29. The amount of demand. The law of demand The quantity demanded is the quantity of goods that buyers are ready (i.e., want, can) buy at a given price during a certain period: a day, a week, etc. The quantity demanded is inversely related to the price: the higher the price

19. Income elasticity of demand Tool "A person's success is not measured by how high he climbed, but by how high he jumped when he hit the bottom," said General George Patton, thereby emphasizing the elasticity that manifests itself in life,

51. Price Elasticity of Demand (Marshall) Instrument In the Malay Peninsula, when asked about the best time to harvest durian, a fruit “with a hellish smell but a divine taste”, the answer is: “When its fruits fall from a branch, men’s sarongs rise up.”

A given commodity depends not only on its own price, but also on the prices of other commodities. For example, the demand for Zhiguli depends not only on the price of Zhiguli, but also on the prices of foreign cars of a similar class, spare parts, gasoline, etc.

Cross price elasticity of demand shows the percentage change in the demand for a product A(d a) when the price of a commodity changes IN(P b) by 1%.

Formula for calculating the cross elasticity coefficient:

Three cases are possible:

1. If, with an increase (decrease) in the price of a product IN demand for goods BUT increases (decreases), then such goods are called interchangeable(substitutes).

In this case.

For example, Coca-Cola has risen in price by 10%, as a result of which the demand for it has decreased, but the demand for Pepsi-Cola has increased, say, by 15%. Therefore, the cross elasticity of demand for Pepsi with respect to the price of Coca-Cola is

If Coca-Cola, on the contrary, becomes cheaper (the percentage change in price will be negative), then the demand for Pepsi will fall (the percentage change in demand will be negative). Then both the numerator and the denominator will contain numbers with negative signs, but the result will still be positive.

2. If, with an increase (decrease) in the price of a product IN demand for goods BUT decreases (increases), then such goods are called complementary(complementary).

In this case.

For example, car parts prices went up by 10%, causing the demand for cars to fall by 5%. Therefore, the cross elasticity of demand for cars with respect to the price of spare parts is:

In turn, when the cost of spare parts becomes cheaper, the demand for cars will increase, but the elasticity of demand for cars with respect to the price of spare parts will remain negative.

3. If, with an increase (decrease) in the price of goods B, the demand for goods A does not change, then such goods are called independent.

In this case .

Let the price of soccer balls rise (become cheaper). Most likely, this will not have any impact on the demand for perfume. Therefore, the price of perfume balls will be zero.

Cross elasticity of demand

The price elasticity of demand, which was discussed above, reflects the impact of a change in the price of a product on a change in the quantity demanded for it. However, demand may change under the influence of other factors. One of them is the dynamics of prices for other goods.

The degree of change in the quantity demanded of one good caused by a change in the price of another good is called the cross elasticity of demand. Cross elasticity of demand is measured by the coefficient of cross elasticity of demand (keppi), which is determined by the ratio of the percentage change in the quantity demanded for one product to the percentage change in the price of another product:

where% DLH is the percentage change in the quantity demanded for product X% Shchu is the percentage change in the price of product B.

To determine the coefficient of cross elasticity of demand, the central point formula is used, as for the coefficient of price elasticity of demand, with the only difference being that the numerator of the first coefficient formula shows the percentage change in the quantity demanded of one product (X), and the denominator - the percentage change in the price of another product (U):

The value of the coefficient of cross elasticity of demand depends on how they correlate in combination with each other miscellaneous goods. The possible ratios of the two goods are shown in Chart 2-13.

If the coefficient of cross elasticity of demand is 0, goods X and Y are independent of each other: no matter how the price of oil (good B) changes, the quantity demanded for photographic film (good X) is unlikely to change. This situation is depicted in graph 2-13 of the straight line I, which reflects the dynamics of demand for photographic film caused by a change in the price of oil.

If goods X and Y are substitutable, then the demand for good X is directly related to the change in the price of good B. For example, if the price of motorcycles (good B) increases, the demand for bicycles (good X) should be expected to increase. The cross-elasticity coefficient of demand for interchangeable goods is large.

For related goods, the dynamics of the demand of a friend (for example, photographic film) is inversely related to the change in the price of another good (for example, cameras). Therefore, the coefficient of cross elasticity of demand for interrelated knitted goods is less than 0, that is, it has a negative value. In this case, the dynamics of demand for an interrelated product is shown in graph 2-13 of the W curve, which has a volume slope.

Knowledge of the cross elasticity of demand is equally important for successful entrepreneurial activity than the price elasticity of demand.

