How to set a suggestion function. Suggestion function
Offer- This is the willingness and ability of sellers to sell goods under certain conditions. This condition is the price of a certain good at a specific point in time.
The value (volume) of market supply is the total amount of economic good supplied to the market by all producers at a certain point in time.
Suggestion function is the dependence of the volume of market supply of an economic good on its determining factors.
Factors that determine the amount of market supply are called determinants of supply. These are market parameters that determine the ability of producers to carry out market supply. At the same time, the costs of producing an economic good should not exceed the market price of this good.
All factors determining market supply can be divided into two groups:
- - price factors, i.e. price of the produced good Px;
- - non-price factors: Pn – natural resources, Pk – capital resources, Pw – labor resources, M – number of sellers, N – technologies, T – taxes, E – manufacturers’ expectations.
Thus, the supply function has the form: Q=f(Px,...,Pn,Pk,Pw,M,H,T,E). With all other factors remaining constant, the supply function is a function of supply from price: Q=f(Px). According to everyday logic, we can assume that as prices rise, supply increases.
A graphical representation of the supply function is the supply curve:
Law of supply- one of the principles of a market economy. It is determined by the direct dependence of the volume of market supply of a good on the price of this good, i.e. As the price rises, the quantity supplied increases; as the price decreases, the quantity supplied decreases.
Let's consider how the volume of supply is affected by changes in various factors:
- 1. Prices for factors of production. When prices for factors of production rise, the costs of producing the good increase accordingly, which contributes to a decrease in the volume of supply. In this case, the supply curve shifts to the left. A decrease in prices for factors of production leads to a decrease in the cost of producing the good, the volume of supply increases, and the supply curve shifts to the right.
- 2. Technologies. The introduction of new technologies into production helps reduce the costs of producing economic goods. With constant prices for factors of production, production costs are reduced, which helps to increase the volume of supply of the good at the existing price. In this case, the supply curve shifts upward.
- 3. Number of sellers. The number of sellers in the market has a positive effect on changes in the volume of supply; the supply curve shifts to the right.
- 4. Taxes. An increase in taxes leads to an increase in the cost of producing a good, and consequently to a decrease in the volume of supply at existing prices. The supply curve shifts to the left and up.
- 5. Manufacturers' expectations. Forecasting an increase in the price of an economic good can lead to a decrease in supply. In this case, the supply curve shifts to the left and up.
Supply is the quantity of a good or service that producers are willing to sell at a certain price during a certain period. The relationship between price and supply is no longer inverse, but direct. The law of supply states: supply, other things being equal, changes in direct proportion to changes in price. In other words, as prices rise, producers offer larger quantities of goods for sale, and as prices fall, producers offer smaller quantities.
Supply, like demand, is depicted by a graph, but turned in the other direction (sloping from right to left).
Offer table:
Offer schedule: R– price; Q– quantity of supply
The response of supply to price is explained by the fact that, firstly, firms in the industry, when prices increase, will use reserve (if any) or quickly introduced new capacities, which will lead to an increase in supply. Secondly, in the event of a prolonged and sustained increase in prices, other producers will flock to this industry, which will further increase production and supply. However, in the short term, an increase in supply does not always immediately follow an increase in price, since there may not be reserves for increasing production (the existing equipment operates at a maximum load of three shifts), but an expansion of capacity (including hiring additional labor, etc.) and the transfer of capital from other industries cannot usually be carried out in short terms. But in the long run, an increase in supply always follows an increase in price.
Offer price and its limits
The supply price is the price at which a product goes on sale in a competitive market, or it is the minimum price at which manufacturers are willing to sell their products or services. This price is based on the cost of production of the product.
The market price cannot fall below the supply price, since then production and sales become unprofitable.
The principle of "cost of production" and the principle of "final utility" are undoubtedly components one universal law of supply and demand, each of them can be compared to one of the blades of scissors. This pricing model can be called two-factor.
Suggest your own explanation for the positive slope of the supply curve
A positively sloping aggregate supply curve over short-term time intervals is constructed based on the assumption that the expected level of prices for input factors of production is brought into line with changes in aggregate demand and in the prices of final products. The vertical coordinate of the point of intersection of the aggregate supply curves on the short-term and long-term time intervals indicates the expected level of prices for the attracted factors of production, which is the basis for constructing the aggregate supply curve on the short-term time interval. Each increase in the expected level of prices for attracted factors of production shifts the aggregate supply curve upward in short-term time intervals; a decrease in the expected level of prices for factors of production corresponds to a shift in this curve.
