According to the law of demand, all other things being equal. See pages where the term law of demand is mentioned. See what the "Law of Demand" is in other dictionaries

Testing on the topic "Market management system", 3 options, consisting of 3 tasks.

for grade 10 profile study

Exercise2. Read the following statements and indicate which are true and which are wrong. Why?

Exercise 3. Indicate which of the following statements is correct and explain why.

The answers are attached.

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Option Ι

Task 1. Correlate the concept and definition.

1. The income of the owner of the land is called interest.

2. A decrease in demand is reflected by a downward movement along the demand curve.

3. If the price of skis rises, the amount of demand for ski boots decreases.

4. Reducing production costs usually leads to a decrease in supply.

5. A decrease in supply, other things being equal, will lead to an increase in prices.

1. The following economic phenomena are not reflected in the model of economic circulation:

a) the formation of cash income;

b) the costs of firms for the purchase of factors of production;

c) purchase of goods and services by households;

d) activities of the banking system

2. The state has set a "ceiling" for meat prices. Which of the following government actions will not contradict the earlier decision on price regulation:

a) the introduction of a rationed distribution of meat;

b) increasing taxes to restrict meat production;

c) payment of subsidies to low-income buyers;

d) organizing the purchase of surplus meat.

3. The price elasticity of the supply is in direct proportion to:

a) the duration of the period under consideration;

b) fashion changes;

c) tax policy of the state;

D) the income of buyers.

4. A shift in the demand curve for a normal product to the left can be caused by:

a) a decrease in demand for it;

b) an increase in the price of the goods produced;

c) an increase in the income of buyers;

d) the expectation of increased inflation;

e) a decrease in subsidies to low-income strata of the population.

Testing work on the topic "Market management system"

Option ΙΙ

Task 1. Correlate the concept and definition.

Task 2. Read the following statements and indicate which of them are correct and which are wrong. Why?

1. The model of economic circulation shows that firms play the main role in a mixed economy.

2. According to the law of demand, the lower the price of a commodity, the more it is purchased by buyers.

3. Goods that have hidden defects are considered inferior goods.

4. The rise in income taxes leads to a shift in the supply curve to the left.

5. Prices for interchangeable goods change in one direction.

1. The law of demand assumes that:

a) if buyers' incomes decrease, they buy less goods;

b) when the price rises, the volume of production increases;

c) when the price of a product decreases, the amount of demand for this product increases;

d) when the price of a product rises, demand decreases.

2. If the demand for a product is price elastic, then:

a) if the price drops by 40%, the amount of demand may increase by 55%;

b) if the price increases by 30%, the amount of demand may decrease by 10%;

c) if the price decreases, the proceeds from the sale will decrease;

d) when the price rises, the proceeds from the sale will increase.

3. The third cup of coffee is less enjoyable than the second. That's an example:

a) the action of the law of demand;

b) excess supply;

c) decrease in marginal utility;

D) increasing opportunity costs.

4. The supply curve for legal services has shifted to the right.

This could have been caused by:

a) an increase in rent for premises where legal offices are located;

b) an increase in the number of law school graduates;

c) the introduction of preferential taxation for this type of activity;

d) reducing the cost of providing this type of service due to the widespread use of computers;

e) the expectation of income growth in this area of ​​activity.

Testing work on the topic "Market management system"

Option ΙΙΙ

Task 1. Correlate the concept and definition.

Task 2. Read the following statements and indicate which of them are correct and which are wrong. Why?

1. An increase in the price of jeans can lead to a decrease in the value of demand for them, all other things being equal.

2. With the growth of buyers' incomes, the demand curve for pearl barley shifts to the right.

3. An increase in price usually leads to an increase in supply.

4. The rise in prices for children's dresses leads to a decrease in the supply of dresses for women.

5. If the price has increased by 16%, and the amount of demand has decreased by 4%, we are dealing with a product, the demand for which is inelastic.

Assignment 3. Indicate which of the following statements is correct and explain why.

