商务英语之市场价格

Chapter 3 Market Pricing
In this chapter we look at how prices are established and how prices function as a system to allocate resources between markets. Price is the monetary value of a product, which is normally established by supply and demand and is an important economic concept.
1. What is a market?
The term market has many meanings. To some people it means the place where they shop for groceries. To other people it means the stock market. To a manufacturer of women’s dresses it means the current level of demand for dresses. The simplest way to define a market is to think of it as consisting of all the people or organizations that may have an interest in purchasing a company’s products or services.In this chapter we will think of a market as a set of economic forces called supply and demand. A market is a group of sellers and buyers of a particular good/service. The buyers determine the demand for the product and the sellers determine the supply of the product. Supply and demand forces interact to form a price. A market economy is an economic system in which prices determine how resources will be used and how products will be distributed.
Markets are very different:
⏹If there are many sellers and buyers we have a competitive market and no one seller or buyer
can influence the price.
⏹If there is one seller and many buyers we have a monopoly.
⏹If there are a few sellers and many buyers we have oligopoly
⏹If there are many sellers and only one buyer we have a monopsony.
⏹If each product is slightly different (e.g. blue jeans) then sellers have some price setting
power and we have a monopolistic market.
Economists assume that there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand. Furthermore, for almost every product there are substitutes, so if one product becomes too expensive, a buyer can choose a cheaper substitute instead. In a market with many buyers and sellers, both the consumer and the supplier have equal ability to influence price.
In some industries, there are no substitutes and there is no competition. In a market that has only one or few suppliers of a good or service, the producer(s) can control price, meaning that a consumer does not have choice, cannot maximize his or her total utility and has very little influence over the price of goods.
A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business is the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political. For instance, a government can create a monopoly over an industry that it wants to control, such as electricity. Another reason for the barriers against entry into a monopolistic industry is that oftentimes, one entity has the exclusive rights to a natural resource. For example, in Saudi Arabia the government
has sole control over the oil industry. A monopoly may also form when a company has a copyright or patent that prevents others from entering the market.
In an oligopoly, there are only a few firms that make up an industry. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry. The products that the oligopolistic firms produce are often nearly identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces. Assume, for example, that an economy needs only 100 widgets. Company X produces 50 widgets and its competitor, Company Y, produces the other 50. The prices of the two brands will be interdependent and, therefore, similar. So, if Company X starts selling the widgets at a lower price, it will get a greater market share, thereby forcing Company Y to lower its prices as well. There are two extreme forms of market structure: monopoly and, its opposite, perfect competition. Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. Perfect competition means there are few, if any, barriers to entry for new companies, and prices are determined by supply and demand. Thus, producers in a perfectly competitive market are subject to the prices determined by the market and do not have any leverage. For example, in a perfectly competitive market, should a single firm decide to increase its selling price of a good, the consumers can just turn to the nearest competitor for a better price, causing any firm that increases its prices to lose market share and profits.
2. Demand and Supply
Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.
The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible. How? Let us take a closer look at the law of demand and the law of supply.
1）The Law of Demand
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.
A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C).
2）The Law of Supply
Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.
A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). At point B, the quantity supplied will be Q2 and the price will be P2, and so on.
3．Supply and Demand Relationship
Now that we know the laws of supply and demand, let's turn to an example to show how supply and demand affect price.
Imagine that a special edition CD of your favorite band is released for $20. Because the record company's previous analysis showed that consumers will not demand CDs at a price higher than $20, only ten CDs were released because the opportunity cost is too high for suppliers to produce more. If, however, the ten CDs are demanded by 20 people, the price will subsequently rise because, according to the demand relationship, as demand increases, so does the price. Consequently, the rise in price should prompt more CDs to be supplied as the supply relationship shows that the higher the price, the higher the quantity supplied.
If, however, there are 30 CDs produced and demand is still at 20, the price will not be pushed up because the supply more than accommodates demand. In fact after the 20 consumers have been satisfied with their CD purchases, the price of the leftover CDs may drop as CD producers attempt to sell the remaining ten CDs. The lower price will then make the CD more available to people who had previously decided that the opportunity cost of buying the CD at $20 was too high.
4. Equilibrium and Disequilibrium
Equilibrium
When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.
As you can see on the chart, equilibrium occurs at the intersection of the demand and supply curve, which indicates no allocative inefficiency. At this point, the price of the goods will be P* and the quantity will be Q*. These figures are referred to as equilibrium price and quantity.
In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply.
Disequilibrium
Disequilibrium occurs whenever the price or quantity is not equal to P* or Q*.
(1)Excess Supply
If the price is set too high, excess supply will be created within the economy and there will be allocative inefficiency.
