Elasticity of demand
Change in demand
Change in quantity demanded
Demand for resources
Price elasticity
The influence and dependence of demand on supply
Demand(in economics) - This the quantity of a product that buyers are able and willing to buy at a given price. In full demand for product is the totality of demands for this product according to various prices.
The concept of demand, its elasticity
Demand is determined by the purchasing power of buyers. Demand is depicted as a graph showing the quantity of a good that consumers are willing and able to buy at a certain price. price of possible prices during a certain period of time. It shows the quantity of goods that will be demanded at different prices and the quantity that consumers will buy at different possible prices. demand - the maximum at which acquirer ready to buy this product. Quantities of demand must have a certain value and relate to a certain period of time. The fundamental property of demand is the following: with all other parameters remaining constant, a decrease in price leads to a corresponding increase in the quantity demanded. There are times when practical data contradicts law demand, but this does not mean its violation, but only a violation of the assumption, all other things being equal. Any price set by the company will, one way or another, affect the level of demand for the product. The relationship between price and the resulting level of demand is represented by the well-known demand curve. The curve shows how much of a product will be sold per market during a specific period of time at different prices that may be charged within that period of time. In a normal situation, demand and price are inversely proportional, i.e. the higher the price, the lower the demand. And accordingly, the lower the price, the higher the demand. So by raising the price of a product, less of the product will be sold. Consumers on a budget faced with choice alternative goods, will begin to buy more those goods whose prices are acceptable to them.
Most demand curves tend downward in a straight or curved line, which
typical for consumer goods. However, in cases with prestigious goods, the demand curve has a positive slope, that is, when the price of a product increases, the quantity of its sales increases. In this case, consumers considered a higher price to be more High Quality or the greater desirability of these spirits. However, if the price increases further, the demand for goods may fall.
To the activist market it is necessary to know how sensitive demand is to price changes. Elasticity of demand is a change in demand for a given product under the influence of economic and social factors related to price changes; demand can be elastic if the percentage change in its volume exceeds the decrease in the price level, and inelastic if the degree of price decrease is greater than the increase in demand. Economists use the concept of price elasticity to measure the sensitivity of consumers to changes in the price of a product. If small changes in price lead to significant changes in the quantity purchased, then such demand is called relatively elastic or simply elastic. If a large change in price leads to a small change in the quantity purchased, then such demand is relatively inelastic or simply inelastic.
If a change in price does not lead to any change in the quantity demanded, then such demand is completely inelastic. If the least price drop encourages buyers to increase purchases from zero to the limit of their capabilities, then such demand is completely elastic.
What determines the price elasticity of demand? Demand is likely to be less elastic under the following circumstances:
There is no or almost no substitute for the product or there are no competitors;
buyers do not immediately notice price increases;
buyers are slowly changing their purchasing habits and
do not rush to look for cheaper goods;
buyers believe that the increased price is justified
improving product quality, natural growth inflation and so on.
Quantity of demand
It is necessary to distinguish between the concepts of quantity demanded and demand. Quantity demand represents the willingness to buy a certain quantity of a product at one specific price, and the total demand for a product is a set of quantities demanded at all possible prices, that is, a functional dependence of the quantity demanded on price. As a rule, the higher the price, the lower the quantity demanded, and vice versa. In some cases, the so-called paradoxical demand (Giffen product) is observed - an increase in the quantity of demand with an increase in price. Demand is also characterized by elasticity. If, when the price increases or decreases, a product is purchased in almost the same quantities, then such demand is called inelastic. If a change in price leads to a sharp change in the quantity of demand, it is elastic.
As a rule, the demand for essential goods is inelastic; the demand for other goods is usually more elastic. The demand for luxury goods or attributes of status is often paradoxical. One of the fundamental concepts of a market economy, meaning the desire, the intention of buyers, consumers to purchase a given product, supported by monetary opportunity. C. is characterized by its value, meaning the amount of product that is willing and able to purchase at a given price at a given period time. The volume and structure of sales depend both on product prices and on other non-price factors, such as fashion, consumer income, etc. on the price of other goods, including substitute and related goods, related products. Distinguish the following types S.: individual - S. of one person, market - S. published on the market and aggregate - S. in all markets for a given product or for all produced and sold goods. Demand is characterized by its magnitude, which means the amount of product that the buyer is willing and able to purchase at a given price at a given period time. The volume and structure of demand depend both on product prices and on non-price factors such as fashion, income consumers, as well as on the price of other goods, including substitute goods.
There are:
individual demand,
market demand,
aggregate demand.
For managers company(company) it is important to know more or less reliably the volume of market demand, market capacity, expected demand for those goods that firm(organization) will offer on the market. Depending on the level of demand, the following types are distinguished:
negative demand
hidden demand,
falling demand,
irregular demand,
full demand,
excessive demand,
irrational demand,
lack of product.
