economic point of view, competition is considered in 3 main aspects:
1. As the degree of competitiveness in the market;
2. As a self-regulatory element of the market mechanism;
3. As a criterion by which the type of branch market is determined.
Other factors also influence the offer:
1. Resource prices.
3. Technology.
4. taxes and grants.
5. Prices for other goods.
6. Expectations. Example: Expecting an increase in the price of potatoes in the spring, and as a result, the supply increases. The same with meat.
6. The number of sellers. The more sellers in the market, the greater the market supply.
These factors tend to shift the supply curve to the right or left. Speaking of curve shifting: when we talk about change in supply, the supply curve shifts completely. If we mention change in supply, the movement follows the supply curve
The interaction of supply and demand, their coordination is carried out on the basis of the price mechanism and competition. The market mechanism eliminates price controls, so supply and demand in a competitive market come into equilibrium and the market price of the commodity is established stimulating an increase in production. Equilibrium occurs when the amount of goods that buyers want to buy matches the amount of goods that sellers want to sell. As a result, an equilibrium price is formed - the price of such a level when the volume of supply corresponds to the volume of demand. The equilibrium price has a balancing function.
For a firm operating in the short run, there are three principal options for behavior:
1) production for profit maximization;
2) production for the sake of minimizing losses;
3) termination of production.
Profit maximization. According to the traditional theory of the firm and the theory of markets, profit maximization is the main goal of the firm. Therefore, the firm must choose such a volume of supplied products in order to achieve maximum profit for each period of sales. PROFIT is the difference between gross (total) income (TR) and total (gross, total) production costs (TC) for the sales period:
profit = TR - TS.
Gross income is the price (P) of the product sold multiplied by the volume of sales (Q).
Since the price is not affected by a competitive firm, it can affect its income only by changing the volume of sales. If the firm's gross income is greater than its total costs, then it makes a profit. If the total cost exceeds the gross income, then the firm incurs losses.
Total costs are the costs of all factors of production used by the firm to produce a given output.
The maximum profit is achieved in two cases:
- a) when the gross income (TR) exceeds the total costs (TC) to the greatest extent;
- b) when marginal revenue (MR) is equal to marginal cost (MC).
Marginal revenue (MR) is the change in gross revenue received when an additional unit of output is sold. For a competitive firm, marginal revenue is always equal to the price of the product:
Marginal profit maximization is the difference between the marginal revenue from the sale of an additional unit of output and the marginal cost:
marginal profit = MR - MC.
Marginal cost is the extra cost that increases output by one unit of a good. Marginal cost is entirely variable cost, because fixed costs do not change with output. For a competitive firm, marginal cost is equal to the market price of the good:
The marginal condition for profit maximization is the level of output at which price equals marginal cost.
Having determined the profit maximization limit of the firm, it is necessary to establish an equilibrium output that maximizes profit.
The maximum profitable equilibrium is the position of the firm in which the amount of goods offered is determined by the equality of the market price to marginal cost and marginal revenue:
The profit maximization rule in competitive markets means that the marginal products of all factors of production equal their prices in value terms, or that each resource is used until its monetary marginal product equals its price:
Question 2. Theoretical foundations of antimonopoly regulation
(Markets of imperfect competition. Market power. Profit maximization by a monopoly firm. Social costs of monopolization. Natural monopoly.)
In the context of the desire of each firm to maximize profits and, consequently, to expand the scale of economic activity, firms act in relation to each other as competitors.
Economic competition is understood as the competition of economic agents in the market for the preference of the consumer, in order to obtain the greatest profit. Competition is a necessary and essential element of the market mechanism, but its very nature and forms are different in different markets and in different market situations. This significantly affects the behavior of firms and other economic agents when making decisions regarding prices, production volumes and other parameters of economic activity.
The bargaining power of the firm- a concept that characterizes the strength of the position of the dominant firm in the market. Market power can be considered strong if the dominant firm: is able to act as a price leader; if it can dictate the terms of the sale of its products; if it is able to restrict market access and can generate sustainable windfall profits. The development of competitive relations is closely related to splitting economic (market) power. When it is absent, the consumer is deprived of a choice and is forced either to fully agree to the conditions dictated by the producer, or to be completely left without the good he needs. On the contrary, when economic power is split and the consumer deals with many suppliers of similar goods, he can choose the one that best suits his needs and financial possibilities. In a market of perfect competition, the splitting of economic power is maximal and the mechanisms of competition operate in full force. There are many manufacturers operating here, deprived of any leverage to impose their will on consumers. Under imperfect competition, the splitting of economic power is weaker or non-existent. Therefore, the manufacturer acquires a certain degree of influence on the market.
Consider the content law of supply and reveal the nature of the relationship between price and supply.
