UNIT TEN

Elasticity

1. Adjust (to) v. – to make slight changes in something to make it fit or function better – виправляти, пристосовувати, регулювати, узгоджувати. To adjust in accordance with – приводити у відповідність, to adjust price(s) – узгоджувати (коригувати) ціни, to adjust supply to current demand – привести пропозицію у відповідність з поточним попитом, to adjust to current prices – коригувати у відповідності з поточними цінами. Syn. to fit (to), adapt (to/for).

2. Discourage v. – to make someone feel less confident, enthusiastic and positive about something, or less willing to do something – знеохочувати, відбивати охоту; розхолоджувати; відмовляти; відраджувати, перешкоджати, заважати, стримувати. Syn. to deter.

3. In the short run - іn the immediate future – невдовзі, незабаром, скоро. Syn. soon, presently, before long. Ant. in the long run.

4. Necessities n. – things needed to support life – предмети/товари першої необхідності. Basic necessities – предмети/товари першої необхідності. Syn. essential goods, essentials.

5. Necessity v. - something that a person needs, especially in order to live - необхідність, потреба, предмет першої необхідності. Of necessity – через необхідність, there is no necessity – немає необхідності/потреби. Syn. a need.

6. Reckon on v. - to feel that something is likely to happen and to make plans which depend upon it – покладатися, розраховувати, сподіватися. To reckon with – приймати до уваги. Syn. to rely on.

7. Respond to v. - to act or do something in return to a force or stimulus – реагувати, робити щось у відповідь. Тo respond to the demand - задовольняти попит. Syn. to react to.

Text

An important concept in understanding supply and demand theories is elasticity. It is a

measure of how much buyers and sellers respond to changes in market conditions.

Comprehension of elasticity is useful to understand the response of supply and demand in a

market, in order to achieve an expected result or avoid unforeseen results. For example, an

entrepreneur expecting a price increase might find that* it lowers the profits if demand is

highly elastic, as sales would fall sharply. Similarly, a business reckoning on a price cut

might find that* it does not increase sales, if demand for the product is inelastic.

Elasticity varies among products because some products may be more essential to the

consumer. A good or service is considered to be highly elastic if a slight change in price leads

to a sharp change in the quantity demanded or quantity supplied. A price increase of a product

or service that isn’t considered a necessity will discourage more consumers because the

opportunity cost of buying the product will become too high. On the other hand, an inelastic

good or service is one in which changes in price bring about only modest changes in the

quantity demanded or quantity supplied, if any at all. Products that are necessities are more

insensitive to price changes because consumers will continue buying these products despite a

price rise. This is known as the price elasticity of demand and the price elasticity of supply.

In economics, the price elasticity of demand is an elasticity that measures the nature and

degree of the relationship between changes in the quantity demanded of a commodity and

changes in its price.

One typical application of the concept of elasticity is to consider what happens to consumer

demand for a product when prices increase. As the price of a product rises, consumers will

usually demand less of that product, perhaps by consuming less, substituting another product

for it, and so on. The greater the extent to which demand falls as price rises, the greater is the

price elasticity of demand.

Demand is called elastic if a small change in price has a relatively large effect on the

quantity demanded.

The number and quality of substitutes for a product is the basic influence on price elasticity of

demand. If the prices of the substitutes remain the same, a rise in the product’s price will

discourage consumers from buying this product. On the other hand, if there is a price cut in the

product, consumers will substitute other items for this product. Thus, the demand for this

product tends to be elastic. In general, demand is elastic for non-essential commodities (visits

to theatres or concerts, holidays, parties, etc.)

However, there are some goods that consumers cannot consume less of, and cannot find

substitutes for even if prices rise. Such goods are said to have inelastic demand.

Demand is inelastic, when a change in price has a relatively small effect on the quantity

demanded.

The demand for some goods and services will be inelastic if:

they are necessities. An example of a product with a highly inelastic demand is salt:

people need salt, so for even relatively large changes in the price of salt, the quantity

demanded will not be significantly altered.

it is difficult to find substitutes. If substitutes for a product are not available or of bad

quality, consumers will not respond significantly to changes in its price.

goods are relatively inexpensive. People are less apt to change their buying habits when

the price of a product is increased or decreased.

