In short, markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition, monopolistic competition, oligopoly, and monopoly.
An important category of economic markets is pure competition. This is a market situation in which there are many independent and well-informed buyers and sellers of exactly the same economic products. Each buyer and seller acts independently. They depend on forces in the market to determine price. If they are not willing to accept this price, they do not have to do business.
To monopolize means to keep something for oneself. A person who monopolized a conversation, for example, generally is trying to stand out from everyone else and thus attract attention.
A situation much like this often exists in economic markets. For example, all the conditions of pure competition may be met except that the products for sale are not exactly the same. By making its product a little different, a firm may try to attract more customers and take over the economic market. When this happens, the market situation is called monopolistic competition.
The one thing that separates monopolistic competition from pure competition is product differentiation. The differences among the products may be real, or imaginary. If the seller can differentiate a product, the price may be raised a little above the market price, but not too much.
COMMENTS
3. to keep something for oneself
4. to stand out from ii/ii i
5. to attract attention
6. to take over the economic market i i
Text B
The term market, as used by economists, is an extension of the ancient idea of a market as a place where people gather to buy and sell goods. In former days part of a town was kept as the market or marketplace, and people would travel many kilometres on special market-days in order to buy and sell various commodities.
Today, however, markets such as the world sugar market, the gold market and the cotton market do not need to have any fixed geographical location. Such a market is simply a set of conditions permitting buyers and sellers to work together.
In a free market, competition takes place among sellers of the same commodity, and among those who wish to buy that commodity. Such competition influences the prices prevailing in the market. Prices inevitably fluctuate, and such fluctuations are also affected by current supply and demand.
Whenever people who are willing to sell a commodity contact people who are willing to buy it, a market for that commodity is created. Buyers and sellers may meet in person, or they may communicate in some other way: by telephone or through their agents. In a perfect market, communications are easy, buyers and sellers are numerous and competition is completely free. In a perfect market there can be only one price for any given commodity: the lowest price which sellers will accept and the highest which consumers will pay. There are, however, no really perfect markets, and each commodity market is subject to special conditions. It can be said, however, that the price ruling in a market indicates the point where supply and demand meet.
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COMMENTS
3. commodity market ;
Text C
Although in a perfect market competition is unrestricted and sellers are numerous, free competition and large numbers of sellers are not always available in the real world. In some markets there may only be one seller or a very limited number of sellers. Such a situation is called a monopoly, and may arise from a variety of different causes. It is possible to distinguish in practice four kinds of monopoly.
State planning and central control of the economy often mean that a state government has the monopoly of important goods and services. Some countries have state monopolies in basic commodities like steel and transport, while other countries have monopolies in such comparatively unimportant commodities as matches. Most national authorities monopolize the postal services within their borders.
A different kind of monopoly arises when a country, through geographical and geological circumstances, has control over major natural resources or important services, as for example with Canadian nickel and the Egyptian ownership of the Suez Canal. Such monopolies can be called natural monopolies.
They are very different from legal monopolies, where the law of a country permits certain producers, authors and inventors a full monopoly over the sale of their own products.
These three types of monopoly are distinct from the sole trading opportunities which take place because certain companies have obtained complete control over particular commodities. This action is often called cornering the market and is illegal in many countries. In the USA anti-trust laws operate to restrict such activities, while in Britain the Monopolies Commission examines all special arrangements and mergers which might lead to undesirable monopolies.
COMMENTS
4. cornering the market
5. merger ᒺ, (
U N I T 10
Text A
Most people think of demand as being the desire for a certain economic product. That desire must be coupled with the ability and willingness to pay. Effective demand, that is desire plus ability and willingness to pay, influences and helps to determine prices.
In economics the relationship of demand and price is expressed by the Law of Demand. It says that the demand for an economic product varies inversely with its price. In other words, if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high.
The correlation between demand and price does not happen by chance. For consumers price is an obstacle to buying, so when prices fall, the more consumers buy.
The demand for some products is such that consumers do care about changes in price when they buy a great many more units of product because of a relatively small reduction in price. The demand for the product is said to be elastic.
For other products the demand is largely inelastic. This means that
a change in price causes only a small change in the quantity demanded. A higher or lower price for salt, for example, probably will not bring about much change in the quantity bought because people can consume just so much salt.
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Even if the price were cut in half, the quantity demanded might not rise very much. Then too, the portion of a persons yearly budget that is spent on salt is so small that even if the price were to double7, it would not make much difference in the quantity demanded.
