Text b. The role of prices

Ex.20. Scan the text below. What main factors does it mention to support the keynote, i.e. the role of prices?

Prices are key ingredients in our economy because they make things happen. If buyers want to own some items badly enough, they will pay more for them. (0) ________ Prices play such an important role in economic life that the United States is often described as a price-directed market economy. Let us see why.

1. Act as Signals to Buyers and Sellers. One of the things that prices do is carry information to buyers and sellers. (1) ________When prices are high enough, they send a "sell" signal to sellers (retailers), who can now earn a profit at the new price.

2. Encourage Efficient Production. Prices encourage business people to produce their goods at the lowest possible cost. (2) ________

Firms that are efficient will produce more goods with fewer raw materials than firms that are inefficient. (3) ________ While these efforts are in the best interests of the sellers, all of us may benefit because we are provided with the things we want at lower costs.

3. Determine Who Will Receive the Things Produced. Finally, prices help to determine who will receive the economy's output of goods and services. The price that a worker receives for doing a job is called a wage. (4) ________What the worker can buy with those wages will depend, in turn, upon the prices of the goods and services the worker would like to own.

Let’s look at some examples. The most obvious cost a person bears in buying a product is the price of the product. Price reflects cost because people have a limited amount of funds that they can spend, and if they spend their money on one thing, they cannot spend it on another. (5) ________As a result, we expect people to buy more hamburger if the price is $1.00 per pound than if it is $2.00 per pound.

The amount of income a person receives affects the cost of buying an item because it determines which options a person must give up when buying a product. If a person with a low income spends $5000 for a trip around the world, he will have to cut back on food, clothing, or shelter. (6) ________

Increases in people's incomes raise consumption of most products. These products are called normal goods. There are some products, however, that people use less of as their income increases; these products are called inferior goods. Public transportation is an example - as people's incomes rise, they stop riding the bus and drive their own cars. (7) ________ It was because they were a symbol of "working-class" clothes that they were adopted by the radical left in the 1960s, and from there they moved into high fashion.

Prices of related goods also influence how much of a product people buy. Goods that are substitutes satisfy the same set of goals or preferences. An example of a substitute for hamburger is pork. (8) ________ The opposite of a substitute is a complement, a good that helps complete another in some way. Catsup and hamburger buns are complements to hamburger, and if they are priced low enough, consumption of hamburger may rise. Sometimes goods are such good complements that they are sold together and we think of them as a single item. (9) ________

There are other factors that influence the amount of a particular product that people are willing to buy, such as the number of consumers in the market and their expectations about future prices, incomes, and quality changes. To get a complete list for any product might be time consuming and difficult, but it is not necessary because we want to focus on the relationship between price and the quantity of a product that people are willing to buy during some interval of time. (10) ________