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II. Read the text to fulfil the tasks




1. Demand.Imagine that the winter is drawing to a close. In that case many clothing stores find that their stocks of winter clothes are too large. How can you get people to buy ski clothing and other winter items in March and April? Did you say "Run a sale?" That is a good suggestion. People will often buy winterclothing in spring because of low prices.

Demand is a consumer's willingness and ability to buy a product or service at a particular time and place. If the price changes demand also changes. Demand expands when prices fall and it contracts when prices rise. There are however some exceptions to this rule. If for example, the price of food increases our demand for it doesn't decline. Instead of eating less we will be spending less money on luxuries and buying the same amount of food at a higher price. Demand behaves the way that it does for some of the following reasons.

- More people can afford to buy an item at a lower price that at a
higher price

- At a lower price some people will substitute a particular item for
others thereby increasing the level of demand.

- At a higher price somepeople will substitute other items for this
particular one.

Finally, when we have reached a level of satisfaction derived from a good or service, the level of satisfaction will begin to diminish. Economists describe this effect as diminishing marginal utility. Diminishing marginal utility helps to explain why lower prices are needed to increase the quantity in demand.

2. Factors affecting demand.Sometimes things happen that change the level of demand for an item at each and every price. When this occurs it leads to an increase or decrease in the level of demand. What are some of the factors that cause the demand for any product to increase or decrease at each and every price?

Substitutes. When two goods satisfy similar needs, they are called substitutes. A change in the price of one item will result in a shift in the demand for a substitute. Black and brown shoes are close substitutes. If the price of black shoes goes up, then people will tend to substitute brown shoes for black shoes, and the demand will go up to a very high price and vice versa.

Complementary goods. Goods that are separate but that are used together, like cars and petrol, are complements. The following is a brief list of factors that affect the level of demand.

1) Change in the environment (weather, seasons, etc.).

2) Change in the item's usefulness.

3) Change in income.

4) Change in the price of substitute products.

5) Change in the price and availability of complementary products.

6) Change in the style, taste, habits, etc.

The degree to which price changes affect demand will depend on the elasticity of demand for particular item.

3. Supply. We have discussed the effect of prices on buyers. But it takes two parties to make a sale: buyers and sellers. Supply refers to the numbers of items that a seller will offer for sale at different prices at a particular time and place.

The law of supply. It states that sellers will offer more of a product at a higher price and less at a lower price. Why does the quantity of a product change if its price rises or falls? The answer is that producers supply things to make a profit. The higher the price, the greater the incentive to produce and sell products. Sellers will be offering either more (if supply increased) or less (if supply decrease) of an item at every possible price.

Supply and demand tells us how many items buyers will purchase and how many items sellers will offer at different prices. The interaction of supply and demand will result in the establishment of an equilibrium or market price, i.e. the price at which supply exactly equals demand.

Government regulates demand and supply by quoting ceiling prices (maximum prices) and floor prices (minimum prices), and adding its own demand to the demand of the private sector.

A price ceiling set below the equilibrium price results in a shortage of the goods. A price floor set above the equilibrium price results in a surplus. Price controls lead to non price rationing and changes in quality and black markets.

Text-study


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