Taxes are rightfully considered the softest and most “civilized” instrument of government intervention in the operation of the market mechanism. They do not change the conditions for market processes and do not limit the freedom of action of market subjects. As a result of an increase in tax rates, a new equilibrium will be established in the market in which the volume of goods will decrease and the price will increase.
A less suitable instrument of government influence on the market is price regulation, since it already affects the very operation of market mechanisms, changing the process of achieving equilibrium. Here, the state again has two methods at its disposal: establishing an upper (“ceiling”) and a lower (“floor”) price limits.
For example, the introduction of a maximum upper price limit (the so-called “social low price”), set, of course, below the equilibrium price in order, for example, to protect the interests of low-income consumers of this product, not only causes a shortage of this product due to excess at such a price the volume of demand QD the volume of supply Qs, but also the transformation of this deficit into a chronic one, since the market mechanism for overcoming the deficit by increasing the price of the missing product and increasing the volume of its supply is blocked.
Buyers of such a “socially regulated” product are faced with the need to ration its distribution (rationing) now by non-price methods: cards, queues, lists, wasting time and nervous energy not only standing in queues, but also searching for the right queue, and without a guarantee of receiving desired product. It is obvious that the emerging “equilibrium” cannot be stable. The ability of buyers to pay for a given quantity of a good is determined by their demand curve as a whole and the maximum demand price PD in each given case.
Therefore, within the given price, they will be willing to pay an additional amount for the opportunity to purchase a scarce product and get rid of the loss of time, the possible loss of other benefits, and even unpleasant experiences. This additional fee will be determined based on the principle of opportunity cost and will be higher the more valuable the time and peace of mind saved are to each individual customer. On the other hand, sellers who are dissatisfied with the low state price will certainly nominate enthusiasts from their ranks who are willing to incur additional costs to “obtain” and then produce scarce goods and provide the necessary support from the authorities, including bribing government officials, law enforcement officials, etc. d.
As a result, the shadow economy, or “black market,” becomes an almost inevitable addition to long-term state control over prices. It can be noted that in this case the price will always be higher than the equilibrium price of a free competitive market, and the total quantity of goods sold on the state-regulated and complementary “black” markets will always be less than the corresponding volume on the free market.
Thus, even if the shadow economy is “replenished” by the state restricting prices from above, it clearly worsens the results of the functioning of the free market. The state can try to reduce the severity of these problems and equalize the volumes of supply and demand for a certain period by increasing supply by using its reserves in the amount of goods deficit (QD-QS).
Another option for state regulation of prices is to establish a minimum lower limit (“floor”). Most often, this is associated with the need for government support for relevant industries (for example, agriculture or new high-tech domestic industries) and is often complemented by restrictions on foreign trade. In this case, the volume of supply Qs begins to constantly exceed the volume of demand QD and the resulting overstocking in the amount of qs-qd also becomes chronic.
In a free market, the accumulation of unpurchased goods in warehouses inevitably leads to lower prices and subsequent sales with increasing discounts. If this possibility of a price settlement of the situation that has arisen is accompanied by administrative prohibitions, the volume of goods actually sold on the market remains at a low level, limited by the volume of demand, clearly less than in an unregulated market, and the price still exceeds the market price.
In addition, here there may be cases of illegal sale of surplus at a price lower than the state and even “shadow” equilibrium price, as well as the search for workarounds to cover such sale of part of the accumulated illiquid assets at actually reduced prices (for example, the same counter services or linking such sales with transactions with scarce goods in one package). And this again will mean the emergence of additional channels for the formation of the shadow economy. Of course, the state is most often forced, having said “A”, to also say “B”, and provide various means of purchasing at such inflated prices products that have not found a market, and also (perhaps by such means as paying bonuses to those producers who agree to reduce production) seeks to reduce the quantity of supply to bring it closer to the quantity of demand.
But this only leads to the transfer of external signs of the “disease” to other areas, but actually drives it inside, for example, increases the burden on the state budget, which is forced to finance such purchases and subsequent inevitable events. So, with administrative regulation of prices, regardless of whether the action of the market pricing mechanism is limited by upper or lower limits, a reduction in the volume of goods sold inevitably occurs, even taking into account its quantity attributable to the “black market”. This means reduced opportunities for economic development.
Administrative intervention itself in market pricing often directly stimulates the formation and expansion of the shadow economy, which in no way contributes to the strengthening of the state and the establishment of law and order.
Another way the state influences market processes is to regulate the quantity of goods circulating on the market. For countries with developed market economies, such instruments are, as a rule, licenses and quotas that establish the maximum possible quantities of goods sold or purchased, most often associated with export-import operations. Obviously, they must be less than the equilibrium quantities in the free market, otherwise the restrictions would have no effect.
In this case, the supply curve of the quota-bound product again takes on the form of a broken vertical line when the quota volume is reached, and the price established in such a market increases compared to the equilibrium price of the free market. This situation is similar to that arising as a result of setting an upper price limit at a level with the only difference that in this case the “black market” may not arise - after all, it is actually legalized in the area of the quota volume. Of course, this does not exclude its existence in the “normal” form, already discussed above, when sellers begin to circumvent administrative prohibitions by selling goods in excess of the established limit, including through smuggling.
The only essentially external difference between the shadow processes that arise in this case and the case with price regulation is that the emerging price of the “black market” is not more, but less than the legal price, but both of them are still higher than the equilibrium price of the free market.
In countries with a nationalized economy, arising when the volume of demand exceeds the volume of supply of a similarly limited (for example, planned) quantity of goods and the resulting competition among buyers, shadow processes may have additional specificity of the notorious “cost mechanism”. In countries with a centralized, state-owned economic system, another result of the state’s influence on the volume of goods offered on the market is possible, when the quantity of goods planned and produced according to such a plan exceeds the equilibrium quantity. Such subsidies are also an integral part of the functioning of the same “cost mechanism”.
It can be noted that in addition to the additional government spending “on target”, such subsidies often encourage the consumption of these goods in quantities exceeding the necessary ones. At the same time, incentives for the production and consumption of higher-quality substitute goods are restrained, and this has a direct negative impact on scientific and technological progress and economic development. Summing up the analysis of the impact of the state on market equilibrium, it should be emphasized that not a single country can do without it. But at the same time, it is important to correctly understand the consequences of administrative intervention and choose the means that are most consistent with the goals pursued. Using a supply and demand model, you can predict the effects and costs of various market price control programs.
Market pricing according to the laws demand And offers, the formation of equilibrium market prices on this basis underlies the self-regulation of a market economy, its ability to solve economic problems more effectively than other systems.
Forms of government intervention in pricing
Modern reality market economy are such that there are practically no countries where one or another form of government intervention in the pricing process is not carried out. The most common options for such interference with market competitive forces include government price controls, as well as the introduction of taxes and subsidies. In the first case, violations of the competitive pricing mechanism are quite obvious. In the second case, the indirect impact through taxation and subsidies does not outwardly disrupt the effect of market pricing, but usually significantly deforms it. Does the market need such intervention? And if so, why and to what extent?
