Analysis, allowed us to identify general directions for changing demand and suggestions under the influence of price and non-price factors and formulate a basic law - the law of supply and demand. However, often the researcher is not enough to know that the price increase causes a reduction in demand for goods, a more accurate quantitative assessment is needed, because the indicated reduction can be rapidly or slow, strong or weak.

Sensitivity To change prices, income or any other indicators of market conditions is reflected in the elasticity indicator, which can be characterized by a special coefficient.

The concept of elasticity in economic theory appeared quite late, but very quickly became one of the fundamental. The general concept of elasticity has come to the economy from the natural sciences. For the first time, the term "elasticity" was used and applied in scientific analysis by the famous scientist of the XVII century, the physicist and the chemist Robert Boylem (1626-1691) when studying the properties of gases (the famous law of Boyle-Mariotta).

The economic definition of elasticity was first given in 1885. The knowing English scientist does not invent this concept, but using the achievements of English classics (Adam Smith and David Ricardo) and the Mathematical School in economic theory, gives the definition of the price elasticity of demand.

The introduction of elasticity in economic analysis is of great importance:

• on the one hand, the coefficient of elasticity is a tool of statistical dimensions, including actively used in marketing research (consulting firms in the United States take from 50,000 to $ 75,000 for counting elasticity for private firms);
• on the other hand, the concept of elasticity serves as an important tool for economic analysis, since in science it is not enough to measure enough, it is also necessary to be able to explain the result.

Today there is not a single section of the economy, where the concept of elasticity would not be used: an analysis of supply and demand, firm theory, theory of economic cycles, MEO, economic expectations, etc.

The most general definition of elasticity - the ratio of the relative increment to the relative increase in an independent variable.

For our demand functions under consideration and suggestions, such independent variables may be the prices of this or other goods, the level of income, costs, etc.

Elasticity coefficient

Elasticity coefficient Shows the degree of quantitative change of one factor (for example, the volume of demand or supply) when the other change (price, income or costs) is 1.%.

Elasticity of demand or suggestions It is calculated as the ratio of the percentage change in the amount of demand (sentences) to the percentage change of any determinants.

Determinants are factors affecting demand or supply.

Various goods differ from themselves to the degree of change in demand under the influence of this or other factor. The degree of demand for the demand for these goods is a quantitative measurement using the demand elasticity coefficient.

The concept of the elasticity of demand discloses the process of market adaptation to a change in the main factors (price of goods, the price of the product analogue, the income of the consumer).

Elasticity coefficient calculation methods

Elasticity on the arc (arc elasticity) - It is used when measuring the elasticity between the two points on the demand curve or supply and implies knowledge of the initial and subsequent levels of prices and volumes.

The use of an arc elasticity formula gives only an approximate value of elasticity, and the error will be the greater the more convex the arc of AV.

Elasticity at point (point elasticity) - is used in the case when the demand function (proposal) and the initial price level and the value of the demand (or suggestions) are specified. This formula characterizes the relative change in the volume of demand (or suggestions) with an infinitely small price change (or any other parameter).

Condition: Let the demand function appears.

Assess the elasticity of demand for the price, at the price.

Decision:

Answer: The economic meaning of the value obtained lies in the fact that the change in the price of 1% relative to the initial price P \u003d 10 will lead to a change in the amount of demand in the opposite direction by 1%. Demand is characterized by single elasticity

Condition: Let the demand equation: p \u003d 940 - 48 * Q + Q 2

Assess the elasticity of demand at a price at the volume of sales Q \u003d 10.

Decision:

• At q \u003d 10, p \u003d 940 - 48 * (10) +10 2 \u003d 560
• Now find the value of DQ / DP. However, since the equation is drawn up rather for quantity than for the price, we should find the DP / DQ value:
• Mathematically proven: DQ / DP \u003d 1 / (DP / DQ)
• And it gives us: DQ / DP \u003d 1 / (-48 + 2 * Q).
• With q \u003d 10, we obtain: DQ / DP \u003d -1/28.
• Having made a substitution in the formula of elasticity at the point, we obtain: E \u003d (DQ / DP) * (P / Q) \u003d (-1/28) * (560/10) \u003d -2

Answer: The economic meaning of the obtained coefficent is that the change in the market price is 1% relative to the current price P \u003d 560, will change the amount of demand in the opposite direction by 2%. Demand at this point is elastic.