At price P1 the quantity of goods that the producers wish to supply is indicated by Q2. At P1, however, the quantity that the consumers want to consume is at Q1, a quantity much less than Q2. Because Q2 is greater than Q1, too much is being produced and too little is being consumed. The suppliers are trying to produce more goods, which they hope to sell to increase profits, but those consuming the goods will find the product less attractive and purchase less because the price is too high.
(2) Excess Demand
Excess demand is created when price is set below the equilibrium price. Because the price is so low, too many consumers want the good while producers are not making enough of it.
In this situation, at price P1, the quantity of goods demanded by consumers at this price is Q2. Conversely, the quantity of goods that producers are willing to produce at this price is Q1. Thus, there are too few goods being produced to satisfy the wants (demand) of the consumers. However, as consumers have to compete with one other to buy the good at this price, the demand will push the price up, making suppliers want to supply more and bringing the price closer to its equilibrium.
5. Elasticity
The degree to which a demand or supply curve reacts to a change in price is the curve's elasticity. Elasticity varies among products because some products may be more essential to the consumer. Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases. Conversely, a price increase of a good or service that is considered less of a necessity will deter more consumers because the opportunity cost of buying the product will become too high. A good or service is considered to be highly elastic if a slight change in price leads to a sharp change in the quantity demanded or supplied. Usually these kinds of products are readily available in the market and a person may not necessarily need them in his or her daily life. On the other hand, an inelastic good or service is one in which changes in price witness only modest changes in the quantity demanded or supplied, if any at all. These goods tend to be things that are more of a necessity to the consumer in his or her daily life.
To determine the elasticity of the supply or demand curves, we can use this simple equation:
Elasticity = (% change in quantity / % change in price)
If elasticity is greater than or equal to one, the curve is considered to be elastic. If it is less than one, the curve is said to be inelastic.
As we mentioned previously, the demand curve is a negative slope, and if there is a large decrease in the quantity demanded with a small increase in price, the demand curve looks flatter, or more horizontal. This flatter curve means that the good or service in question is elastic.
Meanwhile, inelastic demand is represented with a much more upright curve as quantity changes little with a large movement in price.
Elasticity of supply works similarly. If a change in price results in a big change in the amount supplied, the supply curve appears flatter and is considered elastic. Elasticity in this case would be greater than or equal to one.
On the other hand, if a big change in price only results in a minor change in the quantity supplied, the supply curve is steeper and its elasticity would be less than one.
A. Factors Affecting Demand Elasticity
There are three main factors that influence a demand's price elasticity:
1.The availability of substitutes - This is probably the most important factor influencing
the elasticity of a good or service. In general, the more substitutes, the more elastic the demand will be. For example, if the price of a cup of coffee went up by $0.25, consumers could replace their morning caffeine with a cup of tea. This means that coffee is an elastic good because a raise in price will cause a large decrease in demand as consumers start buying more tea instead of coffee. However, if the price of caffeine were to go up as a whole, we would probably see little change in the consumption of coffee or tea because there are few substitutes for caffeine. Most people are not willing to give up their morning cup of caffeine no matter what the price. We would say, therefore, that caffeine is an inelastic product because of its lack of substitutes. Thus, while a product within an industry is elastic due to the availability of substitutes, the industry itself tends to be inelastic. Usually, unique goods such as diamonds are inelastic because they have few if any substitutes.
2.Amount of income available to spend on the good -This factor affecting demand
elasticity refers to the total a person can spend on a particular good or service. Thus, if the price of a can of Coke goes up from $0.50 to $1 and income stays the same, the income that is available to spend on coke, which is $2, is now enough for only two rather than four cans of Coke. In other words, the consumer is forced to reduce his or her demand of Coke.
Thus if there is an increase in price and no change in the amount of income available to spend on the good, there will be an elastic reaction in demand; demand will be sensitive to
a change in price if there is no change in income.
3.Time - The third influential factor is time. If the price of cigarettes goes up $2 per pack, a
smoker with very few available substitutes will most likely continue buying his or her daily cigarettes. This means that tobacco is inelastic because the change in price will not have a significant influence on the quantity demanded. However, if that smoker finds that he or she cannot afford to spend the extra $2 per day and begins to kick the habit over a period of time, the price elasticity of cigarettes for that consumer becomes elastic in the long run.
B. Income Elasticity of Demand
In the second factor outlined above, we saw that if price increases while income stays the same, demand will decrease. It follows, then, that if there is an increase in income, demand tends to increase as well. The degree to which an increase in income will cause an increase in demand is called income elasticity of demand, which can be expressed in the following equation:
If EDy is greater than one, demand for the item is considered to have a high income elasticity. If however EDy is less than one, demand is considered to be income inelastic. Luxury items usually
have higher income elasticity because when people have a higher income, they don't have to
forfeit as much to buy these luxury items. Let's look at an example of a luxury good: air travel.
