Demand and supply. Demand and supply of goods. Demand: concept, function, graph

Demand(D, demand) is the desire and ability of buyers (consumers) to purchase goods or services. Distinguish between individual and market Demand of an individual consumer in the market is called individual. Market demand is the sum of the individual demand of all consumers of a given good. Demand quantity shows the relationship between a given price and the “value of the purchased product. The relationship between the concepts of "demand" and "quantity of demand" clearly shows the graph of the demand curve (Fig. 3-2).

If we plot all possible quantities of the purchased goods along the abscissa axis, and all possible price options for it along the ordinate axis, we will get the demand curve - D 0 as a set of points that expresses all possible combinations of prices and quantities of goods purchased in a given period. Each point on the demand curve shows a certain amount of demand, that is, the amount of goods that buyers are willing and able to buy at a given price. Ceteris paribus, a decrease in price causes an increase in the quantity demanded for the good, and vice versa. Law of demand expresses the inverse relationship between the price of a good and the quantity demanded for it.

The relationship between the quantity demanded of a good and its price can be explained by the income effect and the substitution effect. income effect is that when the price decreases (which is equivalent to an increase in income), the goods become cheaper relative to the total amount of income and therefore it can be bought in larger quantities without denying oneself the purchase of other goods. substitution effect means that when the price decreases, there is an incentive to buy this product instead of similar others that have become relatively more expensive (if beef has fallen in price, then the demand for lamb, pork, fish, and poultry will decrease, as more beef will be purchased). The income effect and the substitution effect determine the downward nature of the demand curve, that is, as the price decreases, the quantity demanded increases.

In addition to the price of a given product, other factors affect demand. non-price factors that characterize consumers of this product. Non-price factors of demand include consumer tastes and preferences, the number of consumers in the market, income, prices for other goods, consumer expectations. Non-price factors change demand, increasing or decreasing it. This means that at the same price of a good, buyers are willing to buy more or less of it, or that they are willing to buy the same quantity of a good at a higher (lower) price. The change in demand on the graph is expressed as shear demand curve: with an increase in demand - up and to the right, from D 0 to D 1 , and with a decrease in demand - down and to the left, from D 0 to D 2 (Fig. 3-2).

Rice. 3-2. Demand Curves

Let us consider in more detail the influence of consumer incomes and prices of other goods on demand. Changes in consumer income affect demand, but the direction of change depends on the product category. In highly developed countries, there are normal goods, consumed by the majority of the population, and inferior goods, intended for the poor and disadvantaged.

The relationship between a change in demand for normal goods (eg, a new car, vacation spending) and a change in income is direct, but in the case of goods of a lower category, it is inverse. As income increases, the demand for them decreases, and vice versa.

Prices for other goods, influencing consumer behavior, also change demand. The direction of change in this case depends on the type of product, whether it is complementary or interchangeable. Complementary (related) goods - These are goods that are consumed together. The relationship between the demand for a given product and the price of the associated product is inverse. If, for example, the price of VCRs rises sharply, the demand for video cassettes will fall.

Interchangeable goods can be used one instead of the other. The relationship between a change in the price of a substitute good and a change in demand for this good is direct. If the price of poultry falls, then ceteris paribus, the demand for beef will decrease.

Offer, factors influencing it. The law of supply.

Offer(S, supply) shows the desire and ability of producers - sellers to supply goods or services to the market at any of the possible prices in a given period of time. Just as in the case of demand, it is necessary to distinguish between the concepts of “individual supply and “market supply”, “supply” and “supply value”. Offer amount shows the relationship between a given price and a given amount of supply.

If the quantity demanded is inversely related to the yen of a good, then there is a direct relationship between the price and the quantity supplied: if the price rises, then, ceteris paribus, more of this good will enter the market, since it is beneficial for the producer to increase its production and vice versa. Law of supply Expresses a direct relationship between the price and the supply of goods.