Properties of elasticity

1. Elasticity is an immeasurable value, the value of which does not depend on which units we measure volume, prices or any other parameters.
2. Elasticity of mutually reverse functions - mutually reverse values:

• E D is the elasticity of demand for the price;
• E p - Elasticity price in demand;

3. Depending on the sign in the elasticity factor between the factors under consideration, there may be:

• Direct dependence when the growth of one of them causes an increase in the other and on the contrary, for example, the elasticity of demand for consumer income products E\u003e 0;
• The inverse dependence when the growth of one of the factors involves the decrease in the other, for example, the elasticity of demand for prices E<0;

4. Depending on the absolute value of the elasticity coefficient, distinguishes:

• E \u003d ∞, or absolute elasticityWhen a slight change in any parameter increases (or lowers) the volume on an unlimited value.
• | E | \u003e 1, or elastic Demand (offer) when the parameter grows higher rates than the other factor changes.
• E \u003d 1, or single elasticitywhen the parameter in question is growing the same pace as the factor affecting it;
• 0 < E < 1, или inelastic Demand (offer) when the growth rate of the parameter under consideration is less than the rate of change of another factor;
• E \u003d 0, or absolute neelasticitywhen the change in any parameter of the market situation does not affect the value of the factor under consideration;

Consider in more detail the most common indicators of elasticity:

• direct elasticity of demand for the price,
• elasticity of demand for income,
• cross Elasticity of demand
• elasticity of proposals for the price.

Elasticity of demand for the price

Elasticity of demand for the price Shows the degree of quantitative change in demand when the price is changed by 1%.

For all goods, with the exception, the coefficient of the elasticity of demand for the price - is negative.

1. Inelastic Demand takes place if the purchased amount of goods increases less than 1 percent per each percent of its price reduction.
2. An increase in the purchased goods is more than 1% and reduced its price by 1%. This option characterizes the concept elasticity demand.
3. The purchased amount of goods increases twice due to the decline in its price. This feature introduces the concept single elasticity.

• Δq - change in demand;

Elasticity factors demand

• the presence and availability of substitute goods on the market (if there are no good substitutes for any product, the risk of reducing demand due to the appearance of its analogues is minimal);
• temporary factor (market demand tends to be more elastic in the long term and less elastic in short-term);
• the share of goods costs in the consumer budget (the higher the level of cost of goods regarding the consumer's income, the more sensitive will be the demand for price changes);
• the degree of market saturation with the product in question (if the market is saturated in any product, for example, refrigerators, it is unlikely that the receptors will be able to significantly stimulate their sales by lower prices, and vice versa, if the market is unsaturated, then the price reduction may cause a significant increase in demand);
• the diversity of the possibilities of using this product (the more different areas of use have the goods, the more elastic demand for it has. This is due to the fact that the price increase reduces the area of \u200b\u200beconomically justified use of this product. On the contrary, the price reduction expands the scope of its economically justified application. This explains The fact that the demand for universal equipment is usually more elastic demand for specialized devices);
• the importance of the goods for the consumer (if the goods are necessary in everyday life (toothpaste, soap, hairdresser services), then the demand for it will be inelastic to change price. Goods that are not so important for the consumer and the purchase of which can be delayed, is characterized by greater elasticity. ).

Inelasticity factors demand

The sensitivity of various groups of consumers to the price of the same product may differ significantly.

• The consumer attaches great importance to the characteristics of the goods (the demand is inelastic for the price, if the "failure" or "deceived expectations" lead to significant losses or inconveniences. In order not to get into this situation, a person is forced to overpay for the quality of the goods and acquire those model that well proven);
• The consumer wishes to have a product made to order, and is ready to pay for it (if the buyer wants to acquire a product made in accordance with his individual needs, it often becomes tied to the manufacturer and is ready to pay a higher price as a fee for hassle. Later the manufacturer can raise the price for its services without much risk to lose the buyer)
• The consumer has a significant savings from using a confer product or service (if a product or service allows you to save time or money, then the demand for such goods is non-ielastic)
• The price of goods is small compared to the consumer's budget (at a low price of goods, the buyer does not bother himself to shopping and thorough comparison of goods)
• The consumer is badly informed and does not the best purchases.

Elasticity of income demand

Elasticity of income demand It is possible to determine by analogy with the price elasticity of demand as a degree of quantitative change in 1%.

Due to the fact that income growth increases the possibility of making purchases, the demand for most goods with income increase increases, i.e. Elasticity of income demand is positive. If at the same time the elasticity coefficient at the absolute value is extremely small (0<Е<1), то речь идет о товарах первой необходимости. Если же — достаточно велик (Е>1), then about luxury items.

For low quality goods, i.e. "relatively worst", the elasticity of income demand will be negative (e<0).

Cross elasticity of demand

Cross elasticity coefficient It characterizes the degree of change in demand for one product when the price of another product is changed by 1%.

• If E\u003e 0, then the goods are interchangeable (for example, oil and margarine). Increasing the price of one product leads to an increase in demand for another, replacing it.
• If E.< 0, то товары считаются взаимодополняющими (например джин и тоник). Повышение цены на один товар ведет к сокращению спроса на другой.
• If E \u003d 0, then the goods are considered independent of each other and the increase or lowering the price of one product does not have almost no effect on the amount of demand for the second product.

The main factor determining the cross elasticity of various goods is the consumer properties of various goods, their ability to replace or supplement each other in consumption. Cross elasticity may have asymmetric character when one product strictly depends on the other. For example: PC market and market mats for mice. Reducing the price of computers causes an increase in demand in the rugs market, but if the price of rugs decreases, it will not have any influence on the amount of demand for PC.

