Elasticity of demand
Change in demand
Change in demand
Demand for resources
Price elasticity
Influence and dependence of demand on supply
Demand(in economics) - this is the quantity of a product that buyers are able and willing to buy at a given price. full demand for product is the total demand for this product for various prices.
The concept of demand, its elasticity
Demand is determined by the solvent needs 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 from the possible prices during a certain period of time. It shows the quantity of goods for which demand will be presented at different prices and the quantity that consumers will buy at different possible prices. demand - the maximum at which acquirer willing to buy this product. Demand quantities must have a certain value and refer to a certain period of time. The fundamental property of demand is as follows: with all other parameters unchanged, a decrease in price leads to a corresponding increase in the quantity demanded. There are times when practical data contradict law demand, but this does not mean its violation, but only a violation of the assumption, other things being equal. Any price set by the firm, one way or another, will affect the level of demand for the product. The relationship between the price and the resulting level of demand is represented by the well-known demand curve. The curve shows how much product will be sold for market during a specific period of time at different prices that may be charged within a given 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, it will sell a smaller quantity of the product. Consumers on a budget, faced with a choice alternative goods, will buy more those goods, the prices of which are acceptable to them.
Most demand curves tend downward in straight or curved lines.
characteristic of consumer goods. However, in cases with prestige goods, the demand curve has a positive slope, that is, when the price of a product rises, the quantity of its sale increases. In this case, consumers considered a higher price as an indicator of more High Quality or greater desirability of these spirits. However, if the price rises further, the demand for goods may fall.
Doer market you need to know how sensitive demand is to price changes. Elasticity of demand - the change in demand for a given product under the influence of economic and social factors associated with price changes; demand can be elastic if the percentage change in its volume exceeds the decrease in the price level, and inelastic if the rate 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 large changes in the quantity purchased, then such demand is called relatively elastic or simply elastic. If a significant change in price leads to a small change in the number of purchases, 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 perfectly inelastic. If the least price drop encourages buyers to increase their purchases from zero to the limit of their capabilities, then such demand is perfectly elastic.
What determines price elasticity of demand? demand is likely to be less elastic under the following circumstances:
There is little or no replacement for the product, or there are no competitors;
buyers do not immediately notice the increase in prices;
shoppers are slowly changing their shopping habits and
not in a hurry to look for cheaper goods;
buyers believe that the increased price is justified
product quality improvement, natural growth inflation etc.
Demand quantity
It is necessary to distinguish between the concepts of the magnitude of demand and demand. The quantity demanded is the willingness to buy a certain amount of a product at one particular price, and the total demand for a commodity 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, there is a so-called paradoxical demand (Giffen product) - an increase in the quantity demanded with an increase in price. Demand is also characterized by elasticity. If, with an increase or decrease in price, the product is bought in almost the same quantities, then such demand is called inelastic. If a change in price leads to a sharp change in the quantity demanded, then it is elastic.
Inelastic, as a rule, the demand for basic necessities, the demand for other goods is usually more elastic. Paradoxical is often the demand for luxury items or status attributes. One of the fundamental concepts of a market economy, which means the desire, the intention of buyers and consumers to purchase a given product, supported by a monetary opportunity. S. is characterized by its value, which means the amount of a product that is willing and able to purchase at a given price at a given period time. The volume and structure of S. depend both on product prices and on other, non-price factors, such as fashion, consumer incomes, and so on. from the price of other goods, including substitute goods and related goods, related products. Distinguish the following types S .: individual - S. of one person, market - S. published market and aggregate - C in all markets of a given product or for all produced and sold goods. Demand is characterized by its magnitude, which means the quantity of a product that the buyer is willing and able to purchase at a given price at a given time. 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 the price of other goods, including substitute goods.
Distinguish:
individual demand,
market demand,
aggregate demand.
For managers company(firm) 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 to the market. Depending on the level of demand, the following types of it are distinguished:
negative demand
hidden demand,
falling demand,
irregular demand,
full demand,
excessive demand,
irrational demand,
lack of product.
The given states of demand correspond to a certain type of marketing. For managers According to the analysis of market conditions, an important task is not only knowledge about the presence of demand, but the need to determine the magnitude of demand as current (for this moment time) and expected in the future (prospective) in order to reasonably determine the development of the production of goods. The level of individual (separate purchaser) demand and market demand depends on numerous factors that must be taken into account in marketing management, in the management of a firm (firm).
The Market and the Law of Demand
Market - an indirect, mediated relationship between producers and consumers of products in the form of the sale of goods, the scope 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 relations. The market is the only system of purchase and sale relations, the structural elements of which are the markets for goods, capitals, work force, valuable papers, ideas, information etc. The market is the basis of a market economy.