The above states of demand correspond to a certain type of marketing. For managers in analyzing market conditions, an important task is not only knowledge about the presence of demand, but the need to determine the amount of demand as current (at this moment time) and expected in the future (prospective) in order to reasonably determine the development of goods production. The level of individual (individual acquirer) demand and market demand depends on numerous factors that must be taken into account in marketing management and in managing a company (company).
Market and the law of demand
Market is an indirect, indirect relationship between producers and consumers of products in the form of purchase and sale of goods, the sphere of sales and commodity-money relations, as well as the entire set of means, methods, tools, organizational and legal norms, structures, etc., ensuring the functioning of such relationships. The market is the only system of purchase and sale relations, the structural elements of which are markets for goods, capital, work force, valuable papers, ideas, information etc. The market is the basis of a market economy.
A market is an instrument or mechanism that brings together buyers (demand providers) and sellers (suppliers) of individual goods and services. Some markets are local, while others are international or national in nature. Some are characterized by personal contact between the demander and the supplier, while others are impersonal - they are the buyer and salesman never see or don’t know each other at all,
The state of the market is determined by the ratio of demand and offers
Ask offer- interdependent elements of the market mechanism, where demand is determined by the solvent need of buyers (consumers), and - by the totality of goods offered sellers(manufacturers); the relationship between them develops into an inversely proportional relationship, determining corresponding changes in the level of prices for goods.
Demand is depicted as a graph showing the quantity of a good that consumers are willing and able to buy at some price available over a period of time. Demand expresses a number of alternative possibilities that can be presented in the form of a table. It shows the quantity of goods for which (other things being equal) will be demanded at different prices. Demand shows the quantity of a good that consumers will buy at different possible prices. The demand price is the maximum price at which the buyer is willing to buy the product.
Quantities of demand must have a certain value and relate to a certain period of time. The fundamental property of demand is as follows: with all other parameters unchanged price drop leads to a corresponding increase in the quantity demanded. There are times when practical data contradict the law of demand, but this does not mean its violation, but only a violation of the assumption, all other things being equal.
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The existence of the law of demand is confirmed by some facts:
1. People usually actually buy. of this product more at a low price than at a high price. The very fact that companies organize “sales” serves as clear evidence of their faith in the law of demand. Enterprises reduce their inventories not by raising prices, but by lowering them.
Investor Encyclopedia. 2013 .
Synonyms:Antonyms:
See what “Demand” is in other dictionaries:
demand- demand, and... Russian spelling dictionary
Demand- Law of supply and demand Demand (in economics) is the relationship between price (P) and the quantity of goods (Q) that buyers can and are willing to buy at a strictly defined price, in a certain period of time. In full demand for the product... ... Wikipedia
DEMAND- (demand) The quantity of goods and services that buyers wish to purchase. The demand function establishes the relationship between the volume of demand and its determining factors, which include: consumer income, the price of a given product and prices... ... Economic dictionary
DEMAND- DEMAND, demand, husband. 1. Action under Ch. ask in 1, 2 and 3 digits. ask (colloquial). “Trying is not torture, demand is not a problem.” (last) “You didn’t miss answering the demand.” Nekrasov. “They embarrassed me with incessant demand about the master: what, they say, and how... ... Dictionary Ushakova
DEMAND- the need for goods and services, secured by the necessary monetary and other means of payment (the solvency of buyers). Dictionary financial terms. Demand Demand is a specific need supported by purchasing power.... ... Financial Dictionary
Rice. 5.2.
The decision about the quantity in which to consume a given good is the result of the consumer's comparison of benefits and costs. By expressing the utility of a good in monetary units, we obtain the value of this good. In contrast to utility, the values of various goods for different consumers are quantitatively comparable, since they are expressed in the same monetary units. In Fig. 5.3 area under the graph of the marginal utility function AB (when utility is expressed in monetary units, this is the graph marginal value or the inverse demand function) will be exactly equal to the total value (total benefit from consumption) of a given amount of good (in the figure this is the ABGO area).
Consumption costs or the cost of a given quantity of a good are those spent on its purchase. cash, or the market price of one unit of a given good, multiplied by the number of units of this good (the area of the OVBG in the figure). The benefit (value) exceeds the costs (cost), since for previous units of the good the consumer would be willing to pay a higher price than what he actually pays when purchasing. The maximum excess of total benefit over total costs is achieved at the point where the marginal value (marginal utility in monetary terms) is equal to the price (point B).
Ra
A
ABOUT
Consumer surplus is the difference between the value and cost of a given quantity of a good. It can be viewed as the difference between the maximum prices that a consumer would pay for any given quantity of a good and the market price of that quantity. On the graph this is the area ABC.