The supply curve S 0 on the graph (Fig. 3-3) shows all possible combinations of prices and the quantity of the goods offered, all other things being equal. According to the law of supply, it has an ascending character.

Rice. 3-3. Supply curves

In addition to the price of this product, the supply is influenced by the following non-price factors:

1) resource prices, the relationship between resource prices and supply is direct. A decrease in resource prices will lower the cost of producing a unit of a good (average cost), so it will become profitable for producers to supply this good to the market and supply will increase. Rising prices for resources, increasing production costs, reduces the supply of goods;

2) production technology. The introduction of progressive technologies, reducing the average cost of production, increases supply;

3) taxes and subsidies. High taxes reduce supply, while subsidies and soft loans, if used effectively, can stimulate the growth of production and supply;

4) the number of manufacturers. There is a direct relationship between the number of sellers and supply in the market;

5) sellers' price expectations also influence supply. If an increase in prices for a given commodity is expected, then producers will hold it at the moment and vice versa. The change in supply under the influence of non-price factors, among which the change in average production costs (resource prices, economics of production, taxes and benefits) is of decisive importance, is shown in Fig. 3-3. An increase in supply leads to a shift down, to the left of the supply curve from S 0 to S 1, and a decrease in supply leads to a shift to the right, up from S 0 to S 2.

Elasticity of demand and supply.

The degree of sensitivity of demand (or supply) for a product to a change in its price is called elasticity of demand(offers). For different products, it is not the same and can be measured using the coefficient of elasticity.

Elasticity coefficient(E - elasticity) shows by how many percent the amount of demand (or supply) for a given product changes when its price changes by one percent.

If this ratio is greater than one, demand is considered elastic; if it is less than one, demand is inelastic. With a unit elasticity of demand, Ed is equal to one. If a change in price does not change the quantity demanded at all, then demand is perfectly inelastic. When, at a constant price, the quantity demanded is constantly increasing, there is a perfect elasticity of demand.

Different options for the elasticity of demand can be represented on the traffic (Fig. 3-4). Curve A shows inelastic demand, curve B shows unit elasticity, and curve C shows elastic demand. The elastic demand curve C is flatter than the inelastic demand line A. At the same time, any demand is more elastic in the area of ​​high prices and small volumes of demand and inelastic in the area of ​​low prices and large possible sales. (The horizontal line N represents perfectly elastic demand, and the vertical line M represents perfectly inelastic demand.)

Rice. 3-4. Elasticity of demand

An example of inelastic (weakly elastic) demand is the demand for medicines, drugs, many essential goods (for example, 5 bread): no matter how the price of these goods changes, the demand for them changes little or does not change at all. Therefore, an increase in prices leads to an increase in gross revenue - the product of the price by the volume of sales, and vice versa (Fig. 3-5, A).

With a unit elasticity of demand, a change in price does not lead to a change in revenue, since a price decrease is compensated by the same increase in the volume of sales of goods (Fig. 3-5, B). If the demand for a given product is elastic, i.e., a small decrease in the price of a good causes a larger increase in the quantity demanded, then the firm will not lose from such a decrease and will receive more income as a result. Consequently, with elastic demand, price and revenue change in opposite directions, and with inelastic demand - in one direction (3-5, C).

The concept of elasticity is also applicable to the study of the supply of a product. The change in supply is determined by the difficulties in redistributing resources between industries, which is associated with the time factor: the supply is less elastic in the short term and more elastic over a long period, when it is possible to adapt to the changed market situation.

Rice. 3-5. Effect of elasticity of demand on total revenue

The elasticity of demand for goods is important for practice, this issue is carefully studied and taken into account in the market strategy of any firm.

Economics is a science that studies commodity-money relations in society. Thanks to it, we can buy the goods we need, use the services, make a profit and invest in the development of infrastructure. The main "whales" on which this whole complex mechanism rests are supply and demand. In economics, their correlation and the size of the existing proportions are analyzed with special attention.

