We can now consider supply and demand as a whole, find out how they interact, and show how market prices are established as a result of this interaction.
Conditions for perfect competition
Beforehand, it is necessary to make a reservation that all further reasoning refers to the conditions of perfect competition, under which a large number of sellers interact with a large number of buyers, all of them are equal in their actions, and none of them individually can influence the price, because they buy or supply to the market only a small fraction of the total product.
What price will be established in the market as a result of the interaction of supply and demand? To answer this question, let's combine the demand scale and the supply scale into a single table. Consider the data in Table 2. It presents seven price levels, which correspond to seven demand and seven supply values.
Table 2. Demand, supply and market price.
| The amount of the offer units of goods |
Price, r. | The amount of demand units of goods |
Surplus (+) or shortage (-) goods, units |
| 2 | 10 | 50 | -48 |
| 10 | 15 | 40 | -30 |
| 20 | 20 | 30 | -10 |
| 25 | 25 | 25 | 0 |
| 30 | 30 | 20 | +10 |
| 35 | 35 | 15 | +20 |
| 40 | 40 | 10 | +30 |
At which of the seven indicated price levels will these goods be sold? Let's try to determine this by trial and error:
at a price of 15 rubles, there is a shortage of 30 units of goods, at a price of 20 rubles. - the shortage will decrease, but will still be 10 units of goods; at a price of 35 rubles, there is a surplus of production equal to 20 units; at a price of 30 rubles, the surplus will decrease, but will still amount to 10 units of goods. And only at a price of 25 p. there will be no surplus or shortage. At this price, the quantity of units that sellers will bring to market will be equal to the quantity that buyers are willing and able to buy.
Equilibrium price
Thus, at a price of 25 p. the magnitude of demand coincides with the magnitude of supply, i.e., will be achieved balance of supply and demand. This price is called equilibrium price, i.e., at this price, the decisions of buyers to buy and sellers to sell are mutually consistent.
EQUILIBRIUM PRICE- the price at which the quantity of goods (services) offered by sellers coincides with the quantity of goods (services) that buyers are willing to buy.
On the graph, the equilibrium price corresponds to the equilibrium point obtained as a result of the intersection of the demand curve with the supply curve (see Fig. 13).
Balancing price function
The ability of the competitive forces of supply and demand to set the price at a level at which the decisions to sell and buy are synchronized is called balancing function of price.
In conditions of perfect competition, surplus and shortage in the market is a temporary phenomenon, quickly eliminated by the forces of market competition.
| Fig. No. 13. |
The supply and demand curves intersect at point A.
This point corresponds to the equilibrium price - 25 rubles. - and the equilibrium quantity - 25 units of goods.
Let us suppose that the producers went to the market with the intention of selling their goods at the price of 30 r. In this case, the supply volume would be 30 units. goods, but the quantity demanded would be only 20 pieces. In such a situation, competition between sellers develops, each of them seeks to find his buyer, and those who have lower costs for the production of goods will lower prices earlier than others. Those producers with high costs cannot afford to sell products for less than 30 rubles, they will leave the market, and the supply will decrease. At the same time, with a lower price, there will be more buyers who can buy the product. The demand will increase. In the figure, a decrease in supply and an increase in demand are shown by arrows that move along the supply and demand curves to the equilibrium point A. As the supply and demand move towards point A, the excess in the market decreases, and, finally, at point A it disappears completely. , supply and demand are the same.
Imagine now that buyers go to the market, planning to buy a product at a price of 15 rubles. At this price, the quantity demanded will be 40 units. goods, and the volume of supply is only 10 units. There is a shortage of 30 pieces. goods. The shortage creates competition among buyers, and some of them, obviously having large incomes, will agree to purchase goods at a higher price, the rest will be forced to leave the market. This will lead to a reduction in demand. But at the same time, an increase in price will increase the supply. The lower arrows show the movement of supply and demand towards each other, but already upwards, to the equilibrium point A. At this point, the deficit will be finally eliminated, the volume of demand and supply will coincide.
MARKET RESPONSE TO CHANGES IN SUPPLY AND DEMAND
The equilibrium price cannot remain unchanged for a long time. The same market forces that led to its establishment will cause it to change. We have already found out that many factors lead to a change in supply and demand, which will be expressed in a shift in the supply and demand curves, either only one of them in one direction or the other, or both at once in one or opposite directions. These movements in the demand and supply curves will inevitably cause a change market equilibrium, and hence the equilibrium price.
Let's consider specific examples.
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| Fig. No. 14. | Fig. No. 15. |
Change in demand(offer remains unchanged) - fig. 14 .
Demand is rising. The demand curve shifts to the right, which leads to an increase in both the equilibrium price (P 1 > P 0) and the equilibrium quantity (Q 1 > Q 0).
Demand is decreasing. The demand curve c moves to the left, which leads to a decrease in the equilibrium price (Р 2< Р 0), и равновесного количества (Q 2 < Q 0).
Change of offer(demand remains unchanged) – fig. 15 .
The offer is increasing. The supply curve shifts to the right. This leads to a decrease in the equilibrium price (P 1< Р 0), но увеличению равновесного количества (Q 1 >Q0).
The offer is shrinking. The supply curve shifts to the left. This leads to an increase in the equilibrium price (P 2 > P 0), but a decrease in the equilibrium quantity (Q 2 In the cases considered, only one curve shifted - either demand or supply, when either the determinants of demand or the determinants of supply came into play. Let's say that in the first example, the market equilibrium shift could occur under the influence of an increase or decrease in the income of buyers, and in the second example, due to an increase or decrease in the number of producers. But in real life it is not uncommon for factors that change both demand and supply to operate simultaneously. For example, an increase in customs duties can cause a decrease in the supply of imported goods, and an increase in household incomes can lead to a simultaneous increase in demand for them. Consider the cases of simultaneous changes in both demand and supply. Several options are possible here. 1. Supply and demand move in the same direction. a) Demand and supply increase simultaneously and equally(Fig. 16). In this case, only the equilibrium quantity will change in the direction of its increase (Q 1 > Q 0), and the equilibrium price will remain the same. b) Demand and supply are reduced simultaneously and equally ( rice .17).
