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9. Price

In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.

In all modern economies, the overwhelming majority of prices are quoted in (and the transactions involve) units of some form of currency. Although in theory, prices could be quoted as quantities of other goods or services this sort of barter exchange is rarely seen.

Price can sometimes alternatively refer to the quantity of payment requested by a seller of goods or services, rather than the eventual payment amount. This requested amount is often called the asking price or selling price, while the actual payment may be called the transaction price or traded price. Likewise, the bid price or buying price is the quantity of payment offered by a buyer of goods or services, although this meaning is more common in asset or financial markets than in consumer markets.

Economists sometimes define price in a more general or abstract sense to the widely understood definition above. According to this view, price is defined as the ratio between the quantity of goods that are exchanged for each other in a transaction.

For example, consider the case of two people exchanging goods, say 5 apples for 2 loaves of bread. An economist might say that the price of apples was 2/5 = 0.4 loaves of bread. Likewise, the price of bread would be 5/2 = 2.5 apples. Hence if we consider that currency is simply another type of good like apples or bread, then this conception forms the general case of the widely held definition outlined above.

However it is far from clear that this generalisation serves any useful purpose at all. As noted above, in all real economies prices are virtually always quoted in (and transactions always involve) units of currency. Hence, an alternative view is that the most basic and general definition of price is that involving exchange of goods or services for money, and that the exchange ratio between two goods is simply derived from the two individual prices.

The exchange ratio is sometimes referred to as the real price, while the price quoted in money referred to as the nominal price.

This distinction is sometimes made to make sense of inflation. When all prices are quoted in terms of money units, and the prices in money units change more or less proportionately, the ratio of exchange may not change much. In the extreme case, if all prices quoted in money change in the same proportion, the relative price remains the same.

It is now becoming clear that the distinction is not useful and indeed hides a major confusion. The conventional wisdom is that proportional change in all nominal prices does not affect real price, and hence should not affect either demand or supply and therefore also should not affect output. The new criticism is that the crucial question is why is there more money to pay for the same old real output. If this question is answered, it will show that dynamically, even as the real price remains exactly the same, output in real terms can change, just because additional money allow additional output to be traded. The supply curve can shift such that at the old price, the new higher output is sold. This shift if not possible without additional money.

From this point of view, a price is similar to an opportunity cost, that is, what must be given up in exchange for the good or service that is being purchased. For example, if x=1 and y=2, the relative price of x in terms of y is 2, and the price of y in terms of x is 0.5.

1. Соотнесите слова и их определения.

2. Переведите следующие слова и выражения на английский язык.

3. Переведите следующие слова и выражения на русский язык.

4. Выберите правильный вариант ответа.

1. Price is the ………….. given in return for goods or services.

a) barter                      b) output                     c) quantity of payment

2. Proportional change in all nominal prices does not affect ………….

a) payment                  b) real price                 c) bid price

3. The eventual payment amount requested by a seller is often called …………..

a) asking price          b) real price           c) nominal price

4. What must be given up in exchange for the good or service that is being purchased is called ……………

a) real price                 b) nominal price                     c) opportunity cost

5. In all real economies prices are virtually always quoted in …………..

a) units of currency              b) exchange goods            c) coins

5. Ответьте на вопросы.

1. What is price?

2. What is called asking price?

3. What is opportunity cost?

4. What is price measured by?

5. What is the difference between real price and nominal price?

6. Выполните КОПР №1 «Инфинитив (Infinitive)», подтемы «Общие сведения об инфинитиве», «Употребление инфинитива».