2.1.2. Suggestion: concept, indicators, function. Law of supply

Sentence (S): the desire of producers to sell a certain quantity of a product at a certain price within a certain time.

Characteristics of the offer:

1. Quantity of supply: Qs is the amount of goods that sellers are willing to sell at a certain price within a certain time.

2. Price: Ps - the minimum price at which sellers are willing to sell a certain amount of goods.

There is a relationship between (1) and (2), which is reflected in the law of supply.

The law of supply it is a direct relationship between the price of a good and the quantity supplied of that good.

The graphical form of expression of the law of supply is the supply curve.

Supply curve- because the seller is the recipient of the payment, then the higher the price, the greater the revenue, the amount of profit depends on the price. Low prices may not cover production costs. Therefore, if prices go down, then this leads to a reduction in market supply goods and vice versa.

The offer function can be given:

The graph is the supply curve. It shows how many goods (Qs) producers are willing to sell at each price level in a particular period of time.

table;

Mathematical formula.

The graph has a positive slope.

Mathematical formula:

Ra is the price of good A

Ps Pz - prices for complementary and substitutable goods

L - prices for production resources;

N - taxes and subsidies;

T is the nature of the applied technology.

When Pa = const, non-price factors are at work.

Factors affecting the offer:

1. Price (Pa) - changes in the volume of supply and is graphically displayed by moving points along the curve (from A to B) with other conditions unchanged.

2. Non-price (valid when Pa = const):

Prices for complementary and interchangeable goods;

Prices for production resources (land, labor, capital);

Taxes and subsidies;

The nature of the applied technologies;

The number of sellers.

Non-price factors lead to a change in the supply itself and are graphically displayed by moving the entire supply curve.

From S to S 1 - increase in supply.

From S to S 2 - a decrease in supply.

Sentence- the relationship between the price of a product and the quantity that sellers want and may sell.

Law of supply- other things being equal, the higher the price of the goods, the greater the desire of the seller to sell it.

Non-price supply factors:

resource prices

technology

number of sellers in the market

expectation of future prices

The law of supply can be illustrated with a supply curve.

Supply curve reflects a positive relationship between price and quantity offered. Each point shows the volume of supply and the corresponding price. For example, at point E* the price P corresponds to the quantity of goods Q s .

By raising the price to P 2, the producer will want to sell more of X and increase the supply to T.B. As the price drops to P 1 , the producer will reduce output to point A. This movement along the supply curve is a change in the quantity supplied of good X.

Supply volume- the quantity of goods that would be sold at a given price, if all other factors affecting the supply remain unchanged.

Change in supply volume- movement from point to point along the supply curve under the influence of the price factor. The change in the quantity of a good offered for sale in response to a change in price (ceteris paribus).

Change of offer- shift of the entire supply curve in response to the impact of non-price factors. On the graph, an increase in supply will be demonstrated by a shift in the supply curve from S to S 2 (this shift could be caused by the manufacturer's expectation of an increase in commodity prices, a decrease in resource prices, an increase in the number of sellers in the market, etc.). A shift in the supply curve from S to S 1 indicates a decrease in supply at a constant price for the product.

offer function.

The supply function is the dependence of the supply on the relevant factors influencing the supply. Usually, the factors are reduced to a minimum, believing that they are unchanged.

It is this empirically derived dependence that is the law of supply. However, the relationship between price and quantity sold can also be viewed in the opposite direction. In this case, the same supply curve will show the minimum price at which the seller is willing to give up a given quantity of goods. This inverse relationship can be expressed as inverse sentence function: [P s = g(Q)]. This relationship is also increasing.

3. Interaction of supply and demand. Market balance.

If a the market is in equilibrium, the price of a good is such that the quantity of the good that buyers are willing and able to purchase exactly matches the quantity of the good that producers are willing and able to sell.

In other words, this is the situation when the quantity demanded is equal to the quantity supplied at a given equilibrium price.

AT The entire market space is divided into four sectors.

