Economics. 
Demand, supply, and elasticity

Федеральное агентство по образованию Государственное образовательное учреждение высшего профессионального образования Тульский государственный университет Факультет Экономики и права Реферат по дисциплине «Английский язык»

«Economics. Demand, supply, and elasticity»

Выполнил Чернышова Д.В.

группы 720 151

Научный руководитель Камаева Л.С.

Тула, 2007

Contents

Introduction 3

1. Economics 4

2. Demand, supply, and elasticity 8

Summary 11

List of literature 12

Introduction

Economics is the ancient science. Economics is the method and the instrument of thinking. It is helps us to come to a right conclusion. It always attracts attention of scientific and educated people. Today the interest for economics is growing.

Although for many people concern for the economy goes no further than the price of tuition or the fear of losing a job. Many others, however, know that their job prospects and the prices they pay are somehow related to national trends in prices, unemployment, and economic growth.

The scope of economics is indicated by the facts with which it deals. These consist mainly of data on output, income, employment, expenditure, interest rates, prices and related magnitudes associated with individual activities of production, transportation and trade.

1. Economics

As a scholarly discipline, economics is two centuries old. The first scientist who made extraordinary contributions in economics was Adam Smith. At the age of 28 Adam Smith became Professor of Logic at the University of Glasgow. Some time later he became a tutor to a wealthy Scottish duke. Then he received a grant and with the financial security of this grant, Smith devoted 10 years to writing his work «The Wealth of Nations» which economic science. It was published in 1776. His contribution was to analyze the way that markets organized economic life and produced rapid economic growth. Almost a century later, as capitalist enterprises began to spread, there appeared the massive critique of capitalism: Karl Marx’s «Capital». Marx proclaimed that capitalism was doomed and would soon be followed by business depressions, revolutionary upheavals and socialism.

In 1936 John Maynard Keynes published «The General Theory of Employment, Interest and Money». Economics was supposed to help government monetary and fiscal policies to tame the worst ravages of business cycles.

Economics is the study of how society allocates scarce resources and goods. Resources are the inputs that society uses to produce output, called goods. Resources include inputs such as labor, capital, and land. Goods include products such as food clothing, and housing as well as services such as those provided by doctors, repairmen, and police offices. These resources and goods are considered scarce because of society’s tendency to demand more resources and goods than are available.

Most resources are scarce, but some are not — for example, the air we breathe. Its price is zero. It is called a free resource or good. Economics, however, is mainly concerned with scarce resource and goods, as scarcity motivated the study of how society allocates resources and goods.

The term market refers to any arrangement that allow people to trade with each other. The term market system refers to the collection of all markets, also to the relationships among these markets. The study of the market system, which is the subject of economics, is divided into two main theories; they are macroeconomics and microeconomics.

Macroeconomics

The prefix macro means large, indicating that macroeconomics is concerned with the study of the market system on a large scale. Macroeconomics considers the aggregate performance of all markets in the market system and is concerned with the choices made by the large subsectors of the economy — the household sector, which includes all consumers; the business sector, which includes all firms; and the government sector, which includes all government agencies.

Microeconomics

The prefix micro means small, indicating that microeconomics is concerned with the study of the market system on a small scale. Microeconomics considers the individual markets that make up the market system and is concerned with the choices made by small economic units such as individual consumers, individual firms, or individual government agencies.

The distinction between makroand microeconomics is a matter of convenience. In reality, macroeconomics outcomes depend on micro behaviour, and micro behaviour is affected by macro outcomes.

Economic Policy

An economic policy is a course of action that is intended to influence or control the behavior of the economy. Economic policies are normally implemented and administered by the government. The goals of economic policy consist of value judgements about what economic policy should strive to achieve. While there is some disagreement about the appropriate goals of economic policy, there are three widely accepted goals including:

1. Economic growth: It means that the incomes of all consumers and firms (after accounting for inflation) are increasing over time.

2. Full employment: It means that every member of the labor force who wants to work is able to find work.

3. Price stability: It means to prevent increases in the general price level known as inflation, as well as decreases in the general price level known as deflation.