Bob has just received a $10,000 increase in his salary, giving him a total of $80,000 per annum.
With this higher purchasing power, he decides that he can now afford air travel twice a year instead of his previous once a year. With the following equation we can calculate income demand elasticity:
Income elasticity of demand for Bob's air travel is seven - highly elastic.
With some goods and services, we may actually notice a decrease in demand as income increases. These are considered goods and services of inferior quality that will be dropped by a consumer who receives a salary increase. An example may be the increase in the demand of
DVDs as opposed to video cassettes, which are generally considered to be of lower quality. Products for which the demand decreases as income increases have an income elasticity of less
than zero. Products that witness no change in demand despite a change in income usually have an income elasticity of zero - these goods and services are considered necessities.
6. Price And The Market Price
Price is the quantity of money (or other products) paid in exchange for something else. The current price of something, then influences how much of it is produced and how much of it is consumed. Other things equal, if the price of a good increases, the quantity demand falls. This is
known as the Law of Demand. Quantity demand is the amount you are willing and able to buy. Ex:
If a scoop of ice cream increases from $1 to $5 you might buy less ice cream or buy frozen yogurt instead.
In a market economy, demand and supply forces interact to determine price. The quantity demanded and the quantity supplied at the equilibrium price are in balance. At higher prices, suppliers are willing to supply more units than buyers are willing to buy. At lower prices, buyers
are willing to buy more units than suppliers are willing to supply. Whether we are talking about
the price we pay for hamburgers, the price we get for our labor (wage), or the price we pay to borrow money (interest), the forces of supply and demand are at work.
The List of New Words and Expressions
impediment n. person or thing that hinders or obstructs the progress or movement of sth 妨碍、阻碍某事物进展或活动的人或物: The main impediment to growth was a lack of
capital. 影响发展的主要障碍是缺乏资本。

widget n. 1.A small mechanical device or control; a gadget. 小装置，小机械：小的机
械装置或控制；小巧的机械.2.An unnamed or hypothetical manufactured
article. 未定名的主要新产品：未命名的或假想的制品。

leverage n. 1 action or power of a lever 杠杆作用; 杠杆的力量. 2 (fig 比喻) power;
influence 力量; 影响: Her wealth gives her enormous leverage in social circles.
她有财富便於她在社会各界造成巨大影响。

elasticity quality of being elastic 弹性; 弹力; 灵活性; 适应性
vanilla n. 香草: vanilla ice-cream, essence 香草冰激凌、香精.
curve n. line of which no part is straight and which changes direction without angles 曲线;
弧线
revenue n. income, esp the total annual income of the State from taxes, etc 收入; （尤指）岁入
prompt v. cause or incite (sb) to do sth 促使或激励（某人）做某事
intersection n. point where two lines, etc intersect 交点; 相交; 交叉
deter v. make sb decide not to do sth 使某人决定不做某事物: Failure did not deter him (from making another attempt). 他并未因失败而畏缩不前。

yogurt n. 酸奶酪, 酵母乳
Glossary Terms
oligopoly n. A market condition in which sellers are so few that the actions of any one of them will materially affect price and have a measurable impact on competitors. 寡头卖
主垄断：求过于供的市场情况下少数制造商对市场的控制
monopsony n. A market situation in which the product or service of several sellers is sought by
only one buyer. 买方垄断：买方独家垄断的市场结构; 独家主顾; 垄断性购买monopolistic a. 独占的, 垄断的, 专利的
elastic n. a demand condition in which the relative size of the change in quantity demanded is greater than the size of the price change.
inelastic a demand condition in which the relative size of the change in the quantity demanded is less than the size of the price change
price elasticity of demand the relative size of the change in the quantity demanded of a good or service as a result of a small change in its price.
demand the relationship between the quantities of a good or service that consumers desire to purchase at any particular time and the various prices that can exist for the good
or service.
demand curve a graphic representation of the relationship between price and quantity demanded.
equilibrium price the price at which the quantity of a good or service offered by suppliers is exactly equal to the quantity that is demanded by purchasers in a particular period of time.
law of demand the quantity demanded of a good or service varies inversely with its price; the lower the price the larger the quantity demanded, and the higher the price the
smaller the quantity demanded.
law of supply the quantity supplied of a good or service varies directly with its price; the lower the price the smaller the quantity supplied, and the higher the price the larger the
quantity supplied.
substitute a product that is interchangeable in use with another product.
supply the relationship between the quantities of a good or service that sellers wish to market at any particular time and the various prices that can exist for the good or
service.
supply curve a graphic representation of the relationship between price and quantity supplied.
