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Реферат «Consumer choices» по Английскому языку (Солодкина Е. В.)

It's a hot summer clay. You've been out walking all morning and you're getting thirsty. It's also about lunchtime, and you're feeling pretty hungry too. What luck! Here's a kiosk selling snacks. You've got six euros to spend. You can buy bars of chocolate or bottles of water ... or a combination of both. Now you've got another problem: consumer choice.

If you're a neoclassical economist, however, there's nothing to worry about. Neoclassical economists believe that consumers make rational choices. Before a consumer buys something, they think about the cost and the amount of satisfaction the purchase will give them. They then compare the price and satisfaction of possible alternative purchases. In the end, they buy what gives them maximum satisfaction at the lowest cost.

So, what will you buy from the kiosk? An important deciding factor is the amount you have to spend. Economists call this your budget constraint. Your total budget is six euros. Bottles of water are two euros each, chocolate bars ar eone euro each. You could buy three bottles of water, or you could buy six chocolate bars. Or, you could buy any combination that adds up to your total budget. We can put all of this information on a budget line, like the one in figure 1. The budget line shows what combinations of goods are possible. Economists call these combinations of goods bundles. But which is the best bundle? This depends on something called utility. Utility is the economists' word for the satisfaction we get from a purchase. Each good has its own utility value for the consumer. The utility of a bundle depends on two things; the utility of the goods in the bundle, and how much of each good is in the bundle. Figure 2 on page 25 shows the bundles of chocolate and water that give the same level of utility. This kind of chart is called an indifference curve. Any point on the curve has the same utility value as any other point. For example, two bottles of water and two chocolate bars has the same utility as one bottle of water and four chocolate bars.

In figure 2, we assume that chocolate and water have the same utility value for the consumer. But if water had a higher utility value than chocolate, the curve would be a different shape. Many things can affect the utility of a good. These include the cost of the good, the consumer's income and something called marginal utility.

To understand marginal utility, just think about chocolate bars. Every time you consume a bar of chocolate, the satisfaction you get from the next bar will be less. In other words, you get less utility every time you eat another bar. This decrease in utility is called the marginal utility. The marginal utility is the one of an additional item.

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 costs. 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 US fixed costs and variable costs.

Why are 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. 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 time. 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 pic 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 pic 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 pic 5 below.

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 one huge company that supplies all the pizzas. These are two very different market structures, but there are many other possible structures. Market structure is important because 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.


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 a 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 perfect competition. 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. A 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 state monopoly. The postal service in many countries is an example of a state monopoly.

Generally, monopolies are not good for consumers. This is becavise in a monopoly, the laws of supply and demand do not work in the same way. Л 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.

The labour market

In many ways the relationship between employers and workers is similar to the relationship between consumers and producers: workers offer a service (the labour they provide), employers buy that service at a price they can afford (the wages they pay). As you can see, it's a kind of market. In economics, it's called the labour market,

In any market for products and services, consumers try to get the maximum utility, or satisfaction, from their purchase. This is the same in the labour market. What do companies want from their purchase of labour? What utility do they get? The answer is increased output. Output is how much of the product or service the company produces. If there is an increase in demand for their product, they will need to increase output. One way to do this (but not the only way) is to take on more staff. Another is to ask staff they already have to work more hours. In both cases, the company is buying more labour.

Just like any other market, the labour market obeys the laws of supply and demand. The demand is the employers' need for labour. Supply is the labour workers provide. Just like any other commodity, there is a relationship between price and demand. As the price of labour increases, the demand decreases. You can see this shown in figure 1.

The suppliers in the labour market are workers. higher price for greater supply. In other words, as supply of labour increases, they want higher wages. Again, you can see this shown in figure 1. The wage that workers get for their labour is a compromise between what they want and what companies will pay. This is the point where the lines cross in figure 1.

However, there can be shifts in demand. These shifts can cause the overall demand for labour to increase or decrease at any wage rate. For example, if there is an increase in the demand for the end product or service, there will be an overall increase in demand for labour (the demand curve shifts to the right). However, if new technology can replace workers, then there will be an overall decrease in demand for labour (the demand curve shifts to the left).

