Where there is demand, there is supply. Economy. Supply and demand. Stocks, currency, financial pyramids

29.04.2020

Demand These are social needs mediated and limited by money. The main part of the population's need for consumer goods and services is in the form of effective demand. The needs of enterprises in the means of production also manifest themselves in the form of demand for specific types of means and objects of labor.

There are two types of demand:

individual demand is the demand of a particular subject
Market demand is the demand of all buyers for this product

In market conditions, the so-called law of demand operates, the essence of 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.

A change in demand occurs when the market prices for the product in question remain unchanged, i.e. under the influence of any non-price factors, and is reflected on the graph by a shift in the demand curve to the right or left.

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.

When analyzing market conditions, it is necessary to make a clear distinction between demand and the magnitude of demand, as well as between changes in the magnitude of demand and changes in the demand for a given product. (Fig. 2)

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.

Factors affecting demand:

Non-price factors of demand characterize consumers of this product.

Non-price factors of demand include:

1) consumer tastes and preferences,
2) the number of consumers in the market,
3) consumer income,
4) prices for other goods,
5) consumer expectations.

Non-price factors change demand, increasing or decreasing it.

Now let's look at them in more detail.

A number of factors determine the magnitude of demand at a given price, among these factors are average income, population, prices, availability of related products, individual and societal tastes, and special factors.

* The average income of consumers is a key factor in demand. As income increases, people tend to buy as much as possible of almost any commodity, even if their prices do not change.
* Market size - measured by population and directly affects the market demand curve. Thirty million people in California buy 30 times more apples and cars than a million people in Rhode Island.
* Prices and the availability of related goods affect the demand for a product. Particularly close links exist between interchangeable goods, i.e. those commodities that perform roughly the same functions: cornflakes and oatmeal, pens and pencils, cotton and wool, oil and natural gas. The demand for good A will be low if the price of its replacement good is also low. (For example, if the price of natural gas rises, will that increase or decrease the demand for oil?)

To these objective factors we must add a number of subjective factors called tastes or preferences. Tastes are a collection of cultural and historical influences.

They can reflect purely psychological or physiological needs (for fluid, for love, for sensations). They may also include desires not acquired naturally (cigarettes, drugs, fancy sports cars). They may include important elements of tradition and religion (beef dishes are popular in America but taboo in India, and jellyfish are a delicacy in Japan).

Finally, the demand for individual products depends on specific factors - showers increase the demand for umbrellas, snowfalls help sell skis, and coastal waves affect the demand for surfboards. Moreover, expectations of a certain economic environment (conjuncture) in the future, especially price expectations, can have a large impact on demand.

Sentence- a concept that reflects the behavior of a commodity producer in the market, his willingness to produce (offer) any quantity of goods for a certain period of time under certain conditions. The manufacturer solves two problems: how much and at what price to produce. The higher the price, the higher the supply; the lower the price, the lower the supply.

The elasticity of supply depends on:

· peculiarities production process(allows the manufacturer to expand the production of goods with an increase in the price of it or switch to the production of another product with a decrease in prices);
time factor (the manufacturer is not able to quickly respond to price changes in the market);
It also depends on the inability of this product for long-term storage;

The volume of supply (volume of output) is the quantity of goods that a commodity producer (firm) is ready to offer at a certain price for a certain period of time, all other things being equal. A change in supply is observed when the price of the commodity in question and other market factors remain unchanged and implies movement along the supply curve.

As with demand, changes in supply and changes in supply should not be confused:

A change in the volume of supply is observed when the price of the product in question changes and other factors of market conditions remain unchanged and implies movement along the supply curve (arrow No. 1) (Fig. 3)

A change in supply, on the contrary, means a change in the entire supply function due to a change in any non-price factors at a constant price for the analyzed product (arrow No. 2) (Fig. 3)

The law of supply - the supply of a good increases when the price rises and decreases when the price falls.

Supply is the quantity of goods and services that sellers are willing to sell at a given time. this place and at given prices, does not always coincide with the volume of production and sales that take place in the market.

Offer price - shows the minimum price for a given quantity of goods, which the seller is willing to agree to, that is, to agree to sell his goods.

As a rule, there is a direct relationship between the price level and the quantity of goods. Raising prices leads to additional profits, allowing the manufacturer to expand production, attracting new producers to the market.

Factors affecting the offer.

In studying the forces that determine the supply curve, speaking of the policies of manufacturers, it is necessary to understand that manufacturers produce goods for profit, and not for pleasure or charity. For example, a cereal manufacturer will produce more corn flakes at a higher price because it is profitable, and vice versa, if the price of corn flakes no longer covers production costs, cereal manufacturers will switch to other breakfast cereals.