Let us consider both directions of government intervention in more detail.
State control over prices
The established equilibrium prices, due to various circumstances, do not always suit society. State intervention in this case can take the form of forced (legislative) establishment fixed prices.
Such fixed prices can be of two types.
1. When equilibrium prices seem too high to society, the government sets prices below equilibrium prices (maximum prices, or price ceiling).
2. When equilibrium price seems too low, then prices are legally established above the equilibrium price (minimum prices, or lower price level).
Consequences of price fixing
While solving the tasks assigned to them with varying degrees of success, fixed prices simultaneously lead to already known market imbalances (see Fig. 4.6):
If the fixed price is below the equilibrium price, deficit goods;
· If the forced price is higher than the equilibrium price, the consequence will be a surplus of goods.
In both the first and second cases, with free pricing, the market could develop a mechanism for exiting the disequilibrium state. When the price is fixed by law, this blocks the actions of competitive market forces and government intervention is again necessary to solve emerging problems.
In Fig. 4.20 provides a detailed graphical interpretation of the case of establishing a price ceiling. Based on fixed prices in a market economy, the state, as a rule, tries to solve certain social issues. Thus, the state is forced to resort to establishing a maximum price (price ceiling - P A) when the equilibrium price (P 0) is so high that it excludes a given product from consumption by the majority of the population, and the product is an essential item (bread, sugar, milk ). Most often, such a situation is likely during periods of war, crisis, crop failure, etc.
Rice. 4.20. Setting a fixed price
Due to the introduction of fixed prices, a persistent shortage arises (Q A – Q B). This means that while setting a low price for the benefit of the population, the state does not at the same time guarantee all its citizens the opportunity to receive this product. If we are talking about a socially significant product, then the consequences can be no less negative than with high prices. In the end, people don’t care for what reason they will not consume bread: because of the high price or because it is not available in the store. In both cases, the blame will be placed on the government, which does not know how to manage the economy.
Black market
Another negative consequence of imposing a price ceiling is the black market, which is a concomitant of shortages. The reasons for its existence are clear - some citizens are ready to overpay above the price set by the state for goods that are not in official trade. This can be driven by various circumstances - from high incomes, when life according to the principle “time is money” becomes a reality, to emergency events that happen in everyone’s life (illness, holidays, etc.), when people with relatively small incomes are ready to pay for scarce the goods are big money.
And then an inevitable chain of consequences arises. Let us assume that state-controlled producers do not dare to exceed the marginal price P A, but then they will limit the volume of production to the level Q B corresponding to the supply curve S.
It is this fixed volume of production that will fall into the hands of shadow traders, who ensure the “extraction” of scarce goods. Accordingly, the supply curve S will be replaced by a new vertical supply curve S 1, which reflects the behavior of intermediaries. And its intersection with the demand curve will set the price and quantity that characterize the equilibrium on the “black” market. It is clearly seen that the final equilibrium point on the black market is achieved at a significantly higher price than the equilibrium price of the free market (P 2 > P 0). But the purpose of government intervention was precisely the overestimation equilibrium price. In other words, black market- this is a sure sign of the failure of the state policy of limiting prices.
Black market in the USSR
Only those who did not live in Russia in pre-reform times did not encounter the black market. Buying meat, shoes, clothing, and building materials “from hand” was commonplace in the Soviet economy. The overwhelming majority of scarce goods never went on open sale, but were immediately distributed to “their people,” who later resold them at inflated prices.
Of course, with " speculation“An army of controllers fought, but their efforts yielded almost zero results. Trade workers simply took more precautions. In addition, controllers are people too; they were constantly tried (and often successfully) to bribe them.
The punishability of speculation also forced people who tried to buy scarce goods to be wary. It was obvious that the seller would not accept a bribe directly from an unknown person. Therefore, in order to have meat, you had to be “friends” with the butcher (that is, not just give money, but give gifts, express your respect in every possible way, etc.), in order to drive a working car, you had to be “friends” with the auto mechanic.
Quantitative estimates of the prevalence of the black market in the USSR are highly unreliable, but according to experts, 20–30% of all consumer goods passed through it in the 1970s.
Abstractions
Normative approach
10) On the graph, the initial market equilibrium corresponds to point A. If the price rises to the level P=33, then the surplus of goods will be ...
approximately 10
7 = 31-24 = s2-d2
11) The graph shows the “AD-AS” model (aggregate demand - aggregate supply).
Reduction in aggregate demand in the long run...
Has no price
Will reduce real output
Will reduce prices
12) The graph shows the “AD-AS” model (aggregate demand - aggregate supply).
If the aggregate demand curve intersects the aggregate supply curve at an intermediate point, then an increase in aggregate demand...
Will not change real production volume
Will not change the price level
Will increase the price level
Will increase real output
will not change production volume
will reduce production
will reduce the price level
will not change the price level
Task 20.1 The graph shows the supply and demand function in a certain national market. It is known that the government decided to set the maximum possible price level.
The purpose of such intervention in the established market equilibrium can be....
Increasing product availability for consumers
Reducing the likelihood of sellers going bankrupt
Increasing the volume of product consumption
Limiting the volume of consumption of goods
Rear 20.2. Examples of markets that require such intervention in the established market equilibrium include markets...
Of bread
Products made of precious metals
Public transport services
Grains
Rear 20.3. The result of the introduction of a price ceiling of 40 cu. less than the equilibrium price, there will be a shortage of goods equal to 7 thousand pieces (d-s= 11-4=7)
19) The figure shows a graphical model of the income and costs of a monopolist company
Then the degree of its monopoly power (Lerner coefficient) will be:
- 0,5385 L =(P – MC)/P = (130-60)/130 = 0.5385
- 1,1667
Solution: Most often, to characterize the degree of market power, the Lerner coefficient is used, defined as the ratio of the excess of the price of a product over the marginal costs of its production and the price of the company: 
, where P is the unit price, MC is the marginal cost.
It ranges from zero for perfect competition to one for monopoly. In this case, the optimal production volume (Q) for the company is 35 thousand units, since marginal revenue (MR) and marginal costs (MC) become equal (60 monetary units) at a given Q. This volume of production will be sold at a price 130 den. units
19.1) The figure shows a graphical model of the income and costs of a monopolist company (see above)
Then the monopoly profit at the optimal production volume will be equal to ____thousand. monetary units
+ 2450 = (200-130)*35
55) The figure shows a graphical model of the income and costs of a monopolist firm.
Then the degree of its monopoly power (Lerner coefficient) is ...
+ 0,4375
- 0,125
55.1) The figure shows a graphical model of the income and costs of a monopolist firm.
Then the monopoly profit at the optimal production volume is equal to___ thousand monetary units.