The cross-elasticity coefficient can be used with certain reservations to determine the border of the industry. The high cross-elasticity of the product group provides reason to believe that the goods belong to the same industry. Low cross elasticity of one product in relation to all other goods suggests that it constitutes a separate industry. If in a similar way, several goods have high cross-elasticity among themselves, but low cross-elasticity in relation to other goods, then this group of goods may represent the industry. For example, various trademarks of TVs have high cross-elasticity among themselves, but small cross-elasticity with other goods for the house.

The main difficulties of determining the borders of the industry using the cross-elasticity coefficient are as follows:

• first, it is difficult to determine how much there should be high cross-elasticity in a separate industry (for example, the cross elasticity of vegetables ice cream can be very high, and the cross-elasticity of vegetables and dumplings can be rather low, so it is unclear - whether to talk about the sectors of ice cream products or about two industries);
• secondly, there is a circuit of cross-elasticity (so, between standard color and portable color TVs, on the one hand, and between portable color and portable black and white TV, on the other - there is high cross-elasticity. However, between standard color TVs and portable blacks. - White cross elasticity is rather weak).

Elasticity of the sentence

The coefficient of price elasticity Proposals Shows the degree of quantitative proposal when the price is changed by 1%.

The degree of changes in the amount of proposal depending on the price change characterizes elasticity Proposals for the price. Measure of this change is the elasticity coefficient of the sentence, calculated as the ratio of the amount of supply to price increases.

• ΔS - a change in the value of the proposal;
• Δp - change of market price for goods;

Factors defining elasticity of proposals

1. time period (instant, short-term, long-term)

• for an instant period, proposal is inelastic;
• for a short period, it can be done within certain limits to adapt to a changing price;
• for the long-term period, the proposal is elastic;

2. Production specificity (minimum cost of extension of production);
3. Possibilities of storage of manufactured products;
4. The maximum possible amount of production with full capacity utilization.

The study of the elasticity of the sentence is a prerequisite for the study of the relative change in the proposal in accordance with the relative change in the market price.

If the proposed amount of goods remains unchanged for resale at any price, there is an inelastic offer. When a small change in the price causes a reduction in supply to zero, and a slight increase in the price causes an increase in the sentence, this situation characterizes an absolutely elastic proposal.

Thus, the elasticity of the proposal is changed under the influence of technical progress, changes in the qualitative and quantitative composition of the resources used, strengthening the limited resources used in the production of one or another product, which leads to a decrease in the value of the supply elasticity.

In the most general form, the function of demand (or suggestions) on the goods depends on the huge number of price and non-counseling determinants.

The elasticity of demand (or suggestions) in relation to any of the determinants characterizes the sensitivity of the amount of demand (or suggestions) to the percentage change of this determinants, despite the fact that other determinants rely on constant.

Mathematically, this means that to determine elasticity at the point, finding a private derivative of the demand function (or suggestions) for any determinant.

The general concept of elasticity

To determine the "rate of change" of the demand and supply of goods in the market of economists, the concept of "elasticity" was introduced.

The concept of elasticity was first introduced into the economic science of Alfred Marshall (1842-1924).

Under elasticity It is necessary to understand the percentage of the change in the value of one variable as a result of a change in one unit of the value of another variable. Thus, elasticity shows how many percent one variable economic value will change when the other change is one percent.

The ability of consumption and demand to change under certain framework under the influence of economic factors is called elasticity of consumption and demand. Elasticity of demand and suggestions are necessary to compile projects of economic development and economic forecasts.

Without this, no market (mixed) economic system is now not functioning.

Under elasticity demand It should be understood as a change in demand in response to a change in prices.

Under elasticity of sentence It is necessary to understand the relative changes in the prices of goods and their quantity offered for sale.

Elasticity of demand for the price

There are the following types of demand elasticity:

1. elastic demand It is considered as if, with minor increases in prices, sales increases significantly;
2. demand of single elasticity. When a 17% price change causes a 1% change in the demand for goods;
3. neelastic demand. It is manifested in the fact that with significant changes in the price, sales varies slightly;
4. infinitely elastic demand. There is only one price by which consumers buy goods;
5. complete inelastic demand. When consumers acquire a fixed amount of goods regardless of their price.

The elasticity of demand for the price, or price elasticity of demand, shows how much the amount of demand for the goods changes in the percentage when its price changes by 1%.

The elasticity of demand increases in the presence of substitute goods - the more substitutes, the more elastic is the demand, and decreases with the increased demand of the consumer for this product, i.e. the degree of elasticity is the lower than the more needed the product.

If you designate the price R, And the amount of demand Q, then the indicator (coefficient) of price elasticity of demand EP equal to:

where Δ. Q. - change in demand,%; ? P - change price,%; "R" - In the index means that elasticity is considered at a price.

Similarly, it is possible to determine the indicator of elasticity of income or some other economic value.

