Roar Essence:
In a broad sense, a market is a system economic relations between people, covering the processes of production, distribution, exchange and consumption. The market acts as a complex mechanism for the functioning of the economy, based on the use of various forms of ownership, commodity-money relations and the financial and credit system. The market system is based on private ownership of the factors of production, entrepreneurial activity and competition between participants in market transactions.
The emergence and development of the market as an economic system is a long historical process, the beginning of which was predetermined by two major conditions:
1) social division of labor,
2) economic isolation of commodity producers and the emergence of private ownership of factors of production.
The market mechanism includes three main elements:
1) prices of consumer goods and economic resources;
2) the demand for the product and its supply;
3) competition.
Setting prices for economic resources serves as a guide for the manufacturer of goods in determining the volume of production and the choice of technology. The prices of goods and services produced determine who, at a given level of income, will consume the product produced.
Demand for a good is the demand for a good on the market, determined by the quantity of goods that consumers can buy at prevailing prices and money incomes.
The supply of a commodity is the quantity of goods available for sale at a given price. A change in the relationship between supply and demand generates fluctuations in market prices around the so-called equilibrium price, at which the balance of production and consumption is ensured.
Competition in market relations exists both between producers of goods for the most favorable conditions for the production and sale of products, and between buyers of goods for the opportunity to purchase the necessary goods (especially in conditions of shortage). The nature of competition can be different, it significantly affects the way to achieve market equilibrium.
The market performs the following major functions:
1) pricing or the function of self-regulation of commodity production. Constant price fluctuations around the equilibrium price under the influence of changes in supply and demand indicate an increase or decrease in demand for a product, this encourages the manufacturer to increase or decrease the volume of output of goods;
2) regulatory. The market sets the basic proportions in the economy at the micro and macro levels by expanding or contracting supply and demand. With the help of the regulatory function, the distribution of economic resources by branches of production takes place. In those sectors where there is an increase in prices, there is a revival of production, since the owners of production factors are striving here, then, when the supply of goods exceeds the demand for them, the reverse process will begin - market prices will begin to decline and an outflow of economic resources will occur;
3) stimulating. Encourages manufacturers to create needed products at the lowest cost and achieve higher profits through cost reduction and innovation. If an individual commodity producer uses the achievements of scientific and technological progress, improves technology, saves resources, then this will reduce the cost of producing goods and get additional profit;
4) differentiating. Those firms whose production costs are below the established market price receive income and become richer, thereby strengthening their position in this market segment. Those firms that suffer losses become bankrupt and are forced to leave the market for this product. The stratification (differentiation) of incomes of participants in market relations is an objective result of the action of the price mechanism;
5) sanitizing. The market mechanism is a rigid system and, with the help of competition, clears social production of economically unstable, unviable economic units, leaving the most enterprising and efficient ones. As a result, there is a continuous increase average level sustainability of the country's economy;
6) intermediary. In a market economy with sufficiently developed competition, the consumer has the opportunity to choose the optimal supplier of goods. At the same time, the seller of the goods is given the opportunity to choose the most suitable buyer;
7) information. Through constantly changing prices and interest rates for credit, the market provides production participants with objective information about the quantity, range and quality of those goods and services that are supplied to the market.
The market infrastructure includes:
Infrastructure of commodity markets (commodity exchanges, wholesale and retail
trade, auctions, fairs, intermediary firms);
infrastructure financial market(stock and currency exchanges,
banks, insurance companies, investment funds);
Labor market infrastructure (labour exchanges, employment service,
retraining of personnel, labor migration).
Market entities (structure):
The main subjects of the market economy are usually divided into three groups: households, firms, and the state.
A household (household) has the following features:
1) it is an economic unit that unites persons living under one roof and making (or forced to make) common financial decisions;
2) it is the main structural unit functioning in the consumer sector of the economy;
3) these are owners and suppliers of economic resources (labor, land, capital) who independently make decisions about their sale;
4) the money received from the sale of economic resources is spent on meeting personal needs. The goal of the household as a consumer is to maximize utility from the consumption of purchased goods and services.
The firm (enterprise) has the following characteristics:
1) it is an economic unit that buys economic resources for the production of goods and services;
2) it is the main structural unit functioning in the sphere of production of goods and services and ensuring their entry into the markets of consumer goods;
3) the firm is a sovereign user of the purchased economic resources (factors of production);
4) when creating a company, it is supposed to invest its own or borrowed capital, and the income from its use is spent on expanding production activities.
The goal of the firm is to maximize profits.
The state is represented mainly by various budgetary organizations that carry out the functions of state regulation of the economy, social policy and foreign economic activity.
The purpose of the state is to maximize public welfare.
Market types:
1) The degree of economic independence of market entities (sellers and buyers):
Perfect competition market (free);
Monopolistic competition;
Oligopoly, incl. duopoly;
Pure monopoly;
Monopsony
2) Object of sale (type of goods sold)
The market of goods and services (consumer (;
Market of means of production;
Market of information, intellectual products, spiritual goods;
Market for housing, buildings, etc.;
Labor market;
Financial market
3) Degree of coverage of the market space
Regional;
National;
International;
World
4) The nature of the functioning of the market
Spontaneous;
Adjustable;
Shadow
5) Type of sales of goods and services
Sale for cash;
Sale by bank transfer;
Sale on credit;
Sale on the security of property;
6) Trade way:
Retail;
Market and market mechanism
Initially, the term "market" meant a place where sellers and buyers could exchange their goods. For example, central square cities.
In modern economic theory, the market has become one of the most common categories, one of the basic concepts of the economy.
Market is a set of economic relations between market entities regarding the movement of goods and money, which are based on mutual agreement, equivalence and competition.
The founder of the theory of the market is considered to be a representative of the classical school, Adam Smith, who was the first to point out the reasons for the development of commodity exchange, and therefore the market. Adam Smith considered such a reason to be the limited production capabilities of a person, which can be increased through social division.
labor, which ultimately leads to
Adam Smith (1723 - 1790
years) - Scottish economicemergence of exchange and market formation.
mystic, ethical philosopher
Market entities
Household |
State |
Household- an economic unit focused on the consumption of goods and services.
A firm is an economic unit that operates for the purpose of generating income (profit), seeks to maximize income, uses factors of production to manufacture products for the purpose of selling them.
State - represented by various government agencies exercising legal and political power to ensure, if necessary, control over economic entities and over the market to achieve public goals. The state seeks to maximize public utility.
Market mechanism is a mechanism of interconnection and interaction of all market entities.
Elements of the market mechanism:
1) demand;
2) offer;
3) price.
Demand is a solvent need for a product or service.
The value (volume) of demand Q D is the quantity of goods and services that buyers are willing to purchase at a given time, in a given place, at given prices.
The need for some good implies the desire to possess goods. Demand implies not only desire, but also the possibility of acquiring it at existing market prices.
Types of demand:
1. individual demand;
2. Market demand.
Distinguish between individual and market demand for goods or services
gi. If individual demand for goods reflects the desires and capabilities of an individual consumer, then the total market demand will be a total or aggregated reflection of the demand for any product from all potential consumers.
1. The price of the goods;
2. consumer income;
3. Tastes, fashion;
4. Number of buyers;
5. Anticipation of future prices and earnings;
6. Prices for related goods: interchangeable (substitutes) or mutual
modulated (complements). |
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The magnitude of demand for a product primarily depends on |
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sieves from the price. Other things being equal, the decrease |
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price reduction leads to an increase in the quantity demanded; increase- |
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price reduction causes a reverse reaction: the value |
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demand is declining. Thus, the indicated |
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demand property reflects an inverse relationship |
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between changes in price and quantity demanded. About- |
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inverse relationship between price and demand |
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sa (other parameters are unchanged) wears universal |
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greasy character and reflects the action of one of |
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fundamental economic laws- law |
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on demand. |
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This law was formulated by Antoine |
Antoine Augustin Cournot |
Augustin Cournot (1801 - 1877) - French |
economist, philosopher and mathematician; creator of the mathematical theory of demand.
This law can be represented as a function of demand from price:
Q D =f(P), where Q is the quantity demanded, P is the price. The graphic representation of the demand function from the price on the coordinate plane is called the curve
Demand, QD
The operation of the law of demand can be explained on the basis of the operation of two interrelated effects: the income effect and the substitution effect. The essence of these effects is as follows:
FROM On the one hand, a rise in prices reduces the real income of the consumer with a constant value of his money income, reduces his purchasing power, which leads to a relative reduction in the magnitude of demand for a product that has risen in price ( income effect).
FROM On the other hand, the same rise in prices makes other goods more attractive to the consumer, encourages him to replace the more expensive product with a cheaper analogue, which again leads to a reduction in the demand for it (substitution effect).
The law of demand does not apply in the following cases:
1. Giffen's paradox - when prices for certain types of goods (mainly essential goods) increase, their consumption increases due to savings on other goods
2. The Veblen effect is associated with a prestigious demand focused on the purchase of goods that, in the opinion of the buyer, testify to his high status.
3. When price is an indicator of quality
4. For rare and expensive goods that are a means of investing money.
5. The effect of expected price movements
Supply - the quantity of goods and services that producers are willing to sell (offer) on the market.
Offer amount Q S is the quantity of goods and services that sellers are willing to sell at a given time, in a given place and at given prices.
nah, but the amount of supply does not always coincide with the volume of production and sales in the market.
Scope and structure of the offer characterizes the economic situation in the market on the part of sellers (manufacturers) and is determined by the size and capabilities of production, as well as the share of goods that goes to the market and, under favorable economic circumstances, can be purchased by buyers. A product offer includes all goods on the market, including goods in transit.
The volume of supply, as a rule, varies depending on the price. If the price is low, then the sellers will offer few goods, the other part of the goods will be held in stock, but if the price is high, then the manufacturer will offer the market the maximum number of goods. When the price increases significantly and turns out to be very high, then the producers will try to increase the supply of goods.
Factors that determine the size of the offer
1. Product price
2. Cost of resources
3. The nature of the technology
4. Taxes and subsidies
5. Number of sellers
Law of supply- the supply of goods increases when the price rises and decreases when it falls.
This law can be represented as a function of supply from the price: Q S =f(P), where Q S - the size of the offer P is the price.