- 1600
55) The figure shows a graphical model of the income and costs of a monopolist firm:
Then the monopoly price at the optimal production volume is equal to = 60 Solution:
Any firm, including a monopoly, optimizes production volume from the standpoint of maximizing profits with equality of marginal revenue (MR) and marginal costs (MC). The optimal production volume and selling price are determined finding the intersection point of the MR and MC graphs, but the price (P) is determined by restoring the perpendicular from this point upward to the demand line, which is identical in this case to the price, and the volume of production (Q) is determined by lowering the perpendicular from this point down to the horizontal coordinate axis.
In this case, the optimal price level for the company is 60 den. units, since marginal revenue and marginal costs become equal at Q = 20 thousand pcs.
113) Based on data on the inflation rate for three years, which amounted to 6.4 and 5.6 and 3.6%, respectively, we can conclude that inflation for the specified period was equal to ________%. = (1+0.064)*(1+0.056)*(1+0.036)-1=16.4%
+ 16,4
- 124, 7
5,2
10) Based on data on the inflation rate for three years, which amounted to 3.4, 2.8 and 1.6%, respectively, we can conclude that inflation for the specified period was equal to ________%.
- 8
13) Based on data on the volume of production and prices of goods, we can say that the consumer price index in 2012 amounted to _________ monetary units. , if in 2011 we take it as the base
0,998
1,035
1,077
1,113
114) In the early stages of economic development of society, when a person was completely dependent on the environment, there was a local... technological method of production
Producing
Appropriator
Simple
Constant
oligopoly
monopoly
monopolistic competition
monopsony
6) In the factor market, a capital good is understood as...
A. profit
b. income-generating value
V. physical capital
d. money capital
The market price was set at 131 thousand rubles. per unit of goods. A company is characterized in a calendar period by the relationship between production volume (pieces), variable and fixed costs (thousand rubles) (data in the table)
This figure refers to this type of structure as 
Oligopoly
Monopoly
Monopolistic competition
Perfect competition
The market price was set at 131 thousand rubles. per unit of goods. A company is characterized in a calendar period by the relationship between production volume (pieces), variable and fixed costs (thousand rubles) (data in the table)
According to the table, the maximum possible profit of the company is
Answer: 1179 – 100 – 780 = 299
62) National economic systems have much in common with each other, but at the same time they differ in many ways. The development of economic systems is largely determined by scientific and technological progress, which is reflected in the level of development of productive forces. Accordingly, countries are distinguished between pre-industrial, industrial and post-industrial.
Industry is the leading sector of the economy in _____________ economic systems.
Closed
+ industrial
Open
Post-industrial
63) National economic systems have much in common with each other, but at the same time they differ in many ways. The development of economic systems is largely determined by scientific and technological progress, which is reflected in the level of development of productive forces. Accordingly, countries are distinguished between pre-industrial, industrial and post-industrial.
In post-industrial economies, the main production resources are...
Capital
- information
+ knowledge
64) National economic systems have much in common with each other, but at the same time they differ in many ways. The development of economic systems is largely determined by scientific and technological progress, which is reflected in the level of development of productive forces. Accordingly, countries are distinguished between pre-industrial, industrial and post-industrial.
Establish a correspondence between the types of national economic systems and countries, depending on the level of development of their production forces.
1. Pre-industrial economy
2. Industrial economy
3. Post-industrial economy
3) Netherlands
Greenland
1) Tanzania
2) Azerbaijan
112 National defense is an example of a _____ good.
Mixed private
Pure public
Mixed public
Purely private
113) The impossibility of satisfying the needs of all members of society simultaneously and in full is defined in economic theory as...
1) limited resources
2) excessive needs
3) dominance of pseudo-needs
4) lack of natural resources
39) The inability of sellers to increase or decrease the amount of sales in a situation of shortest equilibrium when demand changes is explained by the fact that supply is...
Elastic
Inelastic
+ absolutely inelastic
Absolutely elastic
Immovable character is a characteristic of a factor of production...
+ Earth
- Capital
40) Undefined market barriers to entry into the industry are typical for...
Monopolies
Oligopolies
Monopolistic competition
+ Perfect competition
41) Insurmountable market barriers to entry into the industry are typical for...
Monopolistic competition
Oligopolies
+ monopolies
Perfect competition
87 Unanticipated inflation leads to a redistribution of wealth from...
States to business
+ Spheres of production to the sphere of trade
Borrowers to lenders
Lenders to borrowers
13) The inverse indicator of the economic efficiency of using fixed capital is….
Capital productivity
Materialism
Material efficiency
Capital intensity
18) The general pattern of sectoral shifts in the economy is a noticeable...
Declining share of the service sector
Increasing the share of extractive industries of the economy
- reducing the share of extractive industries of the economy
- increasing the share of the service sector
19 A society in which production relations are based on the use of information as a factor of production is called ...
Humanistic
Industrial
Instrumental
Post-industrial
132) Social relations that develop in the process of reproduction manifest themselves in the form..
Logistical connections
Organizational and economic relations
+ socio-economic relations
Material-energy sacred
123) The common subject of study of mercantilists, physiocrats and classics is...
Achieving general macroeconomic equilibrium
Study of Economic Institutions
Finding the Causes of Society's Wealth
Money circulation and the fight against inflation
132) The object of purchase and sale on the financial capital market is...
Securities
Machinery and equipment
Raw materials
Rights to dispose of valuables
133) The volume of investment directly depends on..(at least 2 options)
+ real national income
+ real interest rate
Euro exchange rate
Rent values
75) The volume of investment does not depend on...
Expected rate of net profit
Economic expectations
Real interest rate
+ national currency exchange rate
123) The volume of family savings in the year before last amounted to 6,400 den. units, in the past – 6800 den. units If it is known that the marginal propensity to consume is 0.6, then the increase in disposable income was ______ den. units = (6800-6400)/(1-0.6) = 1000
124) The volume of savings last year amounted to 500 monetary units. At the end of the current year (for the same period), savings increased by 150 monetary units. If the average propensity to save is 50%, the disposable income is ____ monetary units.
300
1300
78) The object of the modern labor market is...
Ability to work
Employer
Wage
Worker
58) The volume of savings last year amounted to 460 den. units At the end of the current year (over the same period), savings increased by 49 den. units If the average propensity to save is 40%, then the disposable income of the current period is equal to ___________ monetary units.
+ 203,6 аps=s/y
- 1027,5
94) One of the reasons for the existence of a natural rate of unemployment is
Developed labor market infrastructure
Wage stability
Lack of structural changes in the economy
Microeconomics Cases
3.1. What is a market? Topic 7
1. Systematic analysis of forms of cooperation based on the evolutionary series: mutual assistance → gift exchange → market. Indicate the specifics of the subsequent one in comparison with the previous one (mutual assistance is the simplest form of cooperation, selfishness is mutual assistance based on barter, market is barter based on competition).
