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The Price Responsiveness of Demand

Tabl. 3 presents some hypothetical numbers for the relation between ticket price and quantity demanded, other things equal.

Tabl. 3. The Demand for Football Tickets

PRICE Quantity of tickets demanded
(£/ ticket) (thousands/game)
12,50
10,00
7,50
5,00
2,50

Fig. 2 plots the demand curve, which happens to be a straight line in this example.

Ticket price (£)

 
 

 


0 20 40 60 80 100

Quantity of tickets

Figure 2. The Demand for Football Tickets

For given prices of related goods and consumer incomes, higher ticket prices reduce the quantity of tickets demanded.

How should we measure the responsiveness of the quantity of tickets demanded to the price of tickets? One obvious measure is the slope of the demand curve. The downward slope of the demand curve shows that quantity demanded increases as the price of a good falls. Each price cut of £ 1 leads to 8000 extra ticket sales per game.

Suppose, however, that we wish to compare the price responsiveness of football ticket sales with the price responsiveness of the quantity of cars demanded: clearly, £ 1 is a trivial cut in the price of a car and will have a negligible effect on the quantity of cars demanded.

When commodities are measured in different units it is often best to examine the percentage change, which is unit-free. This suggests that we think about the effect of a 1 per cent price cut on the quantity of cars and football tickets demanded. Similarly, it is not the absolute number of cars or tickets we should examine but the percentage change in quantity demanded. Not only does this solve the problem of comparing things measured in different quantity units, it also takes account of the size of the market. Presumably an extra sale of 8000 tickets is more important when ticket sales are 4000 than when they number 40000.

Thus we reach the definition of the price elasticity of demand, which economists use to measure responsiveness to price changes.

The price elasticity of demand is the percentage change in the quantity of a good demanded divided by the corresponding percentage change in its price.

Although we shall shortly introduce other demand elasticities - the cross price elasticity and the income elasticity - the (own) price elasticity is perhaps the most frequently used of the three. Whenever economists speak of the demand elasticity they mean the price elasticity of demand as it has been defined above.

If a 1 per cent price increase reduces the quantity demanded by 2 per cent, the demand elasticity is - 2. Because the quantity falls 2 per cent, we express this as a change of - 2 per cent, then divide by the price change of 1 per cent (a price rise) to obtain - 2. If a price fall of 4 per cent increases the quantity demanded by 2 per cent, then the demand elasticity is - 1/2, since the quantity change of 2 per cent is divided by the price change of - 4 per cent. Since demand curve slopes down, we are either dividing a positive percentage change in quantity (a quantity rise) by a negative percentage change in price (a price fall) or dividing a negative percentage change in quantity (a quantity fall) by a positive percentage change in price (a price rise). The price elasticity of demand tells us about movements along a demand curve and the demand elasticity must be a negative number.

For further brevity, economists sometimes omit the minus sign. It is easier to say the demand elasticity is 2 than to say it is -2. Whenever the price elasticity of demand is expressed as a positive number, it should be understood (unless there is an explicit warning to the contrary) that a minus sign should be added. Otherwise, we should be implying that demand curves slope upwards, a rare but not unknown phenomenon.



VOCABULARY NOTES

to introduce smb to the topic of познакомить кого-либо с темой

the effects of smth on smth воздействие чего-либо на что-либо

hypothetical numbers вымышленные, гипотетические числа

the relation between соотношение между

quantity demanded требуемое количество

to plot the demand curve вычерчивать кривую спроса

for given price для данной (приведенной) цены

to measure the responsiveness of smth to smth измерять способность, реагировать (реакция) на

obvious measure очевидная, наглядная мера

the slope of the curve покатость кривой

the downward slope движение кривой вниз

ticket sales per game продажа билетов на игру

trivial (syn. minor, slight) незначительный

a negligible effect мелкий, незначительный эсрфект

to examine smth рассмотреть, проанализировать

the percentage change процентное изменение

unit-free - независящий от характера единиц (в которых измеряются товары)

this suggests (syn. to imply) это предполагает

similarly подобным образом

to take account of (syn. to take into account, consideration) учитывать, принимать во внимание