1.When the demand for sawn timber increases, the demand for nails also increases, since this is:

a) unrelated goods;

b) complementary goods;

c) normal goods;

d) interchangeable goods.

2. The demand for which of the listed goods is most likely to be elastic in terms of price:

a) baby food;

b) washing powder of a specific brand;

c) toothpaste;

d) services of preschool institutions?

3. An increase in supply and demand at the same time can lead to:

a) an increase in the equilibrium amount;

b) a decrease in the equilibrium amount;

c) an increase in the equilibrium price;

d) a decrease in the equilibrium price;

e) the fact that the equilibrium price will not change.

4. Determine in which cases the offer is completely inelastic in price (when the price changes, the value of the offer does not change):

a) seats at the Bolshoi Theater;

b) Mercedes cars;

c) a car of watermelons delivered to the Central Market;

d) a pearl necklace from the "Golden Storeroom" of the Hermitage;

e) pearl necklaces produced by a well-known Japanese jewelry company.

objectively determines the meaning of any production. Without taking into account the law of demand, production turns out to be not only meaningless, but also untenable. Its fundamental property is as follows: with all other parameters unchanged, a decrease in price leads to a corresponding increase in the value of demand for products. And, on the contrary, an increase in prices leads to a corresponding decrease in the amount of demand. This law is also explained by the effects of income and substitution, which boil down to the fact that consumers have an interest and the ability to purchase more products at lower prices and replace more expensive types. An increase (or decrease) in demand is determined by the following determinants: the indicator of the favorableness of consumer preferences, the aggregate of consumers in the market, consumer profitability, prices for these and related products, the expectation of a change in the economic situation, the current situation, macroeconomic measures to stabilize market relations, the possibilities of using the purchased products, quality and the consumer value of the product, the functionality of the purpose and the safety of the product. The most important determinant influencing the change in demand is the supply of products. Hence, demand is the consumer's desire to purchase a product. Without the presence of demand, its study and evaluation, production is hypothetical. It cannot guarantee reimbursement of costs, much less the receipt of the expected income. True, in modern conditions, when the processes of diversification are actively developing and many new types of goods and services appear, demand has to be formed and created. It is possible to attract consumers only through the formation of interest and demand. Therefore, in any case, demand dominates and should dominate. Through interest and demand, it is possible to regulate the production and sale of goods, the balance of the consumer market. By means of demand, it is possible to predict the income of producers and suppliers. In this regard, demand must be balanced with consumer value and product availability.

Controllability of pricing in the distribution channel (net and gross pricing). The strategic goal of the company as a factor in pricing

On the other hand, there are also forces that could prevent the natural law of supply and demand from operating as efficiently and rapidly as is sometimes attributed to it. The lengthy time it takes to produce oil substitutes or discover new sources of oil, as well as the engineering and construction efforts required to produce the right amount of production, still remain a huge obstacle to the development of a new energy supply structure in the West.

The law of supply and demand is one of the most important in the system of a market economy. When the supply (of a ready-to-sell product) exceeds the number of people willing to purchase it, prices decrease or the product simply lies on the store shelves. When prices are low enough to keep the product from stagnating, then supply and demand are matched.

intellectual labor are linked by the laws of supply and demand. The use of our proposed innovative approach will allow the university to assess the future needs of the enterprise in intellectual workers in order to prepare the necessary personnel for the enterprise.

The university as a manufacturer and an enterprise as a consumer of intellectual workers are linked by the laws of supply and demand, that is, they are subject to general economic laws. Nevertheless, these relations have their own specificity and their subject is piece and living goods. Consequently, the gaps between supply and demand will cause serious consequences, the main of which are the presence of surplus labor force or its shortage, unemployment, misuse of highly qualified labor, the inadequacy of the available personnel to the needs of the enterprise, which leads to a general decrease in labor productivity and the efficiency of the enterprise. ... The main task of cooperation between the university and the enterprise is to bring supply and demand into line.