What is an offer?

The answer to this question is not difficult to find, one has only to look into the specialized literature. It states that supply-side economics is a process that involves the supply of goods to the market by entrepreneurs. Their number directly depends on the ability and desire of businessmen to do their job, as well as on the presence of consumers who are not opposed to purchasing this or that thing. Moreover, the price of the offered product is strictly determined by the laws of the market economy, the presence of competitors, the level of GDP in a particular country, adopted state acts, and other factors.

The supply also depends on the size of production and the technologies involved. This is very important in the economy, because these two components characterize the ability of an entrepreneur to operate. It is also necessary that the businessman not only could, but also wanted to produce goods. Thus, he must have the desire, namely the permission to sell at a specific price, as well as the opportunity - the availability of the necessary resources and capital to start production.

Supply and demand

They are closely related. If the offer is in the economy a set of goods, called the market fund and released like hot cakes to consumers, then demand is the desire of the buyers themselves to purchase this thing. The ratio of the two components strongly affects the change in the proportions of production, the movement of labor between industries, the attraction of capital and its distribution. When demand exceeds supply, the cost rises, businessmen receive good dividends. To meet the needs of people, they increase production: as a result, demand is satisfied.

If supply dominates, then entrepreneurs suffer losses: people are not interested in purchasing goods, while competition in this case is often intense, while prices are falling rapidly. Despite this, supply always generates demand. Their harmonious balance is a guarantee of an efficient economy and a normal standard of living in the country. The more demand, the higher the price. But entrepreneurs are not interested in too high a cost: it is easier for them to leave it at a normal level, but at the same time expand production and, at the expense of this, make a big profit.

Supply-side economics theory

It was developed by those economists who actively studied supply and demand in the economy. The representatives of the theory are Arthur Laffer, Martin Feldstein, George Gilder. The very term "supply-side economics" was coined by the American Herbert Stein. According to these scientists, in order to improve the production in the state, you need to pay attention to the aggregate supply, while ignoring the demand. After all, stimulating the growth of the latter does not guarantee good long-term results.

The theory of supply-side economics carries the main idea: it is necessary to stimulate as much as possible the factors that affect the mass production of goods. Its representatives call supply the main motivator of economic growth and prosperity. Their conclusions are made on the basis of the law of markets of the French specialist Jean-Baptiste Say. According to his statements, the main thing is the production of goods, and always arises in the process of putting products on the market. Opponents of supply theory - adherents of the Keynesian hypothesis - on the contrary, extol the demand and recommend encouraging it.

Main types of offer

Demand and supply in the economy are always guided by the desire and ability of a simple buyer. They can be measured both on a narrower and on a broader scale. Depending on this, two types of proposals are distinguished:

• Individual. This is a product of one specific seller, firm, organization.
• General. It implies the totality of all goods of one kind or another, released by all, without exception, businessmen engaged in core activities.

It can be argued that these two species always obey the rule that economists have formulated. The so-called law of supply states that as the price of a commodity increases, its supply also increases. At the same time, it is worth remembering about resources: if their use has reached its maximum peak, price increases will not be able to increase supply, and with it production. Businessmen need to pay great attention to the purchase of materials, their proper distribution and the most economical use.

Price Factors

In order for firms or organizations to be able to produce goods freely and in large volumes, several factors must be taken into account that directly affect production in direct proportion. First, it is the value of the thing itself. The higher it is, the less you need to sell. A small percentage of people are able to shell out a tidy sum for a purchase, so the offer should not be large. At the same time, the low cost of the product allows virtually everyone to purchase it. Therefore, production in this case should be increased.

Second, the cost of resources also takes supply-side economics into account. This means the following: the more expensive they are, the more the price of the goods increases - accordingly, it is necessary to lower. Despite this, the offer will always remain flexible. If the income of the population is growing rapidly, in the state it is rising, then even with a high price for the product itself or the material from which it is made, production can be increased. Moreover, experienced businessmen do it gradually, focusing on the demand of the population.

