supply and demand

 

The principle of supply and demand is relatively simple, only it be goods and services provided by sellers, if someone is willing to buy them.

Supply

When listing the amount of existing goods and services is on the market referred to that demand, however, is only the intention of households and enterprises, goods and services for money or other goods in exchange for purchase.

Demand

Demands regulate in a free market economy the equilibrium price, this arises when supply and demand match a. Any good and service that has a price is usually scarce and thus not unlimited. The price determines the value of a service, a good. If the price is too high, the demand for this commodity will drop automatically, with the exception of luxury goods. They serve as statistic symbols, here the demand can even rise.

supply and demand

If the quantity offered increases and the demand remains the same, the price of the goods decreases, for example the harvest of apples is very high, more apple juice can be produced, but the demand remains unchanged, the price of apple juice decreases .

If, on the other hand, the supply and demand remain the same, the price of the commodity increases, for example, if the apple harvest is very low due to early frost, the price of apple juice increases if demand remains the same.

Economic Cycle

The economic cycle is a conceptual design and a tool for improving the detection, presentation and examination of goods and money movements in the economy.

The idea of the economic cycle will help to understand the relationships in a division of labor economy and to illustrate.The general picture of a closed cycle is transferred to the economy: cash flows and flows of goods of a certain strength and direction flow between households, companies, banks, the state and foreign (the so-called cycle poles).

In theory, there are four types of economic cycles normally.

• Simple economic cycle


• Expanded economic cycle


• Complete economic cycle


• Economic cycle of an open economy

Economic cycle (2-sector model)

Here only two sides (companies and households) are considered under the following conditions:

• A closed economy, that is, no intervention from abroad


• a stagnant economy, ie without growth


• No intervention by the state, Laissez-faire


• Income = expenditure, ie no saving or investing of households and enterprises

In this highly simplified economic cycle, households provide companies the factors of production (labor, land, capital, education) and gives reversed their income on consumer goods and services of the companies.

Companies pay households income for the factors of production and provide the households, consumer goods and services available.

The expanded economic cycle (3-sector model)

Here is the simple economic cycle of households and firms to institutional investors (banks and other ways of capital reserve formation, eg insurance ) expanded.

Conditions:

• A closed economy, that is, no intervention from abroad


• No intervention by the state, Laissez-faire

As a result, companies and households have the opportunity to save capital or to generate loans / loans for investments. It is assumed that the consumption of households (saving money) is equal to the investment of companies, by investing and the resulting possible economic growth, this 3-sector model is also called a dynamic economic cycle. Through the capital collection points the money stream is increased by the factor interest, this electricity flows to the households and enterprises in saving.

The complete economic cycle (4-sector model) without foreign countries

In the case of a complete economic cycle, the extended economic cycle is expanded by the factor "state".

Conditions:

• A closed economy, that is, no intervention from abroad

The state intervenes in the national economy by paying social wages and employers' wages, taxing households and businesses, consuming goods and services from companies, subsidizing companies, and extracting or feeding money into the economic cycle, for example by lowering or raising taxes.

Economic cycle of an open economy (5-sector model)

This is the real economic cycle, the 4-sector model is extended to the outside world and thus the 5-sector model.

Conditions:

• An open economic cycle

Through the intervention of foreign countries, goods and services and factors of production are imported and exported.

Consumer Surplus

The concept of the consumer rift was primarily shaped by Alfred Marshall and Jules Dupuit. This was a well-known and respected English national economist, and a French engineer, who was also a specialist in the field of economics.

Consumer Surplus Definition:

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Generally speaking, the consumer surplus is the difference between the price that would be a consumer was willing to pay for the product and the so-called equilibrium price (= intersection of supply and demand ), the customer has to actually pay ultimately.

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Consumer Surplus Example:

If you imagine that someone would sell a 50 euro bill for 40 euros, most of the people would probably be skeptical. At the first moment, it would be likely that they would start from counterfeit or fraud, and would not close the deal. But what if there were no hook? The honest seller is serious: for his 50 euros he only needs 40. No fraud, no deception. The buyer agrees and has gained financial benefit? Logical, 10 euros. And that would be the so-called consumer surplus in this example business.

