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1. Tell in a few words what the theory of demand and supply is.

2. Imagine you are a Product Manager of a computer corporation. Two years ago the goods of your company were sold in large amount on the market. Now your sales are very poor. Think what you can do to increase sales.

3. How do you understand the expression УWhere there is demand, there is supplyФ?


ѕри ответе используйте фразы:


To my mind Е In my experience Е
In my opinion Е As far as I understand Е
On the one hand, Еon the other hand From my point of view Е
If my memory serves me right Е If I am not mistaken Е
It seems to me that Е Personally, I think Е
My personal view is that Е I am sure/certain/convinced that Е
The fact is that Е This proves that Е
It is obvious that Е There is no doubt that Е



Part 3


ќтветьте на нижеприведенное письмо. »спользуйте раздел Ђѕолезные фразы дл€ написани€ письмаї приведенный в конце пособи€.


    05.02.2011 Sergey Sakharov RusInvestment ltd. 12 Prospect Mira, Moscow, Russia, 425450     Dear Mr. Sakharov,   We are glad to send you the information on the forthcoming Detroit Auto Show exhibition that will take place on 11 - 24 March 2011 upon your request (see the attached file). You will have opportunity to see new models and concept cars and make investments to develop concept cars for future sale.   Please let us know if you would like to take part in this event so that we could send you the invitation letter to get the visa ready and book a room at the hotel.   Also we would like to you to let us know what group discussion you would like to take part in: - Investment in Concept Cars; - Investment in Car Market; - Hybrid Automobiles Investment;     Best regards, Stuart Field Chiefe Executive of Detroit Auto Show 16 West Street, Detroit, USA    

Unit 4

Part 1

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Market failure

Pollution can be a simple example of market failure. If costs of production are not borne by producers but are by the environment, accident victims or others, then prices are distorted.

The term "market failure" encompasses several problems which may undermine standard economic assumptions. Although economists categorise market failures differently, the following categories emerge in the main texts.

Natural monopoly, or the overlapping concepts of "practical" and "technical" monopoly, is an extreme case of failure of competition as a restraint on producers. The problem is described as one where the more of a product is made, the greater the unit costs are. This means it only makes economic sense to have one producer.

Information asymmetries arise where one party has more or better information than the other. The existence of information asymmetry gives rise to problems such as moral hazard, and adverse selection, studied in contract theory. The economics of information has relevance in many fields, including finance, insurance, contract law, and decision-making under risk and uncertainty.

Incomplete markets is a term used for a situation where buyers and sellers do not know enough about each other's positions to price goods and services properly. Based on George Akerlof's article, the paradigm example is of a dodgy second hand car market. Customers without the possibility to know for certain whether they are buying a "lemon" will push the average price down below what a good quality second hand car would be. In this way, prices may not reflect true values.

Public goods are goods which are undersupplied in a typical market. The defining features are that people can consume public goods without having to pay for them and that more than one person can consume the good at the same time.

Externalities occur where there are significant social costs or benefits from production or consumption that are not reflected in market prices. For example, air pollution may generate a negative externality, and education may generate a positive externality (less crime, etc.). Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the price distortions caused by these externalities. Elementary demand-and-supply theory predicts equilibrium but not the speed of adjustment for changes of equilibrium due to a shift in demand or supply.

In many areas, some form of price stickiness is postulated to account for quantities, rather than prices, adjusting in the short run to changes on the demand side or the supply side. This includes standard analysis of the business cycle in macroeconomics. Analysis often revolves around causes of such price stickiness and their implications for reaching a hypothesized long-run equilibrium. Examples of such price stickiness in particular markets include wage rates in labour markets and posted prices in markets deviating from perfect competition.

Macroeconomic instability, addressed below, is a prime source of market failure, whereby a general loss of business confidence or external shock can grind production and distribution to a halt, undermining ordinary markets that are otherwise sound.

Some specialised fields of economics deal in market failure more than others. The economics of the public sector is one example, since where markets fail, some kind of regulatory or government programme is the remedy. Much environmental economics concerns externalities or "public bads".

Policy options include regulations that reflect cost-benefit analysis or market solutions that change incentives, such as emission fees or redefinition of property rights.


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