Interaction of supply and demand market equilibrium

Equilibrium market price - the price at which this product for each market there is no surplus or deficit. It is installed as a result of the equilibrium of supply and demand as the cash equivalent of a fixed amount of goods. Supply and demand are balanced under the influence of the competitive environment of the market, so that the price is referred to as the competitive market equilibrium (Figure 7). In any case, in a competitive market equilibrium price and the corresponding amount of goods is determined by market supply and demand. All other things being equal, the equilibrium market price is set at a ratio of supply and demand, when the number of goods that consumers want to buy them to match the amount that manufacturers are offering in the market.

Trade surplus

Shortage of goods

E Q

Figure 7. Market equilibrium

The intersection of demand and supply (E) is the price, balancing supply and demand. Characterizes the equilibrium price point that there is supply and demand, as opposed market forces are balanced. The equilibrium price means that goods produced as long as required to customers.

Elasticity and its types

The term "elasticity", which came to the economy of physics, is used to measure the relations of mutually variable price and quantity, or volume, sales of goods. The most convenient, unified unit of elasticity acts percent. Interest calculation can show the rate of change of any economic variable, no matter what were the original units - in money, in tons, meters, units, etc. In business practice, often use the percentage change in one variable resulting from a 1% change in the other. Measuring the price elasticity of demand is carried out to find out how much, interest has changed the volume of sales of goods, due to 1% change in the unit prices of these goods.

In practice, there may be at least 5 different price elasticity of demand:

1) demand is elastic, when a slight increase in sales price increases;

2) the demand has unit elasticity, when 1% change price is 1% change of sales of goods;

3) demand is inelastic, if very substantial reduction of price sales varies slightly;

4) demand is infinitely elastic, when you change only one price at which consumers buy goods;

5) demand is perfectly inelastic, when consumers purchase a fixed number of goods, regardless of its price.

All variants of the elasticity of demand can be shown in Figure 8.

Each option presented in Figure 8 has a coefficient of elasticity:

1) ratio is less than one inelastic demand;

2) the elasticity of demand when the 1% decrease in price causes an increase in sales of more than 1%, the coefficient of elasticity is greater than one;

3) the unit elasticity coefficient is a unit elasticity of supply.

P Ainelastic demand

Elastic demand

unit elasticity

Fig.8. Elasticity of demand

The concept of elasticity of supply of goods characterizes the relative changes in the prices of commodities and quantities offered for sale.

The price elasticity of supply acts as a direct linear relationship between economic variables show percentage change in price, and they let out a particular percentage change in volume of goods offered for sale.

Рunit elasticity