Lecture 4. Market and market equilibrium

4.1. market demand. The law of demand. one

4.2. Market offer. The law of supply. 3

4.3. Market balance. 6

4.4. Market equilibrium and state regulation of the market. ten

market demand. Law of demand

Demand- this is a desire supported by monetary potential, the intention of consumers to purchase any product. Demand can also be defined as solvent social need for goods and services. The main characteristic of demand is its size or volume. Demand quantity The quantity of a good that a consumer is willing and able to purchase at a given price in a given period of time.

In economic theory, it is customary to distinguish between individual, market and aggregate demand. individual demand is the demand of an individual buyer for a particular product. The magnitude of individual demand is determined by the tastes and preferences of the individual, as well as the level of his income. market demand is the total demand of all buyers in a given market. The magnitude of market demand depends primarily on the number of buyers, the level of prices for goods and services, the income level of consumers and other factors. Aggregate demand- is the demand in all markets for a particular product or for all manufactured and sold goods.

All transactions in the market are carried out at the demand price, which determines the willingness of buyers to pay for a product or service. Ask price is the maximum price that buyers are willing to pay for a given quantity of a good or service at a given time in a given market.

The demand for goods and services depends on a number of factors (determinant), which include:

The price of a given product or service (P);

consumer income (I), which determines the size of the consumer budget;

prices for substitute goods that replace these goods in consumption (Р s);

prices for complementary goods that complement these goods in consumption (Р c);

· tastes and preferences of buyers (Z), determined by fashion, traditions, habits, etc.;

the total number of buyers or market size (N);

· expectations of buyers, including inflation (W);

Taking into account all these factors, the overall demand function can be represented as follows: Q D = f (P, I, P s , P c, Z, N, W, B).

Demand function (demand function) is a quantitative relationship between the magnitude of demand and its determining factors (determinants).

If all factors of demand, except for price, are taken unchanged for a given period, then it is possible to move from the general demand function to the demand function from price:

where Q D - the value of demand for product i;

P i - the price of the analyzed product i.

The inverse dependence of the price on the quantity demanded is called, respectively, the inverse demand function and has the form: P i = f(Q D).

A graphic representation of the dependence of the quantity demanded on the market price is carried out using the demand curve. Demand Curve- presented in graphical form, the relationship between the magnitude of demand for a product and its market price, with other (non-price) factors unchanged that affect demand. On the demand curve, P is displayed vertically - possible prices, and horizontally Q - the quantity of goods purchased. The dependence of demand on price can be linear (Figure 4.1.1, a) or non-linear (Figure 4.1.1, b).

Rice. 4.1.1. Demand Curve

The demand curve has a negative slope and graphically displays the operation of the law of demand. Law of demand The higher the price of a good, the lower the demand for it, other things being equal.

A change in the price of a good produces two effects: the substitution (replacement) effect and the income effect. Substitution effect- a change in the magnitude of demand for a product as a result of the substitution (replacement) of more expensive goods by less expensive ones. The essence of the substitution effect is that the consumer will buy more of the product, the price of which has decreased, replacing with it the product, the price of which has increased. Income effect- the effect of a change in the price of a good on the real income of the consumer and on the quantity of the product that he purchases, taking into account the substitution effect. The essence of the income effect is that when the price of a product decreases, a certain part of the income is released from the buyer, which he can now use to buy either more of this product, or some other product. Even a small decrease in prices makes buyers (consumers) relatively richer, indirectly increasing their real income.

When the price of a good changes, the quantity demanded moves in the opposite direction along the demand line (Fig. 4.1.2, a). If non-price factors of demand change, then this leads to a shift in the demand curve itself (Fig. 4.1.2, b) to the right (with an increase in demand) or to the left (with a decrease in demand).

Rice. 4.1.2. Change in the volume of demand and a shift in the demand curve

It should be noted that from the point of view of the dependence of the magnitude of demand on the level of income in economic theory, it is customary to distinguish between normal and abnormal goods. normal goods A product for which demand increases as the consumer's income increases. That is, in relation to normal goods, there is a direct dependence of the magnitude of demand on the magnitude of consumer income. anomalous goods A good for which demand decreases as consumer income increases. Demand for anomalous goods rises when consumers' incomes fall. Anomalous goods include, for example, margarine, cheap pasta, which, as incomes grow, buyers replace with better goods: butter, vegetables, fruits.

Individual demand is the demand made by competitive consumers.

The individual demand curve shows the amount of a product (goods) that consumers want to buy at the appropriate price at a given moment.

