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Lecture notes, cheat sheets
Economy. Lecture notes: briefly, the most important
Directory / Lecture notes, cheat sheets Table of contents
Topic 1. THE WORLD OF BENEFITS SURROUNDING MAN A special kind of goods are services that form a separate economic sector - the service sector. 1. The concept of good. Goods are everything that satisfies the natural needs of people. 2. The structure of benefits. Science has developed many different criteria by which goods can be classified: they are created by man or nature, can be replaced in consumption by other goods or not, are they primary or secondary, etc. (Fig. 1.1) Fig. 1.1. Basic classifications of goods Services - a type of human activity that does not have a material form, but satisfies human needs. The modern world is moving from an economy that produces goods to an economy that provides services. 3. Non-market and market forms of goods. The created goods were initially used by people for their own needs. This economic system is called subsistence farming. Gradually, it was replaced by a commodity economy, when, in the course of the division and specialization of labor, people began to exchange goods, and not only surpluses, but also specially made for sale. As a result, a specific kind of economic goods arose - goods. A commodity is a product of labor intended for sale. 4. The value of goods for people. In a commodity economy, the exchange of goods takes place in the market. This exchange is beneficial to both sellers and buyers, if it is voluntary and equivalent. Therefore, the benefits must be measured. People have learned to do this with money. But what underlies the equivalent exchange of goods: labor costs for its production or the utility of goods for the consumer? In economics, there are two theories that explain this phenomenon, both of which originate from the classical school of A. Smith, D. Ricardo and D. S. Mill - this is the labor theory of value and the theory of diminishing marginal utility. Currently, among scientists, the opinion has become stronger that both of them complement each other and can be combined into one general theory. Topic 2. NEEDS AS THE MAIN MOTIVATION OF PEOPLE'S ACTIVITIES 1. The concept of need. Needs are the needs of people, expressed in goods, services, required for life and development. Unsatisfied needs are an incentive motive for a person, an incentive to work to create or acquire the goods that he lacks. The degree of satisfaction of people's needs depends on the level of development of the sphere: material production and non-production. In the first, material values are created - goods, and in the second - spiritual values and services. 2. The law of the rise of needs. The needs of people are unlimited, although the possibility of satisfying the need of an individual for a particular good is quite real. Human needs are constantly growing quantitatively and qualitatively (the law of the rise of needs), since they include not only individual needs, but also the needs of social groups, labor collectives of workers, the population, and, finally, the state as a whole. At the same time, production not only satisfies the growing needs of the population, but, based on the development of science and technology, offers new, previously unknown types of material goods, which, through extensive advertising and marketing activities of firms, expand the range of existing needs. 3. Needs and consumption. Production, responding to needs, creates a field for consumption. Consumption is the process of meeting the needs of people, which consists in using the products of production for their intended purpose. At the same time, production itself, creating goods, consumes, expends certain resources. This part of consumption is called production consumption. In a market economy, people's consumption depends on their income and is measured using such economic indicators as consumption structure, average consumption, per capita consumption, etc. 4. Pyramid of needs A. Maslow. There are numerous classifications of human needs. Usually distinguish between material, spiritual and social needs. However, in modern conditions, the theory of the American economist A. Maslow, who placed the needs in ascending order - from the lowest (material) to the highest (spiritual) (Fig. 2.1), has become most widespread. Fig. 2.1. Pyramid of social and human needs according to A. Maslow Topic 3. RESOURCES OF ECONOMIC ACTIVITIES 1. The concept of resources and their classification. Economic resources are all that a society has for the production of goods and services. The total amount of resources characterizes the potential for economic development. They are the starting point in the production of goods (Fig. 3.1). Fig. 3. W. The process of production of goods These include: - natural (natural) resources; - material resources; - human resources; - financial resources in the form of funds of the population, firms, budget; - information resources in the form of figures, facts, information characterizing the state of the economy. 2. The problem of limited resources. The use of resources in economic activity is associated with the availability of their receipt. Part of the benefits, such as atmospheric air, water, sunlight, wind, tides, are available to all people without limitation or exception. Such resources are called free and are not taken into account in economic calculations. The remaining resources (economic) always exist in limited quantities. This limitation is both absolute and relative. The principle of limited resources dictates the need for their rational distribution and use, savings and concern for restoration. 3. Factors of production. The resources involved in production are modified into its factors. Their total value is the production potential of the economy. There are various classifications of factors of production. Traditionally, the starting point in science is the theory of "three factors of production", proposed more than 200 years ago by the French economist J.B. Say. It includes labor, land and capital. These are the main factors of production. In modern conditions, they are complemented by entrepreneurial activity, technology, energy, information and ecology. Their relationships can be expressed by a diagram (Fig. 3.2). Fig. 3.2. Interaction of factors of production. Let's give definitions of all given factors of production. Labor is the expenditure by a person for creative purposes of his physical, intellectual and spiritual energy. Labor in the production process is characterized by intensity and productivity. The intensity of labor is its intensity, measured by the degree of expenditure of labor power per unit of time. Labor productivity is its effectiveness, measured by the amount of goods produced per unit of time. Earth - natural natural resources. Capital is the means of production created by people and the money used in the production of goods and services. Entrepreneurship is an activity aimed at generating income, profit. Entrepreneurial activity is expressed in the organization of production in accordance with the goals. Technology - ways of influencing resources in the production process. New technologies created by man expand the possibilities of using the properties of resources and allow the development of waste-free and low-waste technologies. Energy is the driving force that transforms natural resources in order to create wealth. Until recently, this factor was not singled out as an independent one, since the driving force in the production of material goods was mainly the physical strength of a person or animals. The information factor is the search, collection, processing, storage and dissemination of useful information necessary for human production activities. The role of this factor in modern conditions has also grown dramatically and has an impact on the entire market economy, predetermining the choice of consumers and producers at the microeconomic level. Ecology is the interaction of man with the environment. Any industrial activity of a person is directly or indirectly related to the impact on the environment. The result of the interaction of factors of production is the creation of wealth. Topic 4. ECONOMIC CHOICE AND PRODUCTION POSSIBILITY FRONTIERS 1. What, how and for whom to produce? Any country, developing production, is forced to pose three fundamental questions: 1) what kind of goods to produce, 2) how to produce them, and 3) for whom to do it? In a market economy, the manufacturer sets himself the goal of obtaining the maximum possible income, selecting for production the most suitable material goods for this purpose. This is the answer to the first question: what to produce? Having decided on the range of manufactured goods, firms in a market economy choose those technologies that provide the lowest production costs. Thus, the market provides an answer to the second fundamental question of the economy: how to produce goods and services? The population, having a monetary income, which is also a limited consumer resource, by comparing the prices of different goods and trying them on to their own capabilities, chooses what to buy and at what price. Therefore, in a market economy, goods are produced for the consumer. 2. The law of rarity. In a market economy, resources are not just limited - they are rare, that is, they are not enough for everyone, and therefore people are forced to compete for the right to use them. In economic practice, the relationship between the scarcity of resources and the need for people to make a choice is constantly reproduced: what to produce and what to refuse. Therefore, the law of scarcity operates in the economy. Its essence lies in the impossibility of satisfying infinitely growing needs, which forces people to make a choice in the order and degree of their satisfaction, and also forces them to rationally use resources. 3. The production possibilities curve. The operation of the law of rarity can be illustrated using a production possibilities curve. It shows what the maximum volume of production of a good or service can be obtained with a given volume of production of another product (Fig. 4.1). Fig. 4.1. Production Capability Curve SP - means of production; PP - consumer goods. The production possibilities curve delimits the economic space into two parts: possible and impossible due to resource insecurity levels of production. This curve itself can move, expanding or narrowing the sphere of production possibilities. The progressive shift of the curve occurs in two cases: 1) under the influence of scientific and technological progress (inventions, new technologies, etc.); 2) as a result of the growth of resources (the discovery of a new deposit, an increase in the number of able-bodied population, etc.). With a balanced ratio of factors for the future, the shift in the production possibilities curve will be carried out evenly (Fig. 4.2). 4. The concept of opportunity cost. The production possibilities curve shows the cost of switching a resource from the production of one good to another in the form of an opportunity cost. Alternative cost is the quantity of an alternative good that must be sacrificed in order to produce an additional unit of that good. Fig. 4.2. Uniform shift in the production possibilities curve In essence, we are talking about fixing missed opportunities by the manufacturer - the so-called alternative (imputed) costs. 5. Production function. A shift in the production possibilities curve clearly shows that the more resources an economy has, the more it can achieve. Such a relationship between the number of factors of production used and the maximum possible output is called the production function. Every firm has its own production function. In general, it can be written: y = f(a1,a2,...an), (4.1) where y is the volume of production of the product; a1, a2... an- applied factors of production. Summing up the production functions of all firms operating in the national economy, one can obtain one general, aggregated production function. In it, the whole variety of individual production functions is distributed into three large aggregates - labor, capital, land: y=f (L, K, N), (4.2) where y is the volume of production; L - labor; K - capital; N is earth. Topic 5. ECONOMIC RELATIONS BETWEEN PEOPLE 1. Interaction of people in economic life. The economic activity of people presupposes the existence of social ties. These relations are significantly influenced by property relations, since behind them are the economic interests of both individuals, groups, and society as a whole. Economic interest is an incentive motive, an incentive for human economic activity in any direction. Among the huge number of facts, phenomena, connections of an objective nature, one can single out the most significant, predetermining actions and development of many economic processes and even the economy as a whole. They are called economic laws. An economic law is an objectively necessary, stable and massively recurring connection and interdependence between phenomena and processes occurring in the economic activity of people. 2. Economic relations and their structure. Objective economic laws are the core of economic relations. Economic relations - relations between people that arise in the process of production, distribution, exchange and consumption of material and spiritual goods and services. There are three groups of bearers of economic relations in a market economy: a) producers and consumers; b) sellers and buyers; c) owners and users of goods. In general, economic relations between people characterize their property position in society. Topic 6. TYPES AND MODELS OF ECONOMIC SYSTEMS 1. The concept of an economic system. Economic theory always considers the economy as an economic system. The economic system is an ordered structure of relations between people in relation to the production and consumption of material goods and services. In the economic system, there are always three main subjects of the economy: households, firms and the state. 2. Criteria for classification. Economic systems can be classified according to various criteria: - according to the functional purpose; - industry set; - reproduction approach; - institutional composition; - social content. The structural elements of the economic system are in dynamic interaction, forming the proportions of the economic system. Economic proportions are the quantitative ratio of individual parts within the entire economic system. The change in proportions can be tracked using the index method recommended by the UN Economic Commission: C= ?(aJ2, - aJ1, ), (6.1) where C is the index of change in proportions; a is the percentage share of sector j in the economic system; J2 - J1 - the period for which the change in the proportion between sectors is calculated. 3. Types of economic systems. Generally speaking, there are three main types of economic systems. Under the traditional system, national historical traditions and economic practices are strong in the economy, which are characterized by the naturalization of economic activity and estates. Under a planned economic system, the state regulates economic activity. In a market system, the central role is played not by the state, but by the market. In general, this system is based on private property and free competition between producers and consumers. 4. Models of the modern economic organization of society. The modern economic system of the vast majority of civilized countries is based on market relations. There are a number of models of such an organization of the economy. They bear the names of those countries in which they are implemented most fully (Fig. 6.1). Fig. 6.1. The content of the main models of the modern economy The listed models of modern economic systems of management are often supplemented by intermediate options: German, French, South Korean, etc. Topic 7. EVOLUTION OF IDEAS IN THEORETICAL ECONOMIC SCIENCE 1. Initial directions of development of economic science. The earliest judgments about economics have come down to us through the teachings of ancient thinkers. The ancient Greek thinkers Xenophon, Plato, Aristotle already in the middle of the first millennium BC. e. paid attention to the principles of housekeeping, the market, the exchange. The judgments of the ancients about the economy were not a science, since economic relations had not yet been developed. The development of serious economic science began with the emergence of capitalism in the 1551th-1611th centuries. At this time, the first significant school in world economic science was created - mercantilism (from It. - merchant). Its representatives were Thomas Man (1575-1621), Antoine Montchretien (1711-1776), David Hume (XNUMX-XNUMX). Mercantilists saw the source of wealth in the economy in trade. It was they who first raised the issue of an active trade balance, the problems of which are of concern to many countries today. Over time, the economy became more complex, and science moved from the analysis of exchange and trade to the analysis of production. As a result, the doctrine of the Physiocrats arose (from Greek - the power of nature). Its representatives were Francois Quesnay (1694-1774), Jacques Turgot (1727-1781). Due to the underdevelopment of production, the Physiocrats studied its condition only in the agrarian sector of the economy. The limited approach of the physiocratic school was overcome by the classical school (representatives: Adam Smith (1729-1790), David Ricardo (1772-1823). It is called classical because for the first time in the history of economic thought, its representatives considered the entire economy as a whole, while developing the foundations of labor theory of value, revealing the concept of the market and the pricing mechanism.On the basis of its theoretical heritage, two opposing teachings arose - Marxism and marginalism. Marxism is the doctrine of the economic system of capitalism and its replacement by a new, advanced system - communism. The founder of Marxism is Karl Marx (1818-1883). Marginalism is an economic theory that arose in the second half of the nineteenth century. and assessing the legacy of the classical school from positions opposite to Marxism (representatives: William Jevons (1835-1882), Karl Menger (1840-1921), Friedrich von Wieser (1851-1926), Eugene von Bam-Bawerk (1851-1914). The neoclassical school (founder - Alfred Marshall (1842-1924)), developing marginalism, linked its ideas with the classical school, for which it got its name. Using the mechanisms of supply and demand and market pricing, Marshall combined production and exchange without opposing them to each other. XNUMXth century brought enormous changes to the world economy, reflected in the birth of two new schools - Keynesianism and institutionalism. The Keynesian school took shape in the 30s. 1883th century based on the ideas of John Maynard Keynes (1946-1857) and has been developing to this day. The peculiarity of the teaching is that: a) the ideas of the neoclassicists are transferred to the level of the entire national economy (macroeconomics); b) the role of the state in market regulation is substantiated. Institutionalism is a scientific school that introduced into scientific analysis, in addition to the market, various institutions - corporations, trade unions, the state, as well as national characteristics, traditions, etc. Its representatives are Thorstein Veblen (1929-1874), Wesley Mitchell (1948 -XNUMX). 2. Modern views on economic theory. Economic theory continues to develop, new economic doctrines appear. 1. The theory of post-industrial society and convergence that grew out of institutionalism (representatives: John Galbraith, Walt Rostow (USA), Jan Tinbergen (Netherlands)). Main idea: under the influence of scientific and technological revolution in the second half of the twentieth century. a mixed society arises, replacing socialism and capitalism. 2. Monetarism as a branch of neoclassicism, which puts monetary relations at the head of the analysis of the economy, considering them a decisive factor in the economy (the founder is Milton Friedman (USA)). 3. Economic liberalism - a trend coming from the classical school (representatives: Ludwig von Mises, Friedrich von Hayek (Germany). Main idea: minimal state impact on the economy, unlimited freedom of enterprise. 4. The theory of rational expectations, based on the premise that modern economic activity is impossible without forecasting, foreseeing the main ways of development (founder - Robert Lucas (USA)). 5. The theory of neoclassical synthesis seeks to combine the main ideas of the neoclassical school and Keynesianism through the analysis of general economic equilibrium, economic growth and taxation (representatives: John Hicks (Great Britain), Paul Samuelson (USA). 3. The contribution of Russian economists to the development of economic theory. Russian economic science has its representatives in almost all of the above schools, starting with A.A. Ordin-Nashchokin and I.T. Pososhkov, contemporaries of Peter I, who became the founders of Russian mercantilism, and before M.N. Tugan-Baranovsky (1865-1919), who sought to combine Marxism and marginalism. The theory of long waves in the economy of N. D. Kondratiev (1892-1938), the works of the agrarian theorist A.V. Chayanov (1882-1937). In the second half of the twentieth century. Soviet economists V.V. Novozhilov (1892-1970), V.S. Nemchinov (1894-1964), L.V. Kantorovich (1912-1986) made a major contribution to the application of economic and mathematical methods. Topic 8. SUBJECT OF ECONOMIC THEORY. METHODS OF RESEARCH AND ANALYSIS OF ECONOMIC PROCESSES 1. Scientific schools - about the subject of economic theory. In 1516, A. Montcretien defined theoretical studies in economics as political economy, A. Marshall in 1890 - as economics, and in modern Russia it acquired the name of economic theory. Most scientists believe that we are not talking about different sciences, but about the specifics of views on the subject and content of a general universal theoretical economy. Economic theory is a universal science that studies economic phenomena and processes, the functioning of the economy, economic relations based on logic, historical experience and theoretical concepts. Economic processes are considered by economic science at two levels. It: a) microeconomics - a section of economic theory that analyzes economic processes in individual economic entities and develops recommendations for producers and consumers of goods. b) macroeconomics - a section of economic theory that studies the sphere of the national economy as a whole and develops methods to combat inflation, unemployment, economic recession and other problems. 2. Functions of economic theory. Economic theory is a social science (along with philosophy, history, jurisprudence, etc.), designed to explain to people the principles of their economic existence. At the same time, it performs four functions: cognitive, practical, methodological, ideological. The cognitive function is expressed in the study and explanation of the essence of economic processes. The development of new knowledge helps to anticipate the future state of the economy, which in turn requires efforts to transform reality. This role is performed by the practical function of economic theory. The practical function acts in the form of developing principles and methods of rational management, scientific substantiation of the economic strategy for reforming economic life. The practical function of economic theory is closely related to economic policy. Communication principle: "ideas - solutions". Economic policy is a purposeful system of state measures to regulate the economy. The methodological function is expressed in the fact that economic theory is the theoretical foundation for a whole group of sciences: - sectoral (economics of construction, industry, agriculture, etc.); - functional (accounting, finance, marketing, etc.); - intersectoral (statistics, econometrics, economic history, demography, etc.). 3. Applied methods. Economic theory equips this complex of sciences with general approaches and views on economic processes, the laws of development operating in them, and at the same time develops recommendations for the use of a number of techniques in the study of objects. There are both general scientific and special methods. General scientific methods: - scientific abstraction; - analysis and synthesis; - historical and logical approach; - induction and deduction; - metaphysical; - dialectical. Special methods: - econometric; - positive and normative; - economic experiment; - ideological. Economic theory is developed by specific people who are driven by motives that often do not coincide with the interests of other people. Therefore, economic theory inevitably introduces an ideological shade into the assessment of economic life in terms of justice, efficiency, rationality of economic relations that have developed in society. 4. Scientific apparatus. The application of various methods in economic science is provided with the help of the scientific apparatus. scientific apparatus make up auxiliary techniques and means by which the economy is studied: - hypotheses - unverified preliminary conclusions about the state of the economy; - economic and mathematical models, i.e. abstract, simplified ideas about economic processes and their interaction in the form of mathematical formulas and equations; - graphs - a visual spatial representation of the relationship between two (or more) economic variables. Topic 9. MARKET AS AN ECONOMIC CATEGORY 1. The concept of the market. In economic theory market - This is the sphere of economic relations between people regarding the sale and purchase of goods and services, based on the principles of voluntariness and equality in exchange. The market performs important functions: - the function of self-regulation of the economy, based on the interaction of supply and demand, with the help of which answers are given to the questions: what, how and for whom to produce? - a stimulating function that allows the strongest to win in the competition; - an accounting function, through which proportions are established in the exchange of goods, prices are determined and information signals are sent to sellers and buyers; - an intermediary function that allows you to bring market agents together. The market is not an ideal form of economic relations in society, therefore, theoretical attempts have been repeatedly made to justify the possibility of non-market development - from T. Mora and T. Campanella to K. Marx and building socialism in the USSR. However, today the market is the most effective form of management, since implements the most understandable thing for people - a material interest in the results of their work (Fig. 9.1). Fig. 9.1. Advantages and disadvantages of the market 2. Structure and infrastructure of the market. The market is a complex economic phenomenon. It has a certain structure, i.e., an internal structure. To better understand and explain it, various classifications are used (Fig. 9.2). In economic theory, there is a special classification of the market - according to the degree of influence of sellers and buyers on the formation of the market price. According to this criterion, the following markets can be distinguished: - perfect competition (ideal market); - imperfect competition (the real market with varying degrees of influence on the price). The modern market also implies the existence of an extensive infrastructure, i.e. a set of institutions of the state and business sectors that provide: - realization of the interests of participants in market relations; - favorable conditions for fulfilling the tasks of market entities; - legal and economic control of economic activity; - regulation of business activity in the market. Fig. 9.2. Market Classification Principles Fig. 9.3. Composition of the market infrastructure 3. Limits of market development. The level, pace and boundaries of the development of market relations depend on the profitability of the exchange for its participants. This mechanism is explained by A. Smith's exchange theorem and R. Coase's market boundary theorem. The essence of A. Smith's theorem is that market exchange is beneficial for both sellers and buyers, and therefore causes a deepening of the division of labor and specialization of production. As a result, production volumes grow and production costs decrease, i.e., labor productivity increases. At the same time, the costs of selling the goods produced, transporting them, storing them, handling cash transactions, etc., increase. Consequently, the market expands until the increase in distribution costs exceeds the economies of scale. R. Coase's theorem, developed two centuries after A. Smith's theorem, supplements the characteristics of the market boundaries with an indicator of the regulation of property relations: if they are regulated by law, then market relations are carried out without state intervention and the market grows according to the principles of A. Smith, but if the legal basis of economic relations is weak, the state is forced to intervene in business affairs, to be an arbitrator in disputes. For firms, this turns into an increase in the risk of transactions, an increase in the costs of lawsuits, the maintenance of lawyers, examinations, etc. As a result, businessmen go into the shadows, acquire criminal "roofs", trying to protect themselves from the growth of such costs, and as a result, the market stops expanding . Topic 10. DEMAND AND SUPPLY 1. Demand and its function. To build a clear model of the market, it is necessary to investigate, under ideal conditions (under perfect competition), the interaction of the most important categories of the market - supply and demand, behind which are buyers and sellers. Demand is the quantity of goods (services) that buyers are willing to purchase in the market. The amount of demand depends on a number of factors. This dependence is called the demand function. Qda = f (Pa, Pb...z, K, L, M, N, T), (10.1) where Qda is the demand function for the product; Pa is the price of the goods; Pb...z - prices of other goods, including substitute and related goods; K - cash income of buyers; L - tastes and preferences of people; M - consumer expectations; N is the total number of buyers; T - the accumulated property of people. The main factor in demand is the price of goods, so the dependence can be simplified: Qda= f(Pa).