Non-price supply factors are associated with changes in average production costs (producer costs per unit of goods). Non-price factors of production include:

1) resource prices. The relationship between resource prices and supply is inverse. Reducing the price of inputs will lower the cost of producing a unit of a good (average cost), so it will be profitable for producers to supply this good to the market and supply will increase.

Rising prices for resources, increasing production costs, reduces the supply of goods;

2) production technology. The introduction of progressive technologies, reducing the average cost of production, increases supply;
3) taxes and subsidies. High taxes reduce supply, while subsidies and soft loans, if used effectively, can stimulate the growth of production and supply;
4) the number of manufacturers. There is a direct relationship between the number of sellers and supply in the market;
5) price expectations of sellers. If an increase in prices for a given commodity is expected, then producers will hold it at the moment and vice versa.
6) prices for related products.

One of the most important elements underlying the supply curve is the cost of production (or production costs). If production costs are low compared to market prices, then it is advantageous for producers to supply goods in large quantities. If they are high compared to the price, firms produce the product in small quantities, switch to other products, or even leave the business.

Production costs are primarily determined by resource prices and technological progress. Clearly, the prices of inputs such as labor, energy, or equipment have a large impact on production costs and a given level of output. 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. In the opposite case, in the early 1990s, interest rates fell and thus lowered the production costs of many enterprises that borrowed money at interest. An equally important factor influencing production costs is technical progress. It leads to changes that reduce the amount of resources required to produce the same amount of output. This concept unites everything from genuine technical discoveries and best use existing technologies, and ending with the usual reorganization of the workflow.

For example, over the past ten years, manufacturers have become more efficient. Now, in order to make a car, it takes much less time than just 10 years ago. This advance in technology allows car manufacturers to profit from producing more cars for the same price. Or, to take another example, a bank is redesigning how it works so that bank tellers can open a checking account for multiple customers by filling out just one short form. , instead of filling out 5 or 6 long forms as before.This change in work order will also reduce production costs.

But production costs are not the only factor influencing the supply curve. Firms take every alternative opportunity to use their production assets. Thus supply is also affected by the prices of ancillary goods, and in particular goods that can quickly substitute for each other as products of the same production process. If the price of one related product rises, the price of the other will also rise. For example, automotive companies the same plant usually produces several different models of the same car. If the demand for a certain model increases and its price rises, then they will switch assembly lines to the production of this model, and the supply of other models will decrease. Or, if the demand and price of trucks increases, then the whole plant can switch to the manufacture of trucks, and supply cars will decrease. Government policies also have an important influence on the demand curve. Government solutions to problems related to environment and health determine which technologies can be used, and taxes and minimum hourly wage laws can significantly increase the price of resources. In industries such as cable television, government regulation affects the number of firms that can compete in the market and the types of services they provide. Trade policy states also have a strong influence on supply. For example, when a free trade agreement opens up the US market for Mexican goods, it will increase supply. Finally, it should be noted that special factors affect the demand curve. The weather has a very strong influence on Agriculture and ski production. The computer industry has been "engulfed" in a spirit of innovation that has led to a steady stream of new products. Market Structure, as well as price expectations, has a significant impact on the supply and decisions made by buyers and sellers.

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.

– graphic expression the dependence of the quantity demanded for a commodity on its price.

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 the given 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 of 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 more units of the product will be bought. But, oddly enough, there are paradoxical situations in which the law of demand fails and operates in reverse side. 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;
P2- new price;
Q 2 - the new value of demand;
ΔP – price increment;
ΔQ is the increment in demand;
P cf. – average price;
Q cf. is the average 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.

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 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).

In real conditions, supply depends on many factors, and the dependence of supply volume on 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;
the quantity and availability of the 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. With free market relations without strict state regulation, they will sooner or later balance each other (this was already spoken by the French economist of the 18th century). 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 the one at which it is sold at the 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.

The market is a mechanism that brings together buyers (demanders) and sellers (suppliers) of individual goods and services. At the same time, markets take on various forms. Let us dwell on the characteristics of purely competitive markets. Purely competitive markets involve large numbers of independently acting buyers and sellers interested in exchanging standardized products. This does not mean a store, but markets such as the central commodity exchange, stock exchange or foreign exchange exchange, where the equilibrium price is "revealed" through the agreed decisions of buyers and sellers. Based on the premise, the market economy is based on the operation of objective economic laws, let's study the law of supply and demand.

