Let's consider the content law of supply and reveal the nature of the relationship between price and quantity supplied.

Reveals the logic of behavior of sellers in the market. This law reflects a significant cause-and-effect relationship between the cost and quantity of goods offered by sellers on the market. Understanding the dependence under consideration allows us to establish an important pattern in the functioning of a market economy.

It says: all other things being equal, an increase in the price of a product leads to an increase in the quantity of the product that sellers (producers) want and can offer to the market. This law states that as prices increase, the quantity supplied will also increase, and a decrease in price will lead to a decrease in the quantity supplied. The noted pattern reveals the logic of the behavior of entrepreneurs seeking to maximize profits.

The action of the law of supply can be represented in the figure.

Rice. 1.

Shows that entrepreneurs strive to produce and sell more goods at a higher price. The higher the cost, the more incentives and motives that encourage the manufacturer to switch resources from other areas and create more of a given product.

The logic of the law of supply(higher prices stimulate an increase in production volumes) is explained by two reasons .

Firstly, an increase in prices for a certain product helps to increase the profitability of its production, which attracts new producers to this industry.

Secondly, an increase in the cost of products and profits expands the financial capabilities of the entrepreneur. This will allow him to attract additional factors of production (hire new workers, buy more raw materials, purchase modern equipment) to expand the scope of activities. In both cases, the quantity supplied will increase.

Thus, law of supply sets directly proportional relationship between the price of a product and the volume of its supply.

However, in this case we are only talking about a tendency to increase the scale of production, since only up to a certain limit an increase in the cost of products causes an increase in the volume of its supply. If the upward trend in product costs continues, the manufacturer may reduce supply, which violates the law of supply.

This development of the situation is explained by two reasons:

1) a high level of income to a certain extent reduces a person’s motives and incentives to continue intensive work;

2) in market conditions imperfect competition the manufacturer may be afraid of further increasing production volumes, since this will lead to overstocking of warehouses and the accumulation of surplus goods on the market, which will affect the decrease in prices and profits of the entrepreneur.

However law of downward returns proves that an increase in production volumes will lead to an increase in costs per unit of output with constant fixed capital and constant land resources. As a result, the entrepreneur has a need to set higher prices to fully cover the increased production costs.

In theory action of the law of supply may also be violated in the event of complete exhaustion of free unused economic resources on the market. In this situation, the manufacturer will not be able to respond to the rising cost of goods by increasing supply volumes due to the lack of production factors necessary for this.

Thus, law of supply reflects the following market features:

There is a direct relationship between price and quantity supplied;

An increase in prices above a certain level may not be accompanied by a further increase in production volumes.

Those. When prices rise, the quantity supplied also increases, and when prices fall, it decreases. When we talk about the law of supply, we make the assumption: “all other things being equal,” and proceed from the fact that price is the main price determinant. However, if certain conditions change, the position of the supply curve will change, since other factors also influence supply:

1. Resource prices. A firm's supply curve is based on the cost of production: for an additional unit of output, the firm must charge higher prices because it costs more to produce those additional units. It follows that a decrease in resource prices will reduce production costs and increase supply, i.e. will shift the supply curve to the right.

2. Technology. Improvements in technology mean that the discovery of new knowledge allows a unit of output to be produced more efficiently with fewer resources.

3. Taxes and subsidies.

4. Prices for other products.

5. Expectations. Example: Expectation of an increase in the price of potatoes in the spring, and, as a consequence, supply increases. The same with meat.

6. Number of sellers. The more sellers there are in the market, the greater the market supply.

Based on this, we can determine the function of the proposal.

The supply function is a function that determines the amount of supply depending on various factors influencing it.

Qs = ƒ (P,Pr,K,T,N,B)

Qs – sentence;

Pr – price of resources;

K – the nature of the technology used;

T – taxes and subsidies;

N – number of sellers;

B – other factors.

These factors help shift the supply curve to the right or left. Speaking of shifting the curve, when we talk about a change in supply, the supply curve shifts completely. If we mention a change in supply, then the movement follows the supply curve (movement along the supply curve).