(10.2) The demand function can also be represented in the form of a graph (Fig. 10.1). Fig. 10.1. Demand function The interconnection of points on the graph, each of which is a specific combination of price and quantity, allows you to build a demand curve D. 2. Offer and its function. Supply is the quantity of goods (services) that sellers are willing to sell in the market. Like demand, it depends on a number of factors and can be formalized. Qsa = f (Pa, Pb...z, C, K, R, N), (10.3) where Qsa is the offer of goods; Pa is the price of the goods; Pb...z - prices of other goods, including substitute and related goods; C - availability of production resources; K - applied technology (time); R - taxes and subsidies from manufacturers; N is the number of sellers. The main factor of supply is the same as demand - price. Qsa = f(Pa). (10.4) The supply function can also be set using a table that is easy to translate into a graph (Fig. 10.2). Fig. 10.2. Suggestion function Connecting the points on the graph allows you to build a supply curve S, which has an ascending form. 3. Market equilibrium. The market brings together buyers and sellers, as a result of which supply and demand tend to intersect. If the interests of sellers and buyers coincide, then there is a market equilibrium. Equilibrium price - this is the result of a large number of transactions in the market (although it appears to each of the sellers and buyers as pre-established) (Fig. 10.3). Fig. 10.3. Market equilibrium P- price (rub); D- demand; Q- product (piece); S-offer. The price equilibrium of the market is stable, since any volitional actions to change the price on the part of sellers cause an opposite reaction on the part of buyers and vice versa. Overpricing leads to overstocking and causes the need to lower the price, while underpricing leads to shortages and subsequent price increases. 4. The economic law of supply and demand. The inverse relationship between price and demand is called the law of demand, which, like all other economic laws, is not absolute and manifests itself only in droves. The law of demand has an exception: essential goods are not subject to its action, with an increase in prices for which demand does not decrease (salt, bread, etc.). The range of such goods depends on national characteristics and consumption traditions. In economic theory, they are usually called Giffen goods, after the English researcher of the XNUMXth century. The manifestation of the law of demand is also complicated: - the effect of prestigious consumption (the Veblen effect), when people specifically buy expensive goods in order to stand out from the rest; - rush demand for scarce goods, etc. The action of the law of demand in conjunction with supply is often called the law of supply and demand. 5. Change in supply and demand. If the price changes, then supply and demand do not change, but only increase or decrease, moving along the curve to a new position (Fig. 10.4). Fig. 10.4. Increase and decrease in supply and demand Supply and demand are influenced by other factors besides price. If other factors change, supply and demand change, which is expressed in a shift of the curves to the right or left (Fig. 10.5). Fig. 10.5. Change in supply and demand Topic 11. BEHAVIOR OF SELLERS AND BUYERS IN THE MARKET 1. Competition. Competition is at the heart of the interaction between sellers and buyers. Competition - rivalry between market economy participants for the best trade results and sales markets. Competition ensures the interaction of supply and demand and balances the market price. It is directly dependent on the number of market agents: the more there are, the more difficult it is for individual sellers and buyers to influence the price. Competition is not only price, when the buyer is attracted by a lower price, but also non-price, in which it unfolds against the backdrop of guarantees, service, improving the quality of goods, and marketing services. Competition can come in two forms: - perfect competition - a system of free, by no one and nothing limited pricing; - imperfect competition, in which these conditions are not met. 2. Perfect and imperfect competition. Perfect competition is an ideal representation of the conditions for buying and selling goods in the market. She assumes that: - no one individually can influence market prices, since the number of sellers and buyers in the market is very large and, as a result, the share of each in purchase and sale transactions is excessively small; - there are no entry barriers in the market, and it is accessible to everyone; - the exchange is carried out by standardized goods, excluding preferences for both buyers and sellers; - information is available to everyone equally; - buyers and sellers behave rationally. Economic theory, in order to simplify the analysis, often first considers the market of perfect competition, and then, having drawn theoretical conclusions, corrects them for the conditions of imperfect competition. 3. Varieties of imperfect competition. Imperfect competition involves control over pricing in the market, the level of which may be different. Therefore, it has the following forms (Fig. 11.1): Fig. 11.1. Forms of imperfect competition Monopoly is a form of imperfect competition in which one seller controls the price in the market. This situation is possible under the following conditions: a) the product has no analogues, and the buyer is forced to purchase it; b) access to the market for other sellers is closed through financial, legal, technical and other barriers. If monopoly occurs on the side of the buyer, then this kind of monopoly is called monopsony. In the case when a monopolist meets a monopsonist in the market, a bilateral, or bilateral, monopoly arises. Oligopoly is a form of imperfect competition in which a few sellers control the price in the market. An oligopoly can be assessed as a monopoly with little competition between sellers. If there are only two competing sellers in the market, then such a structure is called a duopoly. When an oligopoly occurs on the buyer side, it is called oligopsony. Monopolistic competition is a form of imperfect competition in which many sellers sell goods of the same type, but differing in their properties. Monopolistic competition can be thought of as competition with a small amount of monopoly added to it. Topic 12. CONSUMER PREFERENCES IN THE MARKET AND THE LAW OF DECREASING MARGINAL UTILITY 1. Rationality of consumer behavior and the law of diminishing marginal utility. At the heart of consumer choice is always the desire of the buyer to satisfy a particular need. When making a choice, consumers determine the value of things for themselves by determining their usefulness. Usefulness - it is the ability of a thing to satisfy a human need. It tends to be saturated, satisfied as it is consumed, therefore, along with utility, the value of a thing also decreases. Utility can be either total or marginal. Total utility is the total utility of all consumed units of a good: TV = f (a1, a2,...an), (12.1) where TV is the total utility; a1, a2,... an- consumption of units of the good. Marginal utility is the additional utility added by each successive unit of a consumed good: where is marginal utility; ?TV - increase in total utility; ?Q is the increase in the consumed good. As consumption grows, total utility grows, while marginal utility decreases, and tends to 0 - to complete saturation. If the consumption of the good continues, then the marginal utility will become negative, turning into harm, and the total utility will decrease (Fig. 12.1). Fig. 12.1. Combining the dynamics of the general and marginal utility It may seem that the greatest value and, accordingly, the market price should have the goods that have the greatest utility - food, clothing, housing, but then why is water more useful than diamond, but sold cheaper? (A. Smith's paradox). This is because the market price is determined not by the total, but by the marginal utility of the last part of the consumed good. Due to the rarity of diamonds compared to water and the inability to meet the needs of all people for it, its last unit has a greater marginal utility than water. This is the essence of the law of diminishing marginal utility, discovered by the German economist G. Gossen. 2. The essence of consumer choice in the market. The value of a product on the market for the buyer is a subjective concept, as it is based on his personal tastes and preferences, however, consumer choice always depends on the following factors: - a limited supply of goods that society has; - the level of saturation of the need by the time of choice; - the desire of people to get the maximum benefit from consumption. 3. Consumer preferences: two approaches. To choose a product in the market, the buyer must measure its marginal utility and compare it with others. In the process of developing the theory of marginalism, two trends arose - cardinalists and ordinalists - each of which explained this mechanism in its own way. The cardinalists were looking for an absolute expression of the marginal utility measurement scale, while the ordinalists were looking for a relative one. The cardinalists introduced a unit of utility into science - util, which, in essence, was determined in points and was a subjective assessment of preferences. The ratio of marginal utility, expressed in units, to the market price gave a more realistic measurement - weighted marginal utility. where MV is the weighted marginal utility; MV is the marginal utility of the good; P is the market price of a good, product, service. Comparison of the weighted marginal utilities of various goods is the criterion for the choice of consumers by the cardinalists and is expressed in the preference for the consumption of goods with a large marginal utility until it is equal to the rest. Such a comparison is called the marginal utility maximization rule and means the optimal distribution of the consumer's income in order to best meet his needs: where MV is the marginal utility of the good; P is the market price of the good. The ordinalists found a method for measuring not individual utilities, but entire groups, sets of utilities. When expressing preferences for sets of goods, people proceed from common sense, which can be formalized in the form of the following axioms of consumer behavior: 1) the axiom of complete ordering - allows the buyer to decide in order of preference (if the values of sets of goods are the same, then the buyer does not care which one to consume); 2) the axiom of transitivity - makes it possible to correlate preferences: if one set is preferable to another, and that, in turn, is preferable to the third, then the first set is necessarily preferable to the third; 3) the axiom of non-saturation - says that the consumer will always prefer a set with a large number of goods; 4) the axiom of consumer independence assumes that the degree of satisfaction of human needs does not depend on the consumption of other people. The above axioms make it possible to mathematically describe the actions of consumers as predictable and consistent. 4. Indifference curve and budget constraint. The system of consumer preferences can be represented in the form of graphs. This was first done by the English economist F. Edgeworth in 1881, by constructing indifference curves. indifference curve - the locus of points, showing the set of sets of goods that have equal utility for the consumer. Each point on the indifference curve is a particular combination of two such goods (Figure 12.2). Fig. 12.2. indifference curve a, b, c, d - different sets of goods A and B; U is an indifference curve. If the consumer's preferences change, then new indifference curves will arise. A set of indifference curves placed on one graph is commonly called an indifference map (see Fig. 12.3). Fig. 12.3. Indifference card The slope of the indifference curves expresses the proportion in which the consumer is willing to replace one product in the set with another. The marginal rate of substitution is the maximum quantity of a good a consumer is willing to give up in order to obtain an additional unit of a good. The marginal rate of substitution can be expressed mathematically (12.5) and graphically (Fig. 12.4). (12.5) where MRS is the marginal rate of substitution; x and y are goods. The marginal rate of substitution measures the marginal utility (benefit) provided by an additional unit of a good. Preferences do not fully explain consumer behavior, as individual choices are influenced by consumers' purchasing power, which in turn depends on the consumer's budget and price levels. Fig. 12.4. Marginal rate of substitution a, b, c - sets of goods. The purchasing power line that limits consumer choice in the market is called the budget line. It is built by alternately plotting on the axes of the graph the maximum amount of goods that can be purchased subject to the full budget expenditure (Fig. 12.5). Fig. 12.5. budget line 5. Equilibrium of the consumer. Satisfying any needs is always ab-budget line. is limited, therefore, to find the best consumer choice, one should superimpose a budget line on an indifference map. In this case, the found optimal solution will mean the equilibrium of the consumer in the market. The optimal combination should: a) be on the budget line, since on the left is the area of underutilization of the budget, and on the right - insufficiency; b) be on the indifference curve as far as possible from the origin, thereby maximizing the benefit. Two lines touching at the same point always have the same slope. In this case, the slope of the indifference curve is determined by the rate of substitution (MRS), and the slope of the budget line is determined by the ratio of prices of goods included in the set (PB / PA), so the consumer's equilibrium condition can be expressed mathematically (12.6) and graphically (12.6): Fig. 12.6. consumer equilibrium Up U2, U3 - indifference curves; A, B - underutilization of the budget; M - unavailability for the budget; E - consumer equilibrium. Topic 13 1. Normal goods. Prices in the market fluctuate, consumer incomes are also not a constant value, therefore, under their influence, the equilibrium of the consumer changes. If the consumer's income grows, then his purchasing power increases and, conversely, when income decreases, it narrows (Fig. 13.1). The changed financial possibilities force the consumer to move to a new indifference curve (see p. 37), on which he searches for a new optimum point. Goods for which there is a direct relationship between income and consumption are called normal #Agoods. Most of them are on the market. Goods that have an inverse relationship between income and consumption are called inferior goods. As income increases, the consumer refuses them, replacing them with more valuable ones, and as income decreases, the consumption of some of them not only remains, but even increases, such as, for example, the consumption of Giffen goods. It should be borne in mind that we are talking about individual preferences and inclinations of people, therefore, for some consumers, a product may be normal, while for others it may be inferior. Rice. 13.1. Change in income and the optimal choice of the consumer AB, A1B1, A2B2 - budget lines; E, E1, E2 - optimum points. 2. Engel curves. The relationship between income and consumption was first studied by the German statistician H. Engel, so its graphical display is called Engel curves (Fig. 13.2). Engel's law applies in the economy: when income increases, consumers increase spending on luxury goods to a greater extent, and spending on essential goods less than their income increases. Firms in the market conduct a marketing policy in order to increase sales, so it is important for them to know how the consumer will dispose of his income. This can be determined if the Engel curves are combined into a single graph and linked to different product groups. To do this, an auxiliary line 0K should be entered on the graph at an angle of 45ok to the origin of coordinates, on which incomes are equal to expenses, then all Engel curves will be placed under it (Fig. 13.3). Fig. 13.3. Distribution of consumer income 0K - income is equal to expenses. 3. Price change. The substitution and income effect. Changes in prices, like income, affect the equilibrium of the consumer. When the price of one product changes and the price of another in the set remains unchanged, the budget constraint shifts: a) to the right - when the price increases, and b) to the left - when the price decreases. In both cases, the slope of the budget line changes and the consumer's equilibrium moves from one point to another. Topic 14. ELASTICITY OF DEMAND AND SUPPLY 1. The concept of elasticity. Demand and supply depend on price changes, but the degree of dependence of individual goods is different. This feature of the goods is taken into account by calculating the elasticity. Elasticity - the speed of demand or supply response to price changes. If it is expressed as a percentage change, then the elasticity coefficient can be calculated: where Edp - price elasticity coefficients of demand and supply; %?Р - price change; %?D, ?S - change in supply and demand. 2. Classification of degrees of elasticity when the price of goods changes. Supply and demand, depending on their reaction to price changes, can be divided into five positions (Fig. 14.1): Fig. 14.1. Elasticity of supply and demand 3. Varieties of elasticity. The elasticity of demand can be calculated not only by the "price" factor, but also by other factors. If we consider the elasticity of demand for the factor "income" (K), then negative elasticity may arise, since an increase in the income of the population, as a rule, leads to a reduction in the consumption of goods of lower quality. If we consider the elasticity of demand for the factor "prices for other goods" (Pb ... z), i.e., for related and substitute goods, then cross elasticity is formed. Elasticity itself is determined by various factors (Fig. 14.2). Fig. 14.2. Elasticity factors of supply and demand 4. Practical value of elasticity. Knowing the elasticity of supply and demand is of practical importance for an entrepreneur: if the demand for a product is elastic, then it is more profitable for the seller to reduce prices, since in this case he increases the total proceeds from the sale. If he acts otherwise, he will not be able to rationally take advantage of the current market conditions and will receive less possible income. Topic 15. LAW OF DECREASING MARGINAL PRODUCTIVITY 1. The essence of the law. With an increase in the use of factors, the total volume of production increases. However, if a number of factors are fully involved and only one variable factor increases against their background, then sooner or later there comes a moment when, despite the increase in the variable factor, the total volume of production not only does not grow, but even decreases. The law says: an increase in a variable factor with fixed values of the rest and the invariance of technology ultimately leads to a decrease in its productivity. 2. Operation of the law. The law of diminishing marginal productivity, like other laws, operates in the form of a general trend and manifests itself only when the technology used is unchanged and in a short period of time. In order to illustrate the operation of the law of diminishing marginal productivity, one should introduce the concepts: - total product - the production of a product with the help of a number of factors, one of which is variable, and the rest are constant; - average product - the result of dividing the total product by the value of the variable factor; - marginal product - the increment of the total product due to the increment of the variable factor. If the variable factor is incremented continuously by infinitesimal values, then its productivity will be expressed in the dynamics of the marginal product, and we will be able to track it on the graph (Fig. 15.1). Fig. 15.1. Operation of the law of diminishing marginal productivity Let's build a graph where the main line OABCB is the dynamics of the total product: 1. Divide the curve of the total product into several segments: OB, BC, CD. 2. On the segment OB, we arbitrarily take point A, at which the total product (OM) is equal to the variable factor (OR). 3. Let's connect the points O and A - we will get the RAR, the angle of which from the coordinate point of the graph will be denoted by ?. The ratio of AR to OR is the average product, also known as tg ?. 4. Draw a tangent to point A. It will cross the axis of the variable factor at point N. A APN will be formed, where NP is the marginal product, also known as tg ?. On the entire segment of the OF tg ? On segment BC, the growth of marginal product is reduced against the background of the continuing growth of the average product. At point C, marginal and average product are equal to each other and both are equal to ?. Thus, the law of diminishing marginal productivity began to manifest itself. On segment CD, the average and marginal products are reduced, and the marginal product is faster than the average. At the same time, the total product continues to grow. Here the operation of the law is fully manifested. Beyond point D, despite the growth of the variable factor, an absolute reduction even in the total product begins. It is difficult to find an entrepreneur who would not feel the effect of the law beyond this point. Topic 16. ISOQUANT AND ISOCOSTA. BALANCE OF THE MANUFACTURER. EFFECTS OF SCALE 1. Isoquant of output. The production function can be graphically represented as a special curve - an isoquant. Product isoquant is a curve showing all combinations of factors within the same output. For this reason, it is often referred to as an equal output line. Isoquants in production perform the same function as indifference curves in consumption, therefore they are similar: they also have a negative slope on the graph, have a certain proportion of factor substitution, do not intersect with each other, and the farther they are from the origin, the greater the result of production reflect ( Fig. 16.1). Fig. 16.1. Product isoquants a, b, c, d - various combinations; y y1, y2 y3 - isoquants of the product. Fig. 16.2. Types of isoquants Isoquants can take various forms: a) linear - when it is assumed that one factor is completely replaced by another; b) in the form of an angle - when a rigid complementarity of resources is assumed, outside of which production is impossible; c) a broken curve expressing the limited possibility of replacing resources; d) a smooth curve - the most general case of the interaction of factors of production (Fig. 16.2). 2. Ultimate the rate of technical substitution of resources. The shift of the isoquantum is possible under the influence of the growth of attracted resources, technical progress and is often accompanied by a change in its slope. This slope always determines the marginal rate of technical substitution of one factor for another (MRTS). The marginal rate of technical substitution of one factor for another is the amount by which one factor can be reduced by using an additional unit of another factor, while output remains unchanged. where MRTS is the marginal rate of technical substitution of one factor for another. 3. Equilibrium of the consumer. Isoquant - the result of the interaction of factors of production. But in a market economy there are no free factors. Consequently, the possibilities of production are not least limited by the financial resources of the entrepreneur. The role of the budget line in this case is played by the isocost. Isocost - the line that limits the combination of resources to the cash costs of production, so it is often called the line of equal costs. With its help, the budgetary possibilities of the manufacturer are determined. The manufacturer's budget constraint can be calculated: C = r + K + w + L, (16.2) where C is the manufacturer's budget constraint; r is the price of capital services (hourly rent); K- capital; w is the price of labor services (hourly wages); L- labor. Even if an entrepreneur does not use borrowed funds, but own funds, this is still a cost of resources, and they should be considered. The factor price ratio r/w shows the slope of the isocost (see Figure 16.3). Fig. 16.3. Isocost and its shift K - capital; L - labor. An increase in the budgetary possibilities of an entrepreneur shifts the isocost to the right, and a decrease to the left. The same effect is achieved in conditions of unchanged costs with a decrease or increase in market prices for resources. By combining the isoquant and isocost graphs, one can determine the producer's equilibrium, that is, the optimal set of resources that, with the available financial costs, gives the best result (Fig. 16.4). Fig. 16.4. Producer equilibrium y1, y2, y3 are isoquants; E - optimum point. 4. Return on scale of production. The value of the factors used in production is the scale of production. Returns to scale (i.e. the result of production activities) can be: a) constant, if the result of production increases in the same proportion as resources; b) decreasing, if the result of production increases in a smaller proportion; c) increasing if the result of production increases in a larger proportion (Fig. 16.5). Fig. 16.5. Returns to scale production Topic 17. ORGANIZATION OF BUSINESS ACTIVITIES. FIRM 1. Entrepreneurship and conditions for its development. Entrepreneurial activity - a type of economic activity, the purpose of which is to generate income, profit. The following conditions are important for the development of entrepreneurship: - the presence of private property in various forms (intellectual, property, capital, etc.) and its legal protection; - support from the state; - Ensuring freedom of entrepreneurial activity; - conducting a reasonable tax and customs policy without benefits and privileges for the elite. 