The geometric shape of the curve (negative slope) reflects the inverse relationship between demand (Q) and price (P), as well as the declining marginal utility of each additional unit of the purchased good, which explains the fall in its price (Figure 8.1).

Individual demand is influenced by: the price of the product, the level of income of the consumer, the number of people in the consumer's family, his social level, the value system, the level of debt.

Figure 8.1 - Demand curve.

Movement along the demand curve (D) shows how a change in price (P) affects a change in quantity demanded (Q). At the same time, the position of the demand curve D remains the same, i.e. demand for the product has not changed.

The mechanism of the functioning of the market obliges to analyze situations in which many consumers and producers operate.

The concept of demand for a particular product reflects the behavior of the mass consumer. The volume of market demand for a given product is made up of the demand of many entities acting as buyers in a certain period of time.

The market demand is influenced by: the price of the goods, the income of buyers, the number of buyers, the preferences of buyers.

The market demand curve shows the volume of demand of all consumers at any price and is the sum of the demand curves of all market entities (Figure 8.2).

Figure 8.2 - Individual (a) and market demand (b)

It can be constructed from the individual demand curves (horizontally) for a given product by adding up the quantities (Q D1 + Q D2 + Q D3) that each buyer demands at each possible unit price. Like the individual demand curve, other than market demand will have a negative slope.

Conclusion

The emergence of the theory of consumer behavior was associated with the work of marginalists, since one of the main provisions of marginalism is the principle of economic man. The theory of consumer behavior explores a set of principles and patterns, guided by which each person forms and implements his own set of consumption of various goods, guided by the most complete satisfaction of his needs. This theory is associated with the concepts of total utility (that is, the total benefit from a certain amount of a good) and marginal utility (the degree of satisfaction of a need with an increase in the amount of a good).

For utility analysis, quantitative and qualitative theories were used. The quantitative theory of utility is based on the assumption that different goods can be compared based on a comparison of their utilities measured in specific units. Qualitative theory implies not an absolute, but a relative assessment of utility, which shows consumer preferences.

Graphically, the system of consumer preferences is depicted using indifference curves. This is the locus of points, each of which is such a set of two goods that the consumer does not care which of these sets to choose. When choosing one of two goods, the concept of the marginal rate of substitution arises. The marginal rate of substitution of good X for good Y is the amount of good Y that must be reduced by increasing good X by one unit so that the level of consumer satisfaction remains unchanged.

The choice of an individual is formed not only under the influence of preferences, it is limited by the budget. It is logical that for each consumer the total expenditure should be no more than income. Graphically, this is depicted using the budget line - the geometric locus of points representing the combinations of two goods available to the consumer for a given budget.

A change in the price of a good affects the quantity demanded through the substitution effect and the income effect. The substitution effect occurs when prices change and leads to an increase in the consumption of cheaper goods. The income effect arises because a change in the price of a given good increases (if the price falls) or decreases (if the price rises) the real income, or purchasing power, of the consumer.

The study of consumer behavior is a complex science.

This paper outlines the basic concepts of the problems of consumer behavior, as well as the maximization of the good, but it is impossible to consider the entire general topic in one work. Therefore, summing up, I would like to dwell on the main conclusions made in the course of this course work:

Choosing goods for consumption, the buyer is guided by his preferences;

The behavior of the consumer is rational, in particular, he puts forward certain goals and is guided by personal interest, that is, he acts within the framework of reasonable selfishness;

The consumer seeks to maximize total utility, in other words, seeks to choose a set of goods that brings him the greatest total utility;

The choice of the consumer and his subjective assessment of the usefulness of the purchased goods is influenced by the law of diminishing marginal utility;

When choosing goods, the possibilities of the consumer are limited by the prices of goods and his income; this constraint is called the budget constraint.

Along with the general principles of choosing a rational consumer, there are features that are determined by the influence of tastes and preferences on him.

Consumer choice is a set of benefits that brings the consumer the maximum total utility in the face of budget constraints.

Thus, we can safely say that on this topic of the course work, key points have been extracted that give us the most clear picture of the problems faced by the consumer, how consumer behavior changes under the influence of some specific factors and what motivates his choice.

consumer utility indifference demand

Individual and market demand.

ANSWER

In a market economy, demand is the main factor determining what and how to produce. Distinguish between individual and market demand.

The consumer's individual demand function characterizes his reaction to a change in the price of a given good, assuming that his income and the prices of other goods remain unchanged.

INDIVIDUAL DEMAND - the demand of a particular consumer; is the amount of goods corresponding to each given price that a particular consumer would like to buy in the market.