Formula" of manufacturer's interest
The essence of any business is clearly presented in its formula
where D - initially advanced (issued against upcoming payments) cash;
T - purchased goods;
D" - increased amount of money,
D" = D + Δd,
where Δd is the increase in money (profit).
This makes it clear how an entrepreneur operates. From the very beginning he must have funds put into circulation for the purpose of profit. He uses them to purchase certain goods. Ultimately, the businessman sells his existing goods on the market and receives an increased amount of money. The increase in money compared to the amount initially spent constitutes his income (profit).
In the modern market there is a concept opposite to demand - it is supply. By this term, experts understand the seller’s readiness to immediately sell his goods. Manufacturers are mainly suppliers of products on the market. Their activities in setting prices and selling goods are determined by certain goals, the main one being obtaining maximum profits. Main function offer prices - to ensure their achievement.
The essence of the proposal
Each commodity producer strives to produce a product that society currently needs, i.e., it is based on consumer demand. Thus, all producers on the market contribute to the satisfaction of social needs, forming the so-called supply. This is the seller’s ability and desire to supply a certain amount of goods to the market at a given time. This opportunity is limited by the volume of production resources, and therefore is unable to satisfy the needs of the entire society at once.
The volume of supply is determined by the volume of production, but is not equal to it. The difference between these values is explained by internal consumption of products, losses during storage and transportation, etc.
Law of supply
The quantity of goods supplied to the market and its cost are united by a direct or positive relationship. The formulation of this dependence is as follows: with equal market characteristics, an increase in the purchase price of a product contributes to an increase in supply, just as its decrease causes a decrease in production volumes. This specific dependence is the main market law.
In reality, the effect of such a law can be visually depicted in three ways: graphically, analytically, or tabularly.
Let's consider the first option. Putting the conditional supply values on the graph on the horizontal axis and prices on the vertical axis and connecting them, we see that the resulting line has a positive slope. Simply put, as prices rise, the quantity of goods on the market increases, and vice versa. This graph serves as direct evidence of the market law formulated above, defined by such a concept as the supply function.
Factors determining supply
The main factors that can regulate the amount of supply are the following non-price determinants:
- The price of resources needed for production. The more expensive the raw materials used, the higher the production costs and, accordingly, the lower the profit and the desire of the manufacturer to produce this product. Thus, the supply function and its volume directly depend on the prices of production factors (an increase in them leads to a decrease in its volume and, as a result, a decrease in supply).
- Technology level. Usage the latest technologies production, as a rule, helps reduce costs and is accompanied by an increase in the volume of goods offered.
- Goals of the company. If the main goal of an enterprise is to make a profit, then its activities are aimed at increasing the pace of production. If the goal is, for example, its environmental friendliness, production capacity drops.
- Taxes and subsidies. Increasing taxes leads to increased costs, and government subsidies, on the contrary, stimulate producers to increase supply.
- Changes in prices for other goods. For example, changes in oil prices (in particular, increases) contribute to changes in the cost charcoal, V in this case in the direction of increasing.
- Manufacturers' expectations. Constant market monitoring sometimes influences the behavior of producers, for example, expected inflation contributes to a decrease in production. In the same way, the planned increase in prices affects the change in supply, only in the opposite direction.
- The number of producers of similar goods can also be attributed to factors influencing supply. The more there are, the correspondingly higher the volume of goods offered in a given market.
Suggestion function
This function is the dependence of the volume of goods supplied to the market on the factors that determine it. In a broad sense, all types of supply functions involve organizing the direct interaction between the production of goods and their consumption, as well as their purchase and sale.
The demand for a product arising in the market causes an increase in the volume of its production and an improvement in quality, which leads to an increase in the total quantity of this product on the market.
Supply curve
A supply curve (or supply function) is a way of graphically depicting the quantity of a good supplied in a given market for each price value, with the constant influence of other factors on it. As a rule, this curve is increasing.