The price elasticity rate for all goods is a negative value. Indeed, if the price of the goods decreases - the amount of demand is growing, and vice versa. However, the absolute value of the indicator is often used to estimate elasticity (the minus sign is lowered). For example, a decrease in the price of sunflower oil by 2% caused an increase in demand for it by 10%. Elasticity indicator will be equal to:

If the absolute value of the price elasticity of demand is greater than 1, then we are dealing with relatively elastic demand: the price change in this case will lead to a greater quantitative change in the amount of demand.

If the absolute value of the price elasticity of the demand is less than 1, then the demand is relatively non-ielastic: change price will entail a smaller change in demand.

If the elasticity coefficient is 1 is a single elasticity. In this case, the price change leads to the same quantitative change in the amount of demand.

There are two extreme cases. The first is the existence of only one price, in which the goods will be purchased by buyers. Any price change will cause either to complete the acquisition of this product (if the price increases), or to an unlimited increase in demand (if the price decreases) - the demand is absolutely elastic, the elasticity indicator is infinite. Graphically, this case can be depicted in the form of a direct parallel horizontal axis. For example, the demand for lactic acid products sold by a separate trader in the city market is absolutely elastic. However, the market demand for dairy-acid products is not considered elastic. Another extreme case is an example of absolutely inelastic demand, when the change in the price is not reflected by the amount of demand. The schedule of absolutely inelastic demand looks like a straight, perpendicular horizontal axis. An example is the demand for certain types of drugs, without which the patient cannot do, etc.

Thus, the absolute value of the price elasticity of the demand may vary from zero to infinity:

From formula (1) it can be seen that the elasticity indicator depends not only on the ratio of increases of price and volume or from the inclination of the demand curve, but also on their actual values. Even if the inclination of the demand curve is constant, the elasticity indicator will be different for different points on this curve.

There is another circumstance that should be taken into account when determining elasticity. In areas of elastic demand, price reduction and sales growth leads to an increase in the total revenue from the sale of the company's products, on the site of inelastic demand - to its decrease. Therefore, each company will strive to avoid the plot of demand for its products, where the elasticity coefficient is less than one.

Elasticity of income demand. Cross elasticity

Under elasticity of income demand It is understood as a change in demand for goods due to changes in consumer revenues. If the growth of income leads to an increase in demand for goods, then this product refers to the category of "normal", with a decrease in the consumer's income and the growth of demand for goods - the product refers to the category of "lower". In the main mass, consumer goods refer to the category of normal.

Measurements of revenue elasticity are shown whether this product includes the category of "normal" or "lower".

Elasticity of income demand is equal to the ratio of the percentage change in the amount of demand for goods to the percentage change in income and can be expressed in the form of the following formula:

where E1d. - the coefficient of the elasticity of demand, depending on the income;

Q0 and Q1. - the amount of demand before and after changing the income;

I0 and I1 - income before and after change.

The elasticity of demand is greatly influenced by the availability of goods in the market, designed to satisfy the same need, i.e. replane goods. The elasticity of supply for goods is higher than the most opportunity to abandon the purchase of this particular product in the event of its price growth.

With income income, we buy more clothes and shoes, high-quality food, home appliances. But there are goods, the demand for which inversely proportional to the income of consumers: all products "Second Hand", some types of food (cereals, sugar, bread, etc.).

For essential goods, such as bread, demand is relatively unequisible. At the same time, the demand for separate bread varieties is relatively elastic. Demand for cigarettes, medicines, soap and other similar products are relatively unequisible.

If there is a significant number of competitors on the market, the demand for products producing similar or close to the appointment products will be relatively elastic. With the increase in the competitiveness of firms, when many sellers offer the same products, the demand for goods of each company will be absolutely elastic.

To determine the degree of influence of changing the price of one product on the change in demand for another product, the concept of cross-elasticity is used. Thus, the rise in price of cream oil will cause an increase in demand for margarine, the decline in the price of Borodinsky bread will lead to a reduction in demand for other varieties of black bread.

Cross elasticity - Dependence of demand from of goods-substitutes and goods complementary by each other.

This is the ratio of a percentage change in demand for goods A to the percentage of the price of goods B:

where "C" in the index means cross-elasticity (from English CROSS).

The value of the coefficient depends on which goods are considered - interchangeable or complementary. Cross-elasticity coefficient is positive, if the goods interchangeable; negative if goods complementary As, for example, gasoline and cars, cameras and a film, the amount of demand will be changed in the direction opposite to the change in prices.

Thus, by determining the value of the cross-elasticity coefficient, it is possible to know whether the selected goods are considered complementary or interchangeable, and, accordingly, as a change in the price of one type of product, which is produced by the firm, can affect the demand for other types of products of the same company. Such calculations will help the company when making decisions on pricing policy on manufactured products.

The price elasticity has a great influence time factor. The demand is less elastic in a short period of time and more elastic in a long time. This tendency to change the elasticity in time is due to the possibility of consumer over time to change its consumer basket, find a substitute goods.

Differences in the elasticity of demand are also explained significance of this or that goods for the consumer. The demand for essentials is neelastic; The demand for goods that do not play an important role in the life of the consumer is usually elastic.

