Demand depends on the income of buyers. See what “Demand” is in other dictionaries

Today, almost every developed country in the world is characterized by a market economy, in which government intervention is minimal or completely absent. Prices for goods, their assortment, production and sales volumes - all this develops 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 their determining factors, market equilibrium.

Demand: concept, function, graph

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

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

Quantity of demand(quantity 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, ensured by their solvency (that is, they have money to satisfy their need). And the quantity of demand is a specific quantity of goods that buyers want and can (they have the money to do so) buy.

Example: Dasha wants apples and she has money to buy them - this is 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 value (volume) of demand.

The following types of demand are distinguished:

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

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

Demand function– the law of dependence of the quantity of demand on various factors influencing it.

– a graphic expression of the dependence of the quantity of demand for a certain product on its price.

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

P – price for this product.

The graphical expression of this function (demand curve) is a straight line with a negative slope. This demand curve is described by the usual linear equation:

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

A linear demand graph expresses the inverse relationship between the price of a product (P) and the quantity of purchases of that product (Q)

But, in reality, of course, everything is much more complicated and the amount of demand is influenced not only by 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 – price for this product;
P – price of other related goods (substitutes, complements);
I – income of buyers;
E – buyer expectations regarding future price increases;
N – the number of possible buyers in a 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 most bizarre shape.

In reality, demand depends on many factors and the dependence of its value on price is nonlinear.

Thus, factors influencing demand:
1. Price factor of demand– the price of this product;
2. Non-price factors of demand:

• the presence of interrelated goods (substitutes, complements);
• level of income of buyers (their solvency);
• number of buyers in a given region;
• tastes and preferences of customers;
• 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 remaining constant, and vice versa.

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

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

The law of demand has theoretical basis. It is based on the following mechanisms:
1. Income effect- the buyer’s desire to purchase more of a given product when its price decreases, without reducing the volume of consumption of other goods.
2. Substitution effect– the willingness of the buyer, when the price of a given product decreases, to give preference to it, refusing other more expensive goods.
3. Law of Diminishing Marginal Utility– as this product is consumed, each additional unit of it will bring less and less satisfaction (the product “gets boring”). Therefore, the consumer will be willing to continue to buy this product only if its price decreases.

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

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

The impact of other (non-price) factors leads to a shift in the demand curve – changes in demand. When demand increases, the graph shifts to the right and up; when demand decreases, it shifts to the left and down. Growth is called - expansion of demand, decrease – contraction of demand.

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

Elasticity of demand

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

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

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

Respectively, price elasticity of demand shows how much the quantity demanded will change if 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 an arc demand curve. The more convex the demand arc, the higher the error in determining elasticity.

where: E P D - price elasticity of demand;
P 1 – initial price for the product;
Q 1 – the initial value of demand for the product;
P 2 – new price;
Q 2 – new quantity of demand;
ΔP – price increment;
ΔQ – increment in demand;
P avg. – average prices;
Q avg. – average demand.

Point price elasticity of demand– is used when the demand function is specified and there are values ​​of the initial quantity of demand and the price level. Characterizes the relative change in the quantity demanded with an infinitesimal change in price.

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

The elasticity of demand can be calculated not only by price, but, for example, by the income of buyers, as well as by other factors. There is also 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 remains virtually unchanged. Close examples include essential goods (bread, salt, medicine). But in reality there are no goods with completely 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 completely proportional. The quantity demanded grows (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 increases (decreases) 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 an exchange (for example, currency pairs on Forex), when a small price fluctuation can cause a sharp increase or decrease in demand.

Sentence: concept, function, graph

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

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

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

The following are distinguished: types of offer:

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

Suggestion function– the law of dependence of the quantity of supply on various factors influencing it.

– a graphical expression of the dependence of the quantity of supply for a certain product on its price.

In simplified terms, the supply function represents the dependence of its value on price (price factor):

P – price for 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 amount of supply for this product;
P – price for this product;
c – coefficient specifying the offset of the beginning of the line along the abscissa axis (X);
d – coefficient specifying the angle of inclination of the line.

A linear supply graph expresses a direct relationship between the price of a good (P) and the quantity of purchases of that good (Q)

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

where Q S is the quantity of supply;
P X – price of this product;
P 1 ...P n – prices of other interrelated goods (substitutes, complements);
R – availability and nature of production resources;
K – technologies used;
C – taxes and subsidies;
X – natural and climatic conditions;
and other factors.

In this case, the supply curve will have the shape 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 nonlinear.

