Unit 5 Text в

 

 

  This afternoon we’re going to finish looking at macroeconomics. Well, not exactly finish, of course, but finish our short introduction to this branch of economics at any rate. Macroeconomics is probably better known to you, actually, than microeconomics. This is simply because macroeconomic concepts refer to the economy as a whole, and this in turn leads to their getting more coverage in the media - that is, on television, in the newspapers and so on. Microeconomic concepts, on the other hand, because they are of interest only to the particular group they deal with, are of less public interest.

  I want you now to note down three key terms. These terms are three of the most important building blocks of macroeconomics. They are three basic concepts which we use, and you may have already heard them in the media. The first of these is what we call Gross National Product. I’ll say that again: Gross National Product. Have you got that? Good. Gross National Product is often just called G-N-P. Note that down too. Now, GNP is the value of all goods and services produced in the economy. All goods and services produced in the economy over a given period, such as a year, that is.

  The second basic concept is the Aggregate Price Level. The Aggregate Price Level. Got that? Right, I’ll pause for a moment ...  The Aggregate Price Level is a measure. It’s a measure of the average level of prices of goods and services in the economy. The average level of prices of goods and services in the economy. Of course, this average level of prices is relative to the prices of the same goods and services at some fixed date in the past. OK? Good. Now, there is actually no reason why the prices of different goods should always move in line with one another. As you must have noticed, some goods go up in price more sharply than others. Others may hardly move. So the Aggregate Price Level tells us what is happening to prices on average. When the price level is rising, we say that the economy is going through a period of inflation.

  The third concept I want you to understand, and of course note down, is what we call the Unemployment Rate. The Unemployment Rate. OK? Good. The Unemployment Rate is the percentage of the labour force, or workforce, which is out of work, hasn’t got a job. It’s important to understand what we mean by the labour force. By the labour force we mean the people, both men and women, who are of working age - so we don’t include children or those who have retired, stopped working. We also mean those people who in principle would like to work if they could get a job. So we don’t mean people who, although they are of working age, don’t have to work - people who, for example, have inherited from their parents enough money so they don’t have to work at all.

 

Unit 7 Text b

 

 

   It’s equilibrium we’re going to talk about today. Specifically, the market and the equilibrium price. I’ll say that again. The market and the equilibrium price.

 

  Look at Table 2 again, would you? You’ve seen this table before. It describes the demand for and supply of chocolate bars. Let’s say we now want to combine the behaviour of buyers and sellers described in this table. We want to do this in order to model how the market for chocolate bars would actually work. If you look at the table carefully, you will see that at low prices the demand for chocolate bars exceeds, is greater than, the quantity supplied. For example, if the price is ten pence, 160 million bars is the demand – but the number of bars supplied is zero. Notice also that the opposite is true if the price is high. If the price is 70 pence, the demand is zero and the supply is 240 million bars. Do you see what I mean? Good.

 

  Now this is the important point. At some intermediate price... intermediate? It means in the middle. OK? At some intermediate price the quantity demanded just equals the quantity supplied. This we call the equilibrium price. The equilibrium price. If you look at the table again, you’ll see that the equilibrium price for chocolate bars is thirty pence. At a price of thirty pence, demand is for 80 million bars, and that’s the same quantity as sellers want to supply.

 

  In this example, and I want you to note down this term, it’s important you understand it, we call 80 million bars the equilibrium quantity. The equilibrium quantity. At a price below thirty pence, the quantity demanded exceeds the quantity supplied. In other words, people can’t get enough chocolate bars. So we have a shortage. This shortage we call excess demand. Note that down too. Got it? OK, I’ll go on. From our previous discussions, you will, of course, realize that when we economists say there is excess demand we really mean the quantity demanded exceeds the quantity supplied at this price. And I emphasize that.

 

  Now let’s turn to excess supply. Another term you should note. Excess supply. Excess supply happens when, in our example, the price is higher than thirty pence per bar of chocolate. At this price, the quantity supplied exceeds the quantity demanded. This means sellers will be left with stock they can’t sell. Again, of course, economists use the term excess supply to mean excess in the quantity supplied at this price.

 

  Now let’s ask ourselves the question ‘Will the market for chocolate bars automatically be in equilibrium?’ And, if so, ‘What mechanism brings this about?’ Let’s say for the moment that the price for chocolate bars is fifty pence. That is higher than the equilibrium price, of course. At this price, sellers want to sell 160 million bars – but, as you can see from the table, nobody wants to buy chocolate bars at this price. They’re too expensive. So what happens? Well, producers must get their money back, the money they’ve spent on producing these 160 million chocolate bars. So what do they do? They cut, reduce, their prices, naturally, to clear their stock. Say they reduce their price to forty pence. What is the effect? As you can see, this move has two effects. First, it increases the quantity demanded to 40 million bars per year. And second, it reduces the quantity producers want to sell at this price to 120 million bars per year. This price – cutting process will continue until the equilibrium price of thirty pence is reached.

 

  The same process actually works in reverse. What I mean by that is that if the initial price is below the equilibrium price, say twenty pence, the quantity demanded is 120 million bars. But at this price only 40 million bars are produced. This means, of course, that sellers will quickly run out of stock. They will realise they could have charged higher prices. This gives them a reason to raise prices, so that scarce stocks are rationed. And prices will continue to rise until the equilibrium price is reached. At that point the market clears. At this point, are you all clear...