Reveals the logic of behavior of sellers in the market. This law reflects a significant causal relationship between the cost and quantity of goods offered by sellers on the market. Understanding the relationship under consideration allows us to establish an important regularity in the functioning of a market economy.
It says: ceteris paribus, an increase in the price of a product leads to an increase in the amount of goods that sellers (producers) are willing and able to offer to the market. This law states that as prices rise, the amount of supply will also increase, and a decrease in value will lead to a decrease in the supply. The noted pattern reveals the logic of the behavior of entrepreneurs seeking to maximize profits.
The operation of the law of supply can be represented in the figure.
Rice. one.
Shows that entrepreneurs tend to produce and sell more goods at a higher price. The higher the cost, the greater the incentives and motives that encourage the manufacturer to switch resources from other areas and create more of this product.
The logic of the law of supply(higher prices encourage more output) is due to two reasons .
Firstly, An increase in the price of a certain product contributes to an increase in the profitability of its production, which attracts new producers to this industry.
Secondly, an increase in the cost of production and profits expands the financial opportunities of the entrepreneur. This will allow him to attract additional factors of production (hire new workers, buy more raw materials, purchase modern equipment) to expand the scale of activities. In both cases, the supply will increase.
In this way, law of supply establishes directly proportional relationship between the price of a good and the quantity supplied.
However, in this case, we are only talking about a tendency to increase the scale of production, since only up to a certain limit, an increase in the cost of products causes an increase in the volume of its supply. While maintaining the upward dynamics of the cost of production, the manufacturer can reduce the supply, which violates the law of supply.
This development is due to two reasons:
1) a high level of income to a certain extent reduces the motives and incentives of a person to continue intensive labor activity;
2) in a market of imperfect competition, the manufacturer may fear a further increase in production volumes, since this will lead to overstocking of warehouses and the accumulation of commodity surpluses on the market, which will affect the decrease in prices and profits of the entrepreneur.
However law of downward returns proves that an increase in production will lead to an increase in costs per unit of output with fixed capital and land resources unchanged. As a result, the entrepreneur has a need to set higher prices to fully cover the increased production costs.
In theory operation of the law of supply can be violated in the event of complete exhaustion of free unused economic resources in the market. In this situation, the manufacturer will not be able to respond to the growth in the cost of goods by increasing the volume of supply due to the lack of production factors necessary for this.
In this way, law of supply reflects the following market features:
There is a direct relationship between price and supply;
An increase in prices above a certain level may not be accompanied by a further increase in output.
Those. When prices rise, supply increases, and when prices fall, it decreases. When we talk about the law of supply, we make the assumption: “ceteris paribus”, and proceeds from the fact that the price is, acts as the main price determinant. However, if certain conditions change, the position of the supply curve will change, since other factors also affect supply:
1. Resource prices. The firm's supply curve is based on the cost of production: the firm must charge higher prices for an additional unit of product, since the production of these additional units is more expensive. It follows that a decrease in resource prices will reduce production costs and increase supply, i.e. will shift the supply curve to the right.
2. Technology. Improvement in technology means that the discovery of new knowledge allows more efficient production of a unit of output with fewer resources.
3. taxes and grants.
4. Prices for other goods.
5. Expectations. Example: Expecting an increase in the price of potatoes in the spring, and as a result, the supply increases. The same with meat.
6. The number of sellers. The more sellers in the market, the greater the market supply.
Based on this, it is possible to determine the function of the proposal.
The supply function is a function that determines the amount of supply depending on various factors affecting it.
Qs = ƒ (P, Pr, K, T, N, B)
Qs - offer;
Pr is the price of resources;
K - the nature of the technology used;
T - taxes and subsidies;
N is the number of sellers;
B - other factors.
These factors tend to shift the supply curve to the right or left. Speaking of shifting the curve, when we talk about a change in supply, the supply curve shifts completely. If we are talking about a change in supply, then the movement is along the supply curve (moving along the supply curve).
By analogy with a shift in the demand curve, it can be noted that under the influence of factors affecting the volume of supply, there is an increase in the offered product at each value of the price P, as a result of which the S curve will shift to the right, (S1). A decrease in supply will cause the curve to shift to the left (S2).
We considered separately both demand and supply. Now we can bring together the concepts of supply and demand.
The interaction of supply and demand, their coordination is carried out on the basis of the price mechanism and competition. The market mechanism excludes price controls, so demand and supply in a competitive market come into balance and a market price of the goods is established, stimulating an increase in production. Equilibrium occurs when the amount of goods that buyers want to buy matches the amount of goods that sellers want to sell. As a result, an equilibrium price is formed - the price of such a level when the volume of supply corresponds to the volume of demand. The equilibrium price has a balancing function.
