Reading. The study of markets and other ways of organizing production of goods and services is an important task of economics.

Read the text and answer the questions that follow it.

The study of markets and other ways of organizing production of goods and services is an important task of economics.

In ancient times a market was a place where people gathered to buy and sell goods. Nowadays the term «market» has a broader sense. According to its definition, market is a set of arrangements by which buyers and sellers are in contact to exchange goods and services. It is considered to be the institution through which buyers and sellers interact.

The interaction may be different. For example, street markets, fruit stalls and shops physically bring together buyers and sellers. At the same time, suppliers and customers can interact through more complex markets. The Stock Exchange is known to operate through intermediaries (stockbrokers) who transact business on behalf of their clients. At the century of IT boom people can make exchanges on the phone. They are in the market even if they don’t actually visit a store. Similarly, people can order goods and services by mail or on the Internet, where it is possible to make deals all over the world. And again they are in the market because they make a voluntary exchange, when both parties benefit.

As for their scope, markets can be local, national and international. Economists classify markets according to prevailing conditions and try to determine a market structure. There are specific names for different market structures. They are pure competition, monopolistic competition, monopoly and oligopoly.

The preferences of sellers and buyers are determined by the supply and demand in various markets and the outcome of these preferences is a system of prices. A price is the main index which sellers, entrepreneurs and consumers take into account while making their free choice according to their self-interests. In economics, the term “price” denotes consideration in cash for the transfer of something valuable, such as goods, services, currencies, securities, etc.

Prices perform two important functions: they ration scarce resources and motivate production. As a rule, the more scarce something is, the higher its price will be and the fewer people will want to buy it.

Prices play an important role in different markets. If there were no price system, it would be impossible to determine value of any goods or services. For example, in a market economy prices act as signals. Buyers and sellers use prices as signals to communicate their wants and then exchange money for goods and services. So, a high price is a signal for sellers to produce more and for consumers to buy less. A low price is a signal for sellers to produce less and for consumers to buy more. That is why prices serve as a link between producers and consumers. Moreover, in a market economy the price system is flexible and it can adjust to changes quite quickly.