The graphic representation of the supply function of the price on the coordinate plane is called supply curve.
The law of supply is not universal. An ascending supply curve is the most commonly encountered supply curve along with other possible variations.
Alfred Marshall
(1842 – 1924)
For example, it is possible that the supply curve has reverse slope. A classic example is the individual supply of labor in the labor market. Up to point A, substitution effect(the price of labor rises, there is an incentive to replace leisure with work). After point A, the income effect becomes tangible, since a certain level of material well-being has been achieved. The supply of labor, despite the growth of wages, is declining.
The location of the supply curve on the graph is largely dependent on the time factor.
AT current period, when all factors of production used are fixed, the supply curve is vertical, i.e., the quantity supplied does not change when the price rises.
AT short term the use of some factors when the price rises can be increased. The supply curve takes its course normal view lines with a positive slope.
AT long term even a small increase in price causes a significant increase in the quantity supplied, since resources will be used in increasing quantities to produce this good.
Price is the amount of money for which the seller is willing to sell and the buyer is willing to buy a unit of a good or service.
What determines the price, at what level is it set? Different schools of economics have given different answers to these questions. Representatives of the classical political economy of the XVIII century. and the beginning of the 19th century. assigned a special role to the offer, believing that prices are based on production costs. The marginalist school, which emerged in the second half of the 19th century, focuses on the demand that consumers make in the market, buying goods at prices equal to their marginal utility.
However, at the end of the XIX century. the founder of the neoclassical trend, the outstanding English economist A. Marshall (1842 - 1924), proved that both supply and demand simultaneously participate in the formation of the market price, just as both blades of scissors participate in cutting paper.
The bid price is the maximum price that buyers are willing to pay for a given quantity of a given good or service.
Offer price is the forecasted minimum price at which the seller is willing to sell a given quantity of a commodity.
Quantity, Q
Laws of market pricing:
1. The price tends to a level at which demand equals supply (equilibrium price).
2. If the supply does not change with an increase in demand, or the supply decreases with a constant demand, then the price will increase.
3. If, with the same supply, demand decreases, or with the same
supply increases, the price will go down.
Introduction
I. Market mechanism and its functions
Conclusion
Introduction.
The concept of the market in general terms is known to any person who makes any purchases. At the same time, the concept of the market is multifaceted. The changes taking place here interest and affect huge numbers of people, including those who, it would seem, have nothing to look for and lose in this complex system.
It is difficult to give a brief and unambiguous definition of the market system, primarily because it is not a frozen, once and for all given phenomenon, but the process of the evolution of people's economic relations regarding the production, exchange and distribution of labor products and resources entering individual and industrial consumption.
The market is a special, universal system of principles for the use limited resources in areas and industries that meet the interests of the growing welfare of society.
Non-intervention of the state in the economic mechanism, protection of competition and the right to receive legitimate income turned out to be the most acceptable for overcoming the contradiction between the limited resources and the boundlessness of people's needs for various goods.
The modern economy is a constant movement of mass goods, money and income moving towards each other. Goods are produced and delivered to the most remote places where people are able to oppose them either with other goods or cash income, receiving from the sale of their goods. These streams move towards each other for the purpose of mutual exchange. If their quantitative and qualitative parameters match and meet the needs of people, their exchange will take place. Some participants in the exchange process will receive the goods they need, while others will receive the monetary equivalent of these goods.
Solving problems with many economic variables, the market impartially and rigidly selects resources, goods and methods of production. For some market participants, the requirements of this selection turn out to be exorbitant, and they drop out of the “game” due to losses and bankruptcy. Economic success, profits of other participants testify to well-chosen production solutions, growth methods and activities. This kind of natural selection in the economy, whether approved or disapproved by individuals, maintains self-regulation in the flow of goods, income, and money.
I. The market mechanism and its functions.
Let's start our acquaintance with market relations with the simplest definition of the market, and then move on to more complex concepts.
A market is a collection of transactions for the purchase and sale of goods and services. Every day, everyone enters into such transactions when, for example, he buys groceries in a store or pays for travel in public transport. If we keep in mind the territorial boundaries of this phenomenon, then we distinguish: A) Local (within a village, city, region) B) National (internal) C) The global role and functions of the market can be correctly understood if we consider it within a broader system of commodity - market economy. It consists of two subsystems: a) commodity production and b) the market, which are reunited with the help of direct and feedback links. The initial link of the general system, the production of goods, has a direct impact on the market in several ways: a) useful products are constantly created in the production sector, which then enter the market exchange, b) the expected incomes of participants in market transactions are created in production itself, c) due to social division labor, on which commodity production is based, the necessity of the market exchange of products itself is created.
In turn, the market has the opposite effect on the process of creating goods. Reverse economic ties and constitute the special functions of the roar.
The first function is that the market integrates (connects) the spheres of production and consumption. Without a market, commodity production cannot serve consumption; the region will be left without goods that satisfy people's needs.
Another function: the market plays the role of the main controller of the final results of production. It is in market exchange that it is directly revealed to what extent the quality and quantity of created products correspond to the needs of consumers. In addition, the market conducts, so to speak, an exam in economics: is it profitable or unprofitable for sellers to sell goods, for buyers it is ruinous or profitable to purchase them?
Finally, an important function of the market is manifested in the fact that market exchange serves as a way to implement the economic interests of sellers and buyers. The relationship of these interests is based on the principle formulated by A. Smith: “Give me what I need, and you will get what you need ...”. This presupposes: a) the exchange of usefulness to each other and b) the equivalence of a market transaction.
The functions of the market described here are characteristic of it, most likely, in the initial period of its existence in the pre-industrial era. Then the market was in an undeveloped, merged, undivided state. This fully corresponded to the weak development of commodity production, which supplied relatively little for sale. a large number of products.
If a person has lived all his life in a Russian village or a small town, then it is difficult for him to understand how the market known to him since childhood changed at the end of the 20th century. Why are they now talking not just about the market, but about the system of markets?
The system of markets is a single set of many markets for various purposes. This set was formed under the influence of a number of factors.
Firstly, in the conditions of industrial and post-industrial production, the market space has expanded many times over in the following areas:
the final results of scientific research (scientific and experimental design developments) have turned into a commercial product.
Secondly, modern production creates a huge amount of useful goods that satisfy the needs of a comprehensively developed person.
Thirdly, intensified in the second half of the twentieth century. the social division of labor went beyond production and embraced the market sphere. In it, specialized markets have arisen that promote specific goods and services to their consumers.
Fourthly, the widespread development of joint-stock companies has led to the fact that shares and other securities are sold on the market valuable papers.
Finally, the accelerated growth of international economic relations required the creation of a developed market for foreign currencies.
Consequently, the market that developed in the second half of this century is inconceivable without a system of division of labor in the sphere of circulation. In the latter, large types of differentiation of economic activity are manifested: general (between large industries and spheres) and private (between sub-sectors and types of commercial enterprises) division of labor. In the system of markets, the following industries are quite clearly distinguished:
The broad and deep development of market relations has unusually increased their active economic role. The market provides production with a whole range of subjective, material, scientific, technical, intellectual and financial conditions for development. Now all major manufacturing industries are heavily dependent on specialized market influences. It is no coincidence that the national economy was called a market economy. This does not negate the significance of commodity production in general. We are talking only about the new state of the economic organism, when all its cells are affected by market relations.
In the second half of the twentieth century. the degree of development of each national system of market relations has received a new dimension. Now distinguish between closed and open national economy.
A closed macroeconomy is characterized by the fact that all goods and services are produced and consumed within the country. An open economy is a country in which part of the production is created for domestic consumption, and the remaining share is sold abroad. At the same time, the state purchases goods and services in other countries.
The transition from a closed to an open economy is associated with the development of forms and types of interaction between participants in both the national and world markets.
1.3 Forms of trade
Market relations differ in different signs of commercial transactions. These transactions can be classified as follows.
Wholesale: Products are purchased in bulk (in bulk) by resellers from manufacturers at trade fairs and commodity exchanges.
Retail: means buying and selling mainly consumer goods in small quantities. In this manner individuals buy the products they need in shops, stalls, food and clothing markets.
Market transactions also differ in the nature of the interaction of their participants, which determines the different types of markets.
Market types.
The market is in one important respect directly opposed to subsistence farming. In this economy, the consumer is often not given the opportunity to choose one or another good at will. The market, in principle, is able to provide its agents with the maximum degree economic freedoms.
These freedoms allow him to choose goods of interest from a variety of interchangeable and independent goods. The consumer can also find those sellers who better serve and sell the product under similar conditions. The seller is free to choose the most suitable buyer and dispose of the proceeds from the sale at his own discretion. Both the buyer and the seller can freely choose the terms of the trade transaction.
According to the degree of development of these or other economic freedoms, markets can be divided into three types: a) free; b) illegal; c) adjustable.
The free market has a maximum of economic freedoms in their classical sense, which was mentioned above.
Meanwhile, the definition of a “free” market requires clarification in two respects: for whom he is free and from whom? Such a market is free for its subjects. They own the so-called economic sovereignty (complete independence). So, the sellers themselves decide what to sell, to whom to sell the products and at what price. Buyers have similar sovereignty. Because of this, in the classical market, economic relations are only horizontal. Between counterparties (lat. Contrahens - contracting), partnerships are formed on the basis of a business agreement, a contract (an agreement that establishes rights and obligations for both parties for a certain period of time).
The market of the first type is free from government intervention and strict legal regulation.
For the sake of truth, it must be admitted that such freedom has an ugly side. Due to the willfulness of market participants and their non-compliance with the “rules of the game”, this type of market received unflattering names - “wild”, “flea”, “uncivilized”.
The second type of the market is illegal - it is close in the nature of the behavior of its subjects to the first type. But they differ significantly from each other. The illegal market includes its variety - shadow trade. It is carried out in violation of the laws and rules for the sale and purchase of ordinary goods (in the absence of the necessary patents, licenses, in case of non-payment of market fees, taxes, etc.) The black market is also illegal. On it, goods are illegally traded that are prohibited by law from being sold (for example, drugs, weapons).