By analogy with the shift in the demand curve, it can be noted that under the influence of factors affecting the volume of supply, there is an increase in the goods supplied at each value of price P, as a result of which the S curve will shift to the right (S1). A decrease in the quantity supplied will cause the curve to shift to the left (S2).

We looked at both demand and supply separately. Now we can bring together the concepts of supply and demand.

The interaction of supply and demand and their coordination are carried out on the basis of the price mechanism and competition. The market mechanism eliminates price control, so supply and demand in a competitive market come into balance and the market price of the product is established, stimulating an increase in production volume. Equilibrium occurs when the quantity of goods that buyers want to buy matches the quantity of goods that sellers want to sell. As a result, an equilibrium price is formed - a price at a level where the volume of supply corresponds to the volume of demand. The equilibrium price has a balancing function.

Walrasian equilibrium

Let us assume that, as a result of the action of some market forces, the price deviated from the equilibrium level Po and rose to the level Pl. The volume of supply (Q3) in this case exceeds the volume of demand (Q2). The situation that has arisen means the presence of a surplus of goods, i.e. at the current price level, some sellers will not be able to sell their goods.

The most effective way out of it for sellers would be to reduce the price. The latter will increase the number of sales, since buyers will demand more at a reduced price. It is clear that the process of lowering prices and parallel growth in sales will go to the equilibrium point O, when sellers will be able to sell all the goods offered and their incentive to further reduce prices will disappear.

The opposite situation, i.e. a decrease in price below the equilibrium Po to P2 is characterized by an excess of demand (Q4) over supply (Q1) or a shortage of goods. It is clear that with free pricing, when there is not enough goods for all consumers at a lower price, sellers will take advantage of the situation and offer it at a higher price. This will reduce demand and reduce shortages. This will continue until the equilibrium point is reached, at which supply and demand coincide.

In other words, both possible variants of price deviation from the equilibrium are unstable. At the same time, in the market situation itself, internal forces, seeking to return it to a state of equilibrium. Later we will see that this does not always happen, but only when there is competition in the market.

The explanation for the establishment of equilibrium due to price fluctuations, during which their increase or decrease brings the market into a state of equilibrium, belongs to the Swiss economist L. Walras (1834-1910).

Marshall equilibrium

A different approach to explaining the mechanism for establishing market equilibrium was used by the great English economist A. Marshall (1842-1924), who believed that in response to a violation of market equilibrium, sellers maneuver not with prices, but with the volume of supply (Fig. 4.9). The logic of the reasoning is as follows. For any production volume below equilibrium (for example, at Q1), the supply price is less than the demand price (P1< Р2). Это весьма выгодно для продавцов: выставив свои товары на продажу по цене Р2, они легко продадут их (спрос готов поглотить по этой цене именно количество Q1), получив ог­ромную прибыль. Столь выгодная ситуация заставит фирмы наращивать производ­ство и, вероятно, при­влечет на данный ры­нок производителей других отраслей. Предложение будет расти, а цены понемногу па­дать, пока не дойдут до равновесного уровня.

Similarly, if the real volume of production (Q2) exceeds the equilibrium level, the supply price will be higher than the demand price (P3> P4). As always in a market, demand-limited economy, this will actually mean that it will be possible to sell goods only at the demand price P4, i.e. below cost. Obviously, there will be few people willing to produce goods under such conditions. Supply will fall until it reaches the equilibrium level. The price will gradually rise to the equilibrium price.

Both approaches to equilibrium reflect market realities, and the effect of each of them is more clearly manifested in a very specific time interval. Thus, price fluctuations (the L. Walras mechanism) contribute to the establishment of equilibrium in a short period. After all, when goods have already been produced in a certain quantity, the volume of supply can be adjusted to the size of demand only by changing prices. In other words, the production volumes are given here, and the variables are prices.

Changes in supply volume (A. Marshall's mechanism), on the contrary, come to the fore in a long period. After all, in the long term it is possible to build production capacity to meet any volume of demand. The main thing is that it brings profit. And under such conditions, it is the price that becomes the main guideline. Depending on how attractive it is, production is either increased or reduced. In other words, the price acts as a given value, and the supply of goods as a variable value.

