Demand- this is the relationship between price (P) and the quantity of goods (Q) that buyers can and are willing to buy at a strictly defined price, in a certain period of time.

Quantity of demand

It is necessary to distinguish between the concepts of quantity demanded and demand. Quantity of demand(volume of demand) represents the quantity of a product that a buyer is willing to purchase at a specific price, and the total demand for a product is the consumer’s willingness to purchase a product at all possible prices, that is, the functional dependence of the quantity demanded on the price.

Changes in demand depend on several factors: gender, age, consumer expectations, consumer income, prices for substitute goods, complementary goods, advertising, etc.

Demand curve- a curve showing how much of an economic good buyers are willing to purchase at different prices at a given point in time.

Demand function- a function that determines demand depending on various factors influencing it.

As a rule, the higher the price, the lower the quantity demanded, and vice versa. In some cases, the so-called paradoxical demand is observed - an increase in the quantity of demand with an increase in price. This is observed in cases of wasteful consumption, the purpose of which is to demonstrate wealth (expensive cars, fashion clothes, Jewelry). Goods for which demand behaves in this way are called “Veblen goods.” Another exception is at the opposite end of the spectrum: consumers in very poor countries may start buying fewer low-quality products, such as rice, if their prices fall. This is because consumers will be able to spend the remaining money (after a discounted purchase) on other, more diverse products. Such goods are called "Giffen goods."

Demand is also characterized by elasticity. If, when the price increases or decreases, goods are bought in almost the same quantities, then such demand is called inelastic. If a change in price leads to a sharp change in the quantity demanded - elastic.

As a rule, demand for essential goods is inelastic; demand for other goods is usually more elastic. The demand for luxury goods or attributes of status is often paradoxical.

In order to characterize aggregate demand, it is necessary to find out what price and non-price factors influence it.

Price factors determine the trajectory of the aggregate demand curve, that is, the relationship between the price level and the volume of real production. There are three factors that influence LO in this direction:

 interest rate effect;

 effect of real cash balances;

 effect of import purchases.

Interest rate effect shows the relationship between the price level, interest rate and the demand of the population for consumer goods, and of firms for investment goods. If the price level rises, then the interest rate on loans will also increase. (Compare; interest rate at stable prices in Russian economy was 2-3. Since 1992, with rising prices, it began to increase in 1994-95. reached the level of 150-170). If the interest rate increases, buyers and firms will not be interested in high-interest loans, therefore, consumer and investment demand will decrease. As a result, the demand for the real volume of GDP will decrease.

Effect of real cash balances characterizes the preservation of the value of cash savings during inflation. If over a period of time the monetary unit depreciates, that is, a ruble, dollar, or franc can buy fewer goods today than yesterday, then the value of financial assets expressed in any goods falls. Consequently, the higher the price level, which inevitably accompanies inflation, the less quantity of goods the population will be able to purchase with the funds set aside for purchases, in other words, the volume of aggregate demand decreases.

Effect of import purchases- this is the influence of the same inflation, which has a “local” significance, on the buyer’s choice between domestic goods that have become more expensive, or imported goods, the prices of which have not changed. In such a situation, the consumer, discarding the false sense of patriotism, will give preference to imported goods, and the volume of aggregate demand for domestically produced products will decrease.

The three listed effects explain the change in real output depending on changes in the price level in the economy, which underlies the decrease or increase in aggregate demand.

We considered the effect of these three factors provided that all other parameters remained constant. IN real life they change and relate to non-price factors.

The action of non-price factors shifts the aggregate demand curve upward (to the right) or downward (to the left) (Figure 1.3.2).

In accordance with the structure of aggregate demand, we can distinguish non-price factors, which influence changes in consumer and investment spending, public procurement and in the export-import ratio.

State tax policy- if taxes on the income of consumers and firms increase, then the aggregate demand curve will shift downward, i.e., to position AD >2. If taxes are reduced, this will increase revenues. Consumers will be able to purchase more goods and services, and firms will be able to purchase more investment goods. Consequently, aggregate demand will increase, and the AD curve will move upward (AD >1).

