HOW THE MARKET ECONOMY WORKS

The central function of every economic system is to allocate its limited resources to satisfy the needs and desires of its people. The amount of goods produced depends upon the amount of resources available and on many other factors. At the same time, the people in a society have a great variety of needs and wants. Some of these, such as the need for food and shelter, always exist. Others, such as the desire to own particular style of clothing, continually change. Economies generally try to maintain a balance between the goods and services available from their producers (supply) and the needs and wants of their customers (demand).

Demand is the quantity of goods or services consumers are willing and able to buy at a given price. Usually the quantity demanded changes as price changes, and we can use a demand curve to represent this change. The demand curve is a graphic representation of the relationship between various prices sellers charge for goods or services and the amount of those goods or services buyers will desire to buy at a certain price. Each point along the curve represents a different price-quantity combination. A demand curve slopes downward from left to right, reflecting the fact that the quantity of a product demanded varies inversely with the price. This is called the law of demand. (See fig. 1)

Fig.1 Demand curve

Supply is the quantity of goods or services marketers are willing and able to sell at a given price at a given period of time. The supply curve graph­ically represents the amount of goods or services marketers will supply at various prices. A supply curve shows that as prices become more attractive to suppliers (marketers), those suppliers will try to provide more of the good or service. Each point along the curve represents a different price-quantity combination. A supply curve slopes upward from left to right, reflecting the fact that the quantity of a product supplied varies directly with the price. This is called the law of supply. (See fig.2)

Fig.2 Supply curve

The intersection of the supply and demand curves determines the equilibrium price and the equilibrium quantity. Thus, at any price above the equilibrium price, the quantity supplied exceeds the quantity demanded and the price tends to fall. At any price below the equilibrium price, the quantity demanded exceeds the quantity supplied and the price tends to rise. At the equilibrium price, the quantity supplied precisely equals the quantity demanded, and hence there is no tendency for the price to change. (See fig.3)

Fig. 3 Equilibrium point

TEXT 7

Read and translate the following terms: peak, boom, recession, expansion, unemployment rate, downturn, depression, trough, upturn. Read the text and be ready to explain what each of them means.

Поиск по сайту: