Unit 12 Conclusion

O ne of the major tasks of economics is to understand the principles of consumer behaviour. Consumers depend on others to satisfy their most basic needs. They must enter into transactions to obtain food, energy for heat and light, clothing, medical assistance, transportation, communication services etc.

Commodities of different kinds satisfy people’s wants in different ways: in relation to time, people and nations. Economists explain consumer demand by the concept of utility and with the Law of Diminishing Marginal Utility. Utility is a concept that represents the amount of usefulness or satisfaction that a consumer obtains from a commodity. The Law of Diminishing Marginal Utility states that as the amount of a commodity consumed increases, the marginal utility of the last unit consumed tends to decrease.

Consumers spend their incomes to maximize their satisfaction. Their choices are influenced by the prices of goods, income, and preferences. People tend to buy more of a good when it is cheap than when it is expensive.

Price elasticity of demand tends to be low for necessities like food and shelter and high for luxuries like snowmobiles and air travel. Other factors affecting price elasticity are the extent to which a good has ready substitutes and the length of time that consumers have to adjust to price changes.

The Law of Demand represents the relationship between the quantity of a good that people want to buy and the price of that good. The Law of Supply gives the relationship between the quantity that producers will be willing to sell – other things equal – and that good’s price.

Money is the universally acceptable medium of exchange. People work and get payment. Under these conditions their work is labour and therefore people are called labour force. Some people invest capital, bear risk and receive profit if their business is successful.

Market is an arrangement whereby buyers and sellers interact to determine the prices and quantities of a commodity. There are different types of market structures: perfect competition and monopoly.

Economists consider perfect competition as an ideal market structure. The number of perfectly competitive sellers and buyers is `very large and the products offered by sellers are homogeneous. They have no power to affect the market price.

Monopoly is a market structure in which a commodity is supplied by a single firm. Economists differentiate several types of monopolies: natural, state, legal. Governments are concerned with monopolistic activity as it may affect the economy. They provide regulation and antitrust policy to control such activity.

PRACTICE

I. Choose the right answer:

1. Money is a…

a) means of exchange;

b) good;

c) price;

d) time.

2. To satisfy basic needs consumers should

a) not buy non-essentials;

b) learn English;

c) enter into transactions with other people;

d) ask their employers to pay more.

3. Capital is…

a) land, houses and shares;

b) land, houses and clothes;

c) land, entertainment and shares;

d) food, clothes and shelter.

4. A consumer buys more of a commodity at a …

a) higher price;

b) lower price;

c) current price;

d) price he charges.

5. Market in economics is a …

a) place where people buy and sell food, clothes for everyday lives;

b) set of conditions permitting people meet each other;

c) set of conditions permitting people work together;

d) fixed place where businessmen come to buy sugar.

6. Economists consider … as a perfect market structure.

a) free market;

b) perfect competition;

c) monopoly;

d) ‘cornered’ market.

7. Surplus is the … of private enterprise.

a) profit;

b) loss;

c) income;

d) wages.

8. The rise in prices encourages producers to …

a) buy more of a commodity;

b) produce more goods;

c) stop selling goods;

d) go out of the market completely.

9. Utility of a commodity tends to diminish as …

a) the usefulness of the commodity falls;

b) the stock of the commodity decreases;

c) the stock of the commodity increases;

d) the consumer buys little of the commodity.

10. The Law of Demand says:

a) more will be demanded at higher prices than at lower prices;

b) more will be demanded at lower prices than at higher prices;

c) people will buy more if the prices are higher than usually;

d) the demand for a commodity rises as the price for that commodity increases.

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