As the world experience shows, in a market economy, market and state regulation of international monetary relations is carried out. In the foreign exchange market, the demand and supply of currencies and their exchange rate ratio are formed. Market regulation is subject to the law of value, the law of supply and demand. The operation of these laws in a competitive environment on foreign exchange markets ensures the relative equivalence of currency exchange, the correspondence of international financial flows to the needs of the world economy related to the movement of goods, services, capital, and loans. Through the price mechanism and signals of the dynamics of the exchange rate in the market, economic agents learn about the requests of buyers of currencies and the possibilities of their supply. Thus, the market acts as a state of foreign exchange transactions.

The most important property of demand is the inverse, or negative, relationship between the price of products and the demand for it, while all other factors remain unchanged. This relationship is called the law of demand. In other words, other things being equal, a decrease in price leads to an increase in the amount of demand and, conversely, an increase in price leads to a decrease in the amount of demand for products.

The law of demand is based, first, on the psychology of the buyer, which consists in the fact that large volumes of a particular product are bought at a lower price than at a higher one. This is confirmed by the demand curve. Second, the subordination of consumption to the principle of diminishing marginal utility, according to which subsequent units of a particular commodity bring less and less satisfaction. For example, a second television is not as useful in the home as the first because basic needs are met, the third is even less useful, and so on. Therefore, the buyer purchases additional units, provided that their price is reduced. Thirdly, the operation of the law of demand is associated with the effect of income, which is expressed in the fact that, other things being equal and constant income, a buyer at a lower price can purchase more of a given commodity. On the contrary, a higher price leads to a decrease in consumer demand.

The so-called Giffen paradox is known, which is an exception to the law of demand. In this case, the change in price and the amount of demand occurs in the same direction. For example, a massive rise in prices will increase the demand for cheap margarine, since butter will be more expensive.

It should also be borne in mind that according to the law of demand, the relative price can also be implied, that is, calculated in relation to other goods. During the period of inflation, the general price level rises. Therefore, it is important to distinguish between changes in comparable prices and changes in current prices. If inflation is high, a product may become relatively cheaper even if its current price rises, if prices for other products rise faster. This is also where the substitution effect is manifested.

Obviously, the law of demand is not only of theoretical importance. Enterprises should take this into account when developing their strategy.

The seeming contradiction of such cases with the law of demand is easy to explain.

Thus, the analysis of the influence of the factor under consideration on the amount of demand confirms the operation of the law of demand.

Is it correct to say that the law of demand connects a change in demand with a change in consumer income?

In accordance with the law of demand, all other things being equal, a decrease in price leads to a corresponding increase in the amount of demand. On the contrary, all other things being equal, an increase in price leads to a corresponding decrease in the quantity demanded. It is important for any market entity to know this value, or the degree of sensitivity of demand to price changes, which is measured using the price elasticity indicator.

In accordance with the law of demand, with an increase in price, demand for products decreases, and the coefficient of elasticity will almost always have a negative sign. The exception is the demand for prestigious goods and certain conditions of the economy, for example, a constant rise in prices in the long term, forcing them to make stocks for future use, which is expressed in an increase in demand for products. Since economists are interested in the value of the elasticity coefficient, in order to avoid confusion when interpreting this indicator in economic analysis, its sign is usually omitted.

If we proceed not from supply, but from demand, then in accordance with the law of demand, price is the primary and one of the most important factors that determine the amount of products in demand. The second method corresponds to this approach.

The reasons for the action of the law of demand are especially relevant in the production and supply of new products for sale. With a high price for it, the availability of products similar in purpose to the buyer and on the market, as well as a decrease in real incomes of both the population and industrial enterprises, consumers of industrial and technical products, the demand for new products may not arise or fall below a critical value, covering the costs of its production, which at the initial stage of production are usually quite high in comparison with the costs of manufacturing traditional products.

The law of demand - all other things being equal, a decrease in price leads to an increase in demand and, conversely, an increase in price causes a decrease in the value of demand for products (Section 1.3).