Sector 1- "dead zone" (prices are higher than the maximum for the buyer and below the minimum for the seller). No one is interested in making deals on such conditions.

Sector 2- the zone of possible sales (one-sided interest of the seller), but the purchase of such quantities of goods at such prices is impossible.

Sector 3- the opposite picture: only the buyer is interested in such low prices for given quantities of goods. Sale under such conditions is impossible.

Sector 4 -"zone of coincidence of interests". Almost any dot from this sector symbolizes the terms of a possible deal. T. A - seller's market(buyer at the limit of his capabilities), t.B - "buyer's market". If the balance of power in a given market does not allow one to speak of a clear superiority of one of the parties, then the market situation can be expressed by some point lying somewhere in the middle between the supply and demand curves. The coincidence of prices and volumes of demand and supply achieved in this case can hardly be called stable, since at least one of the parties to the transaction has an incentive to change the situation. The situation will be stable only if the interests of the seller and the buyer coincide, i.e. at the point of equilibrium (i.e.). At this point, the price of the good is such that the quantity of the good that buyers are willing and able to purchase exactly matches the quantity of the good that producers are willing and able to sell.

The mechanism for establishing market equilibrium.

Growth in demand; [As demand increases, buyer competition increases and shortages occur. This leads to an increase in price and an increase in supply to a new equilibrium point)].

Falling demand;[when demand falls, there is a trading surplus in the market. This leads to a decrease in price and a reduction in supply to a new equilibrium point)].

Supply growth;[Growth in supply leads to a shift in the supply curve from S to S 1 . This will lead to trade surplus and competition among sellers, which will result in the market price dropping to a new equilibrium state.]

Supply drop;[when supply decreases, the situation will change in the opposite direction].

Sentence is the willingness and ability of sellers to sell goods under certain conditions. Such a condition is the price of a certain good at a particular moment in time.

The value (volume) of the market supply is the total amount of economic good supplied to the market by all producers at a certain point in time.

Offer function- this is the dependence of the volume of the market supply of an economic good on the factors that determine it.

The factors that determine the size of the market supply are called supply determinants. These are the parameters of the market that determine the ability of producers to implement a market offer. At the same time, the costs of producing an economic good should not exceed the market price of this good.

All factors that determine market supply can be divided into two groups:

• - price factors, i.e. the price of the produced good Px;
• - non-price factors: Pn - natural resources, Pk - capital resources, Pw - labor resources, M - number of sellers, H - technologies, T - taxes, E - producers' expectations.

Thus, the offer function has the form: Q=f(Pх,…,Pn,Pk,Pw,M,H,T,E). With all other factors unchanged, the supply function is the supply function of the price: Q=f(Px). According to worldly logic, we can assume that with an increase in prices, the supply increases.

The graphical representation of the supply function is the supply curve:

Law of supply- one of the principles of a market economy. It is determined by the direct dependence of the volume of the market supply of a good on the price of this good, i.e. As the price rises, the quantity supplied increases; as the price falls, the quantity supplied decreases.

Consider how the volume of supply is affected by changes in various factors:

• 1. Prices for factors of production. As the price of factors of production rises, the cost of producing the good increases accordingly, which contributes to a decrease in the volume of supply. In this case, the supply curve shifts to the left. A decrease in prices for factors of production leads to a decrease in the cost of producing a good, the volume of supply increases, the supply curve shifts to the right.
• 2. Technology. The introduction of new technologies into production helps to reduce the cost of producing economic goods. At constant prices for factors of production, production costs are reduced, which contributes to an increase in the supply of goods at the current price. In this case, the supply curve shifts upward.
• 3. Number of sellers. The number of sellers in the market has a positive effect on the change in the volume of supply, the supply curve shifts to the right.
• 4. Taxes. An increase in taxes leads to an increase in the cost of producing a good, and therefore to a decrease in the volume of supply at existing prices. The supply curve shifts to the left and up.
• 5. Expectations of producers. Forecasting an increase in the price of an economic good can lead to a decrease in the supply. In this case, the supply curve shifts to the left and up.

