market equilibrium conditions.

12.10.2019

The equilibrium point shows that here supply and demand, being opposing 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. Conversely, at any other price different from the equilibrium price, the market is not balanced and buyers and sellers tend to change the situation in the market.

Thus, the equilibrium price is the price that balances supply and demand as a result of competitive forces.

If the real price is greater than the equilibrium price (Р()), then the volume of demand at such a price of 0 will be less than the supply of 02. In this case, producers will prefer to lower the price rather than continue to produce products in a volume that significantly exceeds the volume of demand. Excess supply (02 - 0,) will put downward pressure on the price.

If the real price on the market is below the equilibrium price (P2), then the volume of demand will be equal to 03, the product will become scarce. Some buyers will choose to pay a higher price. As a result, excess demand (04 - 03) will put pressure on the price.

This process will continue until the equilibrium level PE is established, at which the volume of demand and supply are equal. We owe the first formulation of general economic equilibrium to L. Walras (1874), 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 the product goes on sale in a competitive market, or it is the maximum 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.

An equilibrium is said to be stable if a deviation from it is accompanied by a return to original state. Otherwise, there is an unstable equilibrium.

Consider first a stable equilibrium. There are two main approaches to the analysis of establishing an equilibrium price: L. Walras and A. Marshall. The main thing in the approach of L. Walras is the difference in the volume of demand 02 - 0, at the price P, (Fig. 5.7 a), as a result of the competition of buyers, the price rises until the excess disappears. In the case of an excess supply (at the price A), the competition of sellers leads to the disappearance of the excess.

a) according to L. Walras

b) according to A. Marshall

Rice. 5.7. Equilibrium price formation concepts

The main thing in the approach of A. Marshall is the price difference Px - P2. 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. 5.7 6). 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.

The equilibrium situation, from the point of view of temporal characteristics, is characterized by a web-like model (Fig. 5.8), i.e. the time between a change in price and the associated change in the scale of production.

Several options are possible:

1. The slope of the supply curve is the same as the slope of the demand curve.

On fig. 5.8 a 7) 7) "shows the prices at which various quantities of goods were sold during the period /. 55" shows the quantity of goods available in the period (x and sold at different prices during the period 7) 7) "- curve, displays -

price movement, 55 "- a curve showing changes in the volume of output. In the period, the quantity of goods 01 was offered at a relatively low price Ru

This low price stimulates the production in period /2 of a relatively small amount of goods, which subsequently corresponds to a price P2 higher than Py.

The price of P2 induces the production of more goods 03, which corresponds to the already lower price of Ru. This process is repeated from one period to another. Production and prices pass through the stages () 2P2 () yPy This situation characterizes the case when equilibrium will never be reached. There are constant price fluctuations relative to the equilibrium price.

2. The slope of the supply curve is steeper than the demand curve.

Figure 5.8 b shows that under these conditions the situation becomes more and more unstable. The price drops so low that production stops or does not rise.

Widening price fluctuations occur: from one period to the next, prices move further and further away from the equilibrium price.

3. The slope of the supply curve is less than the slope of the demand curve.

In this case, as shown in Fig. 5.8V, and output,

and the price is getting closer and closer to the equilibrium level. There is a narrowing price fluctuation.

The cobweb model can be applied with a sufficient degree of accuracy only to certain products, since it does not take into account a number of important factors(for example, influence climatic conditions, changes in consumer demand, etc.). However, it has certain merits, as it shows the dependence of the functioning of the market on the response time in the supply sphere and the shape of the supply and demand curve. Achieving a stable equilibrium does not mean a stop in the development of production, so the stability of the market equilibrium is relative. The growth of incomes of buyers, the development of their needs will lead to a change in the volume of demand at the same prices. An increase in demand with a constant supply causes a shift of the entire demand curve to the right upwards, then a new higher level of the equilibrium price and a new larger volume of sales of goods are established (Fig. 5.9).

Conversely, a decrease in demand, when the entire curve (£>, £,) shifts downwards to the left with the same supply, leads to the establishment of a lower equilibrium price level (P,) and a lower level of sales of goods (0,).

Rice. 5.9. Changing market equilibrium depending on the nature of demand

With a changing supply and a constant demand, a different level of market equilibrium will also be established. So, the growth of labor productivity, the reduction in production costs at the same prices will stimulate an increase in output - the position of the supply curve will change, which will shift to the right down (Fig. 5.10). As a result, the position of the equilibrium point will also change, and the equilibrium price will be set at a lower level (P,). Conversely, a decrease in supply - a shift of the curve to the left - will set a higher equilibrium price (P2) and fewer sales of the good (02).

