Demand is not fixed, but varies with changing conditions. The demand for silk stockings has been completely altered by the invention of nylon fiber, and the demand for bicycles in advanced nations has been greatly reduced by the development of motor vehicles. The chief factors affecting demand may be divided into the factors affecting the individual consumer or family of consumers and those factors affecting the total demand of the whole market.

Factors Affecting the Demand of Households.

a) The Tastes of the Households. Every family is different, and even members of the same family have different preferences. We may demand goods because they satisfy innate wants; or because they are fashionable; or because we have been convinced by advertising that they are desirable. The demand for all such goods will rise, and the demand for goods which are not to our taste or less well promoted will decline.

b) The Income of the Household. Family income is always decisive as to whether a commodity is demanded or not. Many families own a car, some own two cars, and many are resigned to the fact that they will never be in the car-buying income range.

c) The Necessity of the Commodity, and its Alternatives if Any. Some goods are demanded by everyone because they are necessities. Some goods become necessities because they are habit-forming, like tobacco and alcohol. Where a commodity has alternatives it is not a necessity, but the alternative must be in the same price range.

d) The Price of Other Goods. If the price of a commodity is high compared with the price of other goods the demand for it will be relatively weak. If the goods are close substitutes for one another (for instance, motor cycles and motor scooters), the price of one will be seriously affected by a lower price of its competitor.

Factors Affecting the Total Market Demand.

a) The Size and Structure of the Population.

If there are many people to be fed, clothed, and housed demand will tend to be strong, especially if the population is able to back its “wants” with purchasing power. The structure of the population will influence demand for particular items. A bulge in the birthrate for any reason will alter demand as the children born develop through to maturity. In the early years the demand for children's clothes, toys, etc., will be increased. Gradually the increased demand will change to school books and games equipment, later to cosmetics and motor cars. Finally, an increased demand for wheelchairs and bearing aids may result.

b) The Distribution of Income among the Population.

Some societies are so organized that classes of rich and poor persons appear. Others are organized to achieve greater equality of wealth. A progressive system of taxation, which taxes the rich to help the poor, is often used to achieve greater equality. Market demand will be stronger in egalitarian societies than in those where obvious inequalities exist, for the mass of the people there can back their “wants” with purchasing power.

The Consumer's Scale of Preferences.

The result of these conditions often called the determinants of demand, is a scale of preferences for each customer. High on each consumer's scale of preferences come the things he needs most or likes best. Lower on the scale come things he will buy if income permits, once all the more satisfying items have been purchased. The scale changes with the pressure of daily events. We all know of things we have been meaning to buy for years, but somehow their purchase eludes us because more pressing requirements prevent them reaching the top of our scale of preferences. Every consumer subconsciously has a personal demand schedule for each class of goods, which reflects his individual attitudes and inclinations. This schedule takes for granted that the only thing that has changed to alter the demand is the price of the commodity. All other conditions of demand, like family income, or personal taste, or fashion, have not changed. The phrase “ceteris paribus” (“other things being equal”) is often used in economics to describe a situation where only one aspect of situation is deemed to be changed.

Supply. The responses that entrepreneurs make to the demands of consumers bring on to the market a wide variety of goods and services.

The total quantity of a good, or service, made available to the general public as a result of the business decisions of the entrepreneurs in the industry is called the supply of that good or service.

Factors Affecting Supply.

a) The Price of the Commodity.

The price of the commodity affects the prospect of profitability of an enterprise. Every entrepreneur is assumed in economics to be engaged in production in order to achieve maximum profit. He must certainly achieve a normal return on capital invested, or there is no incentive at all to stay in the industry. Good prospects of profitability will encourage him to come in and produce the supplies required. He will expand the production of his enterprise until output reaches such a level that profit is at a maximum.

b) Conditions of Supply.

They are the costs of production, the state of technological development (the more advanced the technology, the greater the flood of supplies that pours on to the market), natural influences (hurricanes, tornadoes, hail, frost, and drought disrupt output) and abnormal political influences (war, strikes, civil unrest, government interference prevent the normal activities of production).

Thus, we must note that just as want is the basis of demand, the prospect of profitability is the basis of supply; and just as consumers vary in their demand for goods, suppliers vary in their ability to supply. This is shown in the Laws of Supply and Demand summarized as follows:

1. When the price of a commodity falls the quantity that is demanded will be increased.

2. When the price of a commodity rises the quantity that is supplied will be increased.

3. Prices will adjust to that level which equates demand and supply.

4. All increased supply lowers market price and causes an extension of demand.

5. A decreased supply raises market price and causes a reduction of demand.

6. A decreased demand lowers price and also brings about a reduction of supply.

7. An increased demand raises price and also brings about an extension of supply.

TASKS

I. Give the English equivalents to:

Спрос и предложение, покупательная способность, товары и услуги, предприниматель, прибыльность (рентабельность) предприятия, вложенный капитал, расширять производство, поставщики.

