Exceptions to the law of demand. Graph and function of the law of supply Reasons behind the law of supply

Answer
Supply is the quantity (volume) of goods offered for sale on the market at a certain moment or period. In value terms, supply represents the sum of the market prices of these goods.
The main supply factors are the price of the good and non-price factors. The offer price is the minimum price at which the seller agrees to sell a certain quantity of a given good.
The relationship between the price of a good and the volume of its supply is reflected in the law of supply.
The law of supply expresses the direct relationship between the price and the quantity supplied of a good during a certain period of time.
The law of supply states: as prices rise, the quantity supplied also increases accordingly; As prices fall, supply also decreases. The quantity of supply is influenced by both price and non-price factors.
The relationship between prices and the quantity of goods that producers are willing to produce and sell is called a schedule or supply curve. The higher the price, the greater the supply of goods, other things being equal. The law of supply has two forms of expression: a) supply scale; b) supply curve.
The supply scale is a tabular expression of the relationship between the market price of a good and the quantity that sellers will offer at this price.
A supply curve is a graphical expression of the relationship between the market price of a good and the quantity that sellers will offer at that price.
For most goods, the supply curve has an “ascending” and “concave” outline (Figure 41.1).

The main components underlying the supply curve are: production costs; production technology; resource prices; prices of related goods; number of commodity producers; the number of buyers of this good; taxes and subsidies; public policy, etc. It is necessary to distinguish between the concepts of “movement along the supply curve” and “shift of the supply curve.”
Movement along the supply curve means that there is a change in the value (volume) of the supply of goods when none of the factors influencing supply changes, but the price of a given good changes.
A shift in the supply curve is the reaction of sellers to changes in non-price factors: reflects a change in supply. A change in supply is a change in the volume of goods that producers are willing and able to sell; represented by a shift in the supply curve.
A shift in the supply curve to the right means an expansion in the supply of a good; a shift in the supply curve to the left means a reduction in the supply of a good.
So, when prices for non-price factors change, this is a shift in the supply curve, i.e., a change in supply. When there is a change in the quantity supplied in response to a change in the price of a given good, this is a movement along the supply curve.

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20. Fiscal policy.

Fiscal policy is the government's influence on the level of business activity through changes in government spending and taxation. Fiscal policy affects the level of national income and therefore the level of output and employment, as well as the price level. It is aimed against undesirable changes in economic conditions associated with both unemployment and inflation. The state budget is the leading link in the financial system. It combines the main income and expenses of the state. The budget is a system of monetary relations of the state through which the constant mobilization of resources and their expenditure is carried out. The financial relations that the state has with various organizations are called budgetary. They arise in the distribution process and are associated with the formation and use of the central budget fund of funds, which are intended to satisfy general government needs. The size of the budget fund depends on the level of economic development, management method, and social objectives. State The budget is the main budget of the state for the current 3 years, which has the force of legality. A year later, Mr. the budget is mobilized with funds from enterprises and organizations of various forms of ownership, and the income of the population is partially mobilized. The mobilized funds are sent to social and cultural events, to strengthen the country's defense capability, and to maintain state bodies. management, financial support for the budgets of the constituent entities of the federation, for repayment of state. debt for the creation of state. material and financial reserves and to finance the national economy. The mobilization of the state in taxes serves as one of the main means of implementing main economic activities.

Main functions of the budget:

1) distribution of GDP and income between industries and territories;

2) redistribution of income and GDP;

3) government regulation and economic stimulation;

4) financial support for social policy;

5) control over the formation and use of centralized funds.

The functions of the budget are implemented through the budget mechanism, i.e. through ways and methods of generating income and expenses. The budget is an important tool for regulating and stimulating investment in the economy in order to increase its efficiency. The size of the budget reflects the degree of centralization of financial resources in the hands of the state and depends on the scale of structural changes in the country’s economy. State The budget is built using the balance deficit and surplus method.

Main objectives of budget policy:

1) keep the economy from declining production;

2) ensure financial stability (consolidation of monetary circulation, reduction of the budget deficit, suppression of inflation);

3) stimulate investment activity;

4) strengthen the budget revenue base by improving taxation and strengthening control over the completeness of tax payment;

5) create a system of effective control over the effective and targeted use of state funds. expenses;

6) strengthen control over the size of the state. debt.

In addition to the federal budget, the NBS system includes the budget of the constituent entities of the Russian Federation (regional) and the local budget (municipal budget). A budget consisting of federal, regional and local is called a consultative state budget. It is used and serves to represent subventions from the federal budget. Subventions are budget funds provided to finance a strictly targeted event on a non-refundable basis.

The funds are designed to ensure the constitutional rights of citizens of the Russian Federation to receive a pension, social benefits in case of illness, disability, loss of a breadwinner, to health care, social benefits. help, etc.

The federal budget, together with extra-budgetary funds, forms an expanded budget or an expanded production budget. The functioning of the budget occurs through the means of generating and distributing income. Revenues create the financial basis for the activities of the state. Through their distribution, the general state is satisfied. income.

