Technology and Supply

An improvement in technology will increase the supply as producers will and to supply a larger quantity than before at each price. An improvement in

cocoa refining makes it possible to produce more chocolate. So do improve­ments in packaging techniques. Faster transportation and better refrigeration may lead to less spoiled cocoa beans. Each of these technological advances allows firms to supply more.

Technology must be understood very broadly. It includes all know-how about production methods, not only the state of available machinery. In agri­culture, the development of disease-resistant seeds is a technological advance. Improved weather forecasting may lead to better timing of planting and har­vesting. A technological advance is any idea that allows more output from the same inputs as before.

1. What is included in technology?

2. What is a technological advance?

3. What technological advances may increase the supply of chocolate?

4. What technological advances in agriculture can you name?

TEXT C

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A change in demand takes place when one of the factors assumed con­stant changes.

An increase in income results in a rise of the quantity demanded, provided the goods are normal.

A change in the price of one good has an income effect and a substitution effect. The income effect of a price increase is to reduce the quantity de­manded of all normal goods. For inferior goods, the income effect works in the opposite direction. The substitution effect leads consumers to buy less of the goods whose price has increased.

The substitution effect of a price rise will also reduce the demand for the goods that are complementary to the goods whose price has risen.

In practice, there are three types of relationships between goods: the goods may be substitutes, complements, or independent. The definition of the three types of relationships is based on the substitution effect of the price change of a good.

1. The substitution effect is positive for substitute goods, the price of the good (J)and the quantity of the good (/) move in the same direction. If the price of j increases, consumers tend to substitute / for j. If the price of j de­creases, then consumers tend to substitute the relatively cheaper j for i. In both cases, there is a positive relationship between the price of/ and the quan­tity of/. An example is butter and margarine.

2. The substitution effect is negative for complementary goods such as buns and hot dogs. In this case, the price of hot dogs (/) and the quantity of buns (/) move in opposite directions. An increase in the price of / (hot dogs) means that the quantity demanded of/ decreases and the quantity of the com­plementary good / (buns) also decreases. The same happens when the price of / decreases. In both cases there is a negative relationship between the price of / and the quantity of /.

Notice that if the goods change places in the equation, it may result in a different coefficient. Let us consider the consumption of sugar and coffee. A change in the price of coffee may have some influence on the use of sugar, but a change in the price of sugar probably will have very little influence on the use of coffee.

3. The substitution effect is zero for independent goods. Independence means that no substitution or complementary relationship exists between the two goods.

б) Расположите вопросы в таком порядке, чтобы они могли служить планом тек­ста. Ответьте на эти вопросы.

1. Do all complementary goods affect each other's use to the same extent?

2. What examples of complementary goods are given in the text?

3. What goods are called independent?

4. How many types of relationship between goods can you name?

5. How does the substitution effect work with complementary goods?

6. How does the substitution effect work with substitute goods?

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Внеаудиторное чтение 2

TEXT A

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