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Market system: supply and demand. Individual, market and aggregate demand

At the core of the selection process target markets lies in the study of such a basic indicator as market demand. Market demand is the total sales volume in a particular market (private or aggregate) of a particular brand of product or set of brands of product over a certain period of time.

Depending on the level of marketing efforts, a distinction is made between primary demand, market potential and current market demand.

Primary or unstimulated demand- total demand for all brands of a given product sold without the use of marketing. This is a demand that “smolders” in the market even in the absence of marketing activities. In terms of influence marketing activities based on the amount of demand, two extreme types of markets are distinguished: an expanding market and a non-expanding market; the first one reacts to the use of marketing tools, the second one does not react.

Market potential(potential market capacity) is the limit to which market demand tends when marketing costs in the industry approach such a value that their further increase no longer leads to an increase in demand under certain conditions external environment. With certain assumptions, the demand corresponding to its maximum value on the curve can be considered as market potential life cycle some product for a stable market. In this case, it is assumed that competing firms are making the maximum possible marketing efforts to maintain demand. Environmental factors have a significant impact on market potential. For example, the market potential of passenger cars during a recession is much less than during a period of prosperity.

In addition, they highlight absolute market potential, which should be understood as the limit of market potential at zero price. The usefulness of this concept is that it allows one to estimate the order of magnitude of the economic opportunities that a given market opens up. Thus, the absolute potential of the passenger car market can be determined by the total population, starting from the age of obtaining a driver's license. Clearly, there is a large gap between absolute market potential and market potential. The evolution of absolute market potential is determined by external factors such as income and price levels, consumer habits, cultural values, government regulation and so on. These factors, over which the company has no real influence, can have a decisive influence on market development. Sometimes businesses can have an indirect impact on these external factors(for example, by lobbying to lower the driving license age), but these opportunities are limited. Therefore, the main efforts of enterprises are aimed at anticipating changes in the external environment.

Next, highlight current (real) market demand, characterizing the sales volume for a certain period of time under certain environmental conditions at a certain level of use of marketing tools by industry enterprises. Typically, current demand is considered as the total market demand for certain sales areas (locations).

Total Market Demand(total) - the total volume of a product that can be purchased by a certain group of consumers by a certain geographical area(of a given market) over a certain period of time under certain conditions of the external marketing environment at a certain level of use of elements of the marketing mix by industry organizations.

If this concept is considered not from the buyer’s side, but from the manufacturer-seller’s side, then the term “real market capacity” or simply “market capacity” is often used, which means the possible (achievable), as a rule, annual sales volume of a certain type of product ( from a specific brand to a group of similar products) in a certain market at the current price level.

In principle, the required volume is equal to the quantity demanded and can be determined based on statistical data. However, this is not always possible, since official statistics present production volumes rather than product sales. In addition, products whose markets are characterized by a limited number of suppliers (primarily monopolistic and oligopolistic markets) are more amenable to statistical analysis. However, for many types of products, detailed, reliable statistical information absent. In order to evade taxes, a significant part of enterprises skillfully understate sales (shipment) volumes. A significant share of imported products is also not properly accounted for. All this significantly reduces the accuracy of market capacity calculations based on official statistics. Therefore, to determine and forecast demand quantities and other market characteristics it is required to conduct special marketing research, the content of which will be described below.

To others important indicator, the value of which must be determined and predicted, is market share indicator.Market share- this is the ratio of the sales volume of a certain product of a given organization to the total sales volume of this product carried out by all organizations operating in a given market. This indicator is key when assessing competitive position organizations.

Supply and demand form the basis market economy. These fundamental concepts have a direct impact on price formation and act as important levers in the consumer market.

In fact, the market itself can be called a relationship between supply and demand or a mechanism of interaction between seller and buyer. What is supply and demand? And how do these tools affect pricing?

What is demand?

Demand is a person’s need for a product or service. In other words, this concept can be characterized as the volume of goods that the consumer wants or is ready to buy. On the one hand, demand shows a person’s need for a particular product in specific quantities, and on the other hand, it demonstrates the consumer’s ability to pay for their purchases at affordable prices.

There are several types of demand. Individual demand reflects the desire and capabilities of one person, market demand reflects the similar needs of all potential buyers. In most cases, its value depends on people’s expectations and incomes, the cost of goods or services.

Sometimes this indicator can be influenced by non-price factors, such as human preferences, fashion trends, or the ability to replace a specific type of product with analogues.

What is the law of demand?

The law of demand is the relationship between the quantity of a product a person wants to buy and its cost.

In simple words, if a certain amount of money is available, the buyer will be able to receive more products, the lower their cost. Conversely, as prices rise, purchase volumes will decrease.

In macroeconomics, the law of demand is considered from the point of view of changes in the cost of products and people's incomes. If profitability rises, then demand increases, but if the price rises, then the possibility of purchasing decreases.

What is supply called in economics?

The understanding of the offer is determined according to the wishes and capabilities of the seller. Essentially, these are goods or services that are currently on the market and reflect the seller’s needs for their implementation.

The size and cost of the proposal are set according to production capabilities. In most cases, supply volumes change with changes in the cost of products and services. If the price is too low, the seller offers little product, leaving some of it in warehouses.

If it is high, on the contrary, it tries to increase production volume and offer customers all available goods, including defective ones.

The amount of supply is influenced by many factors - the availability of analogous goods, the level of taxes, the level of technology involved in production, as well as the social or inflationary expectations of the seller.

The supply may change significantly if the cost of goods or the individual tastes of buyers changes. Often the size of the offer is influenced by the number of competitors in the market. The more suppliers of a similar product, the smaller the volume of products offered by one specific manufacturer.

What is the law of supply?

The law of supply is directly opposite to the law of demand. If the buyer’s needs increase as the cost decreases, then the seller’s needs increase with its increase.

The increase in supply is due to the fact that, with constant production costs, the manufacturer’s income increases and, accordingly, it is profitable for him to sell as many products as possible.

How are supply and demand interconnected in the economy?

The law of supply and demand suggests that, under the same conditions, the lower the cost, the higher the demand and the lower the supply. This relationship was established many centuries ago.

Back in the 14th century, the Muslim Ibn Khaldun expressed the idea that pricing depends on supply and demand. If the product is rare enough and is in demand, then its cost will be high. If goods are abundant and demand is low, the price will be low.

Trying to make a high profit, the seller will purchase products in places where they cost less, and, raising the price, offer them where there is great demand for them.

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 in given time in this 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 held constant for of this period, then you can from general function demand go to the function of demand 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, respectively, inverse function demand 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 presented in graphical form between the amount of demand for a product and its market price with other (non-price) factors affecting demand remaining constant. 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 equal conditions.

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 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. 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.

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 levels prices

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 is the 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 factors of supply (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 offer- 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 price elasticity of demand, the following groups of goods are distinguished:

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

Cross Elasticity 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. Coefficient price elasticity. 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 competition. Market equilibrium. The price of balance. Equilibrium sales volume. Consumer surplus. Producer surplus. Society's gain.

Control questions

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

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

♦ expert assessment of 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 assessment of 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 examined, 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 quantity demanded and price can be represented by three traditional ways: tabular, analytical (through 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 - 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 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. 3.2, a). If non-price factors of demand change, this leads to a shift in 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 demand side 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) .

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 forced the population of our country to increase consumption of cheap and less 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.

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