Thus, factors influencing supply:
1. Price factor– the price of this product;
2. Non-price factors:

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

Law of supply

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

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

The law of supply, like the law of demand, is very logical. Naturally, any seller (manufacturer) strives to sell their goods at a higher price. If the price level on the market increases, it is profitable for sellers to sell more; if it decreases, it is not.

A change in the price of a product leads to change in supply. This is shown on the graph by movement along the supply curve.

Change in supply quantity on the graph: movement along the supply line from S to S1 - increase in supply volume; from S to S2 - decrease in supply volume

Changes in non-price factors lead to a shift in the supply curve ( changing the proposal itself). Expansion of offer– shift of the supply curve to the right and down. Narrowing the offer– shift left and up.

Change in supply on the graph: shift of the supply line from S to S1 - narrowing of supply; from S to S2 - sentence extension

Elasticity of supply

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

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

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

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

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

Types of elasticity of supply 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 elastic supply(|E| = 1);
• elastic supply (1 < |E| < ∞). Величина предложения изменяется в большей степени, чем соответствующее изменение цены. Характерно для долгосрочного периода;
• absolutely elastic supply(|E| = ∞). The quantity supplied varies indefinitely with an insignificantly small change in price. Also typical for the long term.

What is noteworthy is that situations with completely elastic and completely inelastic supply are quite real (unlike similar types of elasticity of demand) and occur in practice.

Supply and demand “meeting” in the market interact with each other. With free market relations without strict government regulation, they will sooner or later balance each other (a French economist of the 18th century spoke about this). This state is called market equilibrium.

– a market situation in which demand is equal to supply.

Graphically, 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 remain unchanged.

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 the demand (D) and supply (S) schedules 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 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, a seller’s market and a buyer’s market, is a topic for a separate article.

If very short and simplified, then the market equilibrium mechanism 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 market deviates from the equilibrium point in one direction or another), the other party will be unhappy and the first party will have to make concessions.

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

Or other example: the volume of goods offered on the market is less than the equilibrium volume. That is, there is a shortage of goods on the market. In such conditions, buyers are willing to pay a higher price for a product than the one at which it is currently being sold. This will encourage sellers to increase supply while simultaneously raising prices. As a result, the price and volume of supply/demand will reach an equilibrium value.

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

Galyautdinov R.R.

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The state of the market is determined by the ratio of supply and demand.

Supply and demand are interdependent elements of the market mechanism, Where demand determined by the solvent needs of buyers (consumers), and offer- a set of goods offered by sellers (manufacturers); the relationship between them develops into an inversely proportional relationship, determining corresponding changes in the level of prices for goods.

If demand– this is the quantity of products that the buyer wants and has the opportunity to buy (that is, the solvent need), then offer- this is the amount of goods that sellers are willing to offer at a specific time in a specific place.

Demand is a request from an actual or potential buyer, consumer, to purchase a product using the funds available to him that are intended for this purchase.

Law of Demand- the quantity demanded decreases as the price of the good increases. That is, an increase in price causes a decrease in the quantity demanded, while a decrease in price causes an increase in the quantity demanded.

1. First way- using a table. Let's draw up a table of the dependence of the quantity demanded on the price, using arbitrary numbers taken at random.

Table. Law of Demand

The table shows that at the highest price (10 rubles) the product is not purchased at all, and as the price decreases, the quantity demanded increases; the law of demand is thereby observed.

Rice. Law of Demand

Second way- graphic. Let's plot the above figures on a graph, plotting the quantity of demand on the horizontal axis and the price on the vertical axis (Figure a). We see that the resulting demand line (D) has a negative slope, i.e. price and quantity demanded change in different directions: when the price falls, demand rises, and vice versa. This again indicates compliance with the law of demand. The linear demand function shown in Fig. a is a special case. Often the demand schedule looks like a curve, as can be seen in Fig. b, which does not cancel the law of demand.

In economics, A demand curve is a graph that illustrates the relationship between the price of a particular good or service and the number of consumers willing to buy it at that price.

Excess demand or shortage accompanying prices below the equilibrium price indicates that buyers need to pay a higher price in order not to be left without the product. The rising price will be:

1) encourage firms to redistribute resources in favor of the production of a given product;

2) push some consumers out of the market.

Offer- the ability and desire of the seller (manufacturer) to offer their goods for sale on the market at certain prices.

Law of supply: The higher the price of a given product, the more quantity producers want to sell during a given time and other constant conditions.

Factors influencing supply:

1. Availability of substitute goods.

2. Availability of complementary (complementary) goods.

3. Level of technology.

4. Volume and availability of resources.

5. Taxes and subsidies.

6. Natural conditions

7. Expectations (inflationary, socio-political)

8. Market size

This law can be expressed in different ways:

First way- using a table. Let's draw up a table of the dependence of the supply quantity on the price, using arbitrary numbers taken at random.

