Market system: supply and demand. Market demand

The main elements of the market mechanism are demand, supply, price and competition.

Demand for any product or service is the consumer’s desire and ability to buy a certain quantity of a product or service at a certain price in a certain period of time.

The characteristics of demand are the quantity demanded and the price demanded.

Volume of demand is the quantity of a good or service that consumers are willing to buy at a certain price over a certain period of time.

Ask price is the maximum price that a consumer is willing to pay for a certain quantity of a good or service.

There is a certain relationship between the volume of demand (Q D) and the price of demand (P), which is expressed by the law of demand: other things being equal, the volume of demand for a product increases if the price for it decreases, and, conversely, the volume of demand for a product decreases if the price increases the product rises. In Fig. Figure 8.1 shows the demand curve (D) - a graphical expression of the relationship between the volume of demand and price.

Thus, law of demand shows that there is an inverse relationship between the price demanded and the quantity demanded.

If the price of a product changes, then the point moves along the demand curve, but if other factors in the market (non-price) change, then the demand curve (law of demand) changes (the demand curve shifts).

The most significant non-price demand factors (determinants) are:

• prices for substitute goods (substitutes);
• prices for complementary goods (complementary);
• consumer income;
• taxes on consumer income;
• advertising;
• fashion, tastes and preferences of consumers;
• seasonal changes in demand;
• consumer expectations.

There is a distinction between individual demand and market demand.

Individual demand- this is the demand for a product by an individual consumer (buyer). Since the demand of an individual consumer is influenced by many individual factors, the functions of individual demand for the same product of different consumers will differ from each other.

Market demand- this is the demand for a product by all consumers (buyers) in the market for this product. The market demand function for a product is obtained by summing the demand volumes of all consumers in the market at different price levels.

Offer of any good or service is the willingness of producers to sell a certain quantity of a given good or service at a certain price over a certain period of time.

The characteristics of supply are supply volume and supply price.

Supply volume- this is the quantity of a good or service that sellers are willing to sell at a certain price during a certain period of time.

Law of supply: all other things being equal, the quantity supplied (Q S) increases if the price of a good (P) rises, and, conversely, the quantity supplied of a good decreases if its price falls. In Fig. 8.2 shows the supply curve (S) - a graphic expression of the relationship between the supply price of a product and the quantity of this product.

Offer price- This minimum price, at which sellers agree to sell a certain amount of a good or service.

Thus, law of supply shows that there is a direct relationship between price and quantity supplied.

If the price of a product changes, then the point moves along the supply curve, but if other factors in the market (non-price) change, then the supply curve changes (the supply curve shifts).

Non-price supply factors (determinants):

• changes in prices for factors of production;
• technical progress;
• seasonal changes;
• taxes;
• subsidies and subsidies;
• increased demand for other goods;
• waiting for manufacturers;
• prices for goods that are produced together with these goods;
• degree of market monopolization.

There are individual and market offers.

Individual offer- this is the offering of a product by an individual manufacturer (seller) on the market.

Market supply- this is the supply of goods by all manufacturers (sellers) operating on the market. Market supply can be obtained by summing the individual supply volumes of all sellers in the product market.

If you combine the downward sloping demand curve (D) and the upward sloping supply curve (S) on one graph, then the point of intersection of the curves (E) shows that here demand is equal to supply and market equilibrium has been achieved. The coordinates of point E are the equilibrium price P E and the equilibrium volume of goods Q E (Fig. 8.3).

Elasticity is a measure of the response of a change in one quantity to a change in another, expressed as a ratio of percentage changes.

There are two methods for calculating elasticity:

• point is a measure of the sensitivity of the amount of demand or supply at a given point on the curve;
• arc is a measure of the sensitivity of the quantity of demand or supply between two points on the curve.

Highlight:

• elasticity of demand: by price; by income; cross;
• elasticity of supply: by price; cross.

Price Elasticity of Demand(E D/P) shows how much the quantity demanded for a product changes when the price of a given product changes:

• availability of substitute goods;
• the share of consumer income that is the price of a given product;
• the length of time during which the seller changes prices;
• familiarity and significance of the product for the consumer;
• the degree of urgency of the purchase.