2. Types of entrepreneurial activity. Entrepreneurship covers various areas of human activity (Fig. 17.1). Fig. 17.1. Business areas Industrial entrepreneurship - activities for the production of products, services and their subsequent sale to consumers. Its variety is state entrepreneurship, in which state-owned enterprises operate on the principle of self-sufficiency and self-financing. Commercial entrepreneurship is the resale of already produced and sold goods and services. It performs the function of bringing the product to the end consumer in market conditions. Its variety is financial and insurance business. Intermediary business is the activity of bringing sellers and buyers together. 3. Entrepreneurial risk. Entrepreneurship carried out in a competitive environment creates risk. Entrepreneurial risk - the probability of loss of profit, income. The risk may be different, but in any case it is inevitable due to the uncertainty and volatility of market conditions (Fig. 17.2). Fig. 17.2. Distribution of risk by zones Bankruptcy - the inability of the entrepreneur to pay his obligations, established by the court, leading to the liquidation of the company. 4. Organizational and legal forms of entrepreneurship. The initial level of entrepreneurial activity in a market economy is the firm. Firm - the name of an organization, enterprise, company or corporation of the business sector, carrying out economic activities in order to generate income, profit. It is the firm that is an independent economic entity of a market economy, which is assigned to a legal entity. The firm - a legal entity has its own charter, accounting, bank accounts, the right to conclude contracts. Entrepreneurship can also be carried out without the status of a legal entity - as an individual - an individual entrepreneur. The classification of firms operating in the economy is diverse and depends on their size, industry affiliation, organizational structure, etc. The Civil Code of the Russian Federation provides for the use of one or another form of ownership as the main classification principle: 1) individual (family) company; 2) a partnership (society) in three varieties: a) complete; b) mixed (limited) partnership; c) a limited liability company. Each of the listed forms has advantages and disadvantages, so the entrepreneur has the right to choose the most convenient organizational and legal form of activity for him. In state entrepreneurship, unitary enterprises of three levels are created: federal, regional and municipal. A variety of state unitary enterprises are state-owned enterprises. They are established directly by the Government of the Russian Federation at the federal level and have some management features compared to conventional state-owned enterprises (for example, Goznak). Topic 18. PRODUCTION COSTS: THEIR TYPES, DYNAMICS 1. The concept of costs. There is no production without costs. Costs are the costs of acquiring factors of production. Costs can be considered in different ways, so in economic theory, starting with A. Smith and D. Ricardo, there are dozens of different cost analysis systems. By the middle of the twentieth century. general principles of classification have developed: 1) according to the method of estimating costs and 2) in relation to the value of production (Fig. 18.1). Fig. 18.1. Classification of production costs 2. Economic, accounting, opportunity costs. If you look at the purchase and sale from the position of the seller, then in order to receive income from the transaction, it is first necessary to recoup the costs incurred for the production of goods. Economic (imputed) costs are economic costs incurred, according to the entrepreneur, by him in the production process. They include: 1) resources acquired by the firm; 2) the internal resources of the firm, not included in the market turnover; 3) normal profit, considered by the entrepreneur as compensation for risk in business. It is the economic costs that the entrepreneur makes it his duty to reimburse primarily through the price, and if he fails, he is forced to leave the market for another area of activity. Accounting costs - cash costs, payments made by the firm for the purpose of acquiring the necessary factors of production on the side. Accounting costs are always less than economic costs, since they take into account only the real costs of acquiring resources from external suppliers, legally formalized, existing in an explicit form, which is the basis for accounting. Accounting costs include direct and indirect costs. The first ones consist of expenses directly for production, and the second ones include costs without which the company cannot work normally: overhead costs, depreciation, interest payments to banks, etc. The difference between economic and accounting costs is the opportunity cost. Opportunity cost is the cost of producing a product that the firm will not produce because it uses resources to produce the product. Essentially, the opportunity cost is the opportunity cost. Their value is determined by each entrepreneur independently, based on his personal ideas about the desired profitability of the business. 3. Fixed, variable, general (gross) costs. An increase in the firm's output usually results in an increase in costs. But since no production can develop indefinitely, therefore, costs are a very important parameter in determining the optimal size of an enterprise. For this purpose, the division of costs into fixed and variable is applied. Fixed costs are the costs that a firm incurs regardless of the volume of its production activities. These include: rent for premises, equipment costs, depreciation, property taxes, loans, remuneration of managerial and administrative apparatus. Variable costs - the costs of the company, which depend on the magnitude of production. These include: the cost of raw materials, advertising, wages of employees, transport services, value added tax, etc. With the expansion of production, variable costs increase, and with a reduction, they decrease. The division of costs into fixed and variable is conditional and acceptable only for a short period during which a number of production factors are unchanged. In the long run, all costs become variable. Gross costs are the sum of fixed and variable costs. They represent the cash costs of the firm for the production of products. The relationship and interdependence of fixed and variable costs as part of the general can be expressed mathematically (formula 18.2) and graphically (Fig. 18.2). FC+VC=TC; TC-FC=VC; TC-VC=FC, (18.2) where FC is fixed costs; VC - variable costs; TC is the total cost. Fig. 18.2. Total costs of the firm C is the company's costs; Q is the number of products produced; FG - fixed costs; VG - variable costs; TG - gross (general) costs. 4. Average costs. Average cost is the gross cost per unit of output. Average costs can be calculated at the level of both fixed and variable costs, so all three types of average costs are called the family of average costs. where ATC is the average total cost; AFC - average fixed costs; AVC - average variable costs; Q is the number of products produced. With them, you can make the same transformations as with constants and variables: ATC=AFC+AVC; AFC=ATC-AVC; AVC=ATC-AFC. (18.4) The relationship of average costs can be depicted on the graph (Fig. 18.3). 18.3. average cost of the firm C - company's costs; Q - the number of products produced. 5. Ultimate firm. It is important for the entrepreneur to know how his average total cost atc relates to the market price avc. In this case, there are three situations when market prices are: a) lower costs b) higher costs; c) are equal to costs. In situation a) the firm will be forced to leave the market. As a result, if demand remains unchanged, prices will rise and situation c) will occur. In situation b) the firm will earn high income and other firms will join it. As a result, supply will exceed demand and prices will fall to c). In situation c), the minimum value of the average total costs coincides with the market price, that is, it only covers it. It would seem that there is no incentive here - profits and the company will have to leave the market. But it's not. The fact is that entrepreneurs include in their costs not only fixed and variable, but also opportunity costs. Therefore, in this situation there is a profit, but there is no excess profit due to the excess of demand over supply. Situation c) is the most typical in the market, and the firm in it is called the marginal firm. 6. Marginal cost. The entrepreneur wants to know not only the minimum cost per unit of output, but also for the entire volume of production. To do this, you need to calculate the marginal cost. Marginal cost is the incremental cost of producing one more unit of output. where MC - marginal costs; ?TC - change in total costs; ?Q - change in output. The calculation of marginal cost against average total and variable costs allows the entrepreneur to determine the volume of production at which his costs will be minimal. The firm, increasing the volume of production, goes to additional (marginal) costs for the sake of additional benefits, additional (marginal) income. Marginal revenue is the additional revenue that arises from an increase in production per unit of output. Marginal revenue is closely related to the gross income of the firm, is its growth. Gross income depends on the level of prices and production volumes, i.e. TR \u18.6d P x Q, (XNUMX) where TR - gross income; P - the price of the goods; Q - the volume of production of goods. Then the marginal revenue is: where MR is marginal revenue. 7. Costs in the long run. In a market economy, firms seek to develop a strategy for their development, which cannot be implemented without increasing production capacity and technical improvement of production. These processes take a long period, which leads to discreteness (discontinuity) of the state of the company for short periods (Fig. 18.4). Fig. 18.6. Average costs in the long run ATC - average total costs; ATCj-ATCV - average costs; LATC is the long-term (resulting) curve of average total costs. The line of intersection of the ATC curves, projected onto the horizontal axis of the graph, shows at what volumes of production it is necessary to change the size of the enterprise in order to guarantee a further reduction in unit costs, and point M shows the best volume of production for the entire long period. The LATC curve is also often referred to in educational literature as a choice curve, or a wrapping curve. The arcuateness of LATC is associated with both positive and negative economies of scale. Up to point M, the effect is positive, and then it is negative. The scale effect does not always immediately change its sign: between the positive and negative periods, there may be a zone of constant returns from the growth in the size of production, where the ATC will be unchanged. Topic 19. REVENUE AND PROFIT 1. The resulting indicator of the firm's performance. As a result of the sale of manufactured products on the market, the entrepreneur receives revenue. Revenue is the cash flow from the sale of products on the market. Revenue, presented as the result of all the activities of the firm for a certain period of time, is the gross income of the firm. The revenue calculated per unit of product sold is the average revenue of the firm. If gross income is cleared of costs, then the final result of the enterprise's activities will be obtained in the form of profit or loss. 2. Essence of profit and its functions. Profit is the main motive and a general indicator of the efficiency of the company. The modern theory of entrepreneurial behavior considers the source of profit: - labor, innovative activity of the entrepreneur himself; - payment for risk, the ability of the entrepreneur to navigate in uncertain economic circumstances; - income from the use in the production of capital, investments; - the economic power of the firm over the market (monopoly). Profit is the internal spring for the development of a market economy: in an effort to get it, the company improves production, which stimulates the growth of investments, which in turn lead to the expansion of jobs, growth in production and, as a result, ensure the development of the industry and the national economy as a whole. At the same time, profit performs three main functions: a) distributive, b) stimulating and c) informational. 3. Varieties of profit. Arithmetically, profit is the difference between income and costs. If income is mainly expressed in the form of gross (total) income, then the costs, as you know, are different. Therefore, the profit can be considered in different ways. Normal profit - the necessary (normal) income that arises when doing business (the price of choosing the sphere of capital investment). The value of the normal profit depends on the lost profit, i.e., the alternative possibility of investing capital and the entrepreneurial spirit of the businessman. Economic profit is the difference between gross income and economic costs (which includes normal profit), which is why it is often referred to as excess profit. Economic profit is the sum of normal and economic profit. It is the initial base for the distribution and use of the company's profits. Accounting profit is similar to economic profit, but is calculated according to a different criterion: explicit costs of external (purchased) origin are subtracted from gross income. If implicit costs are subtracted from accounting profit, then net economic profit will be obtained (Fig. 19.1). Fig. 19.1. Production costs, profit, income In addition to the considered profit, it can take other forms, for example, monopoly and founders. Topic 20. PRINCIPLES OF PROFIT MAXIMIZATION 1. Profit maximization under perfect competition 2. Profit maximization under imperfect competition 1. Profit maximization under perfect competition. In conditions of perfect competition, the entrepreneur cannot influence market prices, therefore, each additional produced and sold unit of output brings him marginal income MR = P1 (Fig. 20.1). Fig. 20.1. Equality of price and marginal revenue under perfect competition P - price; MR - marginal revenue; Q - the volume of production of goods. The firm expands production only as long as its marginal cost (MC) is lower than income (MR), otherwise it ceases to receive economic profit P, i.e., up to MC = MR. Since MR= P, the general profit maximization condition can be written: MC = MR = P (20.1) where MC is marginal cost; MR - marginal revenue; P is the price. 2. Profit maximization under imperfect competition. In conditions of imperfect competition, the profit maximization criterion differs from that considered, since the firm can influence the market price. In order to sell an additional unit of output, the firm lowers the price. This, as a rule, gives some effect of increasing sales, but at the same time the company suffers losses due to the fact that all buyers now pay a lower price. This relative loss lowers the marginal revenue MR and therefore does not match the market price, i.e. MR is not equal to R. At the same time, the conditions for maximization under perfect and imperfect competition have one thing in common: MC = MR, since firms, under q any conditions, produce an additional unit of output if they receive additional income that exceeds additional costs (Fig. 20.2). Fig. 20.2. Firm profit C - costs; P - price. In general terms, profit maximization under imperfect competition is: MC = MR= P= ATC, (20.2) where MC - marginal costs; MR - marginal revenue; АТС - average total costs; P is the price. According to this general rule, profit is maximized both under conditions of monopoly, oligopoly, and polypoly, but each of them has its own specific features. Topic 21. MARKET POWER: MONOPOLY 1. Types of monopoly. Monopoly - the most extreme, most severe form of imperfect competition, providing for the control of the market price by one firm. Such control can arise due to both objective and artificial reasons. Thus, the presence of a single mineral deposit or other economic resource leads to the emergence of a raw material monopoly. State regulation of demand for certain goods and services (weapons, drugs, alcohol, tobacco, etc.) gives rise to an administrative monopoly. When it is inappropriate for a society to compete, when the production of products and services by one company is cheaper than several (for example, the activities of public utilities to provide the population with water supply, gas supply, lighting, etc.). In this case, a natural monopoly arises. An important feature of any monopoly is the presence of excess income in the form of monopoly profits. To assign it, firms seek to create special conditions. As a result, along with objectively existing monopolies, artificial ones arise. 2. Profit maximization by monopoly. The power of a monopoly is higher, the lower the elasticity of demand for its product. It is this situation that the monopolist seeks to use in the market, and in its absence - to create artificially. For a monopolist, the situation of "zero" profit - (MC= MR= P) is unacceptable. Unlike a perfect competitor, he controls not one parameter (production volume), but two (plus price). Choosing a combination of "price - quantity", the monopolist seeks to obtain the maximum difference between gross income and gross costs. It first optimizes the quantity by reducing it to a level corresponding to MC = MR, and then looks for an acceptable price on the demand curve. (Fig. 21.1). Fig. 21.1. Profit maximization by monopoly PCK - price of perfect competition; PM - monopoly price; QCR - the volume of production under perfect competition; QM - the volume of production under monopoly. Therefore, the profit maximization formula is: MS=VR where MC - marginal costs; MR - marginal revenue; P is the price. 3. Price discrimination and its types. Expanding the volume of sales in order to increase profits, the monopoly is forced to reduce prices. As a result, part of the buyers, who previously paid a higher price for the product, reduces costs. In order not to lose the money of this group of buyers, the monopoly applies price discrimination. Price discrimination is the sale of the same product to different buyers at different prices. Market segmentation is directly related to the heterogeneous elasticity of demand from buyers, therefore, the higher the ability of a monopolist to distinguish between groups of buyers with different elasticity of demand and the more reliable the way to distinguish the market into sectors, the more income can be obtained (Fig. 21.2): Fig. 21.2. Division of the single market by a monopoly a) undivided market b) "expensive" market with inelastic demand; c) "cheap" market with elastic demand; D is the demand curve. The graph shows that the total revenue in the "expensive" and "cheap" sectors of the market significantly exceeds that in the undivided market. If the graphs are combined, then it is possible to determine how the monopoly changes the demand curve for its products as a result of market segmentation (Figure 21.3). Fig. 21.3. The demand curve for monopoly products R - market division line; D1E - segment of the demand curve in the "expensive" market; ED2 - a segment of the demand curve in the "cheap" market. Thus, the monopolist sells more expensively to the rich, cheaper to the poor, but in any case with maximum profitability for himself. 4. Damage, caused by the monopoly. A comparison of the behavior of a monopolist in the market with the behavior of a perfect competitor shows that he behaves less efficiently, since: a) the price set by the monopoly is always higher than the price of perfect competition; b) maximizing profit, the monopolist does not have a demand curve in the "cheap" market. reaches a minimum of costs, but stops at a higher level: he is not interested in costs, but in the maximum gap between them and income. Fig. 21.4. The damage done to society by a monopoly QM - the volume of production under monopoly. These shortcomings are a direct consequence of the lack of competition under a monopoly. The monopolist, in addition to what has been said, harms the buyers. From fig. 21.4 it can be seen that the monopolist, having set the monopoly price PM (the price of a perfect competitor to PCK), cuts off consumer surplus from the buyer in the demand segment E1 - E2, but he himself cannot use it. Topic 22. MARKET POWER: MONOPOLISTIC COMPETITION (POLYPOLY) 1. The similarity of polypoly with perfect competition and monopoly 2. Specific features of polypoly 3. Profit maximization under polypoly conditions 1. The similarity of polypoly with perfect competition and monopoly. Monopolistic competition (polypoly) is a market structure in which there are many firms selling similar but not identical products. It is at the same time similar to both monopoly and perfect competition, since in the short run a monopolistic competitor behaves like a monopolist, and in the long run like a perfect competitor. 2. Specific features of polypoly. The properties of monopolistic competition lead to the following results: in the long run, due to low barriers, firms can enter the market if there is excess profit there, and leave it in case of losses. As a result, the market is in a state of perfect competition. But the polypolist in this situation behaves differently and still receives excess profit, since, unlike a perfect competitor, he has: a) there is excess production capacity, allowing it to regulate the volume of production; b) marginal cost is not equal to price. It is because of these two differences that a monopolistic competitor in the long run is similar, but not identical, to a perfect competitor. 3. Profit maximization in a polypoly. Profit maximization is carried out by a monopolistic competitor within the framework of the general rule for imperfect competition MC= MR Maneuvering the polypoly within the range of overcapacity helps it attract additional buyers when the price drops. On the graph, you can track this process (Fig. 22.1). Having limited opportunities in price competition, polypo-lists are very sensitive to marketing, where non-price competition unfolds between them (Fig. 22.2). In general, monopolistic competition is less efficient than perfect competition, since here the marginal cost is lower than the market price, which leads to the withdrawal of part of the “consumer surplus” in favor of the seller. Fig. 22.1 Profit maximization under monopolistic competition QE is the equilibrium volume of goods on the market; D- demand curve; MR - marginal product line; ATC - average total costs; MC - marginal cost; PE1 - monopoly price; PE2 is the price of perfect competition for a "marginal" firm. Fig. 22.2. Forms of non-price competition Fig. 16.1. Product isoquants a, b, c, d - various combinations; y, y1, y2, y3 are product isoquants. Fig. 16.2. Types of isoquants Isoquants can take various forms: a) linear - when it is assumed that one factor is completely replaced by another; b) in the form of an angle - when a rigid complementarity of resources is assumed, outside of which production is impossible; c) a broken curve expressing the limited possibility of replacing resources; d) a smooth curve - the most general case of the interaction of factors of production (Fig. 16.2). 2. Marginal rate of technical substitution of resources. The shift of the isoquant is possible under the influence of the growth of attracted resources, technological progress, and is often accompanied by a change in its slope. This slope always determines the marginal rate of technical substitution of one factor for another (MRTS). The marginal rate of technical substitution of one factor for another is the amount by which one factor can be reduced by using an additional unit of another factor, while output remains unchanged. Thus, under an oligopoly, firms have incompatible aspirations, on the one hand, by teaming up with other oligopolists, you can get additional income, on the other hand, by defeating competitors (and there are not many of them), you can get even more income, although less likely. As a result, the behavior of an oligopolist in the market is described by several methods: - a graph of a broken demand curve; - collusion model; - leadership in prices; - Compliance with the principle of "cost plus". 2. Graph of a broken demand curve for the products of an oligopolist. The curve of a broken demand curve characterizes the behavior of oligopolists in the absence of collusion between them, when everyone speaks for himself. Common sense and economic experience tell the oligopolist that in the event of a price decrease, his competitors will do the same as he does, and in the event of an increase, they will remain at their prices. In this case, the oligopolist faces a broken demand curve for his product, and the marginal revenue curve MR has a vertical gap that has no effect on either price or output. Consequently, the oligopolist maximizes profits subject to the general condition MC=MR<P, but with singularities in MR (the polypolist had singularities in price). The graph of the broken curve clearly shows that an oligopolist pursuing a “every man for himself” policy in the market risks not only profit, but also the danger of unleashing a price war (the Bertrand model), in which the participants in the oligopoly, alternately reducing prices in a competitive struggle, reach the state "zero" profit. 3. Cartel. A typical model of collusion is the cartel. A cartel is a group of firms acting together and coordinating market policies among themselves. The creation of a cartel leads to a market situation similar to a monopoly, but with one peculiarity: the oligopolists included in it are ready at any moment, if it is more profitable for them, to oppose themselves to other members of the cartel. Therefore, a cartel is often called a quasi-monopoly (similar to a monopoly). 4. Pricing after the leader. Price leadership allows oligopolists to maximize profits without colluding. The essence of price leadership is that the largest or most efficient oligopoly firm sets prices in the market, and the rest adjust to it. At the same time, leadership in prices does not at all exclude a tough struggle between the oligopolists themselves; therefore, it is often combined with the behavior described using the broken demand curve model. 5. The principle of "cost plus". The principle of "cost plus", or markup to the price, is widely used by oligopolists because of the ease of combining with both the cartel model and "price leadership". This principle is most appropriate for firms that produce not one product, but a large number of different products. When pricing according to this principle, the costs of the oligopolist per unit of production are calculated at a certain desired (planned) production volume and a markup is added in the amount of a certain percentage. The result is a market price. Topic 24. ANTI-MONOPOLY REGULATION OF THE MARKET 1. Antimonopoly policy of the state. The market operates according to certain principles, which the monopoly undermines. Therefore, the fight against monopoly is at the same time the defense of the basic principles of the market economy. Antimonopoly policy is a purposeful activity of state bodies to protect and strengthen competitive principles in the economy and create obstacles to the emergence of excessive power of monopolies. This policy finds expression in the following actions: - prevention of formation and reduction of the existing sphere of monopoly pricing; - development of antimonopoly legislation and its application in economic practice; - exclusion of conditions for the emergence of a deficit in the economy; - carrying out decentralization of resources with their excessive concentration in one hand; - forced unbundling of firms that monopoly control the market. 