With a simultaneous reduction in supply and demand, the equilibrium price will not change, and the equilibrium quantity will decrease (Q 1< Q 0). 2. Demand and supply are moving in different directions a) Demand increases and supply decreases in the same proportion(Fig. 18). A simultaneous increase in demand and a decrease in supply will not change the equilibrium quantity, but will lead to an increase in the equilibrium price (P 1 > P 0). b) Demand decreases and supply increases in the same proportion(fig.19). In this case, the equilibrium quantity will also not change, and the equilibrium price will decrease (P 1< Р 0). It is necessary to take into account one more circumstance. In all cases of simultaneous changes in supply and demand, we proceeded from the fact that these changes occur in the same proportion, that is, that supply and demand, say, increase by 2 times or supply increases, and demand decreases by 1.5 times. But in real life this rarely happens. Cases when these changes occur in an unequal degree are typical. For example, demand has doubled, while supply has decreased by 1.3 times, etc. IMPACT OF EXTERNAL FORCES ON MARKET EQUILIBRIUM. DEFICIENCY AND EXCESS Under conditions of perfect competition, the market quickly copes with the problem of surplus and shortage. However, in real life, the presence of both is not such a rare occurrence. What are they caused by? Scarcity and surplus exist where the forces of market competition are suppressed by someone, someone interferes with their action. This "someone" can most often be the state and monopolies. Consider the consequences of state intervention in the market mechanism. "Ceiling" prices and trade deficit. Prior to the start of market reforms in our country, the state centrally set prices for the vast majority of goods produced in the country, including agricultural products. Since the level of labor productivity in agriculture The USSR was very low and costs high, so that the equilibrium price, determined by market forces, would be set at a fairly high level. The state, wishing to make agricultural products available to consumers with low monetary incomes, set a price ceiling. Above the established "ceiling" the price could not rise in state stores. Let's say, if we assume that the equilibrium price of 1 kg of beef would be established on the market in the amount of 4 rubles, then the state fixed it at the level of 2 rubles. and it was impossible to sell it more expensively in state stores. What did it lead to? Let's turn to the graph (Fig. 20). At a price level of 2 p. the amount of demand will be measured by the segment OQ 2, and the amount of supply - QQ 1, i.e. the volume of demand will exceed the equilibrium quantity (OQ 2 > OQ 0), and the volume of supply will be lower than it (QQ 1 "Ceiling" prices and the formation of a deficit. Setting the state price at a level below the equilibrium price leads to the formation of a deficit. If the equilibrium price is equal to 4 rubles, and the state price is equal to 2 rubles, then the deficit value corresponds to the length of the segment Q 1 Q 2 . In this situation, the state is forced to either accept the fact that meat has disappeared from store shelves, long queues are constantly lining up behind it, and a large part of the population goes for meat and sausage to the capital cities, where it comes first. There is speculation - the inevitable companion of the deficit. The prices of the speculative market are higher than the equilibrium ones, since the costs will now include payment for the risk: illegal sale "from under the counter" is punishable. Or in this case, the state will be forced to resort to a rationed distribution of scarce products, selling them by cards. However, this does not solve the problem, because, as before, producers have no incentives to expand the production of the missing goods due to prices imposed on them, which are below equilibrium. Minimum price and surplus of goods. Prices for agricultural products are also regulated by the governments of most countries with developed market economies. But the situation here is just the opposite. The level of agricultural production in the United States and Western European countries is such that it is enough not only to feed the population of producing countries. A significant part of this production is exported. High supply leads to a fairly low equilibrium price. If farmers sold their products at market prices, then a significant part of them, having high costs, would be doomed to ruin, which would lead to an increase in unemployment and social conflicts. "Sex" prices and the formation of excess. Establishing a minimum price level that is higher than the equilibrium price leads to the formation of an excess of goods. If the equilibrium price is equal to P 0 , and the price set by the state must not be lower than Р 1 , then there is a surplus, the value of which corresponds to the interval Q 1 Q 2 . The states of developed countries, not wanting to let a large number of farms go bankrupt, set a price floor, that is, they fix the price at a level above the equilibrium level. What this leads to can be seen by referring to the graph (Fig. 21). At a price above the equilibrium value of supply will be QQ 2, and the quantity of demand - QQ 1, i.e., the volume of supply will exceed the volume of demand, and a surplus is formed, the value of which corresponds to the interval Q 1 Q 2 . Under such circumstances, the state is forced to buy this surplus production from farmers or pay them subsidies for reducing the area under crops. In both cases, the money is taken from the pockets of taxpayers. Therefore, heated debates often flare up whether it is necessary to pursue a policy of regulating prices for agricultural products, or whether it is better to spend taxpayers' money on retraining bankrupt farmers and their employment. This problem goes beyond the development of only one industry. Maintaining the solvency of farmers provides a guaranteed demand for industrial products for agriculture and services for the countryside, and, consequently, employment in related industries and the preservation of socio-political stability in countries. The purpose of studying the topic is to learn: - what is supply and demand, market equilibrium, the determinants of supply and demand. When studying the topics of the work, the concepts of "demand", "supply", "value of demand", "value of supply", "market equilibrium", determinants of supply and demand, etc. are revealed. When studying the topics "Demand" and "Supply", it is necessary to remember from the Algebra course the topics "Increasing and decreasing functions", "Direct and inverse dependence of functions", "Linear functions". Before answering the test questions, you should remember the definitions of the concepts discussed in the task, the factors that affect the change in supply and demand, and it is also advisable to build dependency graphs in order to visually analyze them. Please note that in the questions of assignments on topics 2 of the work, a short-term period is considered! In this case, the factors of production cannot be changed according to the conditions of the assignment, since they cannot change over the considered period of time; in the long run, all factors are variables. Keep this in mind when determining the correct answer! The functions of supply and demand considered by us earlier interact in the commodity market. Under the influence of the competitive environment of the market, supply and demand are balanced, as a result of which the market price and quantity of the purchased goods are established. Market price is considered the equilibrium price when it determines the level at which the seller still agrees to sell, and the buyer already agrees to buy the goods. Graphically, the state of equilibrium in the market for a particular product can be represented by combining the supply and demand curves in one figure (Fig. 4.1). Rice. 4.1. Market balance of supply and demand. Point of intersection of curves E is the point of balance between supply and demand. Then for a given quantity of goods QE the maximum price at which it can be purchased by buyers (bid price RD), coincides with the minimum acceptable price for sellers (bid price Ps), which will mean the establishment of a stable equilibrium price in this market RE, at which the equilibrium quantity of goods will be bought and sold Q.E. In an analytical form, using the supply and demand functions familiar to us, the equilibrium state in the commodity market can be written as follows: It should be noted that at the same time, both buyers and sellers will be satisfied with the situation that has developed on the market at the moment. A price decrease below the equilibrium level will be unprofitable not only for sellers, but also for buyers, since this will reduce the quantity of goods offered, and a price increase above the equilibrium level will not suit not only buyers, but also sellers, since it will reduce the purchased volume of goods. Other things being equal, the market price corresponds to the quantity of goods that buyers want to buy, and sellers agree to sell, i.e. for each specific product there is neither surplus nor shortage. Thus, the equilibrium of the market is its state when the condition Qd = Qs. Deviation from this state will set in motion forces seeking to return the market to a state of equilibrium, i.e. to eliminate the surplus (when Qd< Qs)