In addition to the considered models of establishing market equilibrium, there are other approaches to explaining the mechanism of formation of the equilibrium price.

Web-like model

Among these other approaches that explain the mechanism for establishing market equilibrium, we can note the cobweb model, which (unlike those previously discussed) is dynamic, i.e. taking into account the time factor.

The cobweb model considers the process of equilibrium formation in conditions where the reaction of transaction participants to changing market conditions is extended over time.

As an example, various branches of agricultural production are most often taken, for example, poultry farming. Let's assume that our producer was guided by the market price P1 at which poultry was sold in a given year. Naturally, he expects that current prices will continue and determines the volume of poultry production (Q1) next year based on these prices. Let us further assume that the market is out of equilibrium. Demand for poultry has decreased, and at price P1, consumers will no longer buy as many products as before. In order to sell the quantity produced, the manufacturer is forced to reduce the price to P2, i.e. to the level of demand price for a given quantity of poultry.

But such low price will force some producers to leave this market. Supply will fall to Ql, there will be a shortage in the market and, as a result, prices will rise to P2. This in turn will cause an expansion of supply, but not to the original level Q1, but to a slightly smaller size Q3. In the future, the process follows the same pattern and, ultimately, describing circles of a tapering spiral around point O, producers “grope” for the equilibrium price.

In the described embodiment, the deviation from equilibrium decreases over time, i.e. the system tends to an equilibrium position. But other options are also possible, shown in the graphs. (A And b), when the deviation from equilibrium increases (Fig. a) and then the deviations from equilibrium remain stably at the same level (Fig. b).

In our graphical interpretation, the possibility of achieving market equilibrium and its stability are determined by the angles of inclination of the supply and demand lines (their steepness). With a steeper supply curve and a flatter demand curve, equilibrium is stable; in the opposite case, the equilibrium is unstable - the model goes “out of whack”. And finally, regular fluctuations around the equilibrium position are characteristic of a situation with the same slope of the demand and supply curves.

An example of a web-like model is not only the agricultural market. This model is applicable in almost all cases where demand depends on current prices, and supply reacts with some time lag. Phenomena of this type can be observed, for example, in the stock market for securities and currencies: demand instantly reacts to current quotes, and supply changes more slowly.

But there are also explosive fluctuations on the exchanges - so-called stock panics, when in a matter of minutes securities may depreciate sharply. New Russia experienced several such panics, the most acute series of which unfolded at intervals of several months in the second half of 1997. until the fall of 1998 The overall result was an almost tenfold devaluation of shares of Russian enterprises.

To prevent price deviations from the equilibrium level from going too far during a panic, exchanges - including Russian ones - temporarily interrupt their operations. During the break, both the demand side and the supply side have time to think about the situation. The gap between them in terms of decision-making time disappears, and the next day the panic usually subsides.

While this may alarm our readers, the cobweb model also applies to the market for graduate economists. Their proposal, i.e. university output is focused on demand and, accordingly, on wages, which was 5 years ago. After all, it was then that current graduates entered the first year.

Market disequilibrium

The web model, like all simple models, greatly simplifies the actual situation. In fact, choosing the volume of supply for the next year is by no means reduced to mechanical adjustment to the price conditions that prevailed in the previous year. Market participants are trying to predict the situation, and some of them (primarily monopolistic firms) are able to actively influence it. Do not remain unchanged and the supply and demand curves. Under the influence of non-price factors, they experience constant shifts. In short, the Web-shaped model reflects market reality no better than the schematic diagram of an engine studied in school internal combustion can help in repairing the engine of the latest Zhiguli model.

However, the web-like model is exceptionally useful for its common approach to market equilibrium, namely by demonstrating that the market does not automatically establish equilibrium in all cases,

In Fig. spectrum generalized possible options dynamics of prices and supply volumes (P, Q) over time (T). As in the cobweb model, their deviations from the equilibrium level (Po, Qo) can either gradually fade, or increase, or remain at the same level. Finally, another option that we have not previously considered is shown in graph D. The increasing amplitude of deviations from equilibrium can result in the transition of the entire system to a new equilibrium (Pl, Q1).