Walrasian equilibrium
Let us assume that as a result of the action of some market forces, the price deviated from the equilibrium level Po and rose to the level Рl. The volume of supply (Q3) in this case exceeds the volume of demand (Q2). The situation that has arisen means the presence of an excess of goods, i.e. At the prevailing price level, some sellers will not be able to sell their goods.
The most effective way out of it for sellers will be to reduce the price. The latter will increase the number of sales, because buyers will demand more at the reduced price. It is clear that the process of price reduction and a parallel increase in sales will go up to the equilibrium point O, when sellers will be able to sell all the goods offered and they will no longer have an incentive to further reduce prices.
The opposite situation, i.e. a price decrease below the equilibrium Po to P2 is characterized by an excess of demand (Q4) over supply (Q1) or a shortage of goods. It is clear that with free pricing, when there is not enough goods for all consumers at a lower price, sellers will take advantage of the situation and offer it at a higher price. This will reduce demand and reduce shortages. This will continue until a point of equilibrium is reached, at which supply and demand coincide.
In other words, both possible variants of price deviation from the equilibrium one are unstable. At the same time, internal forces arise in the market situation itself, striving to return it to a state of equilibrium. Later we will see that this is not always the case, but only when there is competition in the market.
The explanation of the establishment of equilibrium due to price fluctuations, during which their increase or decrease brings the market to a state of equilibrium, belongs to the Swiss economist L. Walras (1834-1910).
Marshall equilibrium
A different approach to explaining the mechanism for establishing market equilibrium was used by the great English economist A. Marshall (1842-1924), who believed that in response to market disruption, sellers maneuver not with prices, but with the volume of supply (Fig. 4.9). The logic of reasoning is as follows. At any volume of production below the equilibrium (for example, at Q1), the supply price is less than the demand price (Р1< Р2). Это весьма выгодно для продавцов: выставив свои товары на продажу по цене Р2, они легко продадут их (спрос готов поглотить по этой цене именно количество Q1), получив огромную прибыль. Столь выгодная ситуация заставит фирмы наращивать производство и, вероятно, привлечет на данный рынок производителей других отраслей. Предложение будет расти, а цены понемногу падать, пока не дойдут до равновесного уровня.
Similarly, if the real volume of production (Q2) exceeds the equilibrium level, the supply price will be higher than the demand price (P3> P4). As always in a market, demand-limited economy, this will actually mean that it will be possible to sell goods only at the demand price P4, i.e. below cost. Obviously, there will be few people willing to produce goods under such conditions. Supply will fall until it reaches an equilibrium level. The price will gradually rise to the equilibrium.
Both approaches to equilibrium reflect market realities, and the effect of each of them is more clearly manifested in a very specific time interval. Thus, price fluctuations (the mechanism of L. Walras) contribute to the establishment of equilibrium in a short period. After all, when goods have already been produced in a certain quantity, the only way to adjust the volume of supply to the size of demand is by changing prices. In other words, the scale of production is given here, and prices are the variables.
Changes in the volume of supply (A. Marshall's mechanism), on the contrary, come to the fore in the long run. Indeed, in the long run, it is possible to build production facilities to meet any volume of demand. The main thing is that it makes a profit. And under such conditions, it is the price that becomes the main reference point. Depending on how attractive it is, production is either increased or reduced. In other words, the price acts as a given, and the supply of goods as a variable.
In addition to the considered models for establishing market equilibrium, there are other approaches to explaining the mechanism of equilibrium price formation.
Spider model
Among these other approaches that explain the mechanism for establishing market equilibrium, one can note the cobweb model, which (unlike the previously considered ones) is one of the dynamic ones, i.e. taking into account the time factor.
The cobweb model considers the process of equilibrium formation under conditions when the reaction of transaction participants to changing market conditions is extended over time.
For example, various branches of agricultural production, for example, poultry farming, are most often taken. Suppose our producer was guided by the market price P1 at which the bird was sold in a given year. Naturally, he expects prevailing prices to continue and determines the volume of poultry production (Q1) next year based on these prices. Suppose further that the market is out of equilibrium. Demand for poultry has declined, and at P1 prices, consumers will no longer buy as much product as they used to. In order to realize the produced quantity, the producer is forced to reduce the price to P2, i.e. to the level of the demand price for a given quantity of poultry.
But such a low price will force some of the producers to leave this market. Supply will fall to Ql, there will be a shortage in the market and, as a result, prices will rise to P2. This, in turn, will cause the supply to expand, but not to the original level of Q1, but to slightly smaller Q3 sizes. In the future, the process follows the same pattern, and eventually, describing the circles of a narrowing spiral around the point O, the producers “grope for” the equilibrium price.