2. Regulation of the activities of a natural monopoly. A natural monopoly is a type of monopoly that cannot be eliminated without harm to society. It arises in areas where one producer, using the positive effect of scale of production, satisfies the entire market demand. If, under these conditions, forced competition between producers is introduced, then their total costs will exceed the level of costs of the former monopolist, which will inevitably cause a rise in prices (for example, the supply of competing water, electricity, gas networks to a residential city house). 3. Antimonopoly policy of the state. The state is interested in ensuring that natural monopolists do not abuse their position. The most developed form of antitrust law exists in the United States, where it first appeared in 1890 with the adoption of the Sherman antitrust law. Topic 25. DEMAND FOR FACTORS OF PRODUCTION 1. Features of the market for factors of production. The market sells not only goods and services that go into the final personal consumption of the population, but also the factors by which they are produced. At the same time, the market for factors of production has the following differences from the commodity market: a) the demand for factors of production is secondary, derived from the demand for goods; b) the more easily a factor is substituted in production, the more elastic the firm's demand for it in the factor market. 2. Rental and capital price of a factor of production. Labor, land, capital in the process of production are used repeatedly over a long period of time, often for years. Their price has two levels - this is the rental and capital price. The rental price of a factor is the amount of money paid for its use within a certain limited period. The capital price of the factor is the total price resulting from the summation of the individual rental prices of the factor for the entire period of its use. 3. Conditions for the optimal combination of factors. The entrepreneur makes an additional demand for a factor of production only on the condition that it will bring him additional revenue. Moreover, the increase in revenue must exceed the increase in costs. If they become equal, then this will be a signal to stop increasing the volume of production and, accordingly, the market demand for a factor of production. In this state, the firm maximizes profit. The increase in the total income of the firm is affected not only by the marginal income from an additional unit of resource, but also by the increase in the volume of production. Therefore, if, for example, labor acts as such a factor, then: MRPL=MR x MPL, (25.1) where MRPl is the marginal return on the factor "labor"; MR - marginal revenue; MPL is the marginal product of the labor factor. With the expansion of production, the marginal profitability of a factor of production decreases due to the law of diminishing marginal productivity in the economy. With perfect competition MR= P, so: MRPL = P x MPL. (25.2) The marginal profitability of the "labor" factor shows how much the firm is willing to pay for hiring an additional worker, i.e. MRPl= W, where W is the wages of the additional worker. In general, equality W = MRPL=MR x MPL (25.3) allows answering the question: what should be the firm's demand for the "labor" factor in order to maximize its profit? The same applies to other factors - capital (K) and land (N): a) rK = MR x MPk; (25 4) b) rN \uXNUMXd MR x MPN, where rK - income from capital; rN - income from land. Having reduced the income from various factors (labor, land and capital) into general equality, we obtain the condition for the optimal combination of factors: To minimize production costs, the ratio of the costs of using factors to the value of its product must be the same for all factors and equal to the marginal income. To maximize profit, this condition must be supplemented by equality with marginal cost. Compliance with the optimality condition for the combination of factors allows you to replace one factor with another. Topic 26. LABOR MARKET 1. Features of the labor market. The labor market is a specific market, since it sells not just goods and services, but the ability of people to create them. This market cannot exist on the principle of complete self-regulation. The state has been regulating labor relations in the economy since ancient times. The most important category of the labor market is wage - the amount of money that the employee receives for work. However, wages are not only a form of income for the seller, but also the price of labor - for the buyer, paid by him for the right to use for a certain time. 2. Demand in the labor market. The market demand for labor, in accordance with the law of demand, is inversely related to wages. This dependence finds a graphical expression in the labor demand curve (Fig. 26.1). The demand curve for labor w\ is specific, as it has limits from above and below. The demand for labor is dictated by the need for the entrepreneur to make a profit - otherwise it is pointless to do business. This situation is illustrated by the upper LD constraint of the LD curve. The lower limit also makes economic sense and is caused by the fact that the employee needs to restore his labor activity; support a family; study, be treated, improve one's skills, etc. In addition, a person needs various social, spiritual and material benefits (religion, leisure, culture, sports, etc.). Fig. 26.1. Labor demand curve L - labor; W - salary; LD - demand for labor Fig. 26.2. Curve L - labor; W - salary; LS - labor supply. Fig. 26.3. Labor supply modification of the labor supply curve L - labor; W - salary; LS - labor supply; AC - income effect; BC - substitution effect. All of the above requires funds and should be objectively taken into account in the price of labor. On the basis of the lower limit of the price of labor, the minimum wage is formed, which provides a minimum for the employee. 3. Supply in the labor market. The supply of labor in the market also depends on the size of wages, but this dependence is opposite to demand: with an increase in wages, supply increases (Fig. 26.2). On the labor supply side, there are two effects - substitution and income. The combined action of these effects leads to the fact that the supply curve is modified and takes on an unusual shape (Fig. 26.3). 4. Equilibrium price for the "labor" factor. If we combine the graphs of demand and supply of labor, we get a graph that characterizes the equilibrium price (Fig. 26.4). Fig. 26.4. Equilibrium price of the factor "labor" L, LE, LE1, LE2- labor; W, WE, WE1, WE2 - salary; LD - demand for labor; LS - labor supply; E - equilibrium in the market factor "labor"; E1, E2 - deviation from equilibrium Topic 27. WAGES AND EMPLOYMENT 1. The essence of wages. Wage acts as a remuneration for labor and is the price of labor in its purchase and sale. Wages in modern theory are considered in two ways: 1) as a person's total earnings, which includes fees, bonuses, various remuneration for work; 2) as a rate or price paid for the use of a unit of labor in a fixed period of time (hour, day, week, month, year). The level of wages is under the simultaneous influence of the entire social environment of society and the market mechanism. Therefore, the named distinction avoids confusion of their impact on wages. 2. Nominal and real wages. The incomes of employees have a monetary value, and money depreciates in conditions of economic instability and rising prices. Consequently, the wages of workers are dependent on the amount of inflation. In order to track this dependence, a distinction is made between nominal and real wages. The nominal wage refers to the amount of money that the worker receives for his work. Real wages refer to the amount of goods and services that can be purchased with the money received. It characterizes the actual level of income received, expressing it through the satisfaction of the needs of the employee. There is a close relationship between inflation and nominal and real wages: as inflation rises, nominal wages rise and real wages fall: In the absence of inflation, real and nominal wages are the same. 3. Forms of wages and wage systems. The price of labor can be expressed in terms of time and product. Accordingly, the salary is time-based and piece-rate (piecework). Time wages are in the form of hourly, daily, weekly, monthly and annual. Time wages are used where there is a forced machine rhythm or it is impossible to accurately take into account the results of the worker's work. Piecework (piecework) wages are realized in the amount of products produced over a certain period of time, therefore, it is secondary, derived from the time-based form of wages. This form of wages is used where it is possible to fully take into account the results of the work of employees. It stimulates the role of productivity and labor intensity, creates motivation for competition, where the winner receives a higher salary. On the basis of these forms of wages, various wage systems are formed: - time-bonus; - piecework premium; - time-based with a normalized task; - chord, etc. Topic 28. CAPITAL MARKET 1. Modern interpretations of capital. In economic theory, the term "capital" is used in several meanings: 1) as a factor of production; 2) as an application of capital to a certain area - financial capital, human capital; 3) as a system of wage labor relations - capitalism. 2. Demand and supply of capital. The factor of production "capital" enters the market in two interrelated forms - physical and monetary. Market demand for capital is formed by entrepreneurs. The market supply of the factor "capital" is carried out by households. The amount of capital offered by households in the market depends on the interest rate paid for the use of a borrowed resource: the higher it is, the more actively capital enters the market. However, there is a limit for any of the households, as people have a conflicting desire between the desire to increase both future and current consumption: the first requires an increase in savings, the second - a reduction. Consequently, the same mechanism of the substitution effect and the income effect operates in the supply of capital as in the supply on the labor market (Fig. 28.1). Fig. 28.1. The supply of capital and the operation of the substitution and income effects i - interest rate; S - savings; K - supply of capital; M - point of change of direction of interest; KM - income effect; MN - replacement effect. There is a general pattern in this process: at low interest rates, the substitution effect usually prevails, and at very high interest rates, the income effect. In the capital market, like any other factor of production, there is a mechanism of rental and capital prices, therefore, the unit of change of capital is the national currency (ruble), and the rental price is the annual percentage for its use. Topic 29. INTEREST RATE AND INVESTMENT 1. The nature of the interest rate. If an entrepreneur borrows someone else's capital, then he must give part of the income from its use to the owner in the form of loan interest. There are various methods for calculating the loan interest, which are commonly called financial mathematics. However, in the most general form, if we correlate the amount of loan capital and the payment for its use in the form of interest, then we can get the interest rate: In addition to the size of borrowed capital and the level of return on its use, market conditions influence the interest rate, therefore, the interest rate is determined based on supply and demand: the interest rate increases if the demand for capital increases, and, conversely, decreases with an increase in its supply (Fig. 29.1). Consequently, the interest rate is the equilibrium price in the capital market. In economic practice, interest rates differ in terms of provision, loan conditions, degree of security, etc. Fig. 29.1. Equilibrium in the capital market D - demand for capital; S is the supply of capital; E - equilibrium in the capital market. 2. Nominal and real interest rate. In the real economy, prices are constantly fluctuating with a general upward trend: inflation has a significant impact on the income of both borrowers and lenders. This factor must be taken into account when calculating the interest rate. The nominal interest rate is the current market interest rate. The real interest rate is the rate of interest over a long period of time, taking into account the rate of inflation. Real Interest Rate = Nominal Interest Rate - Inflation Rate. (29.2) 3. The mechanism of investment formation. Investments are investments (costs) in production and in its expansion. The source of investments are own and borrowed funds. Among their own internal funds are personal savings of firm owners, loans from financial institutions, and the issue of securities. Investments of firms are divided into net and gross. Net investment is the cost of new construction, installation of additional equipment, creation of economic protection, interest rate, etc. Net investment is provided by both external and internal resources, including depreciation. Fig. 29.2. Investment market demand DI - investment demand. Gross investment is the total cost of replacing worn out, obsolete equipment through depreciation and new construction. They are calculated as the sum of fixed capital retired due to decrepitude and net investment. Attraction of investments from the outside depends on the investment demand shown by firms in the capital market. This investment demand is determined by two factors - the expected rate of return and the rate of bank interest. Investment demand is directly dependent on the first factor and inversely - on the second (Fig. 29.2). A firm's investment demand is also affected by other factors that shift the investment demand curve to the right or left: inflation, tax policy, transaction costs, etc. Topic 30. LAND MARKET 1. Market relations in the agrarian complex 2. Supply and demand for the "land" factor 3. Price of land 1. Market relations in the agricultural sector. Economic relations that develop in the sphere of agricultural production are usually called agrarian relations. They are specific, since the "ground" factor manifests itself here in a special way: 1) unlike other factors of production, land has an unlimited service life and is not reproduced at the request of people, since it is practically impossible to create it; 2) it is a natural factor, and not the result of human activity; 3) the amount of land in the hands of people is always severely limited. For these reasons, agrarian relations cannot be reduced to the market mechanism of supply and demand. Rather, the issues of land ownership (property relations) and land use (land management) come to the fore. 2. Supply and demand for the "land" factor. Demand and supply in agriculture interact on a fundamentally different basis than usual - the supply of land is absolutely inelastic. Demand is also specific, being secondary, derived from the demand for goods. For example, the demand for land for growing flax depends on the fashion for linen fabrics. If linen clothing ceases to be in demand among the population, then the demand for land also decreases (Fig. 30.1). Figure 30.1 Equilibrium in the market of the factor "land" N - factor "earth"; D1, D2 - demand for land; S - land supply; P1, P2 - land price (rent); E1, E2 - supply and demand balance 3. Price of land. The price of land is the capital price of the land factor. It depends on the amount of land income that can be received by becoming the owner of this land, as well as the interest rate. The buyer acquires the land not for the sake of the soil, but for the income that it will bring. At the same time, he is faced with a choice: either buy land and receive income from it, or invest money in a bank at a loan interest and also receive income. The best option is always chosen. It is for this reason that the price of land is linked to the calculation of interest on loans. The price of land is not limited to the listed factors. It is affected by inflation, the level of entrepreneurial risk, established traditions and values of the population, etc. Topic 31. LAND RENT 1. Rent as income from land. ground rent - is the income from the "land" factor, the supply of which is inelastic in the market. It is calculated as the excess of revenue over the costs of the entrepreneur. The "land" factor can be owned by the owner who runs the business himself, or used temporarily, on a loan basis. This difference is fixed in the concept of "rent". It is greater than the ground rent by the value of the structures and buildings on the land and the loan interest for the right to use the land. 2. Types of land rent. The owner of the factor "land" realizes his rights to income either as part of the rent received from the tenant, or directly through the market price if he himself conducts business. At the same time, land rent goes to him in two forms. 1. Absolute rent - additional income of the owner of the land, charged from any piece of land, regardless of its quality and location. The inelasticity of the supply of land on the market finds expression in absolute rent. 2. Differential (difference) rent - additional income arising from natural and economic differences in economic conditions. In differential rent (difrent) finds expression monopoly on land as an object of management (while the producer cultivates the land, no one can do anything on it). If difrenta arises as a result of activities on the best and average plots in terms of fertility and location, then it is customary to call it dif-rent I, and if it arises as a result of additional investments in the land, improving its quality, then dif-rent II. This type of diphrentia can occur in any part of the earth, including the worst. Moreover, during the lease period, it goes not to the owner of the land, but to the tenant. Topic 32. GENERAL BALANCE AND WELFARE 1. The concept of equilibrium in the economy, its types. The volumes of purchases and sales in the market are always equal to each other, since these are two sides of the transaction. However, this does not mean that the market is in equilibrium at any value of prices. Prices can reflect both excess and deficit market conditions. Market equilibrium is not just a coincidence of supply and demand, but a situation in which producers and consumers fully realize their interests in the market and do not seek to improve them. Market equilibrium is very important for the economy, as it represents the most favorable conditions for the activities of all market agencies and is the basis for its further development. Market equilibrium may arise in the market for a particular product or factor of production, in a particular industry or in a part of the territory of a country. Such an equilibrium is called a partial equilibrium. Market equilibrium can occur in the entire national economy if all individual markets are simultaneously in equilibrium. This equilibrium is called general equilibrium. In a state of equilibrium, the market is balanced, proportional, but in this state it cannot be for a long time, since any change in supply or demand violates it, therefore, they distinguish: 1) stable equilibrium - an equilibrium state of the market, in which the price deviated under the influence of supply and demand eventually returns to its original state in a short period; 2) unstable equilibrium - an equilibrium state of the market, in which the deviated price does not return to its original position for a sufficiently long period of time. 2. The impact of the state on the market equilibrium. The instability of the market equilibrium makes it necessary to regulate it from the outside - by the state. To do this, the government has two options: 1) apply administrative regulation of prices; 2) influence market agents through tax policy. Administrative regulation of prices is expressed in the establishment by the state of fixed market prices below or above the equilibrium. Such fixed prices can be calculated for both short and long periods. In any case, this leads to a decrease in sales below the level that would have developed in an equilibrium market (Fig. 32.1). Fig. 32.1. Market implications price administration PE - equilibrium price; P1 - the price set by the state above the equilibrium; P2 - the price set by the state below the equilibrium price; QE - equilibrium supply volume; Q1 - sales volume at an inflated price; Q2 - sales volume at a reduced price. The tax impact of the state on the market is a more civilized method of market regulation compared to price fixing. It is carried out with the help of indirect taxation, since it is this type of tax that is included in the price of the goods (VAT, sales tax, excises) and paid by buyers. The introduction of indirect taxes leads to an increase in the equilibrium price and a decrease in sales. As consumers buy less, producers sell correspondingly less. As a result, their income decreases. At the same time, the burden of indirect taxation is distributed between producers and consumers depending on the elasticity of supply and demand. The higher the elasticity of demand compared to the elasticity of supply, the greater the burden on the seller, and vice versa. The state, instead of taxation, can use the opposite method of market regulation - subsidies. Subsidization is the payment of budgetary funds to producers of goods to cover their losses arising from the establishment of prices below equilibrium by the state. Subsidies lead to an increase in sales, in which the consumer pays one part of the real price of the goods, and the state pays another. 3. Walras' law. Based on the microeconomic analysis of partial equilibrium, the Swiss economist Lyon Walras (1834-1910) for the first time in economics (1889) proved the possibility of general economic equilibrium using mathematical tools. Walras proceeded from the fact that general equilibrium is possible only at prices that ensure the equality of supply and demand. And if "n - 1" markets are in a state of equilibrium, then there will necessarily be a unique combination of supply and demand in which the last market will also be in equilibrium. In these conditions, and there is a general economic equilibrium. 4. Equilibrium and Pareto efficiency. Creating an equilibrium situation in the market is a direct path to the growth of the welfare of the population, when the efficiency of production and the fairness of the distribution of its results in society do not oppose each other. This situation was first constructed by the Italian economist Vilfredo Pareto (1848-1923). To this end, Pareto supplemented the general economic equilibrium with the concept of optimality, which consists in the fundamental impossibility of improving the position of at least one market agent without worsening the position of another and involves the efficient use of resources in the economy in three directions: - if it is impossible to increase the production of any product without a corresponding reduction in the other; - if it is impossible to redistribute goods and services among people in such a way as not to reduce the well-being of at least one of them; - if changing the structure of the production of goods for the sake of the interests of one person is impossible without infringing the interests of another. Topic 33. INCOME DISTRIBUTION AND INEQUALITY 1. The concept of income. Income - the total amount of money received for a certain time and intended for the purchase of goods and services. There are the following forms of income, corresponding to the main three factors of production: 1) wages - income from the "labor" factor, which goes to employees; 2) rent - income from the use of natural resources and land, going to the owners of resources; 3) interest - income from capital transferred for temporary use. The entrepreneur who organizes production also claims his share, which is called entrepreneurial income and is expressed in profit, which is calculated as the difference between the total income and various deductions from it. An additional form of income for a certain part of the population is transfers - unilateral payments by the state to the population - pensions, unemployment benefits, assistance to large families, etc. Throughout a person's life, his income changes: in his youth, they are small, by the age of 40-50 they reach a peak, after 60 years, due to retirement, they are sharply reduced. Such a consistent change in income during a person's life is commonly called the life cycle of income. 2. Lorenz curve. People differ in their position in society, which means that their incomes are different. To track the nature of the distribution of income in society, various methods are used: - determination by various statistical methods of the average level of income (arithmetic mean, median, modal income); - grouping the population by income level and comparing the average levels of the extreme groups with each other; - construction of the Lorentz curve characterizing inequality in society through the action of a cumulative (increasing) effect (Fig. 33.1). Rice. 33.1. Lorenz curve OABCD - line of hypothetical absolute equality in income distribution; OA1B1C1D - Lorenz curve. The graph axes for percentage groups represent income and population. If we close the system - 100% of income and 100% of the population, then we get a square in which the OABCD ray describes a situation of absolute equality, i.e. 25%, 50%, 75% and 100% of the population receive 25%, 50%, 75% and 100% of the income, respectively. The Lorentz curve is plotted as a line of actual deviation from the ideal distribution. The more it diverges from the ray of the ideal distribution, the stronger the inequality of people manifests itself in incomes. 3. Nominal and real income. The level of income of the population is determined using indicators of nominal and real income. Nominal (cash) income - the amount of money received by a person during a certain period of time. Real income is the amount of goods and services that a buyer can purchase with his nominal money income. Real income is measured not by absolute value, but by the change in time of nominal income through a price index. To do this, in the initial base period, the nominal and real incomes are assumed to coincide; then the change in prices for a certain period of time is determined, accounting for which leads to a discrepancy between the values of nominal and real incomes in the current period. Real income = Nominal income - Price index. (33.1) 4. The standard of living of the population. Standard of living - the amount of goods and services that a person can afford to meet their material needs. As time goes by, the standard of living of the population rises. It can be characterized by various quantitative and qualitative indicators: the total consumption of goods per capita, the level of real incomes, the structure of consumption, the provision of housing, medical care, the level of education, etc. The UN has developed a special system of indicators summarized in twelve groups by which the level of life in different countries. 5. Impact of state policy on the Lorenz curve. The state, through its tax and social policy, can mitigate the consequences of strong income differentiation by establishing benefits for large families and single mothers, providing support to the unemployed and the elderly, it can influence the lowering of the Gini coefficient and leveling the living standards of the population. 