One more thing which affects demand for labour is workers' productivity. The productivity of a worker is how much they produce in a certain time. For example, imagine that a worker makes ten pencils an hour one day, and only eight pencils an hour the next day. This is a fall in productivity. When worker productivity falls, companies will pay less for labour. They are also less likely to employ new workers.

Supply of labour

Why do people work? To make money, of course. However, nothing in economies is ever that simple. The economist will ask a further question: how much arc people prepared to work? The answer to this question is much more complex. Finding the right balance between work time and leisure time is one of the trade-offs we have to make in life. The balance each person chooses depends on a number of things.

First of all, there are natural limits. There are only 24 hours in a day, and we can't spend all of them working. Most people need eight hours sleep. That brings the number of hours we can spend on work or leisure down to 16. None of us arc robots, so we all need some time to rest and switch off from work. This also brings down the possible number of working hours.

Then, of course, money plays a role. The way money influences working hours, though, is quite complicated. It can be separated into two effects: the income effect and the substitution effect. The income effect works like this: People's time is a resource. If they give up that resource for work, they need compensation. This is usually in the form of a wage for hours worked. The more compensation they get for each hour worked, the less they will need to work. People with higher rates of pay (wages) can afford to have more leisure time than people on lower ratevS of pay.

So far, so good. However, are people happy just sitting at home and enjoying themselves? It depends on what they'll lose. In other words, it depends on the opportunity cost of not working. As the hourly rate for work increases, the cost of not working also increases. This means that as the wage rate increases, people want to work more hours. This is called the substitution effect. But the substitution effect also has a limit. Eventually, people will not work more hours, no matter how good the compensation is.

A good wage rate clearly attracts more workers, and encourages them to work longer hours. However, the strength of this relationship depends on how elastic the labour supply is, Sometimes it is difficult for companies to find a certain kind of worker. Perhaps there are not many people with the necessary skills. Or perhaps the company is in a place where there are not many available workers. In these situations, even if employers double the wage rate, they will only attract a small number of extra workers. The labour supply is inelastic. In the opposite situation, when it is easy for companies to find workers, the labour supply becomes elastic.

Factors of production

One morning you wake up with a great idea. You've thought of a product that no one else has, and you're certain there's demand for it. But how will you turn your idea into reality? First of all you'll need raw materials to manufacture from - probably oil and metal, but also paper for packaging. You can't produce it by yourself, so you'll need people to help you make it, package it and market it. Finally, your staff will need a factory and machines to produce with. In short, you need the/actors of production: kind, labour and capital. The factors of production are the starting point for all economies. No economy can exist without them. The most basic of the factors is land. When economists talk about land, however, they don't just mean space to build on or fields to grow crops. Land means everything that nature provides and we can use for production. The land factor includes raw materials like coal, metals, oil and timber. It also includes things like water, fish and salt. So, although it seems illogical, land also means the sea!

The second factor is labour. Raw materials will just stay in the ground unless people dig them out and do something with them. Similarly, factory machines will sit doing nothing without people to operate them. Labour can mean the physical effort such as lifting, digging and building. This is called manual work. Labour also includes mental work like thinking, writing, communicating and designing. Industries that need many workers working long hours are called labour intensive industries. However, the quality of labour is as important as the quantity. An educated, skilled and fit workforce is more productive than an uneducated, unskilled and unhealthy one. This characteristic of the labour factor is called human capital. Some countries have large labour forces, but are poor in human capital because the economy lacks education and health care,

The third factor is capital. Capital includes buildings such as factories for production and warehouses for storage. It also includes the tools and equipment that workers use in the manufacturing process. In heavy industries such as shipbuilding or steel making, capital usually involves big machinery and mechanical equipment. In high-tech industries, on the other hand, capital generally means computers and complex laboratory apparatus. These days, industry tends to be more capital intensive than labour intensive.

When companies make investments, they buy new capital. There are two types of investment that companies need to make. The first is to buy new equipment so that they can expand their production. This is called net investment. Net investment is essential for economic growth. However, equipment gets old and needs repairing or replacing. The money spent on this kind of maintenance is called replacement investment.

Land, labour and capital are the three factors of production identified by Adam Smith and the classical economists. However, more recent economists have identified one more factor: entrepreneurship. This means people like you, with great business ideas that set the economy in motion.

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