Foundations of Economics. Учебное пособие

UNIT 5

THE THEORY OF SUPPLY AND DEMAND

I. Topical vocabulary. Read the words.

Text A

-Supply – ;

-Demand – ;

-Amount – ;

-Consume – , , ;

-To apply to – , , ";

-Perfect competition– ;

-Seller – ;

-Commodity – , " ;

-Power– ", ";

-Unit price – ( );

-To purchase – , ;

-Table – ;

-Consumer – ;

-Rationally – ", ;

-Income – , , ;

-Constrained utility maximization – " " ;

-Constraint – ;

-Wealth – , " ;

-Refer to – " , - .;

-Hypothesized – ";

-Bundle – ;

-To state – ", , ;

-Inversely –

-Related– ;

-Relative to – - .;

-The substitution effect – . "- ;

-In addition – " , " ;

-Purchasing power – ;

-Decline – ;

-The income effect – . ;

-Outward – ", , ;

-To shift – ;

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Text B

-Available for sale – "- ;

-Profit-maximizer – " " ;

-To attempt – , , ;

-Profitable – ;

-Productive input – ;

-Technical improvement – ;

-To equal smth.– "- ;.

-Shortage – , ;

-Compared to smth.– "- .;

-Surplus– , ;

-To posit – "- , ;

-To bid up – ;

-To push down the price – ;

-Competitive market – ;

-To equate – , ;

-Marginal cost – " ";

-Marginal utility – ;

-Factors of productions – ;

-Distribution – ;

-Generalized – - ;

-Variable – ";

-Total output – , - = " ;

-GDP (gross domestic product) – ;

II.Translate these words without a dictionary:

III.Skim the text. Try to understand the general sense.

SUPPLY AND DEMAND

Text A. The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and

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consumed. In microeconomics, it applies to price and output determination for a market with perfect competition, which includes the condition of no buyers or sellers large enough to have price-setting power.

For a given market of a commodity, demand is the relation of the quantity that all buyers would be prepared to purchase at each unit price of the good. Demand is often represented by a table or a graph showing price and quantity demanded. Demand theory describes individual consumers as rationally choosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is 'constrained utility maximization' (with income and wealth as the constraints on demand). Here, utility refers to the hypothesized relation of each individual consumer for ranking different commodity bundles as more or less preferred.

The law of demand states that, in general, price and quantity demanded in a given market are inversely related. That is, the higher the price of a product, the less of it people would be prepared to buy of it (other things unchanged). As the price of a commodity falls, consumers move toward it from relatively more expensive goods (the substitution effect). In addition, purchasing power from the price decline increases ability to buy (the income effect). Other factors can change demand; for example an increase in income will shift the demand curve for a normal good outward relative to the origin.

Text B. Supply is the relation between the price of a good and the quantity available for sale at that price. Producers, for example business firms, are hypothesized to be profit-maximizers, meaning that they attempt to produce and supply the amount of goods that will bring them the highest profit. Supply is typically represented as a directly-proportional relation between price and quantity supplied (other things unchanged). That is, the higher the price at which the good can be sold, the more of it producers will supply. The higher price makes it profitable to increase production. Just as on the demand side, the position of the supply can shift, say from a change in the price of a productive input or a technical improvement.

Market equilibrium occurs where quantity supplied equals quantity demanded. At a price below equilibrium, there is a shortage of quantity supplied compared to quantity demanded. This is posited to bid the price up. At a price above equilibrium, there is a surplus of quantity supplied compared to quantity demanded. This pushes the price down. The price in equilibrium is determined by supply and demand. In a perfectly competitive market, supply and demand equate marginal cost and marginal utility at equilibrium.

Other applications of demand and supply include the distribution of

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income among the factors of productions including labour and capital, through factor markets.

Demand-and-supply analysis is used to explain the behavior of perfectly competitive markets, but as a standard of comparison it can be extended to any type of market. It can also be generalized to explain variables across the economy, for example, total output (estimated as real GDP) and the general price level, as studied in macroeconomics.

TEXT ASSIGNMENTS

V. Answer the following questions:

Text A

1)What does the theory of supply and demand explain?

2)What does demand theory describe?