33.2). Fig. 33.2. The dependence of the Lorenz curve on the social and tax policy of the state Topic 34. EXTERNALITIES AND PUBLIC BENEFITS 1. Positive and negative externalities. A market transaction between a seller and a buyer often affects the interests of third parties. The influence of the activities of one person on the well-being of another is called an external effect (externality). A positive impact is assessed as a positive external effect (restoration of historical buildings, development of new technologies, etc.), and if it is unfavorable, as a negative external effect (pollution of the environment, noise, interference with economic activity, etc.). Participants in market transactions in their actions do not take them into account, so the costs of society in the production of goods and services diverge from the individual. In the case of a negative effect, they exceed the individual costs by the magnitude of the negative impact. The difference between individual and social costs is the costs of environmental pollution, which the manufacturer shifts to society, therefore, from a social point of view, their supply on the market exceeds social needs and should be less than the equilibrium. Only under these conditions will public welfare increase (Figure 34.1). Rice. 34.1. Market Equilibrium and Social Optimum under Negative Externalities D - demand (private value); S - supply (private costs; E - equilibrium market price; SIZD - social costs; O - social optimum of production. The market mechanism, in addition to external negative costs, does not allow taking into account the external positive effect when social costs are lower than private ones. The production of computers, for example, has a great social effect of raising the technical level of production (Fig. 34.2). Rice. 34.2. Market Equilibrium and Social Optimum under Positive Externalities D - demand (private value); S - supply (private costs; E - equilibrium market price; SIZD - social costs of society; O - social optimum of production. Determining the market need for computers, manufacturers do not take into account this effect, so their supply is less than the social optimum. Correcting market imperfections by influencing the incentives that encourage market agents to consider the external results of their activities as internal is called internalization of externalities. 2. Influence of the state on externalities. Since the market mechanism itself is not able to take into account social costs, government intervention is necessary, which can compensate for the negative externality in the following way: 1) prohibiting the production of the product if the negative effect is extremely large; 2) by setting the maximum permissible standards of environmental pollution; 3) introducing Pigou taxes (R. Pigou (1877-1959) - American economist), which have a special purpose - the neutralization of the negative external effect; 4) establishing the ownership of resources and allowing the parties to reach an agreement without sanctions and litigation. In this case, a special market arises - the market of rights that can be sold. The possibility of taking into account the social consequences of external effects in the market mechanism was first proved in the 30s. XNUMXth century American economist R. Coase, therefore such a theoretical construction is called the Coase theorem. He also introduced into science the concept of transaction costs - the costs associated with the establishment of property rights. The theorem states that under conditions of clearly fixed property rights to resources, i.e. low transaction costs and the government's permission to freely exchange them, market agents have the opportunity to internalize externalities without additional costs. 3. Pure public good. Externalities are not the only market difficulty. Market failure also manifests itself in relation to public goods, which are one of the varieties of goods consumed jointly by all consumers, regardless of whether they pay for them or not. All benefits can be divided into: - private - exclusive benefits that are the object of market rivalry. They are exclusive because one can prevent people from using them, and they are objects of rivalry because the consumption of a good by one person reduces the opportunity for others; - pure public, which are not exclusive and do not act as an object of rivalry, since the appearance of an additional consumer does not reduce the utility received by others, while it is impossible to exclude any of the consumers of the good (for example, listening to a brass band in the park); - intermediate, which do not fully possess the properties of either a private good or a public good. If people cannot be excluded from the consumption of a good, despite its decrease in consumption (for example, fishing on a lake), then such goods are called a common resource. In the case when the good is exclusive, but not the object of rivalry (for example, the maintenance of a fire brigade in the city), it is a natural monopoly good. The economic turnover of private goods effectively regulates the market. Public goods should be provided by the state through general taxation of the population. Intermediate benefits involve the indirect impact of the state on the market mechanism. Here the problem of freeloaders often arises - a kind of "hares" - people who, taking advantage of the non-exclusivity of goods, seek to use them for free (for example, to admire a salute made at private expense). This leads to the fact that part of the goods leaves the market due to the inability to compensate for the costs and, in order to provide them to the population, the state itself must pay for them from its budget. In this case, every consumer will benefit. Typical examples of public goods are: - national defense; - fundamental scientific research; - anti-poverty programs. The expediency of the provision of pure public goods by the state to the population is determined on the basis of a comparison of the associated costs and benefits. Such a cost-benefit analysis is imprecise and approximate due to the inability to test it by the market. In this regard, the provision of public goods to the population is strongly influenced not so much by economic as by political factors. Topic 35. NATIONAL ECONOMY AS A WHOLE 1. The concept of macroeconomics. Macroeconomics is a branch of economic theory that studies the economy as a whole. The national economy, of course, is the total behavior of market agents at the microeconomic level, but this is not an arithmetic sum that adds up automatically, since processes that are poorly expressed or not visible at all at the microeconomic level are clearly manifested. It: - decline and rise in business activity in the national economy; - the role of money in society and inflation associated with them; - the level of employment in the country, suggesting the existence of unemployment; - government intervention in the economy. In macroeconomic analysis, new participants in the market economy appear: - foreign sector (abroad); - state; - the central bank with its monetary policy; - unions; - associations of employers, etc. 2. Objects of macroeconomic analysis. The subject of macroeconomics are the following problems: - the interaction of aggregate supply and demand and their impact on the formation of the national gross product (GNP); - employment and unemployment in the economy; - methods of combating inflationary processes; - cyclical economic growth; - macroeconomic policy of the state; - external interaction of the national economy and the globalization of economic processes. 3. The principle of aggregation. In macroeconomics, all quantities are considered in an aggregated (cumulative) form. Compressing the entire variety of assortment to a single product in the form of GNP, as well as a generalized view of national income, price levels, inflation, consumption and savings, the interest rate, etc., facilitates the identification of the most significant deep economic ties in the national economy. The same applies to the whole variety of markets, which are aggregated into the following groups: 1) the market of real goods (goods and services); 2) capital market (investment goods); 3) labor market; 4) money market; 5) securities market; 6) international market (abroad). 4. System of macroeconomic indicators. The main macroeconomic indicators can be summarized in four initial groups: - indicators characterizing the formation of the national volume of production: gross output, gross national and domestic products, final and intermediate products, net national product, national, personal and disposable income; - price indicators: general price level, indices of various types of inflation, GNP deflator; - indicators characterizing the borrowing of financial resources: interest rate, refinancing rate of the Central Bank of the country; - employment indicators. Topic 36. CIRCULATION OF INCOME AND PRODUCTS 1. Flows and stocks in the national economy 2. Model of resource turnover in the national economy 1. Flows and stocks in the national economy. The indicators used in macroeconomic analysis characterize the state of the economic system in different ways: they either measure the moving flow of values between sectors of the economy, or evaluate the accumulated property and characterize its use. Flow indicators (investment, savings, GNP, etc.) are measured per year, and stock indicators (national wealth, property, real cash balances, etc.) - for a certain date. The relationship of stocks and flows is the basis of circuit modeling. 2. Model of resource turnover in the national economy. The circulation of resources in a market economy is a system of market interaction between macroeconomic entities based on the movement of income, expenses and property, which makes it possible to reproduce the economic system as a whole (Fig. 36.1). Fig. 36.1. Resource turnover model in an open economy The circular flow model assumes the participation of each macroeconomic agent as both a seller and a buyer: y = C + I + G + X, (36.1) where y is the national product produced in the country, which is the aggregate supply of goods on the market; C - consumer spending of the population on various types of goods and services; I - investment costs of firms for the means of production, both for the expansion of production and for the replacement of retired equipment; G- government spending on the purchase of goods and services and the maintenance of the public sector of the economy (power plants, hospitals, schools, defense, etc.); X - net export as a difference between import and export; a) for households: y = C + T + S; where y is household income; C- consumer spending; T-paid taxes; S- savings; b) for firms: y = C + I + G, where I - investment costs; G- government spending; c) for the state: G = T + S; d) for abroad: Z = X, (36.2) where Z is import; X - export; - households supply initial resources into economic circulation: labor, land, capital, entrepreneurial abilities, receiving in return on the market income in the form of wages, rents, profits and interest; - firms, spending money, acquire in the resource market the factors of production they need, which are converted into goods and services, and then sell them in the commodity market, where sellers and buyers of factors of production change roles; - the state interacts with households and firms on the same principles: it receives taxes from them, payments for the performance of public functions by them and pays for purchases from firms and in the markets for production factors, and also forms a flow of transfers, subsidies to the population; - foreign countries interact with national sectors of the economy through export-import operations, the final results of which are net exports. In a developed economic system, there is always a financial market. The savings of the population and investments of firms, government loans pass through it, the state budget and the balance of payments are formed. The circulation of resources in the national economy, in addition to the model of the flow of income and expenses, can be represented as: 1) systems of national accounts - balance tables, which take into account the receipts of funds in the sectors of the economy and the expenditures of each sector. In this case, each flow will be counted twice: on the side of receipt of funds and on the side of their expenditure; 2) a matrix that simultaneously shows the movement of all flows and incomes according to the "costs - output" principle. Topic 37. GROSS NATIONAL PRODUCT AND METHODS OF ITS MEASUREMENT 1. GNP as a general indicator of the country's development 2. Expenditure method for calculating GNP 3. Income method for calculating GNP 4. The concept of value added 1. GNP as a general indicator of the country's development. Gross national product - the market value of all final goods, services produced and used in the country for the year. The modification of the gross national product (GNP) is the gross domestic product (GDP): if the GNP indicator takes into account the activities of the country's citizens not only on its territory, but also abroad, then the gross domestic product - all people in the country, regardless of citizenship. For most developed countries, the differences between GNP and GDP are insignificant and do not exceed 2-3%, and the dynamics of indicators is unidirectional, which makes it possible to identify them for simplicity. An analysis of the dynamics of GNP over the years makes it possible to characterize the economic development of a country, and its calculation per capita is the best indicator for cross-country comparisons of living standards. To ensure that the nature of economic development in the long run is not distorted under the influence of price changes, indicators of nominal and real GNP are used. Nominal GNP is calculated at current market prices, while real GNP is calculated at constant, comparable prices that take into account the price index. Changes in the prices of final goods and services included in GNP make it possible to take into account a special index - the deflator of the gross national product. 2. Expenditure method for calculating GNP. The circular macroeconomic model of the circulation of resources shows the counter movement of the costs of production of firms and incomes of the population, and the main macroeconomic identity (y = C + I + G + X) determines their equilibrium state. In this case, the left side of the identity (y) is the total amount of income in society received from the production and sale of products on the market, i.e. GNP. The right side of the identity (C+ I+ G+ X) is the costs incurred in the production of GNP. Therefore, the calculation of the produced GNP by the expenditure method is carried out according to the formula: GNP =C + I + G + X, (37.3) where C - consumer spending; I - investment costs; G - government spending; X - export. When calculating GNP using the expenditure method, transfer payments to the population - pensions, benefits, etc. - should be excluded from government spending (G), since they are not government payments for the current production of goods and services. Despite the fact that transfers increase household income, they do not affect the production of GNP. 3. Income method for calculating GNP. The method of determining the value of GNP, which is the reverse of the expenditure calculation, is called the income method. It is based on the calculation of the National Income Index (NI). National income - this is the sum of all incomes of the population received for the provision of the factors of production available to them. A comparison of GNP and NI shows that the second of them is much less than the first, since not all goods reach the final consumption of the population: interest in the state economy remains unaccounted for. If we add to the ND, in addition to the direct taxation taken into account in the ND, also the indirect taxation of market agents by the state, carried out by them for more sustainable provision of their own needs (value added tax, sales tax, etc.), then we can calculate the net national product, which includes not only the factor incomes of the population, but also the state are taken into account: NNP \u37.4d ND + T, (XNUMX) where NNP is the net national product; ND - national income; T - indirect taxes. To the net national product, in turn, one should add that part of the value of the product that neither the population nor the state gets, but remains at the disposal of firms and is directed to reimburse the capital goods consumed in the production process, i.e. depreciation deductions (A) . Then NNP + A = GNP. (37.5) Given the above two adjustments, the income method of calculating GNP coincides with the expenditure method: GNP = ND + T + A. (37.6) When calculating GNP by any method, income from the resale of previously produced goods and transactions with securities is excluded from its range, since they are not of a productive nature. 4. The concept of value added. When measuring GNP, double counting, i.e., multiple counting of the same product, should be avoided. Double counting can be avoided if only the value that firms add to a product is taken into account in GNP. Value added is defined as the difference between the firm's sales and the value of inputs acquired from outside. Then everything else will be an intermediate product - a set of goods produced during the year that were used for further processing. If we add all the value added by firms during the year together, we can also determine the size of GNP. This method is called production. Topic 38. NATIONAL INCOME 1. The concept of national income. National income is the total income from the use during the year in the economy of all factors of production. It is expressed as the amount of monetary income received by the population for participation in the economic life of society. The purpose of the national income (ND) is to form a consumption fund for the population and an accumulation fund for expanding production, therefore, on the one hand, it characterizes the level of well-being of the population at the present time, and on the other hand, the possibility of economic growth in the future. The indicator of national income is the leading element of the system of national accounts, which tracks its distribution not only in the household, but also among joint-stock companies, government agencies, financial institutions and private non-profit organizations. 2. Factor composition of the national income. When determining the amount of ND, four elements of factor income are distinguished: 1) wages - payment for wage labor of employees and employees with social charges (insurance payments for an employee, social security, payments from private pension funds); 2) rental income - rent for land, housing, premises, equipment, property; 3) interest income - a positive result of transactions in the securities market and income from individual investments in business; 4) profit - income of the unincorporated sector of the economy (sole farms, partners, cooperatives, etc.) and corporations, the profit of which, due to its breakdown into dividends and the undistributed part used to expand production, is taxed twice - as the income of the company and as the income of the shareholder . Topic 39. DISPOSSIBLE PERSONAL INCOME 1. Personal income of the population. If national income is, in essence, earned income, then personal income is received. They differ from each other for two reasons. On the one hand, part of the income earned by labor is segregated in the form of: a) social insurance contributions made by the entrepreneur and the employee himself, and b) income taxes, both in terms of dividends and undistributed. As a result, these incomes do not reach households, settling in state structures. On the other hand, part of the income received by households is not their labor income, but a transfer payment from the state in the form of social insurance benefits, unemployment, as well as pensions, various subsidies and interest payments on government securities. LD \u39.1d ND - R -Tr + P, (XNUMX) where LD is the personal income of the population; ND - national income; R- social insurance contributions; Тр - corporate income taxes; П - transfer payments to the population. 2. Disposable income. The income at the personal disposal of the population (disposable income) is even less than personal income, since it involves the preliminary payment of individual taxes: a) income tax; b) property tax; c) inheritance tax. Absolutely predominant among them is the income tax. Disposable income - final, cleared of all obligatory payments of national welfare, distributed for consumption and savings. Topic 40. PRICE INDICES 1. Price characteristic. Price - the cost of a unit of goods, expressed in money. All goods and services included in the market turnover have prices that are set under the influence of the market mechanism of supply and demand. There are various classifications of prices depending on the criteria for their evaluation. For example, according to the volume of sales and type of goods, wholesale, retail prices and tariffs (prices) are distinguished, and according to the degree of freedom of formation - solid (fixed), regulated and market prices. The values of prices, their rise and fall, affect everyone in a market economy, affect the standard of living, so it is important to monitor their dynamics. This is done with the help of a macroeconomic indicator of the general price level, which is calculated as a monetary value of goods produced in society. The general price level in different periods of time is not the same, so its change is fixed using a price index. 2. Consumer basket. State statistical bodies keep records of changes in the price level with the help of a whole system of index indicators. In particular, the indices differ in terms of the coverage of the goods included in the set, i.e. the comparable "basket" against which prices are compared. Exist: a) consumer price index (CPI), which takes into account the change in the consumption of basic goods and services by an average family. Typically, the consumer "basket" contains 300-400 goods most commonly used in everyday life; b) Producer price index, calculated on a "basket" of over 3000 industrial goods. This index is more dynamic than the CPI, as it is more sensitive to scientific and technological progress; c) the GNP deflator is the most general of the listed price indices, since it assumes all final goods and services as a "basket". Topic 41. UNEMPLOYMENT AND ITS FORMS 1. Types of unemployment 2. Natural rate of unemployment 3. Unemployment rate 4. Socio-economic consequences of unemployment 5. Combating cyclical unemployment 1. Types of unemployment. A significant part of the able-bodied population is outside the market - this is the unemployed population, consisting of the unemployed and the unemployed. Unemployment - an economic situation in which a part of the able-bodied population cannot find work. The non-working working-age population is the portion of the adult population that is economically inactive and unwilling to be employed. It includes: housewives, students, freelancers, religious ministers, prisoners, etc. It is impossible to employ the entire able-bodied population (unless, of course, society is organized along the lines of a labor camp or barracks communism). Unemployment comes in various forms. The main ones are: 1. Frictional (voluntary) unemployment. It is a temporary absence of work in connection with the transition to another job of their own free will, as well as the period of job search by persons who are looking for it for the first time. 2. Structural. It arises as a result of a discrepancy between the structure of labor demand and labor supply. Its composition includes: - persons with a formal level of qualification (lack of work experience in the presence of a diploma); - specialists whose professional skills are inferior to others in the market or are not in demand as a result of technical and social changes (for example, a teacher of Marxism at a university); - employees whose abilities are discriminated against by employers (for example, women, people who combine work with education). 3. Cyclical (opportunistic) unemployment. Represents unemployment in the context of a decline in production, when the number of applicants for jobs significantly exceeds their availability. With cyclical unemployment, there is a general contraction of economic activity in the country, so advanced training or retraining does not save people from unemployment. Since the cyclical development of the economy involves alternating recessions and upswings, during the rise it is significantly reduced and may come to naught. Cyclical unemployment along with structural is a form of involuntary (forced) unemployment. 2. Natural rate of unemployment. In conditions when there is no cyclical unemployment, the economy is in a state of full employment, since frictional and structural unemployment are natural and inevitable in a market economy. Introduced into scientific circulation by M. Friedman, the natural rate of unemployment is influenced by factors: - demographic; - infrastructural; - the level of minimum wages and social payments. 3. Rate of unemployment. There are many different indicators that characterize unemployment. The most common is the unemployment rate indicator proposed by the International Labor Organization (ILO): The unemployment rate can be calculated as a total, including frictional, structural and cyclical, or separately. Comparison of unemployment in different countries makes it possible to compare the standard of living of the population of the compared states. 4. Socio-economic consequences of unemployment. Cyclical unemployment has an extremely negative impact on the market economy. There are huge losses in society due to the underutilization of the labor force. The American economist Arthur Oken (1928-1980) developed a method that allows them to be estimated: for this, it is necessary to compare GNP in terms of actual and full employment: where yF is the volume of GNP in terms of employment; y is the actual volume of GNP; UF - unemployment rates in conditions of full employment (natural rate of unemployment); U is the actual rate of unemployment; ? - Okun's coefficient (approximately 2.5). In accordance with Okun's law, the excess of cyclical unemployment over natural by 1% leads to a decrease in the actual level of GNP by 2,5% compared to potential. The budgetary burden for smoothing the consequences of unemployment is increasing: the payment of benefits, the opening and maintenance of employment centers, the social rehabilitation of the unemployed, the creation of new jobs at the expense of the state, the reorientation of tax policy, the strengthening of property protection, the protection of the law, etc. Family ties are weakening, marriages are breaking up due to the inability of the head of the family to ensure its worthy existence. The unemployed are degrading; they fall out of their usual social circle, lose their qualifications and work skills. Crime, drug addiction are growing, social values are depreciating. 5. Fight against cyclical unemployment. The governments of developed countries recognize their responsibility for involuntary mass unemployment, especially cyclical unemployment, therefore, they apply various measures to neutralize its negative consequences: - finance the development and implementation of economic programs to stimulate the growth of employment and increase the number of jobs in the public sector; - pay at the state expense at labor exchanges both professional primary training of employees and advanced training; - provide assistance to people affected by forced unemployment (payment of unemployment benefits). Topic 42. INFLATION AND ITS TYPES 1. The concept of inflation and its forms. Inflation as an economic phenomenon is due to the existence of paper money. Inflation is an excessive overflow of money circulation channels with paper money in excess of the needs of trade, leading to the depreciation of money, rising prices, and deterioration in the quality of manufactured goods. Inflation manifests itself primarily in the price level, it can be fixed through the inflation index: With a certain degree of conditionality, the following forms of inflation can be distinguished according to the rate of flow: 1. Inflationary background of the economy - characterized by a slight, within a few percent, price increases during the year and is associated with market fluctuations, the activity of entrepreneurs in the market, seeking to maximize their profits. This level of inflation does not pose a threat to the market economy and, if necessary, can be easily eliminated with the help of government measures. 