At unit elasticity of supply 1% increase in the price of goods is 1% increase in their offer for sale on the market. In this case, there is an equal-price changes and the number of products offered, the ratio is equal to 1.In the case of elastic supply of 1% increase in price can cause an increase in the number of products offered for sale is much more than 1%. The coefficient of elasticity is greater than 1.
With inelastic supply price increase has no effect on increasing the number of products offered for sale.
The theory of consumer behavior
Before every consumer have three questions:
1) What to buy?
2) How much?
3) Will there be enough money to make a purchase?
To answer the first question, it is necessary to find out the usefulness of things for the user to reply to the second question - to investigate the price to solve the third problem - to determine the income of the consumer. These three issues - the utility, price, income - make up the content of the theory of consumer behavior.
The basis of the theory of consumer choice is a modern version of the classical concepts of the categories of marginal utility.
Usefulness of benefits - the ability to meet the economic benefit of one or more human needs.
A number of significant moments of the theory of marginal utility and consumer choice are different. The most important differences are:
- The marginal utility is a function of the diversity of products, not just those who choose to consumers;
- In the case of consumer choice does not require an absolute measurement of marginal utility (kardinalizm). It is based on the comparison of the relative (ordinalizm).
- The value of goods shall be determined without using the category of "abstract labor."
Consumer behavior - the formation of consumers' demand for various goods and services, which determines the development of production and supply in the market. Consumer behavior is due to income people who distribute them according to your view of the possible usefulness and profitability, purchased goods.
The growth and decline of consumer demand and a corresponding movement in the market demand curve is determined by:
- Income, affecting the size of the personal budget of the consumer;
- The presence or absence of markets interchangeable and complementary products;
- Personal preferences of consumers, their tastes, attitudes to fashion, product design and other factors. Consistently is that inclined and flowing form of the demand curve remains the expression of any of the individual and subjective paying customers.
In the modern theory of consumer choice assumes that:
1) The cash income of the consumer is limited;
2) The prices do not depend on the amount of goods purchased by individual households;
3) All buyers are perfectly marginal utility of products;
4) Consumers seek to maximize the overall utility.
Consumer choice is based on the following assumptions:
• Multiple types of consumption. Every consumer wants to consume a wide variety of individual benefits.
• Instauration. The consumer tends to have more of any goods or services; it is not fed up with any of them. Marginal utility of economic benefits is always positive.
• Transitivity. Consumer choice is based on the continuity and consistency of a particular consumer tastes.
• Substitution. Consumer agrees to give up a small amount of a good, if he is offered in return a greater number of good B - substitute.
• Diminishing marginal utility. Marginal utility of a good depends on the total amount available to the given user.
Consumer choice - a choice that maximizes the utility function of rational consumer with limited resources (money income).
Theme 6. Competition and Monopoly
