Вопрос № 1078066 - Английский язык

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Consumer Behavior and Rational Choice
1. Consumer wants and desires are basic determent of the nature and quantity of the goods and services produced in any economic system. Recent US government figures show that consumers spend about 79% of their income on goods and services; the rest goes for taxes and saving. Much of their expenditures for goods and services goes for housing, food and drink, and transportation.
2. The model of consumer behavior and rational choice explains how an individual consumer allocates his or her income among various commodities. This model assumes that the consumer’s preferences are transitive and that commodities are defined so that more of them is preferred to less. The consumer’s preferences can be represented by a utility index. Utility is a number that indexes the level of satisfaction derived by the consumer from a particular market basket. Market baskets with higher utilities are preferred over market baskets with lower utilities.
3. The model of consumer behavior and rational choice recognizes that preferences alone do not determine the consumer’s actions. Given the consumer’s preferences, as reflected in his utility index, the choices open to him are dictated by the size of his money income and the nature of commodity prices. The consumer is assumed to choose the market basket that maximizes his utility. If the consumer maximizes his utility, his income is allocated among commodities so that, for every commodity he buys, the marginal utility of the commodity is proportional to its price. In other words, the marginal utility of the last dollar spent on each commodity is made equal for all commodities. Sometimes consumers are misled by false advertising and other deceptive practices. For the price system to work well, the consumer must be protected against such deception and fraud.
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What is consumer’s rational choice determined by?

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Consumer Behavior and Rational Choice
1. Consumer wants and desires are basic determent of the nature and quantity of the goods and services produced in any economic system. Recent US government figures show that consumers spend about 79% of their income on goods and services; the rest goes for taxes and saving. Much of their expenditures for goods and services goes for housing, food and drink, and transportation.
2. The model of consumer behavior and rational choice explains how an individual consumer allocates his or her income among various commodities. This model assumes that the consumer’s preferences are transitive and that commodities are defined so that more of them is preferred to less. The consumer’s preferences can be represented by a utility index. Utility is a number that indexes the level of satisfaction derived by the consumer from a particular market basket. Market baskets with higher utilities are preferred over market baskets with lower utilities.
3. The model of consumer behavior and rational choice recognizes that preferences alone do not determine the consumer’s actions. Given the consumer’s preferences, as reflected in his utility index, the choices open to him are dictated by the size of his money income and the nature of commodity prices. The consumer is assumed to choose the market basket that maximizes his utility. If the consumer maximizes his utility, his income is allocated among commodities so that, for every commodity he buys, the marginal utility of the commodity is proportional to its price. In other words, the marginal utility of the last dollar spent on each commodity is made equal for all commodities. Sometimes consumers are misled by false advertising and other deceptive practices. For the price system to work well, the consumer must be protected against such deception and fraud.
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Perfect Competition and Monopoly
1. Economists recognize two main types of markets: perfect competition and monopoly. Perfect competition requires that the product of any seller be the same as the product of any other seller, that no buyer or seller be able to influence the price of the product, and that resources be able to switch readily from one use to another. Four conditions define the existence of a perfectly competitive market: 1) Firms sell a standardized product. In a perfectly competitive market, the product sold by one firm is assumed to be a perfect substitute for the other product sold by any other. 2) Firms are price takers. This means that the individual firm treats the market price of the product as given. 3) Factors of production are perfectly mobile in the long run. 4) Firms and consumers have perfect information. A firm has no reason to leave its current industry if it has no way of knowing about existence of more profitable opportunities elsewhere. Similarly, a consumer has no motive to switch from a high-priced product to a lower-priced one of identical quality unless he has information about the existence of the latter. Price and output under perfect competition are determined by the intersection of the market supply and demand curves. In the market period, supply is fixed. Thus, price is determined by demand alone.
2. A pure monopoly is a market with only one seller. Monopolies may occur because of patents, control over basic inputs, and government actions. The key feature that differentiates the monopoly from the competitive firm is the price elasticity of demand facing the firm. In the case of the perfectly competitive firm price elasticity is infinite. If a competitive firm raises its price slightly it will lose all its sales. A monopoly, by contrast, has significant control over the prices it changes.
3. The output of a perfectly competitive industry tends to be greater and the price tends to be lower than under monopoly. One way that society has attempted to reduce the harmful effects of monopoly is through public regulation.
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A Nation’s Wealth and Market Democracy
1. A nation’s wealth can be best determined by looking at its people. It is impossible to rely on any statistics. Economists define wealth as what a person owns, such as stock and real estate, but many people look first to their level of income to see if they are well off. Comparing salaries in different countries, however, is like comparing potato and rice, because the salaries in each country are paid in different currencies. Exchange rates, defined by the foreign exchange market all over the world, reflect the market’s view of each country’s economic and political situation. However, it is difficult to translate salaries by simply using currency exchange rates as the cost of living varies widely from one country to another. We must look at what salaries will actually buy in each country. By choosing a basket of necessary goods and services and calculating their cost in different countries, we can compare the purchasing power or «real» value of salaries from country to country. It gives a more reliable exchange rate, called purchasing power parity (PPP).
2. Judging from recent world experience, a socialist society was not as successful in producing the quality and quantity of goods and services as a market economy organized on the principles of a private free market and private ownership of the means of production. The major defining characteristic of a market economy is that decisions on investment and the allocation of producer goods are mainly made through markets. Market democracy is the culmination of more than three hundred years of economic and political thought.
3. Market democracy not only produces more than a socialist society, but it also allows individuals more liberty to choose how, where, when and for whom they will use their productive services.
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What is the basic principle of market economy?