2. Explain the transition from a metaphorical to a theoretical explanation of the essence of the market based on the following meanings of this word:
Etymology of the word - area
Ordinary meaning – sphere of circulation
The strict meaning is cooperation based on competitive imputation of benefits.
3. The development of practice requires constant updating of terminology (economic categories). Different words were used to name market cooperation: barter, commodity production, market relations. Which of them should be considered the most general and which of them should be considered the main one at the present time? Is the market called only the sphere of circulation or all social production based on competition?
4. Define and explain the evolutionary series of main forms of market cooperation: cooperation - barter - barter (exchange of goods) - circulation of goods - trade - commerce - marketing.
5. Is a monopolistic market a market in the strict sense of the word?
3.2. WHAT IS THE “SHADOW ECONOMY”? Topic 7
Based on all sources, give an interpretation of the economic sectors. Use the explanation of the technology of system analysis “Methodology of Theoretical Science” on the MIIT–IEF portal \ distance learning \ educational materials.
The relevance of the problems of the shadow economy coexists with the lack of its theory - a monistic systemic explanation. There is a variety of terminology for naming this phenomenon, and there is no taxonomy of the forms of economic sectors. Hypothesis of systemic interpretation of the main forms of economic sectors.
Economy
┌─────┴────┐
Criminal - legitimate
┌─────┴────┐
home - formal
┌─────┴────┐
Natural – market
┌─────┴────┐
Shadow – legal
The criminal economy is a manifestation of ongoing inhumane brutal relations in society. It is opposed by legitimate sectors of the economy. Their initial version should be considered households. In them, labor is not taken into account and does not accept a monetary value. It is often considered an informal sector of the economy. The natural economy, for example of monasteries, should be considered more developed. They must keep records of labor and products. But all this is not aggregated by macroeconomic indicators. The market economy arose before the state and did not initially assume that society would take it into account, which arose along with the formation of the state. Accordingly, the modern shadow economy is not taken into account administratively, but is usually determined statistically, indirectly, and estimated.
Exercise. Study the literature on the problem, determine the degree of validity of the proposed hypothesis. Add additions, clarifications to its interpretation, or offer an alternative.
3.3. ROLL-UP CALENDARS. Topic 8
The functions of industry supply and demand for desk calendars are known.
Qd =126–5P Qs = –6+P
Qd – volume of demand (thousand calendars)
Qs – supply volume (thousand calendars)
P – price (rubles per calendar)
Draw a graph gradually (largely) and use it to consistently explain the conditions of the problem and the direction of their solution
1. Determine the equilibrium number of desk calendars in thousand pieces
126–5Р= – 6+ Р 126+6 = Р+5Р 132 = 6 Р Р = 22
Qd = 126– 5 x 22 = 16
2. Consumer and producer surplus will amount to .....and ... thousand rubles, respectively
25.6 128 222 256
Qd=Qs Qs = –6 +P = –6+22 =16
Hint: set Qd Qs equal to zero and get two prices (indicate them on the chart)
If Qd = 0. 0=126–5Р 5Р=126 Р =25.2 (max. Buyer price) 25.2–22 = 3.2
If Qs = 0 0=–6+P P =6 (minimum seller price) 16 x 3.2 / 2 = 25.6 consumer surplus
22–6 = 16 16 x 16 / 2 =128 producer surplus
3. If the state sets a guideline price on the desk calendar market at 16 rubles per piece, then the amount of producer surplus will change by ... thousand rubles
Hint: indicate on the graph what needs to be determined
Two methods of solution: determine the area of a trapezoid and the difference of two triangles
16–6 = 10 (the market price exceeds the seller’s price)
Qs = –6 + P –6+16 10
10 x 10 / 2 =100/2 = 50 128 –50 = 78 amount of change in Qs
3. 4. WAFFLES. Topic 8
The functions of supply and demand for the wafers produced by the company are known: Qd = 450 – 3P and Qs = P+100, where Qd is the volume of demand, thousand kg, Qs is the volume of supply, thousand kg, P is the price of rubles per 1 kg.
1. The equilibrium market price for waffles will be established at the level of... rubles per kilogram
87.5 150 1000 75.7
450 – 3P = P+100 450–100 = P+3P 350 =4P P =87.5
2. Due to the emergence of new brands of waffles produced by competing firms, the demand for “Spring” brand waffles decreased by 50 kg at each price level. The new equilibrium price will be equal to .... rubles
Qs = P+100 = 87.5+100 =187.5
Qs = 187.5 – 50 = 137.5
137.5 = P + 100 P = 137.5 –100 = 37.5
3. Establish the sequence of effects of the expected decrease in market prices for wafers.
1 reduction in waffle sales
3 Reduction in production volume
2 Decrease in the market supply of wafers
4 Increase in the market price of waffles
4. The media have spread information about the dangers of excessive consumption of wafer products due to the threat of diabetes. This event will affect the demand curve and the equilibrium price of waffles as follows:
– the demand curve will shift to the right
– the equilibrium price will fall
– the demand curve will shift to the left
3.5. SUPPLY AND DEMAND. Topic 8
The table shows the functions of supply and demand in the market. The government decided to establish the maximum possible price level (price ceiling)
rubles thousand Unit thousand rubles
10 100 40
1. The purpose of such intervention in the established market equilibrium can be
1. Increasing the volume of consumption of goods
2.Increasing product availability for consumers
3. Limiting the volume of consumption of goods
4.Reducing the likelihood of sellers going bankrupt
2. Examples of markets that require such intervention in the established market equilibrium include markets...
1. Bread
3. Public transport services
4. Products made of precious metals
3. The result of the introduction of a price “ceiling” of 40 den. less than the equilibrium price, there will be a shortage of goods equal to ... thousand pieces
3.6. SELLERS OF LICENSED DVDs
AGAINST PIRATES. Topic 8
According to the Russian Anti-Piracy Organization, in Russia in 2009, 70 million DVDs were sold for approximately $70 million, of which about 10 million were sold legally. Warner Home Video and Universal Pictures International decided to reduce the price of licensed DVDs -discs sold in Russia, from 300 - 350 to 199 rubles. per disc. Due to this, the leaders in video sales hoped to squeeze out pirates selling illegal copies for 150 rubles. and below. DVD sellers believed that the new price would have a beneficial effect on sales of licensed products. They predict a 30% increase in DVD sales in the legal market.
Questions for the case
1. Analyze the situation on the video market from the perspective of the theory of supply and demand.
2. Provide a substantive economic justification for the expectations of sellers of licensed video products.
3. Why will sellers of licensed video products be able to squeeze out pirates, since the price of licensed DVDs will still be higher than the price of pirated discs?
