Supply elasticity is the seller's response to a price change

Since the relationship between price and quantity supplied is always direct, the supply elasticity coefficient is always greater than 0.

Es = 1- the supply is elastic (the seller noticeably reacts to price changes)

E S > 1– highly elastic ( Q sales increase - rapid price change)

E S< 1 - inelastic (the seller reacts weakly to price changes)

Es = 0- perfectly inelastic supply

Market equilibrium

A joint analysis of supply and demand makes it possible to determine in the economic "space" a certain point of optimizing the interests of consumers and producers. This convergence of interests is characterized by the formation market price- this is the price at which the volumes of demand and supply are equal, i.e. consumers can buy as many goods and services as producers want to sell.

Rice. 5 Supply and demand analysis

So, at any price lower than the market price, for example R 1 there is an excess of demand over supply and, as a result, a shortage of goods in the volume Q 1 Q 2. The competition of a large number of buyers with a limited amount of product will force sellers to raise the price and increase the output of the product. At the same time, the competition of consumers with each other weakens, the magnitude of demand decreases and the system gravitates towards the equilibrium point T(Fig. 5).

At a higher price, for example R 2, there is an excess of supply over demand and, as a result, a commodity surplus in the same volume Q 1 Q 2. Here arises the competition of a large number of sellers with each other for favorable terms of sale, which, with a small number of buyers, can only arise if manufacturers reduce prices while reducing output. Consumers will respond with an increase in purchases, and the system will again rush to the equilibrium point T.

consumer surplus- difference between market price at which the consumer purchased the product, and maximum price that he is willing to pay for this product.

Producer Surplus- the difference between the current market value of the product and the minimum price at which the manufacturer is willing to sell his product.

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The demand for a factor (labor) is a derivative - it depends on the demand for the product produced in the industry.

In a competitive labor market, the equilibrium wage and the level of employment are determined by the intersection point of the supply and demand curves (Fig.

Rice. 8.2. Equilibrium in a competitive labor market

Labor supply and labor demand of an individual competitive firm

For an individual firm, the market rate wages acts as a horizontal straight line of labor supply (Fig. 8.3).

Rice. 8.3. Equilibrium in the labor market for an individual firm

Since the wage rate for a particular firm hiring workers in the labor market acts as a given value, the supply curve S l = MRC l is perfectly elastic. Here, the MRP l curve acts as its labor demand curve.

The firm will get the maximum profit if it hires such a number of employees that MRP l = MRC l .

The firm hires new workers only until its marginal revenue from the product (MRP l) is equal to the marginal cost of the resource (MRC l), in this case for labor.

Determinants of labor demand

1. Changes in demand for the product: other equal conditions an increase in the demand for a product increases the demand for the resources used to produce that product, while a decrease in the demand for a product leads to a decrease in the demand for the resources required to produce it.

2. Changes in productivity: other things being equal, a change in the productivity of resources also causes a change in the demand for a resource, and the derivative change goes in the same direction as the original one that caused it. Performance can be affected by:

The amount of other resources used;

Technical progress;

Improving the quality of resources.

3. Changes in the prices of other resources.

If the substitution effect outweighs the volume effect, then a change in the price of a resource causes the same change in the demand for the replacement resource.

If the output effect exceeds the substitution effect, then a change in the price of a resource causes an opposite change in the demand for the replacement resource.

The marginal profitability of a product by a factor (labor), or marginal factor revenue, is the additional income that a firm will receive from using one more, additional, unit of a resource:

This value determines the demand for labor.

The market demand for labor is the sum of the sectoral demands of various sectors of the economy.

The elasticity of market (industry) demand with respect to the wage rate is determined by the formula

The supply of labor is determined by the wage rate, which is equal to the marginal cost of labor (the extra cost to hire an extra unit of labor). The firm, maximizing its profits, will hire new workers until each new employee brings additional revenue in excess of his wage rate, i.e. MRP l > w and MRP l = MRC l .

The profit will be maximum under the condition of MRP l = w.

The hiring decision will be determined by the balance between the demand for labor and the supply of labor at given market wage rates.