"Private" profit for consumers

Going back to the example: Consumer surplus was 10 euros, because the equilibrium price will be higher than the price that had to be actually paid. You could have sold the 50 Euro note for 42, 45, 47 or even 49.90 euros.

The buyer of the example thus has made an effective gain of 10 Euro or in other words: He benefits from a consumer surplus in the amount of 10 Euro. This pension is to be seen as a private gain for consumers. Actually, the consumer would have been willing to pay more.

Consumer Surplus More Examples:

• Price that the customer would have been willing to pay: 120 euros


• Price at which the producer offers the product on the market: 100 euros


• Consumers: 20 euros

• Price that the customer would have been willing to pay: 63 euros


• Price at which the producer offers the product on the market: 56 euros


• Consumer ressources: 7 euros

• Price that the customer would have been willing to pay: 25 euros


• Price at which the producer offers the product on the market: 30 euros


• Consumers' rivals: none, because the market price is higher than the maximum price the customer would pay.

Producer Surplus

Producer surplus is a term that is found in both economics and mathematics. This was minted  primarily by Alfred Marshall, an influential and popular economists of that time. Before you are more concerned with how to calculate producer surplus, you should first of all clarify what the producer surplus is.

Definition and meaning

Basically, said the producer surplus is a difference between the sales price achieved in the market and the cost of production (ie the costs incurred in the production of the respective good). For this reason, the most important core statement of the surplus of producers is that it identifies the profits (= revenues - costs) of the companies in a market.The producer surplus is therefore something positive for the manufacturers.

Intentions of the enterprises

Understandably, every entrepreneur is interested in a maximum profit. However, depending on various factors such as demand and production costs, an entrepreneur may have to be satisfied with a lower profit.

It is important that the producer in any case the reservation price (= the price that must be achieved at least so that it is ready for sale) is achieved. The concept of marginal costs is equal.

If the reservation price reached exactly, so no producer surplus has been generated. If lower revenues are achieved than this price, this can threaten the existence of a company in the long term. If higher revenues achieved as the reservation price, is the producer surplus, ie an additional profit for the entrepreneur.

Counterpart of the producers' rents

The counterpart of the producer surplus is the so-called consumer surplus . This is the main benefit for consumers, because they get a cheaper product for which they would be willing to pay the price x. They give less than they thought or wanted.

There are several similarities between producer and consumer rivals:

• Both pensions bring a financial advantage to consumers or manufacturers


• Both pensions are measured in units of gels (GE)


• The goal of each market participant is to achieve such a pension

Competition

To speak of a functioning and perfect economy requires inter alia a sufficient number of competitors. In other words: There has to be a competition. The proverb "Competition stimulates business" is particularly appropriate in this context. But why is a larger selection of producers beneficial for each supplier?

Types of competition

Basically you can differentiate three different types of competition. In addition to the well-known price competition, there is also a product and condition competition. In the price competition, for example, the providers try to attract customers through active pricing. If the price is lowered, the number of consumers increases. In return, the logical conclusion is that demand is falling at higher prices.

Function of competition

Functioning competition ensures within an economy for a possible cost-effective and appropriate care of all citizens. It is not without reason that the competition is often viewed as a motor of an economy. Finally, the competition can not only ensure that more potential buyers are interested in the respective commodity but also lead to price changes in the market in favor of demand. A market economy always has usually about competition in the various sectors .

Requirements for a competition

In order to create competition in an economy at all, some conditions must be fulfilled. For example, companies that wish to participate in the competition must have sufficient financial and human resources. In addition, market transparency and decision-making play a key role. The aim of each competition is likely a dominant position or even a normally monopoly be.

Consequences of competition

If there is a competition in a market, this has many advantages for buyers. So an active competition, for example, ensures that is working on the development of products and services to stand out from the competition can. Of course there is a winner and loser in a dominant competition. So providers, who break at the constant competitive pressure and price pressure and which, which can be carried out and are accordingly successful.

