The product suggestion function establishes a link between. Offer and its function. Supply Determining Factors. market equilibrium conditions

Offer function determines the offer depending on various factors influencing it. The most important of these is the price per unit of good at a given time. A change in price means movement along the supply curve. In fact, the supply of a good is influenced not only by the prices of the good itself, but also by other factors: 1) the prices of factors of production (resources), 2) technology, 3) price and scarcity expectations of market economy agents, 4) the amount of taxes and subsidies, 5) the amount sellers, etc. The amount of supply is a function of all these factors

Qs=f(P, Pr, K, T, N, B),

where Rg - prices of resources;

K - the nature of the technology used;

T - taxes and subsidies;

N is the number of sellers;

B - other factors.

Movement along the supply curve reflects change in the value of the offer: the higher the price, the higher (ceteris paribus) the supply and, conversely, the lower the price, the lower the supply. A shift in the supply curve to the left or right reflects proposal change: it occurs under the influence of factors that determine the function of the proposal.

To understand the function of a sentence, the time factor is important. Usually distinguish the shortest, short-term (short) and long-term (long) market periods. In the shortest period, all factors of production are constant; in the short run, some factors (raw materials, labor, etc.) are variable; in the long run, all factors are variable (including production capacity, the number of firms in the industry, etc.).

ATconditions of the shortest market period an increase (decrease) in demand leads to an increase (decrease) in prices, but does not affect the supply. ATconditionallyshort period an increase in demand causes not only an increase in prices, but also an increase in output, as firms have time to change some factors of production in accordance with demand. ATconditions for a long timeth period an increase in demand leads to a significant increase in supply at constant prices or a slight increase in prices.

3. Equilibrium of supply and demand and its models.

In a market economy, competitive forces contribute to the synchronization of demand prices and supply prices, which leads to equality in demand and supply volumes. At the point of intersection of the supply and demand curves, the equilibrium volume of production and the equilibrium price are established.

Equilibrium price - the price that balances supply and demand as a result of competitive forces. Equilibrium price formation is a process that requires a certain amount of time. Under conditions of perfect competition, there is a rapid mutual adjustment of demand prices and supply prices, the volume of demand and the volume of supply. As a result of equilibrium, both consumers and producers benefit. Since the equilibrium price is usually lower than the maximum price offered by consumers, the value surplus (youtoy) consumer can be graphically represented through the area bounded by the maximum price and supply and demand curves up to the equilibrium point. In turn, the equilibrium price is usually higher than the minimum price that the most advanced firms could offer.

If E is the equilibrium point, then the price at which goods are sold and bought is equal to P E, and the volume of goods sold is equal to Q E . Consequently, the total (total) revenue is equal to TR = P E x Q E . The total costs (costs) of producers are equal to the area of the figure OP min EQ E .

The difference between total revenue p x Q E and total costs is the surplus (gain) of the producer.

Both the establishment of an exact equilibrium price and small deviations from it are possible. Market equilibrium exists where and when the possibilities of changing the market price or the quantity of goods sold have already been exhausted.

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 (supply). If there is an excess of demand at the price P1: , then as a result of the competition of buyers, the price rises until the excess disappears. In the case of an excess supply (at a price of P 2), the competition of sellers leads to the disappearance of the excess.

The main thing in the approach of A. Marshall is the price difference. Marshall proceeds from the fact that sellers primarily react to the difference between the ask price and the offer price. The larger this gap, the greater the incentive for supply growth. An increase (decrease) in the volume of supply reduces this difference and thereby contributes to the achievement 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 simplest dynamic model that shows damped oscillations, as a result of which an equilibrium is formed 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 existing in the previous year. They can no longer change its volume.

The equilibrium in the cobweb model depends on the slope of the demand curve and the supply curve. Equilibrium is stable if the supply slope S is steeper than the demand curve D. If the demand curve slope D is steeper than the supply curve slope S, then the fluctuations are explosive and equilibrium does not occur. If the slopes of the demand and supply curves are equal, then in this case the price makes regular oscillatory movements around the equilibrium.

It is simply unrealistic to imagine an international market without an offer. However, not everyone modern man knows the correct interpretation of this term, so we will now try to reveal it, as well as understand what the supply function is and how it affects all economic processes. The main thing to remember is that the economy - simple science, and to understand it, it is enough just to imagine everything with a clear example.

General concept of the term

The offer is considered the ability and full readiness of the manufacturer to sell its own goods and services under certain conditions. These are price indicators that are set depending on the actual economic situation in a particular period of time. In turn, the supply function is the relationship of the market supply in full and the factors that determine it. Here, the volume of market supply is the entire amount of economic good that is supplied to the market by all operating producers in a specific time period.