Disequilibrium in Russia

In a developed, established market economy, where the general parameters of economic management (and life in general) are quite stable, the damped type of oscillations clearly predominates. But in a transition economy, very dangerous explosive fluctuations are often encountered. In Fig. a possible mechanism of degradation of the economic sector is shown.

Rice. Schematic diagram degradation of the economic sector.

Let’s say that as a result of certain events, demand decreases (from level D to level D1) for the products of a certain industry. Under normal conditions, this causes a simple movement of the equilibrium point from position Oo to O1. However, if demand has fallen extremely sharp, what happened in practice to many industries Russian industry, for example, with the weaving industry, then the degradation of the industry may begin. The money received from the sale of a catastrophically reduced volume of products (Ql) may not be enough to update the equipment. As we remember, the deterioration of technology is a non-price factor that shifts the supply curve to the left (downward). The supply curve will shift to position S2, which will lead to a new decrease in sales (to Q2). Next - a new reduction in revenue, a refusal from even the most necessary expenses and a new shift in the supply curve (to position S3) / A further decrease in sales volume will inevitably follow (to Q3) and n.d. in a spiral of greater and greater degradation.

This situation is especially dangerous when the market is dominated by foreign competitors, whose products set the price level, and who can supply any quantity of products to the market. That is why we depicted the demand curve D1 as horizontal: the price ceiling for demand (P1) is determined by imported products of comparable quality. However, not only external economic reasons, but also internal ones, such as inflating commodity prices by monopolists, can lead to the degradation of industries. After all, they can also provoke the beginning of an uncontrollable shift of the supply curve to the left.

There is no general recipe for suppressing explosive vibrations for all occasions. Sometimes the efforts of a talented manager are sufficient to change the situation at an individual enterprise for the better. However, very often the state must take on the role of stabilizing the situation.

Offer is the quantity of goods that producers are willing to sell at a certain price over a certain period of time.

Supply is influenced by several factors: prices for products sold, the number of sellers on the market, the technology used (more technologically advanced products are preferred by consumers), prices for other goods (including prices for resources), taxes and subsidies, natural and climatic conditions.

General function sentences can be expressed by the following formula:

Q s = f (P, P s , P c , Pres , K, T, N, E p),

where P is the price of the product;

P s and P s – prices of interchangeable and complementary goods;

P res – prices of resources and factors of production;

K – level of technology, i.e. method of production of goods;

T – taxes, subsidies;

N – number of sellers of this product;

E r – sellers’ expectations.

All these factors influencing supply are external, independent of the product manufacturer and are objective in nature.

The main factor influencing the supply of a product is price, since all sellers strive to sell their product at the highest possible price in order to make a high profit.

On this basis, we can determine the nature of the supply function on price. It looks like this:

where O s is the value of the offer;

P – price of the product.

The law of supply says: the higher, other things being equal, the price of a product, the greater the desire of sellers of the product to offer it on the market.

Thus, there is a direct relationship between price and quantity supplied. This dependence is reflected in the ascending trajectory offer graphics(Fig. 10).

Like the demand function, the supply function can be represented graphically. To construct a supply schedule (S), points characterizing the volume of supply are plotted on the x-axis, and supply prices are plotted on the ordinate axis.

Moving along the supply curve from the point corresponding to the price of 8 rubles to the point corresponding to the price of 15 rubles, we find an increase in the value (quantity) of supply of goods from 4 to 15 tons. Thus, the value of supply increases with an increase in price and decreases with its decrease.

Rice. 10 Supply curve

This is quite logical, because when prices rise, manufacturers want to produce and sell more goods in order to increase their profits. Conclusion: all other things being equal, the quantity supplied depends on the price of the product and this dependence is directly proportional (direct).

What will happen to the supply curve if it is not the price of the good that changes, but the value of some other variable from the supply function (for example, the price of resources or the level of technology)? In this case, there will be a shift in the supply curve, which means a change in supply itself (Fig. 11). The factors causing this change are called non-price.