Based on this analysis, four rules of supply and demand can be established.

An increase in demand causes an increase in both the equilibrium price and the equilibrium quantity of the good.

A decrease in demand leads to a fall in the equilibrium price and the equilibrium quantity of the good.

An increase in the supply of a good leads to a decrease in the equilibrium price and an increase in the equilibrium quantity of the good.

A decrease in supply leads to an increase in the equilibrium price and a decrease in the equilibrium quantity of the good.

In the theory of market equilibrium importance given to the time element:

instantaneous equilibrium, when the supply is unchanged (Fig. 5.11);

short-term equilibrium, when supply grows without an increase in equipment (Fig. 5.12);

long-term “normal price” equilibrium, when producers replace and increase equipment, and the number of producers themselves can change due to their free entry and exit from the industry (Fig.

In the three spilled types of equilibrium, depending on the availability of time for commodity producers, they can:

or no action is taken at all; or variable factors of production will be adapted to changed conditions;

or all the factors of production will be adjusted to the changed price.

This situation of long-term equilibrium or "normal price" held at high level for a long time, stimulates the adjustment of economic conditions to the corresponding level of demand.

The existence of equilibrium in the market is possible if there are one or more non-negative prices at which the volumes of demand and supply are equal and non-negative. Consider two situations where the supply and demand lines do not have common points, and equilibrium exists.

On fig. 5.14 the volume of supply exceeds the volume of demand at any non-negative price. For example, atmospheric air is available in such quantities that our needs are fully satisfied at zero price, i.e. is free. Therefore, equilibrium exists at zero price if, at this price, the quantity supplied (0,) exceeds the quantity demanded (02). If the air is purified, it will no longer be a free good and, obviously, you will have to pay for its consumption.

On fig. 5.15 The offer price exceeds the demand price for any non-negative number of sales of goods. The amount of money that consumers are willing to pay for a given product is insufficient to compensate for the costs of its production and sale. Then production is not economically feasible, although it is technologically possible. For example, you can make a car out of gold, but it will be extremely difficult to sell it. Here equilibrium exists at zero equilibrium volume (0) if the supply price (P,) is greater than the demand price (P2). The bid price refers to the maximum price a buyer is willing to pay for a given quantity of a good. The bid price is the minimum price at which sellers are willing to sell a certain quantity of goods.

So far, we have considered situations in the market when equilibrium exists with a single combination of price and volume values. But a situation is possible when the supply and demand lines have two common points (Fig. 5.16).

Rice. 5.15 Fig. 5.16

In this case, the supply line changes the "sign" of the slope with rising prices, while the demand line has a "normal" form - a characteristic negative slope. This leads to the existence of two equilibrium positions at the points E] and E. Such a supply curve is possible in the labor market. It has a positive slope at a relatively low level wages. In other words, an increase in wages stimulates an increase in the supply of labor, but up to a certain point (point). Then the workers prefer free time to higher income, the supply of labor is reduced.

A situation is also possible in the market when the supply and demand lines have a common segment (Fig. 5.17 and 5.18).

On fig. 5.17 the lines of supply and demand coincide on the segment E [E2. In this case, equilibrium in the market is achieved at any price in the range from P] to P2 and the equilibrium volume 0E.

A change in price in this range does not cause a change in the volume of demand for consumers, and a change in the volume of supply for producers.

On fig. 5.18 supply and demand lines also have a common segment. Here, equilibrium is possible for any volume of the number of sales in the interval from 01 to (? 2 and the equilibrium price PE A change in the quantity of products sold in this interval does not cause a change in the demand price and the supply price equal to it.

It is important to emphasize that the equilibrium price is set in competitive market conditions. However, it is impossible to meet all the conditions of competition. The mechanism of market price equilibrium is the mechanism of approaching perfection, which is never fully achieved.

And yet, in practice, according to the law of equilibrium of supply and demand, the price of any product is formed. All commodity markets are close to competitive equilibrium, if there are no elements of monopoly intervention in the market mechanism that change the model of competitive equilibrium.

Monopoly intervention is intervention in the market mechanism of competitive equilibrium of individuals, commodity producers, trade unions, various associations and the state, which are able to change the price of equilibrium. Administrative intervention in the mechanism of supply and demand, even with good intentions (for example, in order to achieve fairness in the distribution of income or to achieve another social goal), as a rule, is ineffective. This goal can be successfully achieved by imposing taxes without affecting the mechanism of price formation.

