Unit 2 Markets and Welfare学生阅读.docx

1、Unit 2 Markets and Welfare 学生阅读Unit Two Markets and WelfareREADING ONEThe Market Forces of Demand and SupplyA market is a group of buyers and sellers of a particular good or service. The buyers as a group determine the demand for the product, and the sellers as a group determine the supply of the pr

2、oduct. Sometimes markets are highly organized, while sometimes less. Price Suppose an economy runs on the lines of the purely competitive market of free enterprise，then what is produced and the prices at which the products are sold depend upon the decisions and choices made by buyers and producersSo

3、metimes during a good season for citrus fruits so many oranges are produced that there is a glut，and the farmers find that the low prices they receive do not cover their costs of transporting the fruit to market；sometimes the fruit-growers allow people to pick all they want，free，or avoid the fruit r

4、ottingWhat and how much should be produced depend on the price mechanism which makes known to firmsThe price mechanism is the process by which prices rise and fall as a result of changes in demand and supply, and thereby acts as a signal to producers to guide them on their production plansThis proce

5、ss is most easily seen in the way in which prices for fruit and vegetables fluctuate according to changes in supply due to seasonal climatic variations and the difficulty of storing a surplus There were no restrictions at a11 if our economy were entirely competitive, then the market forces，or price

6、mechanism，would operate freely. Producers would put the products to the market which consumers were willing to pay enough for it. The demand for a product and the price at which it can be sold indicate to the producer the best way to allocate resources in order to make a profit As for the demand for

7、 a commodity, economists mean the quantity which buyers are willing to purchase at a given price over a given period of time. Demand in an economic sense only exists if the consumers have the money to buy the goods and are willing to pay for themSo, we call it effective demand，which means a desire t

8、o obtain an article accompanied by the ability and willingness to pay for it at the price askedIn economics，when we speak of demand，we are usually referring to effective demandGenerally speaking, consumers want to buy goods and services as cheaply as they can，while sellers want to sell at the highes

9、t prices they can obtain，but not so high as to lose salesThe fact that buyers are likely to buy more of an item as the price falls is called the law of demandOn the other hand，as prices rise，sellers would like to sell more and will, if it is possible, offer a larger quantity for saleThis is defined

10、as the law of supplySomehow these two conflicting desires of buyers and sellers must be brought into some kind of agreement，or there will be a surplus of highly priced goods which buyers are not willing to buy, or a shortage of goods because sellers will not produce them for sale at a low price From

11、 the perspective of the demand side - the buyers，the higher the price of a commodity, the greater the value of alternatives which must be given up to buy itThat is to say，the opportunity cost appearsTherefore buyers should take the prices of the items they want and at the prices of other goods into

12、consideration，and most important of all，at their incomes and money available for spendingChanges in price surely affect consumer demand all the wayDemand If a vendor is selling apples，and he finds that at 10 cents a kilogram，70 kilograms can be soldOn increasing the price per kilogram to 20 cents，60

13、 kilograms are sold；at 30 cents，50 kilograms are sold；and so on，until at the top price of 80 cents no apples at all are soldThis can be expressed as a demand schedule，shown in Table 2.1. The figures in this demand schedule can then be plotted on a graph (Figure 21) and the result is called a demand

14、curveThe demand curve in Figure 21 shows the total demand by consumers for apples at this particular shopTable2.1 Demand Schedule for ApplesPrice(cents/kg)QuantityDemanded(kg)Price(cents/kg)QuantityDemanded(kg)107050302060602030507010404080Nil As far as economists or businessmen are concerned, total

15、 market demand means all the individual buyers demands for a product，at various prices, added togetherIn economics we are really more interested in the market demand than in the sales made by an individual vendor，because total demand affects the economy as a whole and gives signals to producers on w

16、hat and how to produce and in what quantities According to Figure 21, you can see that the price is shown on the vertical axis，while quantity is shown on the horizontal oneThis is a conventional demand and supply graphFigure 21 demonstrates that as prices fall, a larger quantity of a good is demande

