Economics study

Out very simply, budget, price and level of utility will all affect your choice at the kiosk. The neoclassical theory of consumer choice says that it is possible to calculate demand for products if we know this kind of information. However, not all economists agree!

 

 В Comprehension

 

Now read the text again and answer the questions.

 

1 According to neoclassical economists, what do consumers want?

A The most satisfaction at the lowest cost.

B The cheapest product.

С To spend all their money.

 

2 What is budget constraint?                                                                            A An amount of money you want to save.                                                                    B combination of money and satisfaction.                                                                  C The total amount of money you have to spend.

 

3 What is utility?

A How much of a product you get.

B The satisfaction you get from a product or service.

C The cost оf a product.

 

4 What explains marginal utility?                                                                    A The mora satisfaction something gives you. the more you want it.

B The more satisfaction something gives you, the less you want it.

C The more you have of something, the less

satisfaction it gives you.

                                                                                                                        5 What do neoclassical economists believe about consumers?

A They make logical decisions.

B They Always knew what they want before they go shopping.                                                                                                        С They don't know what they want.

 

Before you listen_

 

Not all economists agree with the theory of consumer choice described in the text. Here is a list of reasons why. Complete each sentence with a word from the box.

 

 С Listening

 

 

■ advertising   ■ constraints

■ information  ■ mistakes  ■ rational

 

1 Consumers are not always........................

2 Consumers often don't have enough

3 Choices are affected by........................

4 Consumers make........................

5 Budget.......................may not guide consumers'

choice.

 

Now listen and check your answers.

 

 

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Before you read _

 

Discuss this question with your partner.

What do you think a company has to spend money on? Make a last of you ideas.

 

 D Vocabulary

■ interest	■ keep track of	■ loan
■ maintain	■ minus	■ nasty
■ part-time	■ rate	■ relationship
■ revenue	■	■ the short term

Complete each sentence with a word or phrase from the box.

 

          

1 I.......................what I spend by writing  everything down in a notebook.

2 There is a.......................between the quality of a  product and its cost.

3 Company's total.......................is all the money  it receives from sales.

4.......................is the next few weeks or months  The long term may be the next years or decades.

Five.......................three is two.

6 Factories have to.......................their machines keep them working properly.

7 A.......................worker works for only a few  hours a day or a few days per week.

8 When someone or something is........................  they aren't nice at all.

9  If you borrow money from a bank, you have to pay it back with an extra charge which is called

10 When somebody lends money, they are giving a

11 The.......................at which something happens is  how fast it occurs.

 

 

 

 

Costs and supply

 

Companies have to spend money in order to make

money. The money they spend to manufacture their goods or provide their services are called coats. Costs are important. Any company that doesn't keep track of costs will soon be in trouble. And there are many different kinds of costs to keep track of such as fixed costs and variable costs.

Why arc costs important? Well, for two reasons Firstly, there is a relationship between costs and profit. Profit is overall revenue minus costs. Secondly, there is a relationship between costs and supply To understand this relationship, we need to look at some types of cost.

 

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One type is fixed costs. Fixed costs are costs that don't change. They are costs that the company has to pay each month, for example, or each year. The value of fixed costs will not rise or fall in the short term. Examples include the rent the company pays, the interest they have to pay each month on any loans and the salaries they have to pay for permanent employees. The good news about fixed costs is that they don't change with increases in production. For example, imagine a company produces 1,000 pens in January and 2,000 pens in February. The rent for the factory remains the same for both months. Variable costs, however, change (vary) with the size of production. The more pens the company produces, the more these costs increase. Examples of variable costs are the raw materials needed for production, the cost of electricity and the cost of maintaining machines that are working more. Also, the company may need to get more part-time employees. Their hourly pay is another variable cost. In unit 1 we said that the price of a product or service increases as supply increases. Variable costs are the reason why.

In a perfect world, variable costs will increase steadily as production increases. This is called constant return to scale and it is shown in figure 3 on page 27. However, this is not a perfect world! Sometimes, variable costs rise at a faster rate than production. This nasty situation, which is called a dis-economy of scale, is shown in figure 4 on page 27. On the other hand, companies sometimes get lucky. Variable costs can rise at a much slower rate than production. This is called an economy of scale, and is shown in figure 5 below.

_

 

 

 E Comprehension

 

Now read the text again and answer these questions in your own words in the space provided below.

1 What are costs?

2 Why are costs important?

3 What are fixed costs?

4 What are variable costs?

5 Why is an economy of scale good?

6 Why is a dis-economy of scale bad?

Notes:

 

Before you listen

 

Discuss the following with your partner.

Price is not only the cost of something. Every purchase has a hidden cost. What do you think this is?

 

 F Listening )))

 

You're going to hear about another kind of cost called opportunity cost. Listen and choose the best answer for each question. Then listen again and check your answers.

 

1 What is opportunity cost?

A Something you have to give up in order to

have something else. В Something a company can charge people for

goods or services. С Something that companies pay when they first

start business.