COMMENTS
1. to be coupled with
2. inversely i
3. by chance
4. ... the demand for the product is said to be elastic ,
5. to bring about
6. if the price were cut in half i ii
7. were to double
Text B
Elasticity of supply, as a response to changes in price, is related to demand. Economists define demand as a consumers desire or want, together with his willingness to pay for what he wants. We can say that demand is indicated by our willingness to offer money for particular goods or services. Money has no value in itself, but serves as a means of exchange between commodities which do have a value to us.
People very seldom have everything they want. Usually we have to decide carefully how we spend our income. When we exercise our choice, we do so according to our personal scale of preferences. In this scale of preferences essential commodities come first (food, clothing, shelter, medical expenses etc.), then the kind of luxuries which help us to be comfortable (telephone, special furniture, insurance etc.), and finally those non-essentials which give us personal pleasure (holidays, parties, visits to theatres or concerts, chocolates etc.). They may all seem important but their true importance can be measured by deciding which we are prepared to live without. Our decisions indicate our scale of preferences and therefore our priorities.
Elasticity of demand is a measure of the change in the quantity of
a good, in response to demand. The change in demand results from a change in price. Demand is inelastic when a good is regarded as a basic necessity, but particularly elastic for non-essential commodities. Accordingly, we buy basic necessities even if the prices rise steeply, but we buy other things only when they are relatively cheap.
COMMENTS
1. elasticity of supply
2. means of exchange
3. lasticity of demand
4. basic necessity
Text C
In economic theory, demand means the amount of a commodity or service that economic units are willing to buy, or actually buy, at a given price. In economic theory, therefore, demand is always effective demand, i.e., demand, supported by purchasing power, and not merely the desire for a particular commodity or service.
Obviously, demand is not only influenced by price, but also by many other factors, such as the incomes of the demanders and the prices of substitutes. In economic analysis, these other factors are frequently assumed to be constant. This allows one to relate a range of prices to the quantities demanded in what is called the demand function (with price as the independent and demand as the dependent variable) and to graph this relationship in the demand curve.
The demand curve is the graphical representation of the demand function, i.e., of the relationship between price and demand. It tells us how many units of a particular commodity or service would be bought at various prices, assuming that all other factors (such as the incomes of the demanders and the prices of substitutes) remain unchanged. The demand curve normally slopes downwards from left to right, which means that more is bought at low prices than at higher prices. A famous exception to the rule of a downward-sloping demand curve is the Giffen paradox. If the condition that all other factors remain unchanged is relaxed and the incomes of the demanders, for instance, are allowed to change, then the whole demand curve will shift its position.
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COMMENTS
1. purchasing power
2. demand curve
3. Giffen paradox ó
U N I T 11
Text A
Business people think of demand as the consumption of goods and services. At the same time, they think of supply as their production. As they see it, supply means the quantity of a product supplied at the price prevailed at the time. Economists are concerned with market as a whole. They want to know how much of a certain product sellers will supply at each and every possible market price. Supply may be defined as a schedule of quantities that would be offered for sale at all of the possible prices that might prevail in the market. Everyone who offers an economic product for sale is a supplier.
The law of supply states that the quantity of an economic product offered for sale varies directly with its price. If prices are high suppliers will offer greater quantities for sale. If prices are low, they will offer smaller quantities for sale. Since productivity affects both cost and supply it is important that care can be taken in selecting the proper materials. Productivity and cost must be kept in mind in order to make the best decision. It means a business must analyse the issue of costs before making its decisions. To make the decision-making process easier we try to divide cost into several different categories.
Fixed cost the cost that a business incurs even if the plant is idle and output is zero. It makes no difference whether the business produces nothing, very little, or a lot.
Fixed costs include salaries paid to executives, interest charges on bonds, rent payments on leased properties, local and state property taxes. They also take in depreciation ¾ the gradual wear and tear on capital goods over time.
Variable cost a cost that changes with changes in the business rate of operation or output.
Total cost is the sum of the fixed and variable costs. It takes in all the costs a business faces in the course of its operations.
Marginal cost the extra or additional cost incurred when a business produces one additional unit of a commodity. Since fixed costs do not change, marginal cost is the increase in variable costs, which stems from using additional factors of production.
COMMENTS
1. to be concerned with smth
2. ... care can be taken ...
3. to keep in mind
4. decision-making process
5. fixed cost
6. interest charges on ...
