Text 8. Demand and Supply

One of the most basis concepts of economics is supply and demand. These are really two separate things, but they are almost always talked about together. Supply is how much of something, such as a product or service, is available. Demand is the amount of the product or service that buyers want to purchase. The relationship between supply and demand has a good deal of influence on the price of goods and services.  

Understanding the law of demand is an important to understand the relationship between supply and demand. According to the law of demand, price has a significant effect on demand. Essentially, higher prices translate into less demand for a product or service. When the price of an item or service is high, an individual must think that buying the item may prevent him from being able to afford the purchase of another, more valuable item. As such, the opportunity cost of that item is too high and demand for it may be low.

 The law of supply is also vital to understanding the relationship between supply and demand. According to the law of supply, higher quantities of a product or service are supplied at a higher price. Those who produce goods and offer services are willing to supply more at higher prices because selling their wares at higher prices provides increased revenues.

The market price of a good is determined by both the supply and demand for it. In 1890, English economist Alfred Marshall published his work, Principles of Economics, which was one of the earlier writings on how both supply and demand interacted to determine price. Today, the supply-demand model is one of the fundamental concepts of economics. The price level of a good essentially is determined by the point at which quantity supplied equals quantity demanded. If this relationship between supply and demand is attained, the economy is balanced in a state of equilibrium.

The equilibrium point must be the point at which quantity supplied and quantity demanded are in balance, which is where the supply and demand curves cross.

 

Exercise 55 . Answer the questions.

1. What is demand and supply? 2. What are the definitions of the law of demand and the law of supply? 3. How is the price level of a good determined? 4. What is the equilibrium point?

Exercise 56 . Give Ukrainian equivalents.

Basic concept, to be available, to have a significant effect, to afford the purchase of more valuable item, to prevent someone from being able to afford the purchase, opportunity cost, to provide increased revenues, to determine price, to be balanced in a state of equilibrium, supply and demand curves.

 

Exercise 5 7 . Put questions to the underlined words.

1. The market price of a good is determined by both the supply and demand for it. 2. The equilibrium point must be the point at which quantity supplied and quantity demanded are in balance. 3. There are some factors influencing demand for goods, such as the prices of other goods, consumer incomes etc. 4. Governments intervene in economies controlling the supply of money, limiting monopolies and helping private industries. 5. Income is money of all kinds coming in regularly to a person, family or organization.6. Active money is money going from man to man and used by the people in buying and selling goods and services.

Exercise 58 . Decide whether the sentences are true or false.

1. Government regulates demand and supply, imposing ceiling prices (maximum prices) and floor prices (minimum prices). 2. An improvement in technology will decrease the supply of goods. 3. The relationship between supply and demand has a good deal of influence on the price of goods and services. 4. As consumer income is increased, demand for goods and services will decrease. 5. The market is in equilibrium when the price regulates the quantity supplied by producers and the quantity demanded by consumers.

Exercise 59. Learn the following words and word combinations.

put another way	– іншими словами
stocks	– акції
risk-free	– надійний
government bond	– урядове боргове зобов’язання, облігація
yield	– приносити прибуток
get  degree	– отримати диплом

Exercise 60. Read, translate and give the gist of text 9.

                            Text 9. Opportunity Cost

Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. Say you invest in a stock and it returns 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).

The opportunity cost of going to university is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages.

Opportunity cost cannot always be measured, because it might be satisfaction that is lost. At other times, however, opportunity cost can be measured. Here are examples of each. Perhaps a student is studying hard for a final examination in a difficult course because a good exam score is critical to achieve the desired grade. Friends call to invite the student out for the evening. The alternatives are to study or to have fun. Being wise, the student selects studying instead of going out. It is difficult to measure the opportunity cost of having fun with friends.

In the second example, the same studying student is asked to help someone clean a garage. If the person offers to pay the student $50 to clean the garage and the student chooses to study, the opportunity cost is easily measured at $50. In both these examples, opportunity cost is directly related to what was given up, not any other benefits that might result from the decision.

