Test yourself. Circle the right variant and translate the sentence.

1. The theory of demand is based on the assumption that…

a. a consumer solves the problem of choice

b. a consumer has budget constraint

c. a consumer wants to maximize utility

d. a consumer maintains a given level of utility

_____________________________________________________________________________________

2. According to the theory of demand a consumer must…

a. decrease marginal utility

b. increase the quantity supplied

c. buy more goods and services

d. choose goods and services within his budget

_____________________________________________________________________________________

3. The marginal utility of a good is…

a. the additional utility obtained from consuming an additional unit of that good

b. the additional utility increased from consuming an additional unit of that good

c. the optimal quantity of output obtained from consuming an additional unit of that good

d. the additional effort obtained from consuming an additional unit of that good

_____________________________________________________________________________________

4. A price increase results in…

a. an increase of marginal utility

b. a decrease of quantity demanded

c. a reduction of quantity supplied

d. a rise of market demand

_____________________________________________________________________________________

5. Market demand depends on…

a. the supplied quantity

b. the theory of demand

c. an individual demand

d. the number of consumers in the market

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Unit 4.

1. a) Translate the following word combinations from English into Russian.

to maximize the profit -
to obtain financial capital -
to maintain a given level of output -
to produce goods and services -
to earn the highest profits -
to result in marginal cost increase -
to run a business -
to choose the optimal output level -
to use the owner’s time and efforts-
to assume market price -

b) Make your own sentences with four word combinations.

1)

2)

3)

4)

Arrange the sentences according to the text and write down correct sentence order.

1. Costs should include opportunity costs of all recourses used in production.

2. Profit is defined in terms of revenue and costs.

3. The theory of supply is the theory of how much output firms choose to produce.

4. Marginal revenue is the corresponding change in the total revenue from selling one more unit of output.

5. Aiming to get higher profit, firms obtain each output level as cheaply as possible.

6. Market supply is defined in terms of the alternative quantities of a commodity all firms in a particular market offer as price varies and as all other factors are assumed constant.

7. An increase in marginal cost reduces output.

8. Revenue is what the firm earns by selling goods or services in a given period.

9. Making economic forecasts it is necessary to know the effect of a price change on the whole output rather than the supply of individual firms.

10. Marginal cost is the increase in total cost when one additional unit of output is produced.

11. A rise in marginal revenue increases output.

12. Profits are the highest at the output level at which marginal cost is equal to marginal revenue, that is, to the market price of the output.

13. Firms choose the optimal output level to receive the highest profits.

14. The optimal output depends on the output prices as well as on the input costs.

The correct sentence order: ________________________________.

3. Mark the sentences true (+) or false (-). Correct wrong statements.

1. The theory of supply is the theory of what to produce.

2. The producer maintains the level of output at which he minimizes his profit.

3. Profit is defined in terms of revenue and costs.

4. Revenue is what firms spend by buying goods and services.

5. Costs are the earnings of the firm.

6. Costs include opportunity costs of all recourses and the owner’s time.

7. To receive the highest profit firms pay attention to marginal cost and marginal revenue.

8. Marginal cost is the related change in the total revenue from selling one more unit of output.

9. Marginal revenue is the increase in total cost when additional unit of output is produced.

10. Profits are high when marginal cost is equal to marginal revenue.

11. When marginal cost increases output rises.

12. When marginal revenue increases output decreases.

13. The effect of a price change on the whole output is necessary for making economic forecasts.

14. Market supply means the supply of all firms in a particular market.

Write down the definitions of the following notions from the text.

1. Theory of supply is

2. Revenue is

3. Costs are

4. Opportunity cost is

5. Marginal cost is

6. Marginal revenue

7. Market supply

Answer the questions.

1. What is the principal assumption of the supply theory?

2. What is the difference between profit and revenue?

3. What should costs of production include?

4. How can firms receive the highest profits?

5. When are profits the highest?

6. What factors influence the optimal supply quantity?

6. a) Read the text about opportunity cost (exercise 18).

b) Mark the sentences true (+) or false (-). Correct wrong statements.

1. If people seek to get the maximum benefit they must evaluate the benefits and costs of each alternative.

2. It is more difficult to see benefits than costs.

3. The opportunity cost usually differs from the true economic costs.

4. Some real costs include material and immaterial things.

c) Answer the questions.

1. When the concept of opportunity cost of importance and use?

2. What are the other real costs?

3. What are the examples of opportunity costs?