Expectations of consumers and producers- if firms’ forecasts are optimistic, they begin to develop and expand production. Ego helps increase household income. As a result, aggregate demand for investment and consumer goods increases. If the expectations of the population and firms are pessimistic, then the reaction of aggregate demand will be the opposite - it will decrease.

Changes in public procurement- an increase in government spending will always stimulate the growth of aggregate demand, a decrease - on the contrary, will reduce AD.

Export-import operations. If net exports grow, it means that domestically produced goods are in demand abroad, therefore, aggregate demand increases. If imports in the economy exceed exports, this means that households switch their interests to foreign goods, and the demand for domestic products falls, which contributes to a decrease in aggregate demand.

Offer. Price and non-price factors of supply. Law of supply.

Offer of any product or service is the willingness of a manufacturer to sell a certain amount of a good or service at a certain price over a certain period of time.

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

The relationship between supply volume and price is expressed in the law of supply: other than that equal conditions The quantity supplied of a good increases if the price of the good increases and vice versa.

Factors influencing supply.

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

Price factors

They are inextricably linked with the pricing process, be it prices for finished products or the primary raw materials that go into its production. Accordingly, if the general level of market prices is low, this will be accompanied by high costs for producers, especially if the prices of resources and factors of production are too high. In this case, the proceeds from the sale of manufactured products will go almost entirely to cover costs and pay taxes;

Non-price factors

Among the main factors that can change supply and shift the S curve to the right or left are the following (these factors are called non-price determinants of supply):

1. Prices of resources used in the production of goods. The more an entrepreneur must pay for labor, land, raw materials, energy, etc., the lower his profit and the less his desire to offer this product for sale. This means that with an increase in prices for the factors of production used, the supply of goods decreases, and a decrease in prices for resources, on the contrary, stimulates an increase in the quantity of goods supplied at each price, and supply increases.

2. Level of technology. Any technological improvement, as a rule, leads to a reduction in resource costs (reduction in production costs) and is therefore accompanied by an expansion in the supply of goods.

3. Goals of the company. The main goal of any company is to maximize profits. However, firms may often pursue other goals, which affects supply. For example, a firm's desire to produce a product without pollution environment may lead to a decrease in the quantity supplied at each possible price.

4. Taxes and subsidies. Taxes affect the expenses of entrepreneurs. An increase in taxes means for a company an increase in production costs, and this, as a rule, causes a reduction in supply; Reducing the tax burden usually has the opposite effect. Subsidies lead to lower production costs, so increasing business subsidies will certainly stimulate expansion of production, and the supply curve will shift to the right.

5. Prices for other goods can also affect the supply of a given good. For example, a sharp increase in oil prices can lead to an increase in the supply of coal.

6. Number of producers (degree of market monopolization). How more companies produces a given product, the higher the supply of this product on the market. And vice versa.

Market equilibrium

Economic equilibrium is the point at which quantity demanded and quantity supplied are equal

In economics, economic equilibrium characterizes the state in which economic forces are balanced and, in the absence of external influences, the (balanced) values ​​of economic variables will not change.

Market equilibrium is a situation in the market when the demand for a product is equal to its supply; The volume of the product and its price are called the equilibrium or market clearing price. This price tends to remain unchanged in the absence of changes in supply and demand.

Market equilibrium is characterized by equilibrium price and equilibrium volume.

Equilibrium price is the price at which the volume of demand in the market is equal to the volume of supply. On a supply and demand graph, it is determined at the point of intersection of the demand curve and the supply curve.

Equilibrium volume (English: equilibrium quantity) - the volume of demand and supply of a product at an equilibrium price.

Factors influencing the supply and demand of goods on the market, with the exception of prices for goods and services. Non-price factors include the income of buyers, production costs of goods, fashion, the provision of subsidies, the presence of complementary and interchangeable goods on the market, inventories, etc.

Non-price factors influencing demand include:

Changes in cash income of the population

Changes in population structure and size

Changes in the prices of other goods (especially substitute goods, or complementary goods)

Economic policy states

Change 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 prices for a product increase, while all other parameters remain unchanged, then demand will be for less and less of this product.