Rice. 11 Supply changes

If the government cuts taxes or introduces subsidies to producers, the supply curve will shift to the right from position S 0 to S 1. In this case, a larger quantity of goods will be offered for sale (О 1 > О 0).

Similarly, if, for example, the number of sellers of a given product decreases, then supply will decrease from O 0 to O 2, and the supply curve will shift to the left from position S 0 to S 2.

Terminology

Demand- one of the sides of market pricing reflects the desire to purchase a certain volume of goods at a given price.

Law of Demand- other things being equal, an increase in price causes a decrease in the quantity demanded; a decrease in price is an increase in the quantity demanded, that is, it reflects the inverse relationship between price and quantity of goods.

Non-price factors influencing demand:

1. The level of income in society.

2. Market size.

3. Fashion, seasonality.

4. Availability of substitute goods (substitutes)

5. Inflation expectations

Offer- reflects the desire of manufacturers to introduce to the market a certain amount of goods at this price.

Law of supply- other things being equal, an increase in price leads to an increase in the quantity of supply; a decrease in price means a decrease in the quantity of supply.

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

Description

Market economy can be viewed as an endless interaction of supply and demand, where supply reflects the quantity of goods that sellers are willing to offer for sale at a given price at a given time.

Law of supply- an economic law, according to which the supply of a product on the market increases with an increase in its price, all other things being equal (production costs, inflation expectations, quality of the product).

Essentially, the law of supply expresses the concept that at high prices, more goods are supplied than at low prices. If we imagine supply as a function of price and the quantity of goods supplied, the law of supply characterizes the increase in the supply function throughout the entire domain of definition.

Examples

Food

To circumvent the law of supply and demand in the European Union, the overproduction of oil is stored in warehouses, on the so-called “butter mountain” (German). Butterberg). Thus, supply is artificially restrained and the price remains stable.)

Stocks, currency, financial pyramids

There may be a steady demand for shares sold and purchased on the stock exchange, as enterprises transfer interest payments - dividends - to shareholders. When supply exceeds demand (the number of sellers has increased or there are no more buyers), the price decreases. As a rule, after moving in one of the directions, the price lingers near a certain level. Dividends continue to flow even after the transition to equilibrium and after declines, so demand for shares is sooner or later restored.

Non-price factors of supply.OFFER- this is the quantity of goods and services that are produced and sold on the market. The manufacturer must want to produce the product, and the seller must want to sell it. Market supply is ultimately determined by the willingness and ability of sellers to provide goods for sale in the market. SIZEAOFFERS- this is the quantity of goods that will be offered for sale at a given price in a given period of time. CURVEAI SUGGESTIONS shows the relationship between market prices and the quantity of products that producers are willing to produce and describes the market behavior of sellers. Unlike the demand curve, the supply curve usually rises to the right, since an increase in price entails an increase in supply. ZACON OFFERS states that producers will find it profitable to devote more resources to the production of a given good at a relatively higher price level for it. than with a lower one. A distinction is made between a change in the quantity of supply (movement along the curve under the influence of price changes and a change in supply itself (a shift in the curve under the influence of non-price factors) FAWHO, INFLUENCED NAOFFER: prices for resources (all used in production, including labor capital, raw materials, etc.); taxes and subsidies from the state; emergence of new technologies; changes in prices for other goods; number of manufacturers or sellers; expectations of changes in the market. Tighter taxes usually lead to a reduction in supply. The emergence of new resource-saving technologies leads to lower costs and increases supply. Changes in prices for factors of production lead to this. that the manufacturer has a desire to produce something else. So. An increase in flax prices leads to the transition of fabric producers to cotton.

27. Elasticity of supply. Factors of price elasticity of supply.

Supply is the quantity of goods that are available for sale at a given price. Changes in the ratio between demand and supply give rise to fluctuations in market prices. Through these fluctuations, the price level is established at which the equilibrium of supply and demand and, ultimately, the equilibrium of production and consumption are established. Price elasticity of supply: if producers are sensitive to price changes, then supply is elastic, and vice versa. An important factor influencing the elasticity of supply is the amount of time available to the manufacturer to respond to a given change in the price of the product. The longer the time, the greater the change in the volume of production and the greater, accordingly, the elasticity of supply.

