Transformation Curve

The transformation curve (also: production curve) is, in short, a graphical representation of all the product mix combinations which have previously been classified as efficient. The basis for this is in particular the given use of resources.

Another word for transformation curve, which is even more popular, as the production possibility curve. As the term suggests, the transformation curve shows the limits of production possibilities. It is thus shown what can be produced in a particular area of ​​the economy.

Of course it is not possible to refer the values ​​to an entire national economy of a whole country. Rather, the transformation curve should be used to create a theoretical concept for some smaller areas of the respective national economy.

Initial Situation

In order for a computationally solvable computation to be possible for a transformation curve, it first requires some assumptions to simplify the facts somewhat. For example, it should be assumed that there is, for example, only one production factor, which is still fully engaged at all times. In addition, it should, of course, be assumed that the necessary technical know-how as well as the respective machines are available and always work.

Graphic Representation

The primary goal of all calculations of the transformation curve is, of course, to obtain a graphical representation. But what does such a graphical representation of the production curve look like? It is shown in the above diagram.

On the X and Y axes, two different goods are first compared: 'Number of Tractors' on the Y axis and 'Number of cars' on the X axis. The actual transformation curve is then found in the center of the graph.

Production Function

Roughly speaking, the term production function means the relationship between the production factors and the goods that are produced with it. The prerequisite for this is of course a correspondingly functioning production technology.

The goal of such a production function is primarily to find out how high the maximum production quantity can be, which can be produced with consideration of the input. For some time, the calculations of the production functions also include aspects that involve the environment.

The term "production function" was coined by Vilfredo Pareto. Generally speaking, the production function is concerned with the quantity ratio between the individual factors, both in the production as well as in the output.

Types of Production Functions:

Substitutional production function

In the case of a substitutional production function , it is assumed that a certain production factor can be replaced by another, that is, substituted. Of course, this is not always possible and only in very tight boundaries.

The quantity of output thus remains the same in the case of substitutional production functions, while the quantity of the input changes. Finally, other production factors are used in the input, since a substitution or substitution occurs.

A simple example: both labor and capital are usually indispensable for production as a production function. But if a producer chooses to spend less on modern, automated machines, he must invest more in the production factor at the same time. There is thus a subsidiarity, since one factor is replaced by the other.

In this context one should look more closely at the concepts of peripheral and total subsidiarity. While peripheral subsidiarity is characterized by the fact that replacement of production factors is possible only within very narrow limits, the situation is different in the case of total subsidiarity. Here, one factor is completely replaced by another. A factor therefore falls completely away.

Limitational production function

The situation is different with the so-called limitational production function . Here a substitution (subsidiarity) of the individual production factors is not possible without further ado. There is therefore a certain employment relationship between the individual factors.

In this case, it is not possible to simply replace one production factor with another. The yield increases with the limitational production function only if both production factors are used more and more.

For the entrepreneur, the art of the limitative production function primarily consists in finding the optimal employment relationship between the individual production factors. The goal is, of course, not to waste a factor by unnecessarily excessive use.

Market Equilibrium

If the supply meets exactly one another with the demand of a product, there is a market balance. Such a market equilibrium is often shown in a graphical representation. Here one can see the level of market equilibrium at the interface between supply and demand curves. The market equilibrium is, of course, generally the optimum state of a market, since neither a supply transition nor a surplus demand prevails. From this equilibrium, on the one hand, the equilibrium quantities and, on the other hand, the equilibrium rate can be deduced.

Path to market equilibrium

Of course, not every market is constantly in the market balance. After all, on the real market, there are constant fluctuations in supply as well as in demand. For this reason, it may take some time for the market equilibrium of a product to settle. This leveling is achieved by ongoing adjustments by both consumers and suppliers. Companies have the opportunity, for example, to achieve market equilibrium through price adjustments. Consumers, on the other hand, can, for example, buy on stock and thus also contribute to the equilibrium of the market.

Determination of market equilibrium

In order to be able to determine market equilibrium, on the one hand, the so-called equilibrium price and, on the other hand, the so-called equilibrium quantity. But what is the equilibrium or the equilibrium quantity?