presumably (syn. probably) возможно, вероятно

extra sale дополнительные продажи

to number насчитывать

to reach the definition подвести к определению

the price elasticity of demand ценовая эластичность спроса

to divide by разделить на

shortly зд. вскоре

cross price elasticity перекрестная эластичность цен

income elasticity эластичность по доходу

the (own) price elasticity собственно ценовая эластичность

the most frequently used наиболее часто используемый

as it has been defined above согласно определению, приведенному выше

to express smth выражать что-либо

to obtain (syn. to get) получить, e.g. to obtain a diploma

a positive percentage change положительное (плюсовое) процентное изменение

a negative percentage change отрицательное (минусовое) процентное изменение

movements along a demand curve движения вдоль кривой спроса

for further brevity для краткости

to omit the minus sign опускать знак минуса

it's easier to say легче сказать

unless there is an explicit warning to the contrary если только не имеется точного указания на обратное

to add добавить, сложить

adding, addition сложение, дополнение

addendum дополнение, приложение

to imply (syn. to suggest) предполагать, подразумевать

a rare but not unknown phenomenon редкое, но встречающееся явление

Assignments

I. Suggest the Russian equivalents

the effect of price and income on demand quantities; the downward slope of the demand curve; movements along a demand curve

II. Replace the parts in italics by synonyms

a minor cut; a slight effect; to consider the size of the market; probably; a clear warning

III. Fill in the gaps with the words and expressions from the text

1. How should we measure of the quantity of tickets demanded to the price of tickets?

2. Clearly, £ 1 is a cut in the price of a car and will have a negligible effect on the quantity of cars demanded.

3. It is not the absolute number of cars or tickets we should examine but in quantity demanded.

4. of demand is the percentage change in the quantity of a good

demanded divided by the corresponding percentage change in its price.

5. The price elasticity of demand tells us about movements along and the demand elasticity must be a negative number.

6. For further brevity, economists sometimes the minus sign.

IV. Check your grammar

Shorten the following sentences without changing their meaning, like this:

Nobody likes prices, which are constantly rising.

Nobody likes constantly rising prices.

* A demand curve, which slopes.

* John is a person who works very hard.

* We must develop a policy, which fixes prices better.

* Interest rates, which rise will damp down demand.

* An economy, which is rapidly expanding can get out of control.

* Let's look at the information, which corresponds to this in tabular form.

Shorten the following sentences without changing their meaning, like this: The quantity, which we require is 5000 units.The required quantity is 5000 units.

* A demand curve, which has been drawn inaccurately.

* A price, which has been fixed.

* We can see changes in the price of goods, which are related to each other.

* The prices, which we have been given should be seen as hypothetical.

* If we don't use a model, which has been simplified we shall get bogged down.

* Ours is a company, which is managed well.

* An economy, which is poorly run leads to problems in society.

* That is a theory, which is now out of date.

* On the evidence available, that is a conclusion, which is not justified.

V. Find in the text English equivalents for the following

кривая спроса; реакция на...; при прочих равных условиях; товар, предмет потребления; снижение цены на 1 процент; процентное измене­ние в количественном показателе спроса; эластичность спроса в зависи­мости от изменения цены; измерить гибкость реакции на...; положитель­ное (плюсовое) процентное изменение; негативное (минусовое) процент­ное изменение

V. Explain in English

different units; percentage change; unit-free; absolute number

VII. Answer the questions

1. What does the downward slope of the demand curve show?

2. Give the definition of the price elasticity of demand. Explain it in your own words.

3. Name the three types of the demand elasticity as mentioned above.

4. Explain in your own words how to calculate demand elasticity.

5. Explain why economists sometimes omit the minus sign and how negative and positive numbers should be distinguished.

VIII. Translate using all the active possible

1. Построенная (начерченная) кривая спроса отображает воздействие цен и доходов на количественные показатели (величину) спроса. Нисхо­дящая кривая показывает рост спроса по мере снижения цен.

2. Незначительное снижение цены какого-либо товара мало влияет на величину спроса на этот товар.

3. Понятия перекрестной ценовой эластичности, эластичности доходов и собственно эластичности спроса в зависимости от изменения цен помогают экономистам измерять гибкость реакции на изменения цен.

4. В случае нисходящей кривой спроса мы имеем дело либо с повышением количественного показателя спроса (положительное процентное изменение) при снижении цен (отрицательное процентное изменение), либо с обратной ситуацией (падение величины спроса при росте цен).

 

 

Unit 10.

 

 

PRICE, INCOME AND DEMAND (ЦЕНА, ДОХОД И СПРОС)

In this chapter we’re going to investigate the price elasticity of demand for football tickets. Let’s start by looking at Table 4. It reproduces the demand data from Tabl. 3, that is to say, it reproduces it in columns one and two.

