domeet webmaster

Nowadays, a popular term is “just need”. The literal meaning is obvious. People often use the word “just need” to describe some things that people need in their lives but are “short”. In other words, “just need” describes the common situation, many things, even if the price rises a lot, you still have to buy, and you can’t significantly reduce the number of purchases.

If converted to academic language, “just need” is used to describe a situation where the price elasticity of demand for a certain type of goods and services is relatively low. In essence, what “price elasticity of demand” wants to capture is the ability of people to withdraw from the market when prices rise. And people’s ability to withdraw from the market depends to a certain extent on the “naturally necessary characteristics” of items for human survival and life. For example, you may not buy a necklace, but you cannot not eat.

In reality, given other conditions remain unchanged, the more things people can’t live without, and the less flexible they are, the more likely they are to constitute” Just-needed goods or services. Therefore, the “rigid needs” examples that people usually enumerate are all based on basic living and living needs. For example, children need to go to school, see a doctor if they are sick, and have a place to live. Therefore, even education, medical care, and housing-related products. And service prices have risen sharply, and there is no way to drastically reduce consumption in this area. In other words, the “tiger” of rising prices is here, and even if consumers want to run, they can’t run or run far, so they can only slaughter them arbitrarily.

However, when discussing such issues, people often fall into a kind of logical fallacy, thinking that as long as it is “something that involves the basic human needs for survival”, it will naturally constitute “rigid needs” . Given that other conditions remain unchanged, it is correct that the price elasticity of demand for something related to human basic survival needs is low. However, this does not necessarily mean that things related to the basic needs of human existence are necessarily “rigid needs.” Ignoring the preconditions in the process of economic analysis may lead to completely wrong reasoning and policy implications.

Let’s start with the simplest example. The most basic of human survival is clothing, food, housing, and transportation. The reason why clothing and food come in front of housing and transportation , Because they are higher in the priority of human survival. However, if we accept the aforementioned definition of “rigid need”, it is not difficult to have a question. From the perspective of human survival, food and clothing are more important, but these theoretically more “inelastic” “rigid need” commodities And service, why does it not constitute “rigid demand” in reality? However, housing, education, and medical services, which are inferior to food and clothing, have become very difficult in reality.Inflexible? Furthermore, why are some items that are also very important to people not so-called “rigid needs” in some countries and regions, but become “rigid needs” in other countries and regions? Why is food, which is also very important to people, very “rigid” in the planned economy period, but not so “rigid” in the market economy period?

Obviously, if it is only from the perspective of “demand price elasticity”, it cannot help us explain this phenomenon. In fact, when we perform corresponding analysis, we often forget another dimension-“supply price elasticity.” When discussing similar issues, people often assume that given market structure and market competition remain unchanged, analyze people’s price elasticity of demand, but this may lead to wrong conclusions.

The answer is that Whether goods and services constitute “rigid needs”, in fact, not only depends on the priority of goods in the order of human survival and life, but also depends on Because of the sufficiency of the supply of goods and services, the sufficiency depends on the market structure of the supply of goods, and the market structure is often related to the control of market entry barriers. In other words, whether a good constitutes “rigid demand” not only depends on the “price elasticity of demand”, but also depends on the “price elasticity of supply.” Furthermore, behind the two “price elasticities” are the intensity of market competition, and behind the intensity of competition are market entry barriers.

Let us return to the original meaning of “flexibility”. The concept of price elasticity of demand is that for every percentage increase in price, how many percentages will the demand on the market fall, which essentially measures the ability of consumers to withdraw. The concept of supply price elasticity is that for every percentage increase in price, how many percentages will the supply increase, which essentially measures the degree of competition among producers. In reality, “price” is the result of the combined effect of supply and demand, and “price” is endogenous to the market structure of the supply of goods and services.

Generally speaking, the more suppliers in the market, the fiercer the supply competition, the lower the price, and the greater the consumer’s choice. The greater the right to choose, the more capable consumers are able to “threat producers by exiting the market,” and the greater the price elasticity of demand. Therefore, when analyzing “just-needed” products and services, we cannot ignore entry barriers and market structure. In other words, both the “price elasticity of supply” and the “price elasticity of demand” both depend on the entry barriers in the market and the market structure. If we admit this, our answer will be very simple. Many of the “just demand” we see in reality are not only affected by the “demand price bomb”.The small “sexuality” is caused by the too small “supply price elasticity”. The common determinants behind the two are the “market structure” and market entry barriers.

Theoretically, in a market economy without administrative barriers to entry, when the price rises, profitability will inevitably induce a large number of producers to enter the market. The elasticity of supply is greater, and the supply increases sharply, thus driving prices. At the same time as the sharp decline, consumers have greater choice rights and greater price elasticity of demand. However, if there are barriers to market entry, then an inevitable logical inference is that the supply of products by producers under monopolistic power is less than when there are no barriers. Market supply, the price elasticity of supply is smaller, and the price is higher. At this time, it is not difficult to find that this part of the products and services that appear to be “just needed” on the surface is actually more In this sense, the root cause of “just demand” is actually “just supply”.

Before the reform and opening up, the reason why we were Most fields are in a state of “just demand” and “shortage” because in most fields, there are barriers to entry and related supplies are not allowed. At this time, almost all commodities are in short supply. Very “rigid.” Since the reform and opening up, many of our goods and services no longer constitute “rigidly needed” goods and services. A very important reason is that in these fields, market competition has been fully liberalized and the products and services have been maintained. The adequate supply of services has achieved high quality and low price, so even the most basic food and clothing needed for human survival, people do not regard it as a “just-needed” product.