Main non-price factors

These primarily include production technology and all the same resources. After all, these two factors are decisive in the economy. For example, technology. The degree of its development invariably increases the level of return of resources - that is, for one cost of material, you can get more products. For example, the consequence of the active introduction of a production line is a higher output of the necessary products per employee. It turns out that with the growth of the level of technology, the quantity of goods also grows. The offer is also on the rise. However, this factor has almost no effect on those things that are made by hand.

As for resources, their scarcity also shapes the size. Supply-side economics also provides for this. Rare materials cannot serve as the basis for a large number of goods. A businessman buys such materials at a high price: as a result, he increases the cost of the product itself. In this case, the offer should not be high, otherwise material investments in the product will not pay off due to low sales.

The amount of taxes and producers

They also strongly influence supply in a market economy. It is clear that the profit of the entrepreneur also depends on the amount of taxes. In addition, in order to compensate for losses from extortions, the businessman is forced to raise the cost of goods - this factor is most significant for those products that are heavily taxed. For example, alcohol and tobacco products - in order to reduce their consumption and save the health of citizens, or fur coats - to prevent the extermination of rare animals.

Supply-side economics is also a focus on the number of producers. The higher it is, the more the supply will grow. In this situation, it is necessary to take into account the reserves of resources: they will rapidly decrease. Businessmen will begin to use more expensive materials, as cheap ones are quickly bought up by competitors. Or import them from abroad, which will also increase costs. It will become unprofitable to sell such products at the previous price, so the supply will not increase.

Other non-price factors

The supply also changes depending on the expectations of citizens regarding future prices, possible raw materials, tax rates. For example, farmers may temporarily stop selling potatoes in the expectation that their value will soon rise significantly. The opposite effect is also possible: producers will increase their turnover, predicting an increase in the price of products. This factor is difficult to calculate, so it is rarely taken into account in

The value of other goods is also important, as is the supply of money. In economics, this means that entrepreneurs are constantly looking for the most profitable area for investment. With an increase in the price of a particular product, it becomes attractive for investment - there is an inflow of capital. It turns out that this non-price factor is also very important: if the cost increases, there is an outflow of money into the sphere of production, the supply of a particular product decreases significantly. All this must be taken into account in order for the country's economy to flourish, and supply and demand harmoniously complement each other.

Supply and demand is perhaps the most fundamental concept, and it is the basis of a market economy. Demand is how much (quantity) of a product or service buyers are willing to purchase. Demand is the quantity of a good that people are willing to buy at a given price. Supply shows how much of a product the market has to offer. Supply refers to how much of a product producers are willing to supply at a given price. Price is a reflection of supply and demand.

The relationship between supply and demand is at the heart of the power behind resource allocation. In market economy theory, supply and demand allocate resources in the most efficient way. How? Let's take a closer look at the law of demand and the law of supply.

1. The law of demand.
The law of demand states that if all other factors remain equal, then the higher the price of a good, the fewer people will buy that good. In other words, the higher the price, the lower the quantity demanded. The volume of a commodity that buyers purchase at a higher price is small because as the price of the commodity rises, the purchase becomes unattractive. As a result, people will naturally not buy a product that will make them stop consuming other goods. The chart below shows the demand curve.

A, B and C are points on the demand curve (Demand). Each point on the curve reflects a direct relationship between the volume of demand (Quantity) and prices (Price). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand curve illustrates the inverse relationship between price and quantity demanded. The higher the price of a good, the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C).

B. Law of supply.
Like the law of demand, the law of supply shows the quantity of a commodity that will be sold at a certain price. But unlike the law of demand, the supply curve is upward. This means that the higher the price, the higher the supply. Producers supply more at a higher price because selling more at a higher price will generate more profit.