Tabl. 4. The Price Elasticity of Demand for Football Tickets

PRICE Quantity of tickets demanded Price elasticity
(£/ticket) (thousands/game) of demand
12,50
10,00 -4
7,50 - 1,5
5,00 -0,67
2,50 -0,25

We have to look at column one. As you can see, this shows price cuts of two pounds fifty. By considering the effects of price cuts of two pounds fifty we can calculate the price elasticity of demand at each price. This price is shown in column three. But how have we calculated this? Let’s, as an example, take the price of ten pounds, which you can see in the table. There is a corresponding quantity of twenty thousand tickets demanded. If we consider a price cut to seven pounds fifty, there is a price change here of – 25%, from ten pounds to seven pounds fifty. Now look at the corresponding change in the quantity of tickets demanded, in the next column, column two. The change in the quantity of tickets demanded is a 100%, from 20,000 tickets to 40,000 tickets.

There is a 100% change in demand, and a 25% change in price. So we divide a 100 by – 25, which gives the answer – 4. So we say the demand elasticity at ten pounds is – 4. You calculate other elasticities in the same way, that is by dividing the percentage change in quantity by the corresponding percentage change in price.

Notice one thing here in the table. That is when we begin from the price of twelve pounds fifty the demand elasticity is minus infinity. It’s simply because the percentage change looks like this. Any positive number divided by zero yields plus infinity. When we then divide by the minus twenty per cent change in price, that’s from twelve pounds fifty to ten pounds, we obtain or get, minus infinity as the demand elasticity at this price.

There’s one more thing to be said at this stage. We say demand elasticity is high, when it is a large negative number. And we say demand elasticity is low, when it is a small negative number, and when the quantity demanded is relatively insensitive to price. It follows from this that the words high and low refer to the magnitude of the elasticity ignoring the minus sign The demand elasticity falls when it becomes a smaller negative number and quantity demanded becomes less sensitive to price.

VOCABULARY NOTES

to investigate исследовать, рассматривать

to reproduce the data представлять данные

price cuts сокращения цены

a corresponding quantity соответствующее количество

a corresponding change in the quantity соответствующее изменение количества

infinity бесконечность

to yield приносить, давать

magnitude величина, размер

Assignments

1. Suggest the Russian equivalents

a price change of minus 25 per cent; higVlow demand elasticity; to be insensitive to price; magriitude

II. Fill in the gaps with the words and expressions from the text

1. By considering the effects of price cuts of two pounds fifty we can
calculate__ of demand at each price.

2. You calculate other elasticities by dividing in quantity by the corresponding percentage change in price.

3. When we divide by the minus twenty per cent change in price we obtain minus as the demand elasticity at this price.

4. Demand elasticity is , when it is a large negative number.

5. Demand elasticity is , when it is a small negative number.

1. falls when it becomes a smaller negative number and quantity demanded becomes less sensitive to price.

III. Find in the text English equivalents for the following

снижение цены на … фунтов; соответствующее количество; разделить сотню на 25; встретить понятие; процентное изменение в количестве; про­центное изменение в цене; минус бесконечность/плюс бесконечность

1. Answer the questions

1. How is the demand elasticity calculated?

2. Why is the demand elasticity minus infinity in the example?

3. In what case can we speak of high/ low demand elasticity?

4. What does the insensitivity of the quantity demanded to the price mean?

5.When does the demand elasticity fall?

1. Translate into English using all the active possible

1. Безграничная эластичность – это такая эластичность спроса, при кото­рой изменение в количестве спрашиваемых или предлагаемых товаров и услуг будет приводить к увеличению дохода. Такая эластичность характерна для условий совершенной конкуренции, когда отдельная фирма не имеет возможности оказывать влияние на рыночную цену и имеет кривую спроса на свой товар или услуги в виде горизонтальной прямой.

 

 

Unit 11.

 

 

ELASTIC AND INELASTIC DEMAND

(ЭЛАСТИЧНЫЙ И НЕЭЛАСТИЧНЫЙ СПРОС)

Although elasticity typically falls as we move down the demand curve, an important dividing line occurs at the demand elasticity of - 1.

Demand is elastic if the price elasticity is more negative than -1. Demand is inelastic if the price elasticity lies between -1 and 0.

In Tabl. 4 demand is elastic at all prices of £7,50 and above and inelastic at all prices of £5,00 and below. If the demand elasticity is exactly -1, we say that demand is unit-elastic.