II. Give one word from the text which matches the following definition:

A thing used instead of something else; things that are desired; any article that can be bought and sold; a person who buys goods; a person who buys goods that he will use himself; the amount of a particular good or service that will be bought by consumers at a given price; all the money coming in to an individual or a business firm.

III. Explain in your own words:

1. The population is able to back its “wants” with purchasing power.

2. Many families will never be in the car-buying income range.

3. Every entrepreneur must achieve a normal return on capital invested.

4. The great flood of supplies pours onto the market.

IV. Answer the following questions:

1. What is the demand for a particular good or service? Distinguish “demand” from “want”.

2. What is the supply of particular goods or services? What motivates an entrepreneur to supply a commodity or service?

3. What are the determinants of demand and supply?

4. What is the basis of a scale of preferences?

5. What are the seven laws of demand and supply?

V. Are the following statements true or false? Correct the false ones:

1. Man's wants and demands are unlimited.

2. Price is decided by the interaction of demand and supply.

3. Demand is set.

4. If there is an alternative to a commodity, then it is no longer a necessity.

5. The price of a substitute cannot seriously affect the price of a good.

6. A progressive system of taxation strengthens the purchasing power of consumers.

7. The least preferred items are put on the top of the scale of preferences.

8. Even when a good is free, the amount wanted will be limited.

9. Supply describes the behavior of buyers.

VI. Explain what will happen to the demand for apples if:

1. Workers get a 10% pay raise.

2. The price for oranges and pears has fallen.

3. A health report is published saying that apples should be part of everyone's diet.

VII. Explain what will happen to the supply of apples if:

1. Workers on farms growing apples get a 10% pay raise.

2. A new type of tree is introduced which produces 50% more apples per acre of apple orchard.

3. The price of pears doubles and stays very high over a number of years.

4. The apple crop is ruined by bad weather.

VIII. Here are some of the laws of supply and demand. Read them very carefully and correct the mistakes where necessary:

1. When the price of a commodity falls the quantity that is demanded will also fall.

2. When the price of a commodity rises the quantity that is supplied will increase.

3. A decreased supply lowers market price.

4. An increased demand raises price and brings about an extension of supply.

IX. Fill in the gaps with the words below:

Free, supply, quantity, fall, purchase, produce, supply, price, rise, quantity

Demand is not a particular __1__ such as six bars of chocolate, but rather a full description of the __2__ of chocolate the buyer would __3__ at every __4__ which might be charged. Even when chocolate is __5__ only a limited amount will be wanted. As the price of chocolate __6__ the quantity demanded __7__ other things being equal. Chocolate cannot be __8__ for nothing. Nobody would wish to __9__ if they received a zero price. Thus, __10__ is the quantity of a good sellers wish to sell at each conceivable price.

X. Render the text in English:

Спрос на некий товар - это количество товара, которое покупатели желают приобрести за некоторый период. Спрос зависит от цены данного товара и прочих факторов, включающих цены других товаров, в особенности альтернативных товаров, а также доходы покупателей и их вкусы. Предложение товара - это количество товара, которое продавцы желают продать за некоторый период. Объем предложения зависит от цены товара и других факторов, прежде всего от цен используемых в производстве ресурсов и имеющихся в распоряжении продавцов производственных технологий. Цена на конечный продукт должна быть достаточно высокой, чтобы покрывать расходы и давать прибыль. Если не будет перспективы прибыли, никто не начнет производство. Как видим, цена играет ведущую роль в модели «спрос - предложение». Как правило, при прочих равных условиях объем спроса на товар увеличивается, когда цена товара падает, и уменьшается, когда цена растет.

WANTS AND UTILITIES

The study of economics begins with understanding human wants. By “want” the economist means the endless succession of material “wants” which are displayed by all living things. Everyone needs air, food, and water to support life. If we live in some climates we need clothing and shelter from the weather. Everyone needs a home to call his own; some territory which is his, by right.

Even when we have these basic “needs”, other more advanced “wants” present themselves. We want comfortable homes, entertainment, education, and transport. As the things we want increase in variety and become more and more sophisticated, the economy becomes more intricate too, until thousands of men are cooperating in different countries to produce the raw materials, designs, and specialized machinery which are necessary for a single thing we “want” - such as an aeroplane or a motor vehicle.

Everyone has an individual scale of preferences, a ladder-like arrangements of things in one's own mind with the most preferred items towards the top of the scale. Some things never climb up the scale higher than the first few rungs, for they are constantly leapfrogged by other unexpected items. Every father of a family can think of things, often quite essential things, which he has been meaning to buy for years, but repeatedly has to reject for other items which the children need if they are to make the progress he wishes them to make.

What is it that decides the position of an item on a consumer's scale of preferences? The answer is that preferences are based upon the consumers' view of utility of a particular good.

Utility is the ability to satisfy wants. The basic needs of mankind are called wants, the means of satisfying these wants are called utilities. The purpose of an economy is to create utilities which will satisfy mankind's wants.

