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Market demand. Demand curve. The law of demand What is market demand

Lecture 4. Market and market equilibrium

4.1. Market demand. Demand law. 1

4.2. Market offer. Supply law. 3

4.3. Market equilibrium. 6

4.4. Market equilibrium and government regulation of the market. ten

Market demand. Demand law

Demand- This is a desire, backed up by monetary potential, the intention of consumers to purchase any product. Demand can also be defined as a solvent social need for goods and services. The main characteristic of demand is its size or volume. Demand value- This is the amount of goods that the consumer is willing and able to purchase at a certain price within a certain period of time.

In economic theory, it is customary to distinguish between individual, market and aggregate demand. Individual demand Is the demand of an individual buyer for a particular product. The amount of individual demand is determined by the tastes and preferences of the individual, as well as the level of his income. Market demand Is the total demand of all buyers in a given market. The value of market demand depends, first of all, on the number of buyers, the level of prices for goods and services, the level of consumer income and other factors. Aggregate demand- this is the demand in all markets for a certain product or for all manufactured and sold goods.

All transactions in the market are carried out at the demand price, which determines the willingness of buyers to pay for a product or service. Bid price Is the maximum price that buyers are willing to pay for a certain amount of goods or services at a given time in a given market.

The demand for goods and services depends on a number of factors (determinant), which include:

· The price of this product or service (P);

· Consumer income (I), which determine the size of the consumer budget;

· Prices for substitute goods that replace these goods in consumption (P s);

· Prices for complementary goods that supplement these goods in consumption (P c);

· Tastes and preferences of buyers (Z), determined by fashion, traditions, habits, etc .;

· Total number of buyers or market size (N);

· Buyers' expectations, including inflationary (W);

Taking into account all these factors, the general demand function can be represented as follows: Q D = f (P, I, P s, P c, Z, N, W, B).

Demand function (demand function) - the quantitative relationship between the amount of demand and its determining factors (determinants).

If all the factors of demand, except for the price, are taken unchanged for a given period, then it is possible from overall function demand, go to the demand function of the price:

where Q D is the amount of demand for product i;

P i - the price of the analyzed product i.

The inverse dependence of the price on the amount of demand is called, respectively, the inverse demand function and has the form: P i = f (Q D).

A graphical depiction of the dependence of the amount of demand on the market price is carried out using the demand curve. Demand curve- presented in graphical form, the relationship between the amount of demand for a product and its market price, with other (non-price) factors that affect demand unchanged. The demand curve vertically displays P - possible prices, and horizontally Q - the amount of purchased goods. The dependence of demand on price can be linear (Figure 4.1.1, a) or nonlinear (Figure 4.1.1, b).

Rice. 4.1.1. Demand curve

The demand curve has a negative slope and graphically reflects the operation of the law of demand. Demand law- the higher the price of a product, the lower the amount of demand for it, other things being equal.

A change in the price of a product gives rise to two effects: the substitution (substitution) effect and the income effect. Substitution effect- change in the value of demand for a product as a result of replacement (replacement) of more expensive goods with less expensive ones. The essence of the substitution effect is that the consumer will buy more of the product, the price of which has decreased, replacing it with the product, the price of which has increased. Income effect- the impact of a change in the price of a product on the consumer's real income and on the quantity of the product that he purchases, taking into account the substitution effect. The essence of the income effect is that when the price of a product decreases, a certain part of the income is released from the buyer, which he can now use to purchase either a larger amount of this product, or some other product. Even a small decrease in prices makes buyers (consumers) relatively wealthier, indirectly increasing their real income.

When the price of the good changes, the value of demand moves in the opposite direction along the demand line (Fig. 4.1.2, a). If the non-price factors of demand change, then this leads to a shift in the demand curve itself (Fig. 4.1.2, b) to the right (with an increase in demand) or to the left (with a decrease in demand).