A market is a tool or mechanism that brings together buyers (demanders) and sellers (suppliers) of individual goods and services. Some markets are local, while others are international or national. Some are distinguished by personal contact between the demander and the supplier, while others are impersonal - they are the buyer and salesman never see or know each other at all,
The state of the market is determined by the ratio of the magnitude of demand and suggestions
Ask sentence- interdependent elements of the market mechanism, where demand is determined by the solvent needs of buyers (consumers), and - a set of goods offered sellers(manufacturers); the ratio between them develops into an inversely proportional relationship, determining the 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 a certain price from the prices available over a certain period of time. Demand expresses a range of alternative possibilities that can be represented in a table. It shows the quantity of goods for which (ceteris paribus) will be demanded at different prices. Demand measures the quantity of a good that consumers will buy at different possible prices. The bid price is the maximum price at which the buyer is willing to buy the product.
Demand quantities must have a certain value and refer 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 demand. 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, other things being equal.
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The existence of the law of demand is confirmed by some facts:
1. People usually do buy. this product more at a low price than at a high one. The very fact that companies are throwing "sales" is clear evidence of their belief in the law of demand. Businesses reduce their inventories not by raising prices, but by lowering them.
Encyclopedia of the investor. 2013 .
Synonyms:Antonyms:
See what "Demand" is in other dictionaries:
demand- Demand, and... Russian spelling dictionary
Demand- The law of supply and demand Demand (in economics) is the relationship between the 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. Full demand for goods ... ... Wikipedia
DEMAND- (demand) The quantity of goods and services that buyers are willing to purchase. The demand function establishes the relationship between the volume of demand and the factors determining it, which include: consumer income, the price of a given product and prices ... ... Economic dictionary
DEMAND- DEMAND, demand, husband. 1. Action according to 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, but how ... ... Dictionary Ushakov
DEMAND- the need for goods and services, provided with the necessary monetary and other means of payment (the solvency of buyers). Dictionary financial terms. Demand Demand is a specific need backed by purchasing power. Financial vocabulary
Rice. 5.2.
The decision on the amount in which to consume a given good is the result of a consumer comparing benefits and costs. Expressing the utility of a good in terms of monetary units, we get the value of this good. In contrast to utility, the values of various goods for various consumers are quantitatively comparable, since they are expressed in the same - monetary - units. On fig. 5.3 the area under the graph of the marginal utility function AB (when expressing utility in monetary units, this is a graph marginal value or inverse demand function) will just be equal to the total value (total benefit from consumption) of a given quantity of a good (in the figure, this is the area of ABGO).
The cost of consumption, or the cost of a given quantity of a good, is the amount 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 OVGB in the figure). The benefit (value) exceeds the cost (cost), since the consumer would be ready to pay a higher price for the previous units of the good than the one that he actually pays when buying. The maximum excess of the total benefit over the total cost is reached at the point where the marginal value (marginal utility at monetary terms) is equal to the price (point B).
Ra
BUT
O
Consumer surplus is the difference between the value and cost of a given quantity of a good. It can be thought of as the difference between the maximum prices 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 of ABV.
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: the choice of the consumer can be represented as a choice between consumptiongiven good andall other blessings . The graph Г of the utility function of two variables, as a rule, resembles a “hill” in its appearance, which becomes more and more flat (decreasing marginal utility). Since it is inconvenient to work with a three-dimensional graph, its projections are usually built on the corresponding coordinate planes. This way, not only the curves of one-factor utility functions already considered above are obtained (showing the dependence of the level of utility on the change in the amount of only one type of goods with unchanged amounts of all other types of goods in a given set), but also the 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 the indifference curve. By definition, an indifference curve is the locus (or simply the set) of all points on a consumer set graph, showing all possible combinations of goods that provide the consumer with the same level of utility. Consumer tastes and preferences are represented by an indifference (curve) map.
The downward slope of the indifference curve reflects the marginal rate of substitution ( MRS xlx 2 ) boonXj good 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 deposited on the horizontal axisXj:
MRS x ^ x 2 -DX 2 /ah-] .
For example, if hot dogs are placed along the vertical axis and books along the horizontal axis, then MRS KC = 3 means that the consumer is ready to give 3 sausages for 1 book if he has a given number of books and sausages. From a formal point of view, the limiting norm of a replacement can be equal to the derivative of the function taken with the opposite sign X 2 - f ( Xj ), defined by this 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.
Such a condition will be valid for very small comparable changes in the quantities of goods, for example, at any given point on the indifference curve.
Usually the indifference curve is concave (convex downwards towards the origin). This reflects the fact thatMRSmost often decreases with an increase in the consumption of one good instead of another - this is how the principle of decreasing the marginal rate of replacement is formulated. Goods between which there are relations of exclusively substitutability in consumption - goods that are absolutely replacing each other (perfect substitutes) - have indifference curves in the form of straight lines. Goods consumed jointly to satisfy a single need, which absolutely cannot replace one another in consumption - goods that absolutely complement each other in consumption (perfectly complementary good) - have indifference curves in the form of right angles.
budget constraint
The next step in the analysis of consumer behavior is to take into account the prices of goods and the consumer budget. The prices of goods are determined by the ratio of supply and demand in the market and do not depend on the decisions of an individual consumer. The budget constraint shows all combinations of goods that can be purchased by a consumer given the income / and given prices allocated for their purchase. pj and P% It is usually written asPjXj + R 2 X 2 ^i, which means: the sum of the costs of all goods does not exceed the corresponding income. With the addition of non-negativity conditions forX] and X 2 we get the available (shaded in Fig. 5.5) consumer choice area or budget space.
