Questions for economic reasoning and discussion

UNIT SEVEN

An Initial Look at Supply What do We Mean by Supply? The Law of Supply. Supply Curve Elasticity of Supply

ESSENTIAL VOCABULARY

1. Anticipatev –to imagine or expect that something will happen – передбачати, очікувати, сподіватися. Syn. to expect, to hope, to predict, to foresee.

2. Chargev –to impose or ask somebody for an amount of money as a price or fee – призначати, вимагати плату, правити.To charge a price –призначати ціну. Syn. to establish, to fix, to set.

3. Setv –to decide and state when something will happen, how much something should cost, what should be done etc – встановлювати, засновувати, визначати, формувати.To set a price – визначати ціну, Syn. to determine, to establish.

4. Shiftn – the act of moving from one position, place, direction, or condition to another – зміна, переміщення, зсув. Shift in demand/supply–зміна у характері попиту/пропозиції. Syn. a change.

5. Suppliern –a company or a person that provides things that people want or need, especially over a long period of time – постачальник. Syn. a provider, a producer, a seller.

6. Supplyv –to make available something that is wanted or needed by somebody or something often in large quantities and over a long period of time – постачати, доставляти, надавати, задовольняти. To supply the demand – задовольняти попит, to supply a need – задовольняти потребу, to supply a service – надавати послугу, to supply goods to – постачати товари, to supply with something– постачати щось. Syn. tofurnish, to provide, to sell.

7. Switch (from something to something)v – to change suddenly or completely, especially from one thing to another, or to exchange by replacing one thing with another – переміщати, міняти, змінювати. To switch over production–переключитися на виробництво/змінювати напрям виробництва. Syn. to shift, to transfer.

Text

Transactions require both buyers and sellers. Unlike demand that describes the behavior of consumers supply refers to the behavior of sellers. Thus, demand is only one aspect of decisions about prices and the amounts of goods traded, the other is supply. So, supply is one of the two key determinants of price. The theory of supply explains the mechanisms by which prices and levels of production are set.

In economics, supply relates to the quantity of goods or services that a producer or a supplier is willing to bring into the market at a particular price in a given time period, all other things being equal.

The law of supply states that the quantity of a commodity supplied varies directly with its price, all other factors that may determine supply remaining the same. The law of supply expresses the relationship between prices and the quantity of goods and services that sellers would offer for sale at each and every price. In other words, the higher the price of a product, the higher the quantity supplied. As the price of a commodity increases relative to price of all other goods, business enterprises switch resources and production from other goods to production of this commodity, increasing the quantity supplied.

Clearly the law of supply is the opposite to the law of demand. Consumers want to pay as little as they can. They will buy more when there is a price decrease in the market. Sellers, on the other hand, want to charge as much as they can. They will be willing to make more and sell more as the price goes up. In this way they can maximize profits.

The relationship between price of a product and its quantity supplied is represented in a table called a supply schedule. The supply curve is a graphic representation of the market supply schedule and the law of supply. Each point along the supply curve represents a different price-quantity combination, showing a direct relationship between the quantities of products that firms are willing to produce and sell at various prices, all non-price factors being constant. Sloping upwardfrom left to right the supply curve reflects that producers supply more at a higher price and less at a lower price.

Supply schedule for cut jeans

Price	The quantity supplied
$400
$350
$300
$225
$175
$100
$50

The supply curve enables producers to anticipate what the supply would be for those prices falling in between the prices that are in the supply schedule.

People often confuse supply with the quantity supplied. The difference between supply and quantity supplied is that

ü Supply represents the amounts of items that suppliers are willing and able to offer for sale at different prices at a particular time and place, all non-price determinants being equal.

ü The quantity suppliedrefers to the amount of a certain product producers are willing to supply at a certain price. A change in the price of the product will cause a change in the quantity supplied.

Price is an important determinant of the quantities supplied. The law of supply states that the amount offered for sale rises, as the price is higher. The quantity of pairs of cut jeans producers are willing to offer for sale rises, since their price is higher primarily because they need to cover the increased costs of production.

However, there are things other than price which affect the amounts of goods and services suppliers are able to bring into the market. These things are called the non-price determinants of supply.

As it has been mentioned a change in the quantity supplied caused only by a change in the price of the product. A change in supply is caused by a change in the non-price determinants of supply. They are:

® Changes in the cost of production. Production costs relate to the labour costs and other costs of doing business used in production process. The cost of production is probably one of the most important effects on production process. An increase in the costs of any input brings about the lower output. Regardless of the price that a firm can charge for its product, price must exceed costs to make a profit. Thus, the supply decision is a decision in response to changes in the cost of production.

