Demand, supply, and markets
Why are we talking about markets, demand, and supply now? That is because these economic phenomena have a lot to do with all economic systems and with all our life.
According to an old joke, if you teach a parrot to say «Demand and supply», you have an economist. There is an element of truth in this clever saying. The tools of demand and supply can take us far in understanding not only specific economic issues but also how the entire economy works.
You now know that a market is an institution or mechanism which brings together buyers («demanders») and sellers («suppliers») of particular goods, services, or resources. Markets exist in many forms. The corner gas station, the fast-food outlet, the local music store, a farmer's roadside stand — all are familiar markets. The London Stock Exchange, the New York Stock Exchange, the Chicago Board of Trade are markets where buyers and sellers of stocks and bonds and farm commodities from all over the world communicate with one another and buy and sell. Auctioneers bring together potential buyers and sellers of art, livestock, used farm equipment, and, sometimes, real estate.
All these situations which link potential buyers with potential sellers are markets. As our examples imply, some markets are local, while others are national or international. Some are highly personal, involving face-to-face contact between demander and supplier; others are impersonal, with buyer and seller never seeing or knowing each other.
To keep things simple, we focus on markets consisting of large numbers of independently acting buyers and sellers exchanging a standardized product. These are the highly competitive markets such as a central grain exchange, a stock market, or a market for foreign currencies. They are not the markets in which one or a handful of producers «set» prices, such as the markets for commercial airplanes or greeting cards.
Demand is a schedule showing the various amounts of a good or service buyers (or a buyer) are willing and able to purchase at each of a series of possible prices during a specified period of time. Demand, therefore, shows the quantities of a product which will be purchased at various possible prices.
The definition says «willing and able» because willingness alone is not effective in the market. You may be willing to buy a Mercedes, but if this willingness is not backed by the necessary money, it will not be effective and, therefore, not be reflected in the market.
A fundamental characteristic of demand is this: as price falls, the quantify demanded rises, and as price rises, the corresponding quantity demanded falls. In short, there is a negative or inverse relationship between price and quantity demanded. Economists call this inverse relationship the law of demand.
Supply is a schedule showing the amounts of a good or service sellers (or a seller) are willing and able to produce and make available for sale at each of a series of possible prices during a specific period.
As price rises, the corresponding quantity supplied rises; as price falls, the quantity supplied falls. This particular relationship is called the law of supply. A supply schedule tells us that firms will produce and offer for sale more of their product at a high price than at a low price. This, again, is basically common sense.
Price is an obstacle from the standpoint of the consumer, who is on the paying end. The higher the price, the less the consumer will buy. But the supplier is on the receiving end of the product's price. To a supplier, price represents revenue and thus is an incentive to produce and sell a product. The higher the price, the greater this incentive and the greater the quantity supplied.
Demand encompasses the wishes of consumers while supply represents the hopes of suppliers. These dreams collide in the marketplace. As the forces of supply and demand come together, an invisible «collective bargaining» process ensues. This struggle both trims the consumer's wish list and deflates the hopes of suppliers. The end result is the establishment of a single price, called the equilibrium price that balances quantity demanded with quantity supplied.
The establishment of any price other than the equilibrium price leads to instability in the market. The conditions created as a result of market instability will force a revision in the price to the level at which the market is «cleared» — and quantity demanded is once again equal to quantity supplied.
Both demand and supply can easily be shown schematically and in table form.
Vocabulary
| demand (n) спрос | In economics, demand is the utility for a good or service of an economic agent, relative to a budget constraint. |
| supply (n) предложение; поставка; снабжение; запас(ы) | Supply (economics), the amount of a product which is available to customers |
| auctioneer (n) аукционист | An auctioneer may announce prices, bidders may call out their bids themselves (or have a proxy call out a bid on their behalf), or bids may be submitted electronically with the highest current bid publicly displayed. |
| currency (n) валюта; деньги (обычно наличные деньги) | A currency in the most specific use of the word refers to money in any form when in actual use or circulation, as a medium of exchange, especially circulating paper money. |
| transfer (n) перевод, перемещение | Now we often use the electronic transferof money |
| schedule (n) график; шкала | Certain kinds of schedulesreflect information that is generally made available to the public, so that members of the public can plan certain activities around them. |
| amount (n) количество; объем | Amountis a quantity of something, or the sum of multiple quantities expressed as a number that may or may not be expressed as a number. |
| quantity demanded величина спроса | Quantity demanded is the quantity of a commodity that people are willing to buy at a particular price at a particular point of time. |
| inverse relationship обратная зависимость | The inverse relation of a binary relation is the relation that occurs when the order of the elements is switched in the relation. |
| quantity supplied величина предложения | A quantity supplied is a term used in economics to describe the amount of goods or services that are supplied at a given market price. The rate at which the amount supplied changes in response to changes in prices is called the price elasticity of supply. |
| bargaining (n) торги; ведение переговоров; заключение сделки | Bargaining or haggling is a type of negotiation in which the buyer and seller of a good or service dispute the price which will be paid and the exact nature of the transaction that will take place, and eventually come to an agreement. Bargaining is an alternative pricing strategy to fixed prices. |
| equilibrium price равновесная цена | An equilibriummarketprice is the price at which there is no tendency for it to change. |
| schematically схематично | The wordschematicallyis used in the meaning of a simplified diagram. |
Vocabulary exercises
1.Which of the following statements are true/false according to the text? Correct the false sentences:
| 1. According to an old joke, if you teach a parrot to say «Demand and supply», you have an economist. | |
| 2. Auctioneers bring together potential sellers of art, livestock, used farm equipment, and, sometimes, real estate. | |
| 3. Highly competitive markets such as a central grain exchange are usually called currencies. | |
| 4. Demand is a schedule showing the various amounts of a good or service buyers (or a buyer) are willing and able to purchase at each of a series of possible prices during a specified period of time. | |
| 5. A fundamental characteristic of demand is this: as price rises, the quantify demanded falls, and as price falls, the corresponding quantity demanded rises. | |
| 6. There is a negative or inverse relationship between price and quantity demanded. | |
| 7. Quantity supplied is one of the characteristic features of economics. | |
| 8. As the forces of supply and demand come together, an invisible «collective bargaining» process ensues. | |
| 9. The end result is the establishment of a single price is called the non-equilibrium price. | |