Total utility is the total satisfaction we derive from the possession of a commodity. Usually total utility will continue to rise as we acquire more and more of the same goods. This would certainly be true, for example, of a collector's acquisition of antiques. It might not be quite so true of a smoker's purchases of cigarettes. There might come a point with many commodities where total utility had reached a maximum and a further supply would be a positive nuisance.

Marginal utility is the utility of one unit of a good or service. In fact we have to value it in imaginary “units of satisfaction”. Take the housewife buying bread. Her usual daily supply is two loaves, and each of these loaves will have great utility but the first loaf more than the second.

Diminishing marginal utility sets in as soon as the first loaf is bought; each extra loaf is valued less and less. Another loaf may have negative utility and be a cause of dissatisfaction. We may say then that diminishing marginal utility sets in very soon after we have purchased a normal supply. How does the housewife choose a balanced supply of goods and services? By comparing in her mind the marginal utilities of a further unit of various goods and services, one with another, and choosing the ones which will maximize her family's satisfaction.

The production of utilities. Satisfaction can be achieved in two ways: by the enjoyment of goods or the enjoyment of services. Goods are tangible items which either satisfy the basic requirements of human life or make that life fuller and richer. Common examples are foods, clothing, housing, furniture, books, television sets, and motor cars. The actual point of satisfaction occurs when we consume the food, or beverage, wear the clothing, make use of the furniture, and so on, so that the name consumer goods is usually applied to these tangible utilities. There is another class of goods, called producer goods. These are goods which do not yield personal satisfaction to consumers but are part of the capital assets of production. A drilling machine, or an assembly line in a factory, are examples of producer goods.

Services are intangible “utilities”, which satisfy our needs by personal attention. The dentist who extracts a painful tooth; the surgeon who sets a broken leg; the television personality who brightens an otherwise dull evening; or the hairdresser who prepares us for a social occasion are examples of people offering personal service. As with goods, there is a class of services which is not directly personal in this way, but forms part of the productive organization. Such services are commercial services; trade, banking, transport, insurance, and communications are the chief examples.

The whole purpose of production, which makes use of producer goods and commercial services in the course of its activities, is to create utilities by providing an endless flow of consumer goods and personal services. In order to achieve this production of utilities the resources available to mankind must be mobilized. These resources are called the factors of production.

TASKS

I. Answer the following questions:

1. What does an economist mean by “want”? Is there a difference between “need” and “want”?

2. What is a scale of preferences?

3. What is the basis of a scale of preferences?

4. What is utility?

5. What is the purpose of economy according to the concept of utility?

6. What are the differences between marginal and total utility?

7. How do you choose “your” supply of goods and services?

8. What are producer goods?

9. What are tangible goods?

10. What are the factors of production?

II. Match the terms with their definitions:

1. Utility	A. goods that satisfy personal need rather than those required for the production of other goods
2. Consumer goods	B. total satisfaction derived from the possession of a commodity
3. Wants	C. the ability to satisfy wants
4. Total utility	D. the utility of one unit of a commodity
5. Marginal utility	E. the basic needs of people

III. Translate the words and word combinations:

Потребительская корзина, удовлетворять потребности, средства, поучать, иерархия потребностей, предельная полезность, общая полезность, уменьшающаяся предельная полезность.

IV. Are the following statements true or false? Correct the false ones:

1. If total utility reaches a maximum, a further supply is a positive nuisance.

2. A drilling machine, or an assembly line in a factory are examples of tangible items.

3. Total utility rises while marginal utility always falls.

4. Consumers base their choice of a supply of goods on the total utility they can obtain.

5. Utility is a subjective concept.

V. Render in the text English:

В экономической теории под полезностью понимается удовлетворение, получаемое потребителем от товаров и услуг, которые он покупает. Представление потребителя о полезности того или иного товара определяет его положение на индивидуальной шкале предпочтений. Поскольку ни один потребитель не может себе позволить все, что ему хочется, то он оказывается перед лицом выбора благ, которые он может позволить себе приобрести. Так выстраивается индивидуальная иерархия потребностей.

Совокупная полезность - это полное удовлетворение, которое мы получаем от обладания товаром. Предельная полезность представляет собой прирост совокупной полезности в результате потребления дополнительной единицы данного блага. Как правило, предельная полезность является убывающей, что означает, что предельная полезность тем меньше, чем большим количеством блага потребитель уже обладает.

VI. Give a summary of the text.

MARKET

A market is where buyers and sellers transact business for the exchange of particular goods and services and where the prices for these goods and services tend toward equality. In order for a market to “clear” or function properly, the quantity of goods and services demanded and supplied must be equal at some given price. At any particular point in time, markets can be in “equilibrium” or “disequilibrium” depending on whether or not aggregate supply equals aggregate demand at the prevailing price. Markets may differ in scope and do not necessarily require buyers and sellers to meet or communicate directly with each other. Business may be transacted through the use of intermediaries as well.

