II. Fill in the gaps with the -words and expressions from the text

1. To understand reports of market behaviour you have to __ the way the market works.

2. On the stock market, business can be transacted over the telephone, almost by __.

3. A market is a __ expression for the process by which households' decisions about consumption of alternative goods, firms' decisions about what and how to produce, and workers' decisions about how much and for whom to work are all __ by __.

4. Much of economics is devoted to the study of how markets and prices __ society to solve the problems.

5. __ your desire to eat, and your limited resources, the low hamburger price told you that this was a good way to __ your appetite.

6. Society answers the "for whom" question about lunchtime steaks __ someone else.

7. The cafe owner is in business because it is still possible to sell hamburgers __.

8. If rents were higher, it might be more profitable to sell hamburgers in a cheaper area or __ to __ lunches.

9. The student is working there because it is a suitable __, which pays a bit of money.

10. Society is allocating resources into hamburger production __ the price system.

11. If nobody liked hamburgers, the owner could not sell enough at a price that __ of running the cafe and society would __ no resources to hamburger production.

12. If cattle __, competition to purchase more scarce supplies of beef would __ the price of beef.

13. Adjustments in prices would encourage society __ resources to reflect the increased scarcity of cattle.

14. There were several markets __ your purchase of a hamburger.

15. The student behind the counter was part of the local __ market.

16. The cafe owner was part of the local __ meat market and the local market for __ buildings.

17. We __ a very general definition of markets, which emphasizes that they are __ through, which prices influence the allocation of scarce resources.

РRIСЕ AND DEMAND (ЦЕНА И СПРОС)

The following text will introduce you to the topic of the effect of price and Income on demand quantities.

The Price Responsiveness of Demand

Tabl. 3 presents some hypothetical numbers for the relation between ticket price and quantity demanded, other things equal.

Tabl. 3. The Demand for Football Tickets

PRICE (£/ ticket)	Quantity of tickets demanded (thousands/game)
12,50 10,00 7,50 5,00 2,50 0	0 20 40 60 80 100

Fig. 2 plots the demand curve, which happens to be a straight line in this example.

Ticket price (£)

Quantity of tickets

Figure 2. The Demand for Football Tickets

For given prices of related goods and consumer incomes, higher ticket prices reduce the quantity of tickets demanded.

How should we measure the responsiveness of the quantity of tickets demanded to the price of tickets? One obvious measure is the slope of the demand curve. The downward slope of the demand curve shows that quantity demanded increases as the price of a good falls. Each price cut of £ 1 leads to 8000 extra ticket sales per game.

Suppose, however, that we wish to compare the price responsive ness of football ticket sales with the price responsiveness of the quantity of care demanded: clearly, £ 1 is a trivial cut in the price of a car and will have a negligible effect on the quantity of cars demanded.

When commodities arc measured in different units it is often best to examine the percentage change, which is unit-free. This suggests that we think about the effect of a 1 per cent price cut on the quantity of care and football tickets demanded. Similarly, it is not the absolute number of cars or tickets we should examine but the percentage change in quantity demanded. Not only does this solve the problem of comparing things measured in different quantity units, it also takes account of the size of the market. Presumably an extra sale of 8000 tickets is more important when ticket sales arc 4000 than when they number 40000.

Thus we reach the definition of the price elasticity of demand, which economists use to measure responsiveness to price changes.

The price elasticity of demand is the percentage change in the quantity of a good demanded divided by the corresponding percentage change in its price.

Although we shall shortly introduce other demand elasticity – the cross price elasticity and the income elasticity — the (own) price elasticity is perhaps the most frequently used of the three. Whenever economists speak of the demand elasticity they mean the price elasticity of demand as it has been defined above.

If a 1 per cent price increase reduces the quantity demanded by 2 per cent, the demand elasticity is – 2. Because the quantity falls 2 per cent, we express this as a change of — 2 per cent, then divide by the price change of 1 per cent (a price rise) to obtain —2. If a price fall of 4 per cent increases the quantity demanded by 2 per cent, then the demand elasticity is — 1/2, since the quantity change of 2 per cent is divided by the price change of – 4 per cent. Since demand curve slopes down, we arc either dividing a positive percentage change in quantity (a quantity rise) by a negative percentage change in price (a price fall) or dividing a negative percentage change in quantity (a quantity fall) by a positive percentage change in price (a price rise). The price elasticity of demand tells us about movements along a demand curve and the demand elasticity must be a negative number.

For further brevity, economists sometimes omit the minus sign. It is easier to say the demand elasticity is 2 than to say it is -2. Whenever the price elasticity of demand is expressed as a positive number, it should be understood (unless there is an explicit warning to the contrary) that a minus sign should be added. Otherwise, we should be implying that demand curves slope upwards, a rare but not unknown phenomenon.