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

On the one hand, a rise in prices reduces the real income of the consumer, while the amount of his monetary income remains unchanged, reduces his purchasing power, which leads to a relative reduction in the amount of demand for the more expensive product (income effect).

On the other hand, the same rise in prices makes other goods more attractive to the consumer and 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 (substitution effect).

Non-price factors of supply.

The supply curve is constructed on the assumption that all factors except market price remain constant. It was already indicated above that in addition to price, many other factors influence the supply volume. They are called non-price. Under the influence of a change in one of them, the quantities supplied change at each price. In this case, they say that there is a change in supply. This manifests itself in the shifting of the supply curve to the right or left.

When supply expands, the S0 curve shifts to the right and occupies position S1; if supply narrows, the supply curve shifts to the left to position S2.

Among the main factors that can change supply and shift the S curve to the right or left are the following (these factors are called non-price determinants of supply):

1. Prices of resources used in the production of goods. The more an entrepreneur must pay for labor, land, raw materials, energy, etc., the lower his profit and the less his desire to offer this product for sale. This means that with an increase in prices for the factors of production used, the supply of goods decreases, and a decrease in prices for resources, on the contrary, stimulates an increase in the quantity of goods supplied at each price, and supply increases.

2. Level of technology. Any technological improvement, as a rule, leads to a reduction in resource costs (reduction in production costs) and is therefore accompanied by an expansion in the supply of goods.

3. Goals of the company. The main goal of any company is to maximize profits. However, firms may often pursue other goals, which affects supply. For example, a firm's desire to produce a product without polluting the environment may lead to a decrease in the quantity supplied of the product at each possible price.

4. Taxes and subsidies. Taxes affect the expenses of entrepreneurs. An increase in taxes means for a company an increase in production costs, and this, as a rule, causes a reduction in supply; Reducing the tax burden usually has the opposite effect. Subsidies lead to lower production costs, so increasing business subsidies will certainly stimulate expansion of production, and the supply curve will shift to the right.

5. Prices for other goods can also affect the supply of a given good. For example, a sharp increase in oil prices can lead to an increase in the supply of coal.

6. Manufacturers' expectations. Thus, producers' expectations of a possible price increase (inflationary expectations) have an ambiguous effect on the supply of goods. Supply is closely related to investments, and the latter react sensitively and, most importantly, difficult to predict, to market conditions. However, in a mature market economy, the expected rise in prices for many goods causes a revival in supply. Inflation in a crisis usually causes a decrease in production and a reduction in supply.

7. Number of producers (degree of market monopolization). The more firms produce a given product, the higher the supply of this product on the market. And vice versa.

Just as in the case of the impact of price and non-price factors on demand, a change in supply is distinguished from a change in the quantity of supply:

A change in non-price factors leads to a shift in the supply schedule itself to the right or left, since in this case producers offer the market a different (more or less) quantity of a given product at each price. Such changes in supply can only occur if non-price determinants of supply change. Here we are talking about a change in supply;

Whenever, as a result of some changes in the market situation, the quantity supplied changes, and all the factors influencing it, except the price of product X, remain unchanged, the supply curve for the product remains in the same place, and a movement occurs along the supply curve. In such cases, other things being equal, the quantity of product X offered for sale by producers changes. Here we are talking about a change in the quantity supplied.

16. Elasticity shows by what percentage one economic variable will change when another changes by 1%.

Elasticity of demand - This is a measure of the strength of influence of any factor on the amount of demand. The main types of elasticity of demand are:

 price elasticity of demand;

 income elasticity of demand;

 cross elasticity, that is, the elasticity of demand with respect to the price of other goods.

Price Elasticity of Demand is the rate at which the quantity demanded changes in response to a one percent change in market price.

The price elasticity of demand is measured using the elasticity coefficient. Measure the response of the quantity of demand to a change in price by a simple ratio of the increase in demand to the increase in price ( Q d: P) it is forbidden. One of the reasons is the scale of prices. If prices increase 10 times, then the ratio Q d: P will decrease by 10 times. Similarly, this indicator will depend on the unit of measurement of the quantity Q. Although in reality the demand response could remain the same. To measure demand relations depending on price changes, relative increments are used in economic theory. Hence the use of two methods for calculating elasticity: point and arc elasticity .

