Ex. 8. Match the questions to the answers below

1. What does the law of demand describe?

2. How do the economists describe the effect when the satisfaction from a good or service begins to diminish?

3. What does diminishing marginal utility help to explain?

4. What is a change in demand?

5. What are the factors that cause the demand for any product to increase or decrease?

6. How can the changes in the prices of complements influence the demand?

7. What other factors can influence the demand for particular goods?

8. What is demand?

A. Economists describe this effect as “diminishing marginal utility.”

B. As there are goods that are often consumed together, a decrease in the price of one item is likely to increase the demand for the other.

C. It is a consumer’s willingness and ability to buy a product or service at a particular time and place.

D. It helps to explain why lower prices are needed to increase the quantity demanded.

E. They are changes in consumer income; changes in the price of substitutes; changes in the price of complements; changes in consumer’s tastes or fashion; changes in the number of buyers served by the market.

F. It describes the relationship between the prices and the quantity of goods and services demanded.

G. They are weather, demographic trend, government subsidies, taxes and other factors.

H. It is a change in the relationship between the price of an item and the quantity demanded.

QUESTIONS FOR DISCUSSION

1. Assume you sell TVs. According to the concept of diminishing marginal utility, people with one TV set would be less eager to purchase or rent a second or third set. How would you overcome this sales resistance?

2. As a consumer, you make decisions every day about how to spend your limited incomes. What motivates your choices? Why do you choose to buy another pair of jeans, and what do you sacrifice by doing so?

3. Do you think it is logical that “consumer responds to lower prices by buying more”? Think

of an example when consumer believes that prices would go even lower and doesn’t react

immediately in the expected way.

Text 2 THE LAW OF SUPPLY

VOCABULARY

to make a sale – совершить покупку to make a profit (to profit)– получать прибыль incentive – побудительный мотив, стимул in response to – в ответ на cost of production – издержки производства, себестоимость продукции production costs – затраты на производство improvement– усовершенствование tend– иметь тенденцию output– продукция, выпуск (продукции) to reduce – понижать, уменьшать shift– (n) сдвиг, смещение; (v) менять abundant supply – избыточное предложение

to reach an agreement – достигнуть соглашение equilibrium price and quantity – сбалансированные цена и предложение to equal – равняться to affect – влиять to result – являться результатом shortage– нехватка, дефицит to exceed – превышать surplus – избыток the market is cleared – на рынке – равновесие спроса и предложения equate – равнять, считать равным

It takes two parties to make a sale: buyers and sellers.

The law of supply describes a relationship between the price of a good or service and how much sellers will offer for sale at a specified time. This means that, other things remaining equal, at high prices businesses will naturally want to produce and sell more. At lower prices less will be produced and supplied.

Why does the quantity of a product supplied change if its price rises or falls? The answer is that producers supply things to make a profit. The higher price - the greater the incentive to produce and sell the product.

Changes in Supply. A change in supply is a change in the relationship between the price of a good and the quantity supplied in response to the changes in economic conditions. The changes that can affect the quantities supplied are as follows:

1. Changes in the cost of production

If it costs sellers less to produce their products, they will be able to offer more of them for sale and supply will increase. An increase in production costs will have the opposite effect – supply will decrease.

2. Changes in the technology available to produce the good.

Improvements in technologytend to lower the cost of production, thus increasing the output.

3. Expectations about future prices.

If producers expect prices to increase in the future, they may increase their production now to be in position to profit later. Similarly, if prices are expected to decrease in the future, producers may reduce production, and supply will fall.

4.Other profit opportunities.

Most producers can make more than one product. If the price of a product they are not producing (but could if they choose to) increases, many producers will shift their output to that product.

If supply increases, the market price will usually decrease and sales will increase. If supply falls, the market price will usually increase and sales will fall. When the product is scarce, the price will usually increase. When the product is in abundant supply, the price will usually fall.

Market Equilibrium.Now we see that buyers and sellers are in conflict: buyers will only purchase more at lower prices, while sellers will only sell more at higher prices. Can they reach an agreement? Yes. Their agreement is called the equilibrium (or market) price and quantity. It is the point at which the quantity demanded exactly equals the quantity supplied in a market. Shifts in demand or supply will affectmarket price. When everything else remains equal, an increase in demand will result in an increase in the market price, and sales will increase. If demand falls then the market price will fall and sales will fall. Similarly, an increase in supply will result in a decrease in the market price, and sales will increase. If supply falls, the market price will usually increase and sales will fall.

A shortageexists in a market if the quantity demanded exceeds the quantity supplied of a good over a given period. A surplus exists in a market if the quantity supplied exceeds the quantity demanded of a good over a given period.

At the market equilibrium price of a good, there can be neither surpluses, nor shortages in the market. It means that the market is cleared (the price equatesthe quantity supplied and quantity demanded).

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