or lack of goods on the market (Qd > Qs). In analytical form, for the supply and demand functions, the equality of the volume of demand QD volume of supply QS at a given equilibrium price RE will look like this: In order to more clearly imagine the mechanism of establishing a market price under the influence of supply and demand, let us return to our example characterizing the situation in the potato market. Let's combine our two tables on potato consumption into one (Table 4.1). Table 4.1. Potato demand and supply The table shows that only at a price of 7.50 rubles. for 1 kg of potatoes, supply and demand are balanced. Let's transfer this data to the graph (Fig. 4.2). Rice. 4.2. Equilibrium price. The point reflects the coincidence of interests of sellers and buyers at a price of 7.50 rubles. Therefore, 7.50 rubles. (PE) is the equilibrium market price. At a higher price there is excess supply over demand. For example, at a price of 10 rubles. only 5 tons of potatoes will be bought, and Utah will offer, therefore, the surplus will be 5 tons. This surplus, as a result of the competition of sellers, will help to reduce the price. At a price below the balancing price, demand exceeds supply and there is deficit goods on the market. In this case, excess demand and buyer competition will drive up the price. Let us consider the mechanism for establishing market equilibrium, when, under the influence of changes in supply or demand factors, the market leaves this state. There are two main variants of the disproportion between supply and demand: excess and shortage of goods. Excess(surplus) of a good is a situation in the market when the supply of a good at a given price exceeds the demand for it. In this case, competition arises between manufacturers, the struggle for buyers. The winner is the one who offers more favorable conditions for the sale of goods. Thus, the market tends to return to a state of equilibrium. deficit goods - in this case, the quantity demanded for the goods at a given price exceeds the quantity offered. In this situation, competition already arises between buyers for the opportunity to purchase a scarce product. The winner is the one who offers the highest price for this product. The increased price attracts the attention of manufacturers, who begin to expand production, thereby increasing the supply of goods. As a result, the system returns to a state of equilibrium. Thus, the price performs a balancing function, stimulating the expansion of production and supply of goods with a shortage and restraining supply, ridding the market of surpluses. The balancing role of price is manifested both through demand and through supply. Suppose that the equilibrium established in our market was disturbed - under the influence of any factors (for example, income growth) there was an increase in demand, as a result, its curve shifted from D1 v D2(Fig. 4.3 a), and the proposal remained unchanged. If the price of a given commodity did not change immediately after the shift in the demand curve, then following the growth in demand, a situation will arise when, at the previous price, P1 the amount of goods that each of the buyers can now purchase (QD) exceeds the volume that can be offered at a given price by the producers of a given goods (QS). The amount of demand will now exceed the amount of supply of this product, which means that shortage of goods at the rate of Df = QD – Qs in this market. The shortage of goods, as we already know, leads to competition between buyers for the opportunity to purchase this product, which leads to an increase in market prices. According to the law of supply, the response of sellers to an increase in price will be to increase the volume of goods offered. On the chart, this will be expressed by the movement of the market equilibrium point E1 along the supply curve until it intersects with the new demand curve D2 where the new equilibrium of the given market will be reached E2 s equilibrium quantity of goods Q2 and equilibrium price P2. Rice. 4.3. Equilibrium price point shift. Consider a situation where the equilibrium state will be violated on the supply side. Suppose that under the influence of some factors there was an increase in supply, as a result of which its curve shifted to the right from the position S1 v S2 and demand remained unchanged (Fig. 4.3 b). As long as the market price remains the same (R1) an increase in supply will lead to excess goods in size Sp = Qs–QD. As a result, there is vendor competition, leading to a decrease in the market price (with P1 before P2) and an increase in the volume of goods sold. On the chart, this will be reflected by the movement of the market equilibrium point E1 along the demand curve until it intersects with the new supply curve, resulting in a new equilibrium E2 with parameters Q2 and P2. Similarly, it is possible to identify the effect on the equilibrium price and the equilibrium quantity of goods of a decrease in demand and a decrease in supply. In the educational literature, four rules for the interaction of supply and demand are formulated. Using these rules, you can find the equilibrium point for any changes in supply and demand. The following circumstances can mainly prevent the price from returning to the market equilibrium level: The intervention of external forces in the operation of the law of supply and demand can affect the formed market equilibrium. One of the levers for regulating the market system that does not violate the law of supply and demand are taxes. They do not change the conditions for the flow of market processes and do not limit the freedom of action of market entities. However, both consumers and producers of goods perceive the increase in taxes extremely negatively, since any tax, direct or indirect, is necessarily included in the price of the goods sold. An increase in price, inevitably following an increase in tax, causes a decrease in both consumer purchases and the supply of taxed goods. Graphically, this situation can be represented as follows. As a result of a new tax or increase interest rates existing taxes supply curve S1 move left and up by the tax amount T, since the seller is now forced to charge a higher price for the goods in order to receive the same revenue. In response to this reduction in supply, the market equilibrium point will move along the demand curve from E1 up to the intersection with the new supply curve S2, i.e. to the point E2. As a result, a new equilibrium will be established on the market, in which the volume of goods will decrease from Q1 before Q2 and the price will increase with P1 before R2(Fig. 4.4). Rice. 4.4. Consequences of imposing a tax. Despite the fact that formally the tax is paid directly to the state budget by the manufacturer or seller of goods, however, most of it is shifted to consumers who buy goods that are taxed. Thus, the negative effect of tax increases is a general decrease in the production of goods and a decrease in their consumption by buyers due to their rise in price. The opposite result is achieved by providing a subsidy (they can be considered as negative taxes) to both the buyer and the seller. Shifting supply and demand curves by the amount of the subsidy G will be the opposite of their taxation bias. For example, the receipt of a subsidy by the seller will be tantamount to a reduction in his costs and, on the graph, will lead to a downward shift in the supply curve by the amount G(Fig. 4.5), which will lead to an increase in the equilibrium quantity of goods with Q1 before Q2 and at the same time reduce the equilibrium price from P1 before P2. Rice. 4.5. Consequences of the introduction of subsidies. If the buyer receives the subsidy, then by the amount G the demand curve will shift, not the supply curve. Equilibrium prices that have been established in the market at a certain moment, due to various circumstances, do not always suit society. 1. The market price is considered the equilibrium price when it determines the level at which the seller still agrees to sell, and the buyer already agrees to buy the goods. Graphically, the state of equilibrium in the market for a particular product can be represented by combining the supply and demand curves in one figure. The point of intersection of the curves is the point of equilibrium between supply and demand. 