17 . 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 demanded of the good, then there is a relatively inelastic or simply inelastic demand.

The degree of consumer sensitivity to price changes is measured using 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. In other words, the coefficient of price elasticity of demand

Percentage changes in quantity demanded and price are calculated as follows:

where Q 1 and Q 2 are the initial and current volume of demand; P 1 and P 2 - initial and current price. Thus, following this definition, the coefficient of price elasticity of demand is calculated:

18. Factors of price elasticity of demand

1. substitutability (availability of substitute goods: the more substitutes a given product has, the more elastic the demand for it);

2. specific gravity prices of goods in consumer income (the greater the share, the more elastic the demand);

3. the demand for luxury goods is, as a rule, elastic, for basic necessities - inelastic;

4. time factor (the more time the consumer has to make a decision to purchase a product, the more elastic the demand).

Cross elasticity of demand and its income elasticity .

Cross elasticity of demand coefficient E D xy allows you to measure the degree of sensitivity of demand for one product ( X) to a change in the price of another product ( Y).

(E D xy– coefficient of cross elasticity of goods X And Y;

Qx– the amount of demand for the product X; Py- the price of the product Y.)

Depending on the value of the coefficient of cross elasticity of demand, goods can be classified either as substitutes (if E D xy > 0), or to complementary goods (if E D xy< 0 ).

Income elasticity of demand (E D i) allows you to measure the sensitivity of demand to changes in income. Depending on the values ​​of the coefficient, the product can be classified as either normal goods( E D i > 0), or to goods of the lowest category ( E D i< 0 ), or to luxury goods ( E D i> 1).

(Q – quantity of demand; I – income).

19.Income Elasticity of Demand is the ratio of the percentage change in the volume of demand for a product to the percentage change in consumer income:

where Q1 is the quantity before changes;
Q2 – quantity after changes;
Y1 – income before changes;
Y2 – income after changes.

The income elasticity of demand is equal to the ratio of the percentage change in quantity to the percentage change in income, i.e. similar to the price coefficient.

Consumers change their demand for different goods differently as their income changes. Therefore, the indicator can have different (positive and negative) values. If the consumer increases the volume of purchases as income increases, then the income elasticity is positive (E1 greater than 0). In this case, we are talking more about a normal product (for example, an additional suit), which the consumer can afford as his income increases.

If the growth in demand outstrips the growth in income (E1 is greater than 1), then there is a high elasticity of demand with respect to income. This happens with the demand for durable goods.

Another situation is also possible when the value of E1 is negative. We are talking about abnormal or low-quality goods. With growing income, consumers buy less of such goods, preferring higher quality ones.

The change in income elasticity is related to the concept of nominal goods and inferior goods. Since in this case income and demand move in the same direction, the income elasticity of demand for nominal goods will be positive.

For inferior goods, an increase in income causes a decrease in demand. Here income and demand move in the opposite direction. This means that the income elasticity of demand for inferior goods is negative. Essential goods are not sensitive to increases or decreases in income.

Income elasticity of demand can be divided into three main forms:

positive. Here, the volume of demand increases with income - these are normal goods;

negative. Here the volume of demand falls with increasing income - these are goods of lower quality;

neutral (zero). Here, the volume of demand is not sensitive to changes in income - these are essential goods.

Cross Elasticity is the ratio of the percentage change in the volume of demand for one product (A) to the percentage change in the price of another product (B).

The cross elasticity formula looks like this:

Cross price elasticity can be positive, negative or zero. A positive form of cross elasticity is characteristic of substitute goods. For example, an increase in the price of white bread causes a demand for black bread. The negative form of cross elasticity is characteristic of complementary goods. For example, an increase in gasoline prices will cause a decrease in the demand for lubricating oil. Zero cross-elasticity is typical for goods that are neutral in relation to each other. For example, furniture and shoes, a car and bread.

20. Elasticity of supply by
price - an indicator reflecting the degree of sensitivity of supply to changes in the price of the product offered.