I I/Pi X,
Rice. 5.5.
The budget constraint line (budget line) is, in its simplest case, a straight line
R1 X1 + P 2 X 2 = I
the points of which show sets of goods for which the allocated income is spent in full. With a positive marginal utility of goods, the consumer always chooses the set represented by one of the points of this line: otherwise, a part of the allocated money would remain unspent, with which one could buy additional goods, increasing one's well-being. The budget line crosses the coordinate axes at points
X-| = I/RF and X 2 = 1/Р 2 > showing the maximum possible amount of goodXj them 2 , that can be bought with a given income at a given price. 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, polyline, convex, etc. It depends on those velo-
vii, which determine the ability of the consumer to buy these goods. For example, broken budget lines can occur when the budget constraint includes additional terms- say, restrictions not only on monetary resources, but also on time. In this case, the specific time spent on the acquisition or use of goodsXjW X 2 - respectivelyT] andT 2 - and the total budget of the time allocated for the consumption of these goodsH will give a time limit similar to the considered oneT ] Xj + T 2 X 2 - N. And the final constraint will be the intersection of these two constraints (Figure 5.6).
Basic terms
Good
Set (basket) of goods Consumption set Space of goods Utility
Axioms and Assumptions of the Anti-Good Consumer Choice Theory
utility function
Ordinal (ordinalist) utility function Quantitative (cardinalist) utility function Marginal utility
Principle of diminishing marginal utility
Value
Price
consumer surplus
indifference curve
Indifference card
Marginal replacement rate
Decreasing marginal rate of substitution
Absolute substitutes (perfect substitutes)
Absolutely Complementary (Perfectly Complementary) Goods
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 level of well-being of the consumer.
b) A 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 plan to go camping and go to a rock concert over the weekend, then the time budget constraint should be taken into account as well as the monetary budget constraint.
Why would indifference curves intersect if people did not have sequential preferences that shift from one good to another?
If there is a positive marginal utility in the consumption of a good, will at least some of that good always be bought by a rational consumer?
Abdullah and Kasim went to the market. Abdullah loves apples more than pears, and grapes more than apples. Kasym does not eat apples, but prefers pears to grapes. Plot 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 from consumers to cross the river over the bridge.
Click price Number of clicks,
across the bridge millions a year
$10
05
$ 8$ 6
$ 4 $ 2 $ 0
It is assumed that throughput the bridge is sufficient to provide a free passage across the river for everyone without any restrictions. Finally, the demand curve is assumed to represent the total number of crossings that will be made over the lifetime of the bridge.
a) What is the value of the bridge to society in terms of money, provided that the crossing is free?
b) Should the bridge be built if the annual cost of its construction is $20 million? Why?
c) Should the bridge be built if the annual cost of building it is $30 million? Why?
d) Would your answer to question b) change if the bridge toll was $3 per crossing?
e) Use your answers to these questions to discuss what kind of information decision makers need before making a decision to build public facilities.
Solution
a) The value of the bridge to society in the absence of a crossing fee is equal to the area of \u200b\u200bthe area bounded by the coordinate axes and the demand curve:
1/2 x $10 x 5 million = $25 million.
This value is equal to the full value of the consumer surplus resulting from the construction of the bridge.
b) Yes. The net increase in consumer surplus (consumer surplus - the cost to generate 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 transfer fee is $3, then the consumer's surplus is
1/2 x $7 x 3.5 million = $12.25 millionrevenue from the collection of fees for the transition will be
$3 x 3.5 million = $10.5 million.
Thus, the total gain of the company 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 on the implementation of such projects need to know the demand for services provided by the project throughout the life of the project. It is also necessary to know the costs of implementing the project and what fees, if any, will be charged to those who will use the services provided by the project. It 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 the suggested ones:
If the marginal rate of substitution between two goods is two thirds at any level of consumption, then you would conclude that:
a) the two goods are perfectly interchangeable
b) the two goods are perfectly complementary
c) the indifference curve between the two goods is characterized by a decreasing marginal rate of substitution
d) the indifference curve between the two goods is convex outward from the origin
The slope of the budget line has an economic interpretation. It stands for:
a) the amount of one good 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) the cost of the rejected opportunities of one product, expressed through another product
When a trader exchanges a 5-ruble coin for five rubles, 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 a positive marginal utility both from playing football and from reading detective stories, then his indifference curves between these goods are
a) concave lines
b) upward curving lines with a positive slope
c) angular (L-shaped) lines
d) convex upward lines
Alexander Petrovich believes that it is equally useful for him to drink daily both 1 glass of milk and 3 glasses of kefir, and 2 glasses of milk and 2 glasses of kefir. In this case, its marginal rate of replacing kefir with milk is equal to
MICROECONOMICS 2
Tutorial 2
2nd edition 3
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