To construct a graph, you need to draw a line in the coordinate system, connecting the points of intersection of the supply and demand lines.
The location and slope of the curve on the graph depend mainly on the size of production costs, since no enterprise will operate if the profit from the sale of a product does not cover the costs of its production.
Shifts in the supply curve
An increase in supply helps to increase production volumes, and a decrease - to reduce them. This dependence is also reflected in the supply scion graph: in the first case it shifts to the right and down, in the second - to the left and up.
The supply function of a product, as well as its curve, require the use of two different terms, such as “supply quantity” and “supply” itself. The first term is used when we're talking about about changes in the volumes of goods supplied to the market due to fluctuations in their prices. If the change in production is caused by other factors, the second term is used.
Also, a shift in the supply curve occurs when the amount of production costs varies: when it increases, the line shifts upward by the amount of the difference, and vice versa - when it decreases.
Similar metamorphoses will be noted on the graph in the case of an increase/decrease in taxes, due to their direct relationship to production costs.
Interaction of supply and demand
The retail price of a product on the market, as well as the volume of its production and sales, is determined by the interaction of supply and demand. It is this interaction that determines the functions of supply and demand.
If the price of a product falls below average, the market reacts by increasing consumer demand. Manufacturers, in turn, reduce the volume of production of this product, since its production has become less profitable. Thus, customers are willing to buy the product, but manufacturers are unable to meet their growing need for it.
The opposite occurs when prices rise: manufacturers want to put on the shelves as much of an expensive product as possible, but buyers do not want to purchase it at such a high price. 
Equilibrium price
The equilibrium price is the price at which the quantity of goods produced fully satisfies the consumer need for it, that is, the quantity of demand is equal to the quantity of supply. This volume of production is the equilibrium volume for this market.
If the current price of a product differs from the one mentioned above, then the activities of sellers and buyers contribute to its achievement. This is explained by the fact that only such a cost of the goods ensures satisfaction current needs society (and this, as we have already noted, is the main function of supply) and maintaining an optimal level of production costs.
Suggestion function determines the proposal depending on the various factors influencing it. The most important of them is the price per unit of a good at a given point in time. A change in price means a movement along the supply curve. In fact, the supply of a good is influenced not only by the prices of the good itself, but also by other factors: 1) prices of production factors (resources), 2) technology, 3) price and scarcity expectations of agents market economy, 4) the amount of taxes and subsidies, 5) the number of sellers, etc. The amount of supply is a function of all these factors
Qs=f(P, Pr, K, T, N, V),
where Рг - prices of resources;
K - the nature of the technology used;
T - taxes and subsidies;
N - number of sellers;
B - other factors.
Movement along the supply curve reflects change in supply: the higher the price, the higher (other things being equal) the quantity supplied and, conversely, the lower the price, the lower the quantity supplied. A shift in the supply curve to the left or right reflects change of sentence: it occurs under the influence of factors that determine the function of the proposal.
To understand the function of a proposal, the time factor is important. Typically, a distinction is made between short-term, short-term (short) and long-term (long) market periods. In the shortest period, all factors of production are constant; in the short term, some factors (raw materials, labor force etc.) are variable, in the long run - all factors are variable (including production capacity, the number of firms in the industry, etc.).
INconditions of the shortest market period An increase (decrease) in demand leads to an increase (decrease) in prices, but does not affect the quantity of supply. INconditionin a short period An increase in demand causes not only an increase in prices, but also an increase in production volume, as firms manage to change some factors of production in accordance with demand. INconditions for a long timeth period an increase in demand leads to a significant increase in supply at constant prices or an insignificant increase in prices.
3. Equilibrium of supply and demand and its models.
In a market economy, competitive forces contribute to the synchronization of demand prices and supply prices, which leads to equality of demand volumes and supply volumes. At the point of intersection of the supply and demand curves, the equilibrium volume of production and the equilibrium price are established.
Equilibrium price - a price that balances supply and demand as a result of competitive forces. The formation of an equilibrium price is a process that requires a certain amount of time. In conditions of perfect competition, there is a rapid mutual adaptation of demand prices and supply prices, the volume of demand and the volume of supply. As a result of the establishment of equilibrium, both consumers and producers benefit. Since the equilibrium price is usually lower than the maximum price offered by consumers, the value surplus (youtoy) consumer can be depicted graphically through the area bounded by the maximum price and the supply and demand curves up to the equilibrium point. In turn, the equilibrium price is usually higher than the minimum price that the most advanced firms could offer.