Market balance labor is established at the point of intersection of market demand and market supply. Equilibrium at a point E corresponds to the level of wages W, in which will be sold and bought L E labor for a certain time (Fig. 8.3).

At the point E the labor market is in equilibrium, since the demand for labor is equal to the supply of labor. Hence the point E determines the state of full employment, and wage acts as the price of equilibrium in the labor market.

With higher wages W′ in the labor market there will be an excess of labor force, measured by the segment L′ D L′ S . There is competition among unemployed workers, which will lead to a decrease in wages.

At any salary W″ below equilibrium W E there will be a labor shortage in the labor market, measured by a segment L″ S L″ D, which will lead to competition among entrepreneurs for hiring labor, and, ultimately, to higher wages. Thanks to the growth of wages, the circle of hired workers who are ready to offer their labor is expanding.

However, the specificity of labor supply is manifested in two phenomena acting in opposite directions. It:

substitution effect;

income effect.

They are manifested in the clarification of the reaction of individual workers to the increase in wage rates.

substitution effect arises when, with high wages, free time (leisure time) is seen as a potential loss. An hour of leisure seems more and more expensive, and the worker prefers to work instead of leisure. This leads to an increase in the supply of labor. However, with a further increase in wages, income effect. It arises when high wages are regarded as a source of the possibility of increasing leisure, and not labor, which in this case is regarded as an inferior commodity.

32. Physical and loan capital. Profit rate and interest rate. Equilibrium in the market of loan capital.

Physical (production) capital is a source of income invested in a business in the form of means of production. It includes buildings, machine tools, rolling mills, automobiles, computers and other structures, machines, equipment used for the production of goods and services. In addition, capital includes stocks of raw materials, materials, semi-finished products, components, which, with the help of tools, are converted into other goods in one production cycle. This aspect of capital reflects more fully than the others the interpretation of the German word " Withapital", -French " Withapital"- the main property, the main amount and the Latin " Withapitalis" - main.

At the same time, entities need funds to acquire production assets. For these purposes, firms use borrowed funds or money (loan) capital. Therefore, in a different sense, when they say capital, they mean investing money or investing it for the construction of new production facilities, durable resources in order to increase the production of goods and services. In this meaning, according to a number of economists, capital is money, as a universal commodity of the business world.

Loan interest- the price (income) paid (received) for the use (provision) of loan capital

Interest rate (%) is the ratio of the amount of annual income received on loan capital to the amount of loan capital.

The nominal rate shows the expected return on capital, the real rate shows the actual return on capital, taking into account the inflation rate.

Low rate % stimulates investment high rate %- reduces.

Entrepreneur investing cash in production, waiting to receive profit - income on entrepreneurial ability.

Rate of return productive investment (capital) expresses rate of return (profitability), reflecting the efficiency of the use of acquired factors of production:

In these conditions:

interest rate (i, r) – resource cost

rate of return (R) - return on capital

Equilibrium in the capital market is established as a result of the interaction of the demand for capital as investment resources and the supply of capital as temporarily free cash.

11. Elasticity of the offer. Factors affecting the elasticity of supply.Supply elasticity- this is an indicator of the relative change in the quantity of goods offered on the market in accordance with the relative change in the competitive price. The degree of change in the supply volume, depending on the price increase, characterizes supply elasticity. where ∆ Q s- Changed value of the offer.

If the proposed number of goods ( Q s) remains unchanged when prices change, then we are dealing with inelastic supply ( E s = 0).

When the slightest decrease in the price of a good causes a reduction in supply, and the slightest increase in price leads to its increase, then this is a perfectly elastic supply ( E s > 1).

