In market relations, the main participantsare the consumer and the manufacturer. They participate in the formation of prices and form a supply and demand. Modern economic theory puts forward the hypothesis that the consumer is the most recent instance, because only he can evaluate the result of the producer's labor, buying or not his goods. In economics, all concepts and events are always interconnected. To define such concepts as necessities and luxuries, it is worthwhile to learn what is demand and elasticity.
The law of demand is as follows:the higher the price, the lower the quantity. Demand shows how solvent the consumer of a certain product is at a certain price. Demand can be characterized by the size of demand. This indicator indicates how many people can buy goods at a certain cost. They have the desire and willingness, as well as the opportunity and availability of money for the purchase of goods.
But it is not a fact that a person will receive exactly that abundancegoods that he needs. How much the consumer will receive depends on certain economic factors. Suppose the manufacturer can not produce the quantity of goods that the buyer will need.
Experts identify individual demand and general.Individual demand is the demand for a specific product of a particular buyer, and the total demand is the demand of all consumers. Economists usually deal with the study of general demand, because the individual depends on the personal desires of the consumer and can not show all the clarity of the situation on the market. For example, a certain buyer may not be interested in any product, but in the market he will be in demand.
As noted earlier, there is a law of demand.Let's repeat it once again: when the price increases, the demand for the 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 start to think that this product is more quality, since it costs more.
There is such a thing as the elasticity of demand.This indicator shows how much it will increase or decrease with the impact of price and non-price factors on it. We will consider the elasticity of demand for income. The indicator determines how much demand will change when the income of consumers changes over a certain period of time. Elasticity of demand for income is the following forms:
The elasticity of demand for income depends on several factors. These include:
It is worth saying that for buyers who havedifferent income, the same goods can be treated both as a luxury item and as a basic commodity. It is worth mentioning some examples of income elasticity of demand. These include a sports car brand Porsche. An individual can buy an expensive new car, since his income has increased. Bread with cereals and bran. Such bread is more expensive than ordinary bread, but it is also more useful. A person can also afford it with an increase in income. Handmade soap. The consumer can replace the old analog of everyday goods with better and more expensive ones, as his income allows it. Expensive and high-quality gasoline. The buyer has the right to buy better gasoline to extend the life of the car all for the same reason - increased income.
To measure the elasticity of demand, there is a coefficient of income elasticity. Economists have defined the formula by which it can be calculated:
E = Q1: Q / I1: I
Where:
I - income of buyers;
Q - the volume of the goods.
The magnitude of the coefficient is determined by the type of goods.
There are several types of goods:ordinary and inferior. Normal (normal) - goods, the demand for which grows with income. In turn, they are divided into two types: luxury goods, necessities (which are more often consumed and used every day, such as toothpaste). The coefficient of elasticity of demand for ordinary items is less than one, since with increasing incomes, the consumer seeks to acquire more rare goods.
Luxury goods - goods that not everyone canafford. Their people buy less often. Cars are a luxury item. The essentials have a saturation limit. For example, soap. People will buy as much as they can consume it. How many soap costs, it will always be needed.
Luxury goods - things or goods that are notare related to the basic needs of the consumer. People can live without them. Coefficient of elasticity luxury goods are above one. Consumer income is increasing and the share of luxury goods is growing. 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 "excesses."
Patients will not reduce the number of visits todoctor, even if the price of medical services increases. 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. The consumer's purchasing power helps economists determine which category to attribute the product to. For a person who loves the sea and has excellent health, a yacht can be considered as a basic necessity, and going to the doctor is a luxury.
Any person will appreciate the gift version of the pen fromusual. What is the difference between them? The gift version is brighter than ink, the better the rod and the body is more beautiful. This handle is more convenient to hold, it will not slip out and looks solid. Such gift pens are usually packaged in special cases, which are not needed in everyday life. That is, you buy an item that you will not use later. This expensive pen is prestigious, but not very functional.
Lower goods are goods with low quality. The demand for such items is decreasing. They are replaced by better ones. These include second-class food, clothing from second-hand.
Countries producing essential goods(agricultural products, extraction of minerals, electricity), in international trades are not in a better position than countries that produce luxury goods of the interior, cars, equipment. With the increase in consumer incomes, the cost of essential goods lags far behind the cost of luxury goods. This is one of the reasons for the division of the world economy.