Income Elasticity of Demand(E D/I) shows how much the volume of demand for a given product will change when consumer income changes:

Depending on the values ​​of price elasticity of demand, there are the following groups goods:

• E D/I 0 E D/I = 1 - essential goods;
• E D/I > 1 - luxury goods.

Cross elasticity of demand(E Dab) shows how much the demand for product A will change when the price of product B changes. This indicator is calculated only for substitute goods (E Dab > 0) and complementary goods (E Dab Price elasticity of supply(E S/P) shows how much the volume of goods offered for sale will change in response to changes in the price of these goods:

Factors influencing the price elasticity of demand:

• period of time;
• types of goods and services offered for sale;
• availability of free production capacity;
• possibility of long-term storage of products;
• the current situation on the product market.

Cross elasticity of supply(E Sab) shows how much the supply of product A will change when the price of product B changes. For substitute goods (E Sab 0).

Basic concepts of the topic

The mechanism of market functioning. Price, price functions, price system. Demand. Law of demand. Individual and market demand. Demand curve. Price and non-price factors influencing demand. Price elasticity of demand. Price elasticity coefficient. Income elasticity of demand. Elastic demand. Inelastic demand. Cross elasticity of demand. Offer. Law of supply. Individual and market offer. Supply curve. Supply factors. Changes in offer. Changes in quantity supplied. Elasticity of supply. Price elasticity of supply. Elastic offer. Inelastic supply. Cross elasticity of supply. Competition. Competition between buyers and sellers. Intra-industry competition. Inter-industry competition. Price methods of competition. Non-price methods of competition. Market equilibrium. The price of balance. Equilibrium sales volume. Consumer surplus. Producer surplus. Society's gain.

Control questions

1. What is the relationship between the price of a product and the amount of consumer demand for it?
2. What reasons underlie the law of demand?
3. What non-price factors change demand and how does this change affect the position of the demand curve?
4. In what cases does the law of demand not apply?
5. What happens to the demand curve for beef if the price of pork increases?
6. How will the demand for coffee makers change if the price of coffee increases?
7. Is the income elasticity of demand for luxury goods high or low?
8. What relationship does the law of supply reflect?
9. How will an increase in the price of tape recorders affect the supply of cassette tapes?
10. What will happen to the wheat supply curve if mineral fertilizer prices increase?
11. How and why does the elasticity of supply and demand change as the time period increases?
12. How do supply and demand in a single market “partially” provide solutions to problems: what, how, for whom?
13. What is meant by the price of a product and what concepts exist to determine its essence?
14. What functions does the price of a product perform?
15. What is the difference between fixed and regulated prices?
16. Why can't a product be sold below the asking price?
17. What determines the “equilibrium price”?
18. What did A. Smith mean by “invisible hand”?
19. What methods of competition are used in a market economy?
20. How do you understand the mechanism of interaction between the law of demand, the law of supply and the law of competition?

One of them key concepts market economy and the basic parameter characterizing the behavior of consumers (buyers) is demand. Demand is a form of expression of need, the willingness of buyers to pay a certain price for the goods and services they need at a certain point in time.

Demand can also be defined as the effective public need for goods and services.

Demand is a desire, backed by monetary potential, the intention of consumers to purchase a product.

The main characteristic of demand is its magnitude or volume. The quantity demanded is a flow that varies over time. For many goods, demand is subject to seasonal fluctuations, so it is important to clearly determine to what period of time a given amount of demand relates.

Quantity demand is the quantity of a good that a consumer is willing and able to purchase at a certain price during a certain 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 specific product.

The amount of individual demand is determined by the tastes and preferences of the individual, as well as his level of income.

Market demand is the total demand of all buyers in a given market.

The amount of market demand depends, first of all, on the number of buyers, the level of prices for goods and services, the level of income 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.

The demand price is the maximum price that buyers are willing to pay for a certain quantity of a good or service at a given time in a given market.

