Revision Vocabulary Units 5 to 8

Complete the puzzle with words from units 5 to 8. Can you find the highlighted phrase?

CLUES

1 Combination of goods that a consumer spends money on - like chocolate and a bottle of water. 2 The money that companies spend. 3 Work or effort.

4 Constant......................to scale.

5 When a company buys another company to control it. 6 Difficult to solve.

7 The economist's word for the satisfaction you get from something.

8 A market structure where one company has the largest market share.

9 This can happen to the demand curve - right or left.

10 Pure monopoly and perfect competition are

examples of market.......................

11 Land, labour and capital are three......................of

production.

12 Something that stops a company entering the market.

13 Henry Ford invented the production....................

14This person is the fourth factor of production.

Find eight pairs of words that make expressions we use in economics.

■ budget	■ choice	■ constraint	■ consumer	■ cost
■ diminishing	■ increased	■ intensive	■ labour	■ marginal
■ opportunity	■ output	■ price	■ returns	■ taker
■ utility

B2 Now write five example sentences using as many of the pairs of words as you can.

C The words in blue in the letter opposite are in the wrong places. Correct the letter by putting the words in the correct places.

Dear Mr Snape.

I am sorry to have to write to you with bad news. After 38 years as one of Bcllington's top printing companies, we have decided to dose the business down.

In the last five years P&Q Printing have made many aggressive (1) skillsof other companies. Furthermore, with their modern factories. P&Q operate an economy of (2) staffwhich is difficult for us to compete with. Their factory here in Bollington produces over 2,000 books per month. This is double the (3) takeoversof our traditional printing methods Moreover, they can provide (4) warehousesfor their products Their large 15 Dstorageenable them to do this. This also helps them keep Costs down.

Of course, our decision means that our (6) scalewill lose their jobs. This is very sad, as they have all taken (7) Dafford in their work over the years. However, we simply cannot (8) prideto pay their salaries anymore. The only good thing is that they all have valuable (9)Dproductivityand I am sure they will find work quickly.

I will write to you again with further details as soon as I have them.

Yours sincerely,

John Ink

Managing Director

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Before you read

Discuss this question with your partner.

When you are shopping, how do you know if something is at a good price, or if something is too expensive?

A Vocabulary

Choose the correct answer A, B, or С from the list below.

7 A moan 7В compromise 7C bargain

8 A moan 8В compromise 8C jargon

9 A whole 9В aggregate 9C complete

10 A shortage 10В surplus 10С quantity

1 Children often complain and.......................when

they don't get what they want.

2 A cheerful person is........................

3 Parents are responsible for their children's

.......................until they become adults.

4 If you get a bargain, you get something................

5 The police are offering a.......................for any

information about the robbery.

6 If you work faster you.......................more money

or more free time.

7 You cant always get everything you want. Sometimes you have to........................

8 Every profession has its own.......................

- special words and phrases that are only used in that profession

9 The total spending by a government is sometimes called.......................spending.

10 If you have a.......................of something, you have

more than you need.

1A bargain 1В compromise 1С moan

2 A happy 2В sad 2С strange

3 A rewards 3B welfare 3С jargon

4 A for nothing 4B at a high price 4С at a good price

5A reward 5B salary 5C compromise

6A bring 6B reward 6С gain

Reading 1

Surplus

Ina free market,price is decided by the laws ofsupply and demand. The market price is the price that sellers are happy to take and consumers are happy to pay. It's a compromise, but in the end everyone is happy, right? Well, not quite everyone. Some sillers will think the market price is not a goodenough reward for their efforts They will continue to sell at a higher price, even if almost no one walks through their shop door.Similarly, some people will walk away from the market, moaningabout the price and refusing to pay. You can't please everyone!

However, there will besome people who are more than happy with the market price. What makes them so cheerful? These are the people who had expected to pay a higher price, but found that the market price was actually lower. These people feel that, by paying the market price, they have got a bargain In the jargon of economies, they have got consumer surplus. Consumer surplus is the difference between the price consumers are prepared to pay and the price they really do pay.

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The idea of consumer surplus is shown in figure Dl on page 47. M is the market price. You can see

that the demand line carries en above the market price. This means that there are consumers who

arc prepared to pay above the market price.

Each of these consumers will gain a different amount of consumer surplus by paying the market

price. Together, all the surplus they gain is called

the aggregate consumer surplus .This is the grey area shown in figure 1.

Consumers aren't the only ones who enjoy surplus. There is producer surphus, too. Remember that the law of supply says supply rises as price rises. This is because smaller amounts cost less to produce than larger amounts. For this reason, producers would have been happy to sell some of their output below market price. However, once the market price is set. they can sell all their produce at that price.

Think about wine producers for example The fust 50 litres of their wine cost two euros per litre to produce. The next 50 litres cost three euros per litre to produce. At the market, however, they can sell all their wine at the price of three euros per litre. The extra money they make on the first SO litres is the producer surplus. The higher the market price is. the bigger the producer surplus

will be. The total is called the aggregate producer surplus, This is the pink area in figure 1.