If a E s= ∞ is the firm's supply in the long run at a stable price

E S<1 - неэластичное предложение (сильное изменение цены вызывает слабое изменение предложения);

E S =1 - weak (strong) change in price causes the same weak (strong) change in supply;

P E S = 0 E S < 1 E S = 1 E S > 1 E S = ∞

Rice. 3.15. Types of elasticity of supply The elasticity of the supply of goods depends on many factors: on the differentiation of individual costs at different enterprises, the availability of free labor, the speed of capital flow from one industry to another, etc. Supply elasticity factors First, one of the determining factors in the elasticity of the supply of a product is the mobility of its factors of production; the speed at which these factors move from other applications determines the ability of retailers to quickly change production volumes. For example, the supply of land on which to grow grapes is inelastic, since it is almost impossible to expand it ( E s= 0). On the contrary, goods such as computers, ice cream, cars, are characterized by elastic supply, since their producers can increase their production when prices rise. Secondly, the elasticity of supply depends to a large extent on the time interval. As with demand, supply elasticity increases over long-term time frames. In the long run, factors of production are more mobile, and the adaptation of producers to new market conditions brings production opportunities closer to the changed market demand, which leads to an increase in the elasticity of supply.

12. State influence on market pricing (taxes, price controls, subsidies) and its consequences. State price regulation is necessary to prevent: price inflation with a steady deficit; producer monopoly; a sharp rise in prices for exploited raw materials and fuel. State price regulation contributes to the creation of normal competition, the achievement of certain social results. Measures of influence on producers by the state can be direct (by establishing certain pricing rules) and indirect, through economic leverage. Direct state price regulation is used only in highly monopolized industries. Freezing prices and wages limits the intersectoral flow of capital, slows down investment policy, reduces the level of business activity, restrains income growth. Indirect price regulation is: restrictive (restrictive) monetary policy, regulation of the discount rate of federal reserve banks; deficit reduction state budget; federal purchases of goods and services; tax policy. Price controls constrain production, stimulate consumption, suppress technical achievements and makes it dependent on imports. The state can influence the pricing process in three ways: set fixed prices (introduce state list prices, for example, for electricity, railway tariffs, housing and communal services, travel in public transport), freeze prices, fix prices for enterprises -monopolists; determine the rules according to which enterprises themselves set prices regulated by the state (setting a ceiling price level for certain types of goods; regulating the main price parameters, such as profits, discounts, indirect taxes, etc.; determining the ceiling level for a one-time price increase specific goods); establish market "rules of the game", i.e. introduce a number of prohibitions on unfair competition and market monopolization (a ban on horizontal and vertical price fixing; a ban on dumping). Tax regulation is one of the fairly effective principles of state pricing policy. All taxes can be divided into two large groups: direct and indirect. Direct taxes are paid directly from the income of the taxpayer, while indirect taxes are included directly in the price of the product and are paid by the consumer when it is purchased. Indirect taxes lead to growth equilibrium price and decrease in sales, besides, they reduce the revenue of the manufacturer. Consequently, the burden of indirect tax is distributed between the consumer and the producer. The methods of tax regulation of prices include the establishment of value added tax (VAT) and the amount of excise duty. Exemption of certain goods from VAT, as well as a change in the rate of this tax on certain goods, can effectively influence structural changes and the development of production in the most important sectors of the national economy. Most countries have defined a list of excisable goods and excise duty, which significantly affect prices. The establishment of excise duties by the state is intended to ensure the distribution of consumption of goods, protect domestic producers, regulate the profits of commodity producers in the event of a large difference between prices and production costs, replenish the state budget. State subsidies are used as price regulation measures. Some industries require constant state support (for example, the coal industry) in the form of subsidized surcharges to producers or consumers. A subsidy is an appropriation from the state budget directed to cover the losses incurred by an enterprise, in particular, due to the sale of its products at state prices, which do not cover its costs. In other words, this means that if a subsidy is established for a product, then one part of the real price is paid by the consumer, and the other part is paid by the state. Thus, the price of goods for the consumer decreases

30.Demand for resources in the markets for factors of production: nature, factors, fundamental principles.

Resources (factors of production) are what is used to produce goods and services. Distinguish between material resources (land and capital) and human resources (labor and entrepreneurial activity). Markets for resources (factors of production) are spheres of commodity circulation of such important groups of resources economic activity like land, natural resources, labor resources, capital. Essential Function these markets: promoting a more efficient production of goods and services. Microeconomic analysis of resource markets involves the study of the strategy of the behavior of firms-purchasers of resources (decision-making mechanism on the volume of purchased resources and prices); consideration of situations in which equilibrium in resource markets depends on how much market power firms have in the markets finished products.