3.7. MILK PRODUCTS. Topic 9
The enterprise-manufacturer of dairy products "Sergeevsky" launched a new technological line for the production of yogurt with fruit filling "Slastena". Among potential competitors in this market segment, the management of the Sergeevsky enterprise singles out Bififrukt and Vital yoghurts. The planned market price at which Slastena yogurt will be sold is 30 rubles. The supply function has the form Qs=0.4P+20, where Qs is the volume of supply (thousand 1-liter bottles of yogurt), P is the price (rubles per 1-liter bottle of yogurt).
1. After the product entered the market, the functional relationship between the price of “Slasten” and the volume of demand for yogurt took on the following form: Qd = 80–2p where Qd is the volume of demand (thousand 1-liter bottles of yogurt), P is the price ((rub. for a 1-liter bottle of yogurt) Then the equilibrium market price of “Slastena” yogurt will be ... rubles
0.4P+20 = 80–2p 2.4 Р = 80–20 2.4 Р = 60 Р = 60: 2.4 = 25
2. In order to fill the budget deficit, the state decided to introduce a commodity tax on dairy producers. At the same time, the equilibrium parameters in the Slastena yogurt market could change as follows
1.The supply curve has shifted to the left
2. The equilibrium price has decreased
3. The equilibrium price has increased
4.The demand curve has shifted to the right
3. Establish the sequence of results of the government’s introduction of a commodity tax on yogurt production
2.Reduction in sales volume
1.Increase in market price
3.Reducing production volume
4.Increased production costs
4. As a result of unsuccessful organization of business activities, the yogurt manufacturer “Vital” announced the termination of its activities and exit from the industry, therefore the main competitor producing a substitute product became the manufacturer “Bififruct”. Based on the results of market research of the industry, it became known that with an increase in the price of “Bififruct” by 2%, the volume of demand for “Slastena” increases by 4%. Based on the available data, the coefficient of cross elasticity of demand for “Slastena” at the price of “Beeffruit” will be equal to.. 4: 2 = 2
3.8. ICE CREAM. Topic 9
The company's marketing department collected data on the volume of demand and supply for ice cream depending on its price
Price Demand Volume Supply
rubles thousand portions thousand rubles
10 100 40
1. The equilibrium price for ice cream on the market will be
30 40 60 50
In the table the equality Qd = Qs at a price of 30
2. It is expected that the market price for ice cream will be set at 20 rubles. Indicate a possible market situation: shortage or surplus. Determine the amount of this deficit or excess
30 thousand pieces
50 thousand pieces
Shortage
Qd = 80 QS = 50 80–50=30
3. Establish the sequence of results of the expected increase in the market price of ice cream
2 reduction in ice cream sales
3 reduction in the volume of market supply of ice cream
1 increase in the market price of ice cream
4 reduction in production volume
4. The value of the arc elasticity coefficient of demand for ice cream when its price decreases from 50 to 40 rubles
We proceed from the table data:
We substitute them into two formulas for dug elasticity
Based on the first formula. In this case, P is defined as the average of the two.
∆ Q = 40–20= 20 P = (50+40) \ 2 = 45
∆ P = 50–40 = 10 Q = (20+40) ^ 2 = 30
(20 x 45) : (10 x 30) = 3
We check similarly using the second formula
(40–20) x (50+40) : (20 + 40) x (40–50) = 20 x 90: 60 x 10 = 1800: 600 = 3
FOOD
According to monitoring data from the Institute of Food Security, over the past two months, prices for buckwheat in the country on average have increased by 25%, for sugar and flour - by 16%, potatoes - 18%. And this situation is observed for most food products of “basic demand”
Analysts have determined that the elasticity coefficient of demand for these food products is less than one, which indicates that demand...
2. inelastic
3. elastic
4.Has unit elasticity
The elasticity of demand coefficient, which is less than one, is also typical for such goods as...
salt
tablet computers
Dishwasher
Let's say the elasticity of demand for sugar is 0.5, the price per kilogram of sugar has increased by 16%. The relative change in the quantity demanded of sugar is…. 8
3.10. FOOD SECURITY–2
Sales of cereals, sugar, butter, vegetables - almost the entire non-perishable product line - increased by 20-30% this fall. For some positions even by 40%. More and more every month. People are stocking up on bags.
According to monitoring data from the Institute of Food Security, over the past two months, prices for buckwheat in the country on average have increased by 25%, for sugar and flour - by 16%, potatoes - 18%. Price increases are observed for most food products of “basic demand”
The increase in sales volumes of cereals, sugar, oil, vegetables, despite the rise in prices for them, is due to the fact that the demand for them..., and as a result of the increase in prices, the revenue of sellers...
2. increases
3.inelastic
4. will decrease
The items listed refer to the items…. necessity
2.Zero
4.absolute
Let's say the demand for potatoes has decreased by 2% over the past two months. The coefficient of price elasticity of demand will be... (round the answer received to the nearest hundredth)
3.11. MOBILE OPERATORS. Topic 9
Many analysts predicted an increase in ruble tariffs for mobile operators in 2009. Due to the devaluation of the ruble, cellular companies will be forced to increase tariffs, since they are interested in maintaining dollar revenue, says an analyst at Troika-Dialog. The main question, he says, is how elastic is the demand for their services? He assumes that tariffs from cellular operators will increase by about 30%, while the use of cellular networks will decrease by 10%. Renaissance Capital analysts predict that cellular tariffs will increase by 10–15%. They will be increased over several months in small steps so as not to create an obvious price imbalance between players, they say
1. According to an analyst at Troika-Dialog, the main issue that arises in the above situation is the degree of elasticity. We are talking about (about)…
1. price elasticity of supply
2. income elasticity of demand
3. cross price elasticity of demand
4. price elasticity of demand
2. The analyst assumes that tariffs for cellular operators will increase by approximately 30%, while the use of cellular networks will decrease by 10%. Based on the available data, determine the coefficient of price elasticity of demand (write down the answer obtained to the nearest hundredth) ..... 0.33
3. In addition to tariffs, the volume of demand for the services of mobile operators can be influenced by factors such as...
1. consumer income
2. number of subscribers of cellular operators
3. tax policy in relation to mobile operators
4. cost of commissioning cellular networks
3.12. SNOB CONSUMPTION. Topic 10
The FEPO test assumes knowledge of the specific consumption habits of a snob. R.M. Nureyev explained this phenomenon in the “Course of Microeconomics,” 2nd ed., M., 2012, CC 125–126. He used a classification of forms of consumption.
1. explain the general taxonomy and classification (hierarchy) and the difference between taxonomy and classification (classification based on development)
2. give a systemic analysis of forms of consumption based on Porfiry’s dichotomous model?
Use the explanation of the technology of system analysis on the MIIT-IEF portal \ distance learning \ educational materials \ “Methodology of Theoretical Science”.
