ГЛАВА_3_СТУДЕНТЫ

3

CHAPTER 3

DEMAND AND SUPPLY

1. Key terms – matching and translation.

Read aloud the key term and its definition so that they make up a single sentence. (Remember about the agreement between the subject and the predicate!). Translate the sentences you have arrived at from English into Russian.

Set 1

1 market	A consumer's subjective value from having a bit more of a good.
2 supply pries	Right-hand gloves and left-hand gloves.
3 ceteris paribus	Goods for which demands increase as income decreases.
4 marginalism	Coffee and tea.
5 market price	The view that rational decision makers weigh the costs and benefits of the last extra bit of an activity.
6 complementary goods	Mechanism that enables buyers and sellers to transact.
7 substitute goods	Beef and leather.
8 inferior goods	The minimum payment that will induce a bit more production.
9 demand pries	Must be in accord with consumers’ subjective evaluations before they will purchase a good.
10 joint product	“All other influences are held constant”.

Set 2

1 substitution effect	Relationships between quantities demanded and price are negative.
2 law of demand	When neither shortages nor surpluses exist in a market.
3 change in quantity demanded	Extra units of a good add declining amounts of satisfaction.
4 income effect	Adjustments people make solely because relative prices change.
5 change in demand	Occurs when prices are below equilibrium.
6 law of supply	Effect on a demand curve when the price of a substitute changes.
7 surpluses	People's adjustments when price changes alter purchasing power.
8 equilibrium	Quantities supplied are positively related to price.
9 shortage	A movement along a demand curve.
10 diminishing marginal utility	Caused when prices are artificially held above equilibrium.

2. Text translation.

Translate the text from English into Russian in writing paying particular attention to the translation of the economic terms in bold as well as words and phrases relevant to the subject of the text. Read out your translation in class and introduce the necessary corrections.

DEMAND AND SUPPLY

Chapter Objectives

After you have read and studied this chapter you should be able to explain the concept of marginalism in decisionmaking; explain the laws of demand and supply; describe the major determinants of demand and supply, and also show how they can respectively cause the demand and supply curves to shift; and show what is meant by a market equilibrium and explain how it is achieved.

Chapter Review: Key Points

1. Rational decision making is governed by evaluations of the relative benefits and costs of incremental or marginal changes.

2. The law of demand. People buy less of a good per period at high prices than at low prices. Demand curves slope downward and to the right, and show the quantities demanded at various prices for a good.

3. Changes in market prices cause changes in quantity demanded. There is a change in demand (the demand curve shifts) when there are changes in influences other than a good's own price. These determinants include:

a) tastes and preferences;

b) income and its distribution;

c) prices of related goods;

d) numbers and ages of buyers;

e) expectations about prices, income, and availability;

f) taxes, subsidies, and regulations.

4. Consumers buy more of a good per period only at lower prices because of:

a) The substitution effect— the cheaper good will now be used more ways as it is substituted

for higher priced goods;

b) Diminishing marginal utility – consuming the additional units ultimately does not yield as

much satisfaction as consuming previous units, so demand prices fall as consumption

rises;

c) The income effect—a lower price for any good means that the purchasing power of a

given monetary income rises.

5. The law of supply. Higher prices cause sellers to make more of a good available per period. The supply curve shows the positive relationship between the price of a good and the quantity supplied. Supply curves generally slope upward and to the right because:

a) diminishing returns cause opportunity costs to increase;

b) to expand output, firms must bid resources away from competing producers or use other

methods (such as overtime) that increase cost;

c) profit incentives are greater at higher prices.

6. In addition to the price paid to producers of a good, supply depends on:

a) the number of sellers;

b) technology;

c) resource costs;

d) prices of other producible goods;

e) producer's expectations; and

f) taxes, subsidies, and regulations.

7. Changes in prices cause changes in quantities supplied, while changes in other influences on production or sales of goods cause shifts in supply curves that are termed changes in supply.

8. When markets operate without government intervention, prices tend to move towards market equilibrium so that quantity supplied equals quantity demanded. At this point, the demand price equals the supply price.

9. When the market price of a good is below the intersection of the supply and demand curves, there will be shortages and pressures for increases in price. If price is above the intersection of the supply and demand curves, there will be surpluses and pressures for reduction in price.

10. Supply and demand are largely independent in the short run.

3. Vocabulary practice: switching.

Get ready for an oral (written) translation exercise based on the economic terms in bold, as well as other relevant words and phrases from the text.

Regulations; в некоторой точке; intersection of the curves; давление в сторону понижения цены; surplus; в краткосрочном периоде; overtime; marginalism; достичь рыночного равновесия; to govern rational decision making; относительныe выгоды\преимущества;

incremental changes; покупать больше\меньше товара за определенный период; law of demand ; покупать по высоким\низким ценам; demand curve; to slope downward\upward;

отклоняться вправо; товар по более высокой цене; marginal changes; быть заместителем чего-либо; diminishing marginal utility; приносить удовлетворение; related good; в конечном счете; profit incentive; цена спроса; consumption; покупательная способность дохода; supply curve; доход в денежном выражении; positive relationship; увеличивать выпуск продукции; producible goods; изменение факторов, влияющих на производство; income effect; приводить к сдвигу кривых предложения; government intervention; работать\функционировать без государственного вмешательства; opportunity costs; демонстрировать тенденцию к движению в сторону рыночного равновесия; равняться ч-л; quantity demanded; цена на товар; diminishing returns; изменение спроса; major determinants; фактор, оказывающий влияние; law of supply; вкусы и предпочтения; income distribution; наличие; substitution effect.

4. Translation from page.

Translate from page the passage expanding on the subject of the text.

EXPECTATIONS AND OPPORTUNITY COSTS

Many people think that only "objective" costs such as the quan­tity of physical resources used in production truly affect production costs, but expectations and other subjective or psychological factors also frequently alter costs. For example, fear of an "energy crisis" grows whenever major oil-produc­ing regions become embroiled in conflicts. Iraq's invasion of Kuwait quickly pushed up oil prices; gaso­line prices rose an average of 30 cents per gallon within days.

Many American drivers viewed this as evidence of unethical profi­teering by U.S. oil companies. After all, how can the cost of gasoline already stocked in a service station's storage tank be affected by events thousands of miles away? But firms dealing with storable goods have alternatives to sell now or later. Gasoline sold today is not available for sale at a later date at a potentially higher price. Thus, expected price hikes imme­diately raise the opportunity costs of goods sold today.

The Iraqi invasion of Kuwait cre­ated expectations of price hikes that immediately raised the oppor­tunity cost of oil, and thus reduced the supply of gasoline. Many U.S. oil companies did gain from this conflict—their inventories increased in value immediately, just as homeowners gain when housing prices climb. But did con­sumers necessarily lose because of "profiteering"?

When dealers raised prices, the amount of gasoline drivers demanded fell. This conserved fuel and consequently increased the supply of gasoline available in those later periods when higher gasoline prices were expected. (Incorrectly, as it turned out.) This enforced form of conservation, though unpleasant from the short-run vantage point of drivers, undoubtedly contributed to cuts in gas prices in early 1991. 1483 digits