Rice. 4.1.2. Change in the volume of demand and a shift in the demand curve

It should be noted that from the point of view of the dependence of the value of demand on the level of income in economic theory, it is customary to distinguish between normal and abnormal goods. Normal goods- a product, the demand for which grows with the growth of consumer income. That is, in relation to normal goods, there is a direct dependence of the amount of demand on the amount of consumer income. Abnormal goods- a product, the demand for which decreases with the growth of consumer income. Demand for abnormal goods rises when consumer income falls. Abnormal goods include, for example, margarine, cheap pasta, which, as income grows, buyers replace with higher-quality goods: butter, vegetables, fruits.

Demand Is a solvent need for a product or service.

Demand value Is the quantity and that buyers are willing to purchase at a given time, at a given place, at given prices.

The need for some good implies the desire to possess goods. Demand presupposes not only desire, but also the possibility of acquiring it at prices existing on the market.

Types of demand:

• (Production demand)

Factors affecting demand

The amount of demand is influenced by a huge number of factors (determinants). Demand depends on:

• use of advertising
• fashions and tastes
• consumer expectations
• changes in environmental preferences
• availability of goods
• incomes
• usefulness of things
• prices set for interchangeable goods
• and also depends on the size of the population.

The maximum price that buyers are willing to pay for a certain amount of a given product or service is called at the cost of demand(denote)

Distinguish exogenous and endogenous demand.

Exogenous demand - it is such a demand, the changes of which are caused by government intervention, or the introduction of any forces from the outside.

Endogenous demand(domestic demand) - formed within society due to the factors that exist in this society.

The relationship between the amount of demand and its determining factors is called the demand function.
In its most general form, it is written as follows where:

If all the factors determining the amount of demand are considered unchanged for a given period of time, then we can go from the general demand function to price demand functions:... The graphical representation of the demand function from the price on the coordinate plane is called demand curve(picture below).

Changes in the market associated with the quantitative supply of a product always depend on the price set for this product. There is always a certain ratio between the market price of a commodity and the quantity for which demand is presented. The high price of goods limits the demand for it, a decrease in the price of this product usually characterizes an increase in demand for it.

Changes in demand and the magnitude of demand

In the analysis, it is necessary to make a clear distinction between demand and the amount of demand, as well as between changes in the amount of demand and changes in the very demand for a given product.

Change in demand observed when the price of the product in question changes and all the parameters (tastes, incomes, prices for other goods) remain unchanged. On the graph, such a change is reflected by the movement along the demand curve from the point (arrow # 1).

Change in demand occurs when market prices for the product in question remain unchanged, i.e. under the influence of any non-price factors, and is reflected on the graph by a shift in the demand curve to the right or left (arrow 2).

Non-price determinants of demand

Factors affecting demand at constant prices for the product in question are called non-price determinants of demand. Among the most significant non-price determinants, economists identify:

1. Tastes and preferences of consumers. 2. Consumer income.

For the overwhelming group of normal quality goods, income growth causes an increase in demand at the same prices and a corresponding shift in the demand curve to the right.

However, for relatively inferior goods with comparatively lower quality, income growth prompts the consumer to replace the relatively inferior good with a better one, and thus reduces demand. As a result, the demand curve shifts to the left.

3. The number of consumers.

All other things being equal, the greater the number of potential buyers, the higher the market demand for the product.

4. Prices for other goods.

This factor is non-price, since assumes the invariability of the price of the product in question. The price of any other commodity other than the one we are analyzing acts as a non-price or exogenous factor.

There are conditionally three groups of "other" goods:

• neutral, i.e. have an extremely low, near-zero impact on the market for a main product, such as tea and milling machines;
• substitutes that satisfy similar needs and therefore compete with a major commodity, such as tea and coffee;
• complementary whose consumption is driven by the consumption of a basic commodity such as tea and sugar.

If one can abstract from the first group of goods, then the change in prices for complementary and substitute goods will have a significant impact on the market demand of the analyzed goods.

