Demand and supply law, effects and exceptions.
Demand law- consumers buy more of a good when its price is lower and less when its price is higher.
Income effect
Substitution effect
Giffen good- is a good which occupies dominant positions in consumption structure.
Veblen effect- good which people buy from prestigious consumption.
Snob effect
Factors shifting demand curve:
Tastes and preferences
Income
Number of consumers(demand increases)
Expectations (if people expect prices to rise, demand increases)
Supply law - quantities respond in the same direction as price changes.
Factors shifting supply curve:
Expenses
Taxes
Technology
Number of producers
Prices of competitors’ goods
Prices of joint production goods
Walrasian equilibrium, Cobweb theorem, and intermarket equilibrium.
The concept of elasticity.
The sensitivity of market to changes in price, income or other market factors is reflected by measure called elasticity.
Demand is said to be:
-
elastic,
if ed>1
1<ed<
=>such goods have many substitutes
inelastic,
if ed< 1
0 <ed< 1
=> such goods immune to change in price
unitary elastic,
ed = 1
=> no changes in total spending
perfectly elastic,
if ed =
=> products are perfect substitutes
=> no one has big market share
perfectly inelastic
if ed = 0
=> no substitutes
=> willing to pay any price
Peculiarities of land and labor markets.
Peculiarities of land resources determine pricing:
Natural scarcity – естественная ограниченность – the amount of land is fixed and can’t be increased to satisfy increasing demand.
Immobility – недвижимость – the land can’t be thrown.
Peculiarities of labor market.
a)Long duration of relationship – продолжительные отношения.
b)Non-monetary factors – присутствуют не только деньги, но и другие условия.
c)Institutional structures – labor market is regularly (профсоюз) for example setting minimum wages.
Two theories which explain nature of interest.
Nature of interest can be explained by two theories:
Real theory of interest
Goods valuation assumption
Time preferences
Rate of time preferences
Nature of interest
According to this theory people values goods today that goods in future in order to make person refuse form today’s groups competition. He or she should be rewarded, such reward is called ‘interest’. It is the price of refusal today the good consumption.
Monetary theory of interest
Liquidity and current wealth
Nature of interest
According to this theory people value money in liquid form in order to make person refuse from liquidity. He or she should be rewarded, such reward is called ‘interest’. It is the price of refusal from liquidity.