2. When deviating from the state of equilibrium, i.e., in the presence of a shortage or surplus of goods on the market, the price plays a balancing role, stimulating the growth of supply in case of a shortage and restraining it in case of overstocking. The following options for changing the equilibrium price are possible: Equilibrium is a situation in the market when supply and demand coincide or are equivalent at a price acceptable to the consumer and producer. Market equilibrium results from the interaction of supply and demand. In Figure 4, we combined the demand curve and the supply curve on the same chart. Figure 4 - Graph of equilibrium in the market This graph expresses the simultaneous behavior of supply and demand for a particular product and shows at what point the two lines intersect (E). At this point, equilibrium is reached. The coordinates of the point E are the equilibrium price P and the equilibrium volume Q. The equilibrium point shows that here supply and demand, being opposite market forces, are balanced. The equilibrium price means that as many goods are produced as required by buyers. Such an equilibrium is an expression of the maximum efficiency of a market economy, because in a state of equilibrium the market is balanced. Neither the seller nor the buyer has internal motivations to violate it. Thus, the equilibrium price is the price that balances supply and demand as a result of competitive forces. However, the equality of supply and demand is rather a theoretical abstraction that allows us to identify the most important patterns in the functioning of the market mechanism, because in real economic practice such a coincidence is very rare. Deviations from market equilibrium can be in the following forms: On the graph, finding the equilibrium point looks simple. In real life, market conditions change very quickly. There are a number of factors that, in addition to price, affect either the volume of demand or the volume of supply, which is accompanied by a shift or supply and demand curves. As a result, equilibrium will be achieved at other values of the price. The following 4 options are possible: If the real price is greater than the equilibrium price, then the quantity demanded at that price will be less than the quantity supplied. In this case, producers would prefer to reduce the price rather than continue to produce output in a volume that significantly exceeds demand. The excess supply will put downward pressure on the price. If the real price in the market is below the equilibrium, then the volume of demand will become equal to the goods will become scarce. Some buyers will choose to pay a higher price. As a result, excess demand will put pressure on the price. This process will continue until it is established at an equilibrium level at which the volume of supply and demand are equal. The first formulation of general economic equilibrium was formulated by L. Walras, who, unlike K. Marx, who proposed the category of average price (price of production), tried to abstract from the social system of production and relied on utility as the initial category. A. Marshall made an attempt to combine the theory of marginal utility with the theory of supply and demand and the theory of production costs. He owns the championship in the study of the categories "demand price" and "offer price", which is further development theories of labor value. According to A. Marshall, the demand price is the price at which each individual portion of the product is able to attract a buyer over a certain period. At the same time, this is the maximum price for which buyers agree to buy a product or service. Above its market price can not rise, because consumers do not have money to buy. The offer price is the price at which a product is offered for sale in a competitive market, or it is the minimum price at which producers are willing to sell their products or services. The market price cannot fall below the offer price, because then production and sales become unprofitable. Equilibrium is called stable if the deviation from it is accompanied by a return to the original state. Otherwise, there is an unstable equilibrium. At the equilibrium price, the equality of purchases and sales is established - such equality exists at any price. At the equilibrium price, the amount of output that consumers are willing to continue to buy will be equal to the amount that producers are willing to continue to supply to the market. Only at such a price will there be no tendency to increase or decrease prices. That is why, in a state of economic equilibrium, an economic entity - be it an individual producer, firm or buyer - has no incentives to change its economic behavior. The simplest dynamic model that shows the fluctuations that form the equilibrium is the spider web model shown in Figure 5. It reflects the formation of an equilibrium in an industry with a fixed production cycle (for example, in agriculture), when producers, having made a decision on production based on existing in the previous year prices, can no longer change its volume. Figure - 5 Stable (a) and unstable (c) equilibrium in the cobweb model and regular fluctuations (b) around it The cobweb model abstracts away natural yield fluctuations and other spontaneous, unpredictable phenomena typical of agricultural production. Another simplification is the assumption that there are no stocks and reserves and their possible sale in a changing market environment. The equilibrium in the cobweb model depends on the slope of the demand curve and the supply curve. The equilibrium is stable if the slope of the supply curve S is steeper than the demand curve D (Fig. 5a). The movement towards a general equilibrium goes through a series of cycles. An excess of supply (AB) pushes prices down (BC) and the result is an excess of demand (CF) which pushes prices up (FG), This leads to a new excess of supply (GH) and so on until an equilibrium is established. at point E. The oscillations are damped. The movement may, however, acquire a different direction if the slope of the demand curve D is steeper than the slope of the supply curve S (Fig. 5c). In this case, the fluctuations are explosive in nature and equilibrium does not occur. Finally, such an option is also possible (Fig. 5b), when the price makes regular oscillatory movements around the equilibrium position. This is possible if the slopes of the supply and demand curves are equal. Thus, competition and fluctuations in supply and demand led to an equilibrium in the market. A limited amount of a given commodity available in society is distributed among its possible consumers. But this is only a partial equilibrium in a single market. Keep in mind that prices in the market are in constant motion due to changes in the demand or supply of goods. These changes are not independent of each other, but, on the contrary, are all interconnected. Each change in the price of one good leads to changes in the price of other goods. There is a whole system of prices that can be in equilibrium if we consider it at a certain moment and simultaneously in its totality. And in this case we talk about the general equilibrium of the market At the equilibrium point, economic movement stops. In order for it to start again, external conditions must change - the price level, technology, expectations and preferences of producers or consumers. Market equilibrium is considered stable if the market, taken out of equilibrium, is able to return to it again under the influence of only its endogenous (internal) factors. In this case, one speaks of a self-regulating market mechanism. A reliable analysis of the stability of a particular market is of great practical importance, since it makes it possible to determine the boundaries of the expediency of state intervention in the market mechanism. If the market is stable, then the state should not interfere in its functioning, and vice versa, if the market equilibrium is unstable, then state regulation becomes not only desirable, but also necessary. There are two main approaches to the analysis of equilibrium price establishment: JI. Walras and A. Marshall. The main thing in the Walrasian approach is the difference in the volume of demand at the price (Fig. 5 a - The concept of the formation of an equilibrium price), as a result of the competition of buyers, the price rises until the excess disappears. In the case of an excess supply, seller competition leads to the disappearance of the excess. Figure 5 - Equilibrium price formation concepts The main thing in the approach of A. Marshall is the price difference. It proceeds from the fact that sellers primarily react to the difference between the demand price and the offer price. An increase (decrease) in the volume of supply reduces this difference and thereby contributes to the achievement of an equilibrium price (Fig. 5 b - Concepts for the formation of an equilibrium price). A short period is better characterized by the model of L. Walras, a long one - by the model of A. Marshall. The market spontaneously, automatically contributes to the formation of equilibrium prices (A. Smith called this process the “invisible hand” mechanism). The excess of the demand price over the supply price contributes to the redistribution of resources in favor of industries with high effective demand. High