Surplus is in important concept In one way it is a measure of the utility that consumers gain from their purchase. It is also a measure of the profit that producers make. Moreover, consumer and producer surplus together are a measure of the benefit everyone gains from the economic transaction. In economist jargon, surplus is a measure of economic welfare.

В Comprehension

Now read the text again and decide whether these statements are true or false.

Market price should please the seller and the buyer.

Some consumers will gel more surplus than others.

Aggregate consumer surplus is all the money that buyers spend.

Producer surplus is the goods that producers can't sell.

Producer surplus exists because production costs vary.

Surplus is a measure of how happy and well off people are.

Before you listen

Discuss the following with your partner.

Is there anything strange about this price list? Shampoo ?3.00

Olive oil ?10.00

Bottle of cola ?1.50

Shops often use odd numbers when they price things. For example. ?2.99 or ?1.65. Why do they do this? Choose from the list below.

С Listening )))

1 The prices are calculated by computer.

2 Items seem cheaper than they are.

3 Shops make more profit by pricing in this way.

4 These prices affect consumers' decisions.

5 Shop assistants won't be able to steal money from the shop.

Now listen and check your answers.

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Before you read_

Discuss the following with your partner.

What is happening?

What kind of things are sold here?

What are the advantages or disadvantages of this way of buying and selling?

D Vocabulary

Complete each sentence with a word or phrase from the box.

■ accordingly	■ auction	■ degree
■ discount	■ discrimination	■ guesswork
■ in bulk	■ markup price	■ pensioners
■ retailers	■ risk-taking	■ wholesaler

1 Some people like dangerous sports because they enjoy.......................

2 In an.......................the item for sale is sold to the

customer who offers the highest price.

3 The......................is the extra money shops add to

the value of something in order to make a profit.

4 In the past, forecasting the weather was just

5 When you are in a formal situation, you have to dress and behave.......................

6 In the winter sales the shops often give я

......................of up to 50%.

7 When you buy.......................you buy very large

quantities of something.

8......................is when you treat some people

differently to others.

9......................are people who sell things.

10 A......................is a company that buys large

guantities of goods from factories and sells them on to shopkeepers.

11 To what......................you do something, means

how much you do it.

12 Because retired people usually receive a pension, they are often called.......................

Reading 2

Price discrimination

The market price for a product is like a signpost tor companies. It shows them more or less what people are prepared to pay. Nevertheless,companies can set their prices just aboveor just below the market price it they want. They can even choose to ignore the market price completely In the real World of business, setting prices involves skill, guesswork and risk-taking. Companieshave lots ofpricing tricks which help CO increase profits. One of these tricks is price discrimination.

Price discriminationmeans charging a different

price for the same product to different customers For example, you walk into a shop and buy a CD for ?15 A few minutes later. I walk into the same shop and buy another copyof exactly the same CD This time, the shopkeeper charges me ? 20! That's price discrimination.

There are different types, or degrees, of price discrimination. First degree price discrimimation is when almost every consumerpays a different

price for the same product. How can this happen? Rememberthat thedemand curve slopes downward. In theory, every consumer has their own point on the curve. In other words

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each person values the product differently. You may think that an Elton John CD is worth ? 20. whereas 1 think it's only worth SO cents! We are on different points on the demand curve. With first degree discrimination, each consumer will pay what he or she thinks the product is worth, and sellers charge each person accordingly.

This all sounds great, but it is not usually practical in the real market place. Nevertheless, it is sometimes possible. An auction, for example, works in this way. In an auction, each consumer makes a bid for the product, and the highest bid wins. In this way. the product is Sold at a price that the buyer thinks is right. Auctioning is becoming more and more common on the World Wide Web, and auctioning websites have become very big business. Second degree price discrimination is more common than first degree discrimination, It involves changing price according to how much of the product is sold For example, if a customer buys three peneils. they pay one euro per pencil. If they buy 300 pencils, they pay only 75 cents per pencil. This is a kind of reward for buying large amounts. This kind of discrimination is important for retailers. It allows shopkeepers to buy goodsin bulk from wholesalers at lower prices. Shopkeepers then add a markup price when they sell the goods on to ordinary customers.

What about third degree price discrimination? This is when certain types of customer arc charged different prices. For example, pensioners and students often get discounts on public transport or for arts events. These people cannot afford the normal market price. Bу offering discounts, companies widen their market share but still make a profit.

E Comprehension

Now read the text again and choose the kind of price discrimination that matches these descriptions.

1 A different price is charged to each customer,

A first degree

Вsecond degree

С third degree

2 It helps make products and services more affordable to some people.

A first degree

B second degree

C third degree

3 It rarely happens in real markets,

A first degree

B second degree

С third degree

4 The price falls as quantity rises,

A first degree

B second degree

C third degree

5 It happens on the Internet.

A first degree

B second degree

С third degree

Before you listen_

Discuss the following with your partner.

Bay is an online auctioning website. Have you heard of it? Tell your partner what you know about eBay.

F Listening )))

Now listen and complete the summary with words or numbers.