The elasticity of demand also deals with the effect of a price change on the seller’s total

revenue. Total revenue is the amount paid by the buyers and received by the sellers of

products. When the price elasticity of demand for a product is elastic, the percentage change in

quantity is greater than that in price. Hence*, when the price is raised, the total revenue of

producers falls, and the total revenue of producers rises, when the price is decreased.

When the price elasticity of demand for a product is inelastic, the percentage change in

quantity is smaller than that in price. Therefore, when the price is raised, the total revenue of

producers rises and the total revenue of producers decreases, when there is a good’s price fall.

In economics, the price elasticity of supply is the degree of proportionality 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. If a change in price results in a large

change in the quantity supplied, supply is considered elastic. On the other hand, if a great

change in price results in a small change in the quantity supplied, supply is called inelastic.

Determinants of price elasticity of supply are

the ability of producers to change the amount of goods they produce

time period needed to alter the output.

Elasticity of supply is different in the short run and the long run. Supply is usually more

inelastic in the short run than in the long. For example, supply of many goods can be

increased over time by allocating alternative resources, investing in an expansion of production

capacity, or developing competitive products that can substitute for hot items. Hence, supply is

more elastic in the long run than in the short run since producers adjust supply to price changes

over a longer time.

COMMENTS:

an entrepreneur expecting a price increase might find that – підприємець, який сподівається на підвищення ціни, міг би з’ясувати, що;a business reckoning on a price cut might find that - підприємець, який розраховує на зниження ціни, міг би з’ясувати, що;hence – отже, звідси, в результаті.

Exercise 1.Read, translate into Ukrainian in writing and memorize the following economic terms and concepts.

1. Elasticity: An economic concept which is concerned with a shift in either demand for or supply of an economic product as the result of a change in a product’s price.

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2. Elastic demand: Demand for which a small change in price results in a large change in demand.

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3. Elastic supply: Supply for which a percentage change in a product's price causes a larger percentage

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change in the quantity supplied. ________________________________________________

4. Price elasticity of demand: The degree to which demand for a commodity responds to a change in the price of this commodity.

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5. Price elasticity of supply: The degree to which supply of a commodity responds to a change in that commodity’s price.

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6. Inelastic demand: Demand for which a large change in price leads to only a small change in demand.

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7. Inelastic supply: Supply for which a percentage change in a product's price causes a smaller percentage change in the quantity supplied.

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Exercise 2. Find the English equivalents for the following.

1. Очікуваний результат ____________________________________________________________2. вона зменшує прибуток __________________________________________________________3. варіюватися від товару до товару __________________________________________________4. незначна зміна ціни/в ціні ________________________________________________________5. не вважатися товаром першої необхідності __________________________________________6. бути більш нечутливим до змін ціни ________________________________________________7. сутність/характер та рівень відносин _______________________________________________8. бути поганої якості ______________________________________________________________9. менш схильні змінювати _________________________________________________________10. ступень пропорційності __________________________________________________________11. пропонувати на продаж __________________________________________________________12. збільшення виробничої потужності ________________________________________________

Exercise 3. Give the Ukrainian equivalents for the following.

1. Changes in market conditions _______________________________________________________2. the response of supply and demand __________________________________________________3. unforeseen results ________________________________________________________________4. to be more essential to the consumer _________________________________________________5. a sharp change in the quantity demanded ______________________________________________6. to bring about only modest changes in the quantity demanded _____________________________ __________________________________________________________________________________

7. to substitute another product for it ___________________________________________________8. to respond significantly to changes ___________________________________________________9. the percentage change _____________________________________________________________10. the seller’s total revenue ___________________________________________________________11. to alter the output ________________________________________________________________12. adjust supply to price changes _______________________________________________________

Exercise 4. Match these adjectives and nouns/noun phrases as they occur together in the text: translate the expressions they make into Ukrainian.

hot price alternative applicationbasic itemscompetitive resources going revenuenon-essential influencetotal products typical commodities

Exercise 5. 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.

concept increase price habits consumer demand of many goods price a productsubstitutes elasticity price for a productsupply periodbuying elasticitytime cut

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

to achieve an expected result: ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________will discourage more consumers: ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________more insensitive to price changes: ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________substituting another product for it: __________________________________________________________________________________________________________________________________________________________________________________________________________________________

______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________are not available: ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________to alter the output: _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________by allocating alternative resources: _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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