prices testify to the relative scarcity of goods, prompting them to expand their production and thereby better satisfy social needs. Since the equilibrium price significantly exceeds the costs of those industries whose costs are below average, it contributes to the redistribution of resources from the worst to the best producers, increasing the efficiency of the national economy as a whole. Consider the mechanism of interaction between buyers (consumers) and producers (sellers) in a perfectly competitive market, which has the following features: In its pure form, such a market model is almost never found in real life, but its analysis makes it possible to understand the nature of the modern regulated market economy. The market mechanism operates in such a way that any imbalance entails its automatic restoration. However, sometimes the balance is disturbed artificially, either as a result of state intervention or as a result of the activities of monopolies interested in maintaining monopolistically high prices. "Floor price" - the established minimum price, limiting its further reduction. The ceiling price, on the other hand, limits the price increase. Floor and ceiling prices can be set by the government, which regulates market pricing. For example, the state, when implementing social policy, can set maximum prices for certain types of food (price ceiling), above which sellers are not entitled to set their prices. An example of a floor price is a ban on selling goods at prices below their cost. We encounter state-regulated ceiling prices more often. For example, in Russia, restrictions on railway tariffs, the cost of fuel and electricity, etc. can be considered as ceiling prices. Maximum prices are introduced in order to prevent their sharp growth, the emergence of social unrest, etc. Ceiling prices are lower than the equilibrium price and prevent the market price from rising to the equilibrium level. Reduced prices are usually set as a result of government policy aimed at "freezing" prices, i.e. fixing them at a certain level in order to stop inflation and prevent the decline in living standards. Buyers present a market demand for a product, and sellers make a market offer for this product. Market equilibrium and the equilibrium price are established in the market when the magnitude of demand is equal to the magnitude of the supply of this product. MODERN HUMANITARIAN ACADEMY ESSAY discipline: Mathematical Economics Topic: Equilibrium in a market economy Master student: Tuul Artur Sergeevich Plan code: Z-EM4-902 Direction: Economy Master Program: Firm economics Moscow 2010 Introduction. 3 1 Equilibrium price. 4 2 Conditions of equilibrium stability. eight 3 Consequences of price deviation from the equilibrium level. 10 4 Changes in supply and demand and their impact on price. 12 Conclusion. eighteen List of used sources. nineteen Appendix A.. 20 Introduction As you know, any system tends to achieve an equilibrium state and maintain it. This is also typical for microeconomic systems, however, since their functioning is ensured through the activities of people endowed with will, consciousness and divergent interests, the balance is not achieved spontaneously and has specific laws and conditions. Market equilibrium is manifested in the quantitative correspondence of demand and supply of goods, services and resources and affects the interests of households as resource providers and consumers of goods and services and enterprises as resource consumers and producers of goods and services. In other words, this is the optimal realization of the total economic interests in society. Here a comparison can be made with a healthy "economic blood circulation" in which there are no decay phenomena caused by the "diseases" of the economy - inflation, unemployment, etc. The idea of such a balance is obvious and desired by the whole society, since it means complete satisfaction of needs without wasted resources and unrealized product. This paper proposes a presentation of the concepts of equilibrium and equilibrium prices, conditions for the stability of equilibrium, shortage and surplus, and the impact on the market price. 1 Equilibrium price In the market, the interests of buyers collide with the interests of sellers. The economic interest of the buyer is to buy a quality product, but at a cheaper price and satisfy his need. He is opposed by a manufacturer-seller who is interested in selling goods with maximum profit. Consumers come to the market with a certain amount of total income intended for the purchase of goods. In an effort to buy a product cheaper, consumers understand that the seller wants to sell it at a higher price. Therefore, consumers offer prices for goods equal to the so-called demand prices. The bid price is the marginal maximum price for which buyers are still willing to take the product. Above this price, the market price cannot rise - consumers no longer have money to buy. The lower the demand price, the more the buyer is willing and able to purchase for the same amount of money. Manufacturers-sellers have other interests. They are interested in selling goods at a higher price and therefore offer offer prices - such marginal minimum prices at which manufacturers-sellers are still ready to sell their goods. The market price cannot fall below the offer price, because then production and marketing become unprofitable. This is incompatible with the economic interest of the manufacturer-seller. The lower the offer price, the fewer items will go on sale. For many producers, the costs of production and distribution will be higher than this price, and therefore they will incur losses. In the market there is a competitive struggle between sellers and buyers for a better price for them and satisfaction of their interests. When the interests of producers and consumers coincide, there is a market equilibrium. It can be defined as a situation where supply and demand coincide at an acceptable price for the consumer and the producer. The economic meaning of this equilibrium lies in the fact that it reflects the unity of sellers and buyers, the equality of their capabilities and desires. For a more detailed disclosure of concepts, a graph can be provided (Fig. 1). Why combine the supply and demand curves of the same product on this graph. Line D is a graphic representation of the demand from the price, line S is a graphic representation of the supply function from the price. The point of their intersection is the equilibrium point E. In this situation, the volume of demand is equal to the volume of supply (Qd = Qs), and the demand price is equal to the supply price (Pd = Ps), that is, the market is balanced. The state of the market, in which supply and demand are balanced at a certain price level, is called equilibrium. The coordinates of the point of intersection of the supply and demand curves E is the equilibrium price Pe and the equilibrium output Qe. Under such conditions, further expansion of production, and hence supply, is unprofitable for producers of this product, since the product will not find demand. In turn, the buyers of this product were counting on just such a volume of supply, the offer price also suits them. Rice. 1 Market equilibrium according to Walras The considered model, illustrating the simultaneous interaction of demand and supply of a certain product, received in economic theory the name of the model of partial market equilibrium (equilibrium in the market of one product). The given characteristic of equilibrium in economic theory is known as "Walrasian equilibrium" .
There is another approach to describing equilibrium - "Marshall equilibrium" .
The difference between these models is as follows: if Walras focuses on the ratio of demand and supply in establishing equilibrium, then Marshall focuses on the ratio of the demand price and the supply price in this process. The Marshall equilibrium can be illustrated in the following graph (Fig. 2). Assume that the volume of supply is below the equilibrium (Q1< Qe),
then the demand price will be higher than the offer price (P1 > P4) .
This will encourage sellers to increase the volume of supply. If the supply volume exceeds the equilibrium level (Q2 > Qe), then the supply price will exceed the demand price, that is, P2 > P3, and sellers will begin to reduce the supply volume. At equilibrium output, the demand price is the same as the supply price. Rice. 2 Marshall market equilibrium The Marshall model is more applicable to the analysis of the establishment of equilibrium in the long run, when the volume of supply is able to adequately respond to changes in the market price of demand. At the same time, both models show the natural ability of the market to “self-adjust” by continuously “search” for matches between supply and demand. Figures 1 and 2 illustrate the uniqueness of market equilibrium when the lines of market demand and market supply intersect at a single point E .
The point of intersection of the demand (D) and supply (S) curves is the equilibrium point (E) .