The first and second types of market relations are characterized by a defining feature - spontaneity, unpredictability of development and uncontrollability. These qualities are not accidental. They express the main features of classical capitalism in the market sphere: sole proprietors of small enterprises operate freely in the market; entrepreneurs usually create products at their own risk, without prior agreement with buyers; the producers themselves, as a rule, take care of the retail sale of products to the public.
This situation was typical for the market exchange of the XV-XIX centuries. But in the twentieth century originated and developed new type market relations.
The market of the third type is regulated, subject to a certain order, which is enshrined in legal norms and supported by the state. This order is due to objective reasons.
First of all, the sharply increased level of concentration and centralization of production and the expansion of the scale of the actual socialization of the economy played an important role. Large enterprises they can no longer, as before, blindly work for a market unknown to them, subject to spontaneous changes. In order not to risk huge capitals, they strive in advance to secure markets and sales, and willingly go to fulfill profitable state orders. It is noteworthy that according to the preliminary orders of firms and the state, for example, cars are sold up to 60%, machine tools 100%.
By the second half of the twentieth century. century, market relations have become much more complicated. Now a large army of intermediaries has lined up on the way from the producer of goods to the consumer. They are engaged in various types of trade services (services) to the population, which for many products covers a long period after the purchase of goods (adjustment and repair of household appliances, cars, etc.). For example, in the United States, there are over 380,000 wholesalers and 1,500,000 retailers that purchase goods to resell or rent to other consumers for profit. All this led to the strengthening of the social nature of market relations and turned the regulated market into a social institution.
It is noteworthy that the Nobel Prize winner Maurice Allais (France) introduced the concept of “market economics”, emphasizing that certain rules are strictly observed in it. M. Alle concluded: “It is a myth that the economy of markets can be the result of a game of economic forces and political connivance ... The reality is that the economy of markets is inseparable from the institutional framework in which it operates” .
The market as a social institution.
A social institution is a specific organization social activities which regulates the rules of human behavior and relationships.
In the second half of the twentieth century, a normal market is based on a set of certain institutions. What is included in such a collection?
First, the legal system that organizes the legal regulation of the market. For its subjects, uniform rules of conduct are established. Legal authorities protect market participants and punish those responsible for violating legal norms. Legal regulation market covers the entire system of market relations. It is based on the Civil Code, which plays the role economic constitution. In it, special attention is paid to the characterization of the role of a civil law contract as a means of regulating market relations.
Secondly, this includes organs state control and regulation: institutions for sanitary control, environmental and epidemiological control; tax system; bodies of financial and credit policy of the state. This means that the modern market organically includes qualitatively new vertical connections. They go from top to bottom - from the state to economic entities and, within certain limits, regulate their behavior.
Thirdly, market institutions include associations, unions of consumers, entrepreneurs and workers (trade unions). They increase the degree of organization, civility and efficiency of the behavior of market agents.
Fourth, the totality of institutions includes market infrastructure. It includes trade enterprises, commodity and stock exchanges, banks, state budgetary institutions.
Thus, the market appeared to us as a single set of market relations. This integrity gives the market a new quality - the ability to self-regulate on the basis of economic laws that determine price dynamics.
Market price and the laws of its dynamics.
Let's consider the following questions. What is the market price? What role does it play in regulating transactions between sellers and buyers?
The market price is the actual price, which is set in accordance with the supply and demand for goods. Depending on the different conditions of purchase and sale of goods and services, there are different types of prices. They can be classified into certain main groups.
1. Taking into account the methods of regulation, such types of prices are distinguished. Free prices. They depend on the state of the market and are set without government intervention, on the basis of a free agreement between the seller and the buyer. Negotiated prices. Market participants establish them by mutual agreement until the moment of purchase and sale of goods. The contract may not indicate the absolute values of prices, but only the upper and lower levels of their changes. Regulated prices. For certain groups of goods, the state has an upper price limit, which is forbidden to exceed. In a market economy, such pricing applies to vital goods and services (strategic raw materials, energy, public transport, consumer essentials) . State firmly fixed prices. State bodies fix such prices in planning and other documents. Neither manufacturers nor sellers have the right to change them.
2. Depending on the forms and spheres of trade, the following types of prices are distinguished. wholesale for which large masses of goods are sold in wholesale trade. In our country, at such prices, enterprises - manufacturers sell their products to other intermediaries or resellers. Retail at which retail products are sold to consumers. Tariffs for services - prices (rates) that establish the level of payment for utilities and household services for the use of telephone, radio, etc.
3. Exchange and auction prices are formed in various specific markets, forms of markets related to the type of free market. We will talk in detail about their nature and methods of formation in the future.
By the way, in countries with an open market economy, knowledge of world prices is very important for the correct orientation in the economic activity of producers of goods, resellers and buyers. Changes in world market prices have a strong impact on domestic prices in a given country. To an even greater extent, the price level determines whether foreign trade is profitable or unprofitable.
Prices to some extent have a common property - they change under the influence of conjuncture (a combination of different circumstances) of the market. In turn, prices naturally affect economic situation sellers and buyers, their interest in buying and selling goods. Let's analyze this interaction.
The law of demand.
Demand is a solvent need, that is, the amount of money that buyers can and intend to pay for some products they need. Demand is influenced by a number of market factors, such as buyers' incomes, tastes and preferences. The law of demand expresses the following functional (mathematical) dependence of demand (C) on price (C): C=F (C), where - F is an indicator of quantitative dependence. The higher the price of a product, the lower the demand for it from buyers. For example, in our country, the increase in prices for subscription publications in 1991-1998. led to a reduction in subscription volume. There is also an inverse relationship: the lower the price, the greater the demand.
The degree of quantitative change in demand in response to price dynamics characterizes the elasticity (or inelasticity) of demand. The elasticity of demand refers to the degree of change in demand (the "sensitivity" of its volume) depending on the price.
Elastic demand occurs when the quantity demanded changes by higher percentage than the price. The value of price elasticity of demand is always a negative number, because the numerator and denominator of a fraction always have different signs. In the United States, such estimates of price elasticity (for long term, with a minus sign) : stationery - 0.6, gasoline - 1.5, housing - 1.9, cinema - 3.9.
Inelastic demand manifests itself if the solvency of the need of buyers is not sensitive to price changes. Let's say, no matter how the price of salt rises or falls, the demand for it remains unchanged. Knowing the elasticity of demand is important for predicting the volume of demand of the population when the level of market prices changes. Now let's analyze the dependence of supply on price.
The law of supply.
Supply is the amount of goods that sellers are willing to sell at different market price dynamics. Suppose that some local market sells apples. As the price increases, the number of apples offered for sale will increase.
The degree of change in sales in response to an increase in price characterizes the elasticity of supply. The elasticity of supply refers to the degree to which it changes depending on the price dynamics. Supply (price) can be elastic or inelastic. This distinction is especially important for product manufacturers who anticipate the degree of elasticity of new products in advance.
Supply becomes elastic when its value changes by a greater percentage than the price. As the experience of Western countries shows, the supply elasticity coefficient - subject to price equilibrium and over a long period - tends to increase (that is, an increase in prices by a certain amount causes an increase in production to a slightly greater extent).
Supply is inelastic if it does not change when prices rise or fall. This is typical for many goods in the short run. For example, elasticity is low for perishable products that cannot be stored in large quantities (strawberries). In addition, the supply is more inert (compared to demand). After all, it is rather difficult to switch production to the production of new products, to redistribute resources in connection with this to change the quantity of goods produced. Therefore, knowledge of the dynamics of the supply elasticity coefficient is useful for predicting the volume of production depending on price changes.
Thus, we became aware of the direct dependence of supply and demand on the market price. This dependence is manifested in the regulating effect of price on the ratio of supply and demand, and therefore, on the economic situation of sellers and buyers. We have found two variants of such regulation, in which one side of the market transaction wins and the other loses.
The first option: the market price increases, and this leads, on the one hand, to a decrease in demand and, on the other hand, to an increase in supply. As a result, producers and sellers have an economic gain (they increase the production and sale of goods, receiving more income).
The second option: the price of goods decreases, which contributes, on the one hand, to the expansion of demand and, on the other hand, to a reduction in supply. As a result, buyers benefit economically (for the same amount of money they acquire more goods).
The question is: is there a third option, according to which economic interests Are sellers and buyers the same?
Equilibrium price. Let's return to the previously considered dependence on the demand price. All of the above indicates that the equilibrium price and the equilibrium quantity have the following unusual properties.
1. There are no more and no less goods on the market than are needed for human consumption. All the costs of producing goods are paid off by selling them at the equilibrium price. Therefore, the achieved balance indicates the greatest economic efficiency the current market situation. The Nobel laureate French economist M. Allais derived theorems with such fundamental provisions: “... every equilibrium situation of a market economy is a situation of maximum efficiency, and, conversely, any situation of maximum efficiency is an equilibrium situation of a market economy” .
2. The greatest social effect is also expressed at the point of balance. For the equilibrium price, the consumer acquires the marginal (for his income) amount of utilities. 3. Neither an excess of goods (an amount that is excessive for sale at a given volume of income of the population) nor a shortage (shortage) of goods is found on the market. In conclusion, the question arises: is there an internal force in the market itself that is capable of overcoming the non-equilibrium state of the market (excess of demand over supply, or vice versa) and generate a tendency to sell goods at an equilibrium price? We will find the answer to this question in the next chapter.
II. Competition and monopoly in the market mechanism.
2.1 Interaction of competition and the market mechanism.
History has long known two opposite types of relationships between market entities - competition and monopoly.
Competition - rivalry between participants in the market economy for the best conditions for the production, purchase and sale of goods. Such an inevitable clash is generated by objective conditions: the complete economic isolation of each market entity, its complete dependence on the economic situation and confrontation with other contenders for the greatest income. The struggle of private commodity owners for economic survival and prosperity is the law of the market.
To better understand competition, it must be compared to a monopoly. The fact is that both one and the other type of relationship between market participants is asymmetric. The opposite of their properties is rooted in completely different parameters (indicators) of the state of the market. Competition is the normal state of the market. Is it really possible to call such a situation natural when the entire market space is captured by one seller who does not allow anyone to trade and who himself dictates the prices of the goods sold?
