Часть 2. Практические задания

Text 1. THE FUNCTIONS OF MONEY

In one of the articles of the Business Review of August 1957, it was written: «Money bewitches people. They fret for it, and they sweat for it. They devise most ingenious ways to get it, and most ingenuous ways to get rid of it. Money is the only commodity that is good for nothing but to be gotten rid of. It will not feed you, clothe you, shelter you, or amuse you unless you spend it or invest it. It imparts value only in parting. People will do almost anything for money, and money will do almost anything for people. Money is a captivating, circulating, masquerading puzzle».

Money. A fascinating aspect of the economy. And a crucial element of economics, Money is more than a tool for facilitating the economy's operation. When it is working properly, the monetary system is the lifeblood of the circular flows of income and expenditure which typify all economies. A well-operating monetary system helps achieve both full employment and efficient resource use. A malfunctioning monetary system can contribute to severe fluctuations in the economy's levels of output, employment, and prices and can distort the allocation of resources.

What is money? There is an appropriate saying that «money is what money does». Anything which performs the functions of money is money. So what are these functions? 1. Medium of exchange. First, and foremost, money is a medium of exchange; it is usable for buying and selling goods and services. A worker in a bakery does not want to be paid 200 bagels per week. Nor does the bakery wish to receive, say, tuna fish for its bagels. Money, however, is readily acceptable as payment. It is a social invention with which resource suppliers and producers can be paid and that can be used to buy any of the full range of items available in the marketplace. As such a medium of exchange, money allows society to escape the complications of barter. And because it provides a convenient way of exchanging goods, money allows society to gain the advantages of geographic and human specialization. 2. Unit of account. Money is also a unit of account. Society uses the monetary unit as a yardstick for measuring the relative worth of a wide variety of goods, services, and resources. Just as we measure distance in miles or kilometers, we gauge the value of goods in dollars. With a money system, we need not state the price of each product in terms of all other products for which it can be exchanged; we need not specify the price of cows in terms of corn, crayons, cigars, Chevrolets, and croissants.

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Text 2. THE BUSINESS POPULATION

Businesses constitute the second major part of the private sector. To avoid confusion, we must start by distinguishing among a plant, a firm, and an industry.

A plant is a physical establishment – a factory, farm, mine, store, or warehouse – which performs one or more functions in fabricating and distributing goods and services. A business firm is a business organization which owns and operates plants. Most firms operate only one plant, but many own and operate several. Multi-plant firms may own horizontal, vertical, or conglomerate combinations of plants. A vertical combination of plants is a group of plants, with each performing a different function in the various stages of the production process. As an example, every large steel firm in the United States – Bethlehem Steel, Republic Steel, and others – owns iron ore and coal mines, limestone quarries, metal refineries, rolling mills, foundries and, in some cases, fabricating shops.

A horizontal combination of plants is one in which all plants perform the same function. The large chain stores in the retail field – JC Penney, Foot Locker, Wal-Mart in the US); Marks & Spencer, BHS, Boots, Little Woods (in Great Britain); Toys Us (Great Britain, the US) – are examples.

A conglomerate combination is made up of plants which operate across several different markets and industries. In the United States, for example, Warner-Lambert Company owns plants involved in such diverse fields as chewing gum (Trident), razors (Shick), cough drops (Halls), breath mints (Certs), and antacids (Rolaids). Firms such as these are called conglomerates.

An industry is a group of firms producing the same, or similar, products. This seems to be a simple concept, but industries are usually difficult to identify in practice. For example, how do we identify the automobile industry? The simplest answer is «all firms producing automobiles». But how should we account for small trucks? Certainly, small pickup trucks are similar in many respects to vans and station wagons. And what about firms which make parts for cars, say, airbags? What industry are they in? Is it better to speak of the «motor vehicle industry rather than the automobile industry? If so, where should we then place motorcycles?

Delineating an industry becomes even more complex because most businesses are multi-product firms. Automobile manufacturers in the United States also make such diverse products as diesel locomotives, buses, refrigerators, guided missiles, and air conditioners.

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Text 3. MONEY ECONOMY

Buying, Selling and Paying. Almost every society now has a money economy based on coins and paper notes of one kind or another. Money is used for buying or selling goods, for measuring value and for storing wealth. However, this has not always been true. In primitive societies, a system of barter direct exchange of goods was used. Somebody could exchange a sheep, for example, for anything in the marketplace that they considered to be of equal value. Most governments now issue paper money in the form of notes. Paper money is easier to handle and much more convenient in the modern world. Cheques, bankers' cards, and credit cards are being used increasingly, too.