Demand for goods and services depends on a number of factors (determinants), which include:

♦ price for a given product or service (P);

♦ consumer income (I), which determines the size of the consumer budget. For the overwhelming group of quality goods (called normal), an increase in income causes an increase in demand at the same prices and a corresponding shift of the demand curve to the right;

♦ prices for substitute goods that replace these goods in consumption (P s). Substitute goods are, for example, tea and coffee, railway and airline services. An increase in the price of substitute goods leads to an increase in demand for the main product;

♦ prices for complementary goods that complement these goods in consumption (P s). Complementary goods are, for example, gasoline and cars, sugar and berries. A change in prices for complementary goods leads to a unidirectional change in demand, i.e. when the price of any of the complementary goods rises, the demand for both falls, and when prices fall, it simultaneously increases;

♦ tastes and preferences of buyers (Z), determined by fashion, traditions, habits, etc. For example, the periodically established fashion for miniskirts leads to a decrease in the demand for fabrics. Consumer preferences and their changes are influenced by family and social status, age, gender, the stability of national traditions, technical progress (for example, the demand for records was practically “killed” by the spread of compact discs);

♦ total number of buyers or market size (N). With an increase in the number of consumers, the volume of demand for goods or services increases, a decrease in the number of buyers leads to a fall in demand;

♦ customer expectations, including inflation (W). Expectations of rising prices may cause an increase in demand for goods in

worthwhile time. Expectations of reduced income (during a crisis) may lead to a reduction in demand;

Taking into account all these factors, the overall demand function can be represented as follows:

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

If all demand factors, except price, are assumed constant for a given period, then we can move from the general demand function to the demand function from price:

where is the quantity of demand for product i;

Price of the analyzed product i.

The inverse dependence of price on demand is called the inverse demand function and has the form

For practical assessment and forecasting market demand use a wide variety of methods. The most commonly used:

♦ survey, or interviewing buyers about their preferences and financial capabilities;

♦ expert review the level of demand for a product and economic forecasts regarding its dynamics - carried out by specialists and experts in this field at the request of interested companies;

♦ market experiment - involves direct market testing of a product (trial sales, trial price reduction, etc.) and evaluation consumer behavior;

♦ statistical method - based on the study of real statistical data, the relationships between demand and prices for goods for a certain period of time are studied, the influence of other demand factors (income, prices for other goods,

macroeconomic situation, etc.).

If there is a sufficient volume of statistical database, it is possible, with a certain degree of error, to calculate the demand function and predict the expected reaction of consumers to price changes.

The functional relationship between the quantity demanded and the price can be represented in three traditional ways: tabular, analytical (through an equation) and graphical. A graphical representation of the dependence of the quantity demanded on the market price is carried out using a demand curve.

Demand curve is a relationship presented in graphical form between the amount of demand for a product and its market price, with other (non-price) factors affecting demand constant.

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 (Fig. 3.1, a) or nonlinear (Fig. 3.1, b).

Rice. 3.1. Demand curve: a - linear dependence; b - nonlinear dependence

The demand curve has a negative slope and graphically displays the law of demand - the inverse relationship between the price and the quantity of a good that buyers want and can purchase per unit of time.

I Law of Demand - the higher the price of a product, the lower the quantity of demand for it, all other things being equal.

A change in the price of a product gives rise to two effects: the substitution effect and the income effect.

Substitution effect is a change in the quantity of demand for a product as a result of the substitution (replacement) of more expensive goods with less expensive ones.

The essence of the substitution effect is that the consumer will buy more of a product whose price has decreased, replacing it with a product whose price has increased. Thus, an increase in the price of coffee leads to an increase in tea consumption.

Income effect is the effect that a change in the price of a good has on the consumer's real income and on the quantity of the product he purchases, taking into account the substitution effect.

The essence of the income effect is that when the price of a product decreases, the buyer frees up a certain part of his income, which he can now use to purchase or more this product or some other product. Even small price reductions make 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. 3.2, a). If non-price factors of demand change, this leads to a shift of the demand curve itself (Fig. 3.2, b) to the right (with an increase in demand) or to the left (with a decrease in demand).

As follows from Fig. 3.2, when the price decreases from P 1 to P 2, the volume of demand increases from Q 1 to Q 2 (see Fig. 3.2, a). When the price increases, the dynamics of the quantity demanded will be reversed.

If the non-price factor changes, then a new relationship between price and quantity demanded will be established, the demand function on price will change and the demand curve will shift. For example, with an increase in the number of consumers or the amount of their income, the demand line will shift from position D 1 to position D 2 (see Fig. 3.2, b). In this case, at price P 1, the quantity demanded will increase from Q 1 to Q 3, and at

price It is obvious that if it subsequently happens

a reduction in the number or income of buyers, it will cause an opposite reaction on the part of demand and the curve will shift from position D 2 to position D 1.