Circumstances also play a role in opportunity cost. Sometimes people are forced into a decision because of circumstances and the results may not always be optimal. For example, if someone is planning to relocate to a new city to start a new job and wants to sell a house before the move in order to be able to purchase a new house in the new location, the person may sell the house for less than the market price in order to complete the process. The opportunity cost is the value of what was given up in order to be able to purchase a new home. Every time a choice is made, opportunity costs are assumed.

Exercise 61. Answer the questions.

1. What is opportunity cost? 2. Is it always possible to measure opportunity cost? 3. What also plays a role in opportunity cost?

Exercise 62. Give Ukrainian equivalents.

To be forgone, to pursue a certain action, risk-free government bond, to earn money, investment, on the one hand, on the other hand, to offset, critical, to achieve the desired grade, to give up.

 

Exercise 63. Give English equivalents.

Вкладати гроші у цінні папери, приносити прибуток, заробітна плата, гарний результат екзаменів, весело проводити час, обставини, переїхати до нового міста, продати будинок нижче ринкової ціни.

Exercise 64. Match words with their definitions.

1. opportunity cost	a) the purchase of a financial product or other item of value with an expectation of gaining profitable returns in the form of interest or income.
2. stock	b) a form of payment from an employer to an employee, where each job, hour or other unit is paid separately, rather than on a periodic basis.
3. investment	c) a form of periodic payment from an employer to an employee, which may be specified in an employment contract.
4. salary	d) the cost related to the next-best choice available to someone who has picked between several mutually exclusive choices.
5. wage	e) the original capital paid into or invested in the business by its founders.

Exercise 65. Form degrees of comparison of the following adjectives: big, heavy, outstanding, practical, useful, bad, late, early, cheap, good, expensive, fresh, rich, little, much, short, easy, comfortable, low, high, lazy, powerful, tall, large.

Exercise 66. Learn the following words and word combinations.

tradeoff	– співвідношення вигоди (користі, зиску) та втрат
beneficial	– корисний, прибутковий
stagnation	– застій, відсутність розвитку, стагнація
pursuit	– прагнення, пошук

 

Exercise 67. Read, translate and give the gist of text 10.

Text 10. Tradeoffs

The five economic goals of full employment, stability, economic growth, efficiency, and equity are widely considered to be beneficial and worth pursuing. Each goal, achieved by itself, improves the overall well-being of society. Greater employment is typically better than less. Stable prices are better than inflation. Economic growth is better than stagnation. Efficiency is better than inefficiency. An equitable distribution is better than inequality.

However, the pursuit of one goal often restricts attainment of others. For example, policies that promote efficiency might create unemployment or policies that improve equity might limit economic growth.

Tradeoff is a situation in which the pursuit of one goal limits achieving another goal.

Consider the example of a tradeoff concerning full employment and stability: The Central Bank seeks to promote lower rates of unemployment through expansionary monetary policy. The economy expands, unemployment falls, and full employment is achieved, but inflation emerges from the over stimulated economy.

 

Exercise 68 . Put key questions to the text.

 

Exercise 69 . Provide the definitions to the terms: un/employment, efficiency, equity, inflation, stagnation, distribution, rate, monetary policy.

 

Exercise 70 . Translate sentences with “to be worth + Gerund” structure. Provide your own examples.

1. The five economic goals are worth pursuing. 2. The book is worth reading. 3. The film is worth seeing. 4. The task is worth doing. 5. The meeting is worth participating. 6. The topic is worth discussing.

 

Exercise 71 . Complete the sentences according to the text.

1. The five economic goals are …. 2. Each goal improved ….   3. However, the pursuit of one goal restricts …. 4. Tradeoff is …. 5. The example of a tradeoff is ….

 

Exercise 72. Learn the following words and word combinations.

efficiency	– ефективність, продуктивність
equity	–  справедливість, об’єктивність
be relevant to	– той, що має відношення до справи, важливий
scarcity problem	– проблема нестачі
pervasive	– той, що розповсюджується
demand price	– ціна, яку покупці готові сплатити
supply price	– ціна пропозиції, постачання
pinpoint	– точно визначити
contend	– протистояти
realm	- галузь, область
normative economics	- нормативна економічна теорія (напрям економічної науки, який трактує проблеми економічних цілей та економічної політики)
equality	- рівність

Exercise 73. Read, translate and give the gist of text 11.

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