1. «Prices act as signals to the market.» This means that

a. prices affect the kinds and amounts of goods and services offered for sale.

b. profits increase as prices rise.

c. high prices signal a healthy economy.

d. people wait for supply and demand schedules to be published before making

decisions.

2. In a competitive market, the equilibrium or market price is

a. determined by consumer decisions.

b. producers can charge the lowest price and still make a profit.

c. determined by a government agency.

d. the price at which consumers will buy all the goods producers are willing to sell.

3. All else remaining equal, an increase in demand will result in

a. a higher market price.

b. a lower market price.

c. no change in price.

d. an increase in supply.

VIII. Complete the following sentences:

1. If there were no price system ... . 2. A high price, for example, is a signal ... . 3. A low price is a signal ... . 4. The price system in a market economy is ... . 5. Unforseen events such as ... . 6. This flexibility to absorb unexpected «shocks» is ... . 7. In economic markets, buyers and sellers have ... . 8. The buyers come to the market ... . 9. The sellers come to the market ... . 10. Adjustment process must take place when ... . 11. Market equilibrium is ... .

IX. Answer the following questions:

1. What role do prices play in all economic markets? 2. Is it possible to determine a value for any goods or services without price system? 3. What characteristics do prices have in a market economy? 4. What unforseen events can affect the prices for some items? 5. What is one of the strengths of a free enterprise market economy? 6. What hopes and intentions do the buyers and sellers have coming to the market? 7. What is market equilibrium?

X. Translate into English:

1. Ціни відіграють важливу роль на всіх економічних ринках. 2. За умов ринкової економіки ціни діють як сигнали. 3. Цінова система в ринковій економіці напрочуд гнучка. 4. Ціни на вільному ринку нейт­ральні. 5. На економічних ринках покупці та продавці мають проти­лежні наміри та надії. 6. Покупці бажають купувати за низькими цінами. 7. Продавці приходять на ринок із надією на високі ціни.

XI. Retell the text A using the following words and

word-combinations:

price system; to determine a value for any goods or services; prices act as signals; market economy; high price; low price; prices are neutral; flexible; free market system; competition between buyers and sellers; a free enterprise market economy; to affect the prices; opposite hopes and intentions; unforseen events; to take place; adjustment process; market equilibrium; surplus; shortage.

READING DRILLS

1. Practise the pronunciation of the following words:

a) stress the first syllable:

bargain, possible, current, marginal, compensate, argument, tendency, indicate, satisfy, diminish, purchase, matter, sacrifice;

b) stress the second syllable:

majority, advance, commodity, expenditure, accept, utility, relationship, remain, exist, desire, continue, successive, financial.

Text B

In most economic systems, the prices of the majority of goods and services do not change over short periods of time. In some systems it is of course possible for an individual to bargain over prices, because they are not fixed in advance. In general terms, however, the individual cannot change the prices of the commodities he wants. When planning his expenditure, he must therefore accept these fixed prices. He must also pay this same fixed price no matter how many units he buys. A consumer will go on buying bananas for as long as he continues to be satisfied. If he buys more, he shows that his satisfaction is still greater than his dislike of losing money. With each successive purchase, however, his satisfaction compensates less for the loss of money.

A point in time comes when the financial sacrifice is greater than the satisfaction of eating bananas. The consumer will therefore stop buying bananas at the current price. The bananas are unchanged; they are no better or worse than before. Their marginal utility to the consumer has, however, changed. If the price had been higher, he might have bought fewer bananas; if the price had been lower, he might have bought more.

It is clear from this argument that the nature of a commodity remains the same, but its utility changes. This change indicates that a special relationship exists between goods and services on the one hand, and a consumer and his money on the other hand. The consumer’s desire for a commodity tends to diminish as he buys more units of that commodity. Economists call this tendency the Law of Diminishing Marginal Utility¹.