Text b. The role of prices
Ex.20. Scan the text below. What main factors does it mention to support the keynote, i.e. the role of prices?
Prices are key ingredients in our economy because they make things happen. If buyers want to own some items badly enough, they will pay more for them. (0) ________ Prices play such an important role in economic life that the United States is often described as a price-directed market economy. Let us see why.
1. Act as Signals to Buyers and Sellers. One of the things that prices do is carry information to buyers and sellers. (1) ________When prices are high enough, they send a "sell" signal to sellers (retailers), who can now earn a profit at the new price.
2. Encourage Efficient Production. Prices encourage business people to produce their goods at the lowest possible cost. (2) ________
Firms that are efficient will produce more goods with fewer raw materials than firms that are inefficient. (3) ________ While these efforts are in the best interests of the sellers, all of us may benefit because we are provided with the things we want at lower costs.
3. Determine Who Will Receive the Things Produced. Finally, prices help to determine who will receive the economy's output of goods and services. The price that a worker receives for doing a job is called a wage. (4) ________What the worker can buy with those wages will depend, in turn, upon the prices of the goods and services the worker would like to own.
Let’s look at some examples. The most obvious cost a person bears in buying a product is the price of the product. Price reflects cost because people have a limited amount of funds that they can spend, and if they spend their money on one thing, they cannot spend it on another. (5) ________As a result, we expect people to buy more hamburger if the price is $1.00 per pound than if it is $2.00 per pound.
The amount of income a person receives affects the cost of buying an item because it determines which options a person must give up when buying a product. If a person with a low income spends $5000 for a trip around the world, he will have to cut back on food, clothing, or shelter. (6) ________
Increases in people's incomes raise consumption of most products. These products are called normal goods. There are some products, however, that people use less of as their income increases; these products are called inferior goods. Public transportation is an example - as people's incomes rise, they stop riding the bus and drive their own cars. (7) ________ It was because they were a symbol of "working-class" clothes that they were adopted by the radical left in the 1960s, and from there they moved into high fashion.
Prices of related goods also influence how much of a product people buy. Goods that are substitutes satisfy the same set of goals or preferences. An example of a substitute for hamburger is pork. (8) ________ The opposite of a substitute is a complement, a good that helps complete another in some way. Catsup and hamburger buns are complements to hamburger, and if they are priced low enough, consumption of hamburger may rise. Sometimes goods are such good complements that they are sold together and we think of them as a single item. (9) ________
There are other factors that influence the amount of a particular product that people are willing to buy, such as the number of consumers in the market and their expectations about future prices, incomes, and quality changes. To get a complete list for any product might be time consuming and difficult, but it is not necessary because we want to focus on the relationship between price and the quantity of a product that people are willing to buy during some interval of time. (10) ________
Ex.21. Read the text. Choose the best sentence A-J to fill each of the gaps 1-10. Do not use any letter more than once. There is an example at the beginning.
0.When sellers want to sell some items badly enough, they will lower their prices.
A When prices are low enough, they send a "buy" signal to buyers (consumers), who can now afford the things they want.
B If pork prices are high, people are tempted to shift away from pork to hamburger, and if pork prices are low, people are tempted to shift from hamburger to pork.
C Producers strive for efficiency as a way of increasing their profits.
D The same trip will cause a person with a high income to cut back on a very different set of options.
E Left shoes and right shoes are an example.
F Blue jeans were once another example-people with higher incomes bought them less frequently than people with lower incomes.
G To do this, we will assume that all other factors are held constant.
H The amount of this wage determines how much the worker has to spend.
I The lessit costs to produce an item, the more likely it is that its producers will earn a profit.
J When the price of a product goes up, the amount of other things that a person must give up in order to buy the product rises.
Ex.22. Read the text and decide whether the following statements are true (T) or false (F). Correct the false statements.
Prices are not very important in our economy.
Sellers always lower prices for the goods they sell.
Prices carry information to buyers and sellers.
When prices are low, buyers will buy less.
Sellers can earn profit when prices are high enough.
Prices encourage business people to produce less if the prices are low.
Efficient firms will produce less with fewer raw materials.
All of us will benefit if producers increase their profits through efficiency.
Prices tell who receives the economy’s output.
What the worker can buy will depend upon the economic situation in the country.
The amount of income a person receives doesn’t affect the cost of buying.
Increases in people's incomes raise consumption of most products.
Prices of related goods also influence how much of a product people buy.
Jeans were a symbol of "upper-class" clothes.
The number of consumers in the market and their expectations about future prices, incomes, and quality changes are other factors that influence the amount of a particular product that people are willing to buy.
Ex.23. Read the text again and answer the following questions.
Why is the US described as a price-directed economy?
What happens when prices go up?
How can people get benefit from efficient work of some firms?
How can the prices determine who will receive the things produced?
What is the most obvious cost a person bears ?
Why does price reflect cost? Give an example.
In what way does the amount of income a person receives affect the cost of buying an item?
What are the normal goods and inferior goods? Give examples.
What is the difference between substitutes and complements?
What are some other factors that influence the amount of a particular product that people are willing to buy?