V. Answer the following questions:

1. Prices are fixed in most economic systems, but what is possible in some systems? 2. What is the individual generally unable to change? 3. Under what conditions will a consumer go on buying a commodity? 4. What does the consumer show by buying more bananas? 5. What happens with each successive purchase? 6. At what point will the consumer stop buying the commodity at the current price? 7. What remains unchanged with each purchase? 8. What has changed when this point is reached? 9. Under what conditions might he have bought more? 10. What does a consumer’s desire tend to do?

Reading drills

1. Practise the pronunciation of the following words:

a) stress the first syllable:

cash, transfer, valuable, currency, property, practice, normally, payable, rate, interest, similarly, temporary, applicable, function, allocate, message, rise, ration, motivate, market, level, output, increase, decrease;

b) stress the second syllable:

denote, security, commercial, additional, potential, preferred, distribute, attract, exchange, refer, specific, effect, perform, production, describe, increase, decrease, restrict, control, respond.

Text C

In economics, the term «price» denotes the consideration in cash (or in kind) for the transfer of something valuable, such as goods, services, currencies, securities, the use of money or property for a limited period of time, etc. In commercial practice, however, it is normally restricted to the amount of money payable for goods, services, and securities. In other applications, the word «rate» is preferred. Interest rate¹ is the price for temporary use of somebody else’s money, exchange rate² is the price of one currency in terms of another.

Price may refer either to one unit of a commodity (unit price) or to the amount of money payable for a specified number of units or for something where units are not applicable, e.g., for five tons of coal (total price) or for a specific painting by Rembrandt.

Prices perform two important economic functions: they ration scarce resources, and they motivate production. As a general rule, the more scarce something is, the higher its price will be, and the fewer people will want to buy it. Economists describe that as the rationing effect of prices. In other words, since there is not enough of everything to go around, in a market system goods and services are allocated, or distributed, based on their price.

Price increases and decreases also send messages to suppliers and potential suppliers of goods and services. As prices rise, the increase serves to attract additional producers. Similarly, price decreases drive producers out³ of the market. In this way prices encourage producers to increase or decrease their level of output⁴. Economists refer to this as the production-motivating function of prices.

Prices may be either free to respond to changes in supply and demand or controlled by the government or some other (usually large) organisation.

Comments

1. interest rate — процентна ставка; норма відсотка

2. exchange rate — валютний курс; вексельний курс

3. to drive out — витісняти

4. level of output — рівень виробництва