Topic №11 «The Sources of Economic Health»

1. Adam Smith was keenly interested in the events of the «Industrial Revolution» in 1776.

2. In 1776 new technologies were invented and applied to transportation, agriculture and to the manufacture of some goods.

3. He wanted to understand the sources of economic wealth.

4. So he brought his acute powers of observation and abstraction to bear on this question.

5. His answer was: first of all, it is the division of labour and, secondly, free domestic and international markets.

6. Smith identified the division of labour as the source of «the great improvement in the productive powers of labour. »

7. The division of labour became even more productive, when applied to creating new technologies.

8. Scientists and engineers, trained in extremely narrow fields, became specialists in inventing, their powerful skills speeded the advance of technology.

9. Machines started performing repetitive operations faster, and more accurately then people.

10. But, as Smith said, the fruits of the division of labour are limited by the extent of the market.

11. To make the market as large as possible, there must be no impediments to free trade both within a country and among countries.

12. 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.

Questions for Discussion:

1. Who wanted to understand the sources of economic wealth?

2. What was his answer to the question?

3. What is the division of labour?

4. When did the division of labour become even more productive?

5. What are the fruits of the division of labour limited by?

6. What must be there to make the market as large as possible?

7. What happens, when each person makes the best possible economic choice, based on self-interest?

Topic №12 «The Discoverers of the Laws of Demand and Supply. »

1. The law of demand was discovered by A.A.Cournot, a professor of mathematics at the University of Lyon, France.

2. It was he who drew the first demand curve in the 1830s.

3. The first practical application of demand theory, by Jules Dupuit, a French engineer and economist, was the calculation of the benefits from building a bridge and, given that a bridge had been built, of the correct toll to charge for its use.

4. The laws of demand and supply and the connection between the cost of production and supply were first worked out by Dionysius Lardner.

5. He was an Irish professor of philosophy at the University of London.

6. Dionysius Lardner showed railway companies how they could increase their profits by cutting rates on long-distance business, where competition was fiercest.

7. And he also showed how they could raise rates on short-haul business.

8. In this business they had less to fear from other suppliers.

9. The principles, first worked out by Lardner in the 1850s, are now used by economists, working for large companies.

10. For example, economists working for the major airline companies today, work out the freight rates and passenger fares that will give the airline the largest possible profit.

11. It is well-known, that for an economist «profit» is the revenue, derived from the use of resources, minus the opportunity cost of using those resources.

12. The rates, that result in connection with the work of those airlines’ economists, have a lot in common with those of the nineteenth century in principle.

Questions for Discussion:

1. Who discovered the law of demand?

2. Who drew the first demand curve?

3. Who made the first practical application of demand theory?

4. What did Dionysius Lardner work out?

5. What did he show to railway companies?

6. What is used by economists working for the major airline companies today?

7. What can we say about the rates that result?

Topic №13

«Profit»

1. It is essential to distinguish a few different concepts of «profit».

2. «Profit» in everyday life means advantage or good obtained from something.

3. Besides it can mean money gained in business.

4. «Profit» for an accountant means simply the difference between total receipts and total costs.

5. For an economist «profit» has a much wider meaning.

6. It is the revenue derived from the use of resources minus the opportunity cost of using those resources.

7. The economist attaches a cost to the use of retained earnings, since they could have yielded revenues if used outside the business.

8. Besides, the economist would value the time of owner-managers in accordance with what they could have earned outside the business.

9. Profit can be obtained, if the firm’s financial management is effective.

10. Financial management consists of all those activities that are concerned with obtaining money and using it effectively.

11. It goes without saying, that money is needed to start a business.

12. Then the income from sales could be used to finance the firm’s continuing operations and to provide a profit.