Sometimes in a shop they ask you: "How do you want to pay?" You can answer: "Cash/ By cheque/ By credit card." In a bank you usually have a current account, which is one where you are paid your salary and then withdraw money to pay your everyday bills. The bank sends you a regular bank statement telling you how much money is in your account. You may also have a savings account where you deposit any extra money that you have and only take money out when you want to spend it on something special. Sometimes, the bank may lend you money — this is called a bank loan. If the bank lends you money to buy a house, that money is called a mortgage. When you buy (or, more formally, purchase) something in a shop, you usually pay for it outright but sometimes you buy on credit. Sometimes, you may be offered a discount or a reduction on something you buy at a shop. It is not usual to haggle about prices in a British shop, as it is in a Turkish market. If you want to return something which you have bought to a shop, you may be given a refund, i.e. your money will be returned, provided you have a receipt. The money that you pay for services, e.g. to a school or a lawyer, is usually called a fee or fees; the money paid for a journey is a fare. If you buy something that you feel was very good value, it's a bargain. Public Finance. The government collects money from citizens through taxes. Income tax is the tax collected on wages and salaries. Inheritance tax is collected on what people inherit from others. Customs duties have to be paid on goods imported from other countries. VAT, or value-added tax, is a tax paid on most foods and services when they are bought or purchased. Companies pay corporation tax on their profits. The government also sometimes pays out money to people in need. Recipients draw a pension/unemployment benefit or are on the dole or on social security.

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Text 4. WHY STUDY ECONOMICS?

A basic understanding of economics is essential if we are to be well-informed citizens. Most of today's political problems have important economic aspects: How important is it that we balance the budget? How can we make the social security retirement programmed financially secure? Why do we continue to have large international trade deficits? How can we best reduce pollution? What must we do to keep inflation in check? What can be done to boost the country's productivity and economic growth? Are existing welfare programmers effective and justifiable? Do we need to reform our tax system? How should we respond to growing market dominance by a few firms in some sectors of the economy?

As voters, we can influence the decisions of our elected officials in responding to such questions. But intelligence at the polls requires a basic working knowledge of economics. And a sound grasp of economics is even more helpful to the politicians themselves.

Economics lays great stress on precise, systematic analysis. Thus, studying economics invariably helps students improve their analytical skills, which are in great demand in the workplace. Also, the study of economics helps us make sense of the everyday activity we observe around us. How is it that so many different people, in so many different places, doing so many different things, produce exactly the goods and services we want to buy? Economics provides an answer. Economics is also vital to business. An understanding of the basics of economic decision-making and the operation of the economic system enables business managers and executives to increase profit. The executive who understands when to use new technology, when to merge with another firm, when to expand employment, and so on, will outperform the executive who is less deft at such decision-making. The manager who understands the causes and consequences of recessions – downturns in the overall economy – can make more intelligent business decisions during these periods.

Economics helps consumers and workers make better buying and employment decisions. How can you spend your limited money income to maximize your satisfaction? How can you hedge against the reduction in the dollar's purchasing power that accompanies inflation? Is it more economical to buy or lease a car? Should you use a credit card or pay cash? Which occupations pay well; which are most immune to unemployment? Similarly, an understanding of economics makes for better financial decisions.

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Is studying economics worth your time and effort?

Text 5. ECONOMIC SYSTEMS

A society needs to select an economic system – a particular set of institutional arrangements and a coordinating mechanism – to respond to the economizing problem. Economic systems can differ as to (1) who owns the factors of production and (2) the method used to coordinate and direct economic activity.

The private ownership of resources and the use of a system of markets and prices to coordinate and direct economic activity characterize laissez-faire capitalism, or pure capitalism. In such market systems each participant acts in his or her own self-interest; each individual or business seeks to maximize its satisfaction or profit through its own decisions regarding consumption or production. The system allows for the private ownership of capital, communicates through prices, and coordinates economic activity through markets – places where buyers and sellers come together. Goods and services are produced and resources are supplied by whoever is willing and able to do so. The result is competition among many small, independently acting buyers and sellers of each product and resource. Thus, economic power is widely dispersed.