There are two fundamental dimensions of market definition: (i) the product market, where products group together, and (ii) the geographic market, where geographic areas group together. Market definition takes into account both the demand and supply considerations. On the demand side, products must be substitutable from the buyer's point of view. On the supply side, sellers must be included who produce or could easily switch production to the relevant product or close substitutes. Market definition generally includes actual and potential sellers, that is, firms that can rapidly alter their production processes to supply substitute products if the price so warrants. The rationale for this is that these firms will trend to dampen or curb the ability of firms in the market to raise price above the competitive level.

The location of buyers and sellers will determine whether the geographic market is local, regional, national or international. The exchange of goods and services in the world, or global, market is known as international trade. There are three main benefits to be gained from this type of exchange.

First, international trade makes scarce goods available to nations that need or desire them. When a nation lacks the resources needed to produce goods domestically, it may import them from another country. For example, Saudi Arabia imports automobiles; the United States - bananas; and Japan - oil.

Second, international trade allows a nation to specialize in the production of those goods for which it is particularly suited. This often results in increased output, decreased costs and a higher national standard of living. Natural, human and technical resources help determine which products a nation will specialize in. Saudi Arabia is able to specialize in petroleum because it has the necessary natural resource; Japan is able to specialize in the production of televisions because it has the human resources required to assemble the numerous components by hand; and the United States is able to specialize in the computer industry because it has the technical expertise necessary for design and production.

There are two economic principles that help explain how and when specialization is advantageous. According to the theory of absolute advantage, a nation ought to specialize in the goods that it can produce more cheaply than its competitors or in the goods that no other nation is able to produce. According to the theory of comparative advantage, a nation ought to concentrate on the products that it can produce most efficiently and profitably. For example, a nation might produce both grain and wine cheaply, but it specializes in the one which will be more profitable.

The third benefit of international trade is its political effects: nations that trade together develop common interests which may help them overcome political differences. Economic cooperation has been the foundation for many political alliances, such as the EC (Common Market) founded in 1957.

TASKS

I. Match the terms with their definitions:

1. Equilibrium	A. an individual acting as a link between persons or companies
2. Aggregate supply	B. prices now current in the market
3. Aggregate demand	C. a state of balance when all the economic forces present in a situation have an equal influence and there is no tendency to change
4. Prevailing price	D. the total amount of goods and services resulting from adding together all the spending power of people in the complete economy of a country
5. Intermediary	E. the amount of an economic good that will be offered for sale in the market at a certain price or time
6. Substitute	F. the proportion of the total demand (for a product) that is supplied by a particular manufacturer
7. Market share	G. a thing that replaces or can be used in place of something

II. Answer the following questions:

1. What is a market?

2. When does a market function properly?

3. What are the key points of market definition?

4. How do markets differ in scope?

5. What benefits can be gained from international trade?

6. Why is specialization advantageous?

7. What political changes can economic cooperation lead to?

8. How can we balance market growth and development with conservation of natural resources and protection of the environment?

III. Are the following statements true or false? Correct the false ones:

1. A market is where sellers raise or fix prices and reduce output in order to increase profits.

2. A market functions properly if the quantity of goods and services demanded and supplied is equal at some given price.

3. When a market is in disequilibrium, aggregate supply equals aggregate demand at the prevailing price.

4. Markets are all similar in scope. There are only local markets, where buyers and sellers must meet and communicate directly with each other.

5. To define a market, all you need is to identify the number of companies and products available in the market.

6. Market definition takes into account supply and demand.

7. In defining a market, potential sellers are not considered.

8. Specialization brings about a rise in both output and costs.

9. According to the theory of comparative advantage, a nation should focus on the goods that it can produce more cheaply than its competitors.

10. Economic cooperation is the best way to solve political problems.

IV. Render the following sentences in English:

- Рынок - это механизм, обеспечивающий осуществление обменных операций между продавцом и покупателем.

- Для нормального функционирования рынка необходимо состояние равновесия, когда совокупный спрос равен совокупному предложению.

- В определении рынка учитываются два аспекта: продукция и географическая территория, на которой она реализуется.

- Если фирма является единственным продавцом того или иного вида продукции, она может поднять цены с целью максимизации прибыли.

V. Give a summary of the text.

MARKETS AND MONOPOLIES

A monopoly is a situation where there is a single seller in the market. In conventional economic analysis, a monopoly is taken as the polar opposite of perfect competition. By definition, the demand curve facing the monopolist is the industry demand curve, which is downward sloping. Thus, the monopolist has significant power over the price it charges, i.e. is a price setter rather than a price taker.

Comparison of a monopoly and perfect competition*^* Perfect (pure) competition is the complete form of competition. It is the market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of the product. reveals that the monopolist will set a higher price, produce a lower output and earn above normal profits (sometimes referred to as monopoly rents). This suggests that consumers will face a higher price, leading to a loss. In addition, income will be transferred from consumers to the monopoly firm.

The preceding arguments are purely static and constitute only part of the possible harm resulting from monopoly. It is sometimes argued that monopolists, being largely immune from competitive pressures, will not have the appropriate incentives to minimize costs or undertake technological change. Moreover, resources may be wasted in attempts to achieve a monopoly position. However, a counter argument advanced is that a degree of monopoly power is necessary to earn higher profits in order to create incentives for innovation.