Taxation can affect: the price equilibrium mechanism; state of elasticity; volume of production of goods; the level of income in society and the distribution of these incomes between producers and consumers of taxed goods. The impact of product taxation on the price of its market equilibrium can be depicted graphically (Figure 5.19).

the body of taxed products. As a result of the tax, the supply curve shifted to new level 5252 and, intersecting with the demand curve OB9, formed a new market price equilibrium point (R,). Taxation did not prevent the operation of the market mechanism of price formation, but it led to two results: an increase in price and a decrease in the volume of production from 02 to (?,.

The arrows on the corresponding axes show how and how much the price and quantity of goods have changed due to the introduction of the tax. If the demand line were inelastic and flat compared to the supply curve, then the burden of the tax would fall mainly on the shoulders of consumers. Thus, the tax affects the price and volume of production and leads to the establishment of market equilibrium at a new point.

Another example of state intervention in the economy and its market mechanism is the setting of prices by law (Fig. 5.20).

On fig. 5.20 shows the mechanism and consequences of forced price fixing by the state. Such intervention looks like a fair distribution of income in favor of the poor. However, from the point of view of economic theory, such a distribution is completely irrational, because it is not effective tool no equalization of incomes, no increase in the production of missing goods. It is easier and cheaper to solve these problems with the help of the market mechanism of supply and demand, which objectively stimulates the proportions of distribution necessary for society through the equilibrium price.

On fig. 5.20 the level of the established price is shown by the line AB. At price P1, the demand curves W) and supply 515 do not intersect. Consumers would buy more of the product than is offered. There is a deficit. If it weren't for the low-price enforcement, buyers might prefer to pay a higher price than go without the product. This makes it possible for speculative prices to appear on the shadow market in a deficit economy. This system cannot be saved. long time(being a necessary measure), since it does not eliminate main reason deficit - insufficient production of goods needed by the consumer, because a low state price cannot force the producer not only to increase, but even to continue the production of this product. The rationing system will shift the curve to the line I, indicated by the dotted line on the chart, but will not change the situation on the market, the deficit will continue. If there were no set limit, then the price would rise to point E (equilibrium), which would be inaccessible to many, but would serve as an impetus for expanding production and filling the market with goods, lowering prices to a level at which supply and demand are balanced.

And the last. Can a situation arise when the supply and demand curves do not intersect? Russian reality provides many examples of this kind. Rising prices in Russia are accompanied not only by a decrease in demand, but also by a reduction in supply. The situation in which the supply of goods with an increase in prices does not grow, but falls, looks like this on the chart (Fig. 5.21).

The graph shows that the equilibrium point has disappeared. The sale of goods did not take place. Payments have stopped. A paradox arose, not foreseen traditional methods economic theory.

This situation is explained by a number of the following reasons: the rupture of existing economic ties, the emergence of uncertainty and unpredictability in the economy;

lack of immediate adaptation of production to the changed market conditions; there is a certain gap between price increases and supply expansion, especially in capital-intensive industries;

and most importantly, the absence of a competitive environment in the economy.

The actual picture of the Russian economy shows the enormous scale, complex and multi-level nature of its monopolization. Three levels can be distinguished: monopolization of property (general nationalization), monopoly of management and technological monopoly. To this today we can add the collusion of sellers in the consumer market and the monopolization of regional areas. The liberalization of prices in these conditions leads to their inevitable growth and reduction in supply. Academician L.I. Abalkin called non-intersecting supply and demand curves a kind of “anti-monopoly effect” of the Russian economy.

So, it is precisely competition that is the powerful force that economically compels all commodity owners to manufacture, sell and buy goods at an equilibrium price and achieve equilibrium in the market.

The conditions for the formation of equilibrium in the market in the economic literature are studied both at the level of microeconomics, in relation to a separate economic unit in a separate market, which characterizes partial equilibrium (A. Marshall, D. Hicks), and at the macro level, in relation to economic system in general (general equilibrium model of L. Walras, V. Pareto, J. von Hyman, V. Leontiev).

Areas of economic activity. The concept of market equilibrium, equilibrium price and volume.

Changes in equilibrium states of the market. Methods for analyzing these changes.

Basic models of market equilibrium.

1 .The most important goal of market research is to identify the price and volume that satisfy both the buyer and the seller at the same time. Let's combine supply and demand models to answer the question.

The demand curve divides the market space into 2 areas, indicating the maximum level of possible market prices.

The supply schedule also divides the market space into 2 areas, indicating the minimum level of market prices.

