4. Check your prepositions. Insert a suitable preposition in each of the blanks in these sentences

1. He is interested __ economics.

2. He is not concerned __ non-essential commodities.

3. The demand __ bananas will probably increase.

4. The supply __ cigarettes does not usually fluctuate.

5. The consumers' need __ such a commodity is well known.

6. There was a change __ the quantity of material supplies.

7. He paid quite a lot of money __ that car.

8. He paid the money __ that man.

9. Non-essential commodities like chocolates cannot be compared __ basic commodities like fuel.

5. Find in the text English equivalents for the following

підвищувати/знижувати доходи від...; установлювати ціну; основний, визначальний фактор; у кінцевому рахунку, в остаточному підсумку; виконувати приблизно ту ж функцію; сорт; упасти на... %; основні товари (товари першої необхідності); господарські товари тривалого користування; попит на деякі товари; одинична еластичність попиту

6. Answer the questions

1. Explain when demand is elastic, inelastic or unit-elastic.

2. How do consumer tastes determine the demand elasticity?

3. What considerations are likely to effect consumer responses to changes in the price of a good?

4. Illustrate the consideration of the demand elasticity according to the case of substitution on the part of buyers by the example of cigarettes.

5. State the interdependence between the scale of definition a commodity and the price elasticity of demand.

6. Think why the demand for going out Saturday nights may be relatively inelastic to the price of the activities.

7. Give your own examples of an elastic and inelastic demand.

7. Translate using all the active possible

1. Зниження цін може підвищувати доходи від продажів при еластичному попиті чи знижувати доходи при нееластичному попиті. В остаточному підсумку питання еластичності попиту стає основним визначальним фактором при встановленні (2 варіанти) ціни.

2. У випадку, якщо ціна на 1-й сорт якого-небудь товару підвищується на... %, а ціни на інші сорти залишаються незмінними, покупці надають перевагу іншим, більш дешевим, сортам товару, оскільки вони в основному виконують приблизно ту ж функцію. Легкість заміни одних товарів іншими припускає високу еластичність попиту.

3. Попит на деякі категорії товарів першої необхідності нееластичний. До цих товарів відносяться паливо, продукти харчування, господарські товари тривалого користування. Структура купівельного попиту домашніх господарств не припускає широкомасштабних змін.

Unit 14

A MODEL OF THE ECONOMY

Economists spend a lot of time trying to develop models of the working of the economy. The London Business School, like many universities and also the Treasury, has a model of the economy, which it has entered into a computer. The reason for this is that much of its work is concerned with forecasting future economic trends so as to aid decision-making by business and government. The London Business School's model can be fed with economic information, such as changes in tax rates, and it will then predict how the economy will behave. Such predictions are an invaluable aid to business decision-making because, for example, businesses can find out whether people's incomes are likely to rise or not.

The complete economy comprises many millions of economic units. There are households, as one kind of unit. There are also firms, and the departments of both central and local government. These units together decide the economy's total spending. They also decide its total income and its total level of production of goods and services. But in order to develop a simple model of the economy we need to ignore the government sector and the possibility of transactions between households and foreigners. Suppose we are dealing with an isolated economy, one that has no government. Let's assume that there are two main sectors in the economy: households and firms. Households supply firms with the factors of production that firms need to carry on their concerns.

Thus, households provide labour services, both skilled and unskilled, in return for the payment of wages. They may also supply land for which they are paid rent. Finally, they might supply the finance, which is essential to the business. If the finance is in the form of a loan they receive interest payments, but if they have purchased shares in the business they may be entitled to a share of the profits. Most households provide some factor services or services of productive factors, to a public or private business. Anyone at work is providing labour, and if you or someone in your family has bought shares in the privatization programme (in, for example, British Gas, British Telecom or the water authorities) then they have supplied share capital. Households receive payments for these factor services, that is to say, they earn factor incomes, such as wages, rents and profits.

The other part of our simple model portrays firms supplying households with all the goods and services that they require. In return for these the households pay the firms. These two sets of actions create the model of the circular flow of money.

In fact, there are two flows. One that is monetary and one comprising goods and services. A flow of factor services from households to firms for which there is an opposite stream of factor payments and a flow of goods and services, which households pay firms. It is this monetary flow in which we are most interested.

What does it suggest? It suggests that there are three ways of measuring the amount of economic activity in the economy. First, we can measure the value of goods and services produced; second, we can measure the level of factor earnings. These factor earnings represent the value of factor services supplied. Third, we can measure the value of spending on goods and services. Then, economists refer to the size of the monetary circular flow as the level of national income.

If we assume that all the goods and services, which are produced, are in fact sold and that households spend all their income, then we have arrived at what economists call a neutral equilibrium. The level of income, which is spent and received by the two groups, will not alter since as one group receives it, they spend it with the other.

The fact that the economy is in a neutral equilibrium means simply that the level of national income, and hence the level of economic activity, are stable and unchanging. (Equilibrium is a point of balance in which there is no inherent tendency to change). If the economy was in equilibrium it does not mean that everyone who wants a job has one or that the country is importing exactly the same value of goods and services as it is exporting.