Table. Law of supply

The table shows that at the lowest price (2 rubles) no one wants to sell anything, and as the price increases, the supply increases; the law of supply is thereby observed.

Rice. Law of supply

Second way- graphic. Let's plot the given figures on a graph, plotting the supply value on the horizontal axis and the price on the vertical axis (Fig. a). We see that the resulting supply line (S) has a positive slope, i.e. price and quantity supplied change in the same direction: when the price rises, the quantity supplied also increases, and vice versa. This again indicates compliance with the law of supply. The linear supply function presented in Fig.a is a special case. Often the supply schedule looks like a curve, as can be seen in Fig. b, which does not cancel the law of supply.

A supply curve is a graph illustrating the relationship between market prices and the quantity of goods that producers are willing to supply.

Excess supply, or excess production, arising at prices above the equilibrium price, will encourage competing sellers to reduce prices in order to get rid of excess inventory. Falling prices will be:

1) suggest to firms that it is necessary to reduce the resources spent on the production of a given product;

2) will attract additional buyers to the market.

Supply and demand are closely related and continuously interacting categories and serve as a connecting mechanism between production and consumption. The amount of demand, both individual and aggregate, is influenced by price and non-price factors, which must be clearly monitored on an ongoing basis by special departments.

The result of the interaction of supply and demand is the market price, which is also called the equilibrium price. It characterizes the state of the market in which the quantity of demand is equal to supply.

Elasticity of demand

Price elasticity of demand- a category that characterizes the reaction of consumer demand to changes in the price of a product, i.e., the behavior of buyers when the price changes in one direction or another. If a decrease in price leads to a significant increase in demand, then this demand is considered elastic. If a significant change in price leads to only a small change in the quantity of goods demanded, then relatively inelastic or simply inelastic demand occurs.

The degree of sensitivity of consumers to price changes is measured using the coefficient of price elasticity of demand, which is the ratio of the percentage change in the quantity of products demanded to the percentage change in price that caused this change in demand.

There are also extreme cases:

Absolutely elastic demand: there may be only one price at which the product will be purchased by buyers; the coefficient of price elasticity of demand tends to infinity. Any change in price leads either to a complete refusal to purchase the product (if the price rises) or to an unlimited increase in demand (if the price decreases);

Absolutely inelastic demand: no matter how the price of a product changes, in this case the demand for it will be constant (the same); the price elasticity coefficient is zero.

It is very difficult to identify specific factors influencing the price elasticity of demand, but we can note certain characteristic features inherent in the elasticity of demand for most goods:

1. The more substitutes a given product has, the higher the degree of price elasticity of demand for it.

2. The larger the cost of goods in the consumer’s budget, the higher the elasticity of his demand.

3. The demand for basic necessities (bread, milk, salt, medical services, etc.) is characterized by low elasticity, while the demand for luxury goods is elastic.

4. In the short term, the elasticity of demand for a product is lower than in longer periods, since in long periods entrepreneurs can produce a wide range of substitute goods, and consumers can find other goods that replace this one.

Demand. Law of Demand

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

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

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

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

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

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

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

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

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

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

Mathematically, the law of demand has the following form:

Where Qd- the amount of demand for any product; / – factors influencing demand; R- the price of this product.

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

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

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

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

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

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

Example. Let us have a demand scale that reflects the state of affairs on the potato market (Table 3.1).

Table 3.1. Demand for potatoes

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

Based on these data, you can build demand curve.

Axis X let's put aside the quantity of demand (Q), along the axis Y- appropriate price (R). The graph shows several options for the demand for potatoes depending on their price.

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

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

Rice. 3.1. Demand curve.

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

Offer. Law of supply

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

There are two concepts: supply and quantity supplied.

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

Supply quantity- this is the maximum quantity of goods and services that producers (sellers) are able and willing to sell at a certain price, in a certain place and at a certain time.

The value of the supply must always be determined for a specific period of time (day, month, year, etc.).

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

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

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

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

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

Assuming that all factors except the first remain unchanged:

we get a simplified proposal function:

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

The relationship between supply and price is expressed in law of supply the essence of which is that The quantity supplied, other things being equal, changes in direct proportion to the change in price.

The direct response of supply to price is explained by the fact that production responds quite quickly to any changes occurring in the market: when prices increase, commodity producers use reserve capacity or introduce new ones, which leads to an increase in supply. In addition, the presence of a trend towards rising prices attracts other producers to this industry, which further increases production and supply.