Combining the two charts reveals 4 areas in the market space:

Dead zone of the market space: no buying or selling;

High price zone: possible sales, but not possible purchases (interests of the seller);

Low price zone: possible purchases, but not possible sales (buyer's interests);

Zone of possible purchases and possible sales.

These are areas of various equilibrium states of the market, some of which are stable, while others are not, depending on the amount of information that the buyer or seller owns.

Equilibrium is said to be stable if, at any deviation from the initial equilibrium price, the market again tends to the previous state.

The initial market equilibrium model has the form:

E: Qd=Qs=Qe; Pd=Ps=Qe;

Market equilibrium is a state in which:

The amount of demand is equal to the amount of supply and an equilibrium volume is formed;

The demand price is equal to the offer price and an equilibrium price is established;

Neither the buyer nor the seller has an incentive to change the volume of purchases and sales;

When P1-Qs>Qd;

For P2 – Qd2 > Qs2;

At any market price that deviates from the equilibrium, non-equilibrium market states are possible, the whole variety of which is reduced to 2 states of disequilibrium. At a high price of P1, there is an excess of supply - overproduction, at a low price of P2, there is an excess of demand - a shortage.

The situation of excess activates the activity of the seller (sales, discounts, technologies);

And the situation with the deficit activates the activity of the buyer (queues, appeal to resellers, expansion of the shadow market);

2 . Market equilibrium changes under the influence of both supply and demand factors. Consider the impact of non-price factors of demand:

So, under the influence of non-price factors of demand, the equilibrium changes in the same direction as the demand itself: demand has increased - and the equilibrium has also increased.

Consider the influence of non-price supply factors.

Conclusion: So, under the influence of non-price supply factors, the equilibrium volume changes in the same direction, and the price in the opposite direction relative to the change in the supply itself.

With the simultaneous influence of non-price factors of supply and demand, the situation requires a special specific analysis, in which conclusions can be different both in relation to prices and volumes.

There are 2 methods for studying changes in market equilibrium:

Static method;

dynamics method;

1) The method of statics focuses on the previous and current market equilibria, determining the price-volume combination in each specific situation, but the process of change and the time of such a change are not taken into account;

We do not pay attention to the time between E0 and E1 and what was the path. We consider the moment at each given moment and take into account the direction of change.

2) The method of dynamics in the analysis of changes in equilibrium states draws attention to the process of transition from one equilibrium to another, as well as to the duration of this process in time.

With this method, the following dynamic models are possible:

A) damped model;

B) Indifferent model;

B) Propagating model;

A) The damping model says that the wide amplitude of price changes at first, when approaching a new equilibrium, attenuates and decreases. One of the conditions for this version of dynamic models is the unequal awareness of the buyer and seller about prices in this market. Typical for developed market economies.

B) An indifferent model develops in the market if, when the market equilibrium changes, the same amplitude of price deviations remains until the onset of a new equilibrium.

C) The spreading model depicts a situation where minor price deviations at the beginning only increase over time. It is typical for countries with unfinished market structures (transitional economy);

In reality, any seller can counteract market instability by:

First: additional marketing research of the market;

Secondly: creating the necessary reserves for their use at the right time;

3 . There are 3 basic market equilibrium models used to explain market changes in different markets and over different time periods:

1) Spider web model;

2) Walrass model;

3) Marshal model;

1) The web model most satisfactorily explains markets with a long production cycle (agricultural markets, construction markets), when the buyer and seller have different price information. A buyer who focuses his market behavior on the current price has more up-to-date information. The seller, on the other hand, focuses on the price of the previous period, because he does not have more reliable information due to the ongoing production cycle. This model is a special case of the damped model.

The main condition for constructing this model is the difference in the slope coefficients when constructing supply and demand curves. The slope of the supply curve is:

The slope of the demand curve is

The buyer is more flexible, because has more information

P1 - high price of the previous period;

P2 - the real price at which the buyer will purchase;

2) The Walrasian model is used to explain market equilibrium in the short run. The peculiarity of the model is that both the buyer and the seller play an active role in it at the same time. The role of the buyer is enhanced in conditions of excess demand and competition among buyers. The role of the seller is enhanced in conditions of oversupply and competition among sellers. Competition among buyers is the force in the market that causes the market price to rise, and competition among sellers causes the market price to fall.

3) The Marshall model is used to explain market equilibrium in the long run. In this model, an active role belongs to the seller, the supplier of products. At the same time, the seller is focused on the ratio of bid and offer prices. If the demand price is greater than the offer price, then the seller increases the supply of goods to the market, and if the offer price is greater than the demand price, then the supply decreases until it reaches an equilibrium volume in this market.