Let's consider the following three cases, corresponding to graphs S1, S2, S3. The first case (supply is represented by line S1) is a situation when the volume of supply of a product remains practically unchanged regardless of price changes. In this case, inelastic supply occurs. An example of a market characterized by inelastic supply is the market for fresh fish. After all, it must be sold in any case at any price, otherwise this product will simply deteriorate and it will be completely impossible to sell it. The second case (the supply graph looks like line S2) is the opposite situation to the first. Here, a slight change in the price of a product causes a significant change in the volume of supply, i.e. we are talking about elastic supply. The third, intermediate case (line S3) - a change in the price of a product is fully compensated by a change in the volume of supply. Here we have a supply with unit elasticity.

The price elasticity of supply can be quantified using the coefficient of price elasticity of supply. The coefficient of price elasticity of supply ESP is calculated in the same way as the coefficient of price elasticity of demand EDP, only instead of demand values, supply values ​​are taken:

where Q1 and Q2 are the initial and current supply volumes; P1 and P2 - initial and current price. Please note that the center point formula is immediately applied here.

Depending on the value of the supply elasticity coefficient, the following are distinguished:

Inelastic supply (Graph S1): A large percentage change in price leads to a small percentage change in quantity supplied; supply elasticity coefficient is less than 1;

Elastic supply (Graph S2): a small percentage change in the price of a good causes a large impact on supply quantities; supply elasticity coefficient is greater than 1;

Unit elasticity supply (Graph S3): A percentage change in the price of a good is exactly offset by a similar percentage change in quantity supplied; the supply elasticity coefficient is 1;

Absolutely elastic supply (graph S4): there may be only one price at which the product will be offered for sale; the elasticity coefficient tends to infinity. Any change in price leads either to a complete refusal to produce the product (if the price goes down) or to an unlimited increase in supply (if the price goes up);

Absolutely inelastic supply (graph S5): no matter how the price of a product changes, in this case its supply will be constant (the same); the elasticity coefficient is zero.

The price elasticity of supply is determined by a number of factors, the most significant of which are the following:

1. The greater the possibility of long-term storage of goods and the lower the costs of storing them, the higher the elasticity of supply.

2. The supply of goods will be elastic if the production technology allows the manufacturer to quickly increase output volumes in the event of an increase in the market price for its products or just as quickly reorient itself to the production of some other product in the event of a deterioration in market conditions and a decrease in the price of the product.

3. The degree of supply elasticity depends on the time factor: the more time the producer has to “adapt” to new market conditions associated with price changes, the more elastic the supply.

Market mechanism- this is a mechanism for the relationship and interaction of the main elements of the market - demand, supply, price, and the main market elements.

The market mechanism operates on the basis of economic laws. Change in demand, change in supply, change in value, utility and profit. allows you to satisfy only those and societies that are expressed through demand.

Law of Demand

Demand is a solvent need for any product or service.

Quantity of demand is the quantity and that buyers are willing to purchase at a given time, at this place, at these prices.

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

Types of demand:

• (production demand)

Factors influencing demand

• use of advertising
• fashion and tastes
• consumer expectations
• changes in environmental preferences
• availability of goods
• income amounts
• usefulness of a thing
• prices established for interchangeable goods
• and also depends on the size of the population.

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

Distinguish exogenous and endogenous demand.

Exogenous demand - This is a demand whose changes are caused by government intervention or the introduction of any external forces.

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

The relationship between the quantity of demand and the factors that determine it is called the demand function.
In the very general view it is written as follows Where:

If all factors determining the quantity of demand are considered unchanged for a given period of time, then we can general function demand go to price demand functions:. The graphical representation of the demand function from price on the coordinate plane is called demand curve(picture below).

Changes occurring in the market related to the quantitative supply of goods always depend on the price set for this product. There is always a certain relationship between the market price of a product and the quantity for which there is demand. The high price of goods limits the demand for it; a decrease in the price of this product usually characterizes an increase in demand for it.

The overall change in the demand curve in the real market will be determined by the combined impact of all price and non-price factors. The quantitative relationship between the quantity of demand and the factors determining it is called the demand function, and is denoted as follows:

Q d =F(X i),(1.1), (3)

where Q d is the amount of demand for the product in question; X i is the i-th factor influencing the amount of demand.