If E is the equilibrium point, then the price at which goods are sold and bought is equal to P E, and the volume of goods sold is equal to Q E. Therefore, total (total) revenue is equal to TR = P E x Q E. The total costs (expenses) of producers are equal to the area of the figure OP min EQ E .
The difference between total revenue p e x Q E and total costs is the producer's surplus (profit).
Both the establishment of an exact equilibrium price and small deviations from it are possible. Market equilibrium exists where and when the possibilities for changing the market price or the quantity of goods sold have already been exhausted.
There are two main approaches to the analysis of establishing the equilibrium price: L. Walras and A. Marshall. The main thing in L. Walras's approach is the difference in the volume of demand (supply). If there is excess demand at price P1:, then as a result of buyer competition, the price increases until the excess disappears. In case of excess supply (at price P 2), competition among sellers leads to the disappearance of the excess.
The main thing in A. Marshall's approach is the price difference. Marshall assumes that sellers primarily respond to the difference between the bid and offer prices. The larger this gap, the greater the incentive for supply growth. An increase (decrease) in the volume of supply reduces this difference and thereby contributes to the achievement of an equilibrium price. The short period is better characterized by the model of L. Walras, the long one - by the model of A. Marshall.
The simplest dynamic model showing damped oscillations, as a result of which equilibrium is formed in an industry with a fixed production cycle (for example, in agriculture). When producers decide to produce based on the prices that existed in the previous year. They can no longer change its volume.
Equilibrium in the cobweb model depends on the slopes of the demand curve and the supply curve. Equilibrium is stable if the slope of the supply curve S is steeper than the demand curve D. If the slope of the demand curve D is steeper than the slope of the supply curve S, then the fluctuations are explosive and equilibrium does not occur. If the angles of inclination of the demand and supply curves are equal, then in this case the price makes regular oscillatory movements around the equilibrium.
The supply function is the dependence of the volume of supply on its determining factors:
QSA = f (PA,PB….,PZ, R, K, C, X…),
QSA – volume of supply of product A per unit of time;
PA, РB…, РZ – prices of this and other goods;
R – availability of production resources;
K – the nature of the technology used;
C – taxes and subsidies;
X – natural and climatic conditions.
The relationship between the price of a good and the maximum volume of its supply, other conditions remaining constant, is called the price supply function: QS = f(P). This is shown graphically in Fig. 8.10.
Rice. 8.10. Offer line
Movement along the supply curve means a change in the volume of supply: the higher the price, the higher (all other things being equal) the volume of supply and, conversely, the lower the price, the lower the quantity of supply.
A shift in the supply curve to the left or right reflects a change in supply: it occurs under the influence of changes in all factors that determine the supply function, except the price of a given product.
Supply price is the minimum price at which a consumer is willing to offer a given quantity of a product on the market.
One of the most important characteristics The function of supply is the elasticity of supply. Elasticity of supply expresses the nature of the dependence of the relative change in the volume of supply of a good on the relative change in its price.
The coefficient of direct price elasticity of supply shows by how many percent the volume of supply of a good will change if its price changes by one percent:
If eS > 1, supply is called elastic, if eS In the case of multi-item production, the volume of supply of each product depends not only on its price, but also on the prices of other products produced by this company. A quantitative characteristic of this dependence is the coefficient of cross price elasticity of supply (eSij), which shows by what percentage the volume of supply of good i will change when the price of good j changes by one percent:
Most jointly produced goods are interchangeable for the producer (еSij 0), then for the producer these goods are complementary.
Factors that determine the price elasticity of supply include:
– an increase in production costs as production volumes increase. The lower the additional costs for producing an additional volume of output, the more reasons there are for enterprises to produce products at a given elevated level prices, which means the more elastic supply will be;
– time period. In the instantaneous period, the offer in highest degree inelastic. In the long run, the elasticity of supply is higher than in the short run. After all, by increasing the utilization of existing capacities, only a limited increase in production can be achieved. But in the long term, with a favorable change in demand, there are almost no limits to increasing supply.