Economic analysis

Opportunity cost is the important concept in economic analysis. The opportunity cost of a decision or choice that one makes is the value of the highest valued alternative that could have been chosen but was instead forgone. For example, suppose that you is faced with several ways of spending an evening at home. The choice made is to study English (perhaps because there is an English test tomorrow). The opportunity cost of this choice is the value of the highest valued alternative to the time spent studying English. While there may be many alternatives to studying English — making a date, watching TV, talking on the phone — there is only one alternative that has highest value. In this example, the alternative with highest value depends on one’s own preferences. Say, it may be making a date. It would be considered the opportunity cost of studying English. There is also a fundamental assumption used in many economic models ceteris paribus. It is Latin for «all else being equal».

Common pitfalls in economic analysis

There are two «pitfalls» that should be avoided when conducting economic analysis: the fallacy of composition and the false-cause fallacy. The fallacy of composition is the belief that if one individual or firm benefits from some action, all individuals or all firms will benefit from the same action. While this may in fact be the case, it is not necessarily so. Suppose a hairdresser’s decides to lower the prices it charges on all its services. It believes the lower prices will attract customers away from other hairdressers'. If, however, the other hairdressers' follow suit and lower their prices by the same amount, then it is not necessarily true that all hairdressers' will be better off; while more people may choose to cut their hair, each hairdresser’s will receive less money per client, and each hairdresser’s market share is unlikely to change. Hence the profits of all hairdressers' could fall.

The false-cause fallacy often arises in economic analysis of two correlated actions or events. When one observes that two actions or events seem to be correlated, it is often tempting to conclude that one event has caused the other. But by doing so, one may be committing the false-cause fallacy, which is the simple fact that correlation does not imply causation. For example, suppose that new tape-recorder prices have steadily increased over some period of time and the new tape-recorder sales have also increased over this same period. One might then conclude that an increase in the price of new tape-recorders causes an increase in their sales. This false conclusion is an example of the false-cause fallacy; the positive correlation between the two events does not imply that there is any causation between them. In order to explain why both events are taking place simultaneously, one may have to look at other factors — for example, rising consumer incomes, inflation, or rising producer costs.

2. Demand, supply, and elasticity

In every market, there are both buyers and sellers. The buyers' willingness to buy a particular good (at various prices) is referred to as the buyers' demand for that good. The sellers' willingness to supply a particular good (at various prices) is referred to as the sellers' supply of that good.

Reasons for a change in demand

It is important to keep straight the difference between a change in quantity demanded, and a change in demand. There is only one reason for a change in the quantity demanded of some good: a change in its price; however, there are several reasons for a change in demand for the good, including:

1. Changes in the price of related goods: the demand for a good may be changed by increases or decreases in the prices of the other, related goods. These related goods are usually divided into two categories called substitutes (for example, butter and margarine) and complements (for example, shoes and shoelaces).

2. Changes in income: the demand for a good may also be affected by changes in the incomes of buyers. Normally, as incomes rise, the demand for a good will usually increase at all prices, and vice versa. Goods for which changes in demand vary directly with changes in income are called normal goods. There are some goods, however, for which an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand. Goods for which changes in demand vary inversely with changes in income are called inferior goods. For example, consider meat and bread. As incomes increase, people demand relatively more meat and relatively less bread, implying that meat may be regarded as a normal good, and bread may be considered an inferior good.

3. Changes in preferences: as peoples' preferences for goods and services change over time, the demand for these goods and services will also shift. For example, as the price for gasoline has risen, automobile buyers have demanded more fuel-efficient, «economy» cars, and fewer gas-guzzling, «luxury» cars.

4. Changes in expectations: if buyers expect that they will have a job for many years to come, they will be more willing to purchase goods such as cars and homes that require payments over a long period of time. If buyers fear losing their jobs, perhaps because of an adverse economic climate, they will demand fewer goods requiring long-term payments.