A, B and C are points on the supply curve. Each point on the curve reflects a direct relationship between supply (Q) and price (P). At point B, the quantity supplied will be Q2 and the price will be P2, and so on.

C. Equilibrium, equilibrium price.
When supply and demand are equal (i.e. when the supply and demand curves intersect) the economy is said to be in equilibrium. At this point, the distribution of goods is most efficient because the amount of goods that is produced is exactly the same as the amount of goods that is consumed. Thus, everyone (individuals, firms or countries) is satisfied with the current economic situation. At a given price, suppliers sell all the goods they have produced, and consumers receive all the goods they need.

As you can see on the graph, the equilibrium point is at the intersection of the demand curve and the supply curve, indicating that there is no inefficient allocation. At this point, the price of the commodity will be P* and the volume will be Q*. These indicators are called equilibrium price and equilibrium volume.

D. Imbalance
An imbalance in the economy occurs whenever price or quantity is not equal to P* and Q*.

1. oversupply
If the price is set too high, an excess supply will be created in the market and distribution will be inefficient.

At the price P1, the volume of goods that producers want to sell is equal to Q2. However, while the number of buyers who are willing to buy at price P1 is equal to Q1, the number is much less than Q2. Because Q2 is greater than Q1, it means that too much is produced and too little is consumed. Suppliers try to produce more of the goods they hope to sell in order to increase profits, but those who consume the goods will find the price of the product less attractive and will buy less because the price is too high.

Excess demand is created when the price is set below the equilibrium price. Because the price is so low, too many consumers want to buy the manufacturer's product when not enough is being produced.

In this situation, at price P1, the quantity demanded by buyers is equal to Q2. Conversely, the quantity of goods that producers are willing to produce at this price is Q1. Thus, there are too few goods on the market to satisfy the needs (demand) of buyers. And buyers must compete with each other to buy the item at that price. Demand will push the price up, causing suppliers to want to supply more, and as a result, the price will move closer to its equilibrium.

In a real economy, on a functioning stock exchange, equilibrium can only be achieved in theory, since the prices of goods and services are constantly changing due to fluctuations in supply and demand.

To learn how you can use the imbalance of supply and demand on the stock exchange to make money on trading, register on the forum.

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

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

Law of demand

Demand is a solvent need for a product or service.

Demand quantity is the quantity and that buyers are willing to purchase at a given time, in a given place, at given prices.

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

Types of demand:

• (manufacturing demand)

Factors affecting demand

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

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

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

Distinguish exogenous and endogenous demand.

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

endogenous demand(domestic demand) - is formed within society due to the factors that exist in this society.

The relationship between the magnitude of demand and the factors determining it is called the demand function.
In its most general form, it is written as follows Where:

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

Changes occurring in the market associated with the quantitative supply of goods always depend on the price set for this product. Between the market price of a product and the quantity demanded, there is always a certain ratio. The high price of goods limits the demand for it, a decrease in the price of this product, as a rule, characterizes an increase in demand for it.

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

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

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

Law of demand

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

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

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

Types of demand:

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

Factors affecting demand

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

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

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

Distinguish exogenous and endogenous demand.

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

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

The relationship between the magnitude of demand and the factors determining it is called the demand function.
In its most general form, it is written as follows:

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

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

Changes in demand and magnitude of demand

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

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

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

Non-price determinants of demand

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

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

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

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

3. Number of consumers.

Ceteris paribus, the greater the number of potential buyers, the higher the market demand for the product.

4. Prices for other goods.

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

There are conditionally three groups of "other" goods:

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

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

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

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

5. Economic expectations of consumers.

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

To non-price factors affecting demand ᴏᴛʜᴏϲᴙt:

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

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

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

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

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

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

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

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

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

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

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

Law of supply

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

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

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

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

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

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

The proposal is examined in three time intervals:

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

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

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

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

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

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

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

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

To non-price supply factors ᴏᴛʜᴏϲᴙt:

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

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

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

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