Stage 1. The selection of the most important significant factors affecting the effective indicator is made. When selecting factors, causal relationships between indicators are taken into account, and all factors must be quantitatively measurable. Analytical groupings, a method for comparing parallel and time series, and line graphs are of great help in selecting factors for the correlation model. The selection of indicators for analysis and giving them the status of a factor or effective value is carried out on the basis of knowledge of economic laws. For example, knowledge of the law of supply and demand helps to study the influence of the price factor on changes in demand. The indicators selected for analysis and the results of observing their change are placed in a table in which the factor signs are arranged in ascending or descending order, i.e. are ranked.

Whether gold is used as money or for other purposes, it has a price that is determined by the amount of other goods and services that must be paid for a certain amount of gold. Let's designate this price as PC, it is measured by the number of units of goods and services per weight unit of gold. (Recall that in the system of commodity money, which is used as gold, there are no dollars, francs, yen, etc., which could be used as the unit of account to determine the price of gold or other goods and services). In addition, suppose that the law of demand applies to gold, which applies to all other commodities as the price of gold rises, other things being equal, the demand for it decreases, regardless of the purpose for which it is used.

As in the above example, the fact that depository managers do not directly calculate important indicators such as marginal costs does not mean that economic laws such as the law of supply and demand do not apply to their behavior. Consequently, the economic theory of bank management discussed in the previous chapter assumes that depository managers should and will behave as if they deliberately used all the relevant concepts.

The inverse relationship between the expected investment and the interest rate is shown in Fig. 18-14. The negative slope of the aggregate investment curve is related to the operation of the law of demand, and there is a reason for this. Firms receive medium

THE LAW OF DEMAND is a principle according to which there is an inverse relationship between the price of a product and the value of consumer demand for this product (all other things being equal). THE LAW OF DECREASING PROFITABILITY - the principle that with an increase in one and the invariability of all other types of costs, a point will be reached beyond which the marginal physical product of variable costs will begin to decrease. THE LAWS OF THE MARKET ECONOMY are objectively operating laws of the market, ignoring which does not lead society to social and economic progress. These include 1) complete administrative independence and independence of the commodity producer 2) the commodity producer must be the owner of the results of his labor 3) free choice of suppliers of raw materials and consumers of products 4) demonopolization of the production of goods 5) progressive tax policy, etc. RECEIVING IT REFUNDABLE - as long as the bill remains a negotiable document and it does not contain anything that would invalidate it, as far as the person to whom this bill is transferred is known, such a person is the legal holder, provided that he provided a counter satisfaction. Any holder of a bill of exchange who receives it under circumstances other than those set out above becomes no more than a holder of a bill of exchange who has received it in return.

At the same time, speaking of the fact that on

3. The law of demand, the law of supply. Market equilibrium

· growth in consumer income;

· improving product quality and reducing its price.

Demand law: other things being equal, the amount of demand
is inversely related to the price level. The higher the price level, the lower the volume of demand.

Income effect- at a lower price, the consumer will buy more of this product, without reducing the volume.

Substitution effect - at a lower price, the buyer will purchase more cheap goods, replacing more expensive goods with them.

Elasticity- the ability of supply and demand to remain constant in the face of changes in prices, incomes of buyers and other factors.

ED = Δ Q / Δ P - coefficient of elasticity(minus ignore)

Cross elasticity shows how much the demand for product X will change when the price of product Y changes. If the demand for product X rises with an increase in the price of product Y, then we are talking about interchangeable goods (substitute goods). If an increase in prices for good Y leads to a decrease in demand for good X, then we are dealing with complementary goods.

Income elasticity of demand. In modern economic science, an indicator of the elasticity of demand with respect to income is also used, which shows how much the demand for a product will change under the influence of a change in consumer income.