An increase in the price of a substitute product leads to a decrease in the amount of demand for it and, as a result, to an increase in demand for the main product. (An example is the situation in the 1970s-1980s on the oil market, when the rise in prices for this energy carrier provoked an increase in demand for alternative energy sources: nuclear, solar, wind, etc.).

On the contrary, an increase in the price of a complementary product leads to a decrease in demand for the basic product, and vice versa, a fall in prices leads to its increase. For example, the decline in prices for printers for personal computers has caused a sharp increase in demand for high-quality paper. Both examples can be illustrated by shifting the demand curve to the left.

5. Economic expectations of consumers.

Expectations may relate to changes in prices, cash incomes, the macroeconomic situation in the country, etc. So, expectations of price increases (so-called inflationary expectations) can cause an increase in demand for a product already at the present time period, which will graphically mean a shift in the demand curve to the right, and expectations of a decrease in cash income (for example, due to an upcoming dismissal) - a decrease in demand and the corresponding shift of the demand curve to the left.

Non-price factors affecting demand include:

• Changes in the population's cash income
• Changes in the structure and size of the population
• Changes in prices for other goods (especially for substitute goods, or complementary goods)
• State economic policy
• Changes in consumer preferences, influenced by advertising, fashion.

The study of non-price factors makes it possible to formulate the law of demand.

Demand law... If the prices for any product increase, and at the same time all other parameters remain unchanged, then the demand will be presented for less and less quantity of this product.

The operation of the law of demand can be explained on the basis of the operation of two interrelated effects: the income effect and the substitution effect. The essence of these effects is as follows:

• On the one hand, the rise in prices reduces the real income of the consumer while the value of his monetary income remains unchanged, reduces his purchasing power, which leads to a relative reduction in the amount of demand for the goods that have risen in price (income effect).
• On the other hand, the same rise in prices makes other goods more attractive to the consumer, prompts him to replace the more expensive goods with a cheaper analogue, which again leads to a decrease in the amount of demand for it (substitution effect).

The law of demand does not apply in the following cases:

• (The rise in prices for the main group of essential goods leads to the abandonment of more expensive and high-quality goods, and to an increase in the volume of demand for this basic product (can be observed during a famine). For example, during the famine in Ireland in the mid-19th century, the volume of demand for potatoes Giffen is connected with the fact that in the budget of poor families spending on potatoes occupied a significant share. The increase in prices for this product led to the fact that the real income of these segments of the population fell, and they were forced to reduce purchases of other goods, increasing the consumption of potatoes. to survive and not die of hunger)

• When price is an indicator of quality(In this case, the consumer can assume that the high price of the product indicates its high quality and increased demand)

• (It is associated with a prestigious demand oriented to the purchase of goods, indicating, in the opinion of the buyer, his high status or belonging to "privileged goods")

• Effect of expected price dynamics(If the price of a product decreases and consumers expect this trend to continue, then the size of demand in a given time period may decrease and vice versa)

• For rare and expensive goods that are a means of investing money.

Supply law

The analysis will be one-sided without considering the supply, which characterizes the economic situation in the market not from the side of the buyer, as demand, but from the side of the seller.

Offer is a set of goods and services that are on the market and that sellers are willing to sell to a buyer at a given price.

Amount of supply Is the amount of goods and services that sellers are willing to sell at a given time, in a given place and at given prices, but the amount of supply does not always coincide with the volume of production and the volume of sales in the market.

Offer price Is the forecasted minimum price at which the seller agrees to sell a certain amount of a given product.

Volume and structure of the offer characterizes the economic situation in the market on the part of sellers (producers) and is determined by the size and capabilities of production, as well as the share of goods that is sent to the market and, under favorable economic circumstances, can be purchased by buyers. The product offer includes all goods on the market, including goods in transit.

