modern market is based on the following elements: price, supply and demand, competition.Reduction of the latter, as a rule, usually a negative impact on the quality of goods and services.Prices of products are directly linked to production volumes.Supply and demand also independent of each other.For example, what claim the goods, the more it will appear on the shelves.
high demand over time creates an increase in prices.In other words, the extra cost of production increases.However, the reduction in demand does not always lead to lower price levels.Cost of goods in general rarely falls.This phenomenon is known in economics as the "ratchet effect."
Let's understand why this process has been called so.As is well known, the ratchet wheel can only move in one direction.About the same prices in a market economy.They can grow, but to reduce them is quite difficult.They do not always reduce even a drop in demand.
number of objective economic phenomena reflect the ratchet effect.Schedule of prices and real production shows a declining curve.That is the relationship between these two indicators is inversely proportional.The lower the price, the more products will be produced, since the volume of the benefits depends on the level of demand for them.
There are three factors that can help us to understand more deeply the ratchet effect.The first relates to the actual cash consumers.This so-called "wealth effect."The purchasing power of the population with an increase in price is reduced.As a result, consumers are buying products has risen in price, poorer.This leads to the fact that the population begins to save on expenditures.Conversely, an increase in costs may be caused by a decrease in prices.The next factor - is the effect of the interest rate.It grows along with the prices.The growth rate is a reduction of certain consumer spending and certain types of investments.The third factor - the effect of import purchases.The higher prices of domestic products, the better buy their foreign counterparts.However, in order to develop the economy, it is necessary that exports exceed imports.
What are the causes of this phenomenon, as the ratchet effect?And why the prices are easy to grow, but with difficulty falling?The main reason - the restriction of competition.In such circumstances, prices may dictate large firms who benefit from getting all the big profits.They determine the cost of certain products and if you do not try to pick it up, or at least maintain the current level.But in this case, to make a profit with a decrease in demand?This question is solved by large firms, and reducing the supply of jobs at its facilities of production.It should be assumed that if the competition was not severely limited, as in our time, then the price would depend mainly only on the balance between supply and demand.Ratchet effect is likely to be slightly manifested.However, this situation is not profitable monopolies and large firms.These organizations are the mechanisms that allow to keep their profits even in the face of falling demand for the goods they produce and sell.When there is no macroeconomic equilibrium, the ratchet effect is particularly pronounced.