 

2 What could be the opportunity cost of watching television?

A Getting sore eyes.

В The cost of buying a television.

С Not sunbathing in the garden.

3 What is the opportunity cost for Alice's decision?

A £3,000 В £39,000 С £13,000

 

 

 

 

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G Speaking

 

Discuss these questions with your partner.

How do you make decisions about what to buy?

Do you think people make rational decisions? Why/Why not?

 

Task

 

Imagine you are the manager of a small manufacturing business (you decide what the company makes). Give a short talk to your employees explaining what the company's costs are.

First, read the texts again and make notes on the following:

fixed costs

variable costs

  Does your company have an economy of scale?

 

Notes:

Pronunciation guide

Utility                             

Marginal

Revenue

Employee

Constraint

 

H Writing

 

You're the librarian at your school. The head teacher has asked you to buy some, more materials for the library. You can choose from the following.

  books, including fiction for teenagers, poetry. special interest and hobby books (€10 each)

magazine subscription for one year (either a music magazine or a fashion magazine) (€50)

educational CD-ROMS for science, history and technology (€20 each)

a set of encyclopaedias (€100)

Your budget constraint is €200.

 

 

E-mail to your head teacher

Write an e-mail to your head teacher explaining the budget constraints you have. Tell him or her what you want to buy and why.

PARAGRAPH 1

Explain why you're writing.

Useful words and phrases:

Dear ...  I'm writing in order to

PARAGRAPH 2

Explain your budget constraints and the costs of materials.

Useful words and phrases:

Our current budget constraint is...

There are a range of materials that we could

buy: These include...

PARAGRAPH 3

Say how you intend to spend the money.

Useful words and phrases:

After careful consideration. I think the best purchases would be...

PARAGRAPH 4

Give reasons why you have chosen to spend the money in this way.

Useful words and phrases:

I have chosen, because, would be a good purchase because, would be very useful for, first, next, in addition, finally

Sign off in a polite way

 

 

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Before you read_

 

Discuss the following with your partner.

Here are some things that affect how a market operates. How important do you think each one is?

the size of companies

what products and services are like

what information consumers and companies have about products

ease of entry into the market for companies

companies having the resources and technology they need

 

 A Vocabulary

 

Choose the correct answer А, В or С from the list opposite.

 

1 Companies usually have a.......................with

senior managers at the top and employees at the bottom.

2 McDonald's has a very big.......................of the

fast food market.

3 Some teachers mark students work using a

.......................from A to E.

4 No one's work is We all make

mistakes

5 A perfect economic system may never

6 A.......................monopoly means an absolute or

complete monopoly.

7 Not all twins are........................Some twins are

brother and sister, for example.

8 Sometimes a person's colour or race can be a

.......................to getting work.

9 We use curtains to.......................light.

10 Countries have been.......................with each

other for thousands of years.

11 The.......................point is where two things are

balanced against each other.

12 Honey is a healthier.......................for sugar to

make things sweet.

Everyone should have.......................to education.

1A shape	1B structure	1C building
1A piece	2B part	2C market sham
3 A scale	2B point	3C  grade
4A good	4B better	4C ported
5A is	5B live	5C exist
6A pure	6B good	6C clean
7A similar	7B identical	7C same
8A gate	8B barrier	8C block
9A barrier	9B close	9C block
10A shopping	10B trading	10C selling
11A equilibrium	11B middle	11C equal
12A difference	12B addition	12C substitute
13A access	13B openings	13C entrance

 Reading 1(UNIT 6)

 

Market structure and competition

 

When economists talk about market structure they mean the way companies compete with each other in a particular market. Let's take the market for pizzas, for example. There may be many thousands of small companies all trying to win a share of the pizza market, or there may

be only оne huge company that supples, all the

pizzas. These are two very different market structures, but there are many other possible structures Market structure is important because

 

 

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it affects price. In some market structures, companies have more control over price. In other market structures, consumers have more control over price.

You can think of market structure as a kind of scale. At one end of the scale is perfect competition and at the other end is pure monopoly. In a market with perfect competition, there are many companies supplying the same good or service, but none of them are able to control the price. This sounds fine, but in reality it is very difficult for such a market structure to exist. What's needed?

First of all, there must be many small companies competing. Each company has its own small share of the market. If one company has a much larger share than any other, it can affect price, and perfect competition will no longer exist.

Secondly, products or services from different companies must be the same. This doesn't mean that everything on the market has to be identical, but they have to be perfect substitutes. In other words, one company's product must satisfy the same need as another company's. Imagine a company produces a television that also makes tea. Its product is different from everyone else's. If it chooses to raise the price of its TVs, customers may still want to buy them because of this difference.

Thirdly, customers and companies must have perfect and complete information. This means that they know everything about the products and prices on the market and that this information is correct.

Fourthly, there mustn't be any barriers to new companies entering the market. In other words there must not be anything that helps one company stay in the market and blocks others from trading.

Finally, every company in the market must have the same access to the resources and technology they need.