Q 1 → Pd > Ps, supply increase;

Q 2 → Ps > Pd, supply reduction.

Market price. Market equilibrium

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 particular 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.

Equilibrium mechanism

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 in 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 R2.

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 in 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 R2.

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.

An increase in demand causes an increase in the equilibrium price and the equilibrium quantity of goods.
A decrease in demand causes a fall in both the equilibrium price and the equilibrium quantity of goods.
An increase in supply entails a decrease in the equilibrium price and an increase in the equilibrium quantity of goods.
A decrease in supply entails an increase in the equilibrium price and a decrease in the equilibrium quantity of goods.

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:

administrative regulation of prices;
monopolism producer or consumer, allowing to keep the monopoly price, which can be either artificially high or low.

State regulation of market processes with the help of taxes and subsidies

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 R2.

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.

State influence on market processes through price regulation

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:

an increase in demand causes an increase in the equilibrium price and the equilibrium quantity of goods;
a decrease in demand causes a fall in both the equilibrium price and the equilibrium quantity of goods;
an increase in supply entails a decrease in the equilibrium price and an increase in the equilibrium quantity of goods;
a decrease in supply entails an increase in the equilibrium price and a decrease in the equilibrium quantity of goods;
one of the levers of regulation of the market system are taxes. Such regulation does not violate the principles of formation of an equilibrium price according to the laws of supply and demand, does not change the conditions for the course of market processes and does not limit the freedom of action of market entities;
state intervention in market pricing by setting fixed prices affects the very operation of market mechanisms, changing the process of achieving equilibrium. The consequences of price controls, especially if they are applied for a long time, have a negative effect both in the social and economic spheres.

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:

1) excess demand, when the quantity of goods requested in the market exceeds the quantity offered. Signs of this situation are the abbreviation inventory(i.e. those stocks of goods that have already been produced and are ready for prompt sale or use) and the emergence of queues in the service sector (since stocks are not possible in establishments such as hairdressers, laundries);
2) oversupply, when the quantity of goods offered on the market exceeds the quantity demanded. Signs of this situation are the growth of commodity stocks (they exceed the level planned for the case of normal changes in demand) and the appearance of queues of entrepreneurs, sellers offering services.

On the graph, finding the equilibrium point looks simple. AT 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:

1) a decrease in demand under the influence of non-price factors leads to a fall in the equilibrium price and supply volume;
2) an increase in demand under the influence of non-price factors increases the equilibrium price and supply;
3) a decrease in supply under the influence of non-price factors leads to an increase in the equilibrium price and a decrease in the volume of demand;
4) an increase in supply under the influence of non-price factors leads to a fall in the equilibrium price and an expansion in the volume of demand.

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 holds the lead in the study of the categories "demand price" and "supply price", which is a further development of the theory 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 intend to continue to buy will match the amount of output that producers intend 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 showing the fluctuations that result in equilibrium is the spider web model shown in Figure 5. It reflects the formation of equilibrium in an industry with a fixed production cycle (for example, in agriculture), when producers, having made a decision on production on the basis of the prices that existed in the previous year, 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.

Consider the mechanism of interaction between buyers (consumers) and producers (sellers) in a perfectly competitive market, which has the following features:

1. the presence of many individual buyers and sellers of a homogeneous product (for example, wheat, apples);
2. absence of obstacles, barriers for entering the market and leaving it;
3. freedom to receive information, no costs for concluding transactions for the sale of goods;
4. the impossibility for an individual manufacturer (seller) to influence the market price. He is forced to accept a price that is spontaneously set as a result of the interaction of the forces of supply and demand in the market;
5. price competition. Since the producer agrees to the price, he can maintain and improve his position only by reducing the average cost of producing the goods. The lower his individual average cost compared to the market price, the stronger his position in the market. This is what price competition is all about;
6. Weak investment opportunities for small producers. In order to purchase all the necessary resources to continue his work, he must necessarily quickly sell the products produced.

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.

Rice. 5.4.1. Market equilibrium

The point of intersection of the curves E 0 (equilibrium - English) is called the market equilibrium (optimum), which has an equilibrium price - P 0 and an equilibrium quantity - Q 0.

Market equilibrium is such a state of the market when the desires and possibilities of sellers and buyers regarding the price and quantity of the product coincide completely. The equilibrium state of the market is characterized by the lack of incentives for sellers and buyers to change the existing situation, but it can be disturbed from the outside.