Monopolies can only continue to exist if there are barriers to entry. Barriers which sustain monopolies are often associated with legal protection created through patents and monopoly franchises. However, some monopolies are created and sustained through strategic behavior or economies of scale. The latter are natural monopolies which are often characterized by steeply declining long-run average and marginal costs and the size of the market is such that there is room for only one firm to exploit available economies of scale or duplication of facilities would be wasteful.

Monopsony. A monopsony consists of a market with a single buyer. When there are only a few buyers, the market is defined as an oligopsony. In general, when buyers have some influence over the price of their inputs they are said to have monopsony power.

Natural monopoly. A natural monopoly exists in a particular market if a single firm can serve that market at lower cost than any combination of two or more firms. Natural monopoly arises out of the properties of productive technology, often in association with market demand, and not from the activities of governments or rivals. Generally speaking, natural monopolies are characterized by steeply declining long run average and marginal-cost curves such that there is room for only one firm to fully exploit available economies of scale and supply the market.

Oligopoly. An oligopoly is a market characterized by a small number of sellers who realize they are independent in their pricing and output polices. The number of sellers is small enough to give each seller some market power.

An oligopoly is distinguished from perfect competition because each seller in an oligopoly has to take into account their independence; from monopolistic competition because firms have some control over price; and from monopoly because a monopolist has no rivals, in general, the analysis of oligopoly is concerned with the effects of mutual interdependence among firms in pricing and output decisions.

There are several types of oligopoly. When all sellers are of (roughly) equal size, the oligopoly is said to be symmetric. When this is not the case, the oligopoly is asymmetric. One typical asymmetric oligopoly is the dominant firm. An oligopoly industry may produce goods which are homogeneous (undifferentiated) or may produce goods which are heterogeneous (differentiated).

The analysis of oligopoly behavior normally assumes a symmetric oligopoly, often a duopoly. Whether the oligopoly is differentiated or undifferentiated, the critical problem is to determine the way in which the firms act in the face of their realized independence.

TASKS

I. Give the English equivalents to:

Естественная монополия, средние издержки, предельные издержки (краткосрочного/долгосрочного периода), монопсония, олигопсония, производственная технология, экономия от масштаба, совершенная конкуренция, однородные/неоднородные товары, научно-технический прогресс, дуополия, барьеры входа.

II. Match the terms with their definitions:

1. Barriers to entry	A. a market with a single buyer who has some influence over the price of his output
2. Franchise	B. factors which prevent the entry of new firms into an industry
3. Economies of scale	C. a situation when a single firm can serve a particular market at lower cost than any combination of two or more firms
4. Monopsony	D. a situation when the average costs per unit of output decrease with an increase in the size of the output produced by a firm
5. Natural monopoly	E. a market consisting of two sellers
6. Duopoly	F. a market with a few buyers
7. Oligopsony	G. privileges

III. Answer the following questions:

1. What is a monopoly?

2. What is the difference between a monopoly and perfect competition?

3. Who sets prices in a monopolistic market?

4. What are the results of monopolistic behavior in a market?

5. Under what conditions does a monopoly continue to exist?

6. What are the main types of monopolies?

7. What are the distinctive features of a natural monopoly?

IV. Do the following tasks:

1. Describe a monopoly from the standpoint of conventional economic analysis.

2. Compare a monopolistic market to a normal competitive environment.

3. List all the arguments against monopolies and counter arguments in favor of monopolies.

4. Describe the conditions under which monopolies continue to exist.

5. List all kinds of monopolies and describe in what way they differ from each other.

V. Render the text in English:

Монополия характеризуется наличием одного-единственного продавца конкретного товара на рынке. Продавец обладает монопольной властью, если он может повышать цену на свою продукцию путем ограничения своего собственного объема выпуска. Монополистической конкуренции свойственны черты как монополии, так и совершенной конкуренции. Монополистическая конкуренция - это совершенная конкуренция плюс дифференциация продукции. В условиях монополистической конкуренции, как и в условиях совершенной конкуренции, не существует барьеров для входа на рынок новых фирм. Открыть новый ресторан, бензоколонку или аптеку в большинстве крупных городов не составляет труда. Но поскольку барьеры входа отсутствуют, фирмы в монополистически конкурентных отраслях не рассчитывают на получение значительной прибыли в долгосрочном периоде.

MONEY

People practising specialized production must exchange their outputs of goods and services with one another. Until a full money system has been developed, such an exchange is usually carried on by barter. This is the exchange of goods directly for other goods and services. Barter, however, has certain disadvantages. The chief of these are the need for a coincidence of wants, the difficulty of equating values, and the indivisibility of large items.

Money is a solution to the problems of barter, because each commodity or service can be exchanged for money, which can then be used by the new owner to purchase a balanced supply of utilities. Money is any medium of exchange which is generally acceptable.

Types of money.

a) Token coins. These are coins made from metals whose real value is less than the face value of the coin.

b) Paper money. Printed money is more convenient than coins, being lighter to carry and easier to handle in large quantities. One more advantage of paper money is ease in guarding against forgery. The denominations of notes can be arranged to suit price levels in common use.

c) Bank deposits. Amounts placed to the credit of customers' accounts at banks are the same as money. These deposits can then be transferred from one person to another by means of cheques. So cheques are not money, but only orders to pay money.

Any means of payment which people are forced by law to accept in settlement of a debt is legal tender. Money need not be legal tender and in fact bank deposits, which are money, are not legal tender. If legal tender is not generally acceptable, then it will cease to be money. In Germany at the end of the Second World War, marks, which were legal tender, were often not accepted in payment whereas cigarettes often were.

Money functions as a medium of exchange, a measure of value and store of value.

a) Medium of exchange. This is the chief function of money. It overcomes the need for a coincidence of wants, since everyone “wants” money, which represents a claim against any goods or services which will yield satisfaction.

b) Measure of value. The value of goods and services is measured in terms of money. It is then known as price.

c) Store of value. Wealth can be kept in the form of money. The use of money as a store of value only applies when individuals are storing it; a whole nation could not do so.

The value of money, like the value of anything else, is whatever it can be exchanged for. It is, in effect, its purchasing power. A rise in prices means that the value of money has fallen; a fall in prices, that it has risen. The value of money changes inversely with changes in the price level. It is highly desirable that the value of money should remain stable over the years, otherwise its functions cannot be fulfilled properly.

TASKS

I. Give the English equivalents to:

Совпадение потребностей, законное платежное средство, средство обращения, мера стоимости, средство сбережения, материальные ценности, рост и снижение цены.

II. Match the terms with their definitions:

1. Token money	A. the form of money in which a person has a right by law to pay a debt
2. Barter	B. the bank's liabilities to its customers
3. Legal tender	C. exchange of goods for goods
4. Medium of exchange	D. any convenient and commonly acceptable means of payment
5. Value of money	E. Coins in which the metallic content is less valuable than the face value
6. Bank deposit	F. the quantity of goods and services that money will buy at a certain time

III. Fill the gaps with the following words: coins, money, barter, legal tender, notes, value:

1. Until a full money system has been developed, trade is usually carried on by … .

2. Money is only a claim against the real goods that have … .

3. … is of no use unless wealth is created.

4. Bank of England notes are … to any amount in the UK.

5. Where devaluation of a currency is possible, foreigners are unwilling to accept the … and … of the country in question.

IV. Answer the following questions:

1. What are the disadvantages of barter?

2. What are the main functions of money?

3. What is meant by the value of money?

4. Why are these functions less effectively performed if money changes in value?

5. What is the correlation between the value of money and prices?

6. What is meant by legal tender?

V. Are the following statements true or false? Correct the false ones:

1. Barter is the exchange of goods for money.

2. Bank deposits and cheques are types of money.

3. Price is the value of goods and services measured in terms of money.

4. Paper money consists of notes issued by commercial banks.

5. One of the advantages of paper money is ease in handling in large quantities.

6. Any type of money can be classified as legal tender.

7. A rise in prices means that the value of money has also risen.

VI. Render the text in English:

C развитием рыночных отношений параллельно с товаром появляются деньги. Деньги - это особый товар, всеобщий эквивалент. Они могут обмениваться на все другие товары и удовлетворять любые потребности их владельцев. Сущность денег проявляется в их функциях.

- Средство обращения. Деньги используются при покупке и продаже товаров и услуг. Как средство обмена деньги позволяют обществу избежать неудобств бартерного обмена.

- Мера стоимости. Общество считает целесообразным использовать денежную единицу в качестве масштаба для соизмерения относительных стоимостей разнородных благ и ресурсов. Мера стоимости - это выражение стоимости товаров в деньгах, которые позволяют идеально оценивать товары до их появления на рынке.

- Средство сбережения. Поскольку деньги представляют собой наиболее ликвидное (то есть такое, которое проще всего истратить) имущество, они являются очень удобной формой хранения богатства. Владение деньгами, за редким исключением, не приносит денежного дохода, который можно получить при сохранении богатства, например, в форме недвижимого имущества или ценных бумаг. Однако деньги имеют то преимущество, что они могут быть безотлагательно использованы для выполнения любого финансового обязательства.

VII. Give a summary of the text.

PRICING

Price is one element of the marketing mix. A business must decide how to price its product. In making this decision it needs to consider:

- what are the prices charged by competitors;

- how prices can be used to increase sales of the product;

- whether the price will cover costs of production.

Competition based pricing. One factor which is likely to influence is the price of similar competitive products. To sell a bottle of Tresor, produced by L'Oreal, at ?50 a bottle when Chanel № 5 is selling at ?30 a bottle may lose L'Oreal sales. On the other hand, to sell it at ?10 might not increase sales because consumers might think that Tresor was a lower quality perfume. Any business needs to think carefully about the price charged by rivals. When a perfume house sets a price which is roughly the same as that set by other perfume houses, it has decided to avoid price competition. Instead, it could attempt to get customers through advertising attractive packaging or other marketing means. On the other hand, some businesses deliberately attempt to undercut their competitors' prices. In 1993 and 1994, for instance, The Times newspapers deliberately cut its price from 45p to 30p and then to 20p a copy to raise sales.