2. Inflation within the limits of two to three tens of percent is the first symptom in the disorder of the monetary economy. It is customary to call it "creeping" (regulated) inflation. In general, under these conditions, the country's economy can develop freely. 3. Galloping (rapid) inflation - testifies not only to the disorder of monetary circulation, but also to serious violations in the monetary sphere. Galloping inflation is measured by one to two hundred percent per year. In general, in conditions of rapid inflation, the development of the country's economy is difficult, although possible. 4. Hyperinflation is characterized by an astronomical increase in prices - from several hundred percent per year and above. Hyperinflation has no upper limit: there is a known case of annual price growth rates of 3,8x1027 (Hungary, August 1945 - July 1946). The main sign of hyperinflation is the "leaving" of the population from money, the transition to "commodity" money - alternative values. In conditions of hyperinflation, the development of production is impossible. The American economist Philip Kagan introduced a formal criterion for hyperinflation: consider it to start in the month during which prices first rose by more than 50%, and to end in the month in which prices do not reach this value plus one more year. These forms of inflation are varieties of open inflation. The alternative is hidden, suppressed inflation. In the context of a rigid government policy that sets fixed, unchanged prices, inflation manifests itself only in the depreciation of money, which is reflected in the emergence of chronic shortages and constant queues for goods. In the modern economy, inflationary processes are superimposed on the cyclical nature of business activity, and if inflation develops against the background of an economic downturn, it is commonly called stagflation, and if against the background of increased taxation (the state's reaction to the depreciation of money) - taxation. If the rate of inflation in a country slows down, then this process is called disinflation. Moreover, inflation may stop altogether, and it will be replaced by the reverse process of a general decline in prices - deflation. The deflationary mechanism ultimately leads to the same results as inflation - it deforms all economic ties in the economy. 2. Supply and demand inflation. In modern Western economic theory, all manifestations of inflation are reduced to factors on the buyer's side (demand inflation) and factors on the seller's side (cost-push inflation). Demand-pull inflation is an imbalance between supply and demand on the demand side. Its main reasons: - expansion of state orders (military and social); - an increase in demand for means of production with a full load of the enterprise and full employment; - an increase in the purchasing power of the population due to wage increases. Here, excess demand encounters limited supply, which does not keep pace with demand, and there is a general rise in commodity prices, i.e. inflation. Cost-push inflation is an imbalance between supply and demand on the supply side. Main reasons: - oligopolistic practice of pricing; - economic and financial policy of the state; - Rising prices for factors of production. The mechanism of inflation on the part of producers is a mirror reflection of demand inflation. Inflationary expectations of the population can lead to the fact that supply and demand inflation will begin to combine with each other and an inflationary spiral will appear (Fig. 42.1). Fig. 42.1. inflationary spiral a) initiated by demand-pull inflation; b) inflation-driven supply; P is the general price level; y is the volume of national production; AD, ADI, ADII - aggregate demand; AS, ASI, ASII - total supply. 3. Socio-economic consequences of inflation. The consequences of inflation are complex and controversial. A little inflation is even good for the economy, as it revives business activity. But gradually, everyone - from consumers in the market and up to the state - is affected by the critical point of inflation, when its overall positive effect becomes negative. Rapid, galloping inflation is already introducing an element of disorganization into the economy, reinforcing disproportions through uneven price growth, distorting supply and demand, and leading to overproduction of some goods and underproduction of others. As a result, consumers begin to protect themselves from inflation by getting rid of depreciating money. The business sector cannot develop a strategy for its behavior in the market under these conditions. Banks, insurance companies, pension funds and investment companies, being the main creditors of the business sector, also suffer losses. The government, faced with discord in the monetary sphere, receives taxes in depreciated money. In addition to negative economic inflation, it also generates social consequences: a) is a kind of supertax on all segments of the population, from which no one can protect themselves; b) worsens the financial situation of wage workers, since real wages lag behind nominal wages, which, in turn, lag behind the sharply rising prices for goods and services; c) is a channel for the redistribution of national income from one group of the population to another, while the unconditional losers are the recipients of fixed incomes: state employees, pensioners, rentiers, students; d) harms people of creative, free professions, depreciating their large, but irregular one-time incomes; e) undermines the employment of the population. 4. Phillips curve. The relationship between inflation and unemployment can be illustrated using the A.U. Phillips (1914-1975), professor at the London School of Economics, who proposed it in 1958. After analyzing the British economy for a hundred years (1861-1956), Phillips constructed a curve showing the inverse relationship between the change in the wage rate and the p unemployment rate. Since the market prices of wages are behind the growth of wages, there are market prices for the goods on which it is spent, the American economists P. Samuelson and R. Solow subsequently transformed the theoretical Phillips curve, replacing wage rates with the growth rate of commodity prices, i.e. inflation (Fig. 42.2). Fig. 42.2. Modified Phillips Curve In this form, the chart is often used to formulate macroeconomic policy. If the government considers the current level of unemployment in the country to be excessively high, then it takes measures of fiscal and financial-credit policy to stimulate demand. Their result is the expansion of production, the creation of new jobs, i.e. the movement of the economy from a point to U2P2 economy moving from U2P2 to U3P3 5. Anti-inflationary policy. The anti-inflationary policy of the state can be carried out using the methods of active and adaptive policy. An active policy is carried out in order to eliminate the causes of inflation, and an adaptive policy is carried out to adapt the economy to it and mitigate its negative consequences. An active anti-inflationary policy involves the use of a shock therapy method, in which the causes of inflation are destroyed both on the supply and demand sides in a short period of time, and which consists in the following: a) cut government spending b) taxes go up c) a deficit-free budget is formed; d) a tight monetary policy is pursued; e) wage growth is restrained; f) developing market infrastructure; g) a fixed exchange rate is introduced; h) the competitive principles of the economy are strengthened through the fight against monopolies. These measures lead to a sharp decrease in both inflation itself and inflationary expectations of the population, which creates conditions for sustainable economic growth. At the same time, shock therapy leads to a significant decline in production and an increase in unemployment, greatly lowers the living standards of the population and leads to an increase in social tension in society. Adaptive policy involves the use of the method of gradual reduction of inflation - graduation. The gradual reduction of excess money supply in circulation avoids a shock in the sphere of employment and production, as well as excessive social tension in society, however, it does not deceive the inflationary expectations of the population, which are fueled by the periodic indexation of incomes of the population carried out by the government. These indexations are considered as a protection against the current level of inflation, but at the same time they are the reason for its increase in the future. The government is not free to choose its policy, since some of its forms affect the interests of population groups and sectors of the economy to varying degrees. Thus, it is not possible to determine in advance the most effective way to combat inflation: everything depends on the specific conditions prevailing in the national economy and the opportunities available to the government. Topic 43. CYCLE OF ECONOMIC DEVELOPMENT 1. The concept of cyclicity. The real economy is characterized by underemployment, price fluctuations, which leads to periodic ups and downs in the gross national product (GNP). Rice. 43.1. Varieties of economic growth R - constant rate of economic growth; R1 - decelerating growth rate; R2 - accelerating growth rate; R3 - oscillatory growth rate; GNP - gross national income. Economic growth, that is, the progressive development of the national economy, as a whole can take place not only through constant or uneven growth, but also through fluctuations, the latter path being absolutely predominant. Fluctuations in the dynamics of economic growth are not random, spontaneous, but, in fact, are an expression of the movement of the economy from one stable state to another, i.e., a manifestation of the mechanism of market self-regulation. At the same time, they can be combined into a sequential chain - a cycle. Business cycle - these are ups and downs in the economic activity of people that repeat in a long period, having a general trend towards economic growth. The economic cycle can be expressed in graphical models of two- or four-phase fluctuations in the economic environment (Fig. 43.2): Fig. 43.2. Business cycle a) two-phase model: 1 - compression phase; 2 - expansion phase; b) four-phase model: 1 - crisis phase; 2 - phase of depression; 3 - phase of revivals; 4 - lifting phase. Economic science has accumulated many explanations for the causes of cyclicality in the economy (see table). Table A comparison of different points of view on the causes of cyclicity shows that both external (exogenous) factors and internal (endogenous) factors are manifested in it. In modern conditions, it is generally accepted that external factors give the initial impulse to cyclicity, and internal ones transform them into phase oscillations. The reason for the repeated repetition of fluctuations, that is, the formation of the cycle itself, is the mechanism of action of the multiplier - the investment accelerator, which ensures the turn of economic dynamics from expansion to contraction, and vice versa. At the same time, the impact of the investment accelerator multiplier on the cycle can determine its type (Fig. 43.3): Fig. 43.3. Types of cycles by the nature of oscillations a) fading cycle; b) an expanding cycle; c) explosive cycle; d) uniform cycle. 2. Cycles of Kitchin, Juglar, Kondratiev. In modern economic science, about 1400 different types of cyclicity have been developed with a duration of action from 1-2 days to 1000 years. The most commonly used of them are: 1. Cycles of J. Kitchin - short-term (small) cycles of market conditions in 3-4 years. They are usually associated with the disruption and restoration of equilibrium in the commodity market as a result of periodic mass renewal of the product range; 2. Cycles of K. Zhuglar - medium-term (industrial, business, business) economic cycles lasting about 10 years. It is during this period of time that the fixed capital functions in production on average. The change of depreciated fixed capital in the economy goes on continuously, but not at all evenly, since it is under the decisive influence of scientific and technological progress. This process is combined with the flow of investment, which in turn depends on inflation and employment. 3. Cycles of N. Kondratiev - long-wave (large) cycles covering approximately 50 years. Their existence is connected with the need to change the basic infrastructure of the market economy: bridges, roads, buildings and structures that serve an average of 40-60 years. 3. State regulation of the cycle. The policy of state regulation of the economic cycle comes down to counteracting the phases of the cycle: during the period of economic contraction, the government stimulates business activity by reducing taxes, providing investment incentives, reducing the interest rate on loans, and during the period of expansion, on the contrary, it seeks to restrain economic growth. To this end, the government increases tax rates, reduces government spending, pursues a policy of "expensive" money, tightening credit conditions and increasing the required reserves of commercial banks. It might seem that the government should have lengthened the expansion phase as much as possible and minimized the contraction phase. However, this cannot be done, since at the inflection points of the cycle, the multiplier-accelerator mechanism operates, which, like a pendulum, multiplies and accelerates the opposite phase. As a result, the state policy in relation to the economic cycle is a counteraction to it, its smoothing (Fig. 43.4). Fig. 43.4. Business cycle smoothing policy In addition to fiscal and monetary measures to influence the economic cycle, the government also uses general health-improving measures: it fights inflation, monopoly, corruption, pursues a policy of eliminating imbalances, etc. Topic 44. MACROECONOMIC EQUILIBRIUM IN THE NATIONAL ECONOMY 1. Content and conditions of general macroeconomic equilibrium. The many different types of markets that exist in the economy are intertwined in a complex national market system, where changes in one market entail numerous and significant changes in others. The national market economy as a whole, like partial markets, is characterized by a general equilibrium. General economic equilibrium (OER) - a stable state of the economy, in which: 1) consumers maximize the value of the utility function; 2) producers maximize their profits; 3) market prices ensure the equality of supply and demand; 4) resources in society are divided efficiently. The self-regulation mechanism is at the heart of the ERA. The macroeconomic balance of the entire national economy makes it possible to maintain: - dynamic sustainable growth of national production; - stable price level based on free market pricing and inflation control; - high level of employment; - equilibrium foreign trade balance of the country. 2. Theoretical views on the balance in the national economy. For the first time, A. Smith drew attention to the possibility of OER in the economy in the middle of the XNUMXth century, suggesting an "invisible hand of providence" that directs the selfish actions of people to the common good. The followers of A. Smith (the neoclassical school) proceed from automatism in the formation of the OER, since the supply of goods, in their opinion, creates demand: after all, no one will produce goods and bring them to the market if no one buys them there. Therefore, the OER is observed when AS=AD,(44.1) where AS is the total supply; AD is aggregate demand. The mechanism for the transition from the macroeconomic level of equilibrium to the MER within the framework of this concept was developed by L. Walras (see question 33). General economic equilibrium according to L. Walras: where m is the list of benefits; n - list of factors spent on the production of goods; xn - the number of goods produced; p1...pn - prices of goods produced; y1...yn - prices of sold factors; y1...yn- sold and consumed factors. It follows from the formula that the total supply of final products in monetary terms should be equal to the total demand for them in the form of the sum of incomes received by their owners. D.M. Keynes, based on the experience of the Great Depression of the 30s. XX century, substantiated the impossibility of achieving OER without state intervention in the economy. He also proved that the equilibrium between AD and AS is derived from the balance of investment and savings in the economy. Therefore, according to D.M. Keynes? OER is observed when S = I,(44.3) where S is the total savings of the population; I- total investment in the economy. 3. Simulation of equilibrium. Like many other economic processes occurring in a market economy, in modern economic theory there is no unity of views regarding the MER. However, they can be reduced to two positions: a) the classical approach and b) the Keynesian approach. Each of the above concepts has its own model of the OER. The classical model of the OER assumes: a) the economy of perfect competition; b) complete self-regulation of the market; c) money as a unit of account; d) full employment of the population and full utilization of production capacities; e) the result of production is the production function for only one single factor - labor. According to this model, the formation of the NER will occur as follows (Fig. 44.1): Fig. 44.1. The classical model of the OER ND is the demand for labor; NS is the supply of labor. In quadrant III, an equilibrium is formed in the labor market, where the wage rate (W1) and the number of employees (N1) are established. In quadrant IV, by projecting the equilibrium value of the employed (N1) onto the production possibilities curve y (N), we obtain the equilibrium volume of the national product. In quadrant I, the equilibrium volume of the national product assumes the equality of aggregate supply with demand. Aggregate supply is represented by the vertical line AS, since at full employment production is at its maximum and cannot be increased. The intersection of AS and AD gives not only the equilibrium output y, but also the equilibrium price (P1). In quadrant II, the equilibrium price of labor is set aside, which, like the price of goods in quadrant I, depends on the amount of money in circulation, i.e. MV = PQ. If the money supply rises, then the equilibrium will not be disturbed, but will only move to a higher price level. Is this what the shifts of the AD to AD curves demonstrate? and W to W? quadrants I and II. On the whole, the classical model, with the simultaneous equilibrium state of the markets for factors of production, money and goods, shows the possibility of achieving the IER. Keynesians, defining the GER, proceed from judgments different from the classical school: a) the economy lacks price flexibility and complete self-regulation, which necessitates state intervention (indirectly, through economic policy); b) it is not supply that determines demand, but vice versa. Therefore, the starting point is not the labor market (quadrant III), but the goods market (quadrant I); c) the money market is not separated from other markets, and prices are not nominal values, but an important factor in the formation of the IER. Topic 45. Aggregate demand and aggregate supply 1. Aggregate demand and its composition. Aggregate demand is the volume of national production that the state, consumers and entrepreneurs are willing to buy on the market: AD=C + I + G + X, (45.1) where AD is aggregate demand; C- consumer; I- investment costs; G- government spending; X is net export. The dependence of aggregate demand on the price level can be expressed graphically (Fig. 45.1). 45.1 Aggregate demand curve The price factor affecting aggregate demand is split into three effects: 1. Interest rate effect (Keynes effect). An increase in the general price level (P) leads to an increase in the interest rate (%), which reduces the purchasing power (purchases) and reduces the investment activity of entrepreneurs (I). As a result, aggregate demand decreases (AD). 2. Wealth effect (cash balances) An increase in the general price level (P) causes a decrease in the real value of the population's financial assets (cash balances) (U), which in turn makes people less wealthy (R), and their demand in the market naturally decreases (AD); 3. Effect of import purchases (of goods) An increase in the general price level (P) causes a decrease in demand for domestic goods (ADx) and makes attractive imports that replace them in consumption (ADE). All price factors (AD) traditionally affect its movement along the aggregate demand curve, while non-price factors shift it in the coordinate system to the right or to the left. Non-price factors include the factors indicated in formula 45.1. 2. Aggregate offer and its elements The dependence of AS (aggregate supply) on the price level is described by the aggregate supply curve (Fig. 45.2). Fig. 45.2. Aggregate supply curve AS is the total supply. The aggregate supply curve AS conditionally consists of three sections: I - horizontal - production grows at a low constant price level; II - ascending - the increase in production is against the backdrop of rising prices; III - vertical - the economy reaches the highest point of its production possibilities. Proponents of neoclassical and Keynesian approaches to economics estimate the AS curve differently in the short period: Keynesians believe that it is represented by section I, and neoclassicalists - by section II. The difference between their views lies in the unequal interpretation of the behavior of sellers and buyers in the market. Neoclassicists, as is known, proceed from price flexibility and complete rationality in the behavior of market agents (homo economicus), while the latter deny this. In essence, the form of the AS curve in the short period depends on the behavior of economic entities and market conditions, i.e., a number of non-price factors. Among the main non-price factors of aggregate supply are: - the level of production technology in the country; - overall labor productivity; - changes in business conditions; - the nature of the use of resources (extensive, intensive), etc. If, under the influence of the price factor, aggregate supply slides along the AS curve, then a change in non-price factors leads to its shift. In the long run, the proponents of both opposing economic theories agree on the unanimous opinion that the AS curve becomes vertical, since in the long run, after the rise in commodity prices, workers always demand higher wages, and after the rise in profits, there is an increase in costs. Under these conditions, the volume of supply is limited by the technical possibilities of production and cannot be increased arbitrarily. 3. Graphical interpretation of the interaction of aggregate demand and supply. Aggregate supply and demand meet in the goods market, forming an equilibrium situation: AD = AS. In its most general form, the AD curve intersects AS in section II, forming the equilibrium national output (GNP) and the equilibrium price PE. This situation is described by a graph (Fig. 45.3). Different views on the AS curve in the short period lead neoclassical and Keynesian economists to the opposite assessment of macroeconomic equilibrium in the goods market. Fig. 45.3. Equilibrium in the goods market Representatives of the neoclassical school believe that in conditions of flexibility in prices, wages, and interest rates, they are able to grow and contract under the influence of supply and demand. As a result, a decrease in AD does not lead to a reduction in the volume of national production, but only P 4 changes prices. From here it is concluded that free pricing is capable of itself, without any state intervention, to establish a balance in the market for goods (Fig. 45.4). Fig. 45.4. Neoclassical interpretation of equilibrium in the goods market E, E1 - equilibrium points. Representatives of the Keynesian school do not recognize such an assessment of equilibrium and offer their own: the aggregate supply of AS only in the long run has a vertical form, and in the short period it takes on a horizontal one: there are always unused resources in the economy (including unemployment), and prices and wages are not flexible , since they are fixed in contracts for the supply of products, purchased raw materials and equipment, labor agreements concluded with employees for a long period (months and years), etc. A reduction in aggregate demand AD leads to a reduction in national production y (GNP), therefore, in order to prevent a recession or even a crisis in the economy, government intervention is necessary to maintain a sufficient level of aggregate demand AD (Fig. 45.5). Rice. 45.5. Keynesian interpretation of equilibrium in the market for goods Topic 46. STABILIZATION POLICY 1. Goals and methods of conducting the stabilization policy. Stabilization policy - a system of government measures implemented to ensure sustainable economic development of the country. Accordingly, both active and passive stabilization policies are being developed. An active stabilization policy is based on the principle of "fine" tuning of the economy and is expressed in a policy of counteraction: stimulating the economy during a period of depression and slowing down its growth during an overheating - "boom". For this purpose, both monetary and tax leverage are used. The passive stabilization policy is built on the principle of "do no harm" and is expressed in the policy of correcting ongoing processes. Both types of stabilization policy have the right to be implemented: in the vicinity of the inflection points of the economic cycle, it is advisable to use mainly an active policy, and in the intervals - a passive one. The duration of the cycle depends on the timeliness of state statistical bodies recording changes in the economy and the political authorities' awareness of the need to take appropriate measures. 2. Stabilization policy lags. Monetary and fiscal policy has an impact on the development of the economy after a certain period of time, and the stabilization policy takes place in two stages: 1) the stage of realizing the need to take measures in relation to the economy. Such a period of time is usually called the internal lag of the stabilization policy; 2) the stage of implementation of the decisions made. The period of time between the adoption of stabilization policy measures and the receipt of the first results is commonly called the external lag. The period of time covering the internal and external lags of the stabilization policy is usually called the decision lag (see Fig. 46.1). Fig. 46.1. Stabilization Policy Decision Lag Time lags that exist in the stabilization policy reduce its effectiveness. However, they are opposed by automatic built-in stabilizers, which allow slowing down or stimulating the economic development of the country without special active measures to change economic policy. The built-in stabilizers of the economy are: 1. The system of taxes on personal income of the population. During an economic recession, as incomes of citizens and firms decrease, taxes are automatically reduced without special legislative acts, and during a "boom" inflation pushes incomes up, and they are automatically taxed at a higher rate. 2. Government spending on social insurance. During the economic downturn, a large number of people turn to the state for unemployment assistance and social support. The development of inflation leads to the same results, as more and more people fall below the poverty line and can legally claim assistance from the state. During periods of recovery, these processes weaken, which automatically leads to a reduction in government spending. The use of built-in automatic market regulators makes it possible to avoid a number of mistakes when pursuing an active stabilization policy by the state. Topic 47. CONSUMPTION AND SAVINGS 1. Motives for using income by the population 2. Relationship between savings and consumption 3. Marginal propensity to consume and save 1. Motives for the use of income by the population. All product created in society is intended for consumption. Consumption - individual and joint use of goods, aimed at meeting the material and spiritual needs of people. Population consumption is the leading indicator of economic development, since it accounts for more than half of the gross national product, and consumer spending is an important predictive indicator of future development that characterizes people's moods and their consumer expectations. 