It should be noted that in short term An increase in supply does not always follow immediately after an increase in price. Everything depends on the available production reserves (availability and workload of equipment, labor, etc.), since the expansion of capacity and the transfer of capital from other industries usually cannot be carried out in a short time. But in long term an increase in supply almost always follows an increase in price.

The graphical relationship between price and quantity supplied is called the supply curve S.

The supply scale and supply curve for a good shows the relationship (other things being equal) between the market price and the quantity of this good that producers want to produce and sell.

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

Table 3.2. Potato offer

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

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

Based on the data in the table, a supply curve is constructed S, which shows how much of a good producers would sell at different price levels R(Fig. 3.2).

Rice. 3.2. Supply curve.

Changes in demand

A change in demand for a product occurs not only due to changes in prices for it, but also under the influence of other, so-called “non-price” factors. Let's take a closer look at these factors.

Production costs are primarily determined prices for economic resources: raw materials, materials, means of production, labor - and technical progress. Obviously, rising resource prices have a major impact on production costs and output levels. For example, when in the 1970s. Oil prices have risen sharply, leading to higher energy prices for producers, increasing their production costs and reducing their supply.

2. Production technology. This concept covers everything from genuine technical breakthroughs and better use of existing technologies to the usual reorganization of work processes. Improved technology makes it possible to produce more products with fewer resources. Technical progress also allows you to reduce the amount of resources required for the same output. For example, today manufacturers spend much less time producing one car than 10 years ago. Advances in technology allow car manufacturers to profit from producing more cars for the same price.

3. Taxes and subsidies. The effect of taxes and subsidies is manifested in different directions: increasing taxes leads to an increase in production costs, increasing the price of production and reducing its supply. Tax cuts have the opposite effect. Subsidies and subsidies make it possible to reduce production costs at the expense of the state, thereby contributing to the growth of supply.

4. Prices for related goods. Market supply largely depends on the availability of interchangeable and complementary goods on the market at reasonable prices. For example, the use of artificial raw materials, which are cheaper than natural ones, makes it possible to reduce production costs, thereby increasing the supply of goods.

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

6. Number of commodity producers. An increase in the number of producers of a given product will lead to an increase in supply, and vice versa.

7. Special factors. For example, certain types of products (skis, roller skates, agricultural products, etc.) are greatly influenced by the weather.

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

2. Supply is the willingness of producers (sellers) to supply a certain amount of goods or services to the market at a given price. Quantity supplied is the maximum quantity of goods and services that producers (sellers) are willing to sell at a certain price during a certain period of time. According to the law of supply, an increase in price leads to an increase in the quantity supplied, and vice versa.

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

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

The market determines the price of a good. Pricing is based on the interaction between buyers on the demand side and sellers on the supply side.

The buyer's demand is determined by his needs. However, needs usually exceed the capabilities of the consumer. Therefore, market demand does not represent any need, but only one provided with an appropriate monetary equivalent. Accordingly, we are not talking about consumer demand in general, but about effective demand, which is less than needs. Effective demand matches the needs of buyers with their financial capabilities. It is also obvious that the demand for certain consumer goods largely depends on the price level.

Demand is the amount of a good that can be purchased at an acceptable price in a certain period of time.

Quantity of demand- this is the maximum amount of a good that an individual consumer, a group of people or the population as a whole is willing to buy per unit of time under certain conditions (price of the product, consumer income, market size).

The most important condition determining the volume of demand for a particular good is its price. A rational consumer seeks to purchase a product of appropriate quality at a lower price. Even if he buys an expensive, technically complex product, the price factor plays an important, if not decisive, role. The inverse dependence of demand for it remains. Accordingly, the law of demand states: other things being equal, the lower the price for a product, the greater the quantity of demand for a product (and vice versa).

This dependence can be depicted graphically using a demand curve, which shows how much of a product (service) consumers are willing to purchase at various prices at a given time (Fig. 4.1).

Rice. 4.

R- price of the good; Q - quantity of demand

The demand curve (d) is downward sloping because there is an inverse relationship between price (the independent variable) and quantity demanded (the dependent variable).

As already noted, price is the most important factor influencing the amount of demand for a given product. Other conditions that affect demand include:

• - consumer income;
• - tastes and preferences of consumers;
• - changes in prices on the market of substitute goods and complementary goods;
• - total number of buyers, market size;
• - inflationary and deficit expectations of consumers;
• - advertising;
• - other factors.

The dependence of the volume of demand on the factors that determine it is called the demand function. In general it looks like this:

where Qd is demand; R- price; I- income; W - expectations; N- number of buyers.

