Unit 9 Supply and Demand

Text A

Bananas are a typical example of perishable goods. By `perishable' we mean goods which cannot be stored for any length of time without going bad. Most foodstuffs are in the perishable category. Such goods are offered for sale as quickly as possible; and so the supply of perishables and the stock of perishables available at any time are usually the same in quantity.

This is not true in the case of non-perishable goods like coal, steel and cars, which do not deteriorate easily. The supply of cars on the market may not be the same as the actual stock of cars in the factories. Economists talk about the Law of Supply, in which a rise in prices tends to increase supply, while a fall in prices tends to reduce it. If prices rise for a particular commodity, the rise will of course encourage producers to make more. On the other hand, if prices fall either locally or throughout the world, producers will reduce production. This can result in serious difficulties for many producers, and may cause them to go out of business completely. Over-production of any commodity can also create difficulties, because it can lead to a glut on the market, which may cause prices to fall sharply.

Supplies of many commodities can generally be adjusted to suit market conditions. This means that changes in prices lead to changes in the quantity of a particular commodity which is made available to consumers. Household goods and furniture belong to this category. In such instances supply is said to be 'elastic', because it can be increased or decreased rapidly in response to market prices.

Exercise 1. Answer these questions, basing your answers on the text.

1. What are perishable goods?

2. What two things are usually the same in quantity?

3. What happens when the Law of Supply operates?

4. What does a rise in prices encourage?

5. What does a fall in prices cause?

6. What serious effect may a fall in prices have on some producers?

7. What can over-production lead to?

8. What happens when the supply of a commodity is adjusted to suit market conditions?

9. What kinds of goods belong to the category of commodities that can be adjusted easily?

10. What is meant by 'elastic' supply?

Exercise 2. Say whether these statements are true or false, and if they are false say why.

1. Bananas are typical of goods that easily deteriorate.

2. Steel can be stored for a long time without losing its value.

3. The actual stock of cars in a factory is usually the same as the supply of cars available on the market.

4. According to the Law of Supply, a rise in prices tends to reduce supply.

5. If prices fall locally, production will be reduced throughout the world.

6. When there is a glut on the market, demand decreases and prices fall.

7. Changes in prices lead to a change in the quality of a commodity.

8. Supply is 'elastic' because market prices rise and fall.

Exercise 3. Combine these pairs of sentences, using 'that' and changing 'will' to 'would'.

EXAMPLE: He told me something. The prices will change.

He told me that the prices would change.

1. They told him something. The committee will meet next week.

2. The economists expected something. The prices will fluctuate considerably.

3. The government anticipated something. The workers will demand higher wages.

4. The management decided something. The new factory will be located in a different city.

5. The development committee arranged something. The meetings will be held at regular intervals over the next two years.

Exercise 4. Punctuate the following passage. Provide capital letters, commas, full stops, brackets, colons etc., where applicable.

non-perishable goods such as coal steel cars and aeroplanes can be stored for considerable periods of time without loss of value this is not true however with perishables which must be placed on the market as quickly as possible if they are not sold quickly they will deteriorate if they deteriorate while in storage or in the shops both producers and distributors loss a large amount of money if there is a glut of certain perishables these commodities must be sold quickly even if the selling price is too low for a satisfactory profit

Exercise 5. Below are pairs of sentences. In the first sentence there is a verb in italics. In the second sentence there is a blank. Make the underlined verb into a noun in order to fill the blank.

EXAMPLE: manage = manage + ment = management

1. It is sometimes necessary to adjust the quantity of goods flowing on to the market. This _____ is made according to market conditions.

2. He arranged the committee meeting. His _____ were very efficient.

3. The government encourages private enterprise. Their _____ sometimes takes the form of financial help.

4. Some economists are interested in measuring changes in the price of essential commodities. This _____ extends over a period of years.

5. The management tend to assess the amount of money needed for the plan. The _____ was to be made by a special committee.

6. He decided to invest his capital in the new enterprise. His_____ might be very profitable.

Text B

Elasticity of supply, as a response to changes in price, is related to demand. Economists define 'demand' as a consumer’s desire or want together with his willingness to pay for what he wants. We can say that demand is indicated by our willingness to offer money for particular goods or services. Money has no value in itself, but serves as a means of exchange between commodities which do have a value to us.