Equilibrium quantity

As the name implies, the market is in equilibrium in terms of equilibrium. The offered and requested quantity of a particular good is therefore identical. There is neither a supply nor a demand surplus.

Equilibrium price

Just as with the equilibrium quantity, the equilibrium point is a state of equilibrium in the market. When looking at the equilibrium price, one should keep in mind that a supplier always strives to get the highest possible price for a product and sell many products. The customer, on the other hand, would like to buy more, the cheaper the price is ultimately. Even at the equilibrium price it is assumed that there is neither a supply nor a demand surplus. The state of the equilibrium price must, of course, be achieved by means of protracted settling on the market.

Market

What is a market and how is it created?

Definition: The market is the place where supply and demand meet. It arises from the needs (deficiencies) of the consumers who want to be satisfied.

If the needs are covered by purchasing power, they become a necessity. If the needs of the consumers are large enough, it becomes demand and hits the market supply. Goods and services provided by companies is called supply.

Which types of market are differentiated?

One differentiates the market types according to different ranges:

• Subdivision of the markets to the subject (to the matter)


• Consumer goods or market; Goods for the final consumer, such as food


• Capital goods market; Goods for the production of other goods such as machines


• Money market; Provision of short-term capital (<1 year) by banks, private individuals


• Capital markets ; Provision of long-term capital (> 1 year) by banks, private individuals


• Labor market; Supply and demand of human labor


• Real estate market; Sale and purchase of plots and buildings


• Foreign exchange market ; Purchase and sale of currencies


• Services market; Eg trade with insurance companies


• Special market; Trade of special goods, eg delicatessen

Division of markets by territory

• Global market (worldwide, across Europe, neighboring countries)


• Internal market (in US eg single market)

Structure of the markets according to their function

• Procurement market; Domestic and import market


• Market; Domestic and export market

Breakdown by time (duration)

• Weekly market (eg market day once a week)


• Year market (eg Christmas market)

Organization of the markets according to their organizational forms

• highly organized, such as exchanges or fairs


• Not organized or very little, such as shops where supply and demand coincide randomly (the most common form)

Which market types are differentiated?

One differentiates:

• free market; No access restrictions for market participants


• limited markets; Restricted access for market participants by economic or legal requirements, such as minimum capital requirements, authorizations or concessions

Which market forms are differentiated?

Market Shapes:
The difference in the market forms is the number of suppliers of a similar product compared to many buyers.

• Monopoly


• Oligopoly


• Polypol

Who are the market participants?

Market participants are individuals, governments, banks, businesses and residents who offer their goods and / or services.

Goods Definition

Goods are a means of satisfying needs . Whoever acquires a good, does so with the expectation that it gives him a benefit. For this reason, he is also willing to pay a certain price for it.

Goods have a

• Basic use,


• Additional use,


• Overall use,


• Average,


• And border use.

Basic and additional use

Goods have a basic use. Water quenches thirst, bread quenches hunger . Frequently, however, goods also have an additional benefit . Beer, for example, not only cleans the thirst, but also creates a moody mood and ultimately makes you drunk.

Total and average use

The total quantity of a good, such as six bottles of beer, provides a total benefit. The enjoyment of six bottles of beer can be forgotten by everyday stress ( the consumption of an excessive quantity of beer is, of course, discouraged ). By dividing the total use by the number of partial quantities, the average benefit is obtained. This means that the consumption of a bottle of beer reduces the daily stress by one sixth.

Border use

The increase in the quantity of the goods by one unit, ie the useful growth, is referred to as the limit value. The first bottle of beer is the best . It leads to greater satisfaction. The second beer already contributes less to alleviate the worries. So it has a smaller limit. When drinking the rest of the beers, the limit is decreasing . Another beer would presumably lead to drunkenness and thus has no longer any limit. Rather, it would lessen the overall benefit of all previously enjoyed beers (reference: 1. Gossen's First Law - according to Hermann Heinrich Gossen - the relationship between the consumption of a good and the satisfaction.).

There are different types of goods:

• Free and economic goods


• Material and intangible goods


• Consumer goods and investment goods


• Consumables and consumer goods


• Public and private goods


• Meritorious and demeritory goods


• Complementary and substitutive goods