Reading demand and supply

DEMAND AND SUPPLY

DISCUSSION 1. What do business people think of demand and supply?

2. What is effective demand?

"You can make even a parrot into a learned political economist - all he must learn are the two words 'supply' and 'demand'.' (Anonymous)

Demand refers to the quantity of a good that potential purchasers would buy, or attempt to buy, if the price of the good were at a certain level. But demand does not mean the quantity that potential purchasers wish they could buy. Demand is what would be the actual attempt to buy at a given price. Demand might be satisfied, and so actual quantities bought would equal demand. On the other hand, some demand might be unsatis­fied, with more would-be purchasers trying to buy a good that is in insuffi­cient supply, and so there are not enough units of the good to go around.

The total quantity demanded is referred to as the market demand. The following factors influence the total market demand for a good:

• the price of a good. Demand is higher at lower prices;

• the price and availability of substitute goods - i. e. goods, which might be bought instead;

• the price and availability of complements - i. e. goods, which are usually bought in conjunction with the good;

• the size of household income - i. e. how much money consumers have to spend. In some cases, the cost and availability of credit, e.g. with spending on credit cards;

• tastes, fashions, attitudes towards a good;

• consumer expectations about future market conditions (e.g. expected price rises or supply shortages);

• the distribution of income among the population - i. e. how wealth is spread among the population. For example, is there a large number of

PART I. ECONOMICS

very poor people living at a subsistence level? Is there a large affluent middle class, etc.?

Supply refers to the quantity of a good that existing suppliers or would-be suppliers would want to produce for the market at a given price. In this context, and usually in economics, the term "good" includes services as well as tangible products. The quantity of a good that can be supplied to a market varies up or down, either because existing suppliers increase or reduce their output quantities, or firms stop producing altogether and leave the market, or new firms enter the market and begin producing goods.

If the quantity that firms want to produce at a given price exceeds the quantity that purchasers would demand, there would be an excess of sup­ply, with firms competing to win what sales demand there is. Over-supply and competition would then be expected to result in price-competitiveness and a fall in prices.

The quantity supplied of a good depends on:

• the price obtainable for the good. Firms will want to supply more at higher prices;

• the price of other goods. An increase in the price of other goods would make the supply of a good whose price does not rise less attractive to suppliers;

• the cost of making the good, which in turn depends on the prices of fac­tors of production - i. e. wages, interest rates, land rents and profit expectations. A rise in the price of one factor of production (say labour), will cause producers to shift away from supplying goods whose costs and profits are closely related to the price of labour, towards the supply of goods where the cost of labour is less significant;

• changes in technology. Technological developments which reduce costs of production (and increase productivity) will raise the quantity of sup­ply of a good;

• changes in the weather may affect the availability of supply (e.g. agri­cultural goods).

The factors that affect supply can be summarized briefly as prices and costs, and so profits.

• CCABULARY demand - попит

. ~ES supply - пропозиція

attempt - спроба

market demand - ринковий попит substitute goods - товар-замінник complements - супутні товари shortage -дефіцит

subsistence level - рівень заробітної плати, що забезпечує тільки прожитковий мінімум affluent - багатий, заможний tangible product - матеріальний продукт excess - надлишковий

EXERCISES

Answer the following questions:

1. What does demand mean in economic theory?

2. What does the term supply mean in economic theory?

3. What factors is demand influenced by?

4. Whom do we call supplier?

5. What does the quantity supplied of a good depend on?

6. What factors affect supply?

ЛІТ 5. DEMAND AND SUPPLY

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3?

II. Problem pairs. These pairs of words often cause problems. Choose the correct alternative for each.

1. SUBSIDY/SUSIDIARY

a) ASCO Communications is losing money and wants the government to give it a

b) Our head office is in New York and we own 70% of a manufacturing______ in

Boston.

2. POLICY/POLITICS

a) Conrad has been sacked! People are saying he's a victim of internal______.

b) If we want to convince the public that we care for the environment, we need to change our on dumping waste into the local river.

