Supply, demand and market prices

market economy - ринкова економіка to ration - розподіляти, нормувати, видавати rationing effect - раціональний вплив items for sale - товари для продажу price increase / decrease – зростання / зниження ціни

the level of output - рівень виробництва the law of demand - закон попиту quantity of goods and services - кількість товарів і послуг elasticity - еластичність; гнучкість

Market economies are directed by prices. Prices ration scarce resources and motivate production. The scarcer something is, the higher its price will be, and the fewer people will want to buy it. Economists describe this as the rationing effect of prices. Prices encourage producers to increase or decrease their level of output (the production-motivating function of prices). In a free market economy, prices are determined by the interaction of the forces of supply and demand.

Demand is a consumer's willingness and ability to buy a product or service at a particular time and place. The law of demand describes the relationship between prices and the quantity of goods and services that would be purchased at each price. It says that all else being equal, more items will be sold at a lower price than at a higher price.

The degree to which price changes affect demand will depend upon the elasticity of demand for a particular item. If total revenue increased following a price decrease, demand would be elastic. If the price decrease led to a decrease in total revenue, the demand for the item would be inelastic. This can happen because of one or more of the following reasons: the goods and services are necessities; it is difficult to find substitutes; they are relatively inexpensive; it is difficult to delay a purchase.

Sometimes things happen that change the demand for an item at each and every price. When this occurs, we have an increase or a decrease in demand.

Supply varies directly with price. At a higher price, more goods and services will be offered for sale than at a lower one, and vice versa.

The price at which goods and services actually change hands is known as the equilibrium, or market price. It is the point at which the quantity demanded exactly equals the quantity supplied. Market price can be represented graphically as the point of intersection of the supply and demand curves.

Shifts in demand or supply will affect market price. When everything else is held constant, an increase in demand will result in an increase in market price, and vice versa. Similarly, an increase in supply will result in a decrease in price, and vice versa.

The market price is the only price that can exist as long as there are perfect competition conditions:

a) buyers and sellers have full knowledge of the prices quoted in the market;

b) there are many buyers and sellers so that no individual or group can control prices;

c) the products are identical with one another;

d) buyers and sellers are free to enter or leave the market at will.

 

I. Give English equivalents of the following:

еластичність; вартість продукції; взаємодія; закон пропозиції; закон попиту; кількість товарів і послуг; зміни в постачанні; ринкова ціна; товари для продажу; рівень виробництва

II. Fill in the gaps with: prices; sellers; demand; tables and graphs; consumers; market

1 Economists often use... to illustrate and explain their work. 2 Market economics are directed by.... 3... is a consumer's willingness and ability to buy a product or service at aparticular time and place. 4 Buyers and sellers have full knowledge of the prices quoted in the.... 5 In some countries prices are set by the.... 6 Many... who are concerned about the environment are refusing to buy soft drinks in plastics.

ІІІ. Answer the questions:

1 What is the rationing effect of prices? 2 What are the functions of prices? 3 How are prices determined in a free market economy? 4 What causes prices to rise and fall in a market economy? 5 What is demand? 6 What does the law of demand describe? 7 When is demand described as elastic or inelastic? 9 What is supply? 10 What is equilibrium or market price?

ІV. Translate into English:

1 Ціни управляють ринковою економікою. 2 Ціни спонукають виробників до збільшення або зниження рівня випуску товарів. 3 У вільній ринковій економіці ціни визначаються взаємодією чинників пропозицій і попиту. 4 Ціна, за якою фактично продають товари та послуги, називається ринковою ціною. 5 Зміни в попиті та пропозиції впливатимуть на ринкові ціни. 6 Ринкова ціна – єдина, яка може існувати протягом певного часу в умовах цілковитої конкуренції. 7 Попит – це бажання та спроможність споживача купити товар чи послугу в певний час і в певному місці.