Advocates of pure capitalism argue that such an economy promotes efficiency in the use of resources, stability of output and employment, and rapid economic growth. Hence, there is little or no need for government planning, control, or intervention. The term «laissez-faire» means «let it be», that is, keep government from interfering with the economy. The idea is that such interference will disturb the efficient working of the market system. Government's role is therefore limited to protecting private property and establishing an environment appropriate to the operation of the market system.

The polar alternative to pure capitalism is the command economy or communism, characterized by public (government) ownership of virtually all property resources and economic decision-making through central economic planning. All major decisions concerning the level of resource use, the composition and distribution of output and the organization of production are determined by a central planning board appointed by government. Business firms are governmentally owned and produce according to government directives. The planning board determines production goals for each enterprise, and the plan specifies the amounts of resources to be allocated to each enterprise so that it can reach its production goals.

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Text 6. THE NATURE OF ECONOMICS

Human beings, those unfortunate creatures, are plagued with wants. We want, among other things, love, social recognition, and the material necessities and comforts of life. Our efforts to meet our material wants, that is, to improve our well-being or «make a living», are the concern of economics.

Biologically, we only need air, water, food, clothing, and shelter. But, in contemporary society, we also seek the many goods and services associated with a comfortable or affluent standard of living. Fortunately, society is blessed with productive resources - labour and managerial talent, tools and machinery, land and mineral deposits - which are used to produce goods and services. This production satisfies many of our material wants and occurs through the organizational mechanism called the economic system or, more simply, the economy.

The blunt reality, however, is that the total of all our material wants is many times greater than the productive capacity of our limited resources. Thus, the complete satisfaction of material wants is impossible. This unyielding reality provides our definition of economics: the social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human material wants.

Although it may not be evident, most of the headline-grabbing issues of our time - inflation, unemployment, health care, social security, budget deficits, discrimination, tax reform, poverty and inequality, pollution, and government regulation and deregulation of business - are rooted in the one challenge of using scarce resources efficiently.

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Text 7. THE POWER OF ECONOMICS

More than half a century ago John Maynard Keynes, one of the most influential economists of the 20th century, said:

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist”.

Most of the ideologies of the modern world have been shaped by prominent economists of the past - Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, and John Maynard Keynes. And current world leaders routinely solicit the advice and policy suggestions of today's economists.

For example, the President of the United States benefits from the recommendations of his Council of Economic Advisers. The broad range of economic issues facing political leaders is suggested by the contents of the annual Economic Report of the President.

Areas covered typically include unemployment, inflation, economic growth, taxation, poverty, international trade, health care, pollution, discrimination, immigration, regulation, and education, among others.

In spite of many practical benefits, economics is mainly an academic, not a vocational, subject. Unlike accounting, advertising, corporate finance, and marketing, economics is not primarily a how-to-make-money area of study. Knowledge of economics and mastery of the economic perspective will help you run a business or manage your personal finances. But that is not its primary objective. Instead, economics ultimately examines problems and decisions from the social, rather than the personal, point of view. The production, exchange, and consumption of goods and services are discussed from the viewpoint of society's best interest, not strictly from the standpoint of one's own pocketbook.

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Text 8. MACROECONOMICS VERSUS MICROECONOMICS

Economists derive and apply principles about economic behaviour at two levels.

Macroeconomics examines either the economy as a whole or its basic subdivisions or aggregates such as the government, household, and business sectors. An aggregate is a collection of specific economic units treated as if they were one unit. Therefore, we might lump together the millions of consumers in any economy and treat them as if they were one huge unit called «consumers».

In using aggregates, macroeconomics seeks to obtain an overview, or general outline, of the structure of the economy and the relationships of its major aggregates. Macroeconomics speaks of such economic measures as total output, total employment, total income, aggregate expenditures, and the general level of prices in analyzing various economic problems. No or very little attention is given to specific units making up the various aggregates. Macroeconomics examines the forest, not the trees.

Microeconomics looks at specific economic units. At this level of analysis, the economist observes the details of an economic unit, or very small segment of the economy, under the figurative microscope. In microeconomics we talk of an individual industry, firm, or household. We measure the price of a specific product, the number of workers employed by a single firm, the revenue or income of a particular firm or household, or the expenditures of a specific firm, government entity, or family. In microeconomics, we examine the trees, not the forest.

The macro-micro distinction does not mean that economics is so highly compartmentalized that every topic can be readily labeled as either macro or micro; many topics and subdivisions of economics are rooted in both. Example: While the problem of unemployment is usually treated as a macroeconomic topic (because unemployment relates to aggregate spending), economists recognize that the decisions made by individual workers in searching for jobs and the way specific product and labour markets operate are also critical in determining the unemployment rate.