The elasticity of supply reflects the degree of change in supply caused by a change in market price.

Es=0-absolute inelasticity, i.e. a 1% change in the price of goods will not have any effect on the change in supply. Es<1-неэл-ое предл-ие, т.е.1%-ое изм цены выз-ет изм. предл-ия менее 1%. Еs=1-единичная эл-сть.1%-ое изм. цены выз-ет изм-е предл-ия на 1%. Еs>1-elastic, 1% change in price causes change in offer by more than 1%.

F-ry, influencing the e-st of the proposal: 1) The degree of utilization of production capacity; 2) The size of inventory, the ability of goods for long-term storage and the cost of their storage; 3) Prices of other goods, including resources; 4) F-r time (instant period, short-term and long-term.

a) Instantaneous period – Es=0; b) Short-term – Еs<1; в) Долгосрочн.–Еs>1.); 5) The degree of monopolization of the industry and the possibility of capital overflow from other industries; 6) Technological features of setting up the production of a certain product.

30.Ryn. equal., types, violation. The market pricing process is controlled by supply and demand. The equilibrium price is the price at which for each given product there is neither a surplus nor a shortage on the market. It is established as a result of balancing supply and demand as the monetary equivalent of a strictly defined quantity of goods. Supply and demand are balanced by competitive environment market, as a result of which the price is spoken of as a competitive market equilibrium. The equilibrium market price is established at such a ratio of supply and demand when the number of goods, cat. buyers want to purchase, corresponding to their number, cat. manufacturers offer on the market. Market equilibrium can only be considered relative to a fixed unit of time. Any deviation from this state sets in motion forces that can return the market to a state of equilibrium. The balancing function is performed by the price, cat. stimulates supply growth when there is a shortage of goods and relieves the market of surpluses, restraining supply. Equilibrium is the value for each competitive market. Thanks to equilibrium, equilibrium is maintained in every product market economic system generally. Market price is the actual price that is set on the market in accordance with the supply and demand of goods. Its significance is expressed in the following functions: informational, regulatory, distribution,

In economics, there are 2 main methods of setting prices:

1. Market. 2. Expensive.

They differ in factors influencing price formation.

With the cost method, the price consists of the costs of producing the product (costs) and is fixed as a percentage of profit. In the market method, the determining factor is market conditions, demand and supply of goods. The market mechanism of price consists of its self-regulation: 1. the quantity of goods supplied exceeds the demand for it, the price decreases, and demand is normalized.

2. demand exceeds supply, the price rises, production of the product increases until the point of equilibrium, then the price decreases.

Types of prices : 1. Wholesale.2. Retail.3. Tariffs (prices).

By degree of freedom: 1. Strictly fixed (firm) - established by the state, regulated by government bodies by establishing an upper price limit or limit level profitability.2. Free market prices, free from price interference by government agencies.

Other types of prices: comparable, current, estimated, price list, negotiated (contract), exchange auction, world

32. Competition: concept, concepts.Competition(from Lat. collide) is competition between participants in a market economy for the best conditions for the production, purchase and sale of goods. Competition - competitive work between commodity producers for the most profitable areas of investment of capital, sales markets , sources of raw materials and at the same time very an effective mechanism for spontaneous regulation of the proportions of social production. It is generated by objective conditions: households. the isolation of each manufacturer, its dependence on market conditions, confrontation with other commodity owners in the struggle for purchasing demand.

Competition has important in the life of society. It stimulates the activities of independent units. Through it, commodity producers seem to control each other. Their struggle for the consumer leads to lower prices, lower production costs, improved product quality, and increased scientific and technological progress. At the same time, competition exacerbates contradictions of economic interests, greatly enhances economic differentiation in society, causes an increase in unproductive costs, and encourages the creation of monopolies. Without administrative intervention by government agencies, competition turns into a destructive force for the economy. To curb it and keep it at the level of a normal economic stimulant, the state in its laws determines the “rules of the game” of its rivals.

These laws fix the rights and obligations of producers and consumers of products, establish principles and guarantees for the actions of competitors.