The volume of supply, as a rule, varies depending on the price. If the price turns out to be low, then the sellers will offer little goods, the other part of the goods will be kept in the warehouse, but if the price is high, then the manufacturer will offer the market the maximum number of goods. When the price rises significantly and turns out to be very high, then manufacturers will try to increase the supply of goods, trying to sell even defective products. The supply of goods on the market largely depends on production costs, that is, those production costs that directly form the costs associated with the production process.

The proposal is investigated for three time intervals:

• Short-term - up to 1 year
• Medium-term - from 1 to 5 years
• Long-term - more than 5 years

Supply volume is the quantity of a commodity that an individual seller or a group of sellers wants to sell on the market per unit of time under certain economic conditions

Suggestion function on the price characterizes the dependence of the volume of supply of goods on its monetary equivalent

Supply curve shows how many products manufacturers are willing to sell at different prices in this moment time.

As with demand, you should not confuse changes in supply and changes in supply:

1. A change in the volume of supply is observed when the price of the product in question changes and other factors of the market situation remain unchanged and implies movement along the supply curve (arrow number 1)
2. A change in supply, on the contrary, means a change in the entire supply function due to a change in any non-price factor at a constant price for the analyzed product (arrow no. 2)

• Q - the number of products that the manufacturer is ready to offer
• S - offer

Supply law- the volume of supply of goods increases with an increase in prices and decreases with a decrease.

Non-price supply factors include:

• changes in production costs as a result of technical innovations, changes in sources of resources, changes associated with tax policy, as well as characteristics that affect the formation of the cost of factors of production.
• New firms entering the market.
• Changes in prices for other goods leading to the exit of the company from the industry.
• Natural disasters
• Political actions and wars
• Long-term economic expectations

• Firms engaged in the industry, when prices increase, use reserve or rapidly commissioned new capacities, which automatically leads to an increase in supply.
• In case of a prolonged increase in prices, other manufacturers will rush into this industry, which will further increase production and, as a fact, an increase in supply is possible.

Technological progress plays a huge role on the supply curve. It allows you to reduce production costs and vary the number of products on the market. The analysis of the supply schedule is largely due to the production technology used by the manufacturer, the availability and availability of raw materials used in the manufacture of goods. If the mobility of production, the resources used in it are high, then the supply curve will have a flatter form, i.e. flattened down.

In conditions market economy demand is the main factor determining what and how to produce. Distinguish between individual and market demand.

The consumer's individual demand function characterizes his reaction to a change in the price of a given good under the assumption that his income and the prices of other goods are unchanged.

Individual demand- the demand of a specific consumer; it is the volume of goods corresponding to each given price that a particular consumer would like to buy on the market.

Rice. 4.

In fig. 4 shows the consumer choice at which the individual settles, distributing a fixed income between two goods when changing the price for food.

Initially, the price of food was 25 rubles, the price of clothes was 50 rubles, and the income was 500 rubles. The utility-maximizing consumer choice is at point B (Fig. 4). In this case, the consumer buys 12 units of food and 4 units of clothing, which makes it possible to provide a level of utility determined by the indifference curve with a utility value equal to U 2.

In fig. 4, b shows the relationship between the price of food and the required volume. The abscissa shows the amount of consumed goods, as in Fig. 4, a, but the ordinate now plots food prices. Point E in Fig. 4b corresponds to point C in Fig. 4, a. At point E, the price of food is 25 rubles. and the consumer purchases 12 units.

Let's say that the price of food has risen to 50 rubles. Because the budget line in Figure 4a rotates clockwise, it becomes twice as steep. A higher price for food products increased the slope of the budget line, and the consumer in this case achieves maximum utility at point A located on the indifference curve U 1,. At point A, the consumer chooses 4 food items and 6 clothing items.

In fig. 4b shows that the modified choice of consumption corresponds to point D, depicting that at a price of 50 r. you will need 4 units of food.