3.13. TOO MUCH BAD COFFEE. Topic 11???
In the Colombian city of Cartagena, coffee producers and consumers from more than 50 countries were looking for ways to overcome the crisis in the coffee market. The crisis in the global coffee trade has been going on for several years. Its origins should be sought in the rejection of the quota system that regulated supply and demand in the coffee market. In 1989, this measure was insisted on by the World Bank, the IMF, and the WTO, which began to promote the ideas of trade liberalization and a common export policy for all. As a result, the growth rate of coffee production significantly exceeded the growth rate of demand. The income of coffee exporting countries has declined catastrophically. If in the late 1980s. they received 10-12 billion dollars a year, today only 5 billion. Revenues from coffee exports make up a significant share in the GDP of developing coffee-producing countries: in Colombia - 2%, in El Salvador - 2.5%, in Guatemala - 4.2%, in Nicaragua - 7.2%, in Honduras - 8.2%. The economy of many producing countries, and especially the industries related to coffee production - trade, transport, and the financial system - suffered from the crisis in the coffee market.
In a number of countries, the coffee crisis even went beyond “economic” limits: for example, in Guatemala it caused political instability, and in Ethiopia it turned into a humanitarian crisis.
At the meeting in Cartagena, the delegates tried to find effective ways out of the crisis. However, it was not possible to reach an agreement. The European Union, which accounts for 46% of all coffee imports, refused to support the proposal of exporting countries to establish fixed minimum prices for coffee. The resolution of the conflict, according to the President of the European Coffee Federation, Joppe Vanhorik, is connected “not with issues of price, but with issues of quality.” And artificial price mechanisms in such a situation will only contribute to the overproduction of coffee.
Questions for the case
1. Explain why the abolition of quotas led to a decrease in the income of coffee exporting countries, because, it would seem, they could freely increase the supply of coffee for export.
2.What conclusion can be drawn about the elasticity of demand for coffee based on the data given in the case?
3.What is a fixed price for a product? Do artificial price mechanisms always contribute to the overproduction of goods? Illustrate your reasoning graphically.
4. Why, in your opinion, did the European Union refuse to support the proposal of exporting countries to establish fixed minimum prices for coffee?
5. Explain the concepts of “buyers’ gain” and “sellers’ gain” and provide a graphic illustration. Analyze how the gains for coffee buyers and sellers would change if minimum fixed prices were established.
Market equilibrium can only be considered relative to a fixed unit of time. At each subsequent point in time, market equilibrium can be established as a certain new value of the market equilibrium price and the number of sales of goods at this price, developing over the course of a month, season, year, series of years, etc. but market equilibrium is always a market state in which QD = QS. Any deviation from this state sets in motion forces that can return the market to a state of equilibrium: eliminate the shortage (QD > QS) or surplus (surplus) of goods on the market (QD< QS)
Thus, a surplus occurs if, at a certain price, the quantity supplied of a good exceeds the quantity demanded for it.
A product is in short supply if the quantity demanded for the product is greater than the quantity supplied.
Consumers do not always believe that existing prices are optimal. The fact is that the imperfection of the social structure of production on the surface appears as an imperfection of the price system. Public dissatisfaction with existing equilibrium prices forms fertile ground for government intervention in market pricing. In practice, this results in the establishment of maximum or minimum prices. If the maximum price set by the state (the “price ceiling”) is below the equilibrium level, then a deficit is formed, if the state sets the minimum price above the equilibrium level (the so-called subsidized price), then a surplus is formed. Fixing prices means turning off the market coordination mechanism. In conditions when the price is below the equilibrium level, the shortage does not weaken, but intensifies, and non-monetary costs are added to the consumer's monetary costs. The latter are associated with searching for goods, standing in queues, etc. - all of them are deadweight costs, which do not serve to expand the production of a scarce good. They settle in the distribution of scarce goods, and do not reach those who actually produce them. The price ceiling “cuts” the surplus of producers and thereby reduces the incentives for its production at those enterprises whose production costs for this product are minimal. Therefore, the shortage does not decrease. On the contrary, those who sell (or distribute) a scarce product are interested in preserving it, since it becomes a source of their income (since it increases the size of non-monetary costs). Therefore, they will in every possible way promote state regulation of prices under various “plausible” pretexts.
In cases where the price is above the equilibrium price, there is a need for additional measures to stimulate supply restrictions and increase demand in order to reduce the gap between the subsidized and equilibrium prices. In both cases, the market economy begins to function less efficiently than under conditions of perfect competition.
The balancing function is performed by the price, which stimulates supply growth when there is a shortage of goods and relieves the market of surpluses, restraining supply. According to Walras, in conditions of shortage the active side of the market is buyers, and in conditions of excess - sellers. According to Marshall's version, entrepreneurs are always the dominant force in shaping market conditions.
Any surplus of goods, i.e. commodity surplus, pushes the price of goods down to the equilibrium point E. Any commodity deficit, shortage of goods on the market will push the price of goods upward, to the equilibrium point of supply and demand E. Ultimately, an equilibrium price PE will be established, at which QE goods will be sold for market.
Externality (external effect) in economics is the impact of a market transaction on third parties, not mediated by the market.
The basics of the concept were introduced in 1920 by Arthur Pigou in the book “The Economic Theory of Welfare”. The phrase “externalities” was coined by Paul Samuelson in 1958.
In the presence of external effects, the market equilibrium ceases to be effective: a “dead weight” (eng. Deadweight Loss) appears), Pareto efficiency is violated, that is, a market fiasco occurs.
Stanley Fisher: “An externality occurs when the actions of some household or firm directly affect the costs or benefits of some other household or firm and when these spillover effects are not fully reflected in market prices.”
The fact that public goods are essentially non-rival means that the provision of these goods to one person entails the provision of them to another. Therefore, if potential consumers are faced with the problem of financing a public good, they are tempted to hide their true willingness to pay for it, since they hope to benefit from the good paid for by others. If the value of a good cannot change, then it will be provided to everyone in equal quantities, and those who refused to finance it will nevertheless receive benefits from its existence. If the value of a good can change (for example, different amounts of clean air), then the announced refusal to pay for it will reduce the quantity provided, however, in this case, the one who refused will have a benefit, since he will receive the good without paying for it. Therefore, such individuals are called free riders. If this phenomenon becomes widespread, then a systematic underproduction of public goods will arise, and a situation arises in which the supply of the good, as a rule, must be carried out by the government. The question of whether the number of actual free riders is large is now widely debated. Some willingness-to-pay experiments have shown that true and revealed preferences differ only slightly.
A tax is a mandatory, individually gratuitous payment levied on organizations and individuals in the form of alienation of funds belonging to them by right of ownership, economic management or operational management for the purpose of financial support for the activities of the state and (or) municipalities.
The characteristic features of the tax are as follows:
- · obligation;
- · individual gratuitousness;
- · alienation of funds belonging to organizations and individuals under the right of ownership, economic management or operational management;
- · focus on financing the activities of the state or municipalities.
Different taxes have different effects on certain groups of economic agents, in addition, they are levied differently. There are several classifications of types of taxes:
Types of taxes by object:
- · straight;
- · indirect.