3)What does the law of demand state?

4)What factors influence demand changes?

Text B

1)What is the supply?

2)How do the prices change at the supply?

3)When does market equilibrium occur?

4)When is demand-and-supply analysis used?

1)Demand is the relation of the quantity that sellers are prepared to purchase at each unit price of the good.

2)How prices direct the amounts produced and consumed is explained by the theory of supply and demand.

3)The law of demand states that price and quantity demanded in a given market are connected in direct proportion.

4)Purchasing power from the price decline decreases ability to buy.

5)It’s an increase in income that will change the demand curve for a normal good outward relative to the origin.

6)Supply is represented as an inverse relation between price and quantity supplied.

7)It’s only where quantity supplied doesn’t equal quantity demanded that market equilibrium happens.

8)In a competitive market, supply and demand equate marginal cost and marginal utility at equilibrium.

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UNIT 6

FIRMS

I. Topical vocabulary. Read the words.

-Frequently – ;

-To trade – , ;

-Work in – , ";

-Partnership – ", - ;

-Trust – ;

-Costs – , , ";

-To do business(with) – , , "-

.;

-Labor – , ;

-Capital – , ;

-Far – ;

-Economies of scale – . ", " "

;

-Average – ;

-Per unit – ;

-To decline – ", , ;

-Competitive market – ;

-To influence smth./smb. – - ., - .;

-To generalize from – - , , ;

-Significant – , ;

-Control of price – " ;

-Interaction – ";

-Competition – ;

-Managerial – ";

-To apply to smth. – - ., "- .,

"( );

-Business firm – "" ";

-To draw from – , , ;

-Heavily – , , ";

-Operation – ., ;

-Regression analysis – ;

-Certainty – ;

-Unit cost – " ;

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-Profit maximization – " " ;

-Constraint – , ;

II.Translate these words without a dictionary:

III.Skim the text. Try to understand the general sense.

FIRMS

People frequently do not trade directly on markets. Instead, on the supply side, they may work in and produce through firms. The most obvious kinds of firms are corporations, partnerships and trusts. According to Ronald Coase people begin to organise their production in firms when the costs of doing business becomes lower than doing it on the market. Firms combine labour and capital, and can achieve far greater economies of scale (when the average cost per unit declines as more units are produced) than individual market trading.

In perfectly-competitive markets studied in the theory of supply and demand, there are many producers, none of which significantly influence price. Industrial organization generalizes from that special case to study the strategic behavior of firms that do have significant control of price. It considers the structure of such markets and their interactions. Common market structures studied besides perfect competition include monopolistic competition, various forms of oligopoly, and monopoly.

Managerial economics applies microeconomic analysis to specific decisions in business firms or other management units. It draws heavily from quantitative methods such as operations research and programming and from statistical methods such as regression analysis in the absence of certainty and perfect knowledge. A unifying theme is the attempt to optimize business decisions, including unit-cost minimization and profit maximization, given the firm's objectives and constraints imposed by technology and market conditions.

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TEXT ASSIGNMENTS

V.Answer the following questions:

1)What kinds of firms do you know?

2)What is the difference between firms and individual market trading?

3)What do common market structures include?

4)Does managerial economics draw from quantitative methods and from statistical methods in the absence of certainty and perfect knowledge?

5)When do people begin to organize their production in firms, according to Ronald Coase?

1)In perfectly-competitive markets studied in the theory of supply and demand, there are many producers, notably affecting price.

2)The most evident kinds of firms are corporations, partnerships and

trusts.

3)Common market structures consist of various forms of oligopoly, monopoly and monopolistic competition.

4)Industrial organization examines the strategic behavior of firms that do have significant control of price.

5)Managerial economics draws little from quantitative methods such as operations research and programming.

6)Industrial organization considers the structure of markets and their interactions.

7)A unifying theme is the endeavor to optimize business decisions.

8)Firms combine labor and capital, and can attain far greater economies of scale than individual market trading.

VII. Choose a preposition in black type to fit the gaps in the sentences below. Some of them may be used twice. Translate the sentences:

1)People frequently do not trade directly … markets.

2)It draws heavily … quantitative methods.

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