Later in this section we'll see that a cut in prices raises revenue from football ticket sales if demand for football tickets is elastic but lowers revenue if demand is inelastic. Whether or not demand is elastic is the key piece of information required in setting the price of football tickets in this example.

Although the price elasticity of demand typically changes as we move along demand curves, economists frequently talk of goods with high or low demand elasticities. For example, they will say that the demand for oil is price-inelastic (price changes have only a small effect on quantity demanded) but the demand for foreign holidays is price-elastic (price changes have a large effect on quantity demanded). Such statements refer to parts of the demand curve corresponding to prices (adjusted for inflation) that are typically charged for these goods and services. They do not necessarily describe the demand elasticity at points on the demand curve corresponding to real prices, which have never been observed historically.

The Determinants of Price Elasticity. Основные факторы ценовой эластичности спроса

What determines whether the price elasticity of demand for a good is high (say, -5) or low (say, -0,5)? Ultimately, the answer must be sought in consumer tastes. If it is considered socially essential to own a television, higher television prices may have little effect on quantity demanded. If televisions are considered a frivolous luxury, the demand elasticity will be much higher. Psychologists and sociologists may be able to explain more fully than economists why tastes are as they are. Nevertheless, as economists, we can identify some considerations likely to affect consumer responses to changes in the price of a good. The most important consideration is the ease with which consumers can substitute another good that fulfils approximately the same junction.

Consider two extreme cases. Suppose first that the price of all cigarettes is raised 1 per cent, perhaps because the cigarette tax has been raised. Do you expect the quantity of cigarettes demanded to fall by 5 per cent or by 0,5 per cent? Probably the latter. People who can easily quit smoking have already done so. A few smokers may try to cut down but this effect is unlikely to be large. In contrast, suppose the price of one particular brand of cigarettes is increased by 1 per cent, all other brand prices remaining unchanged. We should now expect a much larger quantity response from buyers. With so many other brands available at unchanged prices, consumers will switch away from the more expensive brand to other brands that basically fulfil the same function of nicotine provision. For a particular cigarette brand the demand elasticity could be quite high.

Ease of substitution implies a high demand elasticity for a particular good. In fact this example suggests a general rule. The more narrowly we define a commodity (a particular brand of cigarette rather than cigarettes in general or oil rather than energy as a whole), the larger will be the price elasticity of demand.

Measuring Price Elasticities. Измерение ценовой эластичности

To illustrate these general principles we report estimates of price elasticities of demand in Tabl. 5.

Tabl. 5. Estimates of Price Elasticities of Demand in the UK

Good (general category) Demand elasticity Good (narrower categоry) Deand elasticity
Fuel & light -0,47 Dairy produce -0,05
Food -0,52 Bread & cereals -0,22
Alcohol -0,83 Entertainment -1,40
Durables -0,89 Expenditure abroad -1,63
Services -1,02 Catering -2,61

The table confirms that the demand for general categories of basic commodities, such as fuel, food or even household durable goods, is inelastic. As a category, only services such as haircuts, the theatre, and sauna baths, have an elastic demand. Households simply do not have much scope to alter the broad pattern of their purchases.

In contrast, there is a much wider variation in the demand elasticities for narrower definitions of commodities. Even then, the demand for some commodities, such as dairy produce, is very inelastic. However, particular kinds of services such as entertainment and catering have a much more elastic demand. Small changes in the relative price of restaurant meals and theatre tickets may lead households to switch in large numbers between eating out and going to the theatre, whereas the demand for getting out of the house on a Saturday evening may be relatively insensitive to the price of all Saturday night activities taken as a whole.

VOCABULARY NOTES

typically falls обычно снижается

a dividing line разделительная черта

unit-elastic (unitary-elastic) demand спрос с единичной эластичностью, единичная эластичность спроса

to raise/to lower revenue повышать/снижать доходы

the key piece of information ключевая информация

to set the price (syn/ to quote) устанавливать, назначать цену

foreign holidays отдых за границей

to refer to относиться к

parts of the curve corresponding to prices участки кривой спроса, отно­сящиеся к ценам