Direct taxes are levied directly on individuals and legal entities, as well as on their income. Direct taxes include profit tax, income tax, and property tax. Indirect taxes are levied on resources, activities, goods and services. Among the indirect taxes, the main ones are value added tax (VAT), excise taxes, import duties, sales tax, etc.
The classic requirement for the relationship between indirect and direct taxation systems is as follows: the fiscal function is performed primarily by indirect taxes, and direct taxes are mainly assigned a regulatory function. In this case, the fiscal function is, first of all, the formation of budget revenues. The regulatory function is aimed at regulating, through tax mechanisms, the reproduction process, the rate of capital accumulation, and the level of effective demand of the population. The regulatory effect of direct taxes is manifested in the differentiation of tax rates and benefits. Through tax regulation, the state ensures a balance of corporate and national interests, creates conditions for the accelerated development of certain industries, stimulates an increase in jobs and investment and innovation processes. Taxes influence the level and structure of aggregate demand and through this influence can promote or hinder production. The relationship between production costs and the price of goods depends on taxes.
Types of taxes by subject:
- · central;
- · local.
In Russia there is a three-tier system:
- · federal taxes are established by the federal government and are credited to the federal budget;
- · regional taxes are within the competence of the subjects of the federation;
- · Local taxes are set and collected by local authorities.
Types of taxes based on the principle of intended use:
- · marked;
- · unmarked.
Labeling refers to linking a tax to a specific area of spending. If the tax is of a targeted nature and the corresponding revenues are not used for any other purposes other than the one for which it was introduced, then such a tax is called marked. Examples of marked taxes can be payments to the pension fund, compulsory health insurance fund, road fund, etc. All other taxes are considered unmarked. The advantage of unmarked taxes is that they provide flexibility in fiscal policy - they can be spent at the discretion of the government agency in those areas that it considers necessary.
Types of taxes by nature of taxation:
- · proportional (share of tax in income, or average tax rate with income growth);
- · progressive (the share of tax in income increases with income growth);
- · regressive (the share of tax in income falls with income growth).
As a rule, income taxes are progressive. The greater an individual’s income, the larger part of it he is forced to give to the state. As a rule, a progressive scale is established for the collection of income taxes. For example, with an income of up to 30 thousand rubles. an individual pays tax at a rate of 12%, if his income exceeds the specified amount, then 20%. Regressive taxes mean that they contribute more to the income of the poorer part of the population. The regressive nature of the tax is manifested if the tax is set at a fixed amount per unit of goods. Then the share of the tax levied in income will be higher for the buyer whose income is lower.
Types of taxes depending on the sources of their coverage:
- · taxes, expenses for which are included in the cost of products (works, services):
- · land tax;
- · tax on road users, tax on vehicle owners, fees for the use of natural resources;
- · taxes, expenses for which are attributed to the proceeds from the sale of products (works, services):
- · VAT;
- · excise taxes;
- · export tariffs;
- · taxes, expenses for which are included in financial results:
- · taxes on profits, property of enterprises, advertising;
- · targeted fees for maintenance, improvement and cleaning of the territory;
- · tax on the maintenance of housing stock and social facilities;
- · collection for the needs of educational institutions;
- · car parking fees;
- · taxes, the costs of which are covered from the profits remaining at the disposal of enterprises. This group includes some local taxes: a tax on the resale of cars and computer equipment, a license fee for the right to trade, a fee on transactions made on stock exchanges, a tax on the construction of industrial facilities in resort areas, etc.
Tax rate (tax rate) is the amount of tax charges per unit of measurement of the tax base. It is one of the mandatory elements of the tax.
When the tax rate is expressed as a percentage of the taxpayer's income, it is usually called a tax quota.
Main types:
- · Solid taxes - set in an absolute amount per unit (sometimes the entire object) of taxation, regardless of the size of the tax base.
- · Proportional (ad valorem) - act in the same percentage of the tax base without taking into account its size.
- · Progressive - increases as the tax base grows.
Laffer curve (Laffer curve) shows the relationship between state budget revenues and the dynamics of tax rates.
It was developed by the American economist Arthur Laffer.
A graphical representation of this dependence is presented in the figure.
The tangent points of the Laffer curve show that if, for example, the tax level is zero, then the state loses revenue. If it intends to take away all income (t = 100%), then the economic process stops and the state budget will be left without income. At the rate tmax, the total amount of state income will reach a maximum Tmax. Attempts to increase the tax rate, for example to the value t 1, will lead to a decrease in government revenues. The author shows that increasing tax rates to a certain level leads to an increase in budget revenues. Such a positive impact is possible only up to a certain limit, and beyond that the so-called “forbidden zone” of the tax scale begins. Taxes levied at high rates lead to a significant reduction in budget revenues. This is explained by the fact that high taxes suppress private initiative and undermine the desire for new investments. A. Laffer concluded that tax rates have reached a level that restrains the pace of economic development and proposes to reduce tax rates, especially on profits. Finding the optimal tax rate is theoretically impossible, and many economists try to calculate it empirically. But there are significant differences here: some, including Laffer, believe that the United States already crossed the tmax line in the late 70s, others disagree and argue for the possibility of increasing the tax rate. Of course, the real world is a very imperfect platform for testing the results of such a gigantic experiment. Tax reform, along with other measures, allowed the United States to increase business activity, increase economic growth rates (5.5% in 1999): “lengthen” the business cycle and achieve a deficit-free budget.
Subsidy - payments to consumers provided at the expense of the state or local budget, as well as special funds to legal entities and individuals, local authorities / In accordance with the Budget Code of the Russian Federation, two types of subsidies should be distinguished:
- · subsidy - interbudgetary transfer provided for the purpose of co-financing the expenditure obligations of the lower budget
- · subsidy - funds provided from budgets and extra-budgetary funds to legal entities (other than budgetary institutions) and individuals
Main properties of the subsidy:
- · gratuitous, irrevocable transfer of funds (with a subvention, a return of funds is possible if the funds were spent on another purpose)
- · targeted nature
- · co-financing (on the terms of equity financing)
Direct subsidies are used to finance fundamental scientific research and development work (grants), the introduction of new equipment into production and retraining of personnel. On the one hand, subsidies can encourage the development of promising industries, on the other hand, they can support unprofitable but strategically important enterprises (with all the consequences of state intervention in the market economy). Agricultural production is subsidized through compensation payments.
Indirect subsidies are carried out through tax and monetary policy. The state applies preferential taxation of corporate profits, practices refunds of direct taxes and customs duties, state guarantees and insurance of deposits, export loans, and provides loans to private associations on preferential terms.
The totality of subsidies from the city budget to the budgets of municipalities forms a co-financing fund.