Income elasticity of demand

Another factor (besides the price of a good and the prices of other goods) that affects the demand for a good is the income of the consumer. The relationship between a change in the demand for a good and a change in income (with all other conditions unchanged) is described by the income elasticity of demand. Elasticity of demand

by income is defined as the ratio of the percentage change in the quantity demanded for a good to the percentage change in income. The coefficient of elasticity of demand for income (KEPd) is determined by the formula:

where% APH is the percentage change in the demand for product X; % LD-percentage change in consumer income.

To calculate this coefficient, the center point formula is used, therefore:

where DgiDi - final and initial income of the consumer.

At first glance, it is very simple to determine the ratio of income and demand and, accordingly, their changes: the higher the income, the greater the demand and vice versa. But in reality, a single universal pattern that describes the behavior of income owners on any commodity markets does not exist. Both the forms of demand curves, which reflect the dynamics of the quantity demanded depending on the amount of income, and the values ​​of the coefficients of elasticity of demand for income depend on which goods are bought.

The most common, as you know, is the division of goods into "normal" goods and goods of the "lower category". For normal goods, the income elasticity of demand is greater than 0, since with an increase in income, the demand for such goods increases. In addition, the value of the income elasticity of demand for normal goods

different: for luxury goods, it is large and, and for essential goods, it is less than 1 (but greater than 0). For goods of the lower category, this coefficient is less than 0, since for such goods the demand decreases with increasing income.

German statistician of the 19th century. E. Engsl was the first to investigate the relationship between the buyer's income and the structure of consumer spending. He saw a certain pattern: the higher the quality of life of the population, the less part of the income the consumer spends on the purchase food products lower category. This is the essence of Engel's first law.

So, in order to predict demand, an entrepreneur must calculate at least one price elasticity of demand, a series of cross elasticity of demand, and income elasticity of demand.

The practical significance of these demand elasticity coefficients cannot be overestimated. Thus, knowledge of a certain type of price elasticity of demand for a product allows a synergistic forecast of a change in the gross income of the producer - he can increase his gross income by lowering the price of a product with elastic demand and raising the price of a product with inelastic demand. Knowing the value of the income elasticity of demand makes it possible to predict the development and prosperity of the industry, or the decline in production and stagnation. Thus, a positive and high value of the income elasticity of demand indicates that an increase (decrease) in the income of the population can cause a significant increase (decrease) in production volumes in the industry. The low value of the income elasticity of demand indicates the prospect of a reduction in production in the industry.

You will need

• -initial price of item 1 (P1)
• -final price of item 1 (P2)
• -initial demand for good 2 (Q1)
• -final demand for good 2 (Q2)

Instruction

To assess the cross elasticity, two methods of calculation can be used - arc and point. The point method for determining cross elasticity can be used when a relationship of dependent objects is derived (ie, there is a demand function or for any product). The arc method is used in cases where practical observations do not allow us to identify a functional relationship between the market indicators of interest to us. In this situation, the market value is evaluated when moving from one point to another (i.e., the initial and final values ​​of the feature of interest to us are taken).

A positive value is obtained if the data of pairs of interchangeable goods are involved in the calculation. For example, cereals and pasta, butter and margarine, etc. When the price of buckwheat rose strongly, the demand for other products from this category increased: rice, millet, lentils, etc. If coefficient takes a value of zero, this indicates the independence of the goods under consideration.

Keep in mind that coefficient cross elasticity is not a reciprocal. The magnitude of the change in demand for product x by price for good y is not equal to the change in demand for good y price X.

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Demand is one of the key concepts of the economy. It depends on many factors: the price of the product, the income of the consumer, the availability of substitutes, the quality of the product and the taste preferences of the buyer. The greatest dependence is revealed between demand and the price level. Elasticity demand on price shows how much consumer demand has changed with an increase (decrease) in price by 1 percent.

Instruction

Definition of elasticity demand necessary for making decisions on the installation and revision of prices for goods and. This makes it possible to find the most successful course in pricing policy in terms of economic benefit. Using Elasticity Data demand allows you to identify the reaction of the consumer, as well as direct production to the upcoming change demand and adjust the occupied share to .

Elasticity demand on price is determined using two coefficients: coefficient of direct elasticity demand on price and cross elasticity coefficient demand on price.

Coefficient of direct elasticity demand on price defined as the ratio of volume change demand(in relative terms) to the relative price change for . This coefficient shows the increase (decrease) in demand for a change in the price of goods by 1 percent.

The coefficient of direct elasticity can take several values. If it is close to infinity, then this indicates that when the price decreases, buyers demand by an indefinite amount, but when the price rises, they completely refuse to buy. If the coefficient is greater than one, then the increase demand occurs more rapidly than the price decreases, and vice versa, demand decreases more rapidly than the price. When the coefficient of direct elasticity is less than unity, the opposite situation arises. If the coefficient is equal to one, then the demand grows at the same rate that the price decreases. With a coefficient zero the price of a good has no effect on consumer demand.