Rice. 3.2. Change in the volume of demand and shift in the demand curve: a - change in price - movement along the demand curve; b - change in non-price factors - shift in the demand curve

To avoid confusion, it is customary to understand the term “change in demand” as a change in the function itself (a shift in the entire demand curve) under the influence of non-price factors, and the term “change in the quantity of demand” to understand the reaction of demand to a change in price with all other factors remaining constant (movement along 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.

A normal product is a product for which demand increases as consumer income increases.

Consequently, in relation to normal goods, there is a direct dependence of the amount of demand on the amount of consumer income.

An abnormal product is a product for which the demand decreases as the consumer's income increases.

Demand for abnormal goods increases when consumer incomes fall. Abnormal goods include, for example, margarine, cheap pasta, which, as incomes grow, buyers replace with higher quality goods: oil, vegetables, fruits. Thus, during a period of sharp decline in income levels in the 90s, people began to consume more bread and potatoes (i.e., increased demand for abnormal goods) and reduced consumption of meat and fruit (i.e., decreased demand for normal goods). A sharp drop in income has forced the population of our country to increase consumption of cheap and lower-quality products. It should be noted that the dynamics of consumption of normal and abnormal food products, due to the described pattern, can serve as a reliable criterion for the standard of living in the country. The larger the share of bread, potatoes, and pasta in the population’s diet, the poorer the country. On the contrary, the greater the share of meat, milk, and fruit, the richer it is.

Usually available on the market a large number of individual consumers. Their total demand is called market demand.

Dedicated to market demand research special section economics, which is called “The Theory of Consumer Behavior” or “The Theory of Consumer Choice”. In this field, economists study the market behavior of individual consumers, identify their common purchasing decision logic, and thus create a model of the consumer, which is then used to study the market. Here are the main characteristics of the consumer.

• 1. The consumer is able to make choices. He is able to make decisions about what purchases he will make. For example, choose one of three options: buy movie tickets, buy a book, or spend the evening in a cafe. He is also able to determine purchase options that are of equal value to him. Say, 1 kg of peaches can be equivalent to 1 kg of apricots, and the consumer can exchange one product for another without any damage to himself.
• 2. The consumer thinks logically. For example, if he prefers grapes when comparing them to apples and prefers apples when comparing them to pears, he must prefer grapes when comparing them to pears
• 3. The consumer always prefers more of a product when comparing more and less.

Based on these characteristics of the consumer and knowing his preferences, it is possible to predict what the market demand for a new product will be and how demand will change when the conditions in which trade is conducted change.

Of course, market demand is dictated primarily by people's desire to buy a product (V), and this desire depends on what benefits they expect to receive from it. The issue of the relationship between utility and demand will be discussed in the next paragraph. In addition to desire, market demand, like individual demand, depends on the price of the product, the prices of substitute and complementary products, advertising, consumer income and other factors.

Since we are considering market demand, we must keep in mind all the potential consumers of the country, i.e. the entire population. The average income of the country's residents should be taken as the income of one consumer. This indicator is called per capita income. It is defined as the quotient of division national income on the population size. National income will be discussed in detail in the second part of the book. For now, let’s just say that this is the total income of all residents of the country. Given that national income usually changes faster than population size, many economic studies examine the dependence of demand not on per capita income, but on national income.

Formally, market demand for product X ( D x) can be written as follows:

where V is the desire to buy product X;

R x- price of product X;

R g- prices of products related to product X;

E- expected change in the price of product X;

Y- national income;

Z - other factors.

Typically, the biggest influence on demand is the price of a product. If all factors except price remain constant, D x= /(P x). It is natural to assume that a fall in the price of a product will cause an increase in demand for it. The relationship between price and market demand can be expected to be approximately as shown in Fig. 3.2. When the price falls from R x before R 2 the quantity demanded by the market increases from to Q2. If the price rises again to P r then market demand will again fall to Q r. The inverse relationship between price and demand is called law of demand. It can be formulated as follows: an increase in the price of a product leads to a reduction in the total volume of demand; a fall in the price of a product leads to an increase in total demand.