A modest change: ___________________________________________________________________a necessity: ________________________________________________________________________a price cut: _________________________________________________________________________a price increase: ____________________ ________________________________________________a sharp change: _____________________________________________________________________an expected result: ___________________________________________________________________in the short run: _____________________________________________________________________necessities: _________________________________________________________________________the going price: _____________________________________________________________________to adjust to: ________________________________________________________________________to discourage: ______________________________________________________________________to reckon on: _______________________________________________________________________to reckon with: ______________________________________________________________________to respond: _________________________________________________________________________to respond to the demand: _____________________________________________________________to tend: ____________________________________________________________________________an unforeseen result: _________________________________________________________________

to react to presently the current price to rely on to take into considerationto fit to to meet the demand before long a price fall an unpredictable effectessentials a slight change to deter a need a significant change a price rise an anticipated effect basic necessities to adapt for a small change

soon essential goods a large change to be apt to to supply the demand

Exercise 8. At least one word or word-combination has been omitted from each of these sentences. Rewrite the sentences filling in the blanks from the list of missing words below and translate them into Ukrainian.1. The concept of elasticity is useful to know how __________________________________ or ________________________________ will change when the price changes. - _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________2. To the economists, ________________________________________ is the degree to which the demand is affected by a change in commodity’s price. - ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________3. The supply of a commodity is said _________________________ when a change in price force producers to alter production capacity. - __________________________________________________________________________________________________________________________________________________________________________________________________________4. If demand is inelastic and price increases, total revenue _______________ but when demand is elastic and price rises, total revenue ______________. - _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________5. Consumers as well as producers are less apt ________________________________ in the short run than in the long run. - _________________________________________________________________________________________________________________________________________________________________________________________________________________________________6. The most important circumstance that affects elasticity of demand is ________________________________________. - _______________________________________________________________________________________________________________________________________________7. In economics _______________________________________ is the percentage change in quantity supplied resulting from the percentage change in price. - _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________8. If a change in price leads to a relatively slight change in quantity demanded, the product is said _____________________________. - _______________________________________________________________________________________________________________________________________________________________________________________________________________________

price elasticity of supply will risethe quantity supplied to be elastic

will fall the quantity demandedthe availability of substitutes price elasticity of demand

to have inelastic demand to adjust to price changes

Exercise 9. Match each term in column A with its definition in column B.

A B1. Elasticity a. A measure of the responsiveness of a commodity’s quantity

supplied to changes in that commodity’s price. 2. Elastic demand b. A measure of the responsiveness of a commodity’s quantity

demanded to changes in that commodity’s price. 3. Elastic supply c. A term used when the percentage change in a product's price

causes a smaller percentage change in quantity supplied.4. Inelastic

demandd. It refers to how supply and demand change in response to

various influences. 5. Inelastic supply e. A term used when the percentage change in a product's price

causes a larger percentage change in quantity demanded.6. Price elasticity

of demandf. A term used when the percentage change in quantity demanded

is smaller than the percentage change in price. 7. Price elasticity

of supplyg. A term used when the percentage change in a product's price

causes a larger percentage change in quantity supplied.

1 2 3 4 5 6 7

Exercise 10. Translate into English using the active vocabulary.

1. Еластичність попиту показує ступінь зміни величини попиту у відповідь на зміни в ринковій ціні.

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2. Попит називається еластич-ним, якщо невелика зміна ціни має відносно великий вплив на величину попиту.

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3. Попит вважається нееластич-ним, коли зміна ціни товару викликає помірну зміну споживчого попиту.

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4. Підвищення ціни на не вкрай необхідний товар стримує спо-живачів від його покупки за поточною ціною.

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5. Попит на товари першої необхідності завжди нееластич-ний, тому що, незважаючи на збільшення або зменшення ціни, споживачі купують цей товар або через відсутність замінників, або через їх погану якість.

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6. Цінова еластичність пропози-ції відноситься до того, як величина пропозиції певного товару реагує на зміну ціни

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цього товару. _________________________________________________

7. Еластичність товару може змінюватися відповідно до кількості товарів замінників та споріднених товарів.

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8. Еластичність попиту і пропозиції має схильність бути більш значною протягом довгого періоду часу.

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9. Економісти використовують поняття еластичності, щоб пояснити зв’язок між змінами ціни та змінами сукупного доходу.

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Exercise 11. Answer the following questions.