Elasticity of the sentence

Elasticity of the sentence - The sensitivity of the value of the supply of goods to changes in prices for these goods.

The elasticity of supply is influenced: the presence or absence of production reserves - if there are reserves, then in the short term, the proposal is elastic; The presence of the ability to store the reserves of finished products - the proposal is elastic.

There are the following types of elasticity of proposals:

1. elastic offer. 1% price increase causes a significant increase in the supply of goods;
2. the proposal of single elasticity. 1% increase in price leads to a 1% increase in the supply of goods on the market;
3. neelastic offer. The price increase does not affect the number of goods offered for sale;
4. elasticity of supply in the instant period (i.e., the period of time is small, and manufacturers do not have time to respond to changes) - the proposal is fixed;
5. elasticity of the proposal in the long term (period of time, sufficient to create new production facilities) - the proposal is the most elastic.

In order to determine how the production of a particular product affects the change in the price, the elasticity of the proposal for the price is measured.

The elasticity of the proposal is measured by the relative (in percent or fractions) by changing the value of the proposal when the price is changed by 1%.

Formula price elasticity coefficient sentence Similar to calculating the coefficient of price elasticity of demand. The difference is that instead of the amount of demand, the value is taken:

where Q0 U Q1. - offer before and after changing the price; P0. and P1 - prices before and after change; s. - In the index means the elasticity of the proposal.

Unlike demand, the proposal is less associated with changes in the production process and is more adapted to change price.

The elasticity of supply is influenced: the presence or absence of production reserves - if there are reserves, then in the short-term period of time the proposal is elastic; The presence of the ability to store the reserves of finished products - the proposal is elastic.

Elasticity of the sentence, taking into account the time factor

The time factor is the most important indicator in the definition of elasticity. There are three time periods affecting the elasticity of the proposal - short-term, medium-term and long-term.

Short-term period - Too short for the implementation of any changes in the volume of products, and in this time period, the proposal is not elastic.

Medium-term period Increases the elasticity of the proposal, as it makes it possible to expand or reduce production in existing production facilities, but it is not sufficient to introduce new capacities.

Long-term period With the growth of demand for the goods of the industry, it allows an expansion or reduction of its production facilities, as well as the inflow to the industry of new firms or, while reducing demand for industry products, closing firms. The elasticity of the proposal in this period is higher than in the two previous periods.

It should be noted that the proposal in the current period remains fixed, since manufacturers do not have time to respond to changes in the market.

Practical significance of the elasticity of supply and demand

Elasticity of demand is an important factor affecting the pricing policy of the company. If the proposal is elastic, then in connection with the increase in the price of goods and the reduction in production volume, the tax burden falls mainly on the consumer, the tax amount decreases compared with the amount of tax with an inelastic proposal, the loss of society increases.

Thus, the theory of the elasticity of demand and suggestions is important. An increase in production costs forces the enterprise to increase product prices. To know how sales will respond to these changes, and choose the right-hand strategy of the enterprise, it is necessary to determine the elasticity of supply and suggestions for this product. It should be borne in mind the following: the elasticity of demand for the company's products and the elasticity of market demand does not coincide. The first is always (with the exception of the absolute monopoly of the company in the market) above the second. The calculation of the price elasticity of demand for the company's products is quite complicated, as it is necessary to take into account the reaction of competitors to increase or lower the company's company, use mathematical models or experience of company managers.

If the firm when deciding on the price of the price will be guided only by data on the elasticity of market demand, then the loss of sales from price increases can become more significant than expected.

Suppose: some kind of company built an apartment building and decides the issue at what price should offer apartments to the removals. The costs of construction and operation actually do not depend on how many apartments will be handed over (with the exception of expenses for the current repairs, which makes up a small share of total costs). When the company knows the demand for apartments and its elasticity, it can determine at what price should take these apartments to ensure maximum revenue. At the same time, the maximum revenue can be achieved even if part of the apartments remain empty.

Depending on the elasticity of demand and suggestions for certain types of goods and services, the tax burden will be distributed differently between producers and consumers of products.

Entering indirect taxes, the state pursues the goal to increase the amount of tax revenues to the budget for the redistribution of resources in the economy, redistribution of income of the population and support the poor, the development of the social sphere, infrastructure, defense, etc.

1. To determine the "speed of change" of supply and demand by economists, the concept of the elasticity of supply and demand is used. Elasticity of demand and suggestions are needed to compile projects of economic development and economic forecasts. Under elasticity, it is necessary to understand the percentage of the change in the value of one variable as a result of a change in one unit of the quantity.

2. Elasticity of demand for the price, or price elasticity of demand, shows how much the amount of demand for the goods changes in the percentage when its price changes by 1%.

3. If the absolute value of the price elasticity rate is greater than 1, then we are dealing with relatively elastic demand. If the absolute value of the price elasticity of the demand is less than 1, then the demand is relatively unequal. With elastic demand, price reduction and sales growth leads to an increase in the total revenue from the sale of the company's products, on the site of non-ielastic demand - to a decrease in revenue. Each firm seeks to avoid the plot of demand for its products, where the elasticity coefficient is less than one.