Law of demand

The law of demand states that there is a negative, or inverse, relationship between price and quantity demanded. Demand is depicted as a graph showing the amount of a product that consumers are willing and able to buy at a certain price from the prices available over a certain period of time. It shows the quantity of the product for which (ceteris paribus) will be demanded at different prices.

The fundamental property of the law of demand is as follows: with all other parameters unchanged, a decrease in price leads to a corresponding uprising in the quantity demanded. Conversely, other things being equal, an increase in price leads to a corresponding decrease in the quantity demanded.

The law of demand can be explained by income and substitution effects. The income effect indicates that, at a lower price, a person can afford to buy more of a given product without forgoing some alternative goods. More high price leads to the opposite result.

The substitution effect is expressed in the fact that at a lower price, a person has an incentive to buy cheap goods instead of similar products that are now relatively more expensive. Consumers tend to replace expensive products with cheaper ones. Income and substitution effects combine to create a consumer's ability and desire to buy more of a product at a lower price than at a higher price.

Demand determinants

Price is the most important determinant of the quantity of any product purchased. However, the economist knows that there are other factors that influence purchases.

These include non-price determinants, or the so-called demand change factors:

1) consumer tastes;

2) the number of buyers;

3) consumers' incomes;

4) prices for related goods and

5) consumer expectations regarding future prices and incomes.

Consider the impact on demand of each non-price determinant:

1. Consumer tastes.

Technological changes in the form of a new product, or advertising, or changes in fashion can lead to a change in the demand for certain products. For example, the advent of CDs has led to a reduction in the demand for records.

2. Number of buyers.

An increase in the number of consumers in the market causes an increase in demand, and a decrease in the number of consumers - a decrease in demand.

3. Consumer income. For most goods, an increase in income leads to an increase in demand.

As incomes rise, consumers tend to buy more steaks, stereos, whiskey. Conversely, when income decreases, the demand for such goods falls. Goods for which demand changes in direct relation to changes in money income are called normal goods.

4. Prices for related products.

When two products are interchangeable, there is a direct relationship between the price of one and the demand for the other. This is exactly the case with sugar and its substitute, tea and coffee, etc. When two goods are complementary, there is a difference between the price of one and the demand for the other. Feedback. For example, the demand for gasoline and engine oil conjugated are products that complement each other. The same applies to VCRs and cassettes, cameras and film, and so on. Many pairs of products are not related at all. These are independent independent goods. We can assume that for such pairs of goods, for example, bananas and wrist watch, a price change will have very little or no effect on the price of another good.

5. Consumer expectations regarding future prices and income.

Consumer expectations about factors such as future commodity prices, product availability, and future income can change demand. Consumers' expectations of the possibility of higher prices in the future may encourage them to buy now in order to "anticipate" threatening price increases; conversely, the expectation of falling prices and falling incomes leads to a reduction in the current demand for goods.

A change in demand means that the demand curve changes its position either to the right (an increase in demand) or to the left (a decrease in demand). A change in demand is caused by a change in one or more determinants of demand.

In contrast, a change in the magnitude of demand is a movement from one point to another point on the demand curve, i.e., a transition from one combination of "price - quantity of product" to another combination of them. The reason for the change in the quantity demanded is a change in the price of this product.

Law of supply

The law of supply states that there is a direct relationship between price and quantity supplied. Supply is depicted as a graph showing the various quantities of a product that a producer is willing and able to produce and offer for sale on the market at each specific price from a range of possible prices over a specified period of time. The fundamental property of the law of supply is as follows: with an increase in prices, the amount of supply increases accordingly; Conversely, as prices fall, supply decreases. The law of supply shows that manufacturers want to make and sell more of their product at a high price than they would like to do at a low price.

Supply Determinants

Price is the main determinant of the supply of any product. However, there are non-price determinants of supply. If one of the non-price determinants actually changes, the position of the supply curve will change.

Non-price determinants of supply include:

1) resource prices;

2) production technology;

3) taxes and subsidies;

4) prices for other goods;

5) expectations of price changes;

6) the number of sellers in the market.

Let's take a closer look:

1. Prices for resources.

The firm's supply curve is based on production costs. It follows that a decrease in resource prices will decrease and increase supply, i.e., it will shift the supply curve to the right. Conversely, an increase in resource prices will increase production costs and reduce supply, i.e., shift the supply curve to the left.

2. Technology.

Improvement in technology means that the discovery of new knowledge makes it possible to produce a unit of output more efficiently, i.e., with less expenditure of resources. At these resource prices, costs will decrease and supply will increase.