At this point, the quantity demanded equals the quantity supplied. Here, the equilibrium price formed under these conditions is fixed. Equilibrium is the law for every competitive market. Thanks to the balance on each commodity market, stability is maintained economic system generally. The dictionary defines the word "balance" as a situation in which oppositely directed forces are balanced. This definition describes the market equilibrium. Distinguish between stable (sustainable) and unstable (unstable) market equilibrium. Stable occurs when the disturbed equilibrium state is restored again; unstable - when the disturbed equilibrium of the market remains such for a long period of time. If in an economic system, brought out of equilibrium for some reason, there are factors that return it to its original equilibrium state, then such an equilibrium is stable; in the absence of such factors, the equilibrium is unstable. Under competitive conditions, the interaction of market demand and market supply adjusts the price until the quantity demanded and the quantity supplied match. This is the equilibrium price. The corresponding quantity (of the product) is the equilibrium quantity. The equilibrium price unloads the market without leaving a burdensome surplus for sellers and without creating tangible shortages for buyers. At the equilibrium price, the equality of non-purchases and sales is established; such equality exists at any price. At the equilibrium price, the amount of output that consumers are willing to continue to buy will match the amount that producers are willing to continue to supply to the market. 2 Conditions for equilibrium stability The price mechanism contributes to the achievement of equilibrium. As a result of price fluctuations, the demand and supply of goods are equalized: at the point of their intersection, an equilibrium price is established. Equilibrium through the price mechanism can be established both for individual goods and on the scale of the national economy on the basis of coordinating aggregated demand and aggregated supply, in other words, both at the micro and macro levels. At the macro level, it is customary to distinguish between general and partial equilibrium. Partial equilibrium is a quantitative correspondence (equality) of two interrelated parameters or aspects of the economy. For example, partial equilibrium appears in the form of an equilibrium of production and consumption, purchasing power and commodity mass, state budget revenues and expenditures, supply and demand, etc. [edit] From Wikipedia, the free encyclopedia (Redirected from Market Equilibrium) Jump to: navigation, search Price at market equilibrium: Economic balance is the point where demand and supply are equal. In economics, economic balance characterizes the state in which economic forces are balanced and in the absence of external influences (balanced) values of economic variables will not change. Market equilibrium- the situation in the market when the demand for a product is equal to its supply; the volume of the product and its price are called equilibrium or market clearing price. Such a price tends to remain unchanged in the absence of changes in supply and demand. Market equilibrium is characterized by equilibrium price and equilibrium volume. Equilibrium price(English) equilibriumprice) - the price at which the volume of demand in the market is equal to the volume of supply. On a supply and demand graph, it is determined at the point of intersection of the demand curve and the supply curve. Equilibrium volume(English) equilibriumquantity) - the volume of demand and supply of goods at an equilibrium price. The free movement of price in accordance with changes in supply and demand causes the goods sold in the market to be distributed according to the ability of buyers to pay the price offered by the manufacturer. If demand exceeds supply, then the price will rise until demand no longer exceeds supply. If the supply is greater than the demand, then in a perfectly competitive market, the price will decrease until all the goods offered find their buyers. Equilibrium happens sustainable and unstable . If, after an imbalance, the market comes to a state of equilibrium and the previous equilibrium price and volume are established, then equilibrium called sustainable. If, after an imbalance, a new equilibrium is established and the price level and the volume of supply and demand change, then equilibrium called unstable . Balance stability- the ability of the market to come to a state of equilibrium by establishing the previous equilibrium price and equilibrium volume. Types of sustainability The classical interpretation of the market within the framework of the economy is based on the idea of the market as a system of relations between its participants, as a result of which a certain equilibrium is formed. Market equilibrium is the balance of supply and demand. Demand - the willingness of the buyer to pay a certain price for the product, the relationship between volume and demand price Offer - the willingness of the seller to sell this product at a certain price. The relationship between the price of a product and the volume of supply The intersection of the demand curve and the supply curve is the equilibrium price. Equilibrium is a situation where one of the parties, improving its position, cannot but worsen the position of the other. The equilibrium price is the price of voluntary exchange. Equilibrium is a criterion of market interaction, the concept of efficient distribution. An effective state of the economy is one in which it is impossible to improve the position of one subject without worsening the position of another. Equilibrium analysis - the theory of optimal allocation of resources, analysis of the relationship between price and quantity. Non-equilibrium method - this method of market analysis comes from the fact that the market exists only in a non-equilibrium system. There is no equilibrium in the market. The market process is an alternation of situations of uncertainty. A person does not have information about the conditions for the sale of goods. Market conditions change (the behavior of competitors, the behavior of substitutes, investments), which always leads to a decision to sell and buy. There is a situation of "escape" from equilibrium. The efficiency of the economic system does not depend on the equilibrium point, and the market is always mobile, not striving for equilibrium. Competition exists only in a non-equilibrium system. ⇐ Previous123456789Next ⇒ Read also: The manual is presented on the website in an abbreviated version. In this version, tests are not given, only selected tasks and high-quality tasks are given, theoretical materials are cut by 30% -50%. I use the full version of the manual in the classroom with my students. The content contained in this manual is copyrighted. Attempts to copy and use it without indicating links to the author will be prosecuted in accordance with the legislation of the Russian Federation and the policy of search engines (see the provisions on the copyright policy of Yandex and Google). In the production process, the firm is faced with the fact that it can change some factors, but not some. For example, a firm, as a rule, can always hire and fire workers, that is, it can almost always perceive labor as a variable factor. But, for example, to open a new plant with expensive equipment, a company may need a long process of making and agreeing on this decision. When a plant is built, the firm can no longer quickly reverse the decision to build it, since long-term contracts have been concluded with suppliers, contractors and workers. As Ben Bernanke 1 wrote, “Most large investments are irreversible, the only thing firms can do is stretch them out over time, but they cannot be reversed.” Depending on which factors the firm can change and which not, there are different periods of production. The period within which all factors are variable. The firm can freely change the amount of labor, and the amount of capital, and other factors. It is important to understand that periods of production are not tied to physical time, but only depend on the firm's ability to change factors. For example, for an online store, the short-term period can be several weeks, while for a large steel company it is years or even decades. 1 Chairman of the US Federal Reserve Market equilibrium- this is a situation in the market when supply and demand are equal to each other. But a situation always arises when, when various factors change, an imbalance arises between supply and demand and the market equilibrium is lost. Early economists, representatives classical school, considered the market equilibrium as a situation capable of independently coming to the point of equality. They believed that the market has the ability to self-regulate and comes to equilibrium on its own without any external intervention. In economic theory, there are two approaches to the consideration of market equilibrium. 1 approach. By Walras. The Swiss economist Leon Walras considered market equilibrium based on their quantitative assessment. Let's consider this approach on the chart. At point E, the equilibrium initially formed in the market is shown, to which Q E corresponds the quantity of goods at a price P E . It is at point E that the supply and demand curves intersect, which indicates that at this volume and price of the goods, supply and demand are equal. But with an increase in the price of the goods to the level P 1, the quantity of demand will decrease to the level Q 1 D, and the volume of supply of the goods, on the contrary, will increase to the level Q 1 S. There will be a producer surplus, as a result of which sellers, trying to get rid of excess goods, will begin to reduce prices for it. As a result, the demand for cheap goods will begin to grow. This cycle will continue until the market is in equilibrium. When the price of a commodity falls to the level P 2, the demand for it will increase to the level Q 2 D and will exceed the supply, which will decrease to the level Q 2 S . There will be a consumer surplus resulting in a shortage of goods in the market. But excessive excitement for a cheap product will put pressure on the price, which will sooner or later rise. And if the price rises, the producers, in turn, will begin to increase the supply of goods until the market is saturated. The condition for establishing market equilibrium according to Walras can be represented as an equality: Q D (P) = Q S (P)