® Changes in technology.Changes in technology usually result in improved productivity. Improved technology decreases production costs and therefore increases supply.

® Changes in the price of resources needed to produce goods and services.If the price of a resource used to produce the product increases, this will increase the production costs and the producer will no longer be willing to offer the same quantity at the same price. He will want to charge a higher price to cover the higher costs.

® Changes in the expectations of future prices.Changes in producers' expectations about the future price can cause a change in the current supply of products. If producers anticipate a price rise in the future, they may prefer to store their products today and sell them later. As a result, the current supply of a particular product will decrease.

® Changes in the profit opportunities.If a business firm produces more than one product, a change in the price of one product can change the supply of another product. For example, automobile manufacturers can produce both small and large cars. If the price of small cars rises, the producers will produce more small cars to earn higher profits. They will shift the resources of the plant from the production of large cars to the production of small ones. Therefore, the supply of small cars will increase and a supply curve will shift outward. So, profit opportunities encourage producers to produce those goods that have high prices.

® Changes in the number of suppliers in the market.Potential producers are producers who can produce a product but don’t do it because of relatively low price. If price of a product rises potential suppliers will switch over productionto that product to make more profit. If more producers enter a market, the supply will increase, shifting the supply curve to the right.

Making a summary it is necessary to emphasize that the understanding of concepts of supply and demand provides an explanation of how prices are determined in competitive markets.

An important concept in understanding supply and demand theories is elasticity. Comprehension of elasticity is useful to understand the response of supply to changes in consumer demand in order to achieve an expected result or avoid unforeseen consequences.

In economics, the price elasticity of supply is the degree ofproportionality with which the amount of a commodity offered for sale changes in response to a given change in the going price. In other words elasticity of supply is a measure of how much the quantity supplied of a particular product responds to a change in the price of that product.

Elasticity of supply works similar to elasticity of demand. Supply is elastic if a change in price results in a large change in the quantity supplied. On the other hand, if a great change in price brings about a small change in the quantity supplied, supply is called inelastic. There are some factors that determine price elasticity of supply. The most important of them are the ability of producers to change the amount of goods they produce, time period needed to alter the output and others.

Exercise 1. Read, translate into Ukrainian in written form and memorize the definitions of the following economic terms and concepts.

1. Elastic supply: Supply for which a percentage change in a product's price causes a larger percentage change in the quantity supplied.	____________________________________________________________________________________________________________________________________________________________________________________________
2. Elasticity of supply: The degree to which supply of a commodity responds to a change in that commodity’s price.	_____________________________________________________________________________________________________________________________________________
3. Inelastic supply: Supply for which a percentage change in a product's price causes a smaller percentage change in the quantity supplied.	____________________________________________________________________________________________________________________________________________________________________________________________
4. Law of supply: the economic law that states as the price of a commodity that producers are willing and able to offer for sale during a particular period of time rises (falls), the quantity of the commodity supplied goes up (decreases), all non-price determinates being equal.	________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
5. Quantity supplied: the amount of a product that producers are willing and able to sell at a certain price during a time period, all other factors that may determine supply remaining the same.	___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
6. Supply: the total amount of a commodity available for purchase by consumers.	_____________________________________________________________________________________________________________________________________________
7. Supply curve: the graphical representation of how supply varies as prices change.	_____________________________________________________________________________________________________________________________________________
8. Supply schedule: a table showing the quantities of a product that would be offered for sale at various prices at a given time.	____________________________________________________________________________________________________________________________________________________________________________________________

Exercise 2. Find the English equivalents for the following.

1. пустити в продаж _____________________________________________________________

2. товар, який постачається _______________________________________________________

3. пропонувати на продаж ________________________________________________________

4. значно збільшувати прибутки ___________________________________________________

5. прямо пропорційна залежність __________________________________________________

6. давати можливість виробникам передбачити ______________________________________

7. зміна величини пропозиції _____________________________________________________

8. за певною ціною ______________________________________________________________

9. покривати збільшені виробничі витрати __________________________________________

10. витрати експлуатації підприємства ______________________________________________

11. перевищувати витрати _________________________________________________________

12. рішення щодо пропозиції _______________________________________________________

13. існуюча пропозиція ___________________________________________________________

14. конкурентний ринок ___________________________________________________________

15. розуміння еластичності ________________________________________________________

16. уникати непередбачених наслідків _______________________________________________

Exercise 3. Give the Ukrainian equivalents for the following.

