Price and Value

In this chapter we discuss the basic determinants of price. Price is not the same thing as value. Things are 'valu­able' because people think they are, and for no other reason. The 'value' which an individual places on a commodity can not be measured; its value will be different for different peo­ple. This kind of subjective value is not the concern of the economist who is interested only in 'value in exchange'. The economic worth of value of a good can only be measured in some kind of market transaction which reveals the value of

the good in terms of what is offered in exchange for it. If 5 lb of potatoes will exchange for 5 lb of sugar, then the 'price' of 1 lb of sugar is 5 lb of potatoes. Nowadays practically all exchanges represent an exchange of goods and services for money, and prices in terms of money are the market value of the things they buy.

Markets

Prices arise in exchange transactions and this implies some kind of market. This need not, necessarily, be a fixed location — a building or a market place. We are all familiar with the open and covered markets in the centers of our towns, but in the modern world the word 'market' has a much wider meaning. Any effective arrangement for bring­ing buyers and sellers into contact with one another is defined as a market. The small ad columns of the local newspaper provide a very efficient market for second-hand cars. Face to face contact between buyers and sellers is not a requirement for a market to be able to operate efficiently. In the foreign exchange market, buyers and sellers are separat­ed by thousands of miles, but the knowledge of what is hap­pening in the market is just as complete, and the ease of dealing is just as effective as if the participants were in the same room.

For some commodities, notably fresh fruit and vegeta­bles, the traditional market is still the normal arrangement, but for most goods the market is a national one. Most consumer goods, in developed countries, are bought, and sold on a countrywise basis. For other commodities the market is world-wide. This is particularly true of the more important primary products such as rubber, tin, copper, and oil, and of the basic foodstuffs such as meat, wheat, sugar, tea, and cof­fee. Most of the products of advanced technology also have world markets, for example, computers, airplanes, ships, and motor cars.

The price of any economic good, under market condi­tions such as we find in the capitalist world, is determined by the forces of supply acting through the sellers and the forces of demand acting through the buyers, determine the market price.

1. Prepare the reference of the text A.

2. Using the words bellow renew the sentences:

supply, transaction, determinants, concern, arise, advanced, value, meaning, markets, conditions, worth, demand

1. In this chapter we discuss the basic... of price.

2. Price is not the same thing as....

3. This kind of subjective value is not the... of the economist.

4. The economic... of value of a good can only be mea­sured in some kind of market....

5. Prices... in exchange transactions.

6. In the modern world the word 'market' has a much wider....

7. Most of the products of... technologies also have world...

8. The price of any economic good under market... is determined by the forces of... and....

3. Are here the synonyms?

transaction, price, especially, developed, cost, advanced, basic, take place, purchaser, particularly, buyer, happen, commodity, kind, good, sort, reveal, discover, main, dealing

4. Find the antonyms:

same, false, ignorance, domestic, true, new, different, wide, second-hand, foreign, narrow, knowledge.

5. Make the antonyms with prefixes:

valuable, necessary, familiar, effective, efficient, com­plete, normal, important.

6. Pick up the English equivalents:

визначний чинник, з іншого приводу, обмін товарів, ринкова вартість, покупці та продавці, рекламні колонки, більшість споживацьких товарів, у розвинутих державах, особливо вірно, основні продукти харчування, в умовах ринку.

7. Give 3 forms of the verbs:

think, reveal, represent, buy, sell, imply, find, deter­mine, have.

8. Compose the sentences and transform them into Passive:

1. thing, is, as, value, price, not, same, the.

2. will, its, different, different, for, be, people, value.

3. arise, exchange, transactions, prices, in.

4. word, this, a, has, meaning, wider, much.

5. commodities, some, for, market, the, normal, tradi­tional, still, is, arrangement, the.

6. is, for, worldwide, other, market, the, commodities.