Cross elasticity coefficient demand on price shows how much the relative volume has changed demand for one good when the price changes by 1 percent for another good.

If this coefficient is greater than zero, then the goods are considered to be interchangeable, i.e. an increase in the price of one will invariably lead to an increase demand another. For example, with an increase in the price of butter, the demand for vegetable fat may increase.

If the cross elasticity coefficient less than zero, then the goods are complementary, i.e. When the price of one good increases, the demand for the other decreases. For example, with an increase in prices for, the demand for cars. When the coefficient is equal to zero, the goods are considered independent, i.e. a perfect change in the price of one good does not affect the value demand another.

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price, demand, elasticity- all these concepts are included in one colossal public sphere - the market. Historically, it has been the most important economic substitute. In other words, the market is an arena, and the people in it are the players.

Instruction

Goods with the highest elasticity of demand are goods that require, and therefore very expensive, materials to produce. Such products include jewelry, the coefficient of elasticity of which is much greater than unity.

Example: determine the elasticity of demand for potatoes, if it is known that the average income of consumers for the year increased from 22,000 rubles to 26,000, and sales of this product increased from 110,000 to 125,000 kg.

Solution.
In this example, we need to calculate the income elasticity of demand. Use the prepared formula:

Cad \u003d ((125000 - 110000) / 125000) / ((26000 - 22000) / 26000) \u003d 0.78.
Conclusion: the value of 0.78 lies in the range from 0 to 1, therefore, this is an essential product, demand is inelastic.

Another example: find the elasticity of demand for fur coats with the same income measures. Sales of fur coats increased from 1,000 to 1,200 items compared to the year.

Solution.
Cad \u003d ((1200 - 1000) / 1200) / ((26000 - 22000) / 26000) \u003d 1.08.
Conclusion: Cad > 1, this is a luxury item, demand is elastic.

Consumer demand determines product supply, since it is their own needs that motivate buyers to pay. The dynamics of this phenomenon is determined by many factors, therefore, with any changes, it is necessary to find elasticity demand.

The coefficient of cross elasticity of demand for price shows the relative change in the volume of demand for a given ( i -th) product when the price of another (j-th) product changes. This ratio is denoted eij and is calculated by the formula:

(2.5)

Insofar as , then formula (2.5) takes the following form:

(2.6)

The cross elasticity coefficient can be positive, negative or zero.

If e ij > 0, then such goods are called interchangeable That is, an increase in the price of one good leads to an increase in the demand for another. Thus, with an increase in the price of potatoes, the demand for cereals and pasta, with an increase in the price of animal butter, the demand for margarine and fats may increase.

If e ij < 0, то товары являютсяcomplementary(complementary), that is, when the price of one good rises, the demand for the other falls. A classic example in this case is the interdependence of the demand for cars on the prices of gasoline, repair services, spare parts. When the latter increase, the demand for cars falls.

If e ij = 0, then the goods are called independent that is, a change in the price of one good does not affect the demand for another good.

The cross elasticity coefficient can be used to characterize the substitutability and complementarity of goods only for small price changes. With significant price changes, the income effect will be manifested, which will lead to a change in demand for both goods. So, for example, if the price of potatoes falls by half, then, obviously, the consumption of not only potatoes, but also other goods will increase. In this case e ij < 0, то есть эти товары будут классифицироваться как взаимодополняющие, что неверно.

It should also be noted here that when analyzing interchangeability, it is important to take into account the price level of the corresponding goods. If the difference in prices of two interchangeable goods is significant, then most likely, in real life, when the price of a cheap good increases, consumers will not increase the consumption of an expensive good.

It should also be kept in mind that the cross elasticity of demand for i-th product by price j - ro product is not equal to the cross elasticity of demand for j-th product at the price of the i-th product.

You can provide data * on the coefficient of cross elasticity of demand for the price of food products (tab. 2.4).

* I. R. gould and FROM. E. Ferguson.Microeconomic Theory. Homewood, Illinois, 1980. P. 101.

Table 2.4

From tab. 2.4 It can be seen that a high level of interchangeability is typical for butter and margarine, and the dependence of demand for pork on changes in the price of beef is extremely insignificant.

Of interest is the fact that the degree of interchangeability of goods is different depending on whether we are studying the change in demand for one of them from the price of another. As can be seen, when the price of butter changes, the consumer will respond with a more significant change in the demand for margarine than in the reverse situation. Thus, knowledge of the cross-elasticity coefficient allows producers of interchangeable types of products to accurately determine the volume of production of one type of product with an expected change in prices for another type.