In the modern market there is a concept opposite to demand - this is supply. By this term, experts understand the willingness of the seller to immediately sell his product. Manufacturers are the main suppliers of products on the market. Their activities in the formation of prices and the sale of goods are determined by certain goals, the main of which is to maximize profits. The main function of the offer price is to ensure their achievement.

The essence of the proposal

Each commodity producer strives to produce goods, the need for which society is experiencing at the moment, that is, based on consumer demand. Thus, all producers in the market contribute to the satisfaction of social needs, forming the so-called supply. This is the ability and desire of the seller to put on the market a certain amount of goods at a given time. Such an opportunity is limited by the volume of production resources, therefore it is unable to satisfy the needs of the whole society at once.

The volume of supply is determined by the volume of production, but not equal to it. The difference between these values ​​is explained by the internal consumption of products, losses during storage and transportation, etc.

Law of supply

The quantity of goods supplied to the market and its cost are united by a direct or positive relationship. The formulation of this dependence is as follows: with equal market characteristics, an increase in the purchase price of a product contributes to an increase in supply, just as its decrease causes a decrease in production volumes. This specific dependence is the main market law.

It is possible to visualize the operation of such a law in reality in three ways: graphical, analytical or tabular.

Let's consider the first option. Plotting on the graph the conditional supply values ​​on the horizontal axis, and prices on the vertical axis and connecting them, we see that the resulting line has a positive slope. Simply put, as the price rises, the quantity of goods on the market increases, and vice versa. This graph is a direct proof of the market law formulated above, defined by such a concept as a supply function.

Supply Determining Factors

The main factors that can regulate the amount of supply are the following non-price determinants:

1. The price of the resources needed for production. The more expensive the raw materials used, the higher the production costs and, accordingly, the lower the profit and the desire of the manufacturer to produce this product. Thus, the supply function and its volume directly depend on the prices of factors of production (their increase leads to a decrease in its volume and, as a result, a decrease in supply).
2. Technology level. The use of the most modern production technologies, as a rule, helps to reduce costs and is accompanied by an increase in the volume of goods offered.
3. Firm goals. If the main task of the enterprise is to make a profit, then its activity is aimed at increasing the pace of production. If the goal is, for example, its environmental friendliness - production capacity drops.
4. taxes and subsidies. Increasing taxes leads to higher costs, while government subsidies, on the contrary, encourage producers to increase supply.
5. Changes in prices for other goods. For example, a change in oil prices (in particular, an increase) contributes to a change in the cost of charcoal, in this case upward.
6. Producer expectations. Constant monitoring of the market sometimes affects the behavior of producers, for example, the expected inflation contributes to a decrease in production. Similarly, the planned increase in prices affects the change in supply, only in the opposite direction.
7. The number of producers of homogeneous goods can also be attributed to factors influencing supply. The more of them, the higher the volume of goods offered in this market.

Offer function

This function is the dependence of the volume of goods entering the market on the factors that determine it. In a broad sense, all types of supply functions consist in organizing direct interaction between the production of goods and their consumption, as well as their purchase and sale.

The emerging market demand for a product causes an increase in its production volumes and an improvement in quality, which leads to an increase in the total amount of this product on the market.

Supply curve

The supply curve (or supply function) is a way of graphical representation of the quantity of goods offered in a given market for each price value, with the influence of other factors unchanged. As a rule, this curve is increasing.

To build a graph, you need to draw a line in the coordinate system, connecting the intersection points of the supply and demand lines.

The location and slope of the curve on the graph depend mainly on the size of production costs, since no enterprise will work if the profit from the sale of a product does not cover the cost of its production.

Supply curve shifts

An increase in supply contributes to an increase in production, and a decrease in supply leads to their decrease. This dependence is also reflected in the supply schedule: in the first case, it shifts to the right and down, in the second - to the left and up.