Practice Test
1. Comprehension Questions
1)W hat’s the market in the view of economics?
2)What are the four models of market?
3)What is price and its influence?
4)What determine price in a market economy?
5)What is the equilibrium price?
6)What is price elasticity of demand?
7)What is the Law of Demand?
8)What is the Law of supply?
9)What is called monoply?
10)What is called oligopoly?
2.Multiple Choice
1.Chicken and fish are assumed to be substitutes. If the price of chicken increases, the demand for
fish will _________
A.increase and the demand curve for fish will shift to the right
B.increase or decrease, but there will be no change in the demand for chicken
C.not change but there will be a movement along the demand curve for fish
D.decrease and the demand curve for fish will shift to the left
2.If consumers expect that the price of cocoa will increase in the future, what will happen to equilibrium price and quantity of cocoa now?
A.Price will increase; quantity will decrease
B.Price will increase; quantity will increase
C.Both price and quantity will remain the same
D.Price will decrease; quantity will increase
3.According to the Law of Supply
A.anything that is supplied will be purchased by consumers
B.the higher the price, the lower the quantity supplied
C.the higher the price, the larger the quantity supplied.
D.if the price is low, any firm will sell the product
4.Tom graduates from university with a degree in Economics and his income increases by £10,000
a year. Other things remaining the same, he decreases the quantity of donuts he buys. For Tom, donuts ______________.
A.are an inferior good
B.and toast have become substitutes
C.and tea has become complements
D.are a normal good
5.Which one of the following would be expected to cause an inward shift in the market demand for UK produced cheese?
A.An increase in the price of cheese
B. A rise in the price of a substitute for cheese
C.An increase in the price of a complement to cheese
D. A rise in income - assuming that cheese is a normal good
6.All other factors held constant (ceteris paribus) a decrease in market demand for new cars will lead to
A.increased price and increased quantity
B.decreased price and decreased quantity
C.decreased price and no change in quantity
D.increased price and decreased quantity
7.Suppose that an 20% increase in the price of good Y results in an increase in the consumption of good X of 8%. This is an example of
A. A shift in supply
B.The real income effect
C. A higher demand for all goods and services in general
D.The substitution effect
8.The demand for fresh bread from a bakery is estimated to have an income elasticity of + 0.3. Following a 15% rise in consumers real incomes (other factors held constant) we predict that demand for fresh bread will
A.Rise by 3%
B.Rise by 4%
C.Rise by 4.5%
D.Rise by 15%
9. There are just a few large suppliers of a product in a(n)
A.monopoly.
B.plutocracy.
C.oligopoly.
D.monopsony.
10. What does the law of demand state?
A.As incomes increase, people consume more of all goods.
B.The demand for a good increases with the number of consumers in the market.
C.As the price of a good declines, consumers purchase more of that good.
D.The supply of a good increases in proportion to the demand for it.
11. According to the law of supply, price and quantity supplied are
A.proportional to one another.
B.proportional to the quantity demanded.
C.independent of one another.
D.directly related to one another.
12. Which of the following will lead to more output at lower prices?
A. a decrease in supply
B.decrease in demand
C.an increase in supply
D.an increase in demand
13. If the price of beef is above the equilibrium price, then which of the following will be a TRUE statement?
A.There will be a surplus of beef, and the price of beef will fall.
B.There will be a surplus of beef, and the price of beef will increase.
C.There will be a shortage of beef, and the price of beef will fall.
D.There will be a shortage of beef, and the price of beef will increase.
14. Governments pass minimum wage laws to keep wages from falling to the equilibrium price of labor. Economic theory predicts which of the following?
A. a surplus of labor
B. a shortage of labor
C.the quantity of labor demanded exceeding the quantity supplied
D.an increase in the supply of labor
15. High prices are signals for producers to produce __________ and for buyers to buy __________.
A.more; the same amount
B.the same amount; less
C.less; more
D.more; less
16. A demand curve shows the relationship between
A.price and quantity
B.price and utility
C.utility and quantity
D.All of the above
17. Completely inelastic supply curves
A.are non-existent.
B.result from the fact that it sometimes takes quite a bit of time to supply more when price
increases.
C.mean that even a significant increase in price may result in no increase in the quantity
supplied.
D. B and C.
18. If a small increase in its price causes a large change in quantity demanded, demand for that item is __________.
A.inelastic
B.unit elastic
C.elastic
D.perfectly inelastic
19. If a product has many substitutes, demand for that product tends to be __________.
A.elastic
B.inelastic
C.unit elastic
D.perfectly inelastic
20. The theoretically ideal situation of __________ is characterized by a large number of
well-informed independent buyers and sellers who exchange identical products.
A.oligopoly
B.monopoly
C.perfect competition
D.monopolistic competition。