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Text 9. POSITIVE AND NORMATIVE ECONOMICS

Both macroeconomics and microeconomics involve facts, theories, and policies. Each contains elements of positive economics and normative economics.

Positive economics focuses on facts (once removed at the level of theory) and avoids value judgements. It tries to establish scientific statements about economic behaviour. Positive economics deals with what the economy is actually like. Such factually based analysis is critical to good policy analysis.

In contrast, normative economics involves value judgements about what the economy should be like or what particular policy actions should be recommended to get it to be that way. Normative economics looks at the desirability of certain aspects of the economy. It underlies expressions of support for particular economic policies.

Positive economics concerns «what is», while normative economics embodies subjective feelings about «what ought to be». Examples: Positive statement: «The unemployment rate in several European nations is higher than that in the United States». Normative statement: «European nations ought to undertake policies to reduce their unemployment rates». A second positive statement: «Other things equal, if tuition is increased, enrollment at this University will fall». Normative statement: «Tuition should be lowered at this University so that more students can obtain an education*. Whenever words such as «ought» or «should» appear in a sentence, there is a strong chance you are encountering a normative statement.

As you can imagine, most of the disagreement among economists involves normative, value-based policy questions. Of course, there is often some disagreement about which theories or models best represent the economy and its parts. But most economic controversy reflects differing opinions or value judgements about what society itself should be like.

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Text 10. FOUNDATIONS OF THE MARKET ECONOMY

In his well-known work The Inquiry Into the Nature and Causes of the Wealth of Nations, Adam Smith wrote, «Every individual neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it».

Adam Smith's «invisible hand» underlies the importance given to individuals and individual decision-making in a free market economy. Smith contended that individuals, operating alone and without government intervention, could seek fulfillment of personal needs and, at the same time, assist in satisfying the goals of the economy. The idea that self-interest adds to the good of society is a fundamental tenet of all market driven economic systems.

In The Wealth of Nations, Adam Smith hints that of all possible economic systems, the market system has the highest potential. He knew, in the late 1700s, that the driving force behind the free market economy would be individual self-interest. To praise self-interest in 1776, as Smith did, was revolutionary. The idea that self-interest could be a noble or acceptable virtue had only recently emerged. During the Middle Ages, self-interest was considered synonymous with greed and, thus, improper and immoral. There were usury laws against charging interest because it was thought sinful for a lender to extract interest from a borrower. It was not until the late 1700s, when the economist Jeremy Bentham described his «pleasure-pain calculus», that self-interest began to be seen in a more positive light.

The theory behind the pleasure-pain calculus holds that if individuals seek their own satisfaction, society as a whole prospers. Bentham's idea is subject to the fallacy of composition: for example, a rock music fan pursuing the maximization of his or her pleasure may easily disturb the peace and tranquillity of a neighbour who prefers classical music. What is good for one is not necessarily good for all. However, on the more basic issues of self-interest and societal welfare, most free market economists agree that Bentham's pleasure-pain calculus escapes the fallacy of composition. Adam Smith refined Bentham's idea with his concept of the invisible hand. Self-fulfillment, individual motivation, or the desire for profit, if controlled by the forces of competition, could create a better world for all. This belief is the foundation of the market system.

Within the market system, individual self-interest motivates the labour force -workers «trade» their labour for money they can use to purchase food, shelter, clothing, and other consumer goods. This is hardly altruistic. Nonetheless, the products and services generated by this labour benefit other people as well. For example, an airline pilot flies a commercial plane in order to earn a salary; however, the fact that the pilot performs his or her job enables many passengers to travel on the plane. Their purposes - whether business or pleasure - are also served by the pilot's self-interest in flying the plane.

The second important principle of the market system is the idea of consumer sovereignty. Consumer sovereignty means that the individual consumer decides what is to be produced in the economy. In the United States, the executives of large corporations who decide what will be produced base their decisions on what they perceive to be the wishes of the marketplace. Thus, the sum total of individual consumer wants ultimately determines what is to be produced. A daily election of goods and services takes place in the marketplace of capitalism. That portion of a consumer's income that is available for spending in the marketplace is often referred to by economists as the consumer's «dollar votes». On a daily basis, consumers cast their ballots for those products that they believe are reliable, safe, and of good quality. Consumers reject products that do not perform well, are too highly priced, and seem to be bad bargains.