2. Relationship between savings and consumption. Consumption is closely related to savings. Savings is temporarily deferred consumption. It occurs when income and consumption do not coincide. The reason that encourages firms not to use the fully received income, but to save and accumulate it, is their investment activity in order to expand their business. The motives for savings among households are more diverse and are associated with the psychological characteristics of people. The size of both consumption and savings depends on the income received and is limited by it. The dependence of the consumed and saved parts of income on its total value is usually called the consumption and saving functions. a) S = f(s); b) C = f(c); c) y = C + S, (47.1) where Y is income; C- consumption; S - savings. The psychology of people has a significant impact on the use of income, therefore, in economic theory, indicators of the average propensity to consume and save are used. 3. Marginal propensity to consume and save. Behind the average propensity of the population to consume and save are fluctuations in both income and people's moods, so it is important to know how a person reacts to a change in his income - in the direction of increasing consumption or saving? For this purpose, indicators of the marginal propensity to consume and save are used, respectively (Fig. 47.1). Fig. 47.1. marginal propensity a) for consumption b) to save. marginal propensity to consume - change in consumption due to change in income: where: ?C - increase in consumption; ?y - increase in income; MpC is the marginal propensity to consume. marginal propensity to save is the change in saving due to a change in income: where ?S - increase in savings; ?y - increase in income; MPS is the marginal propensity to save. The values of MPC and MPS always fluctuate within the limits of income growth - this shows their relationship and interdependence. a) MPC + MPS = 1; b) 1 - MPC = MPS; (47.5) c) 1 - MPS = MPC. The corrective impact on the MPC and in addition to income, have: - price level; - taxation; - accumulated property, etc. Summarizing the individual aspirations of individuals, we can proceed to the calculation of MPC and MPS at the macroeconomic level. Topic 48. FUNCTIONAL ROLE OF INVESTMENTS IN THE ECONOMY 1. The concept of investments and their types. Investments - long-term capital investments in enterprises of various industries, spent on expanding production, improving quality and increasing the competitiveness of products. According to the nature of use, investments are divided into gross and net (see question 30), and according to the impact of the national product on them - into autonomous and derivative (induced). Autonomous investments are those that do not depend on the dynamics of GNP, but on the contrary, they themselves have an impact on its growth. Derivative (induced) investments are a direct result of GNP growth. Unlike savings, the value of which is directly and directly determined by the size and dynamics of GNP and NI, investments only in the most general form depend on income. To a greater extent, they are under the influence of diverse market factors that make them the most unstable part of aggregate demand (Fig. 48.1). 2. The role of investment in establishing macroeconomic equilibrium. The growth of investment activity in the market leads to the creation of new jobs, and consequently, to the expansion of employment and the reduction of unemployment. However, this process is not unlimited, because if you go over a certain threshold of optimality, then you can get inflation. Fig. 48.1. Factors directly affecting the investment decisions of market agents Fig. 48.2. Macroeconomic equilibrium based on equality of savings and investment S- savings; I- investments; y is the volume of national production (GNP); FFX - full-time potential production line; yE is the equilibrium volume of GNP; E, E1, E2 - balance points. Such an optimality point is the equality of savings and investment, i.e. S = I (Fig. 48.2). The graph shows that the lines of investment and savings intersect at point E, which, projected onto the horizontal axis of the graph, shows the equilibrium volume of national production, i.e., the optimal state of the economy, in which the interests of market participants are balanced. Line FF1 on the graph shows that macroeconomic equilibrium can develop at a level where full employment is not achieved, i.e., under conditions of cyclical unemployment. Topic 49. MULTIPLIER THEORY 1. Substantiation of the multiplier effect in the national economy. Investment is an important factor in economic development. At the same time, they are subject to a special multiplier mechanism that multiplies their impact on the growth of the gross national product (GNP). Investment multiplier is a numerical coefficient showing an increase in GDP by 1 + n with an increase in investment by 1. The multiplier effect is a kind of economic echo, which, like its acoustic counterpart, repeatedly repeats the original impulse. Income consists of consumption and savings. Therefore, the multiplier effect can be expressed using the marginal propensity to consume (MPC) and save (MPS): where K is the investment multiplier. The larger the share of consumption in income, the stronger the multiplier effect will be in the economy, since the growth in consumption (expenditure) of some people leads to an increase in the income of others who have sold their goods and services. This chain (echo) will continue until the initial level of consumption is gradually replaced by savings. The investment multiplier can be represented graphically (Fig. 49.1). Fig. 49.1. Investment multiplier effect in the economy S- savings; I - the initial level of investment; I, I', I" - change in investments; E, - equilibrium in the market; Ue - initial volume of national production; yE1, yE2 - changes in the volume of national production. The multiplier multiplies not only the increase in investments, but also their reduction, that is, it works in both directions. To be convinced of this, it is enough to plot the I line below the I line on the chart 50.1. Then UE - UE2 will show the effect of the multiplier on the reduction of GNP. 2. Investment accelerator. The investment multiplier effect is complemented by the accelerator effect. The investment accelerator is a ratio showing the ratio between the increase in investment in a given year and the increase in GNP in the previous year. The economic development of the country is not only a consequence of investments in it, but serves as the starting point for increasing them in the future. In this regard, it is advisable to divide all investments into autonomous and derivative (induced). The value of the former does not depend on the current level of GNP and can be considered as an initial impetus to the active actions of entrepreneurs in the market. It is these investments that create the multiplier effect. The value of the second is a consequence of the previous development: entrepreneurs, seeing that the volume of national production is growing and the market situation is improving, seek to use favorable conditions and expand investment. As a result, derivatives are imposed on autonomous investments, which leads to an acceleration of development, i.e., an accelerator effect. Topic 50. STATE BUDGET AND TAXES 1. The concept of the budget. The economic relations that develop in society regarding the use of money are called finance. A significant part of them is accumulated by the government in the form of public finances. A significant part of GNP is redistributed through public finance. The main link of public finance is the budget. The budget structure of unitary states differs from federal ones: the former have two levels of budget - national (federal) and local, and the latter have three: between the federal and local budgets there is an intermediate regional link in the form of state budgets (USA), states (Germany), subjects of the federation (Russia). If we bring all levels of budgets together, we can get a consolidated budget of the state, which is used for special analysis and forecasting of cash flows in the national economy. The leading link in the budget structure of the country is the state budget - the financial plan of the state for the centralized attraction and expenditure of financial resources to perform its functions. In countries with a developed market economy, the state budget performs, in addition to its direct functions of ensuring the country's security, maintaining the state administration apparatus, implementing social policy and developing science, education, culture, another additional function - regulating the economy, indirectly influencing the market behavior of firms in order to achieve sustainable development. 2. Budget surplus and deficit. The state budget is compiled as a balance of revenues and expenditures for the year. The equality of revenue and expenditure between themselves implies a balance of the budget, however, the presence of cyclicality in the economy, the need for an active stabilization policy and the implementation of structural changes in the national economy in order to implement the achievement of scientific and technical progress, often leads to a mismatch of their own parts of the budget and the emergence of a deficit (more often) and a surplus (less often). Budget deficit - the amount of excess government spending over its revenues within the financial year. There are current (temporary, not exceeding 10% of the budget revenue) and chronic (long-term, critical, exceeding 20% of the revenue). When approving a deficit state budget, its maximum allowable value is usually set. If it is exceeded in the process of budget execution, then a budget sequestration is carried out, i.e. a proportional reduction in spending for the remaining budget period for all items of expenditure, with the exception of socially protected ones. Budget surplus - the amount of excess of state revenues over its expenditures within the financial year. The alternation of periods of budget deficit and surplus makes it possible to balance the budget not for a year, but for 5 years. This approach allows the state to maneuver its finances in order to smooth out the business cycle by about 30-40% (Fig. 50.1). Fig. 50.1. Cyclical balancing of the state budget R - government revenues; G - government spending; M - balanced budget. 3. Public debt - this is the excess of the sum of the total deficits of the state budget accumulated over previous years over its surpluses. The state debt of the country is formed at the expense of both internal and external borrowings. Domestic public debt - the debt of the government of its country. It is serviced by issuing government bonds and obtaining loans from the Central Bank of the country. External public debt - the state's debt to foreign creditors: individuals, states, international organizations. If the government is unable to pay its public debt and misses the deadlines for payments, then a situation of default arises - a temporary waiver of obligations, entailing the sanctions of creditors up to a boycott and confiscation of state property located abroad. A significant public debt disrupts the financial system of the state, worsens the business climate in the country and significantly limits the growth of the population's well-being. 4. The principle of taxation. taxes - these are obligatory payments of individuals and legal entities levied by the state. They form 90% of the revenue part of the state budget of the country. Taxes, in addition to the fiscal function (i.e. filling the state budget), are intended for: a) regulation; b) stimulation; c) income redistribution. The principles of rational taxation, developed by A. Smith, have not lost their relevance to this day: The principle of justice: the entire society should bear the tax burden, and tax evasion, the creation of various "gray schemes" of settlements with the state should be condemned by society. The principle of certainty: the tax must be specific in amount, term and method of payment. It is impossible to introduce taxes retroactively (modern practice in Russia). The principle of convenience: the tax should be convenient, first of all, for the population, and not for the tax official. The principle of economy: the cost of collecting taxes should not be excessive, burdensome for society. 5. Direct and indirect taxation. According to the method of collection, taxes are distinguished direct and indirect. Direct taxes are visible taxes, as they are established on the income received by a person or firm, as well as on their property: income tax, corporate income tax, inheritance and gift tax, land and property tax, etc. Indirect taxes are taxes that are implicit, invisible to consumers, since they are levied on producers who are obliged by the state to include them in the price of goods and transfer them to state revenue immediately after the sale. These are turnover tax, value added tax, sales tax, excises. 6. Laffer curve. In taxation, a significant role is played by tax rates - the amount of tax per unit of taxation. If they are excessively high, then the economic activity of the population will be restrained. In the early 80s. 50.2th century A. Laffer, then adviser to President R. Reagan, found that the increase in rates increases the flow of taxes to the treasury only to a certain limit, after which the population goes into the shadow economy, preferring not to pay taxes at all. This situation in economic theory is described using the Laffer curve (Fig. XNUMX). Fig. 50.2. Laffer curve Topic 51. BUDGET AND TAX POLICY 1. Impact of government spending and taxes on households 2. Impact of government spending and taxes on the business sector 1. The impact of government spending and taxes on households. The population actively reacts to the policy pursued by the government in both parts of the state budget - revenue and expenditure. A change in taxation directly affects the income of the population, so their consumer behavior in the market depends on whether taxes are permanently or temporarily changed in the country; they are expected by society or take it by surprise. A temporary increase in taxes does not affect the overall level of household consumption in the long run, since the population during a period of high taxes will seek to borrow funds in order to maintain the current level of consumption. Consequently, they will cut savings. An increase in taxes leads not only to a reduction in savings, but also to an actual decrease in the level of household consumption. At the same time, government spending can mitigate, and sometimes even neutralize, the effect of tax increases on aggregate demand, since the government spending multiplier operates in the economy. where Su is government spending. This coefficient shows how much the value of the gross national product will change with an increase in government spending per unit. The multiplier effect is obtained due to the fact that, following the growth of government spending, the income of the population increases, and, consequently, tax revenues, which partially cover the additional government spending. 2. The impact of government spending and taxes on the business sector. For the business sector, the change in taxation is important in terms of investment opportunities. Since investments in the business sector are formed mainly on a loan basis, the dynamics of household savings is the initial basis for their activities. As for the firms' own savings, the state tax policy has a direct effect on them. For example, an increase in income tax, tightening the conditions of tax holidays when investing objects that the state needs reduces the resource base for investment for firms. On the other hand, along with increased taxation, the government often provides for spending on subsidizing the investment activity of firms, permits accelerated depreciation of used equipment, which covers the losses of firms from tax increases. In general, if the choice is between equal increases in government spending and lower tax revenues, the gross national product will increase more in the former case. At the same time, the state budget deficit will be larger with tax cuts than with an identical increase in government spending. Topic 52. MONEY AND THEIR FUNCTIONS 1. Money as an economic category. All transactions of purchase and sale of goods and services in the market are carried out with the help of money. Money is a commodity of a special kind, historically separated from a number of other commodities and becoming the universal equivalent for all other commodities. Money in its development has come a long way from exotic random forms to gold and paper money. 2. Functions of money. The use of money in the economy is to perform five interrelated functions (Fig. 52.1). Fig. 52.1. Functions of money As a measure of value, money measures the value of all goods. You can determine the price of any product with the help of ideal money, which until the 30s. XNUMXth century gold was used, and the exchange rate of the national currency is currently used. As a means of circulation, money acts as a fleeting intermediary in purchase and sale transactions, which makes it possible to use paper money. If the state releases them beyond measure, they will depreciate and be replaced by barter. Ultimately, the depreciation of money can lead to the restriction of market transactions using cards and coupons. Money as a means of payment expresses the relationship between the debtor and the creditor, since the act of purchase and sale is often broken in time. The period of payment for goods and services in this case, for a number of reasons, does not coincide with the delivery of products. Such transactions are executed in the form of promissory notes, bills, bills, checks, etc. On their basis, credit money arises. Money as a means of accumulation represents a stock of financial resources for future expenses, forms the savings of households and investments of entrepreneurs. The fulfillment of the role of world money lies in the fact that money functions as a medium of circulation and a means of payment in international economic exchange. 3. Theories of money. Three main theories of money have developed in economics: 1) metal; 2) nominalistic and 3) quantitative. The metal theory was developed within the framework of mercantilism and reduced money circulation to two functions - a store of value and world money. Precisely these functions were most successfully performed by noble metals, being the personification of the wealth of the nation. The nominalistic theory was developed by the classical school in polemics with supporters of the metal theory. Pointing to the limited approach of the mercantilists to money, the supporters of this theory fell into the other extreme, absolutizing the significance of the functions of a means of circulation and payment and declaring money to be purely conventional signs, monetary units that were legalized by the state. The quantity theory of money also arose within the framework of the classical school. Gradually, it began to prevail in economic theory and developed even in the twentieth century. (the equation of the quantitative theory of I. Fisher; the Cambridge equation of A. Pigou). Its meaning boils down to the fact that money has a cost basis, so their increase in the economy does not lead to an increase in national wealth, but only to an increase in prices. Therefore, the exchange equation can be written: MV=PQ, (52.1) where M is the amount of money in circulation; V is the velocity of money circulation; P - prices of goods; Q- quantity of goods (volume of production). This equation was derived by the American economist I. Fisher in 1911. In essence, the equation of exchange is an identity and is constantly observed in the economy, but it is of no small importance, as it shows what an unreasonable policy of issuing paper money by the state can lead to. 4. Monetary system. In any country, money circulation is organized by the state on certain principles, that is, in the form of a monetary system. The elements of the monetary system are: - national monetary unit (ruble, dollar, yen, etc.), in which prices for goods and services are expressed; - types of banknotes in the form of credit paper money and bilon tokens, which are legal tender in cash circulation; - organization of the issue of money, i.e., the procedure for issuing money into circulation; - state bodies that regulate and control money circulation (institutions of the Central Bank of the country, the Ministry of Finance, state treasuries). 5. The modern concept of money. In modern conditions, money circulation is not based on the gold standard, but is a system of paper credit money. Credit money, in turn, gave rise to a system of credit cards, which, with the advent of the era of computers, gave rise to the so-called "electronic money", performing the functions of money in a paperless way, in the form of computer signals. Topic 53. PROPORTIONS OF THE MONEY SECTOR OF THE ECONOMY AND THE MONEY MULTIPLIER 1. Money sector of the economy - a link between all agents of market relations. The money market has a specific feature that distinguishes it from other markets: a special commodity, money, circulates here. They have a special price - the interest rate, which is the opportunity cost of money. Therefore, in this market, money is not sold or bought, but exchanged for other financial assets. The proportions that develop between supply and demand in the money market depend on the dynamics: the money supply, the deposit ratio, the deposit multiplier. 2. Money supply. Liquidity. In modern economic theory, the functional approach to money prevails: everything that is used as money is money. At the same time, the share of money itself in the total volume of means of payment does not exceed 25%. For these reasons, the broader concept of money supply is used along with the concept of money. The money supply is a set of cash and non-cash purchasing and payment means that the population, firms and the state have at their disposal. Usually, the money supply is classified according to two criteria: by physical appearance and by liquidity (Fig. 53.1). The liquidity of the money supply is the ability of a monetary asset to turn into cash and perform its functions. According to the principle of liquidity, the entire money supply is divided into several aggregates, which are formed according to the principle of nesting dolls. Unit M1 includes cash and bank deposits, which are used for settlements. Fig. 53.1. Money supply classification The M2 aggregate includes M1 and is supplemented by savings deposits, mutual fund shares, etc. It is approximately four times larger than the M1 aggregate. Both of these units are usually classified as highly liquid. The M3 unit, in addition to M2, takes into account the securities of large depositors of banks, shares of investment funds. The unit L, along with M3, contains banker's acceptances, commercial paper, short-term securities and bonds of the Central Bank of the country. Monetary aggregates M3 and L are usually classified as low-liquid. Close in meaning to the money supply is the indicator of the monetary base, which is calculated as the sum of cash in circulation and bank reserves. The monetary base indicator allows you to calculate the deposit multiplier, which demonstrates the possibility of expanding the deposits of commercial banks with an increase in the monetary base by 1: where MD is the deposit multiplier; rr is the required reserve ratio at the request of the Central Bank; fr - the share of banks' own reserves, in excess of the required reserves. 3. Calculation of the money multiplier. The state completely controls the issuance of money into circulation, but it cannot do this with respect to the money supply, since banks, through their professional activities, significantly increase the money supply. The ratio of new money created by banks to their reserves is called the money multiplier. money multiplier - this is a numerical coefficient showing how many times the money supply will increase or decrease as a result of a change in the monetary base by one unit. The multiplier is inversely related to the level of reserves and can be described by a simplified formula: where M is the money multiplier; R- bank reserves. The main factors in the growth of the money supply due to the multiplier effect are: - the size of the minimum rate of reserves; - Demand for new loans. Using these levers, the Central Bank can influence the money supply in the country, and through it regulate: - economic activity of market agents; - macroeconomic proportions; - inflation processes; - investments, etc. Topic 54. EQUILIBRIUM IN THE MONEY MARKET 1. Demand for money. Money is needed, at a minimum, to buy goods and pay for services, as well as to accumulate them as a stock. These initial factors form the demand. Bonds and other financial assets act as an alternative to money in the market, therefore, if these non-monetary assets bring their owners a greater percentage than money, then the population will prefer to purchase bonds. The benefits of owning money, compared to investing in securities, are the following motives: - transactional motive: money is needed for current settlements in the economy; - speculative motive: money may be required to purchase the same bonds under favorable conditions; The precautionary motive is associated with the risk of capital loss. In general, people tend to value the liquidity of money by comparing their preferences with the dynamics of the interest rate. In addition, as people's incomes rise, so do prices, which means more money is needed to service the economy. Demand for money - the amount of money that households and firms are willing to have at their disposal, depending on their income and the interest rate. A change in the interest rate leads to a sliding of the quantity demanded along the MD curve, and the higher it is, the less money the population has and, therefore, the faster they must circulate in order to service a greater number of transactions. A change in the income of the population leads to a shift in the MD curve to the right or to the left (Fig. 54.1). Fig. 54.1. Demand for money MD - demand for money. 2. Offer of money - is the amount of money put into circulation by the country's central bank. If demand is formed freely in the market, depending on the needs of the population for money, then the supply is always set by the banking system of the state (Fig. 54.2). Fig. 54.2. Offer of money by the Central Bank of the country MS - money supply. Three key factors influence the value of the money supply: - the amount of money that forms the Central Bank of the country; - the ratio of reserves-deposits, showing the ability of commercial banks to increase the money supply; - deposit ratio, reflecting the ability of the population to invest in commercial banks. 