Rice. 3.2.

The curve shown in Fig. 3.2, called line of market demand. Let us note three features of this line. The first is that it has a negative slope. This follows from the law of demand. The second feature is that this line reflects demand over a certain period of time. Let's say the demand for milk refers to the quantity of milk that can be sold in the market within 24 hours. And the third important feature is that the volume of demand indicated on the graph is relevant only for the period in which the measurements were taken. Over time, the line may change its position.

Let's see what impact other factors on which demand depends on this line have. Let's start with the desire to buy the product. Consumers' tastes may change. For example, clothes of a certain style may go out of fashion. In this case, the demand for it will fall at any price. The market demand line will move to the left. Interest in tourist trips may increase. In such a situation, the demand for tours will increase at any price. The demand line will move to the right (see Figure 3.3).

Rice. 3.3.

As noted, the demand for the product in question can be influenced by the prices of other goods and services. This dependence occurs when a product or service has substitutes. For example, in nutrition, poultry can serve as a meat substitute. If the price of meat increases, the demand for poultry increases. In city services, a city tour can replace a visit to a museum. As the price of entrance tickets to museums increases, the number of people wishing to take a tour may increase. In addition, some products require additional purchases to fully utilize them. For example, a car owner needs to buy gasoline. It is known that an increase in gasoline prices leads to an increase in demand for small cars and a decrease in demand for cars with high-power engines.

The reason for the change in demand may be a change in consumer income. Obviously, the more a person earns, the more opportunities he has to make purchases. It was said above that the average income of all residents of the country is directly dependent on national income. For most goods and services, an increase in average income leads to an increase in demand at all price levels, which means a shift of the demand line to the right.

It should be noted that, despite the obvious direct relationship, the quantitative relationship between income growth and demand growth for different products turns out to be different. This was first noticed by a German economist in the 19th century. Ernst Engel (Engel). He studied the actual expenses of working families and found that as incomes grew, spending patterns changed. Relative spending on food is falling, while relative spending on cultural needs is rising. Subsequently, this pattern began to be called Engel's law.

Table 3.2 shows an example of accelerated growth in demand for product X relative to income growth. Figure 3.4 shows the corresponding demand line - the Engel line.

Lecture 4. Market and market equilibrium

4.1. Market demand. Law of demand. 1

4.2. Market offer. Law of supply. 3

4.3. Market equilibrium. 6

4.4. Market equilibrium and government regulation of the market. 10

Market demand. Law of Demand

Demand- this is a desire, backed by monetary potential, the intention of consumers to purchase a product. Demand can also be defined as the effective public need for goods and services. The main characteristic of demand is its magnitude or volume. Quantity of demand is the quantity of a good that a consumer is willing and able to purchase at a certain price during a certain 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 certain product. The amount of individual demand is determined by the tastes and preferences of the individual, as well as his level of income. Market demand is the total demand of all buyers in a given market. The amount of market demand depends, first of all, on the number of buyers, the level of prices for goods and services, the level of income of consumers and other factors. Aggregate demand- this is the demand in all markets for a certain 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 certain 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 (determinants), which include:

· price for this 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 (P s);

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

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

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

· customer expectations, including inflation (W);

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

Demand function (demand function) – quantitative relationship between the amount of demand and its determining factors (determinants).

If all demand factors, except price, are assumed constant for a given period, then we can move from the general demand function to the demand function from price:

where Q D is the quantity of demand for product i;

P i is the price of the analyzed product i.

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

A graphical representation of the dependence of the quantity demanded on the market price is carried out using a demand curve. Demand curve– the relationship between the amount of demand for a product and its market price, presented in graphical form, with other (non-price) factors influencing demand unchanged. On the demand curve, P is displayed vertically - possible prices, and horizontally Q - quantities of goods purchased. The dependence of demand on price can be linear (Fig. 4.1.1, a) or nonlinear (Fig. 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 product, the lower the quantity of demand for it, other things being equal.