3. Taxes and subsidies.

Businesses treat most taxes as costs of production. Therefore, raising taxes on, say, sales or property increases the cost of production and reduces supply. On the contrary, subsidies are considered a "tax in reverse".

4. Expectations.

Expectations of changes in the price of a product in the future can also influence a manufacturer's willingness to bring the product to market at the present time. For example, the expectation of a significant increase in the output of an automobile firm can induce firms to increase production capacity and thus increase supply.

5. Number of sellers.

Given the output of each firm, the greater the number of suppliers, the greater the market supply. As more firms enter the industry, the supply curve will shift to the right. The smaller the number of firms in an industry, the smaller the market supply. This means that as firms exit the industry, the supply curve will shift to the left.

The difference between a change in supply and a change in the quantity supplied is the same as the difference between a change in demand and a change in the quantity demanded. A change in supply is expressed as a shift in the entire supply curve: an increase in supply shifts the curve to the right, a decrease in supply shifts it to the left. A change in a supply is caused by a change in one or more of the determinants of the supply. In contrast, a change in the quantity supplied means moving from one point to another point on a constant supply curve. The reason for this movement is a change in the price of the product in question.

Market equilibrium and equilibrium price

Now we can bring together the concepts of supply and demand to find out how the market determines the price of a product and the quantity that is actually bought and sold.

The point of intersection of the descending demand curve and the ascending curve shows the equilibrium price and quantity of the product; Only at this price, the amount of product produced is equal to the amount that consumers are willing and able to buy. At the point of intersection, the amount of supply and the amount of demand are balanced. It acts as the only stable price. Any price below the equilibrium price results in a shortage of the product. Conversely, a price above the equilibrium price results in a surplus of product. The ability of competitive forces to set a price at a level at which buy and sell decisions are synchronized is called the balancing function of prices. If these competitive prices did not automatically reconcile supply and demand decisions with each other, then some form of administrative control by the government would be needed to eliminate or regulate shortages or surpluses that might otherwise occur.

Change in supply and demand

Consider the impact of changes in supply and demand on the equilibrium price.

Change in demand. Let's assume that demand increases.

How will this affect the price?

Answer:

an increase in demand, ceteris paribus (supply remains constant), generates a price increase effect and an increase in quantity effect. Conversely, a decrease in demand causes both a price reduction effect and a product reduction effect. So, there is a direct connection between the change in demand and the resulting changes in both the equilibrium price and the quantity of the product.

Change of offer

Let us now carry out the opposite procedure and analyze the effect of a change in supply on price, assuming that demand is constant. On the one hand, when supply increases, the new supply-demand intersection is below the equilibrium price. However, the equilibrium amount of the product increases. On the other hand, when the supply decreases, this leads to an increase in the price of the product. In this case, the price rises and the quantity of the product decreases.

So, an increase in supply generates the effect of lowering the price and the effect of increasing the quantity of the product. An inverse relationship is found between the change in supply and the resulting change in the equilibrium price, but the relationship between the change in supply and the resulting change in the quantity of product remains direct.

There may be special cases where a decrease in demand and a decrease in supply, on the one hand, and an increase in demand and an increase in supply, on the other, completely cancel each other out. In both these cases, the final impact on the equilibrium price is zero, the price does not change.

Foreign exchange market

The concept of supply and demand extends to both the resource market and the foreign exchange market, that is, the market where different national currencies are exchanged for each other. The price, or exchange rate, of a national currency is an unusual price in the sense that it relates all domestic prices to all foreign prices. As a result, changes in the exchange rate can have very important implications for a country's domestic production and employment levels. More about this in the chapters on the world economy.

The theory of price elasticity of supply and demand

Price. The impact of price changes on changes in the total. Factors affecting the price demand. Price elasticity of supply. Time as a factor influencing the price elasticity of the Offer.

Price elasticity of demand

Economists measure the response (sensitivity) of consumers to changes in the price of a product using the concept of price elasticity.

The essence of the concept of price elasticity of demand is as follows:

1) if small changes in price lead to significant changes in the quantity of the requested product, then the demand for such products is called elastic;

2) if a significant change in price leads to only a small change in the number of purchases, then in such cases demand is inelastic.

Percentage price change

Percent change is calculated by dividing the amount of change in quantity requested from the original quantity demanded by the change in price from the original price.

If a 3% price reduction results in only a 1% increase in quantity demanded, demand is inelastic.

With inelastic demand, the elasticity coefficient will always be less than one.