Rice. 12.1. Effect of price changes

On fig. 12.1 shows the consumer choice on which the individual stops, distributing a fixed income between two benefits when food prices change.

Initially, the price of food was 25 rubles, the price of clothing was 50 rubles, and the income was 500 rubles. The utility-maximizing consumer choice is at point B (Figure 12.1a). In this case, the consumer buys 12 units of food and 4 units of clothing, which makes it possible to provide a level of utility determined by an indifference curve with a utility value equal to U 2 .

On fig. 12.16 interrelation between the price for the foodstuffs and their required volume is represented. The abscissa shows the volume of consumed good, as in Fig. 12.1a, but food prices are now plotted on the y-axis. Point E in fig. 12.16 corresponds to point B in fig. 12.1a. At point E, the price of food is 25 rubles. and the consumer purchases 12 units.

Let us assume that the price of food has risen to 50 r. Since the budget line in Fig. 12.1a rotates clockwise, it becomes twice as steep. The higher food price increased the slope of the budget line, and the consumer in this case achieves maximum utility at point A, located on the indifference curve U 1 . At point A, the consumer chooses 4 units of food and 6 units of clothing.

On fig. 12.16 it is shown that the modified choice of consumption corresponds to point D, depicting that at a price of 50 rubles. 4 units of food are required.

Let us assume that the price of food falls to 12.5 rubles, which will lead to a counterclockwise rotation of the budget line, providing a higher level of utility, corresponding to the indifference curve U 3 in Fig. 12.1a, and the consumer will choose point C with 20 food items and 5 clothing items. Point F in fig. 12.16 corresponds to a price of 12.5 rubles. and 20 units of food.

From fig. 12.1a it follows that with a decrease in food prices, clothing consumption can both increase and decrease. Consumption of food and clothing may rise as a fall in the price of food increases the purchasing power of the consumer.

The demand curve in fig. 12.16 depicts the amount of food that the consumer purchases as a function of the price of food. The demand curve has two peculiarities.

First. The level of utility achieved changes as one moves along the curve. The lower the price of a good, the higher the level of utility.

Second. At each point on the demand curve, the consumer maximizes utility under the condition that the marginal rate of substitution of food for clothing is equal to the ratio of food to clothing prices. As food prices fall, so does the price ratio and the marginal rate of substitution.

Change along the curve individual demand The marginal rate of substitution indicates the benefits delivered to consumers from goods.

MARKET DEMAND characterizes the total demand of all consumers at any given price of a given good.

The total market demand curve is formed as a result of horizontal addition of individual demand curves (Fig. 12.2).

The dependence of market demand on the market price is determined by summing the demand volumes of all consumers at a given price.

Graphical way the summation of the volumes of demand of all consumers is shown in fig. 12.2.

It must be borne in mind that hundreds and thousands of consumers operate in the market, and the volume of demand for each of them can be represented as a point. In this case, the demand point A is shown on the DD curve (Fig. 12.2c).

Each consumer has its own demand curve, that is, it differs from the demand curves of other consumers, because people are not the same. Some have a high income, while others have a low income. Some want coffee, others want tea. To obtain the overall market curve, it is necessary to calculate the total amount of consumption of all consumers at each given price level.

Rice. 12.2. Building a market curve based on individual demand curves

The market demand curve tends to slope less than individual demand curves, which means that when the price of a good falls, the quantity demanded in the market increases more than the quantity demanded by the individual consumer.

Market demand can be calculated not only graphically, but also through tables and analytical methods.

The main drivers of market demand are:

Consumer income;

Preferences (tastes) of consumers;

The price of this good;

Prices of substitute goods and complementary goods;

The number of consumers of this good;

Population size and its age structure;

Distribution of income among demographic groups of the population;

Sales promotion;

Household size based on the number of people living together. For example, the downward trend in family size will lead to an increase in demand for apartments in multi-family buildings and a decrease in demand for individual houses.

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Individual differences in demand can be quite significant. Although, as noted above, the volume of demand almost always decreases with rising prices, the nature and specific form of this pattern for individual consumers may be different.

On fig. 1 shows the demand lines with different slopes, including those in extreme positions - in the case when the volume of demand does not depend on the price ( D 3), and in the limiting case of a strong dependence of demand on price ( D four). The greater the angle of inclination of the curve to the price axis (i.e., the more flat it looks in the figure), the faster the volume of demand falls for the same price change: the curve D 1 shows a stronger dependence of demand on price than the curve D 2 .

Rice. 1. Demand line.