This equality shows that, according to Walras, the quantities of supply and demand are a function of price. 2 approach. By Marshall. The English economist and one of the main representatives of the neoclassical school, Alfred Marshall, believed that price is the only factor that establishes market equilibrium. This graph also shows the equilibrium point E at which supply and demand are equal. But if the demand price P 1 D exceeds the offer price P 1 S , producers will immediately respond to this by increasing supply from the level Q 1 to the level Q E and the price will be set at the level P E . If the demand price P 2 D is lower than the offer price P 2 S , then sellers will reduce the quantity of supply, and buyers will reduce their demand, as a result of which the equilibrium price will be restored. The condition for establishing market equilibrium according to Marshall can be represented as an equality: P D (Q) = P S (Q)
Thus, this equality shows that, according to Marshall, the price is a function of the volumes of supply and demand. Add to bookmarks Add comments According to the law of demand, the impulse to the behavior of the consumer (buyer) sets the offer price at which the manufacturer offers him his product. Of course, the supply chain is only the initial, initial price of the commodity, which then collides with the demand price, that is, the price that the consumer is able and intends to pay. Usually a compromise is reached in the form of the "market price" of the product at which it is actually sold and bought. The market price is also called the "equilibrium price", since it is at the level when the seller is still willing to sell (at a lower price, selling is unprofitable), and the buyer is already willing to buy O(d,S) (at a higher price). Chart 6.5. Equilibrium the purchase price is unprofitable). OF - "equilibrium price" The mechanism of establishing a market price will help us to understand the previously considered schedules of supply and demand. The fact is that both of these graphs are qualitatively homogeneous (depicting in each case the quantity of goods depending on the price level). This homogeneity allows us to combine both graphs (see graph 6.5). The level of intersection of the supply and demand curves (point L) determines the level of the market price (the so-called "equilibrium price"). This is really an equilibrium, balancing price, because any other "point" means a disproportion between effective demand and the corresponding product offer. Suppose that the price deviated in favor of demand (point B). Along this chain, the number of buyers increases due to those persons who were unable to access the price at level A. Consequently, the quantity demanded also increases (DE will be added to OD). But a decrease in the market price (from OF to (W) will reduce the number of sellers at the expense of those for whom this price is not affordable, since it does not even justify the costs. As a result of the increased demand (OE), a much smaller commodity mass (OL) will be opposed. The well-known phenomenon of a shortage of goods arises (on our graph it is represented by the segment LE) From this it follows that whenever they want to please consumers and artificially - it is artificial, directive, because the market is impartial - they set a lower price, a consequence of this "good deeds" can only be shortages, the ruin of producers, the "black market" (because for a smaller supply, a low price invites a larger number of buyers), with which we are well acquainted. The same will happen if the flail deviates in favor of the sellers (point C). In this case, the number of sellers will increase at the expense of those who have high costs. Consequently, the amount of supply also increases (DE will be added to OD). But now an increase in the market price (from OF to OR) will reduce the number of buyers (from OD to OL) at the expense of those who cannot afford this price. As a result, the increased value of supply (OE) will be opposed by a much smaller effective demand of buyers (OL). A relative overproduction (also now well known to us as a result of price liberalization) arises: there are goods, but at a price that is inaccessible to the bulk of buyers. Incidentally, manufacturers are also losing because, with all their desire, buyers are not able to purchase more than "OL". Only two circumstances can prevent the return of prices to the equilibrium level: a) the monopoly of the seller (or buyer), who artificially holds the price in his favor, b) the administrative regulation of prices (hence, in particular, the responsibility of the state for setting prices is visible, which, as a rule, leads to to shortage or overproduction). Thus, with all the seemingly immense range of possible prices, they tend to the equilibrium level in the classical local market. The equilibrium price is rigidly "fixed" from all sides: a) horizontally - by the desire of market participants to overcome shortages or overproduction (the mechanism is a change in the quantity of goods), b) vertically - by the desire to achieve marginal profitability (the mechanism is a change in the price level). Understanding the essence of the equilibrium price allows us to consider all other (non-equilibrium) prices as an anomaly; that is why economists endlessly rush about with the equilibrium price, are in love with it and see their task in creating conditions that provide a system of stable equilibrium prices in a market economy (that is, in each local market). In the classical market model, the equilibrium chain is formed "automatically": a competitively free (non-state and non-monopoly) market, through competition within demand and within supply, as well as between supply and demand, is able to independently (i.e., without regulatory intervention) social institutions) establish a price equilibrium and thereby overcome overproduction or shortage. The specific coordinates of the equilibrium point in a particular local market depend on the magnitude of supply and demand for a given product. If the equilibrium point for a given product is established by the ratio of price-controlled magnitudes of supply and demand, then its movement within the framework of equilibrium is determined by a change in both demand itself and supply itself under the influence of non-price market factors. The most unpleasant thing for everyone is that the equilibrium point can only be found in the market, after production, so someone will still be left out. That is why the market talent of producers and consumers is to “guess” it. The equilibrium point is the biggest mystery in the economy (both micro- and macro-), all economists are engaged in its analysis and prediction, in its unpredictability, which makes producers and consumers “spin” , are the origins of the life of the economy. State socialism has arrogantly deadened this point by its “planning.” Meanwhile, the constant increase in efficiency, which provides a margin of market stability, is what the “wandering” of the point of equilibrium forces to. Competition and monopoly. Perfect competition exists in such areas of activity where there are many small sellers and buyers of an identical (identical) product, and therefore none of them is able to influence the price of the product. Here the price is determined by the free play of supply and demand in accordance with the market laws of their functioning. This type of market is called a "market of free competition". The existence of a huge number of buyers and sellers means that none of them has more information about the market than the rest. The seller, having come to the market, finds the already established price level, which is beyond his power to change, because the market itself dictates the price at every moment of time. This situation allows new sellers on equal terms (price, technology, legal conditions) with existing sellers to start manufacturing products. On the other hand, sellers are free to leave the market, which implies the possibility of an unhindered exit from the market. The freedom of "market" movement creates the conditions for the market to always change the number of producers. At the same time, the remaining sellers still lack the ability to control the market, since they represent small-scale production and are extremely numerous. Now we formulate the main characteristics of the market of perfect competition: a large number of small sellers and buyers, the product being sold is homogeneous for all manufacturers, and the buyer can choose any seller of goods to make a purchase, the impossibility of controlling the price and volume of purchase and sale creates conditions for the constant fluctuation of these values under the influence of changes in market conditions, complete freedom market entry and exit. In real economic reality, the market of perfect competition in the strict theoretical sense, as described above, is practically never found. It represents the so-called "ideal" structure, implying that free competition exists rather as an abstract idea to which actual markets can only more or less aspire. But still, in economic practice, there are markets for some goods that are most suitable for the criteria of a given market structure (for example, the securities market or the market for agricultural products). Here the number of sellers and buyers is so large that, with rare exceptions, one person or group is not able to control the market for certain types of securities or agricultural products. Moreover, the goods in these markets from all manufacturers are completely identical and the latter own complete information about changes in the market. All this confirms the need for such a market to use a special - "exchange" - form of organization (commodity exchange of agricultural products or stock exchange). In the presence of competition in the market, producers seek to reduce production costs per unit of output in order to maximize profits. As a result of this, the possibility of lowering the price is created, which increases the volume of sales from the manufacturer and his income. The most effective way to achieve this