Demand elasticity frontier for price elasticity:

· Elastic - if even with a slight decrease in price, the volume of demand increases to a greater extent (Δ P<Δ Q ). ED >1. (fig. 1)

· Inelastic - if even with a very significant decrease in price, the volume of demand increases insignificantly (Δ P> Δ Q), ED<1. (рис.2)

· unit elasticity - the demand for a product will increase by the same percentage as the price has decreased (Δ P = Δ Q), ED = 1. (fig. 3)

· Completely inelastic demand - any price change has practically no effect on demand (the price is constant) ED = 0 (fig. 4)

· perfectly elastic demand - demand changes regardless of price (price is constant) ED = ∞ (fig. 4)

The following factors affect the price elasticity of demand:

· Availability of substitutes. The more substitute goods, the more elastic the demand for this product.

· Time factor. In the short run, demand is less elastic than in the long run, because buyers need time to find replacement products.

· The specific gravity of the product in the consumer's budget (usually, the higher the specific gravity, the higher the price elasticity of demand).

· The importance of the product. As a rule, demand for essential goods is inelastic, while demand for all other groups of goods is more elastic.

Supply law : with an increase in prices for a product, the volume of supply of this product increases, all other things being equal (direct connection). If the demand for a given product rises, it becomes more scarce and its price rises. Therefore, its production becomes more profitable. Supply increases because rising profits will drive production growth. Variants of supply elasticity.

· If the supply is elastic, then the change in the amount of supply exceeds the change in the price level that caused it.

· If the supply is inelastic, the price changes more than the supply.

· With a single supply elasticity, the price level and the supply amount change in the same way.

In addition, the elasticity of the proposal can also take extreme values ​​- an absolutely elastic and absolutely inelastic proposal.

The following factors affect the price elasticity of supply:

· the amount of costs and the possibility of storing products. If there is a possibility of storing products to a better position on the market, then the supply is elastic, and vice versa;

· flexibility of production systems. If the seller can quickly respond by increasing the quantity of goods to a relatively small change in price, then the supply is elastic;

· cost and availability of resources. If the additional costs of production are high, then the supply tends to be inelastic with respect to price, and conversely, if additional units of goods can be produced at the same cost, then the supply is elastic;

· However, the most important factor for the elasticity of supply is the time factor, i.e. the period during which producers have the opportunity to adjust the supply to price changes. There are three time intervals:

An instantaneous market period that is so short that producers cannot respond to changes in demand and prices. Due to the lack of time for such a reaction, the proposal is absolutely inelastic;

A short-term period when production capacity remains unchanged, but the intensity of their use may change. The degree of supply elasticity is not high - by increasing the utilization of existing capacities, only a limited increase in production can be obtained;

A long-term period, sufficient for changing production capacities, organizing new enterprises. In the long run, with a favorable change in demand, the increase in supply has almost no boundaries. Therefore, the curve is very elastic.

Market equilibrium price - the price at which the equality of supply and demand is achieved. Equilibrium volume of production - the volume of production that ensures equality of supply and demand. Imbalance:

According to the law of equilibrium: MV = PQ,

where M - money in circulation, V - speed of circulation, P - average prices for goods and services, Q - the volume of production, i.e. GDP.

Thus, when real output falls, inflation is faster for any given volume of money in circulation and velocity of circulation. In other words, all manipulations with money, securities, etc. practically do not affect the rise and fall of prices. Conversely, it is possible to really reduce prices, and hence inflation, only through a sharp increase in commodity production.

All other things being equal, this is a very important part of the wording. We can say with some certainty that the demand for a product will be greater when its price falls, if (and only if) we assume that other factors do not change.

There is a negative, or inverse, relationship between the price and the quantity demanded.

The inverse relationship between the price of a product and the amount of demand can be depicted in the form of a graph showing the amount of demand on the horizontal (Q), and the price on the vertical axis (P) (Fig. 1). A downward trend in the demand curve means that people buy more of a product at a low price than at a high price.

Demand curve D shows how many products consumers are willing to purchase at each price. The curve goes down because the consumer usually prefers to buy more if the price is lower. For example, a lower price will enable shoppers purchasing an item to purchase even more quantities and enable consumers who previously could not afford to purchase the item to begin purchasing the item.

WHAT DOES CHANGE IN DEMAND DEPEND ON?