1. the two key determinants ________________________________________________________

2. the quantity supplied ____________________________________________________________

3. sloping upwardfrom left to right __________________________________________________

4. to fall in between the prices ______________________________________________________

5. a price-quantity combination _____________________________________________________

6. all non-price determinants being equal ______________________________________________

7. at a particular time and place _____________________________________________________

8. the labour costs ________________________________________________________________

9. to bring about the lower output ___________________________________________________

10. in response to changes __________________________________________________________

11. to result in improved productivity _________________________________________________

12. to prefer to store their products today _______________________________________________

13. to enter a market _______________________________________________________________

14. the understanding of concepts ____________________________________________________

15. to alter the output ______________________________________________________________

Exercise 4. Match these nouns/noun phrases, prepositions (if necessary) and nouns/noun phrases as they occur together in the text. Translate the expressions they make into Ukrainian.

1. an increase		items
2. decisions	opportunities
3. each point	period
4. expectations	the law of demand
5. the amounts	prices and the quantity of goods
6. the opposite	the curve
7. the profit	the future price
8. the relationship	prices
9. time	the quantity supplied

Exercise 5. Match the verbs/verbal phrases, prepositions (if necessary) and nouns/noun phrases as they occur together in the text. Translate the expressions they make into Ukrainian.

1. to be caused	on with into in for by	improved productivity
2. to bring	a price cut
3. to charge	sale
4. to offer	a higher price
5. to reckon	its price
6. to result	a change in the non-price determinants
7. to vary directly	the market

Exercise 6. Copy out from the texts the sentences containing the following words and word- combinations and translate these sentences into Ukrainian.

the amounts of goods traded: ________________________________________________________

is willing to bring into the market: ____________________________________________________

business enterprises: _______________________________________________________________

a direct relationship: _______________________________________________________________

must exceed costs: ________________________________________________________________

to store their products: _____________________________________________________________

a business firm: __________________________________________________________________

responds to a change ______________________________________________________________

Exercise 7. Choose from the box the words and word-combinations having the same or similar meaning to the words listed below. More than one is possible.

1. збільшення ціни (2)

2. зміна (2)

3. постачальник (3)

4. за умови, що усі нецінові фактори залишаються незмінними (3) ____________________ ______________________________________________________________________________

5. очікування(2)

6. очікуваний результат (2)

7. непередбачений/результат (3) _________________________________________________

8. поточна пропозиція (3)

9. передбачати (3)

10. пустити в продаж (3)_________________________________________________________

11. призначати ціну (3)

12. стосуватися (2)

13. відображати (2)

14. постачати (3)

15. задовольнити попит (3) ______________________________________________________

all non-price factors being constant	to supply the demand	an unforeseen consequence
an anticipation	a price increase	an unpredicted effect	a change	a producer
to offer for sale	to provide	the present supply	to furnish
the current supply	to fix a price	to meet the demand	to expect	a supplier
an expected result	to foresee	to put on the market	a shift	a rise in price
a provider	to relate to	an unanticipated influence	to show	to predict
to charge a price	an expectation	to respond to the demand	to supply	to set a price
to refer to	to represent	all other things being equal	an anticipated effect

Exercise 8. Replace the words or word combinations in bold type with their synonyms.

1. A supply curve slopes upward from left to right, reflecting the fact that more of a product will be brought into the market at a higher price and less at a lower price.

2. According to the law of supplyan increase in supply leads to a reduced price, while a decrease in supply causes a rise in price, demand remaining constant.

3. As a result of a shift in supply, there will be a new relationship between the price and quantity of a commodity supplied.

4. Since it costs more to produce additional items, producers will supply more only if they can charge a higher price.

5. Potential producers switch resources to production of a particular product, if its price increases, and enter the market for that product to maximise their revenues.

6. Changes in suppliers’ expectations cause supply curves to shift.

7. Companies that operate in highly competitive industries provide goods or services that are very elastic because current market condition does not enable them to charge a price they would like to.

8. Supply along with demand is one of the two key determinants of price but relates to the total amount of the goods available for purchase.

Exercise 9. Translate the words in brackets into English.

Supply (відноситься до) _______________ seller's willingness and ability (пустити в продаж) _________________________ available quantity of product.

In accordance with (закону пропозиції) ___________________ the price and (величина пропозиції) _____________________ are directly proportional, (за умови, що усі нецінові фактори залишаються незмінними) __________________________________________. In most markets (збільшення ціни товару) __________________________ will increase the quantity of a product that (продавці готові поставити) __________________________. This (співвідношення між ціною і величиною пропозиції) __________________________________________ can be represented as (шкала пропозиції) or a graph relating the price and quantity supplied. In a graph the supply curveslopes upward from left to right.