At the same time, for each price level there is such a quantity of demand for a product when people stop responding to changes in the volume of demand by other consumers (external, or exogenous effects are equal to zero). That is, for each price there is a certain volume of demand, which ultimately determines its function, which we will consider in the next chapter.

In this case, the law is associated with the law of diminishing marginal utility of economic goods. In markets, this manifests itself in the fact that the sale of each additional unit of goods becomes possible only at a decreasing price. Consumers will make additional purchases of a given product or service only if their prices decrease. At the same time, the price factor influences the quantity of demand. After all, the demand price is the maximum price that buyers are willing to pay for a certain amount of a given product or service at a given time.

Non-price factors influencing the quantity of demand are as follows:

Changes in consumer tastes and preferences (changes in fashion, habits, advertising, technological changes, etc.);

Changes in the structure of the population (a surge in the birth rate leads to an increase in demand for children's goods, an increase in life expectancy - by medicines and so on);

Changes in the monetary income of the population (changes in demand for lower category goods and normal goods);

Changes in prices for other goods (substitute goods - an increase in prices for one product leads to an increase in demand for another and vice versa, or complementary goods (complements) - an increase in the price of one product leads to a decrease in demand for both goods);

Customer expectations (future product prices, product availability, and future income);

Government economic policy (benefits can increase demand among the poor);

Economic expectations of consumers, which represent forecasts of economic entities regarding possible changes in prices, cash income, macroeconomic situation in the country, etc.

Price and non-price factors also influence the quantity of supply.

The most significant non-price supply factors include:

Production costs. The amount of costs is determined by the price of resources used by the company in production activities, including wages, loan interest, cost of raw materials and other indicators. The lower production costs, the higher the profitability of production and the greater the market supply of goods;

Taxation level. A reduction in corporate taxes, as a rule, is a positive development factor and, other things being equal, also leads to an increase in supply;

Production technology. Improved technology ultimately leads to a reduction in production costs, increased production efficiency, increased labor productivity and also increases supply;

Economic expectations of producers. In most cases, favorable expectations of economic entities create additional incentives for the development of production and, as a result, lead to an increase in supply; - number of manufacturers. The greater the number of firms operating in the market for a given type of product, the greater its total market supply. On the contrary, monopolization of the industry, even if the total volume of production capacity remains unchanged, can lead to a reduction in market supply;

Prices in related markets: prices for competing goods in production (increasing prices for environmentally friendly products can encourage farmers to reduce the supply of products grown using “chemicals”) and prices for goods produced “together” with the product in question (increasing oil prices may cause an increase in the supply of petroleum products).

The most important factor that particularly affects the quantity of supply is production costs, i.e. production costs, which many economists define as most important factor, affecting supply.

This is explained as follows. The manufacturer, if there is no economic pressure on him, acts in accordance with his own interests, i.e. seeks to maximize the profit he receives (the difference between sales revenue and the costs of its production). This means that, when deciding on the volume of production to supply on the market, the manufacturer each time chooses a volume of production that provides him with the greatest profit. One might think that an increase in production volume leads to an increase in revenue ( gross income). But no. It turns out that every company has limits to its growth. The growth of the company and, consequently, the supply on the market beyond these limits leads to an increase in production costs, for example, such as transportation costs, costs of production management and sales of products due to increased difficulties, etc.

Resource prices have a direct impact on production costs and through them on the volume of supply. But the amount of resource costs in the economic sense is not identical to the amount of monetary production costs. Resources usually have several possible areas application, therefore the economist strives to take into account all alternative uses of resources. Thus, as resource costs, monetary proceeds from the most profitable of alternative ways resource use.

The quantitative relationship between the quantity of supply and the factors determining it is called the supply function and is denoted as follows:

Q s =F(X i), (4)

where: Q s - the amount of supply for the product in question; X i is the i-th factor influencing the quantity of supply.

To understand the function of a sentence important has a time factor. Typically, a distinction is made between short-term, short-term (short) and long-term (long) market periods. In the shortest period, all factors of production are constant; in the short term, some factors (raw materials, work force etc.) are variable, in the long run - all factors are variable (including production capacity, number of firms in the industry, etc.).