Competition can be classified on several grounds: a) by the scale of development; b) by its nature and c) by the methods of competition.
According to the scale of development, competition can be:
According to the nature of development, competition is divided into: 1) free and 2) regulated.
According to the methods of introduction, market rivalry is divided into: 1) price competition (market positions of rivals are undermined by lowering prices) and 2) non-price competition (victory is won by improving product quality, better customer service, etc.).
Now let's take a closer look at the nature of the development of market confrontation.
Free competition means, firstly, that there are many independent commodity owners on the market who independently decide what to create and in what quantities. Secondly, no one and nothing restricts access to the market and the same exit from it for everyone. This implies the opportunity for every citizen to become a free entrepreneur and apply his labor and material resources in the sector of the economy that interests him. Buyers, on the other hand, must be free from any discrimination (diminution of rights) and have the opportunity to buy goods and services in any market. Thirdly, enterprises do not participate in any way in controlling market prices.
Free competition naturally corresponds to the period of classical capitalism. To a fuller extent, it manifested itself, perhaps, only in England and only in the twentieth century. Free competition in modern conditions is a rare occurrence. Thus, in highly developed countries, such a phenomenon can be found, for example, in the securities market and in the field of market competition among farmers. In the twentieth century new forms of market rivalry have been developed - state-regulated competition and confrontation between monopolies.
At the initial acquaintance with competition, it can be assumed that free rivalry introduces complete disorganization and disorder into market relations. To a large extent, this corresponds to the spontaneous development of the market. Meanwhile, in all existing types competition, to a greater or lesser extent, the written and unwritten rules of market rivalry are observed.
Rules of competitive behavior.
Market rivalry differs significantly in its results depending on the number of its participants. Thus, individual competition is able to change the prices of only individual sellers.
A. Individual competition.
As you know, a feature of free competition is that sellers and buyers are small proprietors. None of them, of course, can single-handedly seize the market space and set their own price for everyone. This decisive circumstance predetermines the rules of the competitive "game" leading to victory or defeat.
First rule. Commodity owners must take into account the level of equilibrium price (reflecting the equality of demand and supply) as a standard for rational, reasonably justified management. If, for example, the seller has set a very high price for his products, exceeding the equilibrium level, then he will inevitably face an overstocking of products that have not found a market.
Then after some time you will have to reduce the price or even sell goods at prices acceptable to buyers. And this comes with unforeseen losses.
Second rule. In order to, as they say, “outwit” the equilibrium price, the commodity producer tries to spend fewer resources per unit of output and create goods at a lower price. However, he sells these products at a common equilibrium price for all. As a result, it forms additional income as the difference between the equilibrium price and the individual price.
Courageous and far-sighted entrepreneurs, risking their property, make discoveries of great economic importance: they invent and implement new equipment and technologies, find more efficient forms of organizing labor and production, and ways to use resources economically. Thus, the road to scientific, technical and economic progress is being paved for everyone. The Nobel Prize winner F. Hayek (Great Britain) made an important generalization: societies that rely on competition achieve their goals more successfully than others. Here is a conclusion remarkably confirmed by the whole history of civilization. Competition shows how to produce things more efficiently.
Third rule. When the struggle intensifies, rivals resort to the method of price competition. If funds allow, dumping is sometimes used - selling products at extremely low prices (as they are called "bargain") prices. Having achieved the ruin of an opponent, the winner, as a rule, restores the previous price and buys up the property of the loser.
B. National competition.
First of all, it is important to understand who is involved in the national competition, which may develop within individual industries or throughout the entire market system.
It is widely believed that only individual sellers of goods participate in market competition. But in fact, the “war of all against all” is often played out in the market arena.
This general battle is waged on three fronts. One front we find among the sellers. All of them strive to profit from the sale of goods and at the same time do not miss the opportunity to “recapture” buyers from their rivals. Another front is unfolding among buyers who are interested in purchasing products at a profit and at the same time are ready to “press” other contenders for the goods they need.
Finally, the main front of the “battle” takes place between the army of sellers and the army of buyers, standing on opposite positions in relation to the price level. The first of them seeks to sell their products more expensive, and the second - to buy things at a lower price.
Now it’s worth thinking about the question: which army wins the battle? … Centuries-old experience of market confrontation teaches the following. The army that is more united and able to impose its price on the enemy wins. In addition, the following circumstance is important. For the effective impact of competing forces on the market price, a sufficiently large one is required - the so-called critical mass of sellers and buyers. In countries with a large population, this mass numbers several million people. In this case, national competition acts as a powerful force that directs the activities of all market agents along channels that they are probably not aware of. Competition as a market regulator naturally affects three phenomena. First, it affects the prices offered by sellers and buyers. Secondly, competition eliminates the unstable and unequal balance of supply and demand on the scale of the national market. Thirdly, it brings the total market price to an equilibrium point.
There are three main market price levels. They characterize the spontaneous fluctuations of demand, supply and prices inherent in the free market.
First level: normal price. This is the equilibrium price, which is established when supply and demand are balanced at point P.
The question is: is there a competitive battle between all sellers and buyers in this case? It is quite obvious that there is no such battle. For the prices offered by all market participants are the same.
Second level: above the equilibrium price. In this case, the supply of goods exceeds the demand for them. As a result, a zone of excess goods is formed in the market space.
Undoubtedly, at the moment, competition is intensifying in the ranks of sellers, which splits their unity. Who can win this internecine battle? Obviously, the seller who sells products at prices closer to the equilibrium price “wins”. Cheaper products will expand the sale of his products. Then a kind of “chain reaction” occurs: the sale of goods at lower prices by an ever-increasing number of sellers expands.
Therefore, increased competition among sellers contributes to lowering excessively high prices, increases sales of products, which brings the market price to an equilibrium level.
Third level: below the equilibrium price. This means that demand exceeds supply. The result is a shortage of goods.
Then, undoubtedly, competition among buyers intensifies. The top among them is won by the one who will buy goods at a higher price. And in this case, a “chain reaction” occurs, but of a different nature. The purchase of products by an ever-increasing number of buyers at a higher price is increasing. This means that the aggravation of competition among buyers entails an increase in very low prices, eliminates the shortage of goods, which, on the other hand, brings the market price to the level of the equilibrium price. It is now possible to draw general conclusions about economic role competition.
The law of competition has a stronger effect on the behavior of market entities compared to the laws of supply and demand. Free competition, as it were, forces excessively high and very low prices to move towards a point of equilibrium. This centripetal movement ultimately leads to the equality of the opposing sides. The direct involvement of market competitiveness in the formation of an equilibrium price and an equilibrium quantity of goods is connected with the rules of a competitive "game".
Competition plays a threefold role. First, thanks to rivalry, normal conditions of production and circulation are established. Secondly, market competitiveness paves the way for everything new and advanced. Thirdly, all inefficient and backward economies are destroyed and removed from the market arena. As a result of all this, stratification occurs in society. Those who succeed, relying on technical, organizational and economic achievements, stand out. There are also those who have sunk below the socially normal level, who have gone bankrupt and collapsed.
It seems that some participants in the fierce economic battles dream of a market without competition. However, doubts immediately arise. Is such a market possible and how can it be created? Who benefits and who does not benefit? Well, we will try to resolve these doubts in the next chapter.
2.2 Interaction of monopoly and the market mechanism.
A monopoly is a large owner who seizes the vast majority of the market space in order to enrich himself. The economic literature provides the following classification of types of monopolies.
1. Taking into account the degree of coverage of the economy, such types of monopolistic organizations are distinguished. On the scale of a certain industry - a pure monopoly. In this case, there is only one seller, the market is closed to possible competitors, the seller has full control over the quantity of goods intended for sale and their price. An absolute monopoly is formed on the scale of the national economy. It is in the hands of the state or its economic bodies (for example, the state monopoly of foreign trade, etc.). Monopsony (pure and absolute) - one buyer of resources, goods.
2. Depending on the nature and causes of occurrence, the following types of monopolies are distinguished. natural monopoly. It is possessed by owners and economic organizations that have at their disposal rare and freely non-producible elements of production (for example, rare metals, special land for vineyards). It also includes entire sectors of infrastructure that are of particular importance and strategic importance for the whole society ( railway transport, military-industrial complex, etc.). The existence of natural monopolies is justified by the fact that they give a huge economic gain from large scale production. Here, goods are created at a lower cost compared to the expenditure of resources that would be in many similar firms.
Legal monopolies are formed legally. These include the following forms of monopoly organizations:
artificial monopolies. This conditional name (which separates these organizations from natural monopolies) refers to associations of enterprises created for the sake of obtaining monopolistic benefits. These monopolies deliberately change the structure of the market: they create barriers to entry into industry market new firms; restrict outsiders (enterprises that are not included in monopolistic associations) access to sources of raw materials and energy; create a very high level of technology; use larger capital; “Clog” new firms with well-placed advertising.
Artificial monopolies form a number of specific forms - cartel, syndicate, trust and concern.
Cartel- an alliance of several enterprises of the same industry, in which its participants retain their ownership of the means and products of production, and the created products themselves are sold on the market, agreeing on a quota - the share of each in the total output, on sales prices, distribution of markets, etc. Syndicate - association of a number of enterprises manufacturing homogeneous products; here, the ownership of the material conditions of management is retained by the participants in the association, and the finished product is sold as their common property through the office created for this purpose. Trust- a monopoly in which a given group of entrepreneurs jointly owns the means of production and finished products. Concern- an alliance of formally independent enterprises (usually different industries, trade, transport and banks), within which the parent company organizes financial (monetary) control over all participants. Consortium- a temporary agreement between several banks or enterprises for the joint conduct of financial transactions of a large scale.
The essence and characteristics of all types of monopolistic associations are clearly manifested in the goals and nature of their behavior.
Rules of conduct for monopoly firms.
Monopoly associations themselves and at their own discretion set the market price for the products they sell. Under conditions of free competition, when determining the equilibrium price, the interaction of supply and demand is taken into account. However, monopoly associations do not at all take into account the objectively necessary volume of production of goods. These organizations influence the volume of demand in their interests by setting a favorable price.