Suppose that the price of food drops to 12.5 rubles, which will cause the budget line to rotate counterclockwise, providing a higher level of utility, corresponding to the indifference curve U 3 in Fig. 4, a, and the consumer chooses point C with 20 food items and 5 clothing items. Point F in Fig. 4.6 corresponds to a price of 12.5 rubles. and 20 food units.

Fig. 4a, it follows that with a decrease in the price of food, the consumption of clothing can both increase and decrease. Consumption of food and clothing may increase as lower food prices increase consumer purchasing power.

The demand curve for fig. 4b depicts the amount of food that the consumer purchases as a function of the price of food. The demand curve has two peculiarities.

• 1. The achieved level of utility changes as you move along the curve. The lower the price of the good, the higher the level of utility.
• 2. At each point on the demand curve, the consumer maximizes utility according to the condition that the marginal rate of substitution of food for clothing is equal to the ratio of food and clothing prices. As food prices fall, both the price ratio and the marginal substitution rate fall.

Change along a curve individual demand the marginal rate of substitution indicates the benefits delivered to consumers from the goods.

Market demand characterizes the total demand of all consumers at each given price of a given good.

The total market demand curve results from the horizontal addition of individual demand curves (Figure 5).

The dependence of market demand on the market price is determined by summing up the volumes of demand of all consumers at a given price.

Graphical way summing up the volumes of demand of all consumers is shown in Fig. 5.

It should be borne in mind that there are hundreds and thousands of consumers on the market and the volume of demand of each of them can be represented as a point. In this case, the demand point A is shown on the EB curve (Fig. 5, c).

The demand curve for each consumer is different, that is, it differs from the demand curves of other consumers, because people are not the same. Some have high incomes while others have low incomes. Some want coffee and others want tea. To obtain the overall market curve, it is necessary to calculate the total consumption of all consumers at each given price level.

The market demand curve tends to have a smaller slope compared to the individual demand curves, which means that when the price of a good falls, the volume of market demand increases more than the volume of demand of an individual consumer.

Rice. 5.

Market demand can be calculated not only graphically, but also through tables and an analytical method.

The main factors in market demand are:

consumer income;

preferences (tastes) of consumers;

the price of this good;

prices of substitute and complementary goods;

the number of consumers of this good;

population size and its age structure;

distribution of income among demographic groups of the population;

sales promotion;

the size of the household, depending on the number of people living together. For example, a downward trend in family size will lead to an increase in demand for apartments in apartment buildings and a decrease in demand for detached houses.

There are usually a large number of individual consumers on the market. Their total demand is called market demand.

A special section of economics is devoted to the study of market demand, which is called “Theory of consumer behavior” or “Theory of consumer choice”. In this area, economists study the behavior of individual consumers in the market, identify common logic for making decisions about purchases and thus create a consumer model, which is then used to study the market. Here are the main characteristics of the consumer.

• 1. The consumer is able to make choices. He is able to make decisions about what purchases he will make. For example, choose one of three options: buy movie tickets, buy a book, or spend an evening in a cafe. He is also able to identify shopping options that are equivalent to him. For example, 1 kg of peaches can be equal to 1 kg of apricots, and the consumer can exchange one product for another without any harm to himself.
• 2. The consumer thinks logically. For example, if he prefers grapes when comparing them to apples and prefers apples when comparing them to pears, he should prefer grapes when comparing them to pears.
• 3. The consumer always prefers more product when comparing more and less.

Based on these characteristics of the consumer and knowing his preferences, it is possible to predict what the market demand for a new product will be and how demand will change when the conditions in which trade is conducted change.

Of course, market demand is dictated primarily by people's desire to buy product (V), and this desire depends on what benefits they expect to receive from it. The question of the relationship between utility and demand will be considered in the next section. In addition to desire, market demand, as well as individual demand, depends on the price of the product, on the prices of substitute and complementary products, on advertising, on consumer income and other factors.