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The Sources of Economic Wealth
1. In 1776, new technologies were being invented and applied to the manufacture of cotton and wool, iron, transportation and agriculture in what came to be called «The Industrial Revolution». Adam Smith, the founder of the economic theory, was keenly interested in these events. He wanted to understand the sources of economic wealth. He analyzed the way markets organize economic life and influence economic growth. He showed that a system of prices and markets is able to coordinate people and business without any central direction. He found that two main sources of economic wealth of a nation are the division of labour and free domestic and international markets.
2. Smith defined the division of labour as the source of «the greatest improvement in the productive power of labour». The division of labour became even more productive when applied to creating new technologies. Scientists and engineers, trained in extremely narrow fields, became specialists at inventing. Their powerful skills speeded the advance of technology. Machines started performing repetitive operations faster, and more accurately than people.
3. But, said Smith, the fruits of the division of labour are limited by the extent of the market. To make the market as large as possible, there must be no impediments to free trade both within a country and among countries. Smith argued that when each person makes the best possible economic choice based on self-interest, that choice leads as if by an Invisible Hand to the best outcome for society as a whole.
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Why is it important that each person should make the best possible economic choice?

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Invisible Hand
1. This term was introduced by an 18th century Scottish philosopher Adam Smith. Under capitalism the Invisible Hand rather than governmental decrees and orders allocates goods, resources and manpower. Adam Smith stated the fundamental proposition: «In every country it always is and must be interest of a great body of the people to buy whatever they want of those who sell it cheapest».
2. For example, when butter is in short supply in an economy, its price would go up to reflect the scarcity. The higher price would encourage profit-seeking companies to increase production of butter. Later, if too much butter was produced, its price would fall. When price dropped, butter-makers would quickly cut back on production until the supply once again came in closer balance with the new level of demand. In a free economy, in which wages, costs and prices are left to the free play in the competitive market, the prospect of profits decides what goods will be made, and in what quantities – and what goods will not be made at all. In a properly functioning free-market economy many suppliers compete for customers who are free to buy at the best that they can find.
3. So, how to explain the role of competition? Each market actor, in buying or selling, is forced to meet the prices offered by competitors. But taken together in the market-place, all these «greeds» or personal desires must compete, creating what economists call aggregate (or collective) demand. Aggregate demand is the total demand for goods and services in the economy at a given time and price level. Aggregate demand is the powerful economic signal that stimulates production of goods that truly are wanted by a significant number of individual people. Ultimately, consumers, making their individual decisions, will «reward» those producers who come closest to delivering the desired goods. The kind of interplay between supply and demand is the Invisible Hand and it operates continuously in a free-market economy.
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What is aggregate demand?