A change in the price of a product gives rise to two effects: the substitution effect and the income effect. Substitution effect– a change in the quantity of demand for a product as a result of the substitution (replacement) of more expensive goods with less expensive ones. The essence of the substitution effect is that the consumer will buy more of a product whose price has decreased, replacing it with a product whose price has increased. Income effect- the effect that a change in the price of a product has 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, the buyer frees up a certain part of his income, which he can now use to purchase either more of this product or some other product. Even small price reductions make 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, 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 quantity demanded and shift in 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 product- a product for which demand increases as consumer income increases. That is, in relation to normal goods, there is a direct dependence of the amount of demand on the amount of consumer income. Abnormal Product- a product for which demand decreases as consumer income increases. Demand for abnormal goods increases when consumer incomes fall. Abnormal goods include, for example, margarine, cheap pasta, which, as incomes grow, buyers replace with higher quality goods: oil, vegetables, fruits.

Demand from an individual consumer is called individual demand, and the demand from all consumers in the market for a given product is called market demand . The magnitude of market demand, among other things, depends on the number of consumers in the market. Obviously, individual demand curves look different for different consumers in the market. The market demand curve is the sum of the individual demand curves of all buyers in the market.

Let's imagine that there are two buyers in the market. In Fig. Figure 4.27 shows the individual demand curves of these people (D i 1, D i 2) and the market demand curve D m. Let’s say that at a price of 20 rubles per unit of goods, the quantity of demand of both consumers will be equal to zero. At a price of 10 rubles/unit. The first consumer will still not buy anything, and the second will buy 4 units of the product. If the price of a product drops to 1 ruble/unit, the first consumer will buy 10 units, and the second 8 units. goods. Together consumers will buy 4 units. goods for 10 rubles, 18 units. at a price of 1 rub.

If there are several consumers on the market for a product, each of them values ​​the product differently and receives unequal utility from it. There are people who are willing to pay a large amount for a unit of good, and people who do not really value this good. Then the market demand schedule can be represented as a set of prices that consumers are willing to pay for a particular quantity of goods (Fig. 4.28).

Rice. 4.27. Individual and market demand curves.

Rice. 4.28. Market demand curve.

For the first unit of product Q 1, the consumer who values ​​this product the most is willing to pay price P 1. Another consumer is willing to pay the price P 2 , a third consumer – the price P 3 , etc. If the product is discrete (i.e. indivisible, consisting of individual units that cannot be divided into smaller parts), then the market demand curve will consist of individual points 1,2,3, and it can be conventionally represented as a broken line ( dotted line 1-A-2-B-3 in the figure). If we imagine that a product can be divided into smaller units, or if we consider a large market in which sales volumes amount to thousands, etc. units, then the demand curve can be represented as a continuous curve 1-2-3. In fact, it will also consist of many points, but due to their large number, they will merge into a continuous curve.

The maximum prices that consumers are willing to pay for a particular quantity of a good are also called reserve prices . The market demand curve thus consists of the reserve prices for all consumers. From the difference between reserve prices and the actual market price, the concept consumer surplus .

Market demand depends on all those factors that determine individual demand, including the price of the product, the income and tastes of consumers, and the prices of other goods. In addition, its value is influenced by the number of consumers who wish to purchase the product at each given price. As a result of a change in the number of consumers, the market demand curve shifts to the right or left. Market demand to a certain extent depends on the differentiation of individual incomes in society. As a result of its strengthening, the market demand curve becomes convex towards the origin. This is explained by the fact that when the price decreases, demand increases both from traditional buyers and due to the emergence of new consumers of cheaper goods.

In the absence of differentiation of consumer incomes, the market demand curve does not differ in shape from individual demand curves, which are concave from the origin. This shape of the curves is explained by the saturation of demand as purchases of goods by an individual consumer increase and its price elasticity decreases. We have already said that the market demand curve is formed by adding the individual demand curves of all buyers. However, the process of interaction between individual and market demand is not limited to this. The opposite effect is possible - from market demand on the demand of individual buyers, which is reflected in the so-called imitation (fashion) effect and the “snob” effect.

The imitation effect (fashion) is that individual consumers increase their purchases of a product if its overall sales volume increases. If the price of a product decreases from P 1 to P 2, then the consumer, taking into account his preferences, increases the quantity of the product purchased from Q 1 to Q 2. If other buyers also increase the demand for this product and a fashion effect occurs, then our consumer will decide to buy even more of the product, i.e. Q 3. An increase in the volume of purchases from Q 1 to Q 2 will be the result of the price change effect, and an increase in the volume of purchases from Q 2 to Q 3 will be the result of the imitation effect (Fig. 4.29).