Since we are looking at market demand, we must keep in mind all potential consumers of the country, that is, the entire population. The average income of the country's inhabitants should be taken as the income of one consumer. This indicator is called per capita income. It is defined as the quotient of division national income per population. The national income will be discussed in detail in the second part of the book. For now, let's just say that this is the total income of all residents of the country. Given that national income usually changes faster than population, many economic studies study the dependence of demand not on per capita income, but on national income.

Formally, the market demand for product X ( D x) can be written as follows:

where V is the desire to buy product X;

P x- product price X;

R g- prices of products associated with product X;

E- the expected change in the price of product X;

Y- national income;

Z - other factors.

As a rule, the price of the product has the greatest influence on demand. If all factors other than price remain constant, D x= / (P x). It is natural to assume that a fall in the price of a product will cause an increase in demand for it. The relationship between price and market demand can be expected to be something like the one shown in Fig. 3.2. When the price falls from P x before R 2 the quantity demanded by the market increases from to Q 2. If the price rises again to P p, then market demand will again fall to Q r The inverse relationship between price and demand is called the law of demand. It can be formulated as follows: an increase in the price of a product leads to a decrease in the total volume of demand; a fall in the price of a product leads to an increase in total demand.

Rice. 3.2.

The curve shown in Fig. 3.2 is called market demand line. Let us note three features of this line. The first is that it has a negative slope. This follows from the law of demand. The second feature is that this line reflects the demand for a certain period of time. Let's say the demand for milk refers to the amount that can be sold on the market within 24 hours. And the third important feature is that the volume of demand indicated on the graph is relevant only for the period in which the measurements were taken. Over time, the line can change its position.

Let's see what impact on this line have other factors on which demand depends. Let's start with the desire to buy a product. Consumers' tastes can change. For example, clothes of a certain style may go out of fashion. In this case, the demand for it will fall at any price. The market demand line will move to the left. Interest in tourist travel may increase. In such a situation, the demand for tours will increase at any price. The demand line will move to the right (see Fig. 3.3).

Rice. 3.3.

As already noted, the demand for the product in question can be influenced by the prices of other goods and services. Such dependence arises if there are substitutes for a product or service. For example, in the diet, poultry can serve as a substitute for meat. If the price of meat rises, the demand for poultry increases. In city services, a city tour can replace a visit to a museum. With an increase in the price of entrance tickets to museums, the number of those wishing to take a tour may increase. In addition, for the full use of some products, additional purchases are required. For example, a car owner needs to buy gasoline. It is known that an increase in the price of gasoline leads to an increase in demand for small cars and to a decrease in demand for cars with higher power engines.

Changes in demand may be due to changes in consumer income. Obviously, the more a person earns, the more opportunities he has to make purchases. It was said above that the average income of all residents of the country is directly dependent on the national income. For most goods and services, an increase in average income leads to an increase in demand at all price levels, which means a shift in the demand line to the right.

It should be noted that, despite the obvious direct relationship, quantitatively, the relationship between income growth and demand growth for different products turns out to be different. For the first time, a German economist of the 19th century drew attention to this. Ernst Engel (Engel). He studied the actual spending of working families and found that spending changes as income rises. The relative costs of food are falling, while the relative costs of meeting cultural needs are rising. Subsequently, this pattern began to be called Engel's law.

Table 3.2 shows an example of accelerated growth in demand for good X in relation to income growth. Figure 3.4 shows the corresponding demand line, the Engel line.

One of the key concepts of the market economy and the basic parameter characterizing the behavior of consumers (buyers) is demand. Demand is a form of expression of need, the willingness of buyers to pay a certain price for the goods and services they need at a certain point in time.

Demand can also be defined as a solvent social need for goods and services.

Demand is a desire supported by monetary potential, the intention of consumers to purchase a product.