4. In the coefficient of elasticity, equal to 1 (single elasticity), the price change leads to the same quantitative change in the amount of demand.

5. Elasticity of income demand is the ratio of change in demand for goods to change consumer income.

6. Cross-elasticity of demand is used to determine the degree of influence on the amount of demand for this product change in the price of another product (the product replacing this product, or the goods complementing it).

7. Cross-elasticity coefficient is the ratio of interest change in demand for goods. BUT to the percentage change of the price of goods B.

8. Elasticity of the sentence is the sensitivity of the value of the supply of goods to changes in prices for these goods. The elasticity of the proposal is measured by the relative (in percent or fractions) by changing the value of the proposal when the price is changed by 1%.

9. On the elasticity of the proposal, the time factor has an important influence. In assessing the elasticity of the sentence, three time periods are considered: short-term, medium-term and long-term.

We all know that the drop in prices causes an increase in demand and a decrease in supply. In many cases, the direction of these changes is all that matters. However, in others it is important to understand their scale and exact number of products that will want to buy consumers at a lesser price. In order to measure the degree of these changes, and not only their direction, the concept of the elasticity of demand is used. The value of this indicator allows you to answer the question to what extent an increase or decrease in the price will affect the behavior of consumers and manufacturers.

The concept of demand

The economy has passed a long way from one of the directions of philosophy to independent science. Objective laws are found, which are subject to changes in market conditions. It concerns this and demand with the proposal. All other things being equal, the price increase will cause a decrease in the first and increase of the second. The objective law of supply and demand was formulated by Alfred Marshall in 1890. The price of the market is set at the intersection point of these two indicators on the chart.

Demand is the amount of goods required by the actual or potential consumer. He expresses at the same time the buyer's desire and its monetary capabilities. It is characterized by such quantitative parameters as the value and volume. In addition to the price, the demands of consumer tastes, fashion, people's income, the cost of other goods, the rate of substitution affect the demand. The growth of salaries stimulates buyers to purchase more products. Increase product price makes consumers reduce demand. The opposite situation is observed when it comes to the goods of Hiffen. The amount of demand is growing when their price increases.

General

Economists use the elasticity of demand and suggestions in order to measure the scale of changes in the behavior of market entities. The value of this indicator is most often defined as the result of dividing changes in the amount of products to growth or fall price. For example, if the cost increase by 10% led to the fact that buyers began to consume 12% less than the goods, then the elasticity of demand is 1.2. The resulting result is more than one. This means that the demand in our task is an elastic value. Similar is the calculation and indicator of the sentence. For example, the price has increased by 10%, and the number of products produced has become more than 6%. The elasticity of the supply will be equal to 0.6. The resulting result is less than one. The proposal of the goods in question is inelastic for the price. Thus, such tasks are solved very simply. Elasticity of supply and demand is a simple division of the percentage of changes in the number of products consumed by buyers and produced by the sellers, to the difference between the old and new price.

Definition and concept

In the economy, elasticity is the degree of reaction of one indicator on the other. Her calculation gives the answer to the manufacturer for three questions:

• If you lower the price of products, how much more units can be sold?
• How does the increase in the cost of the goods affect the volume of purchased?
• If the market price of products decreases, how will this affect the release of goods?

The elastic is considered a variable whose value is greater than one. This means that it responds to a change in other indicators is stronger than proportionally. A variable can be more or less elastic at different points in time. The goods may be more sensitive to the price or income. Elasticity allows you to compare completely different values, since the change in each of them can be expressed as a percentage. Therefore, this concept is hardly the most important in the neoclassical economic theory. It is useful in understanding the consequences of indirect taxation, income distribution, consumer choice theory. In practice, elasticity is a linear regression coefficient, where both variables are natural numbers. The main study of the sensitivity of demand and suggestions at the price of American goods was produced by Hendrik S. Houtecker and Leicester D. Taylor.

Elasticity of demand: Formula

The calculation of the indicator is carried out in one action. The most important thing is to express all the source data in one units (most often this is done in percent). The result of dividing the difference in the old and new prices for changing the volume of purchased is the elasticity of demand. The formula indicates two options:

1. Neelastic demand. If the percentage of price change is larger than the difference between the volume of purchased goods.
2. Elastic demand. If the percentage of price change is less than the difference between the volume of purchased goods.

Application in practice

The whole point is that the value of the elasticity of demand means how sensitive are consumers for price change. And this is extremely important information for sellers. The high elasticity of demand means that even a slight increase in the price will lead to a significant drop in the consumption of this product. You can use such a property in the other side. The manufacturer needs only to lower the price slightly, and it will become much more buying. If demand is insensitive to change the price, then the volume of consumption can remain unchanged for a long time. In order to remember this, you can compare the elasticity of demand with flexibility. Something is called elastic if it is well stretched. The same term characterizes the similar property of supply and demand.

