Unit six

An Initial Look at Demand What do We Mean by Demand? The Law of Demand Elasticity of Demand

Essential vocabulary

1. Cut n – the act of reducing the amount, number or rate of something – скорочення, зниження, зменшення. Cut in sales – зменшення товарообороту, cut/decreased/reduced price – знижена ціна, price cut/cut in price - зниження ціни. Syn. a reduction, a decrease, a decline, a fall.

2. Demand (for something) n – the act of demanding or requesting something forcefully – попит, потреба, вимога. Actual demand – фактичний/дійсний попит, a change/increase/ decrease in demand – зміна/збільшення/зменшення попиту, consumer/consumptive/ customer demand – споживчий попит, decreased/increased demand – зменшений/ збільшений попит, great/high/enormous/strong demand – великий попит. To be in (good/great) demand – користуватися (великим) попитом, to meet/satisfy/supply a demand – задовольняти потребу, to meet/satisfy/supply the demand – задовольнити/задовольняти попит.

3. Demand v – to request something clearly and firmly in a way that is difficult to ignore or deny – вимагати, потребувати. Syn. to call for, to require.

4. Diminish v – to make something smaller or less important, or become smaller or less important – зменшувати(ся), скорочувати(ся). Diminishing marginal utility – гранична спадна корисність. Syn. to decline, to decrease.

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

6. Item n – a single thing in a list, group or collection of things – виріб, товар, вид товару. Syn. an article, a thing.

7. Necessity n – something that a person needs, especially in order to live – необхідність, потреба, предмет першої необхідності. Syn. a need.

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

9. Quantity n – an amount or number of something especially that can be measured or is fixed – кількість, розмір, величина. Price-quantity combination – комбінація/поєднання ціни та кількості, quantity demanded – величина попиту, quantity supplied – величина пропозиції.

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

11. Shift v – to change place, position or direction – переміщувати. To shift to the left/to the right – переміщуватись вліво/вправо.

12. Slope v – to take an inclined course – нахилятися, мати нахил. To slope down/downward – опускатися полого, to slope up/upward – підніматися полого.

13. Substitute something for something – to use something instead of another thing – замінювати щось чимось.

14. Suffer v – to experience or undergo something unpleasant or undesirable – зазнавати, потерпати. To suffer a cut/decrease in sales – зазнавати зменшення обсягу продажу/ товарообороту, to suffer losses – зазнавати збитків. Syn. to incur, to sustain.

15. Tend v – to be generally inclined to react or behave in a particular way, or be in the habit of doing something – мати схильність (тенденцію), бути схильним, тяжіти. Syn. to be apt.

16. Usefulness n. – a quality of having utility and especially practical worth or applicability – корисність. Item’s usefulness – корисність товару. Syn. utility.

17. Vary v. – to change within a range of possibilities, or in connection with something else – міняти(ся), змінювати(ся), варіювати. To vary inversely/directly with – змінюватися обернено/прямо пропорційно до.

TEXT

The theory of supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. The supply and demand model describes how prices vary as a result of a balance between product availability and consumer demand.

Since contemporary economies rely on the market forces of supply and demand instead of government forces to distribute goods and services there must be a method for determining who gets the products that are produced. This is where the laws of supply and demand begin to work. By themselves these laws give us basic information, but when working together they are the key to distribution in a market economy.

It is not enough for a buyer to want or desire an item. He or she must show the ability to pay and then the willingness to pay. In economics, demand is comprised of people’s desire, willingness and ability to purchase particular amounts of goods or services at certain prices in a given period of time. To the economists consumers make rational choices about how much to buy and how to spend their income on the products that will give them the greatest satisfaction at the least cost. So, demand describes the behavior of buyers.

What factors alter a consumer’s desire, willingness and ability to pay for products? Some factors include consumers’ income and tastes, the prices and availability of related products like substitutes or complementary goods, and the item’s usefulness.

Substitutes are goods that satisfy similar needs and which are normally consumed in place of each other. As the price of one substitute declines, demand for the other substitute will decrease. Butter and margarine are close substitutes. If the price of butter goes up, then people will be apt to substitute margarine for butter.

Complementary goods are those that are normally consumed together (e.g., DVD players and DVD movies). An increase in the price of a product will diminish demand for its complement while a decrease in the price of a product will increase demand for its complement.

Think of the item’s usefulness this way. It is a hot summer day and you are gasping for a drink*. You come across a lemonade stand and gulp down a glass*. It tasted great so you want another. This second glass is marginal utility meaning an extra satisfaction a consumer gets by purchasing one more unit of a product. But now you reach for a third glass. Suddenly your stomach is bloated and you are feeling sick. That means that the law of diminishing marginal utility comes into effect!

The law of demand states that the higher the price of a product, the fewer people will demand that product, that is, demand for a product varies inversely with its price, all other factors remaining equal*. Factors other than a good’s price which affect the amount consumers are willing to buy are called the non-price determinants of demand. The law of demand expresses the relationship between prices and the quantity of goods and services that would be purchased at each and every price. In other words, the higher the price of a product, the lower the quantity demanded.

Economists like to look at things graphically. A demand schedule is a table showing the number of units of a product that would be purchased at various prices during a given period of time. The information presented in a graphic form is called a demand curve. It shows an inverse relationship between the price and the quantity demanded. Or to put it another way, the demand curve represents the quantities of a product or service which consumers are willing and able to buy at various prices, all non-price factors being equal. The demand curve slopes downward from left to right based on the law of demand.

The advantage of the curve is that it enables economists to see the relation between price and quantity demanded and to calculate approximately what the demand would be for those prices falling in between the prices that are in the demand schedule. Each point along the curve represents a different price-quantity combination.