The higher price (надає виробникам стимул) ________________________ to supply more, but rising opportunity costs set limits to the amount they will supply (за будь-якою даною ціною) ________________________. A change in a price refers to (зміни поведінки постачальників) __________________________________ caused by a product’s price, to put it another way, (зміна в ціні відображається) ______________________ by changes in the quantity supplied. In this case, the relationship between price and quantity (залишається незмінним) __________________, but there will be a new (поєднання ціни та кількості) _________________________________.

A change in supply relates to a change in behaviour of sellers (що є наслідком) a change in factors (інших ніж ціна товару). When one of (нецінових визначників пропозиції) _______________ ____________________ changes, the supply curve shifts either to the left or the right. These non-price determinants of supply are costs of (витрати експлуатації підприємства) _______________ _______________, technology and productivity, (очікування виробників) ___________________ about future prices, (можливості отримання прибутку) _______________________ and prices of (споріднених товарів та послуг) ________________________________________.

(Давайте подивимося на) ________________________ the relationship of prices and quantity supplied of related goods or services. Changes in the prices of complements and substitutes (мають протилежний вплив на пропозицію) ________________________ of a product. When (ціна товару супутника) __________________________ goes up, supply of (іншого товару-супутника зростає) _______________________________. When (ціна товару замінника) ______________ ____________ rises, supply of (іншого товару-замінниказменшується)____________________.

Exercise 11. Pair the halves of the sentences and write the completed sentences. Translate them into Ukrainian.

1. Supply represents	a. more at a higher price.
2. According to the law of supply the higher the price is,	b. that results from a one percent change in the price of the good.
3. The supply curve shows how sellers alter their plans	c. the supply also increases shifting a supply curve to the right.
4. Buyers will be supplied with less amounts of goods at a lower price and	d. the more goods will be put on the market.
5. Quantity supplied refers to the quantity	e. at each quantity there will be a new price.
6. A change in supply is a change in the quantity of a product that suppliers plan to sell	f. in response to a change in one of the non-price determinants, the good's price being constant.
7. Supply decreases or increases depend on	g. the supply also increases shifting a supply curve to the right.
8. A change in supply is represented by a shift of the supply curve	h. that producers are willing and able to sell at a particular price.
9. At each price there will be a new quantity and	i. the cost of production.
10. As the number of sellers in a particular market increases,	j. how much the market can offer for sale.
11. The price elasticity of supply is the percentage change in the quantity supplied of a good	k. that results from a change in a condition other than a product’s price.

Completed sentences

Translation

_______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Exercise 12. Match each term in column A with its definition in column B.

A	B
1. Elastic supply	a. A measure of the responsiveness of a commodity’s quantity supplied to changes in that commodity’s price
2. Elasticity	b. A table recording the number of units of a commodity supplied at various possible prices.
3. Inelastic supply	c. The number of items that sellers will put on the market at each and every price at a particular time and place.
4. Law of demand	d. A graphic representation of the supply schedule and the law of supply showing the relationship between each possible price of the good and the quantity that would be supplied for sale at that price.
5. Law of supply	e. A term used when the percentage change in a product's price causes a smaller percentage change in quantity supplied.
6. Price elasticity of supply	f. It refers to how supply and demand change in response to various influences.
7. Quantity supplied	g. A term used when the percentage change in a product's price causes a larger percentage change in quantity supplied.
8. Supply	h. The economic law under which demand represents a direct relationship to price. If all other factors remain unchanged, an increase in demand leads to an increased price, while a decrease in demand leads to a decreased price.
9. Supply curve	i. The economic law under which supply reflects an inverse relationship to price. If all other factors are equal, an increase in supply causes a decreased price, while a decrease in supply causes an increased price.
10. Supply schedule	j. The amount suppliers are willing and able to offer for sale at a certain price during a given period of time, all non-price factors being constant.

Exercise 13. Translate into English using the active vocabulary.