The law of supply is one of the main laws that influence pricing and underlie market price regulation. Knowledge of this law allows you to better understand the essence of the market and market movements, but more on that later, now we’ll talk in more detail about the supply.

What does the law of supply state?

Before moving on to the law itself, let us define the basic concepts.

The proposal is a set of goods (products) and services presented by the manufacturer for sale at different prices (costs).

The supply quantity is a specific quantity (quantity) of a product that the seller agrees to sell (offer) at one specific price.

The offer price is, the so-called minimum price (cost) at which the seller agrees to sell a certain (certain) quantity (volume) of goods.

And now here is the law itself. The law of supply states: There is a direct relationship between changes in prices and the quantity of goods offered for sale. If this is built schedule given dependence (supply curve S), then it will look like this:

As by analogy with the demand curve, S1 indicates an increase in supply, S2 indicates its decrease. Movement on supply curve S0 will indicate either an increase in the value of the sentence (up the curve) or a decrease in it (movement down the curve). The main non-price factors that shift the supply curve S0 to S1 or S2 in this case are the following:

Resource prices
Technologies used
The number of sellers (producers) in the market and the degree (coefficient) of its monopolization
State taxes and subsidies
Manufacturers' Expectations
Prices for interrelated goods (in this case there is an inverse relationship, a correlation between the price, cost of one product and the supply of another) and for complementary ones (an increase in the price of one will lead to an increase in the supply of the other).

It is also worth saying a few words about functions offers. It will look like this:

Qs = a + bP = kP + b

From the author

It was no coincidence that I began to talk about what demand is and about law of supply and demand generally. After all, these topics fully reveal the essence of market mechanisms. If you are a trader (who is an exchange trader) or simply a Gazprom shareholder trying to make money on the stock exchange, then you probably know that asset prices (about the differences between assets and liabilities here) or financial instruments in general, such as shares (what are enterprise shares ) or futures (what are exchange futures) are in constant motion. In many ways, the reasons here are the following: when demand grows, the number of people willing to purchase a financial instrument (who had cash) increases, and sellers (supplies) begin to run out. Moreover, the mass of buyers is also joined by those who made the wrong forecast and closed short positions (shorts) - now in the hope of an upward trend - so there are even more buyers. As demand increases, buyers are ready to buy the desired instrument (or just some product) at a price higher than the current price - just to enter the position. Active purchases lead to higher prices – a bull market is formed (about here).

However, the price movement cannot occur in one direction all the time - at some point, buyers will realize that the price is too expensive (inflated) and will not want to buy. As the price increases, there will be fewer and fewer buyers (negative dynamics) and at some point the price will be fixed near a certain level and will remain there for some time (the trend does not change quickly). The number of buyers and sellers becomes approximately equal and the market begins balance. At the same time, the price begins to move in a sideways corridor (consolidation period). However, by the way, a trend reversal can be confused with a market correction (rollback) - this is also important to remember for novice investors (who are investors) trying to invest money in the hope of a market reversal (read here).

On the contrary, if many asset owners want to sell them (to make a profit, for example), then the movement will occur in the opposite direction to the previous direction. Too high prices led to the desire of sellers to start selling more (and this follows from essence law of supply). When there are not enough buyers for everyone willing to sell, sellers will be forced to reduce prices, which will lead to a downward market movement

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Thus, market price movements always depend on the ratio of sellers and buyers in the market (their balance). In the stock market, the law of supply and demand manifests itself more clearly than anywhere else in the economy. Law of supply and demand Of course, it explains a lot, but no one has canceled other factors (parameters) in the market, but we will talk about them in further articles on the website.

The manual is presented on the website in an abbreviated version. This version does not include testing, only selected tasks and high-quality assignments are given, and theoretical materials are cut by 30%-50%. I use the full version of the manual in classes with my students. The content contained in this manual is copyrighted. Attempts to copy and use it without indicating links to the author will be prosecuted in accordance with the legislation of the Russian Federation and the policies of search engines (see provisions on the copyright policies of Yandex and Google).

8.2 Explanation of the law of supply

This is reflected in the law of supply: the greater the quantity supplied, the greater the price. The law of supply is explained by the presence of two effects:

the effect of increasing opportunity costs: as the volume of production of a given good increases, its opportunity costs (expressed in the refusal to produce another good) increase. Therefore, the manufacturer will be willing to offer more volume at a higher price. As discussed in the chapter “Opportunity Costs,” economic analysis typically assumes increasing opportunity costs.
Diminishing marginal productivity effect: as the volume of production of a given good increases, each additional unit requires spending more resources (since the marginal productivity of a resource falls as the volume of production of the good increases). Therefore, the manufacturer will be willing to offer a larger volume only at a higher price.

To summarize these two effects, the supply curve tends to slope upward because resource owners need to be offered higher prices to give them incentives to produce more and sacrifice alternative activities.