Professors Stanley Fischer, Rudger Dornbusch and Richard Schmalenzi (USA) reveal the mechanism of monopolistic pricing in this way: “monopolists do not take the price as given. They can be characterized as price producers, for they take the market demand curve as given and choose both the price and the quantity of output themselves. Since there is no relationship between the price of a monopolist and the level of output, there is no supply curve for a monopolist.
When there is a monopsony in the market that buys products from producers, the monopoly price is guided by the supply curve. But under the dominance of both monopoly and monopsony, there is only one curve, and therefore no equilibrium price is formed. The rules of conduct for firms - monopolists depend on how they conduct their "price production".
First rule. Firms set monopolistically high prices for their products, exceeding the social cost or the possible equilibrium price. This is achieved by the fact that monopolists deliberately create a deficit zone, reducing production volumes and artificially creating increased consumer demand.
At each resumption of the procedure for raising prices, the monopoly, of course, takes into account the losses that it incurs from a decrease in the volume of production and sale of goods. To make up for this loss of income, it sets new prices at a higher level. At the same time, the monopoly ensures that the proceeds from the sale of a smaller number of products cover the lost profit and give an increased amount of income.
Second rule. Monopsony sets monopolistically low prices for goods purchased from outsiders. Lowering the price in comparison with the social value or the possible equilibrium price is achieved by artificially creating a zone of excess production. In this case, the monopsony deliberately reduces the purchase of goods, due to which their supply exceeds the monopolistic demand. This is usually done by monopsony, which are engaged in the processing of agricultural products bought from a mass of small firms. This price gives the monopsony the desired benefit. Its gain increases with each new reduction in purchase prices, which is the result of the deliberate creation of a zone of surplus of sold products.
Third rule. The firm, which is both a monopoly and a monopsony, doubles the "tribute" it collects by means of so-called "price scissors." We are talking about monopoly high and monopoly low prices, the levels of which move away from each other like diverging scissor blades. Such a price movement is based on the expansion of zones of excess and shortage of goods. It is typical for many manufacturing enterprises, which, especially in conditions of inflation, raise prices for their finished products several times more. What increases prices in the extractive industries.
In our country, "price scissors" were used especially widely during the period of the national economy. The state, acting as a monopoly and monopsony, set relatively high prices for industrial products and very low purchase prices for agricultural raw materials, which caused great damage to the rural economy. Until now, this kind of “price scissors” has not been eliminated.
It is quite obvious that, with the help of arbitrarily set prices, the monopolies collect a kind of "tribute" from other entrepreneurs and the population.
In order to maintain such an advantageous position in the market, monopolistic associations deal with competitors by economic and other methods. Let's describe some of these methods.
Economic boycott - partial or complete rejection of economic ties with outsiders. Monopolies offer buyers dependent on them not to purchase goods from other firms, as they are supposedly of poorer quality. 2. Dumping - the deliberate sale of goods at bargain prices in order to ruin a competitor. 3. Limiting the sale of goods to independent firms. 4. Price Maneuvering: The monopoly raises the prices of products sold to small proprietors and at the same time applies secret discounts and concessions in this regard to large buyers. 5. Use of financial means to fight competitors (for example, speculation in securities on the stock exchange). 6. Destruction of competitors with the help of legal and illegal means with the aim of their "absorption" and "attachment" to the monopoly. The latter use a wide arsenal of cruel tricks: counterfeit competitors' products, violate patents, copy trademarks and brand names. Many firms use "industrial espionage" against their market opponents. Some monopolies do not disdain criminal methods, up to arson of premises, acts of terror and contract killings.
III. New in the development of the market mechanism at the turn of the 20th - 21st century. in.
3.1 Trends in the modern market.
In the 20th century, especially in the second half, the state of the market changed radically. However, these changes were not adequately reflected in the doctrine of the market for a long time. Proponents of the neoclassical direction of economic theory defended an outdated dogma (an unproven position taken as an indisputable truth) about perfect competition. According to their views, the perfectly competitive market consists of many small firms. Due to their small size, enterprises cannot influence the market price. They make the same products. Buyers have “perfect knowledge” about product quality, prices, and trade benefits. Perfect competition is pure - it does not depend on the intervention of the state and monopolies.
In the early 1930s, a kind of revolution took place in economic theory, according to some scientists, which put an end to the dogma of perfect competition. Joan Robinson, a professor at the University of Cambridge (Great Britain), strongly criticized the new conservative concept of competition. In work" Economic theory imperfect competition” (1933), she stated: “It is customary to begin the study of various laws of economic theory by considering the conditions of perfect competition, then treating monopoly as a corresponding special case ... it is more correct to start the study by considering monopoly, interpreting the conditions of perfect competition as a special case.”
A significant contribution to the understanding of imperfect competition was made by the American economist Edward Chamberlin. In The Theory of Monopolistic Competition (1933), he explained that real prices in the market do not gravitate towards either pure competition or pure monopoly, but tend to an intermediate position determined in each separate case according to the relative strength of both factors.
What is this new world? It can be understood if we identify new trends that are characteristic of the development of the market mechanism in the second half of the 20th century.
The first trend of the market is to increase the monopolization of the market. The scientific and technological revolution has caused a transition to a much more high level consolidation of the economy (to the unification of enterprises into various complexes). The centralization of production led to the formation of powerful monopolies covering the national economic space.
The second trend of the market is the aggravation of competition. The scientific and technological revolution unusually accelerated the improvement of the technical base of production. In this regard, rivalry has sharply accelerated, especially in the field of introducing the latest achievements in engineering and technology.
3.2 The problem of transition to a developed market.
To move to a modern market economy, one has to overcome great difficulties. They are connected primarily with the fact that between the start - an absolute monopoly - and the finish - a developed market, as they say, a huge distance.
After World War II, state monopolism was overcome in Spain, Japan, Chile and other countries. The experience gained here is instructive. It shows that in order to move to a developed market, it is necessary to solve a number of difficult problems, taking into account, of course, the national characteristics of each country.
One of these problems is the formation of a multimillion-strong team of entrepreneurs who know how to manage effectively. The experience of all countries with developed market economies has revealed this pattern. The more entrepreneurs involved in the production of useful goods, the more the market will be saturated with goods, the faster consumption will grow. However, with an increase in the number of entrepreneurs, competition between them increases, as a result of which prices fall and the profits of firms decrease. As a result, the interest of entrepreneurs to improve the quality and reduce the cost of production of goods and services increases.
Another problem is the creation of a market infrastructure capable of establishing normal economic ties between market entities. For this, in particular, a network of exchanges and insurance companies is being organized, which to a certain extent protect entrepreneurs from risk. Instead of state system material - technical supply there are commodity exchanges. Stock exchanges are being created - free markets for securities (stocks and bonds). Finally, government bodies establish labor exchanges that help unemployed people get a job.
To establish normal national economic relations between all economic entities, it is necessary to solve a complex problem - to establish a market balance between effective demand and supply of goods on a national scale. This problem is solved by the necessary development of domestic commodity production and streamlining pricing. When a developed market is created, prices freed from strict state control will tend to an equilibrium level that is equally beneficial to both sellers and buyers. At the same time, the state is entrusted with the task of regulating inflationary processes.
For the period 1992 - 1998. our country has moved very little towards a developed market. Negative tendencies were also revealed - the result is also instructive. Now, more clearly than at the beginning, the tasks that need to be solved in theory and in practice have been identified.
One of the primary tasks is the demonopolization of the market and the development of civilized forms of competition.
The movement from a fully monopolized market began and still continues without any significant change in state Russian market. The legislatively proclaimed measures to limit monopolistic activity and promote competition are poorly implemented. Therefore, for example, price liberalization was carried out by the monopolies and in their interests. At the same time, the state provides little support for small and medium business, without which it cannot be competitive market. It is important to solve another problem - to fully develop the entire system of markets. Market transformations in our country began with the complete destruction of the system of state material and technical supply. However, instead of it, a similar market for production equipment, as well as a wholesale trade market, was not created. There can be no normal economy without a real estate market (land, housing) and without a securities market. We still have to fully recreate all the links of the developed market system.
When reforming Russian economy it is required to fulfill the following target setting - to choose the right type and structure of market relations.
Even before the market reform, the idea of creating a free market prevailed among its initiators. They were not embarrassed by the warnings of opponents of such an orientation. Thus, Professor J. Galbraith (USA) in an interview with the Izvestia newspaper on January 31, 1990 frankly and sharply stated: clinical mental disorder. This is a phenomenon that we do not have in the West, which we would not tolerate and which could not survive.”
Paradoxically, our country nevertheless made the transition to a free market already in January 1992. True, we are talking about the emergence from the very beginning of many primitive food and clothing markets, where individual resale of domestic and foreign goods is carried out. Every citizen was given the right to trade anything and anywhere. At the same time, proper sanitary-epidemiological, environmental and other control was not always observed.
Life has proved that it is necessary to create a market as a social institution. The very movement towards a civilized market must begin with the development of a multitude of legal norms and laws regulating the market economy.
Conclusion.
So, the market system is the interaction and combination of various economic structures, economic practices and legal support, economic policy and much more. The absence of any element will immediately cause failures, lead to inefficient development economic system. That is why the role and importance of the state as a guarantor of the civilized development of the market is being strengthened. By issuing various legislative acts and pursuing an appropriate economic policy, it creates the “rules of the game” that market participants follow.
The state should not manage the economic activities of enterprises by giving instructions such as what and how much to produce. Its purpose is to create conditions, the fulfillment of which would ensure the complete economic independence of enterprises both in the field of production and sales, the freedom to conclude contracts with economic entities, and enter the foreign market.
List of used literature.
The market mechanism is a mechanism for the interconnection and interaction of the main elements of the market: supply, demand and price.
The peculiarity of the market mechanism is that each of its elements is closely related to the price, which serves as the main instrument that affects supply and demand. In particular, demand is inversely related to price: with an increase in the price of a good, demand for it, as a rule, decreases and vice versa.
At the same time, the demand of the population depends solely on retail prices for goods, and a change in wholesale or purchase prices does not have a direct impact on the demand of the population until retail prices are changed. Fluctuations in wholesale prices affect the production demand of enterprises for means of production.
