В рыночных отношениях главными участниками are the consumer and the manufacturer. They participate in price formation and form supply and demand. Modern economic theory hypothesizes that the consumer is the last resort, because only he can assess the result of the labor of the manufacturer, buying or not his product. In economics, all concepts and events are always interrelated. To define concepts such as essentials and luxuries, it is worth knowing what demand and elasticity are.
Determination of demand
The law of demand is as follows:the higher the price, the lower the quantity. The demand shows how solvent the consumer of a certain product is at a certain price. Demand can be characterized by the magnitude of demand. This indicator indicates how much a person can buy goods at a certain cost. They have the desire and willingness, as well as the ability and availability of money to purchase goods.
Но не факт, что человек получит именно то обилие goods that he needs. How much goods the consumer receives depends on some economic factors. Suppose a manufacturer cannot produce the quantity of goods that a customer needs.
Experts highlight individual demand and total.Individual demand - the demand for a particular product of a particular buyer, and the total - the demand of all consumers. Economists usually study the general demand, because the individual is dependent on the personal desires of the consumer and cannot show the clarity of the situation on the market. For example, a certain buyer may not be interested in any product, but it will be in demand on the market.
Law of demand
As noted earlier, there is a law of demand.We repeat it again: when the price increases, the demand for goods decreases with certain factors. The law has some exceptions. For example, with an increase in the price of luxury goods, there is sometimes an increase in demand. This is explained by the fact that when the price of a product increases in comparison with other prices, people begin to think that this product is of higher quality, since it costs more.
Or does not stretch
There is such a thing as the elasticity of demand.This indicator shows how much it will increase or decrease when price and non-price factors influence it. We consider the income elasticity of demand. The indicator determines how much the demand changes with changes in consumer income over a certain period of time. The income elasticity of demand comes in the following forms:
- Positive form. With an increase in income increases the volume of demand. This form of elasticity refers to such type of goods as luxury goods.
- Negative form. Reducing demand while increasing revenue. This form refers to substandard goods.
- Zero form. The volume of demand does not depend on income. This form includes essential items.
Elasticity factors
The income elasticity of demand depends on several factors. These include:
- Importance, value, importance for the consumer. The more goods a customer needs, the less will be its elasticity.
- Will the goods be luxury goods or essentials.
- The routine of demand. When the consumer increases income, he does not immediately acquire more expensive goods.
It is worth saying that for buyers who havedifferent income, the same product can apply to both luxury and essential goods. It is worth giving some examples of elasticity of demand for income. These include the Porsche sports car. An individual can buy an expensive new car, as his income has increased. Bread with cereals and bran. Such bread is more expensive than ordinary bread, but also more useful. A person can also afford it with an increase in income. Handmade soap. The consumer can replace the old analogue of everyday goods with better and more expensive ones, since his income allows it. Expensive and high-quality gasoline. The buyer has the right to buy higher-quality gasoline to extend the life of the car all for the same reason - increased income.
Coefficient of elasticity
To measure the elasticity of demand, there is a coefficient of income elasticity. Economists have determined the formula by which it can be calculated:
E = Q1: Q / I1: I
Where:
I - the income of buyers;
Q - the volume of the goods.
The value of the coefficient is determined by the type of product.
Exactly what is needed
There are several types of goods:ordinary and lower. Ordinary (normal) - goods, the demand for which grows with income. In turn, they are divided into two types: luxury items, necessities (which are more commonly consumed and used every day, for example, toothpaste). The coefficient of elasticity of demand for ordinary items is less than one, since with an increase in income, the consumer tends to purchase more rare goods.
Luxury goods are products that not everyone canafford Their people buy less. Cars are a luxury item. Essentials have a saturation limit. For example, soap. People will buy as much as they can consume it. How much soap would cost, it will always be necessary.
Expensive pleasure
Предметы роскоши – вещи или товары, которые не associated with the basic needs of the consumer. People can live without them. Coefficient of elasticity luxury items have a higher unit. Consumer income is increasing and the share of luxury goods is growing. The demand for luxury goods appears only when the consumer reaches a certain level of income. People first acquire goods related to survival, and then think about the "excesses".
Patients will not reduce the number of visits todoctor, even if the price of medical services will increase. And at the same time, an increase in the price of a yacht leads to a decrease in demand. What is the reason for this phenomenon? The reason is that many consumers consider visiting a doctor a necessity, and buying a yacht is a luxury. Consumer purchasing power helps economists determine which category to place a product in. For a person who loves the sea and has excellent health, a yacht can be considered as a necessity, and a trip to the doctor as a luxury item.
Anyone will distinguish the gift version of the pen fromordinary. What is the difference between them? The gift option has brighter ink, a better core and body is more beautiful. It is more convenient to hold such a handle, it will not slip and looks solid. These gift pens are usually packaged in special cases that are not needed in everyday life. That is, you are buying an item that you will not use later. Such an expensive pen is prestigious, but little functional.
The lowest products are low quality products. The demand for such items is reduced. They are replaced by better ones. These include second-rate food, clothing from second-hand.
Conclusion
Countries producing essential goods(agricultural products, mining, electricity), at international auctions are not in a better position than the countries that produce interior luxury goods, cars, equipment. With the increase in consumer incomes, the value of essential goods lags far behind the value of luxury goods. This is one of the reasons for the division of the world economy.