Store owners watch what is being sold on a daily basis. Items that are big sellers are reordered, while items that accumulate on store shelves are not. Such products are not in great demand: they have «failed» the market test, lost the consumer election, and soon disappear from the market.

In the market system, producers must react quickly to capitalize on consumer interest, and they stand ready to reallocate resources at a moment's notice. Some products can be created almost instantaneously in response to consumer demand. Books are written, printed, and made available to the public remarkably soon after a major event of great concern or interest occurs. A particular song becomes a hit on the radio and, almost immediately, abundant supplies of the record appear in the stores. A popular professional football player appears on national television wearing an obscure brand of sunglasses and, suddenly, every budding athlete wants a pair. Almost overnight, retailers all over town are advertising the product's availability.

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Text 11. DEMAND

According to an old joke, if you teach a parrot to say «Demand and supply», you have an economist. There is an element of truth in this quip. The tools of demand and supply can take us far in understanding not only specific economic issues but also how the entire economy works.

The circular flow model in the previous Units identified the participants in the product and resource markets. There, we asserted that prices were determined by the «interaction» between demand and supply in these markets. In this Unit we examine that interaction in detail, explaining how prices and output quantities are determined.

You now know that a market is an institution or mechanism which brings together buyers («demanders») and sellers («suppliers») of particular goods, services, or resources. Markets exist in many forms. The corner gas station, the fast-food outlet, the local music store, a farmer's roadside stand - all are familiar markets. The London Stock Exchange, the New York Stock Exchange, the Chicago Board of Trade are markets where buyers and sellers of stocks and bonds and farm commodities from all over the world communicate with one another and buy and sell. Auctioneers bring together potential buyers and sellers of art, livestock, used farm equipment, and, sometimes, real estate.

All these situations which link potential buyers with potential sellers are markets. As our examples imply, some markets are local, while others are national or international. Some are highly personal, involving face-to-face contact between demander and supplier; others are impersonal, with buyer and seller never seeing or knowing each other.

To keep things simple, we focus on markets consisting of large numbers of independently acting buyers and sellers exchanging a standardized product. These are the highly competitive markets such as a central grain exchange, a stock market, or a market for foreign currencies in which the equilibrium price is «discovered» by the interacting decisions of buyers and sellers. They are not the markets in which one or a handful of producers «set» prices, such as the markets for commercial airplanes or greeting cards.

Demand is a schedule or a curve showing the various amounts of a product consumers are willing and able to purchase at each of a series of possible prices during a specified period of time. Demand, therefore, shows the quantities of a product which will be purchased at various possible prices, other things equal. This definition of demand is obviously worded to apply to product markets; to adjust it to apply to resource markets, substitute the word «resource» for «product» and the word «businesses» for «consumers». The definition says «willing and able» because willingness alone is not effective in the market. You may be willing to buy a Mercedes, but if this willingness is not backed by the necessary money, it will not be effective and, therefore, not be reflected in the market.

Demand can easily be shown in table form. The portrayal of demand in table form can reflect, say, the relationship between the possible prices of corn and the quantity of corn the consumer would be willing and able to purchase at each of these prices. But the table showing demand does not tell us which of the possible prices will actually exist in the corn market. This depends on demand and supply. Demand is simply a statement of a buyer's plans, or intentions, with respect to the purchase of a product.

To be meaningful, the quantities demanded at each price must relate to a specific period - a day, a week, a month. Saying «A consumer will buy 10 bushels of corn at $5 per bushel» is meaningless. Saying «A consumer will buy 10 bushels of corn per week at $5 per bushel» is clear and meaningful. Without a specific time period we would not know whether demand for a product was large or small.

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Text 12. SUPPLY

Supply is a schedule or curve showing the amounts of a product a producer is willing and able to produce and make available for sale at each of a series of possible prices during a specific period. This definition is worded to apply to product markets. To adjust it to apply to resource markets, substitute «resource» for «product» and change «owner» to «producer».

As price rises, the corresponding quantity supplied rises; as price falls, the quantity supplied falls. This particular relationship is called the law of supply. A supply schedule tells us that firms will produce and offer for sale more of their product at a high price than at a low price. This, again, is basically common sense.