The online auction site eBay was started in

(1)D......................by Pierre Omidyar. He started

it as a (2).......................but it became a huge

business. On eBay, sellers show what they have and

buyers make (3)......................for the item. The

highest bidder wins. The system is an example of

(4)......................degree price discrimination and

it is very successful. Worldwide, the website has

(5)......................users. It trades $1.500 worth of

goods every (6).......................The most expensive

item sold on eBay was an (7).......................It sold

for $ (8).......................

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Before you listen_

Discuss these questions with your partner.

Do you think consumer surplus is a good measure of welfare?

Is price discrimination fair?

Would you ever buy something at an auction or on the Internet?

Task

Give a two-minute talk on price. First make notes below on the following.

What is market price? (See Reading 1)

What is consumer and producer surplus? (See Reading 1)

What is price discrimination and why do producers use it? (See Reading 2)

During your talk, use figure 1 on page 47 to help explain the idea of surplus. Also, give real examples that you know about to illustrate your points.

Notes:

Н Writing

Imagine that you've got a good idea for an Internet commerce site (an Internet site which is also a business).Tell your friend what your idea is.

Informal letter to a friend

PARAGRAPH 1

Thank your friend for his/ her last letter. Make a comment about news that they told you in their letter. Tell them your news.

PARAGRAPH 2

Describe your idea for an Internet commerce site.

What product will you sell / what service will you provide?

PARAGRAPH 3

Explain how you got the idea. Say why you think it will work.

Sign off Write 100-150 words

Pronunciation guide

Bargain

Jargon

Similarly

Aggregate

Auction

Wholesaler

Discrimination

Signpost

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Before you read_

Discuss this question with your partner.

Welfare economics has been called economics with a heart. What does this tell you about welfare economics?

A Vocabulary

Match the words and phrases with the
definitions.
1 vertical	A an exchange such as buying
	and selling
2 horizontal	B idea of being the same / equal
3 equity	C level, for example from left
	to right
4 distribute	going straight up and down
5 to be fair	someone who sets up a new
	business of their own
6 investigate	F punish
7 an individual	G income
8 issue	H to treat people reasonably
	and in the right way
9 to be unjust	I to treat people unreasonably
	or in the wrong way
10 penalise	J look into
11 entrepreneur	K share out
12 economic	L effect
transaction
13 impact	M a person
14 earnings	N something important that
	people talk about
15 externality	O something that happens
	without being expected
16 taxation	P system of taking part of
	people's earnings to give
	governments an income
17 policy	Q the amount of a product that people buy or use
18 consumption	R rule made by government, and/or the course it follows

Reading 1

Welfare economics

Behind the numbers, charts and formulas of economics, there are people This is sometimes easy to forget. Economies isn't only about profits, losses and utility. It's about society. Economic ideas and theories often seem to be issues that are far removed from people's everyday lives. Welfare economies, however, tries to correct this It looks at how economic policies affect society, families and the individual.

One of the big issues in welfare economics is equity. Equity means fairness, and welfare

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economists are interested in measuring how fair our economic systems are. One way they do this is to look at how income and wealth are distributed among the population. Welfare economists also investigate the effects of government policy on equity. Governments main weapon to light inequity (unfairness) is taxation. Welfare economists try to find out how taxation affects vertical equity and horivontal equity, which arc two ideas that taxation systems can be based on. The idea behind vertical equity is that people with more income will pay more than those with less income. The idea behind horizontal equity is that people with the same income will pay the same amount of tax Ideally, a tax system will have both vertical and horizontal equity,

However, some economists feel that any kind of taxation on people's earnings is unjust. They believe it is unfair to penalise entrepreneurs and hard-workers. Why should people who are less able or less hard-working be supported by others? In this view of welfare economies, inequity is a natural feature of every economic system. Trying to create equity,they say. is just a waste of time. Instead, it is better to make economic systems more efficient. A more efficient economy grows faster and everyone in society benefits.

Welfare economies isn't only about the fairness of economic systems. It's also about the impact that economic choices have on our lives. Economic transactions often affect other people who are not directly involved in those transactions. Economists call these results externalities. Externalities are sometimes good and sometimes bad for society. For example, pollution is a negative externality of the car industry. But cars give people better mobility, which is a positive externality of the same industry.

Production is not the only cause of negative externalities for society. Many arc due to our use or consumption of goods. People's litter in parks and on beaches is one example: noisy neighbours playing their CD player loudly is another. These are both examples of externalities causing pollution. However, health problems from smoking and drinking alcohol are also externalities from economic transactions. These have a cost for individuals, but also for society as a whole.

В Comprehension

Now read the text again and answer these questions in your own words in the space provided below.

1 According to the text, what do people often forgot about economics?

2 How do governments try to make the economy fair?

3 What is the difference between horizontal and vertical equity?

4 Why do some economists think equity is not important?

5 What are externalities?

Notes:

Before you listen

Discuss the following with your partner.

When externalities are good for society, they are called positive externalities. Can you think of any economic transactions that could have positive externalities?

С Listening )))