Thus, the state market economy, the level and mechanism of its development are described using such basic concepts as supply and demand.

The dynamics of demand are determined by the law of demand. The essence of this is the inverse relationship between prices and the quantity of goods and services that will be purchased at each price, that is, other things being equal, it will be possible to sell more goods at a low price than at a high one.

Accordingly, the dynamics of supply are determined by the law of supply. The essence of this law is that if the price of a product increases and all other parameters remain unchanged, then the supply of this product increases.

Supply and demand are influenced by many factors that influence their magnitude. These factors are divided into price and non-price.

The law of demand says that if the price of a product decreases while all other parameters remain unchanged, then the quantity demanded for that product increases. The law of supply says that if the price of a good increases while all other parameters remain unchanged, then the quantity supplied of that good increases. Equality of supply and demand forms the equilibrium price.

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

Demand, on the one hand, reflects the consumer’s need for certain goods or services, the desire to buy these goods in some a certain amount and, on the other hand, the ability to pay for this purchase at a price that is within the “affordable” range.

Along with such very general definitions, demand is characterized by a number of quantitatively expressed properties, of which, first of all, the volume of demand, as well as its magnitude, should be highlighted.

From the point of view of quantitative measurement, the demand for a product should be understood as the volume of demand, which essentially means the quantity of a given product that consumers are willing and ready to purchase (having the financial ability to do so) for a certain period and at a certain price.

The quantity of demand is a certain amount of goods (goods and/or services) of a certain type, as well as quality, that the buyer wants to buy over a certain period of time at a certain price. The amount of demand is determined by the total income of buyers, the level of prices for goods and services (prices for substitute goods, as well as complementary goods), consumer expectations, tastes and preferences.

Speaking about the non-price characteristics of a product, in addition to price and quantity of demand, there are also a number of other factors.

These primarily include:

• - consumer tastes;
• - fashion;
• - purchasing power (amount of income);
• - the value of prices for other goods, as well as the possibility of replacing one product with another.

The law of demand is that the level of demand is inversely proportional to the price of a product. This means, in mathematical terms, that there is an inverse relationship between the quantity demanded and the price. In other words, an increase in price results in a decrease in the quantity demanded, and vice versa, a decrease in price causes an increase in demand.

The nature of the law of demand is not that complicated. For example, if a buyer has a certain amount of money to purchase a product, then, whatever one may say, he will buy less of the product the higher the price, and vice versa.

Of course, the real picture looks much more complicated in reality, since the buyer is able to attract additional amounts of funds by buying another product instead of the one planned for purchase - a substitute product (for example, instead of increasingly expensive coffee - tea or vice versa).

Non-price factors that influence demand to some extent:

• · Income level of the population;
• · Market volume;
• · Seasonality of goods and fashion;
• · Availability of substitute goods;
• · Inflation expectations.

Elasticity of demand is an indicator characterizing fluctuations in aggregate demand that are caused by changes in prices for certain goods. Demand should be considered elastic if it has formed under the condition that the change in the percentage expression of its volume is higher than the price reduction (also in %).

If the indicators of a decrease in prices, as well as an increase in demand, which are expressed as a percentage, are equal to each other, that is, in other words, the increase in the volume of demand only compensates for the decrease in the price level, then we can say that the elasticity of demand is equal to one.

There is another case - when the degree of price reduction is higher than the demand for goods. In this case, demand is inelastic.

Thus, the elasticity of demand is an indicator of the degree of sensitivity (or reaction) of buyers to changes in the price of a good.

Elasticity of demand is also caused not only by an increase or decrease in the price of a product, but also by a change in the income of the population.

Thus, it is customary to distinguish between the elasticity of demand by price and also by income.

The reaction of buyers to a change in the price of a product can be both strong and weak, as well as neutral.

Each of the above consumer groups generates corresponding demand, which can be elastic, inelastic, or single. There are also options when demand is completely elastic or completely inelastic.

