2.2. Answer the questions:

1. What are the four "Ps", “S” and “CC”?

2. Give a definition of the four "Ps" in your own words.

3. Which new elements were introduced by Dick Berry in the 1990s?

4. Why do you think they introduced?

3. Market economy

3.1. Words to remember:

procurement of	acquisition of goods or services
free enterprise	private ownership
market economy	production decisions are made by a firm
decentralization	central bureaucracy
consumer-sovereignty	customers decide what is produced
assess	оценивать
bear market	спекуляция, на понижение

3.2. Read the text.

In a market economy, production decisions are made by the firms and/or private individuals rather than by a government or other planning authority. Goods and services are exchanged according to price mechanisms and the most important factor is profit. The acquisition of goods or services is procurement. It enhances that goods or services are appropriate and procured at the best possible cost to meet the needs of the purchaser in quality and quantity.

This motivates firms and private individuals and influences supply, demand and price. When we talk of private ownership we can also say "free enterprise". The market economy contributes to a greater efficiency in production and the allocation of resources, thanks to the fact that it avoids central bureaucracy (decentralization) and therefore the process is faster. It also creates a situation where the consumer becomes the most important factor (consumer sovereignty), because producers have to meet the needs of the customer, so the customer has the power to determine what is produced.

However, this type of economy can create unemployment, in that jobs are sacrificed to contain prices. Competitors can join together in the form of cartels or monopolies to decide prices and strategies and therefore the consumers lose their power. Firms can ignore social and environmental problems (such as pollution) if there is no state intervention, so as to cut costs.

Mixed Economies

Countries which have privately owned companies that work together with nationalized companies run by the State are called Mixed Economies. However, in recent years many Western countries have seen a growth in the private sector, as many governments have carried but operations of privatization (a good example in Britain is that of British Rail). The role of the government has often become one of safeguarding the interests of the public, especially in the cases of the utilities or healthcare.

Some sort of government intervention regulates the social problems that at times arise in a purely market economy. It also makes decisions regarding taxation that influence income and therefore the distribution of goods and services.

This is the opposite of a pure market economy, and is usually criticized by Western countries. Countries like the former Soviet Union place control of the market on a central management, determining what is produced, how it is distributed and the price.

There are many potential advantages with this system. Greater attention is paid to the social problems, as the major factor is supplying a need rather than profit, so distribution is fairer. However, often the system has failed because of the amount of bureaucracy that leads to mistakes and time delays. Furthermore, employees are not motivated. Innovation is practically non-existent, and the consequence is that the goods produced tend to be standardized. It is also difficult to assess market trends, so surpluses and shortages in production are common.