5. Answer the following questions:

1. Describe the rationing effect of prices.

2. What happens in a free market economy?

3. What is demand?

4. What does the low of demand describe?

5. What are the reasons when the demand for some goods and services are

inelastic?

6. What is supply?

7. What is the equilibrium?

8. What can exist for any length of time under perfect competition conditions?

6. Match the words from the left-side column with their definitions from

the right-side column:

1. market a) a thing that is manufactured,

developed, produced or grown, usually

for sale

2. price b) the extent to which people want to

buy more or less of a product or service

- 9 -

when its price changes

3. production c) business or trade; the amount of trade

in a particular type of goods, services,

investments, etc

4. product d) a person or group that offers to pay

an amount of money to buy sth

5. economy e) the amount of sth that a person, a

machine, an organization or an industry

produces

6. to ration f) the amount of money that you must

pay for sth

7. auction g) to limit the amount of sth that people

are allowed to have, usually because

there is not enough for everyone to have

as much as they want

8. bidder h) the process of making goods or

materials or growing food, especially

large quantities; the department in a

company that is responsible for this

9. output i) the relationship between production,

trade and the supply of money in a

particular country or region

10. elasticity j) a public event at which things are sold

to the person who offers the most

money for them

- 10 -

7. Read the sentences and decide if they are true or false:

1. Prices ration scarce resources, and they motivate production.

2. In a command economy, prices are determined by the interaction of the

forces of supply and demand.

3. Demand is a consumer’s willingness and ability to buy a product or service

at a particular time and place.

4. The law of supply describes the relationship between prices and the quantity

of goods and services that would be purchased at each price.

5. Supply is the quantity of goods or services that sellers offer for

sale at all possible prices at a particular time and place.

6. The market profit is the only profit that can exist for any length of time

under perfect competition conditions.

8. Fill in the gaps with the words and expressions from the text:

1. Market economies are directed by _______.

2. Prices encourage producers to _____________ their level of output.

3. __________ is a consumer’s willingness and ability to buy a product or

service at a particular time and place.

4. The degree to which price changes affect demand will depend upon the

elasticity ____________________.

5. The price at which goods and services actually change hands is known as

____________________.

6. The market price is the only price that can exist for any length of time

under perfect competition conditions.

9. Find pairs of words as they occur in the text:

1. scarce a. economy

2. motivate b. revenue

3. rationing c. versa

4. market d. conditions

5. total e. effect

6. price f. resources

- 11 -

7. to delay g. a purchase

8. vice h. hands

9. change i. decrease

10. competition j. production