In this case, it will be 1/3.

Between elastic and inelastic demand there is a boundary situation, when the percentage change in price and the subsequent percentage change in the quantity of the requested product are equal in magnitude. This particular case is called unit elasticity, since the elasticity coefficient is exactly one.

For example, when a 1% drop in price causes a 1% increase in sales, perfectly inelastic demand means an extreme case where a change in price does not result in any change in the quantity demanded. Whatever the price, even if it is 100 times higher than the original price, they will still buy alcohol, cigarettes, drugs, insulin, etc.

The impact of price changes on changes in total revenue

The simplest way to check whether demand is elastic or inelastic is to determine what happens to total revenue when the price of a product changes:

1. Elastic demand. If demand is elastic, then a decrease in price will increase total revenue. Conclusion: if demand is elastic, a change in price causes a change in total revenue in the opposite direction.

2. Inelastic demand. If demand is inelastic, a decrease in price will lead to a decrease in total revenue. Conclusion: if demand is inelastic, a change in price causes a change in total revenue in the same direction.

3. Single elasticity. In the case of unit elasticity, an increase or decrease in price will leave the total revenue unchanged. The loss in revenue caused by the lower unit price will be exactly offset by the accompanying increase in sales. Conversely, the increase in revenue generated by an increase in a unit of output will be exactly offset by the loss in revenue caused by the concomitant reduction in the quantity demanded.

Bread and electricity are recognized as necessities; without them, we "will not last." Raising prices for these products will not lead to a significant reduction in their consumption. But if the prices of cognac and emeralds rise, then they can not be bought, and no one will face great inconvenience.

Time factor. Demand for a product is usually more elastic the longer the decision time period. One reason for this rule is that many consumers are people of habit. If the price of a product rises, then it takes time to find and try other products until we are satisfied that they are acceptable.

If the price of beef rises by 10%, consumers may not immediately cut back on their purchases. But after a while, they can transfer their sympathies to a bird or a fish, for which they now "have a taste." Another explanation for this rule has to do with the durability of the product. Studies show that "short-term" demand for gasoline is less elastic than "long-term". Why is this happening? Because, in the long run, big, gas-guzzling cars wear out and are replaced by smaller, more fuel-efficient cars due to rising gas prices.

Price elasticity of supply

The concept of price elasticity of demand also applies to supply.

The most important factor affecting the elasticity of supply is the amount of time available to producers to respond to a given change in the price of a product. The longer the time a producer has to adjust to a given change in price, the more output will change and the more elastic supply will be. Therefore, the more the volume of production changes, the higher the elasticity of supply will be.

Time as a factor affecting the price elasticity of supply

It is advisable to start the analysis of this problem by clarifying the differences between the periods:

1. The shortest market period is the period when producers do not have time to respond to changes in demand and prices.

For example, a small farmer brought to the market on one truck his entire crop of a given season. The supply curve will be perfectly inelastic; the farmer will sell whatever he brings, no matter how high or low the price. Why? Because he cannot offer more than he brought in his truck, even if the price of the brought product exceeds his expectations. Thus, within a very short space of time, the supply from our farmer is fixed; he can only offer as much as he brought in by truck, no matter how high the price.

2. The short run is the period when the production capacities of individual producers and the entire industry remain unchanged. However, enterprises have enough time to use their capacities more or less intensively. During this period of time, the farmer can apply more intensive methods of growing products. The result will be an increase in production in response to an expected increase in demand; such a reaction from the production side will mean a higher elasticity of the supply of products. The price is thus lower than in the shortest market period example.

3. The long-term period is the (long) period when firms have time to take all desirable measures to adapt their resources to the requirements of a changed market situation. Individual firms can expand (or reduce) their production capacity; new firms can enter the industry, and old firms can leave it. Such changes mean an even more active response from the supply side, i.e. an even more elastic supply curve.

The long-run equilibrium supply curve gives a new price that is higher than the original price. Why higher? Because an industry with rising production costs leads to higher prices for the resources it consumes. In other words, to expect that the expansion of the industry will lead to "increasing costs" is quite common and reasonable. In the case of industry c, the long-run supply curve would be perfectly elastic, i.e., the new price would be equal to the original price.

Thus, the relationship between price and quantity supplied is a direct one, i.e., the supply curve is an upward curve. Therefore, regardless of the degree of elasticity or inelasticity of supply, price and total income always change in the same direction.

State regulation prices

In some cases, it may legislate a price ceiling and a floor.

