Economics. Demand, supply, and elasticity

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
720151

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.

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
makro- and 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

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

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.

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