Studying the theory of demand we can assume that there is a relationship between price, income and quantity, but this assumption itself cannot allow us to see how much the quantity demanded is affected by a price change for a good or an income change. This relationship varies from one good to another.
One of the most important of these relationships is income elasticity of demand. The income elasticity of demand is to show how much the quantity demanded depends on changes in income if other factors are constant. The income elasticity is the percentage change in quantity following one-percent change in income if other factors are constant.
The coefficient is mainly positive as with the income increased a consumer buys more of most products, and when the income decreases, the quantity demanded falls.
The income elasticity for food in the United States is about 0,2. A few goods such as dry beans have negative income elasticities. If elasticity is above zero, the product is called a normal good, if elasticity is below zero, the product is an inferior good.
True or false statements:
1. The relationship between price, income and quantity demanded is constant for all goods.
2. The income elasticity of demand shows how much the quantity demanded changes with changes in income.
3. The income elasticity of demand is expressed in percent.
4. The coefficient may be positive and negative.
5. Income elasticity works in opposite directions for normal and inferior goods.
TEXT D
Read the text and answer the questions given below:
Price Elasticity of Demand and Supply
There is a relationship between demand and price. How much demand for a commodity is affected by a change in price is called elasticity of demand. If a small change of price results in a large change in demand, the demand is called elastic, if the demand changes only a little, it is called inelastic. The price elasticity of demand coefficient is negative as demand usually falls with a rise in price.
The price elasticity of supply shows the percentage change in the quantity supplied resulting from a one-percent change in price.
As an increase in the quantity supplied is normally a result of a rise in price, the coefficient is usually positive. We have a 0 (zero) elasticity when a price change results in no quantity supplied change. This is called a perfectly inelastic supply. Provided the elasticities vary between zero and one, the supply is called elastic. The percentage change in quantity is larger than the corresponding percentage change in price.
Agricultural supply is mostly inelastic because of the high proportion of such inputs as land, buildings, and machinery. The elasticities of agricultural commodities (potatoes, wheat, fruits, eggs, milk) vary greatly. Because of increasing specialization of production of farm animal products, in particular, elasticities for such commodities as pigs or broilers have decreased in recent years.
Answer the questions:
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1. Which demand is called elastic?
2. In what units is elasticity of supply shown?
3. Why is the price elasticity of demand coefficient negative and the corresponding coefficient for supply positive?
4. What supply is called inelastic?
5. What is the difference between the inelastic and the perfectly inelastic supply?
6. Why is agricultural supply usually inelastic?
7. What is the tendency of agricultural supply development?
Part II
Topic 1: What Is Accounting?
Text
The study of accounting begins with the understanding of the way in which accountants see the business enterprise. Accountants frequently refer to a business organization as an accounting entity or a business entity. A business entity is any business organization such as a hardware store or grocery store that exists as an economic unit. As an economic unit, the business enterprise acquires, organizes and transforms factors of production in its activity of producing goods and services. This activity may be presented as the following:
| The input factors (land, buildings, equipment, material, labour) | _____ | are combined and transferred into | _____ | an output flow of goods and services |
The accounting interpretation is an abstraction of the reality portrayed above. The business enterprise is viewed as a system of monetary flow, instead of a system of physical flows. In accounting, business activities are associated with transactions and, indeed, are limited to transactions. Thus, unless there is a transaction there is no observable business activity.
A transaction occurs whenever the firm enters into a legal contract for the acquisition of means of production or the sale of goods and services. Business activities which do not lead to transactions remain unrecognized in accounting. Transactions involving the acquisition of factors of production lead either to an outflow of money immediately or an obligation to pay money at a later date. Transactions by which the firm sells goods or services lead to an inflow of money or the right to receive money at a further analysis of these transactions.
First, transactions between the firm and its markets both its supply markets and its selling markets are defined as external transactions. The totality of external transactions forms the subject matter of financial accounting. General purpose of financial statements (reports) is to provide most of the information needed by external users of financial accounting. These financial statements are formal reports providing information on a business entitys financial position (solvency), cash inflows and outflows, and the results of operations (profitability). Financial accounting information is historical in nature, reporting on what has happened in the past. Hence, the external users rely on relevant and reliable financial statements to make present decisions about future events.
Second, transactions within the firm, consisting of the exchanges which occur between the various departments are defined as internal transactions. The totality of internal transactions forms the subject matter of cost or managerial accounting. Managerial accounting information provides special information for the managers of a business entity. The kind of information used by managers may range from very broad, long-range planning data to detailed explanation of why actual costs varied from costs estimates. The purpose of managerial accounting is to generate information that a manager can use to make sound internal decisions.
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Vocabulary Exercises
I. Name the word-building elements in the given words and translate them:
To manage manageable managing management manager managerial; entrepreneur entrepreneurial entrepreneurship; to produce produce producer product production productive productively productiveness productivity; profit profitability profitable profiteer profiteering profitless.
II. Find equivalents:
1. study of accounting .
2. business organization .
3. enterprise .
4. factors of production .
5. input .
6. output .
7. transaction .
8. means of production .
9. financial accounting .
10. managerial accounting . ,
III. Match the terms with its definitions:
1. accounting a. quantity goods and services produced or provided
a business organization or economy.
2. cash flow b. a person who manages financial or economic matters.
3. cost c. the factors of production required by an organization
to enable it to provide its outputs.
4. economist d. the principles and practice of systematically recording,
presenting and interpreting financial accounts.
5. accountant e. the amount of money it has to spend in order to
produce goods and services for sale.
6. factor of production f. the movement of money into and out of a business, as
a measure of profitability, or as affecting liquidity.
7. inputs g. a person who is to keep and examine business accounts.
8. output h. an input such as land or any natural resources, labour,
capital, and entrepreneurship.
IV. Answer the questions:
1. What does the study of accounting begin with?
2. In what way may the activity of an organization be presented?
3. What is business activity associated with in accounting?
4. When does a transaction occur?
5. What business activities are recognized in accounting?
6. How can transactions be classified?
7. What is financial accounting?
8. What is managerial accounting?