Factor Market

Factor market in the economy is a market in which companies can buy the production factors, for the production of the relevant needed goods.

In addition to the factors of production such as labor, land and capital there also takes place a trade in raw materials, for example. Of course, production factors at a factoring market can not only be bought but also sold. On the factoring market, therefore, the factors which are necessary for production are concerned. Moreover, is partially assured a trade instead of property rights on the factor market. The opposite of the factoring market is the goods market. This is because finished goods are already being sold on the goods market.

Typical Factor Markets

The most prominent factor market is the labor market. Simplerly said, workers are offered and asked for appropriate payment. Because labor (whether qualified or not) is needed for any type of production, the labor market is an extremely important factor market. The capital market is also an important factor market. This is also the fact that a production without capital is simply not possible. Before a product can be manufactured at the end, various financing questions have to be clarified.

And again briefly summarized:

• One factor market is one where production factors are supplied and which are used for production of goods


• Typical factories are the labor market, the capital market and the land market


• Contrary to the factoring market is the goods market

Macroeconomics

Macroeconomics - also called the theory of income and employment, macroeconomic theory or macro theory is part of economics. The macroeconomics is concerned with all participants in the market, such as households, enterprises, the state, the foreign countries and banks, and their mutual relations among themselves.

The main focus of the macroeconomics is:

• national accounting, including the calculation of gross domestic product (GDP), income and expenditure of a State


• the income and employment theory, what has changed in the situations in the labor market


• the growth theory and business cycle theory, how does the economy and as extend the economic cycle

At the center of macroeconomic theory is the question:
"What role does the state play in the overall economy?"

The state aims to price stability, full employment, external balance (import-export ratio) and a light, steady Economic growth.

This is regulated by changes in taxes, interest rates, subsidies and other government expenditures.

Content in category Macroeconomics

• Price reduction


• Magical rectangle


• inflation


• Economy


• Flexible and fixed exchange rates


• National accounts


• money


• gross domestic product


• Bruttosocial product


• Nominal income


• Real income


• Trade barriers


• Foreign exchange speculation


• Purchasing power parity


• Interest rate parity


• Wage rate


• Profit ratio


• Transfer services


• Exchange rate fluctuations

Microeconomics

Microeconomics - also known as price theory or value theory, is part of economics. It deals with the "smaller" participants, such as households and companies in the market.

If so, everyone who lives in their own household is active in his micro-economy.

The main focus of the microeconomy is:

• the consumption and distribution of scarce resources and goods by supply and demand on the market


• how much income households save, what part do they spend and how this relation changes with rising or falling incomes


• as changing the households their purchasing behavior with falling or rising incomes


• up to which amount buys a household a particular product? How many additional units of a product that has been consumed add an additional benefit to the budget?

Microeconomics works primarily with the simple model of the economic cycle, ie the households offer companies the factors of production (labor, capital and land) and ask at the same time produced goods and services offered by the company after.

Articles in Category Microeconomics

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  Factor market

  
  


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  Scale effect

  
  


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  competition

  
  


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  Producer Surplus

  
  


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  Consumer Surplus

  
  


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  The market

  
  


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  Supply and Demand

  
  


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  Economic cycle

  
  


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  Production function

  
  


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  Substitution effect / income effect / overall effect

  
  


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  Transformation curve

  
  


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  Market failure

  
  


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  Competition

  
  


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  Elasticity

  
  


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  Company Concentration

  
  


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  Cartel Definition

  
  


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  Operating Optimum

  
  


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  Operating Minimum

  
  


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  Sales Market

  
  


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  Budgeting

  
  


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  Indifference Curve

  
  


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  Allocation

  
  


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  Absolute & Comparative Cost Advantages

  
  


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  Perfect Competition

  
  


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  Externalities

  
  


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  Demand Function

  
  


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  Opportunity Costs

  
  


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  Network Effect

  
  


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  Pricing Function

  
  


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  Business Combinations

  
  


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  Welfare Loss

  
  


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  Minimum Cost Combination

  
  


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  Division of Labor

  
  


• 
  

  Demand Curve

  
  


• 
  

  Quotation Curve

  
  

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