Price is an obstacle from the standpoint of the consumer, who is on the paying end. The higher the price, the less the consumer will buy. But the supplier is on the receiving end of the product's price. To a supplier, price represents revenue and thus is an incentive to produce and sell a product. The higher the price, the greater this incentive and the greater the quantity supplied.

Consider a fanner who can shift resources among alternative products. As price moves up, the fanner finds it profitable to take land out of wheat, oats, and soybean production, and put it into corn. And the higher corn prices allow the farmer to cover the increased costs associated with more intensive cultivation and the use of more seed, fertilizer, and pesticides. The overall result is more corn.

Now consider a manufacturer. Beyond some production quantity, manufacturers usually encounter increasing costs per added unit of output. Certain productive resources - in particular, the firm's plant and machinery - cannot be expanded quickly. So the firm uses more of the other resources, such as labour, to produce more output. But at some point the existing plant becomes increasingly crowded and congested, meaning that each added worker produces less added output. As a result, the cost of successive units of output rises. The firm will not produce these more costly units unless it receives a higher price for them. Again, price and quantity supplied are directly related.

As with demand, it is convenient to represent supply graphically. We obtain the market supply curve by horizontally adding the supply curves of the individual producers. Note that the axes in such a graph are the same as those used in the graph of market demand, except for the change from «quantity demanded» to «quantity sup-plied» on the horizontal axis.

In constructing a supply curve, the economist assumes that price is the most significant influence on the quantity supplied of any product. But other factors (the «other things equal») can and do affect supply. The supply curve is drawn assuming that these other things are fixed and do not change. If any of them does change, a change in supply will occur - the entire supply curve will shift.

The basic determinants of supply are (1) resource prices, (2) the technique of production, (3) taxes and subsidies, (4) prices of other goods, (5) price expectations, and (6) the number of sellers in the market. A change in any one or more of these determinants of supply, or supply shifters, will move the supply curve for a product either to the right or to the left. A shift to the right designates an increase in supply: producers supply larger quantities of the product at each possible price. A shift to the left indicates a decrease in supply: Suppliers offer less output at each price.

Let's consider how changes in each of the determinants affect supply. As our discussion proceeds, remember that costs are a major factor underlying supply curves; anything that affects costs (other than changes in output itself) usually shifts the supply curve.

Resource prices. The prices of the resources used in the production process help determine the costs of production incurred by firms. Higher resource prices raise production costs and, assuming a particular product price, squeeze profits. This reduction in profits reduces the incentive for firms to supply output at each product price. In contrast, lower resource prices induce firms to supply more output at each product price since production costs fall and profits expand.

It follows that a decrease in resource prices will increase supply, shifting the supply curve to the right. If prices of seed and fertilizer decrease, we can expect the supply of corn to increase. Conversely, an increase in resource prices will raise production costs and reduce supply, shifting the supply curve to the left. Increases in the prices of iron ore and coke will increase the cost of producing steel and reduce its supply.

Technology. Improvements in technology enable firms to produce units of output with fewer resources. Because resources are costly, using fewer of them lowers production costs and increases supply. Recent improvements in the fuel efficiency of aircraft engines, for example, have reduced the cost of providing passenger air service. Thus, airlines now offer more air service than previously at each ticket price; the supply of air service has increased.

Taxes and subsidies. Businesses treat most taxes as costs. An increase in sales or property taxes will increase production costs and reduce supply. In contrast, subsidies are «taxes in reverse». If government subsidizes the production of a good, it in effect lowers production costs and increases supply.

Prices of other goods. Firms producing a particular product, say, soccer balls, can sometimes use plant and equipment to produce alternative goods, basketballs and volleyballs. Higher prices of these «other goods» may entice soccer ball producers to switch production to them in order to increase profits. This situation in production results in a decline in the supply of soccer balls. Alternatively, lower prices of basketballs and volleyballs may entice producers of these goods to produce more soccer balls, increasing their supply.

Expectations. Expectations about the future price of a product can affect the producer's current willingness to supply that product. It is difficult, however, to generalize about how the expectation of higher prices affects the present supply of a product. Farmers anticipating a higher corn price in the future might withhold some of their current corn harvest from the market, which would cause a decrease in the supply of corn. Similarly, if the price of Intel stock is expected to rise significantly in the near future, the supply offered for sale today might decrease. In contrast, in many types of manufacturing industries, expected price increases may induce firms to add another shift of workers or expand their production facilities, causing current supply to increase.