Quota is a norm, share or part of something allowed within the framework of possible agreements and contracts, a share of possible participation in a joint business (production, sales, export or import of goods, etc.); quota in immigration policy is a restriction, a limit on the permissible annual influx of immigrants; the contribution of member countries of the International Monetary Fund (IMF) to the capital of the fund.
Restrictive measures are called quotas.
In connection with the practice of restrictions used in international trade, a quota also refers to quantitative control over imports and their limitation. Import quotas are set by the federal government to protect domestic producers in certain industries from foreign competitors. Using such quotas as a protectionist measure has both pros and cons. The economic gain for manufacturers and those employed in protected industries is quite significant, which is reflected in increased profitability. Enterprises that feel the need to limit competition from foreign producers can exert very significant political pressure by demanding the introduction of a quota. At the same time, the costs of such restrictions are passed on to the consumer, since domestic goods are more expensive than under free trade, and the range of consumer choice is reduced.
Market structures in modern economics.
Market structure is usually understood as a set of many specific characteristics and features that reflect the characteristics of the organization and functioning of a particular industry market. The concept of market structure reflects all aspects of the market environment within which a company operates - the number of firms in the industry, the number of buyers in the market, the characteristics of the industry product, the ratio of price and non-price competition, the market power of an individual buyer or seller, etc. Theoretically There can be a large number of market structures. Nevertheless, many economists consider it possible to simplify the analysis by resorting to a typology of market structures based on several basic parameters - characteristics of an industry market.
- 1. Number of firms in the industry. The number of sellers operating in a given industry market will determine whether or not an individual firm has the ability to influence the market equilibrium. All other things being equal, with a large number of firms in a given market, any attempt by an individual firm to influence market supply by reducing or increasing individual supply will not lead to any significant changes in the market equilibrium. In this case, the market share of each specific company is insignificant. A different situation will arise when the firm’s market share is large, that is, one or more large firms operate in a given market. Such a firm has the opportunity to influence market supply, and therefore market equilibrium and market price.
- 2. Control over the market price. The degree of control of an individual firm over price is the most striking indicator of the level of development of competitive relations in an industry market. The more control an individual producer has over price, the less competitive the market is.
- 3. The nature of the products sold on the market - whether a standardized or differentiated product is produced by the industry. Product differentiation means that in a given market different firms offer products designed to satisfy the same need, but differing in different parameters. There is such a dependence here: the higher the degree of differentiation (heterogeneity) of industry products, the greater the opportunity for a company to influence the price of the goods it produces and the lower the degree of competition in the industry. The more standardized (homogeneous) an industry's products are, the more competitive the market is.
- 4. Conditions for entry into the industry, which is associated with the presence or absence of barriers to entry into the industry. The presence of such barriers will prevent the entry of new firms into a given industry market and, consequently, the development of industry competition.
- 5. Presence of non-price competition. Non-price competition occurs if the industry product is differentiated. Non-price competition - competition in terms of Product Quality, services, location and availability, and advertising.
Pure (perfect) competition. This is a state of the market when a large number of firms produce similar products, but neither the size of the firms nor other reasons allow at least one of them to influence the market price, and therefore the demand for the products of an individual firm will not decrease as it increases its own sales On a graph, an individual firm's demand curve looks like a straight line parallel to the horizontal axis. For the entire market, the demand curve has a negative slope, and the supply curve has a positive slope. The intersection of the demand curve with the supply curve corresponds to the market equilibrium point with a certain market price and equilibrium sales volume. Sold in a competitive market
Pure (absolute) monopoly. A market is considered absolutely monopolized if there is a single producer of a product in it, and this product has no close substitutes produced in other industries. Consequently, in a pure monopoly, the boundaries of the industry and the boundaries of the firm coincide. Therefore, the demand curve for the products of a monopoly firm is similar to the market demand curve, that is, it has a negative slope.
Monopolistic competition. This market structure has some similarities with perfect competition, except primarily that the industry produces similar but not identical products. Product similarity gives firms partial monopoly power over the market. Differences in a product may not affect the quality of the product itself. Increased demand may be due to more attractive packaging, a more convenient store location, better trade organization (good service, gift coupons, after-sales service), due to which buyers give preference to this product. For each such firm, the demand curve has a negative slope, and therefore the firm can influence the price.
Monopsony. A market situation when there is only one buyer. The monopoly power of the buyer leads to him setting the price.
Monopoly that discriminates. This usually refers to the practice of companies charging different prices to different customers.
Bilateral monopoly. A market in which one buyer, who has no competitors, is opposed by one monopolist seller.
Oligopoly. A market situation in which a small number of large firms produce the majority of an industry's output. In such a market, firms are aware of the interdependence of their sales, production volumes, investments and advertising activities.
Duopoly. A market structure in which only two firms operate. A special case of oligopoly.
Polypoly is a situation where there is a limited number of large sellers in the market and the laws of competition are fully in force.
Unlike monopoly and oligopoly, in which, respectively, there is a single supplier of a unique product, service or type of activity (monopoly) with many buyers, or the market is dominated by a small number of sellers (oligopoly), in polypoly there are many sellers (suppliers) and many buyers (consumers). ). However, the ratio of the number of both is sufficient to maintain competition.
Polypsony is a situation in which the number of buyers is so small that their actions have a real impact on the market price, and large enough that any buyer cannot confidently determine the impact of his actions on the behavior of other buyers in the market.
Oligopsony is a market situation characterized by a limited number of consumers and a large number of sellers (producers).
In such a market, sellers are very sensitive to each other's pricing policies and marketing strategies. A typical example of oligopsony is, for example, the aircraft parts market, where the consumers are very few aircraft manufacturing companies. Almost the entire military-industrial complex operates in an oligopsony regime, the products of which are purchased by a very limited circle of state law enforcement agencies or the governments of other countries.
Each of these market structures is distinguished by a different degree of market power of an individual producer, which is inversely related to the degree of development of competitive relations in the market. Market power is the ability of a producer or consumer to influence the situation on the market, primarily the market price. If market power is manifested on the demand side, then we should talk about the market power of the buyer. The market power of a manufacturer lies in the presence or absence of the ability to influence the industry (market) price of manufactured products by changing production volumes. The market power of an individual seller will be determined by the peculiarities of the organization of the market structure and depend on the following factors:
- * the share of a given company in the industry-wide supply. The greater the share of a given firm in the market supply, the greater the opportunity it has, by changing its own supply, to influence the industry-wide (market) supply, and therefore the market price;
- * the degree of price elasticity of demand for the company's products. The less elastic the demand is, the less the firm fears a negative reaction from consumers of its products, the more opportunities it has for price maneuver, the higher its market power;
- * the presence of substitutes for a given product, since the more substitutes a product has, the higher the degree of price elasticity of demand. And high elasticity will limit the market power of a given firm;
- * features of interaction between firms operating in the industry, which may give rise to market power among manufacturers operating in the industry. This situation is possible if firms can collude and reach an agreement on the division of the market and on the market price.