7. leased properties
8. wear and tear on capital goods
9. variable cost
11. marginal cost
Text B
Bananas are typical example of perishable goods1. By perishable we mean goods which cannot be stored for any length of time without going bad. Most foodstuffs are in the perishable category. Such goods are offered for sale as quickly as possible, and so the supply of perishables and the stock of perishables available at any time are usually the same in quantity.
This is not true in the case of non-perishable goods like coal, steel and cars, which do not deteriorate easily. The supply of cars in the market may not be the same as the actual stock of cars in the factories.
Economists talk about the Law of Supply, in which a rise in prices tends to increase supply, while a fall in prices tends to reduce it. If prices rise for a particular commodity, the rise will of course encourage producers to make more. On the other hand, if prices fall either locally or throughout the world, producers will reduce production. This can result in serious difficulties for many producers, and may cause them to go out of business completely. Overproduction2 of any commodity can also create difficulties, because it can lead to a glut on the market, which may cause prices to fall sharply.
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Supplies of many commodities can generally be adjusted to suit market conditions. This means that changes in prices lead to changes in the quantity of a particular commodity which is made available to consumers. Household goods and furniture belong to this category. In such instances supply is said to be elastic, because it can be increased or decreased rapidly in response to market prices.
COMMENTS
1. perishable goods ,
2. overproduction ;
3. household goods ;
Text C
In economic theory, the term supply denotes the amount of a commodity or service offered for sale at a given price. Just as in the case of demand, supply is determined also by factors other than price, the most important being the cost of production and the period of time allowed to supply to adjust to a change in prices. In economic analysis, these other factors are frequently assumed to be constant. This assumption enables supply and price to be related in what is called the supply function (with price as the independent and supply as the dependent variable) and to be graphed in the supply curve.
The supply curve is the graphical representation of the supply function, i.e., of the relationship between price and supply. It shows us how many units of a particular commodity or service would be offered for sale at various prices, assuming that all other factors (such as the cost of production, the period of time involved) remain constant. The supply curve normally slopes upwards from left to right. This indicates that, other things being equal, more is offered for sale at higher prices.
There are, however, exceptions. For example, where goods are in fixed supply, the supply curve would be a straight vertical line. Another exception is the case where a fall in prices calls forth a larger supply because suppliers fear that prices might fall still further, and where, therefore, the supply curve actually slopes downwards. If changes in the other factors are allowed, this would be reflected not in a movement along the curve, but in a shift of the whole curve.
U N I T 12
Text A
Prices play an important role in all economic markets. If there were no price system, it would be impossible to determine a value for any goods or services. In a market economy prices act as signals. A high price, for example, is a signal for producers to produce more and for buyers to buy less. A low price is a signal for producers to produce less and for buyers to buy more. Prices serve as a link between producers and consumers. Prices, especially in a free market system, are also neutral. That is, they favour neither the producer nor consumer.
Instead, they come about as a result of competition between buyers and sellers. The price system in a market economy is surprisingly flexible. Unforseen events such as weather, strikes, natural disasters and even war can affect the prices for some items. When this happens, however, buyers and sellers react to the new level of prices and adjust their consumption and production accordingly. Before long, the system functions smoothly again as it did before. This flexibility to absorb unexpected shocks is one of the strengths of a free enterprise market economy.
In economic markets, buyers and sellers have exactly the opposite hopes and intentions. The buyers come to the market larger to pay low prices. The sellers come to the market hoping for high prices. For this reason, adjustment process must take place when the two sides come together. This process almost always leads to market equilibrium a situation where prices are relatively stable and there is neither a surplus nor a shortage in the market.
COMMENTS
1. to come about
2. ... adjust their consumption and production accordingly ...
3. before long
5. a surplus
6. a shortage
at a price /at a high cost
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contract price
cost price
free-market price
pricing
purchase price
retail/wholesale price /
security price
to keep the prices down
to set/fix a price
Text B
In most economic systems, the prices of the majority of goods and services do not change over short periods of time. In some systems it is of course possible for an individual to bargain over prices, because they are not fixed in advance. In general terms, however, the individual cannot change the prices of the commodities he wants. When planning his expenditure, he must therefore accept these fixed prices. He must also pay this same fixed price no matter how many units he buys. A consumer will go on buying bananas for as long as he continues to be satisfied. If he buys more, he shows that his satisfaction is still greater than his dislike of losing money. With each successive purchase, however, his satisfaction compensates less for the loss of money.
A point in time comes when the financial sacrifice is greater than the satisfaction of eating bananas. The consumer will therefore stop buying bananas at the current price. The bananas are unchanged; they are no better or worse than before. Their marginal utility to the consumer has, however, changed. If the price had been higher, he might have bought fewer bananas; if the price had been lower, he might have bought more.