In addition to being connected through price, supply and demand also influence each other directly, i.e. demand to supply, and supply to demand. For example, the supply of new high-quality goods on the market always stimulates demand for them, and the growth in demand for individual goods ultimately necessitates an increase in the supply of these goods.
In a market economy, producers and consumers in their economic activity are guided by market parameters, the most important of which are supply, demand, equilibrium price. This is the core of market relations, the core of the market.
The economic situation of producers and consumers, sellers and buyers depends on market conditions, which change under the influence of numerous factors. In this case, a certain relationship between supply and demand plays an extremely important role. It often predetermines the fate of sellers and buyers.
Market conditions are a set of economic conditions that are developing on the market at any given moment in time, under which the process of selling goods and services is carried out.
Market conditions are determined economic indicators characterizing the state of the market: the ratio of supply and demand, the price level, market capacity, the solvency of consumers, the state of commodity stocks, etc.
The market situation should be distinguished from the national economic situation, which is a set of economic conditions and features that determine the process of social reproduction as a whole and characterize the general state of the economy (and not just the market) at the moment.
The approach to the market mechanism involves understanding the economic laws that underlie its operation and use. Such laws are: the law of cost (value) and utility, falling demand, changes in supply, supply and demand, competition, profit, etc.
Profit fluctuations are the barometer of the market, giving a signal to production. The commodity producer in his economic activity is guided by the interests of increasing profits. Profit depends on prices, output growth and speed
capital turnover. The nature of the focus of enterprises on profit changes in a balanced market and a scarce economy, when collective selfishness appears and the role of profit in the activities of an enterprise is exaggerated.
The operation of the market mechanism is based on the laws of cost, value, utility, which are realized through various types of prices: equivalent exchange prices (determined not only by utility, but also by the costs that society must pay for the production of a particular product or service), equilibrium, monopoly , discriminatory, zonal and other prices.
Demand and factors determining its changes
Demand is a reflection of the needs of people in a particular product, service, their desire to purchase them. Consumers are not interested in a product at all, but in a product at an affordable price. Proceeding from this, one should speak not about absolute, but about effective demand. Effective demand characterizes not only the desire, but also the ability to buy goods.
Demand is the quantity of a product that will be purchased at a reasonable price and in a given period of time.
The mechanism of the market allows you to satisfy only those needs that are expressed through demand. In addition to them, there are always such needs in society that cannot be measured in money and turned into demand. First of all, these include goods and services of collective use, especially those in the consumption of which all citizens without exception participate (protection of public order, national defense, public administration, a unified energy system, a national communications network, etc.). These goods in world economic science are called public goods.
In a society with a developed market economy, the predominant part of the needs is satisfied through the realization of demand.
The magnitude of demand, its structure and dynamics are influenced by numerous factors of an economic, social and technological nature. Demand for a product, for example, may increase due to advertising, changes in fashion or consumer tastes. Despite this, it is necessary to know that the buyer is primarily interested in how much the product he wants to buy costs, commensurating his desires with his income. This means that the demand for a certain good depends mainly on the prices of goods and on the income allocated by the buyer for consumption.
The amount of things people buy always depends on the price of the goods. The higher the price of a product, the less people buy it.
Conversely, the lower its price, the more units of this product will be bought, all other things being equal.
There is always a certain correlation between the market price of a commodity and the quantity demanded. The high price of a product limits the demand for it, a decrease in the price of this product, as a rule, causes an increase in demand. This relationship between price and quantity purchased can be plotted on a graph.
If we put the prices for a unit of goods P on the y-axis, and the quantity of goods for which demand is presented Q, on the abscissa, then we get such a graph (Fig. 13.1.1).
The image of the relationship between the market price of a product and the monetary expression of demand for it is called the demand schedule, or the demand curve DD (D - from the English "demand" - demand). On the graph, the DD curve descends gently. This curve illustrates the law of falling demand. The essence of this law is that if the price of a commodity rises while other market conditions remain unchanged, then the demand for this commodity decreases. Or, what is the same, if a larger quantity of the same product enters the market, then, other things being equal, the price of it decreases. In other words, the quantity demanded increases when the price falls and decreases when the price rises.
Demand does not remain unchanged. It is necessary to distinguish between changes in the magnitude of demand, or the volume of demand, and changes in demand (the nature of demand). The quantity demanded changes when only the price of the good changes. The nature of demand changes when factors that were previously taken constant change. Graphically, changes in the volume of demand are expressed in movement along the demand curve. The change in demand is expressed in the movement of the demand curve itself, in its shift. This can be represented as follows (Fig. 13.1.2).
When the price changes from P1 to P2, when all factors except price are constant, the movement is carried out down the demand curve, the quantity of goods purchased increases from Q1 to Q2. The change in demand (shift of the D1D1 demand curve to the right to D2D2) shows that buyers are purchasing more products at a given price. So, at the same price P1, the buyer will already purchase the quantity of goods equal to Q2 > Q1
A shift in the demand curve can be due to many factors. These include changes in income, prices of goods that are substitutes for or complementary to this product in consumption, tastes and preferences of consumers, expectations regarding future prices for this product or the degree of its scarcity, seasonal fluctuations, changes in the size and composition of the population.
The basis of the economy of the country and the economy of the enterprise is a practical (experimental) object, facts related to a specific problem or a certain aspect of the economy. By comparing facts with hypotheses, theoretical premises are confirmed or rejected. Nevertheless, the objects of knowledge of these economies differ.
The objects of knowledge of the country's economy are general economic processes, the relationship between such aggregated sectors as "household", "enterprise", "state" and "foreign market". This science analyzes these processes according to the scheme: causes - effects - relationships and formulates fundamental hypotheses, which are then confirmed on the basis of the study of specific facts.
Along with the explanation of these processes, this science (the country's economy) tries to study them more deeply, taking into account certain specified goals and make a choice from several possible solutions according to the scheme: goal - means - interconnections.
Many of these economic relations are valid both for the economy of the country and for the economy of the enterprise.
However, the object of study of the latter are all those processes that occur in individual economic entities and come from them. In this case, general economic processes are considered from the standpoint of their impact on individual economic entities. They are considered as given (market conditions) that cause a certain reaction of each of the economic entities. Currently, enterprise economics also studies economic entities not only in the traditional sense, but also public, non-profit (non-profit) enterprises, such as higher educational establishments, consumer societies, etc.
The economics of an enterprise (microeconomics) tries theoretically (within the framework of scientific programs) to formulate scientific hypotheses on these processes, checks them on the basis of empirical data and indicates, based on the study of the causes, what results should be expected (according to the scheme: causes - effects). At the same time this academic discipline has an applied character, develops decision-making models based on certain development goals and available means (goals - means), which are used as tools for solving practical problems (concrete enterprise economics).
The country's economy can be represented as the sum of the efforts of individual economic entities. However, what applies to individual economic entities is not necessarily applicable to the country's economy as a whole.
Theoretical and applied economics find out and investigate the laws economic development, analyze the mechanism of functioning of economic systems and pay special attention to the study of management methods in the national economy and in individual economic entities.
1.2 Market economy
The presence of a constant contradiction between unlimited needs and limited resources puts forward the following main interrelated problems for all farms1:
♦ what to produce is making decisions about which of the possible goods, of what quality, in what quantity and when should be produced in a given economic space and at a given time;
♦ how to produce, or deciding by whom, from what limited resources and their combinations, and with what technologies, selected from options benefits and services;
♦ for whom to produce - this is a problem that decides who will get the produced goods and in what quantity the consumer will have them. The solution to this problem is connected with the use of the national product, its share in different strata of society, the number of rich and poor, etc.
These problems exist in all economic systems, but in each of them they are solved differently. In a command economy, the state takes over the solution of all these problems (what, how and for whom) by influencing production, distribution, exchange and consumption through a centralized system of plans.
In an economic system with developed market relations, these problems (what, how and for whom) are solved through the market mechanism through prices, supply and demand, competition, profits and losses. Each economic entity of a market economy proceeds in the production of goods from the conditions of competition and the possibility of obtaining the greatest profit, uses the means of production and resources that require less costs (solving the question: how to produce), and the sale of manufactured goods and their consumption (for whom to produce) are determined in according to the incomes of various groups of the population (their budgets).
An important condition for the development of the economic system when using the market mechanism is the presence of freedom of entrepreneurship and choice. Consumers have to buy what they prefer, businesses have to produce and sell what they see fit, resource providers choose where to put their available human and material resources.
The economic reality is characterized by numerous opposing interests: buyers tend to buy inexpensive goods with high responsibility of sellers, and sellers want to sell goods at higher prices and with less responsibility; employees strive for pleasant work and high wages, and employers are interested in ensuring high productivity at the lowest possible wages, etc. Each of the participants in the economic process seeks to get its own benefit: the seller - to achieve, possibly more profit, the consumer - to get his own benefit. The resolution of these and many other contradictions, the exclusion of chaos, which could give rise to freedom of enterprise and choice, is provided by the system of markets, prices and the factor of competition.
The system of market relations is a mechanism that performs the functions of notifying consumers, producers and resource providers about the decisions made by each of the participants in these relations, optimizing these decisions, synchronizing changes, ensuring coordinated actions, etc. Interacting decisions of business participants (buyers and sellers) determine the price system for products and resources at any given time. Producers are guided by the release of only those products, the production of which allows you to set a price that reimburses all costs and allows you to form a normal profit. Another approach to the production of products is unacceptable.
The interests of the seller (supply) and the buyer (demand) collide in the market, where the possibility of achieving their goals is revealed. With more high offer Compared with the quantity demanded, the seller sells products at prices that allow him to make the necessary profit, otherwise he has a loss.
Price cuts and losses for one seller should alert other sellers, forcing them to take action to adjust the supply of goods. While providing the necessary profit, the actions of sellers should be aimed at increasing the supply. These provisions prove that markets perform the functions of rewarding or punishing their participants and regulating their economic relations.
Profit is an incentive for development in any of the industries. Making a profit in an industry leads to its expansion. And so it will be until the volume of supply exceeds demand and the price is set at the rate at which the opportunity to make a profit disappears. In the case of a reduction in production, there is a decrease in supply compared to market demand, and as a result, product prices rise and unprofitability is eliminated.