The elasticity of demand can be quantitatively measured by the elasticity coefficient, thanks to the following formula:

where: KO - demand elasticity coefficient; Q -- change in the number of sales (in%); P --price change (in %).

Usually, miscellaneous goods They also have different price elasticities. For example, bread and salt can be called typical examples of inelastic demand. In general, an increase or decrease in prices for them does not have a significant impact on the volume of their consumption by the population.

Knowledge about the meaning and mechanisms of the degree of elasticity of demand for a product is of great practical importance. So, for example, sellers of goods with high elasticity of demand will easily be able to reduce prices in pursuit of the goal of a sharp increase in sales volume, or to obtain greater profits than if, for example, they set the price higher.

For goods characterized by low elasticity of demand, this pricing practice can no longer be called acceptable, since if the price is reduced, the sales volume will change little, without compensating for lost profits.

In the presence of large quantity sellers, the demand for any product will be elastic, since any, even a slight increase in the price of one of the competitors will encourage buyers to go to other sellers who offer the same product, but only a little cheaper.

Aggregate demand is the total effective demand for all goods and services produced in an economy.

In order to characterize aggregate demand, one should have an idea of ​​exactly what price and non-price factors of influence take place.

Price factors determine the very trajectory of the aggregate demand curve. In other words, factors of this type express the dependence of the price level on the volume of real production.

There are three main factors that have a certain impact in this context:

• · interest rate effect;
• · effect of real cash balances;
• · effect of import purchases.

The interest rate effect illustrates the dependence of the price level and interest rate on the demand of the population for consumer goods, and of enterprises for investment goods. When the price level rises, the interest rate on loans also rises.

When the interest rate increases, buyers, as well as firms, will not be interested in loans at too high interest rates, and this, accordingly, will entail a decrease in consumer and investment demand.

The real cash balance effect illustrates the preservation of the value of cash holdings when an economy experiences high inflation. If over a certain period of time there is a depreciation of the monetary unit (that is, when, in simple terms, a ruble, dollar, euro can buy fewer goods today than yesterday), then the value of financial assets, which is expressed in certain goods, also decreases. Therefore, the higher the average rate (inflation), the less quantity of goods or services consumers will be able to buy with the funds they have set aside for purchases. That is, the volume of aggregate demand will decrease.

The effect of import purchases is the impact of inflation, which has a “local” significance, on consumer choice between domestic goods that have risen in price, or imported goods that have changed in price. In such a situation, the consumer will discard the false sense of patriotism and give preference to imported goods. Thus, the volume of aggregate demand for domestic goods will decrease.

The three listed effects explain the change in real output, which underlies the decrease or increase in aggregate demand, depending on changes in the price level.

Action of three the above factors is considered provided that all other parameters remain unchanged. In real life, these parameters change and therefore belong to non-price factors.

The impact of non-price factors, therefore, if depicted graphically, shifts the aggregate demand curve to the right (increasing) or to the left (decreasing).

According to the structure of aggregate demand, one should also highlight non-price factors that affect changes in consumer and investment spending, in the export-import ratio, as well as changes in government procurement.

The state's tax policy is that if taxes on the income of households and enterprises increase, then the aggregate demand curve will shift downward, that is, to position AD>2. If taxes are reduced, this will result in an increase in personal income, and consumers will have the opportunity to purchase more various goods, and firms will be able to purchase more investment goods. Thus, aggregate demand will increase, and the AD curve will shift upward (AD>1).

Expectations of consumers and producers. They occur when firms' forecasts are optimistic, and the latter resort to expanding and developing production, which helps increase household incomes. As a result, aggregate demand for consumer and investment goods increases. If the expectations of enterprises and households are pessimistic, then the reaction of aggregate demand will occur in the opposite direction and it will decrease.

Changes in government procurement are an increase in government spending. According to Keynesian theory, this will always stimulate the growth of aggregate demand, and a decrease in government orders - a decrease, on the contrary, will reduce AD.

Export-import operations. If net exports grow, it means that domestically produced goods are in demand abroad, therefore, aggregate demand increases. If imports in the economy exceed exports, this means that consumers are switching their interests to foreign goods, and the demand for domestic goods decreases, contributing to a decrease in aggregate demand.