Supply

The buyers' demand for goods is not the only factor determining market prices and quantities. The sellers' supply of goods and services also plays a role in determining market prices and quantities. According to the law of supply, a direct relationship exists between the price of a good and the quantity supplied of that good. A change in supply is not caused by a change in the price of the good being supplied; that would induce a change in the quantity demanded. A change in supply is caused by other factors, including:

1. Changes in the prices for other goods: suppliers are often able to switch their production processes from one type of good to another. For example, farmers might decide to grow less corn and more wheat on the same land if the price of wheat rises relative to the price of corn.

2. Changes in the prices of inputs: the prices of the raw materials or inputs used to produce a good also cause supply to change. An increase in the prices of a good’s inputs will raise costs to suppliers and cause them to supply less of that good at all prices.

3. Changes in technology: advances in technology often have the effect of lowering the costs of production, allowing suppliers to supply more goods at all prices. For example, the development of pesticides has reduced the amount of damage done to certain crops and therefore has reduced the cost of farming. The result has been an increase in the supply of these crops at all prices.

Equilibrium

Earlier we have examined the demand decisions of buyers and the supply decisions of sellers, separately. However, in the market for any particular good, the decisions of buyers interact simultaneously with the decisions of sellers. When the demand for a good equals the supply of the good, the market for the good is said to be in equilibrium. Associated with the market equilibrium will be an equilibrium quantity and an equilibrium price.

Elasticity

In addition to understanding how equilibrium prices and quantities change as demand and supply change, economists are also interested in understanding how demand and supply change in response to changes in prices and incomes. The responsiveness of demand and supply to changes in prices or incomes is measured by the elasticity of demand or supply.

If the percentage change in quantity demanded is greater than the percentage change in price, demand is said to be price elastic, or very responsive to price changes. If the percentage change in quantity demanded is less than the percentage change in price, demand is said to be price inelastic, or not very responsive to price change. Similarly, supply is price elastic when the percentage change in quantity supplied is greater than the percentage change in price, and supply is price inelastic when the percentage change in quantity supplied is less than the percentage change in price. The price elasticity of demand or supply will differ among goods.

Summary

In this report I consider terms «economics», «macroeconomics», «microeconomics», «economic policy», «demand», «supply» and others.

Economics is the study of how society allocates scarce resources and goods. Resources are the inputs that society uses to produce output, called goods. The subject of economics is divided into two main theories; they are macroeconomics and microeconomics. Macroeconomics considers the aggregate performance of all markets in the market system and is concerned with the choices made by the large subsectors of the economy — the household sector, which includes all consumers;

Microeconomics considers the individual markets that make up the market system and is concerned with the choices made by small economic units such as individual consumers, individual firms, or individual government agencies.

An economic policy is a course of action that is intended to influence or control the behavior of the economy. There are goals of economic policy:

1. economic growth;

2. full employment;

3. price stability.

Opportunity cost is the important concept in economic analysis. The opportunity cost of a decision or choice that one makes is the value of the highest valued alternative that could have been chosen but was instead forgone.

In every market, there are buyers and sellers. The buyers' willingness to buy a particular good (at various prices) is referred to as the buyers' demand for that good. The sellers' willingness to supply a particular good (at various prices) is referred to as the sellers' supply of that good.

It is important to keep straight the difference between a change in quantity demanded, and a change in demand. There is only one reason for a change in the quantity demanded of some good: a change in its price; however, there are several reasons for a change in demand for the good, including:

1. changes in the price of related goods;

2. changes in income;

3. changes in preferences;

4. changes in expectations.

The law of supply: a direct relationship exists between the price of a good and the quantity supplied of that good. A change in supply is caused by factors, including:

1. changes in the prices for other goods;

2. changes in the prices of inputs;

3. changes in technology:

When the demand for a good equals the supply of the good, the market for the good is said to be in equilibrium.

I think studying economics is very important for people. Economics is the study of how society allocates resources and goods. If people know what economics, economic policy, economic analysis are they understand the economic processes.

List of literature

1. Дюканова Н. М. Английский язык для экономистов: Учеб.пособие. — М.: ИНФРА-М, 2006. — 320 с.

2. Большой англо-русский экономический словарь / Составители С. С. Иванов, Д. Ю. Кочетков. — М.: ЗАО Центр-полиграф, 2005. — 620 с.