| 10. Unfortunately demand and supply cannot be shown schematically. |
2. Fill in the gaps with the words and expressions given below:
1. These economic ________ (demand and supply) have a lot to do with all economic systems and with all our life.
2. The tools of demand and supply can __________ far in understanding.
3. A market is an _________ or mechanism which ________ buyers («demanders») and sellers («suppliers») of particular goods, services, or resources.
4. As our examples ________, some markets are local, while others are national or international.
5. We focus on markets ___________ of large numbers of independently acting buyers and sellers exchanging a standardized product.
6. These are the highly competitive markets such as a central grain exchange, a stock market, or a market for foreign _________.
7. Demand shows the ________ of a product which will be purchased at various possible prices.
8. Economists call this inverse relationship the ___________.
9. As price rises, the _____________ quantity supplied rises.
10. Price is an _______ from the standpoint of the consumer, who is on the paying end.
11. Demand encompasses the wishes of ________ while supply represents the hopes of suppliers.
12. The end result is the establishment of a single price, called the ________ that balances quantity demanded with quantity supplied.
13. The establishment of any price other than the equilibrium price _______ instability in the market.
14. Both demand and supply can easily be shown _________ and in table form.
Imply, schematically, consumers, take us, law of demand, currencies, brings together, corresponding, phenomena, institution, consisting, quantities, obstacle, equilibrium price, leads to.
3. Find in the text English equivalents for the following:
| спрос | |
| предложение, поставка | |
| аукционист | |
| валюта | |
| перевод | |
| график, шкала | |
| количество, объем | |
| величина спроса | |
| обратная зависимость | |
| величина предложения | |
| торги, заключение сделки | |
| равновесная цена | |
| схематично |
4. What do definition in A column correspond to? Fill in Column B:
| A | B |
| 1. The amount by which the quantity demanded exceeds the quantity supplied at a given price | a |
| 2. Market which allows prices to be determined purely by the forces of supply and demand | b |
| 3. The ability and willingness to sell specific quantities to sell specific quantities of a good at alternative prices in a given time period. | c |
| 4. Government rules or laws that forbid the adjustment of prices to clear markets. | d |
| 5. A curve that shows the relation between price and quantity demanded, holding other things equal. | e |
5. Find pair of synonyms
| 1. quantity | considerably |
| 2. dramatically | to soar |
| 3. response | to purchase |
| 4. to buy | reply |
| 5. to plummet | a decrease |
| 6. amount | to alter |
| 7. to go down | to change |
| 8. to increase | a fall |
6. Fill in the blanks with appropriate prepositions:
1. According to the law of demand, a fall ____ price leads to rise ____ quantity demanded.
2. Consumers will originally buy more of a product ____ a low price than they will ____ a high price.
3. Wind energy offers a low cost solution ___ our fuel problems.
4. Sales increased ____ 11,2 million in 2013 ____ 11,93 million in 2014.
5. There was a decrease ____ about half a million grom 2011 to 2013.
6. The company has rejected the workers’ demand ____ a rise ___ pay.
7. Our machinery is ___ demand all over the world.
8. The price ___ gas and electricity is steadily increasing.
9. The production of jogging equipment is ___ increase.
7. Fill in the blanks using the words from the bottom:
1. The law of demand states that price and quantity demanded are ____.
2. _______ shows the relationship between price and quantity supplied.
3. When the price of goods changes, we say that this causes _______.
4. When one of the determinants changes, we say that this causes _____.
5. We had ____ the price of our house to sell it.
6. A change of the quantity demanded is shown by ____.
7. The law of demand was discovered by ______.
a. a professor of economics at the University of Lyon
b. the demand curve
c. a movement along the demand curve
d. the quantity demanded to change
e. an Irish professor of philosophy at the University of London
f. to double
g. the demand to change
h. the supply curve
i. to drop
j. a shift in the demand curve
k. directly related
l. inversely related
8. Find examples of the use of the Participle I Active where it is:
a) an attribute; b) an adverbial modifier; c) part of a simple verbal predicate
1. The government passed the laws regulating many economic activities.
2. At law prices, only the most efficient chocolate producers will be able to make any profits producing chocolate.
3. We are offering new improved goods to our customers.
4. The price system is a mechanism coordinating individual decisions.
5. Producers are looking for the best price and terms when they sell their goods.