17、dThe typical demand curve slopes down from left to rightThis indicates that consumers buy more of a good at lower prices and less at higher prices，but at very low prices demand does not necessarily increaseIn Figure 21, this sometimes can be called an expansion or contraction，or a movement along the

18、 curve. Supply Whenever mentioning the term of market mechanism，we have to consider the decisions made by the supplier or sellerA seller wants to sell as many goods as possible，and at the highest prices possible, which is quite a contrary desire to that of the buyerThe seller must bear in mind that

19、- if they want to survive in business, covering costs and making a profit are the necessitySurely，it is necessary to supply goods which consumers will want to buy, and provide the price which they can affordAt the same time, the prices being charged by competitors for similar goods must also be take

20、n into accountThe result of the sellers deliberations will also result in a curve，a supply curve (Table 22)We can use the same example as for the demand curve：the shopkeeper selling applesThe supply schedule would be like this.Table 2.2 Supply Schedule for ApplesPrice(cents/kg)QuantitySupplied(kg)Pr

21、ice(cents/kg)QuantitySupplied(kg)801004060709030506080204050701030 Supply not only depends on demand, but also on the price the seller receivesA compromise between how much and at what price the seller decides to sell and the consumers plans to buy must be arrived atThis is called the equilibrium pr

22、ice and is the price at which the buyer is prepared to buy the quantity which the seller is prepared to sell at that price，so that the market is cleared and there is no surplus and no shortageIn the example of the apples，by comparing the demand and supply schedules the equilibrium price can be seen

23、to be 30 cents per kilogram because at that price both buyers and sellers are satisfied with the priceIf you plot the demand and supply curves on the same graph you will find that they intersect at the equilibrium price Changes in DemandWhat can cause changes in demand for an item? First of all, it

24、is the change of price. but there are also other influences which can change demand for goods and servicesThe major causes are：prices of related goods, changes in consumer tastes, prices of all other goods and services, the income of the consumer, and future expectations, etc. Figure 21 just shows d

25、emand changing simply on price， none of the other factors which affect the consumers purchasing have changed；such as their incomes or tastes, etcA change in the price of a good results in a movement along an existing demand curveIf the other conditions which affect demand should change，and not the p

26、rice，then our graph will look different because we have what is called a shift in the curve；and it will look like Figure23In Figure 23 the price has remained unchanged but there has been a change in demand caused by factors other than priceAlthough the price of the commodity has remained unchanged，t

27、here has been an increase in demand for it at that priceThis increased demand could have been caused by a change in any of the other factors which influence demand，such as the size of income，prices of alternative goods，changes in taste，and so onSimilarly the demand curve could shift to the left if t

28、here is a change in any of these conditions other than price，influencing people to buy less of a commodity even if the price remains unchangedChanges in SupplySupply can be also affected by：the price received for the item , the cost of producing the item, taxes imposed which raise the items market p

29、rice to consumers, subsidies awarded to producers which reduce the costs of production, prices of other goods, future expectations, changes in supply due to the nature of the good, etc.Supply, the same as with demand，any change of price results in a movement up or down the existing supply curve if n

30、o other changes occur to affect supplyJust as any change in underlying conditions，apart from prices，causes a shift in the demand curve，so any change in the conditions other than market prices causes a shift in the supply curveThe supply curve can move leftwards if, for example，costs of production ro

31、se，with consumers being unwilling to pay more for the item and suppliers unwilling to supply as much at the same price A drop in production costs could lead to more goods being put on the market without a price changeso，there is an increase in supply at the same price from S1 to S2，as in Figure 24，b

32、ut such an increase might lead to a surplus on the market and a possible need to reduce the market priceThis means that a new equilibrium price would have to be reachedBuyers would be prepared to buy more at the lower price，there is a movement along the demand curve but not a shift in the position of the curveConsumers have reacted to a price change brought about by a change in conditions of supply, but this demand change is not di