The main characteristic of demand is its size or volume. The volume of demand is a flow that changes over time. Demand for many goods is subject to seasonal fluctuations, so it is important to clearly define to which time period a given quantity of demand belongs.

The quantity demanded is the quantity of goods that the consumer is willing and able to purchase at a certain price within a certain period of time.

In economic theory, it is customary to distinguish between individual, market and aggregate demand.

Individual demand is the demand of an individual buyer for a particular product.

The amount of individual demand is determined by the tastes and preferences of the individual, as well as the level of his income.

Market demand is the total demand of all buyers in a given market.

The value of market demand depends, first of all, on the number of buyers, the level of prices for goods and services, the level of consumer income and other factors.

Aggregate demand is the demand in all markets for a particular product or for all manufactured and sold products.

All transactions in the market are carried out at the demand price, which determines the willingness of buyers to pay for a product or service.

The demand price is the maximum price that buyers are willing to pay for a certain amount of goods or services at a given time in a given market.

The demand for goods and services depends on a number of factors (determinants), which include:

♦ the price for this product or service (P);

♦ consumer income (I), which determine the size of the consumer budget. For the overwhelming group of quality goods (called normal), income growth causes an increase in demand at the same prices and a corresponding shift in the demand curve to the right;

♦ prices for substitute goods that replace these goods in consumption (P s). Substitute goods are, for example, tea and coffee, railway and airline services. An increase in the price of substitute goods leads to an increase in demand for the main product;

♦ prices for complementary goods that supplement these goods in consumption (P c). Complementary goods are, for example, gasoline and cars, sugar and berries. Changes in prices for complementary goods lead to a unidirectional change in demand, i.e. with an increase in the price of any of the complementary goods, demand falls for both, with a fall in prices, it increases simultaneously;

♦ tastes and preferences of buyers (Z), determined by fashion, traditions, habits, etc. For example, the periodically established fashion for miniskirts leads to a decrease in the amount of demand for fabrics. Consumer preferences and their changes are influenced by family and social status, age, gender, stability of national traditions, technical progress (for example, the demand for records was practically "killed" by the spread of CDs);

♦ total number of buyers or market size (N). With an increase in the number of consumers, the volume of demand for goods or services increases, a decrease in the number of buyers leads to a drop in demand;

♦ customer expectations, including inflationary expectations (W). Expectations of price increases may cause an increase in demand for goods in Russia.

worthwhile time. Expectations of a reduction in income (during a crisis) may lead to a reduction in demand;

Taking into account all these factors, the general demand function can be represented as follows:

The demand function is a quantitative relationship between the amount of demand and its determining factors (determinants).

If all the factors of demand, except for the price, are taken unchanged for a given period, then we can go from the general demand function to the demand function of the price:

where is the value of demand for product i;

Price of the analyzed product i.

The inverse dependence of the price on the amount of demand, respectively, is called the inverse demand function and has the form

A variety of methods are used for practical assessment and forecasting of market demand. The most commonly used:

♦ polling or interviewing buyers about their preferences and financial possibilities;

♦ expert assessment of the level of demand for a product and economic forecasts regarding its dynamics - carried out by specialists and experts in this field at the request of interested companies;

♦ market experiment - involves direct market testing of a product (trial sales, trial price reduction, etc.) and an assessment of consumer behavior;

♦ statistical method - based on the study of real statistical data, the relationship between demand and prices for goods for a certain period of time is investigated, the influence of other factors of demand (income, prices for other goods,

macroeconomic situation, etc.).

If there is a sufficient volume of the statistical database, it is possible, with a certain degree of error, to calculate the demand function and predict the expected reaction of consumers to price changes.

The functional relationship between the amount of demand and the price can be represented in three traditional ways: tabular, analytical (through the equation) and graphical. A graphical depiction of the dependence of the amount of demand on the market price is carried out using the demand curve.

The demand curve is a graphical representation of the relationship between the amount of demand for a product and its market price, with other (non-price) factors that affect demand unchanged.