A price ceiling is the maximum price a seller is allowed to charge for their product or service. This allows consumers to purchase some essential goods or services that they would not be able to purchase at equilibrium prices.

Examples are rent payments and the rate of interest that is allowed to be charged from debtors.

On a large scale, price ceilings, or general price controls, were used to limit inflationary processes in the economy.

Since the introduction of a price ceiling for a particular product (service), for example at the level, leads to a stable deficit of this product, the value of which is determined by a segment, the government has to take on the rationing of the consumption of this product in order to achieve its more equitable distribution.

Setting a price ceiling also creates a more serious problem - it prevents price changes, which is absolutely necessary for the efficient allocation of resources.

For example, control over rents does not allow them to increase and thus signal the profitability of reallocation of resources in favor of housing construction, as well as renovation of the old housing stock.

The lower price level is minimum price, set by the government and exceeding the equilibrium price. It is usually applied in cases where the market system does not provide a sufficient level of income for certain groups of resource suppliers or producers. Floor legislation and agricultural price support are two of the most widely known examples of government price flooring.

Price ceilings and price floors deprive the mechanism of free market interaction between supply and demand. Freely set prices automatically ration the product for buyers; regulated prices do not. Accordingly, the government has to take on the problem of rationing the consumption of the product, generated by the establishment of price ceilings, as well as the problems of purchasing or destroying surpluses arising from the introduction of minimum prices. State regulation of prices has contradictory consequences. The expected benefits from the introduction of price ceilings and price floors for consumers and producers separately must be weighed against the losses resulting from the resulting shortages and surpluses.

So, state prices do not allow the equilibrium to carry out the distribution function (rationing). Price ceilings lead to persistent deficits, and if the government wants to distribute products fairly, it has to take on the responsibility of rationing consumption. The establishment of a lower price level promotes the production of surplus products; the government must take away these surpluses or prevent their occurrence by imposing restrictions on production or stimulating consumer demand.

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 various needs and is formed under the influence of such factors 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 others, 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 consumer's income and remains fixed, since the buyer can no longer pay for the goods, that is, the higher the demand price, the less goods will be sold. Thus, demand is one of the necessary elements of the market mechanism that characterizes human behavior.

Offers and factors influencing it.

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

Offer amount - this is the maximum amount of goods and services that producers (sellers) are able and willing to sell at a certain price in a certain place and at a certain time. The value of the proposal must always be determined for a specific period of time.

Supply factors are price and non-price.

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

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

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

The relationship between supply and price is expressed in law of supply, the essence of which is as follows: the value of supply, other things being equal, changes in direct proportion to changes in price. The direct reaction of supply to price is explained by the fact that production responds quickly enough to any changes occurring in the market. When prices rise, producers use spare capacities or introduce new ones, which leads to an increase in supply. In addition, the presence of rising prices attracts other manufacturers to the industry, which further increases production and supply. It should be noted that in the short term, an increase in supply does not always follow immediately after a price increase. Everything depends on the available production reserves (availability of equipment, labor, etc.) since the expansion of capacities and the transfer of capital from other industries usually cannot be carried out in a short time. 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 quantity supplied and the price and shows the desire of producers to sell more items 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 .

Market— ϶ᴛᴏ competitive form of communication between economic entities.

Market mechanism- ϶ᴛᴏ the mechanism of interconnection and interaction of the main elements of the market - demand, supply, price, competition, and the basic economic laws of the market.

The market mechanism operates on the basis of economic laws. Change in demand, change in supply, change in equilibrium price, competition, cost, utility and profit. The market mechanism makes it possible to satisfy only those needs of a person and society, which are expressed through demand.

Law of demand

Demand- ϶ᴛᴏ solvent need for any product or service.

Demand quantity— ϶ᴛᴏ the quantity of goods and services that buyers are willing to purchase at a given time, in a given place, at given prices.

The need for some good implies the desire to possess goods. Demand implies not only desire, but also the possibility of acquiring it at existing market prices.

Types of demand:

individual demand
market demand
Demand for factors of production (Demand for production)
consumer demand

Factors affecting demand

The magnitude of demand is influenced by a huge number of factors (determinants) Demand depends on:

use of advertising
fashion and tastes
consumer expectations
changes in environmental preferences
availability of goods
income
usefulness of a thing
price set for interchangeable goods
and also depends on the population.

The maximum price that buyers are willing to pay for a given quantity of a given good or service is called demand price(denoted)

Distinguish exogenous and endogenous demand.

exogenous demand -϶ᴛᴏ such a demand, changes in which are caused by the intervention of the government, or the introduction of any forces from outside.

endogenous demand(domestic demand) - is formed within a society due to those factors that exist in a given society.