Supply is associated with opportunity costs because by using resources to produce a given good, the producer diverts them from using other possible goods. Therefore, the price of a given product must cover the best alternative use of resources. This rule underlies the construction of the supply curve, and we will use it when solving problems for the chapter.

Thus, we have seen that both supply and demand are associated with opportunity costs. For the consumer, opportunity costs were important due to the possibility of substituting one good for another in consumption (the consumption of one good is associated with a refusal to consume another). For a producer, opportunity costs are important due to the alternative use of resources: the production of one good involves the abandonment of resource allocation in favor of another good.

From the producer's point of view, prices in the economy carry information about alternative uses of resources. This idea can be understood with a simple example. Let's say a large Russian retail chain (for example, Magnit) decides to open another large store in a small regional Russian city. How will this affect workers' wages in the city?
They will most likely grow. Many people in this city who previously worked as drivers, secretaries, street cleaners, and salespeople will now find that they have a new alternative - working in the new Magnit store with competitive wages. Given the availability of this alternative, former employers will be forced to increase workers' wages in order to keep them in their jobs. In other words, the new higher salary carries information about the emerging alternative to being hired in the Magnit network.

Thus, we have just seen that the supply price of a good is the sum of the opportunity cost of the resources used in its production. It is this fact that determines that economists have a very positive attitude towards the institution of property. When resources are not owned by anyone, users do not have to pay their opportunity cost, and therefore they are undervalued and used carelessly. When resources are privately owned, the market generates prices based on the opportunity cost of using the resources. If resources are not owned by anyone, opportunity costs cease to be the basis for determining value.

When studying the topic “Proposal”, it is important not to confuse concepts such as "offer" And "supply quantity". Supply reflects the volume of planned sales at all possible price levels of a product or service, that is, it graphically represents the entire graph of the supply curve. The quantity supplied is the amount of a good that sellers are willing to sell at a specific price level; it represents one point on the graph of the supply curve. An increase in supply means that at each price level, producers are willing to sell more of the good than before. As supply increases, the supply curve shifts to the right—downward.. A decrease in supply means that at each price level, producers are willing to sell less of the good than before. When supply decreases, the supply curve shifts to the left—up.

It is important to understand that the supply curve, depicted in P-Q coordinates, is the dependence of the quantity supplied on price. By obtaining this dependence, we record all other factors that influence the seller’s decision to sell the product. Suggestion function Q s = f(P), means that we applied the “other things being equal” principle when constructing it.
If we try to change the non-price factors of supply, then in P-Q coordinates we will get a new supply curve.

Thus:

A change in supply is a shift in the entire supply curve, that is, a change in the quantity of supply for all possible values of the price of an economic good;
A change in quantity supplied is a shift along the supply curve associated with a change in the price of an economic good. When the price of a product decreases, producers will tend to offer less of it for sale. When the price of a product increases, the consequences are exactly the opposite.

Reaction of quantity supplied to price changes

Supply response to changes in non-price factors

Terminology

Demand- one of the sides of market pricing reflects the desire to purchase a certain volume of goods at a given price.

Law of Demand- other things being equal, an increase in price causes a decrease in the quantity demanded; a decrease in price is an increase in the quantity demanded, that is, it reflects the inverse relationship between price and quantity of goods.

Non-price factors affecting demand:

1. Level of income in society.

2. Market size.

3. Fashion, seasonality.

4. Availability of substitute goods (substitutes)

5. Inflation expectations

Offer- reflects the desire of producers to introduce a certain number of goods to the market at a given price.

Law of supply- other things being equal, an increase in price leads to an increase in the quantity of supply; a decrease in price means a decrease in the quantity of supply.

Factors influencing supply:

1. Availability of substitute goods.

2. Availability of complementary (complementary) goods.

3. Level of technology.

4. Volume and availability of resources.

5. Taxes and subsidies.

6. Natural conditions

7. Expectations (inflationary, socio-political)

8. Market size

Description

Market economy can be viewed as an endless interaction of supply and demand, where supply reflects the quantity of goods that sellers are willing to offer for sale at a given price at a given time.

Law of supply- an economic law, according to which the supply of a product on the market increases with an increase in its price, all other things being equal (production costs, inflation expectations, quality of the product).

Essentially, the law of supply expresses the concept that at high prices, more goods are supplied than at low prices. If we imagine supply as a function of price and the quantity of goods supplied, the law of supply characterizes the increase in the supply function throughout the entire domain of definition.

Examples

Food

To circumvent the law of supply and demand in the European Union, the overproduction of oil is stored in warehouses, on the so-called “butter mountain” (German). Butterberg). Thus, supply is artificially restrained and the price remains stable.)

Stocks, currency, financial pyramids

There may be a steady demand for shares sold and purchased on the stock exchange, as enterprises transfer interest payments - dividends - to shareholders. When supply exceeds demand (the number of sellers has increased or there are no more buyers), the price decreases. As a rule, after moving in one of the directions, the price lingers near a certain level. Dividends continue to flow even after the transition to equilibrium and after declines, so demand for shares is sooner or later restored.