It in 1829 when he was only twenty-three) and Principles of Political Economy with Some of Their

Applications to Social Philosophy (1848). The latter was intended to be a comprehensive review of

the field of economic theory at the time, and was, in fact, an up-to-date version of Adam Smith’s

Wealth of Nations. It succeeded so well that it remained the basic textbook for students of economics

until the end of the century. The work is regarded as the apogee of the classical school of Adam

Smith, Ricardo, Malthus and Say. Mill himself said the book had nothing in it that was original,

and indeed it is basically an eclectic work, intended simply to bring together the works of others.

However, it is not true to say that Mill lacked originality altogether. He analysed the forces

which lead to increasing returns to scale, arguing that as a result there will be a tendency for industries

to become more and more concentrated in a few firms. The advantages this gave should be set

against the disadvantages that will accrue in the form of higher prices from the loss of competition.

Recognition of this tendency led him to support strike action by trade unions. Trade unions were

a necessary counterweight to the powerful employer (Galbraith, J. K.).

In his exposition of the theory of value, Mill showed how price is determined by the equality of

demand and supply, although he did not demonstrate the relationship by means of graphs or schedules.

Mill recognized as a distinct problem the case of commodities with joint costs. He showed

also how reciprocal demand for each other’s products affected countries’ terms of trade. Mill brought

in the idea of elasticity of demand (though the actual expression was invented later by Marshall) to

analyse various alternative trading possibilities. His father had suggested that rent, being a surplus

according to Ricardian theory, was ideally suited to taxation. John Stuart took up this idea, and it

became quite popular. Mill proposed that all future increases in unearned rents should be taxed.

Commentary and Notes to Text 5.7.1.3

1. utilitarianism — утилитаризм (философ.)

2. prolific writer — плодовитый писатель

3. ratiocinative — система логики с использованием силлогизмов в рассуждениях

4. returns to scale — прибыль от масштаба

5. to accrue — увеличиваться

6. counterweight to — противовес

7. in one’s exposition — в чьем-либо изложении (толковании)

8. joint cost — совместная стоимость

9. reciprocal demand — взаимный спрос

10. surplus — избыток

5.7.1.4. Read the text “Pricing Issues in Marketing” and name the main issues in setting prices,

■ your opinion.

Pricing Issues in Marketing

Pricing is one of the most difficult areas of marketing decision making. Although price is an

important element of the marketing mix, one which can send many signals to the customer about

the quality and benefits of a particular good or service, final price decisions in many organizations

are made by accounting and finance staff rather than marketing professionals.

When setting prices, it is particularly important for marketers to be aware of the market envir

onment, including the prices set by competitiors. Price sensitivity is a vital issue, as is an awareness

of how prices need to change to reflect different stages of the product life cycle. Costs are an

important element of price, but they need to be balanced by an awareness of issues such as sens

itivity; good price-setting strategies can also be used to reduce costs, particularly in the area of

transfer pricing. Marketers and accountants need to rethink the traditional relationship between

price and cost.

In an international setting, pricing across borders poses further problems for the pricing decision

maker, particularly as to whether to homogenize prices across a geographical area or to set

local prices which reflect local market sensitivity. The value or a good or service as perceived by the

customer is for most firms their major, if not their only, source of competitive advantage; and price

is one of the most important components of that value. Prices must be set with a focus on the

customer, not on costs.

77

Vocabulary Notes to Text 5.7.1.4

1. to homogenize price — сделать цены однородными

2. price sensitivity — чувствительность цены

3. to perceive — воспринимать

4. competitive advantage — конкурентное преимущество

5.7.1.5. Read the text “Policy of Restraining Prices as Practice of Regulating Wages” for ten

minutes and answer the question: What does the practice of price freezing lead to?

Policy o f Restraining Prices as Practice o f Regulating Wages

A policy of restraining price or wage increases by regulated limits on the increases that are

allowed. The persistent upward trend in prices during the post-war period led the Organization for

Economic Cooperation and Development to recommend incomes policy as a tool of economic

management in 1962. In most developed countries, it was used in some form or another to counter

the problem of stagflation that emerged in the 1970s. Sometimes it was used in conjunction with

price controls.