The demand curve vertically displays P - possible prices, and horizontally Q - the amount of purchased goods. The dependence of demand on price can be linear (Fig. 3.1, a) or non-linear (Fig. 3.1, b).

Rice. 3.1. Demand curve: a - linear dependence; b - nonlinear dependence

The demand curve has a negative slope and graphically displays the law of demand - the inverse relationship between price and the amount of goods that buyers want and can purchase per unit of time.

I Law of demand - the higher the price of a product, the lower the amount of demand for it, all other things being equal.

A change in the price of a product gives rise to two effects: the substitution (substitution) effect and the income effect.

The substitution effect is a change in the amount of demand for a product as a result of the replacement (replacement) of more expensive goods with less expensive ones.

The essence of the substitution effect is that the consumer will buy more of the product, the price of which has decreased, replacing it with the product, the price of which has increased. Thus, an increase in the price of coffee leads to an increase in tea consumption.

Income effect - the effect of a change in the price of a product on the consumer's real income and on the amount of the product that he purchases, taking into account the substitution effect.

The essence of the income effect is that when the price of a product decreases, a certain part of the income is released from the buyer, which he can now use to purchase either a larger amount of this product, or some other product. Even a small decrease in prices makes buyers (consumers) relatively wealthier, indirectly increasing their real income.

When the price of a good changes, the value of demand moves in the opposite direction along the demand line (Fig. 3.2, a). If the non-price factors of demand change, then this leads to a shift in the demand curve itself (Fig. 3.2, b) to the right (with an increase in demand) or to the left (with a decrease in demand).

As follows from Fig. 3.2, when the price decreases from P 1 to P 2, the volume of demand increases from Q 1 to Q 2 (see Fig. 3.2, a). With an increase in the price, the dynamics of the value of demand will be reversed.

If the non-price factor changes, then a new relationship will be established between the price and the volume of demand, the demand function of the price will change, and the demand curve will shift. For example, with an increase in the number of consumers or the value of their income, the demand line will shift from position D 1 to position D 2 (see Fig. 3.2, b). In this case, at the price P 1, the volume of demand will increase from Q 1 to Q 3, and at

the price Obviously, if later it happens

a decrease in the number or income of buyers, then it will cause the opposite reaction from the demand side and the curve will shift from position D 2 to position D 1.

Rice. 3.2. Change in the volume of demand and a shift in the demand curve: a - price change - moving along the demand curve; b - change in non-price factors - shift in the demand curve

To avoid confusion, it is customary to understand the term "change in demand" as a change in the function itself (displacement of the entire demand curve) under the influence of non-price factors, and under the term "change in the value of demand" to understand the response of demand to a price change with all other factors unchanged (movement along the demand curve) ...

It should be noted that from the point of view of the dependence of the value of demand on the level of income in economic theory, it is customary to distinguish between normal and abnormal goods.

A normal product is a product whose demand grows as the consumer's income rises.

Consequently, in relation to normal goods, there is a direct dependence of the amount of demand on the amount of consumer income.

An abnormal product is a product whose demand decreases as the consumer's income rises.

Demand for abnormal goods rises when consumer income falls. Abnormal goods include, for example, margarine, cheap pasta, which, as income grows, buyers replace with higher-quality goods: butter, vegetables, fruits. Thus, during the period of a sharp decline in the level of income in the 90s, people began to consume more bread and potatoes (i.e., increased demand for abnormal goods) and reduced consumption of meat and fruits (i.e., decreased in demand for normal goods). The sharp drop in income forced the population of our country to increase the consumption of cheap and lower quality products. It should be noted that the dynamics of consumption of normal and abnormal food products, due to the described regularity, can serve as a reliable criterion of the standard of living in the country. The greater the share of bread, potatoes, pasta in the diet of the population, the poorer the country. On the contrary, the greater the proportion of meat, milk, fruit, the richer it is.