Individual differences in demand are due to many factors. Here are the differences in the level of income, and the dissimilarity of tastes and preferences; the latter, in turn, are influenced by national traditions, gender and age differences, differences in the level of education, etc.

The slope of the demand curve also depends on what share in the consumer's budget is the cost of this product: if this share is small, then the consumer reacts poorly to price changes. For example, if you're quite picky about the art level of movies and don't go to the cinema very often, doubling the ticket price probably won't make you go to the cinema less often. But if you often go to the cinema, just to pass the time, then doubling the price of tickets will force you to reduce the frequency of visiting the cinema.

So, different consumers, each with their own demand curve, appear in the market for some good. What will be the market demand curve in this case, i.e. the aggregate demand of all buyers combined?

At any value of the price that could be formed on the market, the volume of demand of each buyer is the amount of goods corresponding to a given price, which the consumer himself considers necessary and desirable for himself; it is the volume determined by his individual demand curve. This is what is known as consumer sovereignty. The connection between market demand and the totality of individual consumers is determined by the following pattern: the volume of market demand at each price value is equal to the sum of the demand volumes of individual consumers at a given price value.

Assume that there are three consumers in the market for a certain good. Let's call them A, B, C; their individual demand curves are shown in fig. 2.

Rice. 2. Lines of individual demand of various consumers.

Consumer BUT at a price of more than 6 rubles. completely refuses to buy goods, and he does not need more than 30 units of goods at any price, no matter how small it may be (Fig. 2, a).

This is the meaning of the points marked on the price and volume axes. For simplicity, we assume that at a price of less than 6 rubles. the dependence of the quantity demanded on the price is linear. The demand curves for other consumers are of the same nature.

Rice. 3. Summation of demand.

On fig. 3 all three individual demand curves are presented in one coordinate system D A , D B , D C and the market demand curve D.

If individual demand is given in a table, then the volume of market demand for each price value can be found by adding the corresponding values ​​of individual demand (this is illustrated in Table 1).

Table 1

Total demand

In view of the extremely simple (linear) form of individual demand curves, it is sufficient to calculate market demand only for "special" price values. The four points calculated in Table. 1 are plotted on the graph in Fig. 3, and since the sum of linear functions is a linear function, these points are connected by straight line segments. As a result, a three-link broken line is obtained - the market demand curve.

If the individual demand of each consumer is given analytically, then when summing individual volumes, it must be taken into account that at a price level above a certain threshold (for each consumer - his own), the volume of demand is zero. In our example

Equation (2) describes a broken line D in fig. 3.

Note that, as equation (2) shows, when moving along the market demand curve from top to bottom, the absolute values ​​of the coefficients at R naturally increase due to the inclusion of new buyers and, in general, the market demand curve turns out to be convex down. This circumstance plays a significant role in the development of mathematical models of the market. Since the number of buyers in the real market is very large, the kinks in the market demand curve become indistinguishable and can be drawn as a smooth line.

Demand, supply and their interaction

The logic of behavior of the main market participants ¾ buyers and sellers ¾ is reflected by two market forces: demand and sentence . The result of their interaction is a transaction ¾ agreement of the parties on the sale of goods and / or services in a certain quantity and for a certain price .

All market transactions are interconnected. If a certain commodity is sold to anyone at a certain price, then a similar commodity cannot, under the same conditions, cost more or less. One transaction affects another, the demand (or supply) that has appeared in one place affects the general state market . In other words, competitive pricing accumulates in the price a huge amount of various information about the quantitative and qualitative characteristics of economic processes, forms the information-incentive basis of a market economy.

Supply and demand are, in a certain sense, a market substitute (or market equivalent) for the regulatory mechanism that was characteristic of the planned economy, when it was assumed that all the variety of economic information was known to the central planning authority. And if the planners only tried, on the basis of their own “comprehensive” awareness, to develop the most rational ways to achieve socio-economic goals and determine the directions of action for all persons participating in economic processes, then the mechanism of supply and demand really implements all these goals in a market economy.

Law of demand

The concept of demand

The demand of buyers for certain goods is formed under the influence of needs , i.e., the desire of a person to provide for himself the best living conditions. Needs are highly individual; they are different for each person and are formed under the influence of a number of factors that determine the conditions of existence:

himself (for example, the need or lack of need for warm clothes is determined by the climate of the country, the degree of hardening of a person, his tastes);

his family and close circle (thus, the need for educating children and the strength of its manifestation depend on the level of development of society and on the place that this individual occupies in society);

The social, national, religious and other community to which a person belongs (for example, the need for national defense depends on the international position of the state of which the person is a citizen).