The fundamental property of the law of demand is as follows: with all other parameters unchanged, a decrease in price leads to a corresponding increase in the amount of demand.

Conversely, all other things being equal, an increase in price leads to a corresponding decrease in the quantity demanded.

However, there are other factors that affect purchases. They are called non-price factors of changes in demand... These include:

1. Consumer tastes... The emergence of a new product often leads to a change in demand for other goods. For example, the advent of compact discs has led to a decline in demand for records.

Rice. 1. Individual demand curve

2. Number of buyers... An increase in the number of buyers in the market causes an increase in demand, and a decrease in the number of buyers leads to a decrease in demand.

3. Consumer income... As income rises, consumers tend to buy more products. And vice versa.

4. Related products... When two products are interchangeable, there is a direct relationship between the price of one and the demand for the other. This is the case with sugar and its substitute, tea and coffee, and so on. When two goods are complementary, there is an inverse relationship between the price of one of them and the demand for the other. For example, the demand for gasoline and motor oil are coupled - these are complementary products. Many product pairs are not interrelated at all. These are independent, self-contained products. For these pairs of commodities, such as bananas and wristwatches, it can be assumed that the price change will have very little or no effect on the price of the other commodity.

5. Consumer expectations of future prices and earnings... Consumer expectations about factors such as future product prices, product availability, and future income can alter demand. Consumer expectations about the possibility of price increases in the future may induce them to buy now in order to “anticipate” threatening price increases; conversely, the expectation of falling prices and falling incomes leads to a reduction in the current demand for goods.

A change in the amount of demand under the influence of non-price factors of demand means that the demand curve changes its position either to the right (an increase in demand) or to the left (a decrease in demand).

ELASTICITY OF DEMAND AND ITS IMPORTANCE FOR CONSUMERS

Economists measure the response (sensitivity) of consumers to changes in the price of a product using the concept of price elasticity of demand.

The elasticity of demand is the response of the quantity demanded to a change in price.

The elasticity of demand (Ed) is measured as the ratio of the percentage change in demand to the percentage change in price:

Demand is called elastic when a small change in price has a significant effect on the amount of demand.

For example, if a 2% decrease in price leads to a 4% increase in demand, then demand is elastic. With elastic demand, the coefficient of elasticity will always be greater than one, that is, Ed> 1. In this case, it is equal to 4/2 = 2.

Demand is inelastic when the percentage of change in its value is less than the percentage of price change. If a 3% price reduction gives an increase in the number of products requested by only 1%, then the demand is inelastic. In the case of inelastic demand, the coefficient of elasticity will always be less than one, that is, Ed> 1. In this case, it will be 1/3.

Demand can have a unit elasticity when the percentage application of price and the subsequent percentage change in quantity are equal in magnitude.

DEFINITION OF THE PROPOSAL. LAW OF OFFER. OFFER CURVE

Offer means the desire of producers to produce and sell certain goods and services for a certain price.

Firms will produce only those goods and services, the income from which will not only cover costs, but also make a profit. No one will produce goods and services just because people need them. Capital owners do not care much about this.

Amount of supply - the amount of goods that are presented for sale at a certain price within a certain time.

The law of supply says: there is a direct relationship between the price and the amount of the offer.

The law of supply shows that manufacturers want to make and offer for sale more of their product at a high price than they would like to do at a low price.

As in relation to the law of demand, we represent the law of supply in a graphical representation (Fig. 2). The plotting technique is the same as described above, but, of course, the quantitative data and the relationships that arise between them are different.

The shape of the supply curve S is determined by the desire of firms to maximize profits.

The supply curve S shows how much of a product and at what price producers can sell on the market. The curve goes up because the higher the price, the more firms have the ability to produce and sell a product.

WHAT DOES THE PROPOSAL CHANGE DEPEND ON?

The change in supply, like the change in demand, depends on the price. But the amount of supply is greater at high prices and less at low prices. And the amount of demand is greater at low prices and less at high prices.

If the price of a given product increases, then its production becomes more profitable. Rising profits will stimulate production growth and attract other firms to the industry.