adjusted for inflation с учетом инфляции

prices typically charged цены, обычно назначаемые

be observed historically встречаться в истории

determinants основные факторы, определители, показатели

the answer must be sought in ответ следует искать в

socially essential существенно, значимо в общественном мнении

a frivolous luxury бездумная роскошь

why tastes are as they are почему вкусы именно таковы

nevertheless (syn. however) тем не менее

to identify some considerations выявить некоторые соображения, мо­менты, факторы

the ease легкость, простота

to substitute smth for smth заменить одно другим

a substitute заменитель

substitution замена

to fulfil approximately the same function выполнять примерно аналогичную функцию

extreme cases экстремальные случаи

the latter (ant. the former) последний (упомяггутый)

to quit (syn. to give up) smoking бросить курить

one particular brand of cigarettes один конкретный сорт сигарет

to fulfil basically в основном выполнять

nicotine provision насыщение никотином

the more narrowly we define чем более узкое определение мы даем

to illustrate general principles для иллюстрации общих принципов

to report estimates in a table приводить оценки в таблице

durables товары долговременного пользования

dairy produce молочные продукты

cereals крупы

entertainment развлечения, досуг

catering поставка продуктов и обслуживание церемоний

the table confirms из таблицы следует

as a category как категория

haircuts стрижка, зд. парикмахерские услуги

sauna baths посещение сауны

to alter the broad pattern изменить широкий ассортимент

a much wider variation большая вариативность

whereas (syn. while, whilst) в то время как

to be relatively insensitive быть относительно нечувствительным

taken as a whole в целом

Assignments

I. Suggest the Russian equivalents

goods with high or low demand elasticities; prices adjusted for inflation

II. Replace the parts in italics by synonyms

to set the prices; ease of substitution suggests a high demand elasticity; may cause households to...; to turn from...to; relatively inelastic

III. Fill in the gaps with the words and expressions from the text

Demand is if the price elasticity is more negative than -1.

2. Demand is if the price elasticity lies between -1 and 0.

3. If the demand elasticity is exactly -1, we say that demand is .

4. Whether or not demand is elastic is required in setting the price.

5. Economists will say that the demand for oil is , but the demand for foreign holidays is .

6. Such statements refer to parts of the demand curve prices ( inflation) that are typically charged for these goods and services.

7. The answer must in consumer tastes.

8. If televisions are considered , the demand elasticity will be much higher.

9. As economists, we can some considerations likely to affect consumer in the price of a good.

10. The most important consideration is the ease with which consumers can another good that_______ approximately the same function.

11. Consider two cases.

12. With so many other brands at unchanged prices, consumers will

switch away from the more expensive brand to other that basically fulfil the same .

13. implies a high demand elasticity for a particular good.

14. The table that the demand for general categories of basic commodities is inelastic.

15. Households simply do not have much scope the broad pattern of

their purchases.

16. There is a much wider in the demand elasticities for narrower

definitions of .

17. Small changes in the price of restaurant meals and theatre tickets may lead households to switch in large numbers between eating out and going to the theatre, the demand for getting out of the house on a Saturday evening may be relatively to the price of all Saturday night activities taken as a whole.

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

1. He is interested economics.

2. He is not concerned non-essential commodities.

3. The demand bananas will probably increase.

4. The supply cigarettes does not usually fluctuate.

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

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

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

8. He paid the money that man.

9. Non-essential commodities like chocolates cannot be compared

basic commodities like fuel.

V. Find in the text English equivalents for the following

повышать/понижать доходы от..; устанавливать цену; основной, определяющий фактор; в конечном счете, в конечном итоге; выполнять приблизительно ту же функцию; сорт; упасть на...%; основные товары (товары первой необходимости); хозяйственные товары длительного пользования; спрос на некоторые товары; единичная эластичность спроса

VI. Answer the questions

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

2. How do consumer tastes determine the demand elasticity?

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

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

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

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

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

VII. Translate using all the active possible

1. Снижение цен может повышать доходы от продаж при эластичном спросе или снижать доходы при неэластичном спросе. В конечном итоге вопрос эластичности спроса становится основным определяющим фак­тором при установлении (2 варианта) цены.

2. В случае, если цена на 1-й сорт какого-либо товара повышается на...%, а цены на другие сорта остаются неизменными, покупатели пред­почитают другие, более дешевые, сорта товара, поскольку они в основ­ном выполняют приблизительно ту же функцию. Легкость замены одних товаров другими предполагает высокую эластичность спроса.

3. Спрос на некоторые категории товаров первой необходимости неэла­стичен. К этим товарам относятся топливо, продукты питания, хозяйствен­ные товары длительного пользования. Структура покупательского спроса домашних хозяйств не предполагает широкомасштабных изменений.





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