1. What is elasticity as an economic concept? 2. Why is elasticity important in understanding supply and demand theories?3. Why does elasticity vary among products?4. Why does a price increase of a product discourage consumers to buy it? 5. When does a price change bring about only a slight change in the quantity demanded or quantity

supplied?6. When does a price change cause a sharp change in the quantity demanded or quantity supplied?7. What is the price elasticity of demand?8. What is meant by the price elasticity of demand?9. What factors affect elasticity of demand?10. What demand is considered as elastic?11. What goods and services is demand elastic for?12. When demand is said to be inelastic?13. What is the difference between elastic and inelastic demand? 14. What goods and services is demand inelastic for?15. Why is demand for some commodities inelastic?16. What goods are called necessities?17. Why is demand for necessities inelastic?18. What is total revenue?19. How does the elasticity of demand affect the seller’s total revenue?20. What is the price elasticity of supply?21. When supply is elastic?22. What supply is called inelastic?23. What are the determinants of price elasticity of supply?24. What is the difference between the short run and the long run? 25. Why is the price elasticity of supply greater in the long run than in the short run?

Questions for economic reasoning and discussion

1. Below is a list of consumer goods and services. Determine whether an item has an elastic or inelastic demand. Indicate the most important reason from the list below.

6-pack of cola CheeseburgerPizza Air conditioning10-speed bicycle Electric guitarGasoline Apple juice

Cosmetic plastic surgery AutomobileLoaf of breadDVDs

Surfer shirtSteak

Reasons: necessity, luxury, many available substitutes, a few available substitutes, inexpensive, expensive, easy to delay purchase, difficult to delay purchase.

2. Suppose the demand for a particular product is inelastic. If the seller of this product increases its price, what will happen to the firm's total revenue?

3. Suppose the demand for a product is elastic. If the seller of this product increases its price, what will happen to the firm's total revenue?

4. Choose the right variant. Only one is possible.

1. Evidence suggests that the elasticity of demand between private and public transport is very low. Therefore it follows that

a. A fall in the demand for private transport would cause a small rise in the price of public transport.

b. A rise in the price of private transport would cause a small rise in the demand for public transport.

c. A rise in the price of private transport would cause a slight fall in the demand for public transport.

d. A fall in the demand for private transport would cause a small rise in the demand for public transport.

2. When the price of gasoline rises 15 %, the quantity of gasoline purchased falls by 6%. The demand for petrol is

a. price elastic b. price inelastic

3. The price elasticity of demand is the responsiveness of quantity demanded for any good to

a. a change in the price of that good.b. quantity supplied. c. a change in the output of good. d. quantity demanded.

4. We know that the demand for a good or service is inelastic if

a. when price rises, total revenue rises. b. when price rises, quantity demanded rises. c. when price rises, total revenue falls. d. when price rises, quantity demanded falls.

5. Which of the following would tend to have an inelastic demand curve?

a. Complementary goods b. Luxuriesc. Goods with substitutesd. Necessities

6. Which of the following best describes a product with elastic demand?

a. Consumers buy almost the same quantity of this product at a low price as they do at a high price.

b. A relatively large price cut is necessary to convince consumers to buy a little more of this product.

c. When the price of this product is reduced, consumers tend to buy more of it.d. A relatively small price reduction will cause consumers to buy a lot more of this product.

7. As a result of an increase in price, total sales of a product increased by $1,000. The demand for a product was

a. Elasticb. Inelastic c. Diminishingd. All of the above

8. The demand for a product tends to be elastic if

a. the product has a large number of good substitutes.b. consumers generally spend a small fraction of their income on the product.c. the product is regarded as a necessity.d. the product has few good substitutes.

9. In 2001, export prices of coffee in Ethiopia fell by half. If the demand for Ethiopian coffee is assumed to be price inelastic, the fall in price will cause

a. A rise in the total revenue of coffee growers (вирощувачі кафи)b. An increase in the profitability of growing coffee in Ethiopia c. A fall in the total revenue of coffee growers d. No change in the total revenue

10. Total revenue is a. another name for profit. b. equal to the average cost of producing the product times the number of units produced.c. the amount of money a business takes in from selling its product minus the cost of producing

the product.d. equal to the price of the product times the quantity sold.

11. The demand for a good is elastic when

a. total revenue increase with each decrease in price.b. total revenue decrease with each decrease in price.c. price changes have no effect upon total revenue. d. the demand curve shifts upward to the right.