3. COMPLIMENTARY/COMPLEMENTARY

a) We got some___ tickets for the big golf tournament through their corporate

hospitality programme.

b) We got some very___ remarks from the people who came to the golf tournament

through our corporate hospitality programme.

4. NOTE/NOTICE

a) He left a___ on my desk saying he would be late for the meeting.

b) He put a___ on the board in the main corridor saying that the meeting had been

postponed to 3 o'clock.

5. MORAL/MORALE

a) ___ has been at rock bottom ever since they announced the job cuts.

b) When a company sacks such a huge number of people, it's not just an economic
question; it becomes a____ question as well.

6. SAFETY/SECURITY

a) The___ officer has just been round the site with his dog checking the locks and

cameras.

b) The___ officer insists on all employees wearing the right kinds of protective

clothing at all times.

7. TRAVEL/TRIP

a) Andrew is doing too much business_____ and wants to cut the number of visits to

foreign clients next year.

b) However, he still has to make one very important_____ to the agent in Singapore.

III. Match each term in Column A and its definition in Column B.

Column A	Column В
1. demand	a) Anyone who uses goods or services.
2. the Law of Demand	b) Good or service consumption of which is seen as essential in order to maintain a minimum standard of living in a society.
3. consumer	c) Everyone who offers an economic product for sale.
4. price	d) Costs that increase as the number of units produced increase.
5. purchasing power	e) Explains how much a change in price affects the quantity demanded.
6. supply	f) Costs that remain the same regardless of the amount of business done by a firm.
7 the Law of Supply	g) The value of a unit of money measured in terms of what it can buy.
8. supplier	h) The graphical representation of the demand function.
9. total costs	i) Money value of goods or services.
10. fixed costs	j) Number of items offered for sale at each of several prices.
11. marginal cost	k) A consumers willingness and ability to buy a product or service at a particular time and place.
12. necessity	1) The sum of the fixed and variable costs.
13. variable costs	m) Sellers will offer more of a product at a higher price and less at a lower price.

PART I. ECONOMICS

• ttt-— і - -	curve	n) The additional cost of producing an extra unit of output.
	- rces	о і A state of balance, for example when supply meets demand.
.	"	p) Government or central bank measures concerning the rate of growth of the money supply (the amount of money in circulation).
:■-	[	q) Government measures concerning taxation, public expenditure, and so on.
: -±-.i	: лсу	r) Supply and demand.

IV Match the words below into pairs that mean the same.

Boost, companies, costs, error, excess, expenditure, expenses, forms, flexible, increase, lower, mistake, output, production, raise, reduce, spending, stimulate, surplus, variable.

V Match the words below into pairs of opposites.

Boom, buoyant, consuming, contraction, cut, deflate, demand, depression, flexible, growth, increase, rigid, saving, sluggish, stimulate, supply.

VI. Check your grammar.

the + comparative... the + comparative

e.g. the sooner the better

Make sentences using this construction, like this:

much money to invest - a high return

The more money you have to invest, the higher the return you can expect.

1. to produce goods and services - to enjoy a high standard of living

2. a high standard of living - ea lot of expenditure on luxury items

3. wide advertising - high sales

4. high prices for some goods - low sales

5. a great demand - high prices - much profit

6. injections into the economy - the size of the circular flow of income and the level of the activity in the economy increase

7. the severe inflation - the rise in the general price level - the fall in the purchasing power

VI. Translate the sentences paying attention to the italicised words.

1. Demand for raisins has exceeded supply this month.

2. The demand for bread is inelastic because it is a necessity.

3. It is impossible to satisfy all their demands.

4. They demanded that the decisions should be revised.

5. Children are so demanding: they need constant attention.

6. The workers are demanding higher wages.

7. This work demands much accuracy.

8. Good accountants are always in demand.

9. The worker's demands for higher pay were rejected.

10. He is in great demand as an actor.

VII. Writing Practice. Make a short summary about demand and supply from the above text. Use the opening phrases from Appendix 1.

LTNIT 5. DEMAND AND SUPPLY

UNIT 6.

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