Let us consider the problem of choosing the best consumer bundle, reducing the number of goods to two. This step is not a very strong simplification of reality: consumer choice can be represented as a choice between consumptiongiven benefits andall other benefits . The graph Γ of the utility function of two variables, as a rule, resembles a “slide” in appearance, which becomes more and more flat (declining marginal utility). Since working with a three-dimensional graph is inconvenient, its projections are usually built onto the corresponding coordinate planes. This produces not only the curves of single-factor utility functions already discussed above (showing the dependence of the level of utility on changes in the quantity of only one type of goods with constant quantities of all other types of goods in a given set), but also lines of a given level of utility for various combinations of goods in the set (Fig. 5.4).
Line of this levellqutility functions U = f ( Xj , X^) called an indifference curve. By definition, an indifference curve is the locus (or simply the set) of all points on the graph of the consumer set, showing all possible combinations of goods that provide the consumer with the same level of utility. Consumer tastes and preferences are represented by a map of indifference curves.
The downward slope of the indifference curve reflects the value of the marginal rate of substitution ( M.R.S. xlx 2 ) goodXj benefits X 2 . Its value shows the number of units of goods on the vertical axis X 2 , which the consumer is willing to replace with a unit of goods laid out along the horizontal axisXj:
MRS x ^ x 2 -DH 2 /AH-] .
For example, if hot sausages are laid out along the vertical axis and books along the horizontal axis, then M.R.S. KC = 3 means that the consumer is willing to give 3 sausages for 1 book if he has a given number of books and sausages. From a formal point of view, the marginal rate of substitution can be equal to the derivative of the function taken with the opposite sign X 2 - f ( Xj ), determined by a given indifference curve. This will be true in cases where the compared changes in the quantities of goods do not differ too much from the main linear parts of such changes - differentials:
MRSx1 x2 = - dX2 / dXi.
This condition will be true for very small comparable changes in the quantities of goods, for example, at each given point of the indifference curve.
Typically, the indifference curve is concave (convex downward, towards the origin). This reflects the fact thatM.R.S.most often decreases with increasing consumption of one good instead of another - this is how the principle of decreasing marginal rate of substitution is formulated. Goods between which there are relations of exclusive substitutability in consumption are goods that are absolutely substitutable for each other. (perfect substitutes) - have indifference curves in the form of straight lines. Goods consumed jointly to satisfy a single need, which cannot at all replace one another in consumption - goods that absolutely complement each other in consumption (perfectly complementary goods) - have indifference curves in the form of right angles.
Budget constraint
The next step in analyzing consumer behavior is taking into account the prices of goods and the consumer budget. The prices of goods are determined by the relationship between supply and demand in the market and do not depend on the decisions of the individual consumer. The budget constraint shows all combinations of goods that can be purchased by a consumer given the income allocated for their purchase / and given prices Pj and P% It is usually written asPjXj + R 2 X 2 ^I, which means: the sum of costs for all goods does not exceed the corresponding income. With the addition of non-negativity conditions forX] and X 2 we obtain the available (shaded in Fig. 5.5) area of consumer choice or budget space.
I I/Pi X,
Rice. 5.5.
The budget constraint line (budget line) is, in the simplest case, a straight line
R1 X1 + R 2 X 2 = I,
the points of which show sets of goods, upon the purchase of which the allocated income is spent completely. With a positive marginal utility of goods, the consumer always chooses the set depicted by one of the points of this line: otherwise, part of the allocated money would remain unspent, with which he could buy additional goods, increasing his well-being. The budget line intersects the coordinate axes at points
X-| = I/RF and X 2 = 1/P 2 > showing the maximum possible quantities of a goodXj their 2 , which can be purchased with a given income at given prices. The slope of the budget constraint line is equal to the ratio of the prices of the corresponding goodsR 1 /R 2 (relative price of the first good). From a formal point of view, this is the derivative of the budget constraint function taken with the opposite sign. This value (in the figure it is |tga|) shows the quantity of goodsX 2 , which the consumer must give up in order to purchase an additional unit of the productXj .
The budget constraint line can be more complex
compound, broken, convex, etc. It depends on those
viii, which determine the consumer’s ability to buy these goods. For example, broken budget lines can arise when the budget constraint includes additional conditions- let's say, restrictions not only on monetary resources, but also on time. In this case, the specific time spent on acquiring or using goodsXjW X 2 - respectivelyT] AndT 2 - and the total budget of time allocated for the consumption of these goodsN will give a time limit similar to the one consideredT ] Xj + T 2 X 2 - N. And the final constraint will be the intersection of these two constraints (Fig. 5.6).