Under the influence of non-price factors, the demand curve shifts (Fig. 4.2).

Rice. 4.2.

Thus, an increase in consumer income, an increase in prices for substitute goods (substitutes), a decrease in prices for complementary goods, an increase in the number of buyers will cause an increase in demand, and the demand curve (d) will take the position d 1.

If the conditions for the formation of demand change in the opposite direction (consumer incomes decrease, the number of buyers decreases), demand will decrease and the demand curve will shift to the left and down (d 2).

It is necessary to distinguish between a change in the quantity demanded and a change in the demand function. A change in the volume of demand occurs when the price of a given good changes and other factors remain constant. In this case, there is movement along the demand line. In this case, the demand curve does not change its position, only the quantity of demand changes (Fig. 4.3).

Rice. 4.3.

Deviations from the law of demand are possible. These include:

• a) Giffen's paradox. The English economist R. Giffen, during the famine in Ireland in the middle of the 19th century, studied the consumption structure in miners' families and described a case when the demand for potatoes, the price of which had risen significantly, also increased. The poor abandoned the consumption of other food products in favor of potatoes, which were the most consumed food item. Since then, the concept of “Giffen goods” has appeared in economic theory. These are goods for which demand increases, despite an increase in price;
• b) “Veblen effect”. Describes the prestigious consumption of expensive goods, indicating the high social status of the consumer. This is the demand for expensive cars, exclusive clothing, watches, jewelry, etc. Moreover, a decrease in prices for these goods and the emergence of new, more expensive products can reduce their attractiveness, and, therefore, the demand for them;
• c) “the effect of joining the majority.” It manifests itself in the desire to buy those (usually fashionable) goods that others buy. In this case, the increase in consumer demand is not associated with a decrease in price;
• d) “snob effect”. Driven by the desire to stand out from the crowd. It is a reaction of a specific consumer in the opposite direction from the generally accepted one.

These deviations from the law of demand occur under the influence of conditions not directly related to the inherent consumer qualities of economic goods. Therefore, this part of consumer demand is non-functional. In addition, economic theory distinguishes between speculative and irrational consumer demand.

Speculative demand generated by inflationary expectations or manifested in conditions of commodity shortages.

Irrational demand- This is unplanned demand that arises under the influence of momentary desires. It manifests itself most clearly when visiting large supermarkets.

Under proposal economists understand the seller's willingness to sell his goods. The main suppliers of consumer goods are producers, whose main goal is to maximize profits. The amount of profit, in turn, directly depends on the price of the good. The higher the price, the more goods manufacturers are willing to offer. Conversely, a steady downward trend in prices encourages them to reduce production volumes and even leave the market and change their field of activity.

Supply quantity- this is the maximum quantity of a product (service) that sellers are willing to supply to the market per unit of time under certain conditions (price of the product, availability of production capacity, price level for economic resources, etc.). As already noted, the main factor influencing the volume of supply of a good is its price. Accordingly, the law of supply manifests itself in a direct relationship between the price and quantity of a product offered by sellers. The relationship between price and quantity supplied is graphically depicted using supply curve which shows the amount of good that sellers are ready to offer at a given time at different prices (Fig. 4.4).

Rice. 4.4.

R- price; Q - quantity of supply

The supply curve (S) has a positive slope, which indicates a direct relationship between the price of a good and the desire of producers to supply it to the market.

In addition to price, other factors also influence supply:

• - prices for input resources (land, machines, equipment, raw materials, materials, wage costs, etc.);
• - technology;
• - prices for other goods;
• - taxes and subsidies;
• - number of sellers;
• - expectations of manufacturers;
• - other factors.

The dependence of the quantity of supply on the factors that determine it is called the supply function (Qs).

Where R- the price of the product; Rg- price of resources; TO- nature of technology; T- taxes and subsidies; IN- other factors.

A change in price, provided that non-price factors affecting supply remain unchanged, means a change in the quantity of supply and movement along the supply curve (Fig. 4.5).

Rice. 4.5.

If non-price factors that determine the supply function change, then the supply curve shifts (Fig. 4.6).

Rice. 4.6.

Thus, with an increase in prices for economic resources used in the production of a good, the manufacturer’s profit will decrease, so he will reduce the volume of production of the product. The supply curve in this case will shift up and to the left (S 2). If the government reduces tax rates, then producers will be interested in expanding production. The supply of the product will increase, and the supply curve will take the position Sv

Thus, the interests of consumers (on the demand side) and producers (on the supply side) collide in the market. Each of them strives to extract maximum benefit.