9. Remember the prepositions. Use this knowledge for filling the gaps:

1. The economic worth... value... a good can only be measured... some kind... market transaction.

2. Nowadays practically all exchanges represent and exchange... goods and services... money, and prices... terms... money are the market value... the things they buy.

3 We are all familiar... the open and covered markets... the centers... our towns.

4 Any effective arrangement... bringing buyers and sell­ers... contact... one another is defined as a market.

5. Face... face contact between buyers and sellers is not a requirement... a market to be able to operate effi­ciently.

6.... the foreign exchange market, buyers and sellers are separated... thousands... miles.

10. Retell the text using these sentences.

1. This implies some kind of market.

2. The small ad columns provide a very efficient market for second-hand cars.

3. Buyers and sellers are separated by several miles.

4. Most consumer goods are bought and sold on a coun­trywide basis.

5. Most of the products of advanced technologies also have world markets.

11.Convince us that you know the correct form of the verbs:

1. Things are 'valuable' because people think they... (to be).

2. The economic worth of value of a good can only be... (to measure) in some kind of market transaction which... (to reveal) the value of the goods in terms of what is... (to offer) in exchange for it.

3. If 5 lb of potatoes... (to exchange) for 1 lb of sugar, then the 'price' of 1 lb of sugar is 5 lb of potatoes.

4. Nowadays practically all exchange... (to represent) an exchange of goods and services for money.

5. Any effective arrangement for bringing buyers and sellers into contact with one another... (define) as a market.

6. The price of any economic good, under market condi­tions... (to determine) by the forces of supply acting through the sellers and the forces of demand acting through the buyers... (to determine) the market price.

12. Answer based on you mind.

1. What is the difference between 'price' and 'value'?

2. Where do prices arise?

3. What kind of goods are usually sold in fixed locations?

4. What kind of goods are primarily sold and bought on a countrywide basis?

5. For what products is the market world-wide?

6. What is the price of economic goods determined by in the capitalist world?

13. Retell text A.

14. Read and discuss text B.

Text В

Demand

The first thing to understand is that demand is not the same thing as desire, or need, or want. We are looking for the forces which determine price, and the strength of the desire for something will not, in itself, have any influ­ence on the price. Only when desire is supported by the ability and willingness to pay the price does it become an effective demand and has an influence in the market. Demand, in economics, means effective demand, and may be defined as 'the quantity of the commodity which will be demanded at any given price over some given period of time'.

Consider the following statements:

1. The demand for commodity X is 1 000 units.

2. The demand for commodity X, at a price of 6 p per unit, is 1 000 units.

3. The demand for commodity X, at a price of 6 p per unit, is 1 000 units per week.

Note that only the third statement is meaningful. The first statement is incomplete because the quantity demand­ed will be different at different price. The second statement tells us the quantity demanded at given price, but it does not tell us how long it will take to sell 1 000 units. Any definition of demand must say something about the quantity, the price, and the time period.

For the great majority of goods and services, experience show that the quantity demanded will increase as the price falls. This particular characteristic of demand may be illus­trated by a table described as a demand schedule, or, as is more usual, by a demand curve, which is a graphical representation of the date in the demand schedule.

15. Explain why supply is not like the amount available.

Text С

Supply

The demand curve shows the relationship between prices and the quantities demanded. The supply schedule and supply curve show the relationship between market prices and the quantities which suppliers are prepared to offer for sale. Supply is not the same thing as 'existing stock' or 'amount available'. We are only concerned here with the amounts actually brought to market and these amounts depend to a large extent on the ruling market price. If a farmer ploughs in his cabbages because he thinks the market price is too low-the cabbages were a part of the existing stock but they never become part of the current supply.

The basic law of supply says 'More will be supplied at a higher price than at lower price'. An increase in price usual­ly means that production will become more profitable and we would expect existing producers to expand their outputs in response to rising prices. In addition, in the long run, an increase in price (and hence profits) would tend to encour­age new firms to enter the industry.