If all of these conditions are met, there is perfect competition. In this kind of market structure, companies are price takers. This is because the laws of supply and demand set the price, not the company. How does this work? Very simply! An increase in demand will make a company increase its price in order to cover costs. It might try to push its prices even higher than necessary so that it can

make more profit. However, it will not be able to do this for very long. The increase in demand and the higher price will make other companies want to enter the market, too. This will drive the price back down to equilibrium.

 

 В Comprehension

 

Now read the text again and decide whether these statements are true or false.

 

1 Market structure describes how

competitive a market is. T/F

2 Perfect competition and pure

monopoly are opposites. T/F

3 Four conditions are necessary for

perfect competition to exist. T/F    4 In perfect competition, every company makes a slightly

different product. T/F

5 Perfect competition makes it easy

for new companies to start trading. T/F

6 When there is perfect competition, companies are able to set any price they want. T/F

 

Before you listen

 

Discuss the following with your partner.

Perfect competition is really only an idea. It almost never happens in the real world. Why do you think this is? Can you think of any market that has perfect competition?

 

 С Listening )))

 

Now complete each sentence with words from the box. Then listen and check your answers.

a monopoly  an oligopoly

a monopsony

imperfect competition

 

1 Any market structure apart from perfect competition is called........................

2.......................is when there is only one seller of good or service.

3.......................is when only a small number of  sellers control the market.

4.......................is when there is only one buyer in  the market for a product or service.

 

 

 

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Before you read _

 

Discuss these questions with your partner.

Can you think of any reason why them are monopolies?

Do you think monopolies have advantages as well as disadvantages?

 

 

D Vocabulary

 

Complete each sentence with a word from the box.

■aggressive	■innovation	■network
■ cables	■ illegal	■legal
■ naturally	■occurs	■ printing
■publishing	■ takeover

 

 

  

1 A.......................is a set of connections.

When one company gains control of another company it is called a........................

Raw materials are things like wood or oil that exist

4 Electricity travels along.......................to reach

our houses.

5.......................people get what they want by

violence and force.

6......................companies are responsible for the

writing and pictures in books, etc.

7.......................companies make books.

8.......................is inventing and thinking of new

solutions to problems.

9 If something is........................it is allowed by law.

10 When something is........................it is not

allowed by law.

11 If a problem........................you will have to deal

with it

 

Reading 2

 

Monopolies

 

In a monopoly, one company has a much larger market share than any other company In fact, their share is so big that other companies cannot really compete. When there is а monopoly, the normal laws of supply and demand do not always work. Monopolies come in different kinds, but a pure monopoly is when there is only one company in the market providing a particular product or service This situation, in fact, is the exact opposite of perfecf соmpetition. How do pure monopolies happen?

Some monopolies occur naturally This happens when a company manages to create an economy of scale. An economy of scale is when variable costs of production increase more slowly than

increases in supply Every company would like to

be in this situation Unfortunately, it's not easy to achieve .Economies of scale are possible for companies which need a lot of money to set up but much less money to run.

 

 

 

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telephone company is a good example. Telephone companies have to spend millions of pounds laying cables. However, once they have made the network, running the system does not cost so much. Any other company that wants to compete will have to make their own network. Not surprisingly, not many bother!

However, the world of business is a jungle, and there are more aggressive ways to create a monopoly. One of these is by making takeovers. This means that a more powerful company buys a smaller one in the same industry. Takeovers happen vertically or horizontally. In a vertical takeover, a company buys companies that supply it with materials or services. For example, a publishing company might buy a printing business. In a horizontal takeover, a company buys its competitors. The competitors then become part of the first company.

One final way a monopoly occurs is for the government to make it happen. This is called a legal monopoly, but not because other monopolies are illegal! It is called a legal monopoly because it is created by law. The government may decide that a competitive market is not good for a certain industry. In this case, it can make one company the only legal supplier. Sometimes, it provides the service itself. This is called a store monopoly. The postal service in many countries is an example of a state monopoly.

Generally, monopolies are not good for consumers. This is because in a monopoly, the laws of supply and demand do not work in the same way. A company with a monopoly becomes a price maker. They have much more power to set the price for their product or service. Also, they don't usually spend money on innovation because they don't need to. The bottom line, as they say, is that monopolies mean less choice for consumers.

 

 E Comprehension

 

Now read the text again and match the phrases on the left with the definitions on the right.

1 pure monopoly

2 natural monopoly

3 legal monopoly

4 horizontal takeover

5 vertical takeover

6 price maker

A a company with the power to set prices in the market

В when a company buys a competitor

С when only one company supplies to the market

D when a company buys a supplier

E when a monopoly occurs due to economies of scale

F when a monopoly occurs due to government control

 

Before you listen

 

Discuss this question with your partner.

What dangers might monopolies face?

 

F Listening )))

 

Now listen to someone talking about the threats which face monopolies. Tick the things in the list that are mentioned.

1 rising variable costs

2 a fall in demand

3 a change in fixed costs

4 innovation by another company

5 takeover from a foreign company

 

 

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G Speaking