This process is studied in more detail in microeconomics. It is important for us to understand the operation of this mechanism and take it into account when analyzing and planning the economic activities of specific enterprises.
In the conditions of developed market relations, there is a consumer priority. Orientation to profit and fear of loss forces economic entities and resource providers to focus their activities on the requirements of consumers.
The market economic system through its mechanism provides:
♦ application of the most productive technology, which allows achieving the lowest costs;
♦ informing resource providers and entrepreneurs about changes in demand, and thereby a correction is made in the distribution of resources;
♦ combination of personal and public interests.
Through competition, the "invisible hand" influences the selfish motives of enterprises and resource providers in such a way as to stimulate interest in the efficient use of limited resources.
The main advantage of a competitive market system is its constant stimulation of production efficiency. "The economy produces what consumers demand by applying the most efficient technology. The market system functions and adjusts automatically as a result of decentralized decisions, not the centralized decision of the government."
Considering the fundamental provisions on which the economics of the enterprise should be based, it is necessary to take into account the arguments that indicate that there are weak sides in a market economy. So, over time:
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Back to Market economy
A market economy is a way of organizing economic life based on a variety of forms of ownership, entrepreneurship and competition, and free pricing. The most important mechanism for coordinating economic activity is the market.
The market is understood as a certain way organized activity for the exchange of goods and services, in which numerous purchase and sale transactions are made between sellers and buyers.
The market economy has the following characteristics:
The dominant position is occupied by private property, that is, property owned by private and legal persons who, on its basis, carry out production. At the same time, the existence of state property is allowed, but only in those areas where private property is not very effective;
decision-making about in which area the available resources should be applied is decentralized, that is, by the private owners themselves; the entrepreneur is guaranteed freedom in his activities; S the state intervenes in the economy to a minimum extent and only with the help of legal norms;
the main mechanisms of a market economy are free competition, supply and demand, price.
Competition refers to the rivalry between sellers and buyers for the best use of their available economic resources. Competition contributes to the establishment of a certain order in the market, which guarantees the production of a sufficient number of quality goods.
The material basis of market relations is the movement of goods and money.
A commodity is a product of labor capable of satisfying any human need and intended for exchange. The commodity by which the value of other commodities is measured is money.
Goods and services are sold as a result of a transaction between the seller and the buyer.
At the same time, the totality of all economic conditions necessary in the market at a certain point in time is called market conditions.
An extremely important role in the process of selling goods and services is played by the ratio of supply and demand.
Demand is the desire and ability of the consumer to purchase a product or service at a certain price and at a certain time. The law of demand states that the lower the price of a good, the more buyers are willing and able to purchase, other things being equal, and vice versa. Thus, demand is inversely related to the price of a good.
The formation of demand, in addition to price, is also influenced by non-price factors: the amount of consumer income; their tastes and preferences; number of buyers; prices for substitute goods; expected price changes in the future.
The offer is the desire and ability of sellers to sell a product or service at a certain time and at a certain price. The law of supply states that, other things being equal, the higher the price of a good, the greater the seller's desire to offer that good on the market. Thus, the offer directly depends on the price.
The value of supply, in addition to the price of goods, is influenced by a number of factors. Among them: prices for various economic resources; the number of commodity producers; production technology; tax policy conducted by the state.
Supply and demand have such a quality as elasticity. Demand is said to be elastic if, with a slight decrease in price, the volume of sales increases significantly. A similar picture is observed during all kinds of pre-holiday sales. With inelastic demand, as a result of a significant change in price, the volume of sales practically does not change. The elasticity of supply is an indicator of the relative change in the quantity of goods offered on the market as a result of changes in the competitive price.
There are three situations in the market. Firstly, demand exceeds supply (as a result, the price rises) - this situation is called a deficit and was typical of the Soviet economy in the 70s and 80s of the last century. In the second case, demand is less than supply (the price falls) - there is an excess of goods (overproduction).
A similar situation arose during the so-called Great Depression of the 1930s. in the United States of America. In the third situation, demand equals supply. This situation is called market equilibrium. The price at which the transaction is made in this case is recognized as the equilibrium price. This state is optimal.
The main incentive for the development of a market economy is to maximize profits. Profit is the income from the sale of goods, minus the cost of production. Under the costs understand the cost of all types of resources expended on the production of products.
Thus, the principle prevails in a market economy: the transaction must be beneficial to both the seller and the buyer.
Currently market economy is a complex mechanism that includes a lot of various production, commercial, financial, information departments. These divisions are connected and interact with each other in common. They can be summed up in one word: the market.
The market is a place where people act as sellers and buyers. This is where market relations come into play.
Market relations are relationships and connections formed between sellers and buyers in the process of buying and selling goods or services.
The subjects of market relations are consumers, producers and suppliers of resources.
There are many definitions of the concept of "market economy":
- market economy - an economic system based on the principles of free enterprise, contractual relations between economic entities;
- market economy - a socio-economic system that develops on the basis of private property and commodity-money relations;
- market economy - an economy organized on the basis of market self-regulation, in which the coordination of the participants' actions is carried out by the state, namely the legislative and judicial authorities directly, and the executive only indirectly, through the introduction of various taxes, fees, benefits, etc.;
- market economy - an economy based on the principles of free enterprise, a variety of forms of ownership of the means of production, market pricing, contractual relations between economic entities, limited state intervention in the economic activities of entities;
- a market economy is an economy that involves the satisfaction of needs through the production of goods and their exchange; decision-making is the prerogative of independent economic entities, macroeconomic equilibrium is achieved through the market mechanism and due to the general desire of entrepreneurs for profit.
The following definition is most often found in the economic literature: a market economy is a qualitative state, a type of functioning of an economic system based on the universality of market relations in all links and stages of social reproduction and the regulatory functions of state structures.
Thus, based on a comparison of the above definitions, we can conclude that the main features of a market economy are:
- the presence of the main share of private ownership of the means of production in national economy countries (more than 50%).
The right of private property provides the opportunity for the owners of economic resources to independently decide how to use them, and it is the owners of private property that are responsible for the options they choose to use it. On the basis of private property, freedom of enterprise and freedom of choice are realized.
Free enterprise says that a private firm can acquire economic resources, arrange for the production of goods and services of its choice from these resources, and sell them on the markets, guided by the interests of the organization. An enterprise is free to enter or leave any particular industry.
The market economy is based on economic ways initiation of liability and uses the principle of compensation for damage by persons and organizations that are guilty of it. Compensation for damage should be provided with legal economic guarantees. At the same time, contractual conditions must be observed, in case of violation of which various fines and sanctions are imposed. Also, a subject that has violated its obligations is deprived of trust and the status of a reliable partner.
The main feature of a market economy is the liberation of economic activity from external interference, subordination to the laws and desires of the people, which provides a chance to fully manifest economic independence.
The formation of a market economy implies the presence of:
— consumers and producers;
- prices. The price in economics is considered as a tool for forming consumer preferences and determining the price sensitivity of buyers to the company's product.
- supply and demand;
- competition;
- economic isolation.
Markets created on the basis of competition are the most successful way of allocating scarce resources and the benefits produced by them.
A market economy implies the existence of complex mechanisms, thanks to which subjects bear the costs of obtaining information about prices, suppliers, consumers, terms of transactions, competitors and other elements of the economic system.
The market system seeks to achieve maximum results at minimum cost. This is also explained by the fact that due to competition, manufacturers are trying to offer the consumer a product of the best quality at a low price. Also, thanks to competition, manufacturers tend to introduce new technologies into their production and thus develop scientific and technological progress.
The market economy has both positive and negative sides.
The positive aspects of a market economy include the following:
- problems of incentives for economic activity are easily solved;
- able to adapt relatively quickly to unforeseen transformations;
- high rates of technical progress.
And the disadvantages are that, while relieving citizens of a shortage of goods, stimulating scientific and technological progress, the market construction of the economy also shows an open helplessness to solve other, maybe even more, or at least no less important socio-economic issues.
These primarily include the satisfaction of those needs of society that are not expressed in money and transform them into effective demand. In the current conditions, there are a very large number of such needs. Ignoring these needs is categorically unthinkable. Here the fact stands out that not a single nation can exist without a national defense system, public education, a unified energy system, a state administration apparatus, and the like.
Also, there are always such goods and services, without which not a single person in his Everyday life can not do. These goods and services are called "public" and a representative of such a service, for example, you can highlight street lighting. Street lighting can be used by all citizens equally free of charge. Since the market economy will not just finance from its budget such a procedure as providing light for free, because it will not bring any profit in return, the production of goods and services such as street lighting is entirely the responsibility of the state, financing the whole thing from the budget, which is replenished by taxes imposed on enterprises and individual citizens.
Another problem that the market mechanism cannot satisfy is related to the so-called "externalities". The meaning of these external effects is that the vigorous activity of market-type organizations that produce any product can greatly influence the well-being of other citizens of society. The bottom line is that for these organizations themselves, their activities have positive aspects, but for the outside world they can have very negative impacts. These externalities include environmental pollution from production activities enterprises through emissions of harmful pollutants into the atmosphere or discharge of waste into rivers. This also includes the depletion of natural resources and the like. The market mechanism cannot eliminate these dangerous and negative moments by itself, because it always focuses on and satisfies only the ever-growing solvent demand for goods and services. It is for this reason that it is the state that always deals with such an important issue as the regulation of external effects. Even the destruction of adverse external effects can be ensured through direct administration, which implies that for non-compliance with some laws defined by law on prohibitions or restrictions (exceeding the operation of a certain number of non-renewable natural resources, depletion of mineral deposits, mass destruction of biological organisms, the use of harmful technologies, etc.) economic entities guilty of this should be punished with fines, the amount of which many times exceeds the cost of the damage itself and the possible benefits of the manufacturer. That is, it is much more profitable and economical to act in accordance with the law.
The third group of problems is associated with undoubtedly very important socio-economic rights of a citizen and, first of all, with the right to work. It is easy to see that a market economy with full employment, even purely theoretically unthinkable and practically impossible. And the role of the state in this area of interrelations is by no means limited to obtaining “full employment” at any cost. This would mean the collapse of the market mechanism itself. The essence is different - in the effective regulation of the labor market, supporting people with the help of some kind of benefits or social payments who lost their jobs against their will, as well as in the implementation of special special programs to create new jobs, and so on.