What does this offer consist of?

As you noticed, the supply function includes such a component as an economic good. Characterizing this concept, we can say that these are the determinants of offers, which determine the ability of producers to exhibit and sell their goods and services at a bargain price. In this scheme, it is also important that the costs that go into the production of all these products or services do not exceed the market, so-called total, price of this good. In order to make it clearer what these determinants are, we divide them into two categories. The first will include price, that is, the function of the supply of money or the price of the good produced. The second group includes such components as capital resources, labor, natural resources, the number of workers, taxes, equipment, producers' expectations, in a word, non-price factors.

Everything in a language everyone understands

As a result, you can derive an ordinary everyday formula that everyone will understand. The offer function is the set of all production factors and their dependence on the price, which is now relevant for manufactured products. It is easy to draw in the form of a graph (see pictures), it is often presented in economics textbooks as intricate in Latin terms and designations. In fact, this indicator is strongly related to the threshold of profitability, as well as to constant price fluctuations, which can be traced both on stock exchanges and in a market economy. That is why the function of the proposal characterizes to some extent the viability of the enterprise.

Structure of a modern market economy

Now let's consider how, based on the named economic indicator, we can determine some market data, as well as approximately model the work of a particular enterprise. Therefore, let's delve a little into the theory of this proposal characterizes changes in the market supply depending on changes in demand. Also given function determines the prices of goods that are currently relevant in various markets. Its spectrum of "actions" also includes fluctuations in supply depending on price dynamics and total production volumes at a specific moment at which a single price was established.

The unshakable laws of finance

Every economist knows perfectly well what the market supply function, or the law of supply, is. This is an integral part of a market economy, which is characterized by a direct relationship between the market volume of a good and the price indicator for this very good. More plain language, we can say that prices are rising, and with them the volume of supply is increasing. If it has a decreasing dynamics, then production volumes also decrease. It is on this principle that the modern market is built, all economic and financial structures, large enterprises, small organizations and private firms work exclusively.

Offer feature in action

Now let's look at exactly how supply functions work in the economy, and how they affect changes in various indicators and market factors. The first point is the pricing policy for these very factors of production. If the manufacturer has to spend more money on raw materials, wages, equipment and other things related to his activities, accordingly, the volume of output decreases. If the funds spent on the production process are small, the costs of determinants are reduced along with them, therefore, it is possible to produce a large amount of products.

The second point is the introduction of new technologies. If more advanced technology is used in production, its final volumes will increase significantly. In the event that the prices of fixed factors of production remain the same, the enterprise will be able to get much more profit from the sale of more products at the same price. Point number three is the well-established management of the company. It's about about the number of sellers that the company releases to the market. The more recommended the product and, most importantly, the more points (regions, cities, countries), the greater will be the turnover, and hence the profit.

On the fourth point, only losses can be noted, since we will talk about taxes. In our time, the growth of these economic costs is not new for every entrepreneur. You have to pay more and more: for production equipment, for employees and even for your own profit. Thus, the cost of a productive good increases, which leads to a decrease in the total total profit. Well, in the fifth paragraph, we note the so-called forecasts of the manufacturers themselves or their expectations. Sometimes entrepreneurs assume that the prices of the goods they produce will rise, so they produce everything in small volumes. Naturally, the behavior of stock fluctuations and other economic and financial indices is unpredictable, which is why many people miss. But in this case, as they say, everyone has their own policy.

Qs=f(P, Pr, K, T, N, B),

where Rg - prices of resources;

K - the nature of the technology used;

T - taxes and subsidies;

N is the number of sellers;

B - other factors.

3. Equilibrium of supply and demand and its models.

The difference between total revenue p x Q E and total costs is the surplus (gain) of the producer.

The simplest dynamic model that shows the damped oscillations that result in 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 existing in the previous year. They can no longer change its volume.

Law of supply expresses direct the relationship between the price and quantity supplied of a good certain period time.

The law of supply states that as prices rise, so does the quantity supplied; as prices fall, so does supply. Supply is influenced by both price and non-price factors.

The relationship between prices and the amount of goods that producers are willing to produce and sell is called the schedule or supply curve. The higher the price, the greater the supply of goods, ceteris paribus, because the producer seeks to increase his income. However, at very high price a sufficiently large income can be obtained without increasing production. In this case, the offer may be reduced.