3. Equilibrium in the money market. Fig. 54.3. Equilibrium in the money market MS - money supply; MD - money supply. As a result of the interaction of demand and supply of money, their market equilibrium arises, i.e., the equality of the amount of money offered on the market is ensured by the total amount that the population wants to have (Fig. 54.3) The peculiarity of monetary equilibrium in comparison with commodity and resource markets is that it is constant in the market; otherwise, serious disruptions occur, often leading to a financial crisis (as in August 1998). Topic 55. BANKING SYSTEM 1. Credit relations. In a market economy, money is constantly in circulation, so temporarily free financial resources must flow into the money markets and go into business. Credit - the movement of borrowed capital, carried out on the principles of urgency, repayment, payment, security and purpose of funds received for temporary use. Credit performs important functions in the economy: - redistributes money: from those who have it free to those who need it; - contributes to saving circulation costs, since it does not require the state to issue additional money into circulation; - accelerates the concentration and centralization of business. The loan has a variety of forms (Fig. 55.1): Fig. 55.1. Loan types 2. The concept of banking. Banks are economic institutions that serve the system of credit relations in society. Market agents apply to the bank in the following cases: - in the presence of temporarily free funds; - with a temporary shortage of funds; - for cash settlements with counterparties (Fig. 55.2). Fig. 55.2. Banking There are three main types of bank deposits: 1) deposit, or demand deposit. With the help of such a deposit, the population makes small savings, which it can withdraw from the bank at any time, and firms open current accounts in order to carry out current operations; 2) term deposit, or term deposit. The money is placed in the bank with an obligation not to use it until a certain date; 3) a certificate of deposit is a security, indicating the acceptance by the bank of a deposit on the terms of a term account. Such securities may be subject to collateral transactions or settlement in the securities market. The provision of loans by the bank is carried out in the form of cash loans, differing in urgency: - short-term - up to 1 year; - medium-term - from 1 to 5 years; - long-term - over 5 years. 3. The structure of the credit and banking system. The credit-no-banking system is a monetary and financial structure of the economy, consisting of two-tier banks and specialized credit and financial organizations. The central bank of the country is the first level of the banking system. Its main functions are: - emission (release) of money into circulation and their withdrawal from it; - the function of the government bank, which involves financing government programs, servicing the public debt and the public sector, conducting monetary policy; - the function of the bank of banks is expressed in refinancing the economy by providing commercial banks with the opportunity to obtain a loan when they lack funds. The Central Bank does not provide loans to the population and firms. - the function of supervision and control of financial markets and banks. Commercial banks constitute the second level of the country's banking system. They are intended for credit and settlement services for the population and firms, in the process of which they create credit money (see question 54). According to the main activities, commercial banks can be divided as follows (Fig. 55.3): Fig. 55.3. Classification of commercial banks Specialized credit and financial institutions are organizations that are not banks in form, but in fact partially perform their functions. In a market economy, they compete fiercely with commercial banks for the money of the population and firms. These include: - pension funds; - Insurance companies; - trust companies (semi-banks); - pawnshops; - societies of mutual credit; - credit associations. The credit and banking system should ensure the stability of finances. For this purpose it is necessary: - improve banking legislation; - enlarge banking systems, as small banks are unstable, low-income and unable to provide investment loans; - to strengthen the connection of the banking sector with the real sector of the economy. Topic 56. MONETARY POLICY OF REGULATION OF THE MARKET ECONOMY 1. Importance of monetary policy. The monetary policy of the state is to regulate the circulation of money in order to influence the growth of production and curb inflation and unemployment. The main body implementing this policy is the Central Bank of the country, which should: a) ensure the stability of the national currency; b) develop uniform rules for the money market and control the actions of its agents; c) implement a consistent macroeconomic policy that allows the use of various economic regulators and stabilizers for the development of the real sector of the economy. To achieve these goals, the Central Bank manipulates money and loans. Rice. 56.1. Tight monetary (monetary) policy MD - money supply; MD1 - movement of the money supply; MS - money supply. 2. Types of monetary policy If inflation in the country becomes dangerous, then the Central Bank sets itself the goal of keeping the money supply at the current level, preventing a new issue of money. Then, despite changes in the demand for money, the aggregate supply curve in the market will take a vertical form (Fig. 56.1). In this case, an increase in the demand for money will cause an increase in the interest rate (price of money), which will negatively affect the investment activity of the business sector. Such a monetary policy of the Central Bank is called a tight monetary policy with its inherent "expensive" money. If it is necessary to create favorable conditions for investment in the country, then the Central Bank will be forced to sacrifice the stability of the money supply and will control the level of the interest rate, preventing it from rising under the influence of money demand. This monetary policy of the Central Bank is called flexible monetary policy, which is based on "cheap" money (Fig. 56.2). Fig. 56.2. Flexible monetary (monetary) policy If the country sets the task of supporting the development of the economy or compensates for the slowdown in money turnover, then a simultaneous increase in the money supply and the interest rate is allowed. Such a compromise policy is usually called an intermediate monetary policy. The choice by the Central Bank of one or another policy in the money supply depends on the reasons that gave rise to changes in the demand for money. 3. Instruments of monetary policy. The monetary policy of the Central Bank consists of four elements: 1. Operations on the open market. The meaning of the actions is that, by selling and buying securities on conditions accessible to the entire population, the Central Bank regulates the circulation of money in the country: by selling securities, the Central Bank binds the money supply, withdraws excess money from the population, firms and commercial banks, and by buying - increases. 2. Changes in the discount rate of interest. The state, represented by the Central Bank, is a creditor to commercial banks that receive loans from it against their own debt obligations. Central Bank loans are secured by government securities owned by commercial banks. The accounting policy is carried out by establishing and revising the refinancing rate, which makes it difficult or easier to obtain financial resources, which, in turn, affects the ability of commercial banks to issue loans to customers. 3. Change in reserve requirements for commercial banks. All banks must set aside part of their funds to secure payments without putting them into circulation. Required reserve requirements are set at approximately 10%. If the Central Bank tightens reserve requirements for commercial banks and this leads to a reduction in the money supply, then such actions are called restrictive monetary policy, and if vice versa - expansionary. Money supply targeting. The purpose of the measures is to set upper and lower limits for the growth of the money supply for a certain period of economic development. Moreover, the upper limit of the growth of the money supply should not be exceeded under any circumstances. In essence, we are talking about a kind of "money corset" for the economy. Topic 57. ECONOMIC GROWTH AND DEVELOPMENT 1. The concept of economic growth. Economic growth is understood as a stable increase in the productive power of the economy over a long period of time. Economic growth is measured in two interrelated ways: 1. An increase in real gross national product (GNP) for a certain period (year). 2. An increase in real GNP per capita for a certain period (year). The following indicators are used to determine the rate of change in economic growth: High rates of economic growth are not always justified if they are achieved at the expense of product quality. In these cases, economic growth is carried out on an unhealthy basis and sooner or later undermines the economic potential of the country. 2. Goals, efficiency and quality of economic growth. By ensuring economic growth, the state can achieve the following goals: 1) improve the living conditions of the population; 2) put into practice the achievements of scientific and technical progress; 3) increase the production capacity of the economy; 4) smooth out the social differentiation of incomes of the population and stabilize the economic system. The effectiveness of economic growth is expressed in improving the quality of national goods and services and increasing their competitiveness in the domestic and foreign markets, developing new industries, deepening the specialization and cooperation of production, mastering new technologies, as well as overcoming "X-inefficiency" (i.e., excessive costs ) by improving management. Economic growth has not only a quantitative expression, but also a qualitative content, which is expressed in the social protection of disabled members of society and the unemployed; safe working and living conditions for people; increased investment in human capital; support for full and effective employment. 3. Factors of economic growth. Factors of economic growth - conditions that ensure an increase in GNP. All factors can be divided into two groups: direct - factors that ensure the physical growth of the economy, creating its economic potential; indirect - factors affecting direct ones by slowing down or accelerating them (Fig. 57.1). 4. Ways to ensure economic growth. Economic growth in the country can be achieved through extensive or intensive development. The essence of the extensive path is reduced to the development of the economy in breadth due to the growth of the involvement in production of a larger number of workers, raw materials, means of labor, land, etc. With the help of extensive growth, society solves important problems: - provides employment and reduces unemployment; - develops new industries, restructures the economy in accordance with market needs; Fig. 57.1. The main factors of economic growth and their interaction - involves new territories and resources in economic turnover; - eliminates territorial disproportions, making it possible to bring depressed and undeveloped regions up to the national average. The essence of the intensive path is expressed in the development of the economy in depth due to the qualitative improvement of the labor force, the use of advanced technologies, and higher labor productivity. The intensive development of the economy allows: - economical use of available resources; - increase the competitiveness of national goods by improving quality, reducing production costs; - to introduce the achievements of scientific and technical progress into production. Extensive and intensive factors of economic growth always coexist together, so the country's economy can develop only predominantly along any path. Topic 58. INTERNATIONAL ECONOMIC RELATIONS 1. World economy is a global economic system that involves national economies in common economic processes for all through the international division of labor. It arose on the basis of intercountry economic ties and relations, which initially manifested themselves in the field of foreign trade, and then spread to the manufacturing sector, research and development, labor migration, and the use of financial resources. The world economy developed on the basis of a free competition market by the middle of the XNUMXth century, but at the turn of the century, under the influence of the monopoly of the economy and the export of capital, it acquired the form of world empires. The struggle between them led to the falling out of a number of countries from the system of the world capitalist economy and the emergence of two world subsystems - capitalism and socialism, which finally took shape in the middle of the XNUMXth century. However, at the end of the XX century. the world economy has again become one, which makes it possible to consider it as a global whole. The material basis of the world economy is the international division of labor - the specialization and cooperation of countries in the production of goods and services (Fig. 58.1). Fig. 58.1. The structure of the links of the international division of labor In addition to it, there are: - international trade in goods and services; - international movement of capital; - international labor migration; - international monetary and financial relations; - international economic integration. In recent decades, international economic relations have embraced changes in the sphere of property, internationalizing them, and also causing macroeconomic regulation of entire groups of countries on a supranational basis (EEC), etc. 2. Internationalization, integration and globalization of economic processes. The current state of the world economy is characterized by the openness of national economies, i.e., involvement, integration into the world market, when goods produced in one country are consumed in other countries. At the same time, the internationalization of economic processes, the globalization of the economic space and the integration of individual countries into a single whole should not infringe on national economic security, lead to the economic dictate of some countries over others. An indicator characterizing the involvement of the national economy in the world economy is the export quota, calculated as the ratio of the country's exports to the gross domestic product (GDP) created in it, expressed as a percentage: 3. Forms of international economic relations. World economic ties are to a certain extent formed under the influence of the migration of capital and labor resources. The migration of capital finds expression in the movement from country to country in search of a higher rate of profit. Capital is exported in two main forms - direct and portfolio investment. Direct investments lead to the formation of ownership abroad, while portfolio investments are expressed in the acquisition of shares of foreign companies, without providing ownership rights to enterprises and even control over them. In countries that import capital, special techniques and measures have been developed to attract foreign investment: 1) reduction of the tax burden up to the introduction of the regime of "tax holidays"; 2) creation of special economic zones and offshores; 3) the introduction of special legislation regulating the regime of foreign investment. Based on the international movement of capital, transnational companies are formed that dominate the world markets for individual goods and services. International labor migration is a consequence of the movement of the population in search of work. It is characterized by the presence of countries of mass emigration of the able-bodied population with low wages and economic development, and countries that pursue an active immigration policy to attract foreign workers. Despite their own unemployment, it is beneficial for rich states to import cheap labor, since it does not shy away from hard, unskilled, non-prestigious work and does not require large expenditures on social protection, unlike the local population. As the world economy develops, international labor migration is intensifying, including due to illegal migration, which has engulfed not only the United States and the EU countries, but also Russia in recent years. Labor migration is changing not only quantitatively, but also qualitatively, acquiring the form of a "brain drain". Topic 59. FOREIGN TRADE AND TRADE POLICY 1. Importance of foreign trade for the national economy. Foreign trade is the interaction of a country with foreign countries regarding the movement of goods and services across national borders. Foreign trade allows the state: a) receive additional income from the sale of national goods and services abroad; b) saturate the domestic market; c) overcome the limited national resources; d) increase labor productivity by specializing in world trade in the supply of certain products to the world market. Foreign trade is characterized by the concepts of export and import: the first involves the export of goods and services abroad and the receipt of foreign currency in return, and the second - their import from abroad with the appropriate payment. Exports, like investment, increase a country's aggregate demand and set in motion the foreign trade multiplier, creating primary, secondary, tertiary, etc. employment. An increase in imports limits this effect due to the outflow of financial resources abroad. Foreign trade is organized on the principles developed in 1947 and enshrined in the General Agreement on Trade and Tariffs (GATT). It was replaced in 1996 by the World Trade Organization (WTO), which considers foreign trade more broadly to include the exchange of goods services and the sale and purchase of intellectual property. 2. Profitability of foreign trade. The theory of comparative advantage. Export in foreign trade, according to A. Smith, becomes profitable if the costs of producing goods within the country are much lower than those of other states. In this case, goods produced by the national economy have absolute advantages over foreign competitors and can be easily sold abroad. On the other hand, no state can have an absolute advantage in all manufactured goods, therefore, it is necessary to import those that are more expensive domestically and cheaper abroad. Then at the same time there is a direct benefit from both exports and imports. Based on the absolute advantages of A. Smith, D. Ricardo formulated the theory of comparative costs (advantages), according to which, when determining the profitability of foreign trade, one should compare not the absolute, but the relative effect, and not the costs themselves, but their ratios. At the same time, it should be taken into account that, by producing certain goods in conditions of limited resources, the country is deprived of the opportunity to produce others that are no less necessary for it, therefore, in accordance with the theory of comparative advantages of D. Ricardo, a situation is quite possible in which it is profitable for the country to import goods, even if their domestic production is cheaper. In this case, A. Smith's theory of absolute costs becomes a special case of the theory of comparative costs. The theory of comparative costs of D. Ricardo in modern conditions is supplemented by the theory of Heckscher-Ohlin, named after two Swedish economists, who proved that countries tend to export not only those goods that have absolute and relative advantages, but also in the production of which relatively excess factors of production are intensively used , but import goods for the production of which there is a shortage of factors in the country. Unlike A. Smith and D. Ricardo, their modern followers believe that both sides benefit from foreign trade - both this country and the rest of the world. Topic 60. BALANCE OF PAYMENTS 1. Macroeconomic value of the balance of payments. Balance of payments - state accounting and listing of payments received from abroad along with payments abroad. The balance of payments affects the market rate of the national currency, which in turn affects the intensity and direction of export-import flows, the flow of investment resources from one country to another and, in general, the macroeconomic balance in the country. In addition to the equilibrium state of the balance of payments (when the balance is zero), an active and passive balance is possible. A positive balance indicates the excess of foreign exchange inflows into the country over payments, and a passive balance indicates the opposite. A clearly expressed balance of payments surplus is less favorable for the national economy than a zero one, and a passive, negative one, observed for a number of consecutive years, shows an insufficiently effective, subordinate position of the country in the world market and may ultimately lead to a decrease in its exchange rate (devaluation ). 2. The structure of the balance of payments. The main sections of the balance of payments is the balance of current operations and the balance of capital movements. The current account balance includes items related to the movement of exported, imported and re-exported goods, the provision of insurance, transport, repair, financial and other services, various types of transfers: remittances from individuals, gifts and scientific grants, subsidies and loans to individuals, as well as acquisition of currency for import and export. The balance of capital movements reflects the total value of purchases and sales of land, shares, bonds, bank deposits, loans and credits, etc. The sale of capital to foreign investors will be capital imports, and the purchase - exports. 3. Trade balance. One of the important components of the balance of payments, included in the balance of current operations, is the trade balance, which characterizes the ratio of exports and imports of goods. It is calculated on the basis of customs statistics on crossing the state border by goods. For certain groups of goods, the government establishes customs duties - special border commodity taxes, which are summarized in a special customs tariff. This tariff can be lowered with the help of customs preferences (benefits). 4. Factors affecting the state of the balance of payments. The balance of payments is adjusted with the help of the Central Bank's operations for the purchase and sale of foreign currency, gold and other financial assets. All these actions of the bank do not pursue the goal of making a profit, but form the official reserves of the state. These reserves cover passive current account and capital flow balances. By selling the accumulated reserves of gold and currency, the government increases their market supply. With a surplus in the balance of payments, it withdraws excess resources from the market, increasing its official gold and foreign exchange reserves. Topic 61. EXCHANGE RATE 1. International Monetary System - a set of international norms, rules and methods for making settlements between states, fixed by an agreement between them. The modern monetary system has existed since 1976 and is called Jamaican. It replaced the Bretton Woods system, which existed for 30 years on the basis of the gold-dollar standard. The Jamaican system is based not on one currency - the dollar, but on a "basket" of several major world currencies (dollar, mark, yen, pound sterling, French franc), which is why it is called a multi-currency standard. The world monetary standard in this system is a special international monetary unit SDR, which is often called "paper gold". SDR (special drawing rights) are non-cash electronic money in the form of an entry on the accounts of countries in the International Monetary Fund, which is pursuing a course for SDRs to become dominant in international settlements, but they have not yet succeeded in seriously pushing the dollar. In addition, in recent years, a new serious contender for the role of world money has appeared - the euro. 2. Determination of the exchange rate. An exchange rate is the price of one currency expressed in units of another. Depending on which currency is the base for comparison, it is divided into two types: exchange and motto exchange rates. The exchange rate is the price of a unit of foreign currency, expressed in national money, and the motto - vice versa. The exchange rate is influenced by the value of the money supply and inflation associated with it. Depending on the form of exchange rate regulation, fixed and floating rates are distinguished. A fixed exchange rate implies that it remains unchanged in relation to other currencies. If the ratio in the market changes, then the Central Bank conducts foreign exchange intervention (sale) in the market in order to restore the established fixed exchange rate of the national currency. The floating exchange rate is determined in the process of free market exchange under the influence of supply and demand. In the Russian Federation, the exchange rate is floating with some restrictions from the Central Bank and is set daily. The ratio of official exchange rates can be brought into line with market demand and supply by methods of devaluation and revaluation of the national currency. Devaluation - a decrease in the official exchange rate of the country's national currency in relation to foreign ones. Revaluation - an increase in the official exchange rate of the national currency in relation to foreign ones. Purchase and sale of foreign currency is carried out on currency exchanges, where it is carried out in the form of spot (direct) or forward (with a delay of up to three months) transactions. The leading centers of the currency markets are New York, Hong Kong, London, Tokyo. 3. Convertibility of currencies. The use of the national currency in international settlements at its official rate makes it convertible. According to the degree of convertibility, the following types of currencies are distinguished: 1. Freely convertible currency (hard currency) - fully fulfills the role of world money, i.e., without any restrictions and obstacles, it is used in all foreign trade transactions of a current and investment nature, is recognized by all countries as a universal means of payment and settlement between them. It consists of the US dollar, Swiss franc, German mark, British pound sterling, Japanese yen, etc. 2. Partially convertible currency. The most common form of currency, which implies various restrictions on currency transactions. These restrictions, as a rule, are associated with the use of clearing (bilateral) settlements, licensing of exports and imports, the use of different exchange rates depending on the type of transactions, restrictions on the import and export of national currency, regulation of the export of profits, the import of investments, etc. 3. Non-convertible currency. It is widespread among developing countries and involves strict prohibitions and restrictions on operations with national and foreign currencies. A similar currency was the Soviet ruble. Currency convertibility can be assessed from the standpoint of both the population of the country and foreigners. 4. The internal convertibility of a currency means its ability to service transactions for goods and services within the country and the ability for the population to exchange it for foreign currency. 5. External currency convertibility means the possibility for foreigners to freely exchange national currency for any foreign one at the official rate. Achieving the convertibility of the national currency favorably affects the trade and balance of payments of the country, and its stability forces national producers to compete internationally by reducing costs and improving the quality of products. Literature 1. Amosova V, Gukasyan G., Makhovikova G. Economic theory. St. Petersburg; M.; Kharkiv; Minsk: Peter, 2001. 2. Mankiw G. Principles of the economy of St. Petersburg; M.; Kharkiv; Minsk: Peter, 1999. 3. Dobrynin A.I., Salov A.I. Economy. M.: Yurayt., 2002. 4. Popov A.I. Economic theory. St. Petersburg; M.; Kharkiv; Minsk: Peter, 2000. 5. Fisher S., Dornbusch R., Schmalenzi R. Economics, M.: Delo, 1993. Author: Salov A.I.
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