1. Пропозиція – це кількість продукції, яка є в наявності для задоволення попиту.	__________________________________________________________________________________________________________________________________________
2. Закон пропозиції стверджує, що чим нижча ціна, тим менша величина пропозиції і, чим вища ціна, тим більша величина пропозиції.	________________________________________________________________________________________________________________________________________________________________________________________
3. В економіці взаємовідношення між пропозицією та ціною виражається законом пропозиції.	__________________________________________________________________________________________________________________________________________
4. Крива пропозиції показує прямо пропорційну залежність між ціною та величиною пропозиції, за умови, що усі нецінові фактори є сталими.	________________________________________________________________________________________________________________________________________________________________________________________
5. Величина пропозиції – це кількість одиниць товару, що продавці готові запропонувати на продаж за певною ціною та у визначений час.	________________________________________________________________________________________________________________________________________________________________________________________
6. Крива пропозиції показує, що підприємці вироблятимуть більше товарів та послуг за відносно високими цінами, а за нижчими цінами буде менше вироблено і поставлено.	______________________________________________________________________________________________________________________________________________________________________________________________________________________________________
7. Зниження витрат на виробництво збільшує пропозицію.	____________________________________________________________________________________________
8. Оскільки ціна виробу зростає, постачальники будуть схильні значно збільшити свої надходження, постачаючи товару більше ніж до того.	________________________________________________________________________________________________________________________________________________________________________________________
9. Можливості отримання прибутку впливають на рішення виробників щодо пропозиції.	__________________________________________________________________________________________________________________________________________
10. Зміни в прибутках споживачів, смаках, технологіях виробництва, виробничих витратах та зміни в кількості продавців на ринку та можливостях отримання прибутку спричиняють переміщення як кривої попиту, так і кривої пропозиції.	__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
11. Запровадження удосконалених технологій виробництва та знижені витрати виробництва дають виробникам можливість виробляти більше продукції.	________________________________________________________________________________________________________________________________________________________________________________________
12. Цінова еластичність пропозиції відноситься до того, як величина пропозиції певного товару реагує на зміну ціни цього товару.	________________________________________________________________________________________________________________________________________________________________________________________
13. Еластичність товару може змі-нюватися відповідно до кількості товарів замінників та споріднених товарів.	__________________________________________________________________________________________________________________________________________

Exercise 14. Answer the following questions.

1. What is the second key determinant of price?

2. What does supply mean?

3. Whose behaviour is supply concerned with?

4. What does the law of supply state?

5. Why does the law of supply have a direct relationship?

6. Why is the law of supply the opposite to the law of demand?

7. What is a supply schedule?

8. What is a supply curve?

9. What does supply curve enable producers to anticipate?

10. What does each point along the curve represent?

11. What does a price change lead to?

12. Why do producers supply more goods at a higher price than at a lower price?

13. When and why do suppliers increase their production and rise prices?

14. What is the difference between a change in quantity supplied and a change in supply?

15. What does the quantity supplied depend on?

16. What role do prices play for producers?

17. How does the price of a commodity affect the quantity supplied?

18. What causes a supply curve to shift?

19. What is a change in supply caused by?

20. What are the key non-price determinants of supply?

21. How does the cost of production affect the behavior of producers?

22. What does the introduction of new technology result in?

23. Why is it important for producers to use cheap inputs in their production processes?

24. How do future expectations affect the quantity supplied?

25. Why are profit opportunities considered as factors that influence the quantity supplied?

26. Why do potential producers start producing a product?

27. What is the effect of more producers entering the market for a certain product?

28. What is elasticity as an economic concept?

29. Why is elasticity important in understanding supply and demand theories?

30. What is the price elasticity of supply?

31. When supply is elastic?

32. What supply is called inelastic?

33. What are the determinants of price elasticity of supply?

Questions for economic reasoning and discussion

Choose the right variant. Only one is possible.

1. This refers to how many of units are available for people to purchase.

a. Supply

b. Demand

c. Price

2. The law of supply states

a. buyers will purchase more at lower prices than at higher prices.

b. sellers will produce more at higher prices and less at lower prices.

c. quantities offered for sale do not depend on price.

d. consumers buy more at high prices and less at lower prices.

3. According to the law of supply, price and quantity supplied are

a. proportional to one another.

b. proportional to the quantity demanded.

c. independent of one another.

d. directly related to one another.

4. According to the law of supply, when the price of a good increases,

a. people will choose to purchase less of that good and more of the other goods.

b. people will provide more of the good.

c. people will choose to purchase more of that good and less of other goods.

d. people will provide less of that good.

5. Which one of the following would be the most probable consequence of a fall in the supply of coffee, the supply curve of tea remaining unchanged?

a. An increase in the price of coffee and an increase in the price of tea

b. A decrease in the price of coffee and an increase in the price of tea

c. An inward shift in the demand for coffee and an outward shift in the demand for tea

d. An inward shift in the demand for coffee and an inward shift in the demand for tea.

6. An improvement in technology lowers the cost of producing coffee. At the same time, consumers switch their preferences away from tea towards coffee. We would expect the quantity traded of coffee to

a. Rise or fall depending on whether the price of coffee rises or falls.

b. Fall.

c. Remain the same.

d. Rise.