The law of supply has two forms of expression: a) sentence scale; b) supply curve.

Offer scale- this is a tabular expression of the relationship between the market price of a good and the quantity that sellers will offer at this price.

Supply curve - it is a graphic expression of the relationship between the market price of a good and the quantity that sellers will offer at that price.

The supply curve reflects the relationship between the amount of a good offered and its price. It illustrates what price must be paid per unit of the offered good for each quantity of the good in order for this quantity of the good to be released, that is, offered to the market. For most goods, the supply curve has an "ascending" and "concave" shape.

The ascending supply curve expresses the essence of the law of supply, which lies in the fact that for a significant amount of goods, the higher the price for them, the greater the amount of goods offered by producers in the market.

The “concavity” of the supply curve is explained as follows: with an increase in the price of a good, an increasing number of firms participate in its release, thereby causing a significant increase in the volume of the proposed good. As the price of the good rises, at a certain stage the market will be oversaturated with it and the expansion of the output of the good will stop; as a result, the output of goods stabilizes regardless of the price level. If the price continues to rise, the supply curve will become vertical.

SUPPLY FACTOR - an increase in the available amount of a resource, an increase in its quality, or an expansion of technical knowledge, technological capabilities, innovations that create the possibility of producing a larger volume of goods and services, contributing to an increase in their supply.

Price factor - a change in the supply value is affected by a change in the price of a given good in the market. (Qs)=f(P), where Qs is the total volume of supply; P is the price per unit of this good in the market.

Factors affecting supply (non-price)
1. Prices of factors (resources) of production
2. Production technology
3. Producer price and deficit expectations
4. Amount of taxes and subsidies
5. Number of manufacturers

OFFER FUNCTION-dependence between the amount of offered goods and his at the price, and others factors affecting the volume suggestions, are taken constant. The term " scale suggestions".

The supply function S(p) describes the relationship between the market price of a good and its supply on an isolated market for that good. In the general case, one should proceed from the fact that the product in question is produced by a sufficiently large number of enterprises competing with each other. In such a situation, it is natural to assume that each producer seeks the greatest profit, and his individual output of a product increases as the price of this product rises. But then the total supply of goods on the market S(p), as the sum of individual outputs, is an increasing function of price, i.e. S′(p)>0.

9) Interaction of supply and demand. Models of Walras and Marshall: content and Comparative characteristics. Equilibrium price and equilibrium quantity.

INTERACTION OF DEMAND AND SUPPLY is a process that generates the formation of a market price that satisfies both the seller and the buyer at the same time.

The market price reflects a situation where the plans of buyers and sellers in the market completely coincide, and the amount of goods that buyers intend to buy is absolutely equal to the amount of goods that producers intend to offer. As a result, an equilibrium price arises, i.e., the price of such a level when the volume of supply is equal to the volume of demand.

In a market equilibrium of supply and demand, there are no factors either to raise or lower the price as long as all other conditions remain equal.

Rice. Interaction of supply and demand

Let us now introduce the concept offer function ».

The supply function is expressed by an equation showing the quantitative relationship between the supply of a good and all the factors that determine it.

The offer function can be written as:

Q S= f(P g , C g , s 1 … s n c 1 … c m , U, P e g)

In this expression Q S is the supply of the good, which is a function of P g - the real price of this good (its changes give rise to movement along the supply curve), as well as from C g - the cost of creating the proposed good, s 1 … s n - profitability of substitute goods, c 1 … c m - profitability of complementary goods, U- unpredictable events and P e g - the expected price of this good (changes in which determine the shifts in the demand curve itself).

The supply function can be represented in an abbreviated form, only as a dependence on the real price of a given good. The offer function can be represented, for example, as some abstract linear function (equation 2.4) and as the same function with some conditional numerical values (equation 2.5), which is shown in Fig. 2.6.

Q S=- c + dP(2.4)

Q S=- 20+4p(2.5)

Fig.2.6. Linear function suggestions for Equation 2.5.

Equilibrium in a particular commodity market.

Price and balance.

Let us now ask the question: what will be the real market price of the good and its quantity sold on the market? To answer it, you can go back to market demand and market supply and combine the data from tables 2.1 and 2.2. We obtain Table 2.3, which presents the possible prices of the good and the corresponding values of market demand and market supply.

If the price were CU 2 per unit of the good, then there would be an excess of demand over supply on the market, and this gap (deficit) would amount to 80 units of the good. At the same time, a part of the consumers left without purchases will be ready to buy the goods at a price higher than CU 2, and the sellers, of course, will not refuse to sell the goods at a higher price.