is to use scientific and technological improvements in new products in production. The introduction of scientific and technological achievements makes it possible to increase labor productivity, which just leads to a future price reduction, which, however, brings more income to the innovator firm. Competition will create incentives for producers to constantly diversify the products and services offered in order to conquer the market. The expansion of the range of products offered for sale occurs both through the creation of completely new goods and services, and through the differentiation of an individual product. Manufacturers are constantly fighting for a buyer in the market. The result of such a struggle is a policy of sales promotion, which in every possible way and comprehensively studies consumer demand and creates new forms and methods of selling goods. All this, on the one hand, increases the company's profits, and on the other hand, satisfies all the desires and needs of the buyer. In the end, both the consumer and society as a whole win. Monopoly is the exact opposite of perfect competition. Here there is only one seller, and he produces a product that has no close substitutes. In a monopoly, the producer is able to completely control the supply of goods, which allows him to choose any price possible in accordance with the demand curve, hoping to maximize profit. Therefore, the choice of price from the possible options is predetermined by the amount of profit received from the sale of a possible quantity of goods at a given price. The desire of the monopolist to maximize profits by establishing control over the price and volume of sales is a violation of free competition and the assertion of special power in the market. "Market power" means the ability of the seller (buyer) to influence the price of goods. So, what are the features that distinguish a monopoly from perfect competition? Sole seller (monopolist). The product sold is unique, so the buyer is forced to pay the price set by the monopolist (or refuse to purchase this product). Complete control of the monopolist over the price of goods and sales volume. For potential competitors, the monopolist sets barriers that are difficult to overcome. A special place is occupied by the phenomenon of "natural monopoly". Natural monopolies include public utilities and enterprises operating unique Natural resources(for example, electric and gas companies, water companies, communication lines and transport companies). As a rule, such "natural monopolies" are owned by the state or operate under its control. The existence of natural monopolies is explained by a special effect associated with the scale of production - the effect of saving resources as a result of the consolidation of production. It is known that large-scale production has an advantage over small-scale production when comparing the costs of homogeneous production. Due to the better technical equipment and greater capacity of a large enterprise, there is an increase in labor productivity, which means a decrease in costs per unit of output. This means more efficient use of resources. Therefore, natural monopolies are becoming a desirable phenomenon for society, although the monopolistic nature still forces them to be regulated. Artificial barriers to prevent competitors from entering a monopolistic market are represented by legal restrictions in the form of "licenses", "copyright", "trademarks" or "patent protection". A license is the right of a firm to exclusively carry out a certain type of activity in a given market. Copyright controls the sale and distribution of an original work in the interests of its author (book, musical work, computer program); it is valid throughout the life of the author (and for another 25 years after his death in the interests of his heirs). Trademarks are special symbols that allow you to recognize ("identify") a product, service or company; competitors are prohibited from using registered trademarks, counterfeiting them or using similar ones that confuse the consumer. A patent is a certificate certifying the exclusive rights of the author to dispose of the good (technology) created by him; if a firm has a patent for a technology for the production of a product, then this makes it impossible for other firms to produce this product during the term of the patent. Of course, the patent owner can sell his technology or not use it at all, but this is his right. And only obtaining a patent for an alternative technology will make it possible to compete with a monopoly firm. Monopoly in its purest form is an extremely rare phenomenon. Like perfect competition, it is more of an economic abstraction. Quite often, the telephone system is cited as an example of a pure monopoly, and this is almost true. But we should not forget that other types of communication (for example, express mail or satellite communication) create hidden competition, offering quality substitutes for telephone communication. In addition, it should be noted that a monopoly cannot completely eliminate potential competition from other domestic or foreign producers of goods. A monopoly arising from the demand side, when there is only one buyer in the market with many sellers, is called monopsony. Such a market structure is so similar in all respects to a monopoly, the features of which are transferred to the buyer. Pure monopsony at least unique phenomenon than a monopoly. Market equilibrium- a state in which none of the economic entities have incentives to change it. In relation to the equilibrium point will be located at the point of intersection of the supply and demand curves (including market equilibrium models) can be studied with or without taking into account the time factor. If the time factor is not taken into account in the model, then this model is called static. If the time factor is one of the variables, then the model is called dynamic. The method of comparative statics makes it possible to analyze shifts in demand, supply, and equilibrium points under the influence of any exogenous factors. As a rule, static models consider instant, short term, long term activities of economic entities. Dynamic Models take into account the time factor. All variables in such models are functions of time (for example, the rate of price change or the rate of volume change). Consider a dynamic model of market equilibrium using direct demand functions. Let t- time, then the process of groping or establishing balance according to Walras can be written as the following equation: If the quantity demanded more value supply, that is, the surplus is greater than zero (a situation of commodity shortage), then the derivative of the price with respect to time (the rate of price change) will also be greater than zero and, therefore, the price will rise. If the quantity demanded is less than the quantity supplied, then there is an excess demand less than zero(the situation of overstocking the market), then the derivative will be less than zero, which means the price will fall. The process of interaction between supply and demand according to Marshall is described by the equation: If this excess is a positive value, then the volume of supply increases. If negative, then the volume is reduced. The equilibrium condition will be the equality ∆Qd(p)= 0. The case of free resources. The production of goods is not economically feasible. For example: the labor market, when the supply curve has a decreasing segment. The supply and demand lines have a common segment - either horizontal or vertical. General theory of equilibrium is based on the following postulates: Currently, there are quite a few models, the specifics of which are given by the author's views on the problem and attempts to crystallize in them the main economic interests of the subjects economic activity. From their totality, some fundamental models can be distinguished. The following types of equilibrium are distinguished: partial, general, real and stable. The most famous and detailed model equilibrium in the conditions of state regulation of the economy was developed by J. M. Keynes.
Fig. No. 20.
Fig. No. 21.
Market price. Market equilibrium
Equilibrium mechanism
State regulation of market processes with the help of taxes and subsidies
State influence on market processes through price regulation
[edit] Mechanism for achieving market equilibrium
[edit] Types of market equilibrium
Market Equilibrium - Economic Theory (Vassilyeva E.V.)
[edit] Stability of equilibrium. Types of sustainability
[edit] Equilibrium price functions
Economic balance
10.4 Production periods
In the short run, a firm can increase or decrease plant utilization by hiring or firing workers, but cannot build another plant.Market equilibrium: definition of the concept, conditions for the emergence
Market equilibrium
Microeconomic theory of equilibrium stability. Consumer Behavior and Equilibrium
Equilibrium price. Types of supply and demand balance.
Market equilibrium
Market equilibrium as a result of the interaction of supply and demand.
Equilibrium Models
Equilibrium models in statics
Static equilibrium models are characterized by the following points:
Instant Period
The instantaneous period is characterized by the following factors:
short term
In the short term:
The seller can adjust the amount of the offer in accordance with the market demand, but only within the limits of the production capacity of the enterprise.
Long term
The long term is characterized by:
horizontal line— costs are constant, and the equilibrium volume grows without changing the equilibrium price.
ascending line- Expenses increase, for example. due to an increase in resource prices, and an increase in the equilibrium volume is accompanied by an increase in the equilibrium price.
descending line- costs are reduced, and the growth of equilibrium volume is accompanied by an increase in equilibrium prices.
Equilibrium models in dynamics
Finding balance according to Walras
Only under the condition ΔQ d (P) = 0 is a market equilibrium established.Marshall equilibrium
Special cases of market equilibrium
Equilibrium at Zero Price
Equilibrium at zero output
Not unique equilibrium
Equilibrium Uncertainty
Economic balance
The most famous models of economic equilibrium and their authors:
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