Unit 9. Price, income and demand
I. Find the following word-combinations in the texts and translate them into Russian.
a) the downward slope of the curve; relation between price and quantity demanded; obvious measure; each price cut of 1$; negligible effect; to be unit-free; to take account of the market; extra sale; to reduce the quantity demanded; demand curves slopе down; explicit warning
b) demand is unit-elastic; to raise revenue; implicitly refer to smth.; to be adjusted for inflation; socially essential identify some considerations; to affect consumer responses to changes; to switch away from smth. to smth.; durable goods; to have much scope to do smth.
II. Find in the text English equivalents for the following:
a) отображать; измерять изменение спроса в зависимости от цены; наклон кривой спроса; реакция на изменение цены; незначительное снижение цены; подобным образом, так же; эластичность спроса по цене; эластичность спроса по доходу; перекрестная эластичность по цене; разделить на …
b) при всех ценах; снижать доход; назначать цену; влиять на реакцию потребителей; выполнять приблизительно одну и ту же функцию; легкость замещения; иметь в наличии, быть доступным; подразумевать; товары длительного пользования; общественное питание
III. Say what is meant by:
quantity demanded increases as the price of a good falls; a trivial cut in the price of a car will have a negligibale effect on the quantity demanded; the price elasticity of demand; we shall shortly introduce other demand elasticities; demand is elastic; a better price-fixing policy; the price for oil is price –inelastic; durable goods; the more narrowly we define a commodity the larger will be the price elasticity of demand
IV. Listening.
1. Listen to the lecture answering the questions in the textbook
2. Listen to the lecture again taking notes to be ready to write a summary of the lecture.
V. Fill in the gaps in the following text.
yield, wealth-creation, profits, welfare economics, taxation, market share, precisely, to fix the economy, substitution, productivity, shifts, let alone, market, generate, creating value, product, technology, service, entrepreneurs, creation
Innovation has become the industrial religion of the late 20th century. Business see it as the key to increasing 1)______ and 2)______. Governments automatically reach for it when trying 3)______. Around the world, the rhetoric of innovation has replaced the post-war language of 4)______. It is the new technology that unites the left and the right politics, says Gregory Daines of Cambridge University.
But what 5)______ constitutes innovation is hard to say, 6)______ measure. It is usually thought of as 7)______ of a better product or process. But it could just as easily be the 8)______ of a cheaper material in an existing 9)______, or a better way of marketing, distributing or supporting a product or 10)______.
11)______ - the most successful, though not the only, practitioners of innovation – rarely stop to examine how they do it. Most of them simply get on with the job of 12)______ by exploiting some form of change – be it in 13)______, materials, prices, 14)______, demographics, or even geopolitics. They thereby 15)______ new demand, or a new way of exploiting an existing 16)______. “The entrepreneur “, said Jean-Baptiste Say, the French economist who coined the word around 1800, “17)______ economic resources out of an area of lower and into an area of higher 18)______ and greater 19)______”. Two centuries later, economists are still struggling to understand this most mysterious part of the 20)______ process.
VI. Give the terms for the following explanations.
1. The percentage change in quantity demanded divided by the corresponding percentage change in income.
2. The quantity demanded is insensitive to price changes: elasticity is between 0 and –1.
3. A good with a positive income elasticity of demand.
4. A measure of the responsiveness of demand for a good to a change in the price of another good.
5. A good with negative income elasticity.
6. A good having an income elasticity of demand less than 1.
7. A good having an income elasticity of demand greater than 1.
8. The quantity demanded is highly responsive to price changes: elasticity is more negative than –1.
9. Expenditure is unchanged when price falls: elasticity is equal to –1.
10. The percentage change in the quantity of a good demanded divided by corresponding change in its price.
VII. Say whether the following sentences are true or false. Extend your ideas.
1. Price elasticities measure the response of quantity demanded to changes in the relative price of goods.
2. The own price elasticity of demand is constant throughout the length of a strait-line demand curve.
3. Price cuts will increase total spending on a good if demand is inelastic.
4. Demand will tend to be more elastic in the long run than in the short run.
5. Total revenue is maximized when the demand elasticity is equal to –1.
6. Broadly defined commodity groups such as food are likely to have more elastic demand than narrowly defined commodities such as rump steak.