It is clear from this argument that the nature of a commodity remains the same, but its utility changes. This change indicates that a special relationship exists between goods and services on the one hand, and a consumer and his money on the other hand. The consumers desire for a commodity tends to diminish as he buys more units of that commodity. Economists call this tendency the Law of Diminishing Marginal Utility1.
COMMENTS
1. the Law of Diminishing Marginal Utility
Text C
In economics, the term price denotes the consideration in cash (or in kind) for the transfer of something valuable, such as goods, services, currencies, securities, the use of money or property for a limited period of time, etc. In commercial practice, however, it is normally restricted to the amount of money payable for goods, services, and securities. In other applications, the word rate is preferred. Interest rate1 is the price for temporary use of somebody elses money, exchange rate2 is the price of one currency in terms of another.
Price may refer either to one unit of a commodity (unit price) or to the amount of money payable for a specified number of units or for something where units are not applicable, e.g., for five tons of coal (total price) or for a specific painting by Rembrandt.
Prices perform two important economic functions: they ration scarce resources, and they motivate production. As a general rule, the more scarce something is, the higher its price will be, and the fewer people will want to buy it. Economists describe that as the rationing effect of prices. In other words, since there is not enough of everything to go around, in a market system goods and services are allocated, or distributed, based on their price.
Price increases and decreases also send messages to suppliers and potential suppliers of goods and services. As prices rise, the increase serves to attract additional producers. Similarly, price decreases drive producers out3 of the market. In this way prices encourage producers to increase or decrease their level of output4. Economists refer to this as the production-motivating function of prices.
Prices may be either free to respond to changes in supply and demand or controlled by the government or some other (usually large) organisation.
COMMENTS
1. interest rate ;
3. to drive out
U N I T 13
Text A
In order for any country to grow, it must have a large and skilled labour force. Since the size of this force is related to total population the number of people available for production activities will grow as the population grows. If the growth of population continues to decline, it eventually affect the growth of the labour force. However a labour shortage could be made up by workers from other countries.
There are four major categories of labour that are based on the general level of skills needed to do any kind of job. These categories are unskilled, semiskilled, skilled and professional or managerial.
Unskilled labour. Workers who do not have the training to operate machines and equipment fall into the category of unskilled labour. Most of these people work chiefly with their hands at such jobs as digging ditches, picking fruit, etc.
Semiskilled labour. Workers who have mechanical abilities fall into the category of semiskilled labour. They may operate electric floor polishers, or any other equipment that calls for a certain amount of skill.
Skilled labour. Workers who are able to operate complex equipment and who can do their tasks with little supervisions fall into the category of skilled labour. Examples are carpenters, typists, toolmakers.
Professional labour. Workers with high level skills such as doctors, lawyers and executives of large companies fall into the category of professional labour.
Most occupations have wage rate a standard amount of pay given for work performed.
How these rates are determined can be explained in two different ways. The first deals with supply and demand, the second recognizes the influence of unions on the bargaining process.
COMMENTS
1. a labour shortage
2. could be made up
3. to fall into
5. to call for
Text B
Money is not only a means of exchange1 but is also a means of measuring the value of mens labour. In economic theory, labour is any work undertaken in return2 for a fixed payment. The work undertaken by a mother in caring for her children may be hard work, but it receives no fixed payment. It is not therefore labour in the strict economic sense.
As a scientist, the economist is interested in measuring the services which people render to each other. Although he is aware of the services which people provide for no financial reward, he is not concerned with these services. He is interested essentially in services which are measurable in terms of money payments of a fixed and/or regular nature. In economics, money is the standard by which the value of things is judged. This standard is not a religious or subjective standard, but an objective and scientific one.
Human labour produces both goods and services. The activities of a farmworker and a nurse are very different, but both are measurable in terms of payment received. Labour in this sense is not concerned with distinctions of social class, but simply with the payment of wages in return for work. When we talk about the national labour force, however, we are thinking of all those people who are available for work within the nation, i.e.3 the working population.
It should be noted that any person engaged in private business is not paid a fixed sum for his activities. He is self-employed4 and his activities are partly those of an employer5 and partly those of an employee6. If however he employs an assistant, to whom he pays a fixed wage, his new employee provides labour in return for payment. He receives his wages, while his employer receives the surplus (large or small) from the whole business. This surplus is the reward of private enterprise and is known as profit7.