The supply function of a good, as well as its curve, involves the use of two different terms, such as "supply quantity" and "supply" itself. The first term is used when it comes to a change in the volume of goods entering the market due to fluctuations in their prices. If the change in production is caused by other factors, the second term is used.

Also, a shift in the supply curve occurs when the amount of production costs varies: with its growth, the line shifts up by the amount of the difference, and vice versa - with a decrease.

Similar metamorphoses will be noted on the graph in the event of an increase / decrease in taxes, due to their direct relationship to production costs.

Interaction of supply and demand

The retail price of a product on the market, as well as the volume of its production and sales, is determined by the interaction of supply and demand. It is this interaction that determines the functions of supply and demand.

If the price of a product falls below the average, the market responds by increasing consumer demand. Producers, in turn, reduce the output of this product, as its production has become less profitable. Thus, buyers are ready to buy a product, but manufacturers are unable to meet their growing need for it.

The reverse action occurs when prices rise: manufacturers want to put on the shelves as much expensive goods as possible, but buyers do not want to buy it at such a high price.

Equilibrium price

The equilibrium price is the price at which the quantity of goods produced fully satisfies consumer demand for it, that is, the quantity demanded is equal to the quantity supplied. This volume of production is the equilibrium for this market.

If the current price of the goods differs from the one mentioned above, then the activity of sellers and buyers contributes to its achievement. This is explained by the fact that only such a value of the goods ensures the satisfaction of the current needs of society (and this, as we have already noted, is the main function of supply) and the maintenance of an optimal level of production costs.

Suppose that the dependence of total costs on the volume of production of a particular firm is given by the equation:

TS= 500 + 20Q - Q 2 where TFC = 500 c.u.

First, we define the firm's supply function in the short run.

1) Derive the equation of marginal cost (MC):

MS= TC "(Q) \u003d 20 - 2Q.

2) We equate marginal costs to the market price and obtain the required supply function:

20 - 2Q = P; 2Q= 20 - P; Q s \u003d 10 - 0.5 R.

3) Determine the volume of output at Р= 10 c.u., substituting the appropriate value into the offer function:

4)Q= 10 - 0,5 X 10 = 5 units products.

So far we have considered short term, which assumes the existence of a constant number of firms in the industry and the presence of a certain amount of constant resources in enterprises.

In the long run all factors of production are variable. For firms operating in the market, this implies the possibility of changing the size of production, the introduction of new technology and product modification, and for the industry as a whole, a change in the number of manufacturing firms. Since we are considering a competitive industry, we assume that there are no restrictions on entry or exit from the industry.

If the level of costs prevailing in the industry allows individual producers to receive positive short-term economic profits, then firms operating in the market tend to expand their production and get the maximum benefit from favorable market conditions.

At the same time, the investment attractiveness of the industry is growing and an increasing number of external firms are beginning to show interest in penetrating this market. It is obvious that the speed of these processes will largely depend on the expected rate of industry profit.

The emergence of new firms in the industry and the expansion of the activities of old ones will inevitably increase the market supply, cause a tendency to reduce the market price and, as a result, to reduce profits.

If for some reason (for example, the extremely high attractiveness of the market) the market supply increases to a level at which firms cannot even extract normal profits, a gradual outflow of companies into more profitable areas of activity and a reduction in the scale of activities in the remaining industries will begin.

The reduction in industry supply causes a reverse process. Prices gradually begin to rise, losses decrease, and the outflow of firms stops.

It should be noted that in practice the regulatory forces of the market work better for expansion than for compression. Economic profit and freedom to enter the market actively stimulate an increase in the volume of industry production. On the contrary, the process of squeezing firms out of an over-expanded and unprofitable industry takes time and is extremely painful for participating firms.

The process of entry and exit of firms will continue until the long-term market equilibrium.

Thus, a competitive long-run equilibrium implies the fulfillment of three conditions:

firstly, all active firms in the industry make the best use of the resources at their disposal and maximize their profits