Thus, smoothly approaching the conclusion, one can notice that, on the one hand, the market economy is the representative of the best, that is, the most effective way of doing business. business transactions of all known in history, and on the other hand, the market economy has quite significant disadvantages that can and must be eliminated or at least mitigated with the help of state intervention in the market economy. It is for this reason that the regulated market economy is widely considered to be the ideal economy, which combines, to a greater or lesser extent, successfully the problems and tasks of combining the self-regulation of market relations with their additions and adjustments according to social priorities.
| INTRODUCTION…………………………………………………………………….3 | ||
| 1. MARKET MECHANISM…………………………………………………….5 | ||
| 1.1.GENERAL CHARACTERISTICS OF THE MARKET MECHANISM………5 | ||
| 1.2. DEMAND AND ITS FACTORS. LAW OF DEMAND……………………….11 | ||
| 1.3.OFFER AND ITS FACTORS. THE LAW OF SUPPLY…..14 | ||
| 2. MARKET EQUILIBRIUM………………………………………………… 18 | ||
| 2.1. EQUILIBRIUM IN THE MARKET AND ITS TYPES…………………………..18 | ||
| 2.2. CHANGES IN SUPPLY AND DEMAND AND THEIR IMPACT ON THE PRICE………………………………………………………………………………………………………….21 | ||
| 2.3. USING THE LAW OF SUPPLY AND DEMAND FOR THE ANALYSIS OF ECONOMIC PROCESSES………………………...24 | ||
| CONCLUSION……………………………………………………………29 | ||
| LIST OF USED SOURCES………………………31 | ||
INTRODUCTION
The market system has a certain internal order and obeys certain laws, is able to self-regulate and function effectively.
The market mechanism restores the disturbed balance between supply and demand. The market is a self-adjusting system. Self-regulation of the market is ensured by its mechanism. The market mechanism in different market models functions differently, but its essence is the same in any market.
Thus, we can conclude that the topic is relevant, since in matters of functioning and development modern economy The market mechanism plays one of the main roles.
The object of study in this paper is the market mechanism, the functioning of its constituent elements.
The subject of the study is the composition and interaction of the constituent elements of the market mechanism.
The main purpose of the work is to study the functioning of the market mechanism.
The goal set determined the tasks of the work:
consideration of the conditions for the formation and functioning of the market;
study of the general characteristics of the market mechanism, supply and demand, the laws of supply and demand, changes in supply and demand;
consideration of the main functions of the price;
study of the interaction of supply and demand, the concept of market equilibrium.
The theoretical and methodological basis of the work was the works of such scientists as E.B. Bedrina, G.S. Vechkanov, I.P. Nikolaeva, M.A. Sazhina and others.
MARKET MECHANISM
GENERAL CHARACTERISTICS OF THE MARKET MECHANISM
Any economic mechanism is a set of elements in their interconnection, a set of economic laws that determine the dynamics of the movement of elements of economic mechanisms, as well as the organizational structure of the economic system.
The market mechanism is a mechanism of interconnection and interaction of the main elements of the market: demand, supply, price, competition and basic economic laws. These elements are the most important parameters of the market, which guide producers and consumers in their economic activities in the market economy. This is the core of market relations, the core of the market.
The market mechanism operates on the basis of economic laws: changes in demand, supply, equilibrium price, competition, cost (value), utility, profit, etc.
Supply is on the production side, demand is on the consumption side. These two elements are inextricably linked, although they are opposed to each other in the market. They can be compared to two forces acting in opposite directions. Depending on the specific market conditions, supply and demand are balanced for a more or less long period. This equalization of supply and demand can occur spontaneously and under the regulatory influence of the state.
It is important to note that the market mechanism acts as a coercive mechanism, forcing entrepreneurs, pursuing their own goal (profit), to act in the end for the benefit of consumers. For example, unsatisfied demand for a fashionable product raises the price of demand, but does not fully satisfy the need. Commodity producers have an alternative: either expand production and lower prices and thus satisfy the needs of a larger number of buyers, or keep a high price until competitors fill this niche in the market and take away the clientele, and with it not only excess profits (from high prices ), but also profit. This danger prompts the manufacturer to expand production in a timely manner, to reduce the price of his product until the market is completely saturated. This mechanism operates subject to the presence of competitors.
The action of this mechanism is based not on persuasion, but on the natural desire of a person for well-being. Therefore, to set the market mechanism in motion, nothing is needed but the freedom of producers and consumers. The fuller the freedom, the more effective the mechanism of the self-regulator of the market economy.
The market continues the meeting of the seller and the buyer, who, at their own peril and risk, make exchange transactions. In the market, everyone is afraid to miscalculate, to be deceived, to suffer losses. Everyone wants to sell high and buy low. The risk is expressed in the fact that the commodity producer seeks to anticipate demand, form it and release products at high prices when the market is not yet saturated. At this time, he runs the risk of being bypassed by competitors, investing in the production of unpromising goods, producing more goods than the market requires and selling the goods for next to nothing. Thus, various kinds of conflicts spontaneously arise in the market, which are resolved with the help of the market mechanism. The economic situation of producers and consumers, sellers and buyers depends on market conditions, which change under the influence of numerous factors.
Market conditions are a set of economic conditions that are developing on the market at any given moment in time, under which the process of selling goods and services is carried out.
It is determined by economic indicators that characterize the state of the market: the ratio of supply and demand, the price level, market capacity, the solvency of consumers, the state of commodity stocks, etc. At the same time, the ratio of supply and demand plays an extremely important role, because it is it that often determines the fate of sellers and buyers.
The market situation should be distinguished from the national economic situation, which is a set of economic conditions and features that determine the process of social reproduction as a whole and characterize the general state of the economy at the moment.
Profit fluctuations are the barometer of the market, giving a signal to production. The commodity producer in his economic activity is inevitably guided by the interests of profit. Profit depends on prices, growth in production and the speed of capital turnover. The nature of the enterprise's focus on profit changes in a balanced market and a scarce economy, when collective selfishness arises and the role of profit in the activities of the enterprise is hypertrophied.
Consider the market mechanism on the example of its ideal - the free market. The essence of this mechanism is the same in any market, but it itself experiences different influences from external factors, which causes differences in its organizational forms. The mechanism of the functioning of the market can be represented by the following diagram (Fig. 1.1.).
Rice. 1.1. Market Functioning Mechanism
Source: .
This mechanism is based on the mechanism of the law of value. When demand is equal to supply (and this is an ideal state of the market and exists as a temporary phenomenon), then the price of goods is set at the level of socially necessary costs and acts as an equilibrium price.
Suppose that the demand for product A has increased. This means that the demand for such a product increases and begins to outstrip supply. Prices also begin to rise, and the rate of profit in a given production increases accordingly.
The ongoing process attracts additional capital, and, consequently, it becomes possible to involve additional factors of production (means of production and labor) in the production process. The expansion of production allows you to increase the supply of good A, and thus the balance between supply and demand is restored, prices begin to decrease and again come to equilibrium prices. Of course, in a real market, prices are influenced not by one, but by many social and economic factors, but we consider this process in a simplified way in order to get an idea of the essence of the market mechanism.
Thus, if we abstract from the impact of all external factors, except for changes in needs, we can see how the market mechanism regulates production and maintains the proportions between production and consumption, between supply and demand, i.e. The market exists as a self-regulating system. But in modern conditions, the market is under the influence of various factors: monopolies, the state, trade unions, etc. interfere in the mechanism of the market. This can be expressed in various forms. Thus, trade unions impede a new set of labor force, when it is necessary to expand production, the influx of additional capital is delayed; monopolies make it difficult to track changes in needs in time, as they control prices in the main markets, etc. All this does not contribute to the normal functioning of the market. However, the market mechanism eventually copes with these difficulties: it is helped by the state, laws and other methods of regulating the market economy.
Only one element of the mechanism of the market does not tolerate any interference from outside - prices. It is through prices that all changes in supply and demand are perceived, and if prices do not change, then the market cannot respond to changes, it has no information. Therefore, stable prices always mean the absence of market relations.
The economic situation of market entities is influenced by market conditions - the ratio of supply and demand both for individual goods and for the mass of goods as a whole. When supply exceeds demand, buyers have the opportunity to compare different types of goods, their prices and give preference to one or another product.
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A similar situation is possible in the buyers' market, i. in a market where there is competition between producers and sellers. If demand exceeds supply, there is no competition between producers and sellers, the main role is played by the quantity of goods and services, and not their quality, then this is a seller's market. In such a market, the product range is poor, there is no pre-sales and after-sales service, everything is sold immediately, from the “wheels”.
The modern market is a buyer's market. In industrialized countries, the state of the market determines the priority position of consumers of products in comparison with sellers.
When demand and supply are equal, prices for goods are set at the level of socially necessary costs and act as equilibrium prices. When demand increases and supply remains unchanged, prices rise, resulting in higher profits and an influx of capital into industries for which demand has increased. This causes an influx of factors of production and an increase in supply, and an increase in supply with a constant demand reduces the price. Thus, the market mechanism restores the disturbed balance between supply and demand.
The market is a self-adjusting system. Self-regulation of the market is ensured through its mechanism. The market mechanism in different market models functions differently, but its essence is the same in any market.
The main task of the market mechanism is the formation of a market price. Market and price are categories determined by commodity production.
At the same time, the market is primary, and the price is a secondary category. The market price is a tool for equalizing the interests of sellers and buyers, balancing supply and demand. As a result of the formation of the market price, buyers acquire what they would like to have at a given price, and sellers sell everything they wanted to sell at this price. As a result, the deals are beneficial for both parties.
The peculiarity of the market mechanism is that each of its elements is closely related to the price, which serves as the main instrument that affects supply and demand.
Thus, the market mechanism is a mechanism for the formation of prices and distribution of resources, the interaction of sellers and buyers of goods and services regarding the establishment of prices, production volume and its structure. The market mechanism functions in accordance with the system of economic laws: the law of value, the laws of supply and demand, the law of diminishing marginal utility, the law of diminishing returns, and so on. The action of these laws is manifested through the main elements of the market mechanism.