Basic terms
Good
Set (basket) of goods Consumer set Space of goods Utility
Axioms and assumptions of the Antigood consumer choice theory
Utility function
Ordinal (ordinal) utility function Quantitative (cardinal) utility function Marginal utility
Principle of Diminishing Marginal Utility
Value
Price
Consumer surplus
Indifference curve
Indifference Map
Limit rate of replacement
Declining marginal rate of replacement
Absolute substitutes (perfect substitutes)
Absolutely complementary (perfectly complementary) benefits
Budget constraint Budget space Budget line Relative price Composite budget line
Questions for discussion and assignments
Evaluate the correctness of the statement:
a) A good is anything that, when consumed, increases the consumer’s level of well-being
b) The complete set of indifference curves is called an indifference map
c) When you can spend 10 rubles and want to buy a hot dog for 8 rubles and a can of Coca-Cola for 4 rubles, this set of goods is in your budget space
d) If you expect to go on a hike and go to a rock concert over the weekend, then the time budget constraint should be taken into account in the same way as the monetary budget constraint.
Why would indifference curves intersect if people did not have consistent preferences from one good to another?
If there is a positive marginal utility when consuming a good, will at least some of that good always be purchased by a rational consumer?
Abdullah and Kasim went to the bazaar. Abdullah likes apples more than pears, and grapes more than apples. Kasym does not eat apples and prefers pears to grapes. Construct their indifference maps for each pair of goods.
Tasks and exercises
Let us assume that the demand curve given by the table accurately reflects the demand on the part of consumers to cross the river across the bridge.
Transition price Number of transitions,
across the bridge millions a year
$10
05
$ 8$ 6
$ 4 $ 2 $ 0
It is assumed that throughput The bridge is sufficient to provide free passage across the river for everyone without any restrictions. Finally, the demand curve is assumed to show the total number of crossings that will be made over the life of the bridge.
a) What is the value of the bridge to society in monetary terms, assuming that the crossing is free?
b) Should the bridge be built if the cost of its construction (per year) is $20 million? Why?
c) Should the bridge be built if the cost of its construction (per year) is $30 million? Why?
d) Would your answer to question b) change if the toll to cross the bridge was $3 per crossing?
e) Use your answers to these questions to discuss what type of information decision makers need before making decisions about constructing public facilities.
Solution
a) The value of a bridge to society in the absence of a crossing fee is equal to the area of the region limited by the coordinate axes and the demand curve:
1/2 x $10 x 5 million = $25 million.
This value is equal to the total consumer surplus resulting from the construction of the bridge.
b) Yes. The net increase in consumer surplus (consumer surplus - the cost of providing this surplus) is $5.
c) No. The net increase in consumer surplus is $-5 million.
d) Yes. Under such conditions the bridge should not be built. When the switching fee is $3, then consumer surplus is
1/2 x $7 x 3.5 million = $12.25 million,the proceeds from collecting the transition fee will be
$3 x 3.5 million = $10.5 million.
Thus, the total gain for society under these conditions will be $22.75 million. This is less than the $25 million cost to build the bridge.
e) First of all, those who decide to undertake such projects need to know the demand for the services provided by the project throughout the life of the project. It is also necessary to know the costs of the project and what fees, if any, will be charged to those who will use the services provided as a result of the project. This ignores the fact that costs and benefits may occur at different points in time. As will be discussed later, information about how costs and benefits are distributed over time is also important.
Tests
Choose the correct answer from those suggested:
If the marginal rate of substitution between two goods is two thirds at any level of consumption, then you conclude that:
a) these two goods are completely replaceable
b) these two goods are completely complementary to each other
c) the indifference curve between these two goods is characterized by a decreasing marginal rate of substitution
d) the indifference curve between these two goods is convex outward from the origin
The slope of the budget line has an economic interpretation. It means:
a) the amount of one good that a consumer is willing to give up in exchange for another good, while remaining on the same indifference curve
b) the border of the budget space
c) decreasing marginal rate of substitution
d) costs of rejected opportunities for one product, expressed through another product
When a trader exchanges a 5-ruble coin for five ruble coins, his indifference curves between these goods are
a) concave lines
b) straight lines
c) angular (L-shaped) lines
d) convex upward lines
When Kuzma always receives positive marginal utility from both playing football and reading detective stories, then his indifference curves between these goods are
a) concave lines
b) lines curving upward with a positive slope
c) angular (L-shaped) lines
d) convex upward lines
Alexander Petrovich believes that it is equally beneficial for him to drink daily either 1 glass of milk and 3 glasses of kefir, or 2 glasses of milk and 2 glasses of kefir. In this case, its maximum rate of replacement of kefir with milk is equal to
MICROECONOMICS 2
Tutorial 2
2nd edition 3
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