The price at which the goods are actually sold and bought is called the market price, and it does not necessarily coincide with the equilibrium price, and therefore the equilibrium and real sales volumes do not coincide. In this case, 2 market conditions are possible: overproduction, when the market is above the equilibrium point, and shortage, when it is below the equilibrium point (see Fig. 5.4.2.).

Fig.5.4.2. Scarcity and overproduction

Market equilibrium is inherently unstable, because market conditions that determine it are constantly changing, causing fluctuations in supply and demand. The result of these fluctuations is the restoration of equilibrium at the same or new level. Disturbance of market equilibrium can pass in two cases: either when the market price deviates from the equilibrium price, or when non-price factors of supply and demand change.

1st case. Price has a balancing function. If the market price for any reason turned out to be higher than the equilibrium price (see Fig. 5.4.3.)

Rice. 5.4.3. Balancing price function

(P1>P0), then the volume of demand Qd 1 will be less than the equilibrium Q 0 , and the number of people willing to sell at this price will increase, as a result of which the real volume of sales Qs 1 exceeds the equilibrium Q 0. A clearly visible excess of supply over demand will lead to overstocking market. (Qs 1 -Qd 1). To get rid of excess goods, sellers will begin to reduce the price, and manufacturers will reduce production. As the market price declines, buyers will become more active, showing more and more demand for the product. This will continue until the surplus of goods disappears and the market is thus again in equilibrium.

In the opposite situation, i.e. if the market price P 2 is below the equilibrium price P 0 , there is a shortage. There will be more people wishing to buy cheap goods and the volume of demand will reach Qd 2 . On the contrary, the number of sellers will decrease and the supply will be equal to Qs 2 , as a result Qd 2 > Qs 2 . Focusing on active demand, sellers will begin to raise prices. Manufacturers will revive, expanding output, and on the other hand, price growth will reduce excess demand. As a result of these processes, the market will also return to the previous equilibrium state.

2nd case. As a result of changes in non-price factors of supply and demand, the equilibrium is established at a new level. 3 situations are possible.

a). Change only non-price factors of demand. For example, a product has become fashionable, so the demand for it has increased. This will lead to a shift in the demand curve up - to the right (see Fig. 5.4.4.).

Rice. 5.4.4. Demand curve shift effect

Specifically, we are talking about the fact that the volume of required goods of this type has increased at each price level. Strong demand will stimulate price increases and output expansion. At the same time, as the price rises, demand activity will fall. This will continue until the system reaches a new equilibrium state E 1 . The effect obtained from such a shift in the demand curve will be to simultaneously increase the price P 1 > P 0 and increase the volume of sales Q 1< Q 0 . Обратная реакция рынка будет наблюдаться при сдвиге кривой спроса вниз и влево.

b). Changing only non-price supply factors. For example, there was an increase in the cost of raw materials. Production costs will rise. To cover increased costs, producers will raise prices (see Figure 5.4.5.),

Rice. 5.4.5. Supply curve shift effect

which in turn will reduce demand. As a result, a new equilibrium state will appear on the market, characterized by a higher price (P 1 >P 0) and a smaller equilibrium quantity (Q 1

The opposite situation will be observed with a decrease in resource prices.

in). A change in non-price factors of supply and demand leads to a simultaneous shift in the supply and demand curves, and their influence can be either opposite or unidirectional, i.e. There may be several options. Let's consider one of them, more complex, when, under the influence of non-price factors, demand grows and supply falls, for example, a product has become fashionable, but the prices for resources for its production have risen. This situation will lead to the fact that the demand curve will shift up-to the right, and the supply curve up-to the left (see Fig. 5.4.6.).

Rice. 5.4.6. The effect of a simultaneous shift in supply and demand curves

Active demand and rising prices for resources will definitely cause an increase in the equilibrium price (P 1 > P 0). The equilibrium quantity can increase, decrease or remain the same (as in our example), it depends on which of the non-price factors acts more strongly than the fashion or resource prices, or they balance each other, as in this case (Q 0 \u003d Q 1 ).

The ability of the market to return to the lost equilibrium is called the stability of the market equilibrium. This means that a change in any factors in the market, causing a violation of the market equilibrium, activates the forces that ensure the restoration of this state. The stability of the market equilibrium is determined by a number of circumstances, but primarily by the type of market structure.

The stability of the market equilibrium is an important aspect theoretical research, since it allows us to solve the most important problem about the degree of state intervention in the course of economic development.