Articles of prime necessity and luxuries

In market relations, the main participants are the consumer and producer. They participate in the formation of prices and form a supply and demand. Modern economic theory puts forward the hypothesis that the consumer is the most recent instance, because only he can evaluate the result of the producer's labor, buying or not his goods. In economics, all concepts and events are always interconnected. To define such concepts as necessities and luxury goods, it is worthwhile to find out what is demand and elasticity.

Demand definition

The law of demand is as follows: the higher the price, the lower the quantity. Demand shows how solvent the consumer of a particular product is at a certain price. Demand can be characterized by the size of demand. This indicator indicates how many people can buy goods at a certain cost. They have a desire and willingness, as well as the opportunity and availability of money for the purchase of goods.

But it is not a fact that a person will receive exactly that abundance of goods that he needs. How much the consumer will receive depends on some economic factors. Suppose a producer can not produce the quantity of goods that the buyer will need.

Experts identify individual demand and general. Individual demand is the demand for a specific product of a particular buyer, and the total demand is the demand of all consumers. Economists usually deal with the study of general demand, because the individual is dependent on the personal desires of the consumer and can not show all the clarity of the situation on the market. For example, a certain buyer may not be interested in any product, but in the market he will be in demand.

The law of demand

As noted earlier, there is a law of demand. Let's repeat it once again: when the price increases, the demand for goods decreases with certain factors. The law has some exceptions. For example, with an increase in the price of luxury goods, there is sometimes an increase in demand. This is explained by the fact that when the price of a product increases in comparison with other prices, people start to think that this product is more qualitative, since it costs more.

Tends or does not stretch

There is such a thing as the elasticity of demand. This indicator shows how much it will increase or decrease with the impact of price and non-price factors on it. We consider the elasticity of demand for income. The indicator determines how much the demand will change when the income of consumers changes over a certain period of time. Elasticity of demand for income is the following forms:

1. Positive form. With increasing income, the volume of demand increases. This form of elasticity refers to this kind of goods, like luxury goods.
2. Negative form. Reducing the volume of demand with an increase in income. This form refers to poor quality goods.
3. The zero form. The volume of demand does not depend on income. Items of basic necessity are included in this form.

Factors of elasticity

The elasticity of demand for income depends on several factors. These include:

• Importance, value, significance for the consumer. The more goods a buyer needs, the less will be his elasticity.
• Will the goods be a luxury item or a basic commodity.
• Demand regularity. When the consumer increases his income, he does not immediately acquire more expensive goods.

It is worth saying that for buyers who have different incomes, the same goods can be treated as a luxury item, as well as to a basic product. It is worth mentioning some examples of income elasticity of demand. These include a sports car brand Porsche. An individual can buy an expensive new car, since his income has increased. Bread with cereals and bran. Such bread is more expensive than ordinary bread, but it is also more useful. A person can also afford it with an increase in income. Handmade soap. The consumer can replace the old analog of everyday goods with better and more expensive ones, as his income allows it. Expensive and high-quality gasoline. The buyer has the right to buy better gasoline to extend the life of the car all for the same reason - increased income.

Coefficient of elasticity

To measure the elasticity of demand, there is a coefficient of income elasticity. Economists have defined the formula by which it can be calculated:

E = Q1: Q / I1: I

Where:

I - income of buyers;

Q - the volume of the goods.

The magnitude of the coefficient is determined by the type of goods.

Exactly what is needed

There are several types of goods: ordinary and lower. Normal (normal) - goods, the demand for which grows with income. In turn, they are divided into two types: luxury goods, necessities (which are more often consumed and used every day, for example, toothpaste). The coefficient of elasticity of demand for ordinary items is less than one, since with increasing incomes, the consumer seeks to acquire more rare goods.

Luxury goods are goods that not everyone can afford. Their people buy less often. Cars are a luxury item. In essentials, there is a saturation limit. For example, soap. People will buy as much as they can consume it. How many soap costs, it will always be needed.

Expensive pleasure

Luxury goods are things or goods that are not related to the basic needs of the consumer. People can live without them. Coefficient of elasticity luxury goods are above one. Consumer income is increasing and the share of luxury goods is growing. Demand for luxury goods appears only when the consumer reaches a certain level of income. People first acquire goods related to survival, and then think about "excesses".

Patients will not reduce the number of visits to the doctor, even if the price of medical services increases. And at the same time, an increase in the price of a yacht leads to a decrease in demand. What is the reason for this phenomenon? The reason is that many consumers consider visiting a doctor a necessity, and buying a yacht is a luxury. Purchasing power of the consumer helps economists determine which category to attribute the goods to. For a person who loves the sea and has excellent health, a yacht can be considered as a matter of first necessity, and a trip to the doctor - as a luxury item.

Any person will distinguish a gift version of the pen from the usual one. What is the difference between them? In the gift version, the ink is brighter, the rod and body are more beautiful. This handle is more convenient to hold, it will not slip out and looks solid. Such gift pens are usually packaged in special cases, which are not needed in everyday life. That is, you buy an item that you will not use later. This expensive pen is prestigious, but not very functional.

Low goods are goods with low quality. The demand for such items is decreasing. They are replaced by better ones. These include second-class food, clothing from second-hand.

Conclusion

Countries that produce essential goods (agricultural products, extraction of minerals, electricity), in international sales are not in a better position than countries that produce luxury goods, cars, appliances. With the increase in consumer incomes, the cost of essential goods lags far behind the value of luxury goods. This is one of the reasons for the division of the world economy.