Market orientated pricing. Whilst thinking about prices charged by competitors, the world's perfume manufacturers also use a number of other pricing strategies to raise sales and profits. These strategies are called market oriented pricing strategies because they are based on analyzing the market and its characteristics.

Discounts, special offers and sales. To encourage consumers to buy, the perfume houses often run special offers. The price of a bottle of perfume might be lower if another product is bought at the same time. Discounts might be offered at a particular time of the year. Top perfumes are rarely reduced in a sale because this would affect their high class image. However, many other products, like clothes, are sold at a lower price in sales.

Price discrimination. The perfume houses sell perfumes at different prices in different areas of the world. Selling the same product at different prices to different segments of the market is known as price discrimination. The perfume houses attempt to charge what the market will “bear” in order to earn the highest profit possible in each market. If, for example, consumers in the USA were prepared to pay a higher price for a bottle of Chanel №5 than consumers in the Middle East, then Chanel might charge a higher price in the USA.

Penetration pricing. A new competitor to the perfume market might be tempted to use penetration pricing. This is charging a lower price for a product at the start in order to gain market share. Once a product is established in the market, the business would raise its price. This is suitable for products where price is important in influencing spending decisions and where there is a long term market for the product. The problem with using this strategy with perfumes is that price can be linked to quality in the minds of consumers. Consumers may be happy to buy cheap sample bottles, but a low priced bottle of perfume could be seen as low quality.

Creaming. Creaming (or skimming) is the opposite of penetration pricing. It is setting a high price for a product initially and lowing it later on. It is used, for instance, with hi-tech products. When video machines first came out, they cost thousand of pounds. They were bought by companies and enthusiasts who were prepared to pay a high price for a product. However, to create a mass market for the video machines, the manufacturer had to lower the price. Again, a perfume house is unlikely to want to lower prices when a product reaches the maturity stage of its life cycle because price is often linked to image of quality with perfumes.

Cost based pricing. Perfume manufacturers are in business to make a profit. Charging a price similar to competitors is one way to set prices but might lead to losses. Another way would be to base price on costs of production. A retailer like Superdrug might use cost plus pricing. It could calculate the cost of selling a perfume, add a make-up or profit margin for its profit and this would then be the price of the bottle. The cost is the average cost and is made up of:

~ the variable cost - mainly the cost of buying the bottle from the distributor;

~ the fixed cost - such as wages of staff, rent, heating and lighting.

When the price covers both the average fixed and variable costs of the product, the business is said to be full-cost pricing. Sometimes, another competing retailer might run a special offer on a product line. Superdrug might respond by cutting its prices too, below the full-cost price. So long as the new price more than covers the variable cost, it will at least make some contribution towards paying the fixed costs of the business. This contribution might be far more than if Superdrug didn't cut its price and sales of the product fell dramatically. In 1993, Superdrug was, in fact, in dispute with the major perfume manufacturers. They refused to sell to Superdrug unless Superdrug charged the high prices found in retailers like Harrods. The manufacturers didn't want perfume to be sold on price. Superdrug said that its prices were based on its costs. If it had lower costs than Harrods, why should it not be allowed to sell at a lower price? The manufacturers won and have forced Superdrug to sell at higher prices than it would like to. This shows that there are many different ways to fix a price for a product.

TASKS

I. Answer the following questions:

1. What is meant by competitive pricing?

2. Why do shops have sales?

3. Why might penetration pricing be a good price strategy to use when launching a new brand of yogurts?

4. Mobile phone networks have used price creaming strategies when setting prices. Explain what this means.

5. What is meant by cost based pricing?

II. Match the terms with their definitions:

1. Competition based pricing	A. setting an initial low price for a new product so that it is attractive to customers. The price is likely to be raised later as the product gains more market share
2. Cost plus pricing	B. setting a price based on an analysis of the market
3. Creaming or skimming	C. fixing a price by adding a percentage profit margin to the cost of production of the good or service
4. Market orientated pricing	D. the extra which is added to the cost of a product to cover the profit to be made
5. Mark-up or profit margin	E. setting a price based on the charged by competitors for similar products
6. Penetration pricing	F. the percentage added to the cost of production which equals the profit on the product
7. Price discrimination	J. selling product at a high price, sacrificing high sales in order to earn high profits
8. Profit margin	I. setting a different price for the same product in different segments of the market

III. Give synonyms to the words and expressions from the text:

Effect, keep away from, method, pleasant-looking, example/case, planning of an action, special features, region, part, obtain/get, at the beginning, let.

IV. Render the text in English:

Установить цену нового товара трудно, так как у менеджеров мало данных для оценки потребительского спроса. Чем более новаторский характер имеет товар, тем сложнее оценить реакцию потребителей до появления товара на рынке. При установлении цен на новые товары используют два вида стратегий: «снятие сливок» и «проникновение на рынок».