1. General characteristics of resource markets. Resource demand and supply. The peculiarity of the individual labor supply

Distinguish resource markets perfect and not perfect competition.Perfectly competitive factor market is a market in which there are a large number of buyers (sellers) - a factor of production. Each buyer (employer) acquires a small part of the available supply volume of the resource. Each resource owner sells only a small part of the total supply and cannot significantly influence the market supply. Here there is free entry and exit to the market of sellers and buyers. In a perfectly competitive market, individual buyers or sellers cannot dictate the price of resources. Buyers (hirers) of the resource are informed about the prices, and the seller demanding a higher price will not be able to find a buyer. The price of a resource is formed at a given time depending on the ratio of supply and demand for it. The firm that buys the resource in each this moment takes the price as given. resource market imperfect competition A market in which there is only one buyer of a given resource (monopsony) or several (oligopsony). Firms with monopsonic or oligopsonic power can influence the prices of acquired inputs. Most labor markets are characterized by imperfect competition. Thus, in small towns, the economy is almost entirely dependent on one large firm, which provides work for a significant part of the working population. The study of resource markets involves the study of supply and demand for resources. The demand of purchasing firms for resources is derived from the demand for products manufactured using these resources. In other words, resources satisfy the needs of the buyer not directly, but indirectly, through the production of goods and services. Derived nature of demand for resources means that the stability of demand for any resource will depend, first of all, on the productivity of the resource when creating a product and on commodity prices produced with this resource. A highly productive resource that produces a commodity that is in high demand will be in great demand. There will be no demand for a resource that produces an unnecessary good. Resource Demand Feature allows you to show the specifics of its elasticity. The sensitivity of this demand, its response three factors determine the change in the price of resources. The first is the elasticity of demand for finished products: the higher it is, the more elastic the demand for resources will be. When an increase in the price of a good causes a significant drop in demand for it, the need for resources decreases. In the case when, on the contrary, the demand for products manufactured with the help of these resources is inelastic, the demand for resources is also inelastic. The second factor is the substitutability of resources. The elasticity of demand for them is high if, in the event of a price increase, there is the possibility of replacing them with other resources. The third factor is specific gravity these resources in total costs production of finished products. The larger their share, the higher the elasticity of demand. The supply of resources (with their general limitation) at any given moment is a quite definite value. At another moment, it can actually change under the influence of some factors. For example, reclamation work in a given quarter increased the supply of land, changes in wages affected the supply of labor, and so on.

The labor market under perfect competition. Demand and supply of labor

Labor market is a set of economic relations regarding the purchase and sale of labor. The labor market is a dynamic system in which the volume, structure, demand and supply of labor is formed.

The labor market in conditions of perfect competition has the following features :

• a large number of firms competing in the market when hiring workers of this type of work;
• the presence of many workers of the same qualifications offering their labor;
• neither firms nor employees can dictate rates wages .

The subjects of demand in the market are entrepreneurs and the state, and the subjects of supply are workers with their skills and abilities. The object of sale and purchase is a specific product - work force(work). The price of labor is wages.

When hiring additional employees, firms are guided by the following considerations :

The demand for any factor is determined by the desire for maximum profit. Profit is maximized by increasing labor input up to a level where the income from the marginal product of labor (revenue from an additional unit of output obtained with the help of an additional worker - MRPL) will be equal to marginal cost on him (wages - W). Therefore, it will be profitable for the firm to hire workers subject to the equality MRPL = W.

The demand for labor is in inverse relationship from the amount of wages . With an increase in wages, the demand for labor on the part of the entrepreneur decreases, and with a decrease in wages, the demand for labor increases. The supply of labor is directly related to wages. .

When considering the supply of labor, it is necessary to take into account two relatively independent effects that influence the choice of each individual: more rest or more work. These are the substitution effect and the income effect.

substitution effect called the next process. With an increase in wages, each hour worked better paid, therefore, every hour of free time is a lost profit for the employee, so there is a desire to replace free time with additional work. It follows from this that free time is replaced by the set of goods and services that the worker can purchase with the increased wages.

essence income effect is that as wages rise, the supply of labor for an individual worker decreases in order to alternative work pastime and leisure time.