In the described embodiment, the deviation from equilibrium decreases with time, i.e. the system tends to equilibrium. But there are other options presented in the graphs. (a and b) when the deviation from equilibrium increases (Fig. a) and then the deviations from equilibrium stably stay at the same level (Fig. b).
In our graphical interpretation, the possibilities of achieving market equilibrium and its stability are determined by the angles of inclination of the supply and demand lines (their steepness). With a steeper supply curve and a flatter demand curve, the equilibrium is stable; in the opposite case, the equilibrium is unstable - the model goes "peddling". And, finally, regular fluctuations around the equilibrium position are characteristic of a situation with the same slope of supply and demand curves.
An example of a web-like model is not only the market for agricultural products. This model is applicable in almost all cases where demand depends on current prices, and supply responds with some time lag. Phenomena of this type can be observed, for example, in the exchange market for securities and currencies: demand instantly reacts to current quotes, and supply changes more slowly.
But there are also explosive fluctuations on the stock exchanges - the so-called stock market panics, when securities can sharply depreciate in a matter of minutes. New Russia has experienced several such panics, the most acute series of which unfolded at intervals of several months from the second half of 1997. until autumn 1998. Its overall result was an almost tenfold depreciation of the shares of Russian enterprises.
So that during a panic, price deviations from the equilibrium level do not go too far, stock exchanges - including Russian ones - temporarily interrupt their operations. During the break, both the demand side and the supply side have time to think about the situation. The gap between them in terms of decision time disappears, and the next day the panic usually passes.
While this may alarm our readers, the web-like pattern applies to the market for graduate economists as well. Their offer, ie. output by universities is oriented to demand and, accordingly, to wages, which were 5 years ago. After all, it was then that the current graduates entered the first year.
Market disequilibrium
The cobweb model, like all simple models, greatly simplifies the actual situation. In fact, the choice of the volume of supply for the next year is by no means reduced to a mechanical adjustment to the price conditions prevailing in the previous year. Market participants are trying to predict the situation, and some of them (primarily monopoly firms) are able to actively influence it. Do not remain unchanged and the supply and demand curves. Under the influence of non-price factors, they experience constant shifts. In a word, the Web-like model reflects market reality no better than the concept of an internal combustion engine studied at school can help in repairing the engine of the latest Zhiguli model.
However, the cobweb model is extremely useful in its general approach to market equilibrium, namely, by demonstrating that the market does not automatically establish equilibrium in all cases,
On fig. generalized the range of possible options for the dynamics of prices and volumes of supply (P, Q) over time (T). As in the cobweb model, their deviations from the equilibrium level (Po, Qo) can either gradually fade, or increase, or stay at the same level. Finally, one more variant, not previously considered by us, is shown in graph D. An increasing amplitude of deviations from equilibrium can end with the transition of the entire system to a new equilibrium (Pl, Q1).
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Disequilibrium in Russia
In a developed, established market economy, where the general parameters of management (and life in general) are quite stable, the damped type of fluctuations clearly predominates. But in a transitional economy, very dangerous explosive fluctuations are often encountered. On fig. a possible mechanism for the degradation of the sector of the economy is shown.
Rice. Schematic diagram of the degradation of the sector of the economy.
Suppose, as a result of certain events, demand is reduced (from level D to level D1) for the products of a certain industry. Under normal conditions, this causes a simple movement of the equilibrium point from the position Oo to O1. However, if demand falls extremely sharp, what happened in practice with many sectors of the Russian industry, for example, with the weaving industry, the degradation of the industry may begin. The proceeds from the sale of a catastrophically reduced volume of production (Ql) may not be enough to upgrade equipment. As we remember, the deterioration of technology is a non-price factor that shifts the supply curve to the left (downwards). The supply curve will shift to position S2, which will lead to a new decrease in sales (to Q2). Further - a new reduction in revenue, the rejection of even the most necessary expenses and a new shift in the supply curve (to position S3) / A further decrease in sales volume (to Q3) and n.d. will inevitably follow. in a spiral of greater and greater degradation.
Especially dangerous is the situation when the market is dominated by foreign competitors, whose products set the price level, and who can put any number of products on the market. That is why we depicted the demand curve D1 as horizontal: the price ceiling for demand (P1) is determined by imported products of comparable quality. However, the degradation of industries can be caused not only by external economic, but also by internal reasons, for example, inflation of raw material prices by monopolists. After all, they can also provoke the beginning of an unstoppable shift of the supply curve to the left.
There is no general, for all occasions, recipe for suppressing explosive vibrations. Sometimes the efforts of a talented manager are sufficient to change the situation in a particular enterprise for the better. However, very often the role of the stabilizer of the situation should be assumed by the state.
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