Table 2.3

Market demand and market supply

The resulting shortage would cause the price to rise and narrow the gap between supply and demand. The price would rise until the market was equal between market demand and market supply. As can be seen from table 2.3, it will take place at a price of CU 4.

If we assume that the price of a good is CU6, then there is a surplus of this good equal to 45 units. At this price, sellers are willing to offer 90 units of the good, but buyers are only able to purchase 45 units. Here, some sellers are ready to lower the price, and consumers will respond to this by increasing purchases. As a result of the price decrease, the surplus will decrease until the market achieves equality between market demand and market supply.

When the amount of demand is equal to sentences then talk about clearing the market .

Clearing the market is a situation where volumes supply and demand match; there is no shortage or excess.

The market clearing situation is responsible balance price.

The equilibrium price is the price that balances supply and demand and eliminates both shortage and excess.

The equilibrium price corresponds to equilibrium quantity good.

The equilibrium quantity is the quantity of a good that is sold at the equilibrium price.

In the presence of an equilibrium price (and therefore an equilibrium quantity), the market as a whole observes equilibrium .

Equilibrium is a state where there is no tendency to change it.

The free movement of prices constantly transmits information to sellers and buyers that stimulates them to take actions that ensure the maintenance of market equilibrium, its constant restoration in case of temporary deviations.

On fig. 2.7 presents the market demand and market supply, built on the basis of the information in table 2.3. Equilibrium is indicated by a dot E. Accordingly, the equilibrium price is denoted as R e, and the equilibrium quantity of the good as Q e. The deficit is equal to the difference between Q D and Q S , and the excess is the difference between Q¢S and Q¢D. Up and down arrows along the market supply and demand lines indicate a tendency to maintain equilibrium.

Rice. 2.7. Establishment of market equilibrium.

Equilibrium, in a particular case, can be shown through the solution of the simplest system linear equations representing supply and demand. If we equate the demand function ( Q D= a - bP) to the offer function ( Q S=- c + dP), then we get:

a - bP = -c + dP

P e = ( a+c)/(b+d) (2.6)

Q e = ( ad-bc)/(b+d) (2.7)

Equations 2.6 and 2.7 show expressions for the equilibrium price ( P e) and quantity ( Q e).

You can substitute the corresponding values in them. a, b, c, d from equations 2.3 and 2.5. In this case, we get that P e = 10, and Q e = 20. 2.8 equilibrium in the market where functions of supply and demand are expressed by the equations 2.3 and 2.5 is presented.

Rice. 2.8. Market equilibrium

Balance shifts.

The equilibrium price changes with shifts in the supply and demand curves. As a result, a new equilibrium is established.

1. Changes in demand. If at least one of the non-price factors of demand changes, then the demand curve, as we already know, also shifts. This leads to movement along supply curve to a new equilibrium point.

On fig. 2.9 hypothetical shifts of a demand curve are shown. Curve shift to the right from position D 1 to position D 2 means an increase in the equilibrium price from P 1 e to P E 1 point E 2. At the same time, the equilibrium quantity of the good also increases with Q 1 e to Q D 1 to position D 3 means a decrease in the equilibrium price from P 1 e to P E 1 point E 3 . At the same time, the equilibrium quantity of the good also decreases with Q 1 e to Q 3 e.

Rice. 2.9. Equilibrium changes as a result of changes in demand.

In this way, changes in demand are accompanied by similar unidirectional changes in the equilibrium price and equilibrium quantity. This is due to the fact that the equilibrium shift occurs along a positively sloped supply curve.

2. Changes to the offer. If at least one of the non-price supply factors changes, then the supply curve also shifts. This leads to a movement along the demand curve to a new equilibrium point.

On fig. 2.10 shows hypothetical shifts in the supply curve. Curve shift to the right from position S 1 to position S 2 means a decrease in the equilibrium price from P 1 e to P 2 e and the corresponding shift of equilibrium from the point E 1 point E 2. In this case, the equilibrium quantity of the good, on the contrary, increases with Q 1 e to Q 2 e. Curve shift to the left from position S 1 to position S 3 means an increase in the equilibrium price from P 1 e to P 3 e and the corresponding shift of equilibrium from the point E 1 point E 3 . In this case, the equilibrium quantity of the good, on the contrary, decreases with Q 1 e to Q 3 e.

In this way, changes in supply are accompanied by multidirectional changes in the equilibrium price and equilibrium quantity. This is due to the fact that the equilibrium shift occurs along a negatively sloped demand curve.