From this it is clear that the substitution effect of a wage increase will lead to an increase in the supply of labor, and the income effect will be expressed in its reduction. The final change in labor supply depends on the relative strength of the substitution effect and the income effect .

The individual labor supply curve is clearly shown in Figure 1 . We see that an increase in wages from W1 to W2 leads to an increase in the number of working hours from t1 to t2. Here the substitution effect prevails. The SL curve is ascending. A further increase in wages from W2 to W3 is not reflected in the increase in working hours, the employee works as much as before. Here the substitution effect is equal to the income effect. The SL curve is a vertical line. An increase in the wage rate from W3 to W4 leads to a reduction in the working day from t2 to t3. Here, the income effect is stronger than the substitution effect. The SL curve is downward.

Although the individual labor supply curve can be curved, in general, the market supply curve of any kind of labor tends to increase (Figure 2), reflecting the fact that in the absence of unemployment hiring firms will be forced to pay higher wage rates to get more workers.

Elasticity suggestions- the degree of change in the quantity of goods and services offered in response to changes in their price. The process of increasing the elasticity of supply in the long-term and short-term periods is revealed through the concepts of instantaneous, short-term and long-term equilibrium.

Supply elasticity coefficient-- a numerical indicator that reflects the degree of change in the quantity of goods and services offered in response to changes in their price.

• 1. Supply is elastic when firms can easily and quickly change the supply of a good in response to a change in its price (ES > 1).
• 2. The supply is inelastic when it is impossible to quickly and easily change the volume of the offered product due to a change in its price (ES
• 3. The supply of unit elasticity is formed when the percentage change in price and the subsequent percentage change in the quantity of products offered are equal in magnitude (ES = 1).
• 4. Absolutely inelastic supply. (ES = 0, the curve is vertical). That is, for any change in price, firms can offer a fixed quantity of goods.
• 5. Absolutely elastic offer. Firms are ready to offer such a quantity of goods that can satisfy all demand, if necessary - an infinite amount (ES = ?, the curve is horizontal).

Factors affecting the elasticity of supply

• 1. Availability of a reserve of production capacities. When industry is not operating at full capacity, equipment is idle, workers are out of work or underemployed. In this case, the supply will be elastic. Increased demand can be met fairly quickly by hiring more workers and bringing idle equipment to life. However, if the industry is operating at full capacity, supply will be inelastic, at least for a short period. It may take a long time to build new or expand old factories. And even in conditions of unemployment, supply can be inelastic if there is a shortage of a labor force of a certain qualification.
• 2. Inventory level. If the industry has large inventory, the increased demand can be met by putting them into circulation. Until stocks run out, supply will remain elastic.
• 3. The difference between agricultural and industrial goods. For agricultural products, the elasticity of supply is affected by the length of the growing season. There are no changes in the supply of vegetables and cereals throughout the year. The supply of some plantation crops (natural rubber, coffee and cocoa) will be inelastic for an even longer time because it takes several years for new trees and bushes to bear fruit. The supply of manufactured goods is more elastic than that of agricultural products. In industry, there are opportunities to cope with a drop in demand: lay off part of the workers or transfer them to part-time working week and turn off the machines. When demand increases, idle equipment can be reactivated, more workers can be hired, or overtime can be worked.
• 4. Time factor. - under the conditions of the shortest market period, producers do not have time to respond to changes in demand and prices, and supply is completely inelastic (ES = 0), therefore, an increase (decrease) in demand leads to an increase (decrease) in prices, but does not affect the supply; -in conditions short term the offer will be elastic. This is expressed in the fact that an increase in demand causes not only an increase in prices, but also an increase in production, as firms have time to change some factors of production in accordance with demand (raw materials, labor), or use them more intensively; - in the long run, supply is almost perfectly elastic, so an increase in demand leads to a significant increase in supply at constant prices or a slight increase in prices.