Elasticity factors demand

Despite the fact that both the offer and demand is important, most studies focus on the latter. What determines its elasticity? The main factor is the availability for the consumer of the substitutes. Suppose the gas station decided to increase the price of gasoline by 10%. Most consumers will simply move on fuel of other sellers. The magnitude of the elasticity of the demand for gasoline in this case is greater than the unit, so buyers are very sensitive to changes in price. The gas station from the example may lose much greater than 10%. But suppose that there are no other gasoline sellers in the city, that is, the substitutes are not available to consumers. In this case, the demand elasticity coefficient is approximate to zero value. Motorists will not remain another way out, how to continue to buy more expensive gasoline. Raising the price will only increase the income in the city of refueling. Of course, motorists can reduce unnecessary movement in the city or transfer by bicycles, but in any case, in the short and mid-term period, the decrease in gasoline demand will be insignificant.

Economists and marketers, analyzing any market, use a large number of different indicators. In order to predict the fluctuations of the volumes of transactions, the price elasticity and supply and suggestions are investigated.

Learning the level of these indicators, it becomes possible to make an objective assessment of the influence of the price of the number of operations carried out on a particular market. This article will consider the price elasticity of demand, formula, species and factors that can affect it.

Definition and essence

In textbooks on economic theory, a whole section is devoted to the issue of elasticity. This suggests that the topic is relevant and necessary to understand people who want to become good economists or marketers engaged in research on various markets.

First of all, we'll figure it out that such price elasticity of demand. This indicator characterizes the level of reaction of consumers or buyers to change the price of a certain product.

For example, on the market of household appliances sell the slab of a particular model. Suppose that the price of it is 10,000 rubles. Suppose it is expected to rise in price such equipment for 2000 rubles. So, the price elasticity of demand shows what level the demand for the slab of this model will change with this price change.

When analyzing supply and demand, as well as the preparation of a financial plan without such an indicator, it is not necessary, and it is an important component of the element of economic analysis of market relations.

What are the types of demand for elasticity?

The price elasticity of demand describes the demand of several species that will be discussed below.

The first view is called elastic. In economic literature, this species is often associated with the so-called luxury goods. The demand for them is characterized by the fact that it will quickly decrease with increasing price and with the same speed to increase during the reduction of such products.

You can imagine, for example, gold jewelry. The more expensive the price of gold, those, respectively, more expensive and the price of jewelry. Not everyone can afford expensive purchases, so when a rise in price of jewelery will begin to give up their acquisition. And vice versa, the cheaper gold will cost, the greater the number of people will be able to buy decorations from him.

The second type is inelastic demand. It is characterized by a market that sells essential goods. When changing the price of products, the demand for it will not change much. That is, almost all buyers will not be able to give up the purchase of goods they need.

Examples of such products can be called personal hygiene objects, some foods (for example, bread, cereal, meat, etc.) and other everyday things, the consumption of which does not change depending on the income received.

Single elasticity

The third type is the demand with single elasticity. It is characteristic of the fact that when a decrease in or increasing the price of goods, demand changes to a similar level towards growth or reduction, respectively.

Such price elasticity of demand is characterized by a constant level of products sold in value terms, regardless of the size of prices established for her.

The following species is called absolutely inelastic. It is associated with the market of goods, the demand on which does not depend on the price. That is, whatever price for products, it will be bought.

For example, various medicines that no alternative will always buy. Such products are the types of essential goods that are presented on the market only in one form, and there is simply no other choice.

Typically, prices for such goods are regulated by the state in order to provide social protection and guarantees to the low-income segments of the population.

The last view is absolutely elastic demand. It is characterized by the fact that consumers are ready to give for goods only a certain price. If it changes - there is a complete refusal of such products.

Such price elasticity of demand for goods is rather a special case than a common rule. Often it looks the following way: the manufacturer sets the price of goods to the point of its break-even.

Often, manufacturing companies receive state payments to such products that such a business have at least some attractiveness. Raise the level of prices for such products means completely losing all buyers.

Price elasticity of demand: calculation formula

The level of demand elasticity is determined as a coefficient. Its analysis allows you to draw conclusions about the market situation.

The coefficient of price elasticity of demand is the following formula: KCE \u003d% IP /% IC, where:

• KCE - elasticity coefficient;
• % Source changes
• % IC - percentage price changes.

• % IC \u003d (current supply volume - the initial demand) / the initial volume of demand x 100%.
• % IC \u003d (current price - initial price) / initial price x 100%.

Based on the simplicity of formulas, it is easy to know what the coefficient of price elasticity of demand is equal. But after receiving the result, it is necessary to correctly determine which elasticity it describes.

How to understand the values \u200b\u200bof the coefficient?

So, suppose we counted and received certain data. We learned what the price elasticity of demand is equal. To decrypt results, you can use the following table:

Factors of price elasticity demand

Elasticity can affect many things that, in fact, determine the essence of the market. But the following factors can be distinguished from them:

1. Category of goods.
2. Time.
3. Products substitutes.

We will analyze each in order.

The category of goods directly affects the elasticity of demand

Agree that a person will buy them no matter whether they will rise in price or cheaper, because his life depends on it. And such examples can be given a lot.