The snob effect works in the opposite direction to the imitation effect. Its essence lies in the fact that the demand of individual consumers decreases as the volume of purchases of a given product from other consumers increases (Fig. 4.30). When the price of a product decreases from P 1 to P 2, the “snob” will first increase the volume of purchases from Q 1 to Q 2. But if, when the price of a given product decreases, other consumers begin to buy it in larger quantities, then the demand for the product on the part of the “snob” in question will decrease, perhaps even the magnitude of demand at a higher price will become less (Q 3).

Rice. 4.29. The individual demand curve and the imitation effect.

Rice. 4.30. The individual demand curve and the snob effect.

A variation of the “snob” effect is the prestige effect. It occurs when purchasing goods that, according to buyers, emphasize their social status.

The effects discussed above act in the opposite direction, and therefore can often be neglected when analyzing market pricing.

CONCLUSIONS

1. A rational consumer chooses a set of goods that provides him with the greatest utility. Utility refers to the satisfaction that customers receive from consuming goods and services.

2. The more goods a person possesses, the less utility each additional unit of this good brings to him. The decrease in additional satisfaction from consuming another unit of goods is called the law of diminishing marginal utility.

3. According to the cardinalist approach, it is possible to determine by how many units the utility of one set of goods is higher than the utility of another set. According to the ordinal approach, the consumer cannot measure utility quantitatively, but he can always compare the utility of, for example, two sets of goods, and say that one of them is more preferable than the other.

4. Rule for maximizing total utility: the consumer distributes his income in such a way that the last monetary unit spent on the acquisition of any good would bring the same marginal utility. To maximize utility, it is necessary that the weighted marginal utilities of goods be equal.

5. The analysis of consumer behavior in the ordinalist concept is considered using indifference curves and budget constraints. An indifference curve is a set of consumption bundles that provide the consumer with the same utility, i.e. neither is preferable to the other. The budget constraint shows all the sets of goods that a buyer can purchase using his entire budget.

6. The slope of the indifference curve is called the marginal rate of substitution, as it shows that maximum amount one good that the consumer is willing to give up in order to receive an additional unit of another good, with a constant level of utility. The slope of the budget line depends on the ratio of prices of goods.

7. Consumer equilibrium is the consumption of such a set of goods that gives the consumer maximum gross utility under a given budget constraint. Geometrically, the consumer's equilibrium is at the point of tangency between the budget line and the highest available indifference curve.

8. The price-consumption curve shows all utility-maximizing consumer choices at different price levels of a good. The demand curve, constructed from the price-consumption curve, shows the quantity demanded by an individual consumer at various prices of a product.

9. The income-consumption curve reflects all combinations of goods that maximize utility and are associated with a certain level of income. The Engel curve shows the relationship between income and the quantity of goods received, keeping other factors affecting demand constant.

10. Price-consumption, income-consumption, Engel and individual demand curves vary in shape depending on the category of product. There are normal goods, inferior goods, and Giffen goods.

11. When the price of a product changes, two types of effects occur: the substitution effect and the income effect. Substitution effect - when the price of a product decreases, the demand for it, other things being equal, will increase, because the consumer will substitute it for another, relatively expensive product. Income effect - a decrease in the price of a product means that the buyer will buy the same quantity of this product for a smaller amount, and he will have more funds for additional purchases, i.e. The purchasing power of the consumer's money income will increase. The substitution effect always acts in the direction opposite to the change in the price of a product. The income effect can work in both directions.

12. Depending on the definition of constant real income, there are two approaches to distinguishing between income and substitution effects. According to the approach of E. Slutsky, the real income of a consumer is measured by the amount of goods that he can purchase with his cash income. According to the approach of J. Hicks, real income is measured by the utility of goods purchased by the consumer with his money income.

13. Demand from an individual consumer is called individual demand, and demand from all consumers in the market for a given product is called market demand. The magnitude of market demand, among other things, depends on the number of consumers in the market. The market demand curve is the sum of the individual demand curves of all buyers in the market.