At the same time, out of a huge range of human needs, economic science is primarily interested in those that are supported by appropriate financial opportunities, in other words, it is interested in “effective demand”. Thus, demand ¾ is the desire and ability of buyers to make transactions to purchase goods available on the market.. And the quantity demanded is the amount of goods that buyers are willing and able to purchase at a given price within a certain time.

Law of demand

It is well known that, generally, at a low price, goods can be sold more quickly and in greater quantities than at a higher price. At the same time, increased, rush demand leads to price gouging, and sluggish and reduced ¾ to their reduction. This inverse relationship between the market price of a commodity and the quantity that can be bought or sold at that price is called the law of demand.

According to According to the law of demand, consumers, ceteris paribus, will buy the greater the quantity of goods, the lower their market price. Another formulation of this law is also possible: The law of demand consists in an inverse relationship between the price level and the quantity of goods purchased.

Immediate premises of the law of demand

The law of demand is one of the fundamental laws of a market economy. The deepest reasons for its existence are rooted in the very nature of value and prices. These will be discussed later in the analysis of theories of value. For now, we confine ourselves to listing the immediate prerequisites for its occurrence:

1) a decrease in price leads to an increase in the number of buyers to whom this product becomes available;

2) the same consumer can afford to buy more of the cheaper product. In the economic literature, this phenomenon is called income effect , since a decrease in prices is tantamount to an increase in consumer income;

3) the cheaper product "draws off" part of the demand, which otherwise would be directed to the purchase of other goods. This phenomenon also has a special name ¾ substitution effect .

Demand and price

The law of demand establishes an inverse relationship between the price and the volume of products that consumers want to buy. Thus, this law proclaims price as the main factor determining the size of demand. But economic practice convinces us of the opposite: market economy 1 Demand is largely determined by price. It is no coincidence that, if you do not take into account extreme situations, it is the price that primarily interests the consumer who decides to buy the product. And all other characteristics are necessarily considered through the prism of prices (remember how we argue, for example, about such an important characteristic as quality: expensive car but worth the money.

The relationship between the price of a product and the demand for it can be represented in tabular, graphical and functional ways. Suppose we know how many kilograms of sausage can be sold in a neighboring supermarket in a week at various price levels. Then the relationship between at the price and demand can be presented in the form of a table.

The same dependence can be presented in the form of a graph in the coordinates of sausage prices (P ¾ independent variable) and the amount of purchased sausage (Q ¾ dependent variable 2) (Fig. 4.1.). To build a graph, we use the data of our hypothetical example (Table 4.1)

Table 4.1.A conditional example of the relationship between the size of demand for sausage and its price

Line D is called the demand curve. It shows how much (Q) of the product buyers are willing to buy:

a) at any given price level;

b) in a specific period of time;

c) with other factors unchanged.

In other words, movement along the demand curve (from one point to another) reflects a change in the amount of a good that consumers demand as a result of a change in the price of the good.

The functional relationship between the volume of demand (Q D) and the price can also be presented in analytical form, i.e., in the form of a formula

Rice. 4.1. Dependence of demand on price

However, in such a general form, it does not reflect the inverse relationship between demand and price, and in practical application the formula must be specified. For example, if the dependence is linear, it will take the form:

where a, b ¾ are numerical coefficients.

In our conditional example, it will look like this:

Q D \u003d 300 - 5R.

Individual and market demand

AT economic theory It is customary to distinguish between individual demand, as the demand of an individual buyer for a particular product, and market demand, i.e., the total demand of all buyers for each product price. If we denote by qij the individual demand for the i-th product of the j-th buyer, then the market demand can be expressed as

where Q i ¾ market demand, n ¾ the number of buyers in the market.

The individual demand curve, having, like the market demand curve, a negative slope, that is, reflecting the inverse relationship between demand and price already described, is not smooth, but rather has a stepped form.

To induce a person, say, to buy two packs of butter instead of one, a small reduction in price from the usual level is not enough. That is, if instead of 10 rubles. (Moscow price at the beginning of 1999) it will cost 9 rubles. 80 kopecks, then 9 rubles. 60 kopecks, then 9 rubles. 40 kopecks, then all these changes, most likely, will not force one particular buyer to double the purchase volume. But at some point (for example, at a price of 8 rubles), he will react by increasing the purchased quantity of the product. There will be a jump in demand on the chart, a “step”. Since the “sensitivity threshold” of consumers is different, then, summing up, the step curves of individual demand will smooth each other out and eventually create a smooth curve of market demand.