And on the other hand, consider the vintage wine. The greater the price for him, the more willing to buy it. This is also expressed by the essence of this factor.

The temporary factor also has a significant impact on the level of elasticity of demand. The longer period of time, which is considered, the demand will be more elastic.

The effect of time on elasticity

This can be explained as follows. Imagine that you are constantly buying the same sausage in the store. Do it regularly. All are suitable for all: quality, composition and other characteristics of this product.

But one day you come to the same store, and sausage has become more expensive by 30%. For your budget, this is a slow sum. At the same time, you basically do not want to buy another, as you do not trust other manufacturers. Currently your demand for this product is inelastic.

The day passes, then the second, third, week and so on. Your favorite sausage does not get cheaper, and you begin to think about what you can afford to buy it, or you have to try a similar product of another manufacturer for a smaller price. Now your demand has become more elastic - you are ready to consider various options.

On such a simple example, you can explain the effect of time on the level of elasticity of demand.

If the goods are unreasonable, then the demand will be elastic

This statement is suitable for the expression of the essence of the third factor.

Indeed, the more there are substitute goods on the market, the harder it is to force the buyer to choose products of only one manufacturer at a dictated price.

Under goods, substitutes are assumed similar products in the market, which may have some excellent properties from the main product, but, in principle, bring the same satisfaction.

For example, you love Coca-Cola. Pepsi does not give way to taste and does not differ. If a sharp manufacturer increases the price of your favorite drink, then you can start drinking pepsies from savings. That is, any good, which can be painlessly replaced by another product, is called a substitute commodity.

And in this market, the manufacturer is quite difficult to impose its price to consumers, because because of this, it is possible that customers will go to competitors. The level of competition in the markets where there is no disposal of goods and there are many manufacturers who make similar products, if not ideal, then with a high level of competition and fair prices.

The main thing is to make the right conclusions.

Analyzing any economic indicator, it is impossible to hurry and hasty conclusions. After only the coefficient of price elasticity is considered, trying to decipher it and identify certain signs of the market.

To compile a complete analysis of the market, it is necessary to calculate the similar coefficient on the proposal, the level of competition, government regulation, the purchasing power of consumers and many more different indicators. Only after that, you can make decent respect for the conclusions and take various decisions on maintaining economic activities using the price elasticity of demand.

And do not forget that the science of the economy is only at first glance. After all, the decision taken today may be wrong tomorrow.

To measure elasticity, you need to establish how much the demand changes when the price is changed.

The numeric value of the coefficient of the elasticity of demand for the price can be determined by the following formula:

E D \u003d% change in the amount of demand (Q d) /% change in the price (p) where Q d is the volume of demand, measured along the demand curve;

R - the price of goods.

Suppose that 1% increase in the price of a new computer (with other things being equal) will lead to 2% reduction in the number of annual sales of computers (compared with the previous year). In this case, the elasticity of demand for the price will be: 2% / 1% \u003d -2.

The magnitude of the elasticity of demand is priced by a negative number, because the law of demand suggests that for all changes in price, the change in demand is opposite. This means that if the denominator is positive, the numerator has a negative value, and vice versa. The ratio of indicators of two percent changes is always a negative value, since the numerator and denominator have different signs.

The magnitude of the elasticity of demand for the price can decrease from zero to minus infinity. The greater the absolute value of the elasticity of demand for the price, the greater the price elasticity of demand. So, demand is more elastic at the value of ED \u003d -5 than with ED \u003d -1, for the number 5 performs an absolute value for -5 and greater than 1, that is, more absolute value of the value -1.

Distinguish between several forms of elasticity demand for the price:

• elastic demand, if the absolute value of elasticity ranges from 1 to infinity;
• inelastic demand, if the absolute value of elasticity varies from 0 to 1;
• single elasticity, if elasticity is -1, and its absolute value is 1;
• completely inelastic demand, if the elasticity of demand is equal to zero;
• completely elastic demand when the absolute value of elasticity equals infinity.

The specified form of elasticity is illustrating in Fig. 14.1, 14.2.

In fig. 14.1 depicts three demand curves with different elasticity. In all cases, prices are doubled, and the value of consumer demand varies in different ways. In fig. 14.1, and the decrease in the price twice causes a triple increase in demand. In fig. 14.1, B double lower prices leads to a double increase in demand. In fig. 14.1, in the reduction of the price in DV.a, only a 50% increase in demand is caused.

Fig. 14.1. Three forms of price elasticity demand

The two extreme forms of the elasticity of demand are presented in Fig. 14.2.

Fig. 14.2. Completely elastic and completely inelastic demand

A completely elastic demand means that the demand is infinitely elastic and an insignificant price change causes an infinitely large change in demand. Such demand is shown in Fig. 14.2 Horizontal line.

A completely inelastic demand is the demand, the value of which is absolutely not changing when the price is changed. Such demand is presented in Fig. 14.2 vertical line.

G.C. Bearing, G.P. Bearing