7. If two goods are complements, the cross price elasticity of demand is likely to be positive.
8. Income elasticities measure the response of quantity demanded to changes in the real value or purchasing power of income.
9. If two goods are substitutes, the cross price elasticity of demand is likely to be negative.
10. For price changes, we say that demand is more elastic in the long run than in the short run. The same arguments suggest that income elasticities of demand should be higher once consumers have time to adjust to the increase in their incomes. The reason economists emphasize the long-run/short-run distinction for price elasticity, but not for income elasticity of demand, is that changes in income are usually small.
VIII. Tasks for thought.
1. Table 1 presents the quantity of pop corn demanded at various alternative prices:
| Price per packet | Quantity demanded | Total spending (revenue) | Own price elasticity of demand |
| 2.10 1.80 1.50 1.20 0.90 0.60 0.30 |
a) Draw the demand curve on graph paper, plotting price on vertical axis and quantity on the horizontal axis.
b) Suppose price were 1.20. What would be the change in quantity demanded if price were to be reduced by 30 pence? Would your answer be different if you started at any other price?
c) Calculate total spending on pop corn at each price shown.
d) Calculate the own price elasticity of demand for prices between 60p and 2.10 pounds.
e) Draw a graph shoeing total revenue against sales. Plot revenue on the vertical axis and quantity demanded on the horizontal.
f) At what price is revenue at its greatest?
g) At what price is the demand elasticity equal to –1?
h) Within what ranges of prices is demand
(i) elastic?
(ii) inelastic?
2. Flora Blake likes a nice cup of tea but is equally content to accept a cup of coffee. She takes two teaspoons of sugar in coffee, but none in tea. What signs would you expect to observe for her cross price elasticities between the three commodities?
3. For which of the following commodities would you expect demand to be elastic, and which inelastic?
a) bread;
b) theatre tickets;
c) foreign holidays;
d) fuel and light
e) catering
f) dairy produce
g) clothing
4. Which of the following would an economist describe as inferior or normal goods?
a) A good with income elasticity of –0.1.
b) A good with cross-price elasticity of +0.3.
c) A good with own-price elasticity of –1.1.
d) A good with income elasticity of +0.9.
e) A good with income elasticity of –0.2.
IX. Translate into English.
1. Мы утверждаем, что объем спроса отдельного потребителя не зависит от объема спроса других, т.к. речь может идти только об индивидуальных вкусах и предпочтениях.
2. Однако в экономической теории существуют такие понятия как эффект сноба и эффект подражания большинству (bandwagon effect), когда спрос отдельного потребителя на некоторые товары зависит в существенной мере от потребления этих товаров другими, от влияния моды и рекламы.
3. При анализе спроса на какой-либо товар нас часто интересует не его абсолютный объем, а изменение его в ответ на изменение цены товара.
4. Объем спроса по разным товарам измеряется в различных единицах, поэтому по абсолютным изменениям объема спроса нельзя судить о реакции спроса на изменение цен по различным товарам. Для этого удобнее пользоваться показателями относительного изменения, что приводит нас к понятию эластичности.
5. Эластичность спроса по цене в значительной степени зависит от наличия товаров-заменителей; чем больше товаров-заменителей у конкретного товара, тем более чувствительным к изменения цен будет спрос, т.е. мы можем в данном случае говорить об эластичности спроса.
6. Понятие «эластичность» обеспечивает необходимую информацию о том, как расходы потребителя будут меняться вслед за изменением цены. Эта информация чрезвычайно важна для поставщиков, доход которых зависит от трат потребителей.
7. Перекрестная эластичность спроса по цене характеризует относительное изменение объема спроса на один товар при изменении цены другого.
8. Основными факторами, определяющими перекрестную эластичность спроса по цене, являются естественные свойства товаров, их способность замещать или дополнять друг друга.
9. Эластичность спроса по доходу характеризуется относительным изменением спроса на какой-либо товар в результате изменения дохода потребителя.
10. В этой связи экономическая теория анализирует такие понятия как низкокачественные товары, товары первой необходимости, предметы роскоши. Нужно отметить, что для лиц с разным уровнем дохода одни и те же товары могут оказаться либо предметами роскоши, либо товарами первой необходимости.
UNIT 13 MONEY AND BANKING