The relationship between the magnitude of demand and the factors determining it is called the demand function.
In the very general view it is written as follows:

If all the factors that determine the magnitude of demand are considered unchanged for a given period of time, then it is possible to move from the general demand function to demand function from price:. The graphic representation of the demand function from the price on the coordinate plane is called demand curve(picture below)

Changes occurring in the market associated with the quantitative supply of goods always depend on the price set for this product. There is always a certain ratio between the market price of a commodity and its quantity, for which there will always be demand. The high price of goods limits the demand for it, a decrease in the price of a commodity usually characterizes an increase in demand for it.

Changes in demand and magnitude of demand

In analyzing market conditions, it is essential to make a clear distinction between demand and quantity demanded, and between changes in quantity demanded and changes in demand for a given good.

Change in demand observed when the price of the product in question changes and all reading parameters (tastes, incomes, prices for other goods) remain unchanged. On the graph, such a change is demonstrated by movement along the demand curve from the point (arrow No. 1)

Change in demand occurs when the market prices for the product in question remain unchanged, i.e. under the influence of any non-price factors, and is shown on the chart by a shift in the demand curve to the right or left (arrow No. 2)

Non-price determinants of demand

Factors that affect demand at constant prices for the product in question are called non-price determinants of demand. Among the most significant non-price determinants, economists distinguish:

1. Tastes and preferences of consumers. 2. Consumer income.

For the overwhelming group of normal quality goods, an increase in income causes an increase in demand at the same prices and a consequent shift of the demand curve to the right.

At the same time, for relatively inferior goods of relatively lower quality, income growth induces the consumer to replace the relatively inferior product with a higher quality one, and thereby reduces demand. As a result, the demand curve shifts to the left.

3. Number of consumers.

Other things being equal, the larger the number potential buyers the higher the market demand for the product.

4. Prices for other goods.

This factor will be non-price, because assumes that the price of the commodity in question remains unchanged. The price of any other commodity, besides the one we are analyzing, acts as a non-price or exogenous factor.

There are conditionally three groups of "other" goods:

neutral, i.e. having a very low, near-zero impact on the market for a major commodity, such as tea and milling machines;
substitutes, satisfying similar needs, and therefore are competitors for the main product, for example, tea and coffee;
complementary whose consumption is driven by the consumption of a staple commodity such as tea and sugar.

If it is possible to abstract from the first group of goods, then the change in prices for complementary and substitute goods will have a significant impact on the market demand of the analyzed goods.

An increase in the price of a substitute product leads to a decrease in the demand for it and, as a result, to an increase in demand for the main product. (An example is the situation in the 70-80s in the oil market, when the rise in prices for ϶ᴛᴏt energy carriers provoked an increase in demand for alternative energy sources: nuclear, solar, wind, etc.)

On the contrary, an increase in the price of a complementary product leads to a decrease in demand for the main product, and vice versa, a fall in prices to its increase. For example, the decline in prices for personal computer printers caused a sharp increase in demand for high-quality paper. Both examples can be illustrated by the shift of the demand curve to the left.

5. Economic expectations of consumers.

Expectations may relate to changes in prices, cash income, the macroeconomic situation in the country, etc. Thus, expectations of price increases (the so-called inflationary expectations) can cause an increase in demand for goods already in the current period of time, which will graphically mean a shift in the demand curve to the right, and expectations of a reduction in cash income (for example, in connection with the upcoming dismissal) - a reduction in demand and ϲᴏᴏᴛʙᴇᴛϲᴛʙ shifting the demand curve to the left.

To non-price factors affecting demand ᴏᴛʜᴏϲᴙt:

Changes in money income of the population
Changes in the structure and size of the population
Changes in the prices of other goods (especially substitutes or complementary goods)
Economic policy of the state
Changing consumer preferences, under the influence of advertising, fashion.

The study of non-price factors allows us to formulate the law of demand.

Law of demand. If the prices for any product increase, and at ϶ᴛᴏm all other parameters remain unchanged, then the demand will be shown for an ever smaller amount of this product.