The fundamental property of the law of supply is as follows: with an increase in prices, the amount of supply increases accordingly. Conversely, as prices decline, supply decreases.

Non-price supply factors include:

Figure 2 Supply Curve

1... Resource prices... The firm's supply is based on production costs. The following pattern is at work here: a decrease in resource prices lowers production costs and increases supply, that is, it moves the supply curve to the right. Conversely, an increase in resource prices will increase production costs and reduce supply, that is, it will shift the supply curve to the left.

2. Technology. Improving technology means that the discovery of new knowledge allows you to more efficiently produce a unit of product, that is, with less resource consumption.

3... Taxes and subsidies... Businesses view most taxes as costs of production. Therefore, raising taxes on, say, sales or property increases production costs and reduces supply. On the contrary, subsidies are considered to be a “reverse tax”. When the state subsidizes the production of a product, it actually lowers costs and increases its supply.

4... Prices for other goods... Changes in the prices of other goods can also shift the supply curve of a product. A drop in the price of wheat could encourage the farmer to grow and sell more corn at each possible price. Conversely, a rise in the price of wheat could force farmers to cut back on corn production and supply. A sporting goods firm can reduce the supply of basketballs when the price of soccer balls rises.

5... Expectations... Expectations of future changes in the price of a product may also affect a manufacturer's willingness to market a product at the present time. For example, the expectation of a significant increase in the prices of the products of an automobile firm can induce firms to increase production capacity and thereby cause an increase in supply.

6. The number of sellers. The greater the number of sellers (suppliers), the greater the market supply. As more firms enter the industry, the supply curve will shift to the right. The fewer firms in the industry, the less the market supply turns out to be. This means that as firms exit the industry, the supply curve will shift to the left.

ELASTICITY OF OFFER AND ITS VALUE FOR MANUFACTURERS

The concept of supply price elasticity refers to the supply response to price changes.

Its essence is as follows: if producers are sensitive to price changes, then the supply will be elastic. Conversely, if producers are insensitive to price changes, then the supply will be inelastic.

We will consider the elasticity of supply in the same way as the elasticity of demand, remembering that in this case there is a direct relationship between supply and price.

To measure the elasticity of supply (Es), you can use the same formula as for determining the elasticity of demand:

1. Supply is called elastic when the percentage of change in its value is greater than the percentage of price change, ie, if Es> 1, then the supply is elastic.

2. A supply is called inelastic when the percentage of change in its value is less than the percentage of price change, that is, if Es< 1, то предложение неэластично.

3. Single supply elasticity, perfectly inelastic and perfectly elastic supply.

What influences the elasticity of the supply? Why is the supply of some products elastic and others inelastic?

Supply is elastic when firms can easily and quickly change the supply of a product in response to a change in its price.

An offer is inelastic when it is impossible to quickly and easily change the volume of the offered product due to a change in its price.

THE CONCEPT OF THE EQUALIBLE QUANTITY OF GOODS AND THE EQUALIBLE PRICE

Now we can bring together the concepts of supply and demand to find out how the market determines the price of a product and the quantity that is actually bought and sold. If we bring together the supply and demand curves in one diagram, we will see that they intersect only at one point A - the equilibrium point of supply and demand, which is the market, or equilibrium, price (see Fig. 3). Only at this price is the quantity demanded equal to the quantity supplied.

Fig. 3. The equilibrium price and equilibrium quantity of a product are determined by market supply and demand.

It can be seen from the analysis of the figure that the point of intersection of the descending demand curve D and the ascending curve S shows the equilibrium price and quantity of the product. Only at this price is the quantity produced equal to the quantity that consumers are willing and able to buy. At the intersection point A, the supply and demand are balanced. This is called the equilibrium price. It acts as the only stable price. The equilibrium, or market, price is established gradually. If these competitive prices did not automatically reconcile supply and demand decisions with each other, then some form of administrative control by the government would be needed to eliminate or regulate deficits or surpluses that might otherwise arise.