People very seldom have everything they want. Usually we have to decide carefully how we spend our income. When we exercise our choice, we do so according to our personal scale of preferences. In this scale of preferences essential commodities come first (food, clothing, shelter; medical expenses etc.), then the kind of luxuries which help us to be comfortable (telephone, special furniture, insurance etc.), and finally those non-essentials which give us personal pleasure (holidays, parties, visits to theatres or concerts, chocolates etc.). They may all seem important, but their true importance can be measured by deciding which we are prepared to live without. Our decisions indicate our scale of preferences and therefore our priorities.

Elasticity of demand is a measure of the change in the quantity of a good, in response to demand. The change in demand results from a change in price. Demand is inelastic when a good is regarded as a basic necessity, but particularly elastic for non-essential commodities. Accordingly, we buy basic necessities even if the prices rise steeply, but we buy other things only when they are relatively cheap.

Exercise 1. Answer these questions, basing your answers on the text.

1. What is elasticity of supply a response to?

2. What is the definition of 'demand'?

3. How is demand indicate

4. What is money?

5. What do we do when we exercise choice?

6. What comes second in our scale of preferences?

7. What is our third priority?

8. What is elasticity of demand?

9. When is demand inelastic?

Exercise 2. Say whether these sentences are true or false, and if they are false say why.

1. When people offer money for particular goods, they indicate that a demand exists.

2. Money is usually valuable in itself.

3. People do not usually have everything they want.

4. Basic needs come before luxuries.

5. Our decisions on how to use our money show what we need most and what we are willing to do without.

6. Demand for essential commodities is always elastic.

Exercise 3. Change these sentences in order to use the auxiliary verbs 'do' or 'did'. These verbs are used for emphasis.

EXAMPLE: i. These goods and services have a value. – These goods and services do have a value.

ii. The people went to the city to find work.– The people did go to the city to find work.

1. These factors have an effect upon the economic system.

2. The management tried to change the methods.

3. The representatives of the employers and employees met last week.

4. The decision made by the trade unions affects everyone in the industry.

5. Short-term economic anarchy has a bad effect on longterm stability and investment.

6. The surplus money provided capital for a new housing scheme.

7. Stable conditions led to an improvement in the general state of the economy.

8. The government encourages new commercial enterprises.

9. A change in government usually means a change in policy.

10. The minister wanted to make a fundamental change in the national economic policy.

Exercise 4. Supply either 'the' or 'an' in the blanks in these sentences.

EXAMPLE: There is ___ demand for steel. ___ demand for steel is increasing.

There is a demand for steel. The demand for steel is increasing.

1. There is ___ shortage of bananas. ___ shortage of bananas will continue for some weeks.

2. There has been ___ change of government. ___ change in government will probably mean a change of policy. ___ change of policy may lead to ___ short period of instability. ___ short period of instability could create ___ feeling of insecurity

3. The speaker suggested ___ special commission to study economic conditions. He said that ___ special commission should examine all aspects of national economic life. ___ commission should investigate ___ demands of ___ workers and ___ conditions under which they work. It should also hear ___ views of employers. Such ___ commission would render ___ very valuable service to ___ nation.

Exercise 5. Give suitable opposites for these words

EXAMPLE: capitalism : communism

a. minority c. theoretical e. public g. solid i. longterm

b. maximum d. positive f. collective h. simplify

Supplement

Many words are formed by adding -able. There is however an active use of -able and a passive use. Try these exercises.

A The Active use of -able.

EXAMPLE: Fruit can perish. – Fruit is perishable.

NOTE that can is not always necessary in the first sentence.

a. The plan can work. d. These policies suit (us).

b. Market conditions can change. e. Those products have a value.

c. Economic conditions can vary. f. Some investments make a profit.

B The passive use of -able.

EXAMPLE: The difficulty can be avoided. – The difficulty is avoidable.

a. The commodity can be marketed. d. The relationship can be defied.

b. The plan can be tested. e. The product can be obtained.

c. The flow of work can be measured.

Essential Vocabulary

1. perishable goods швидкопсувні товари

2. durable goods//durables (споживчі) товари тривалого користування

3. deteriorate / go bad псувати(ся)

4. glut затоварювання (ринку)

5. assess оцінювати, визначати

6. adjust регулювати; пристосовувати; коректувати

7. measure оцінювати, визначати (характер тощо)

8. exercise користуватися (владою, привілеями); застосовувати

9. scale of preferences шкала переваг

10. priority пріоритет

11. steeply круто, стрімко

12. shortage / lack of нестача, дефіцит

13. render a service надати послугу

14. policy страховий поліс