The operation of the law of demand can be explained on the basis of the operation of two interrelated effects: the income effect and the substitution effect. The essence of these effects is as follows:

On the one hand, an increase in prices reduces the real income of the consumer with a constant value of his money income, reduces his purchasing power, which leads to a relative reduction in the amount of demand for a product that has risen in price (income effect)
On the other hand, the same rise in prices makes other goods more attractive to the consumer, encourages him to replace the more expensive product with a cheaper analogue, which again leads to a reduction in the amount of demand for it (the substitution effect)

The law of demand does not apply in the following cases:

Giffen paradox(Rising prices for a major group of basic necessities leads to the abandonment of more expensive and quality goods, and to an increase in the volume of demand for this basic product (can be observed during a famine) For example, during a famine in Ireland in the mid-19th century, the demand for potatoes increased Giffen is associated ϶ᴛᴏ with the fact that in the budget of poor families spending on potatoes occupied a significant share.The increase in prices for this product led to the fact that the real incomes of these segments of the population fell, and they were forced to reduce purchases of other goods, increasing the consumption of potatoes, ɥᴛᴏ to survive and not die of hunger)

When price is quality(In this case, the consumer may consider that the high price of the product indicates its high quality and increased demand)

Veblen effect(Associated with prestigious demand, focused on the purchase of goods, indicating, in the opinion of the buyer, his high status or belonging to "preferential goods")

The effect of expected price movements(If the price of a product decreases and consumers expect the ϶ᴛᴏth trend to continue, then the size of demand in a given time period may decrease and vice versa)

For rare and expensive goods that are a means of investing money.

Law of supply

The analysis of the market mechanism will be one-sided without considering the proposal, which characterizes the economic situation in the market not from the side of the buyer, as demand, but from the side of the seller.

Sentence- ϶ᴛᴏ the totality of goods and services that are on the market, and which sellers are ready to sell to the buyer at a given price.

Offer amount- ϶ᴛᴏ the quantity of goods and services that sellers are willing to sell at a given time, in a given place and at given prices, but the amount of supply does not always coincide with the volume of production and sales in the market.

Offer price— ϶ᴛᴏ the forecast minimum price at which the seller agrees to sell a certain amount of this product.

Scope and structure of the offer characterizes the economic situation on the market on the part of sellers (manufacturers) and is determined by the size and capabilities of production, as well as the share of goods that goes to the market and, under favorable economic circumstances, can be purchased by buyers. To the product offer ᴏᴛʜᴏϲᴙt all goods on the market, incl. ᴏᴛʜᴏϲᴙt goods in transit.

The volume of supply, as a rule, varies depending on the price. If the price is low, then the sellers will offer few goods, the other part of the goods will be held in stock, if the price is high, then the manufacturer will offer the market the maximum number of goods. When the price increases significantly and turns out to be very high, then the producers will try to increase the supply of goods, trying to sell even defective products. The supply of goods on the market largely depends on production costs, that is, those production costs that directly form the costs associated with the production process.

The proposal is examined in three time intervals:

Short term - up to 1 year
Medium-term - from 1 year to 5 years
Long-term - more than 5 years

Supply volume they call the quantity of a product that an individual seller or a group of sellers wants to sell on the market per unit of time under certain economic conditions

Offer function on the price characterizes the dependence of the volume of supply of goods on its monetary equivalent

Supply curve shows how many products producers are willing to sell at different prices at a given time.

As with demand, changes in supply and changes in supply should not be confused:

A change in the volume of supply is observed when the price of the product in question and other factors of market conditions remain unchanged and implies movement along the supply curve (arrow No. 1)
A change in supply, on the contrary, means a change in the entire supply function due to a change in any non-price factors at a constant price for the analyzed product (arrow No. 2)

Q - the number of products that the manufacturer is ready to offer
S - offer

Law of supply The supply of a good increases when the price rises and decreases when the price falls.

To non-price supply factors ᴏᴛʜᴏϲᴙt:

change in production costs as a result of technical innovations, changes in sources of resources, changes associated with tax policy, as well as characteristics that affect the formation of the cost of production factors.
Market entry of new firms.
Changes in the prices of other goods leading to the exit of the firm from the industry.
Natural disasters
Worth saying - political action and war
Forward Economic Expectations

Firms engaged in the industry with an increase in price use reserve or quickly commissioned new capacities, which automatically leads to an increase in supply.
In the event of a prolonged increase in prices, other producers will rush into this industry, which will further increase production and, as a fact, an increase in supply is possible.

Technological progress plays a huge role on the supply curve. It is worth noting that it allows you to reduce production costs and vary the number of goods on the market. The analysis of the supply schedule is largely due to the production technology used by the manufacturer, the availability and availability of raw materials used in the manufacture of goods. If the mobility of production, the resources used in it is high, then the supply curve will have a flatter form, i.e. flattened down.

The effect of changes in supply and demand on the equilibrium price and the equilibrium quantity of the product