При стратегии «снятия сливок» устанавливают высокую цену, предусматривая ее возможное снижение по мере появления на рынке конкурентов. Такая стратегия наиболее эффективна, если спрос на товар неэластичен, а компания пользуется патентной защитой.

В рамках стратегии «проникновения на рынок» компания устанавливает низкую цену на новый товар, чтобы предотвратить приход на рынок конкурирующих товаров. Это имеет смысл, если товар не защищен патентом, а спрос на него эластичен. Такой стратегии придерживалась компания «Bausch&Lomb», выйдя на рынок с мягкими контактными линзами в начале 70-х годов. Она проводила агрессивную ценовую политику, устанавливая в отрасли цены на 50% ниже обычных. Когда ее главный конкурент компания «Cooper-Vision» также понизила цены на свои линзы, «Bausch&Lomb» в ответ еще больше снизила цены - до 10-15 долларов.

V. Give a summary of the text.

THE PROBLEM OF INFLATION

Of the large number of definitions of inflation to be brought forward by economists, the simplest and most widely understood is that inflation is a period of rising prices. Further consideration though, reveals that in the United Kingdom some prices have reduced since the Second World War, the examples are color television sets, calculators, etc. Does this mean that there is no inflation? The answer, obviously, is ''no''; the measurement of inflation depends upon the general price level and it is perfectly possible for the general price level to rise while specific prices fall.

The general price level must therefore be a form of average. The normal method of calculation is by the use of price index. The best known price index, and the one usually chosen to indicate the level of inflation, is the Index of Retail Prices.

Further points arising from the index are as follows:

· The Inflation Rate

The inflation rate can be calculated by dividing the change in the index of retail prices over the last year by the starting index, and multiplying the result by 100. If we analyze the following table, we can make any calculations.

General Index of Retail Prices in the United Kingdom

Year	Jan.	Feb.	Mar.	Apr.	May	June
1977	172.4	174.1	175.8	180.3	181.7	183.8
1978	189.5	190.6	191.8	194.6	195.7	197.2
1979	207.2	208.9	210.6	214.2	215.9
Year	July	Aug.	Sept.	Oct.	Nov.	Dec.
1977	183.8	184.7	185.7	186.5	187.4	188.4
1978	198.1	199.4	200.2	201.1	202.5	204.2
1979

The calculation for May 1979 is: Inflation Rate =

· The purchasing power of the pound

Until the middle 1960s the rate of inflation was relatively low: 2-3 per cent per annum. So-called creeping inflation took place. Economists found no reason for alarm in this. In fact, after the period of depression between the wars, when for a time prices fell, some commentators were enthusiastic over rising prices. It became generally accepted in economic literature that a period of gradually rising prices was a good thing since it made businessmen optimistic about their chances of profit making. Inflation was welcomed as a sign of growth and prosperity, and no sense of danger prevailed since it was gradual. In more recent years an annual rate of 10 per cent has looked desirable but it highlights an obvious danger: when is gradual inflation no longer gradual? Most people would agree that 25 per cent per annum is too high a rate to be tolerable. But how much could be desirable? Accept inflation as a small friend and it can easily become a large and difficult enemy to deal with. The task is made more difficult by widespread disagreement over the causes of inflation.

Economists of the nineteenth and early twentieth centuries were convinced that a close link existed between the amount of money circulating within an economy and the level of its prices. Increases in the quantity of money were likely to lead to increases in prices. It was expressed in the formal way by the American economist Irving Fisher, using what became known as the Fisher Equation. The modern theorists are still maintaining that the quantity of money has a direct influence upon prices. However, one of the major problems is the uncertainty surrounding the time period which elapses between an increase in money and an increase in prices. Six months to a year and a half is not accurate enough.

During the years when monetarism was out of fashion, changes in the level of aggregate demand were used to explain why inflation occurred. Called demand inflation it takes place when supply cannot respond (i.e. when most of all resources are already employed) and leads to a rise in prices instead of to extra output. Cost inflation assumes that the collective upwards “push” of costs is sufficient to raise the general level of prices even though there has been no noticeable increase in the level of aggregate demand. In order to grasp the idea of cost inflation it is necessary to distinguish between costs in total and costs per unit of output. For example, wage rates - the rates paid to each employee - can rise and yet the wage element in each unit of output can still fall, provided that output per man rises. In such a situation any extra payments are provided for by extra sales. Then inflation is not fueled, since more output is forthcoming and costs per unit should not rise. However, in markets for labor resources the granting of one group often leads to demands that such deals be extended to other groups even though no extra productivity is forthcoming. And that is a source of cost inflation. Yet another explanation for inflation, bottleneck inflation, is a close relative of both demand and cost inflation. Bottleneck inflation assumes rising costs and rising prices long before all resources are fully employed. The basis for this assumption is that specific shortages occur in some areas - bottleneck areas - of the economy where demand is unusually heavy.