Number of sellers. Other things equal, the larger the number of suppliers, the greater the market supply. As more firms enter an industry, the supply curve shifts to the right. Conversely, the smaller the number of firms in the industry; the less the market supply. This means that as firms leave an industry, the supply curve shifts to the left. For example, the United States and Canada have imposed restrictions on haddock fishing to replenish dwindling stocks. As part of that policy, the Federal government has bought the boats of some of the haddock fishermen as a way of putting them out of business and decreasing the catch. The result has been a decline in the market supply of haddock.

The following is a checklist of the determinants of supply - factors which shift the supply curve - along with further illustrations. The only problem is that the determinants of supply and the examples are mixed up. Correct the mistakes, match determinants with the corresponding examples. Explain every move you are going to make. Give examples of your own to more vividly show the importance of the determinants of supply to your fellow-students.

Change in resource prices = An increase in the number of firms producing personal computers increases the supply of personal computers. Formation of women's professional basketball leagues increases the supply of women's professional basketball games.

Change in technology = A decline in the price of fertilizer increases the supply of wheat. An increase in the price of irrigation equipment reduces the supply of corn.

Changes in taxes and subsidies = A decline in the prices of mutton and pork increases the supply of beef.

Change in prices of other goods = The development of a more effective insecticide for corn root worm increases the supply of corn.

Change in expectations = An increase in the excise tax on cigarettes reduces "he supply of cigarettes. A decline in subsidies to state universities reduces the supply of higher education.

Change in number of suppliers = Expectations of substantial declines in future oil prices cause oil companies to increase current supply.

1. Read the text.

2. Pick up the key words.

3. Divide the text into logical parts.

4. Make up an outline of the text.

5. Find the main idea in each part of the text.

6. Express the main idea of each part in one sentence.

7. Find supporting details in each part of the text.

8. Compress the text excluding the supporting details.

9. Express the main idea of the text in one sentence.

10. Write a summary of the text using words and word combinations from your active vocabulary and sample summaries.

Text 13. HARD TALK, SOFT POLICY

The ECB has run as loose a monetary policy as other central banks have. It is just rather more coy about it

THE global economy has stopped sinking and central bankers are pausing for breath. As The Economist went to press on July 2nd, the European Central Bank (ECB) was expected to keep its main “refi” interest rate unchanged, at 1%. The ECB’s rate-setting council has been chary of cutting rates closer to zero as policymakers elsewhere have done. Its reluctance to do more has attracted criticism, only some of it fair.

The focus on policy rates may put the ECB in a bad light but these are no longer a reliable guide to the overall monetary-policy stance. If you look at market rates the policy stance in the euro area is as loose as anywhere else, because of stimulus decisions taken at the height of the financial crisis. In October the ECB decided it would offer banks as much cash as they wanted, at a fixed interest rate (the refi rate) and against a wider range of security than usual, for up to six months. It also scheduled extra three-month and six-month refinancing operations, so that banks could come more often to the central-bank well.

In May the ECB council agreed to extend the offer of fixed-rate cash to one year. At the first 12-month refinancing operation on June 24th, euro-zone banks borrowed a staggering €442 billion ($620 billion). With so much cash splashing around, the charge that banks make for overnight loans has stayed well below the refi rate, with some occasional spikes (see chart). Since the €442 billion cash injection, overnight interest rates in the euro zone have fallen to a record low of 0.3%, below those in Britain and scarcely higher than in America. Indeed banks can now borrow more cheaply in euros than in pounds for either three, six or 12 months.

Before the crisis, the ECB would aim to keep overnight interest rates close to the refi rate. Since it moved to unlimited fixed-rate funding, the central bank has been content to allow the overnight rate to drift much lower than the policy rate. In effect, the bank now has a target range for short-term rates: the upper bound is the 1% refi rate and the lower bound is the rate the central bank pays on banks’ deposits with it, currently 0.25%. The deposit rate has been a better guide to the policy stance than the refi rate has. ECB-watchers and markets understand this, even though it has not been spelt out in so many words by Jean-Claude Trichet, the ECB’s president.

Why be so coy? One concern is that by playing up the fight against recession, the ECB could appear to have lost sight of inflation. Keeping the totemic refi rate above zero may be seen as necessary to prevent inflation expectations from drifting up. There may also be a reluctance to admit that such a gushing provision of liquidity has altered the policy stance. Since the start of the crisis in August 2007, the ECB has insisted the two are separate. “They are bold on liquidity because they don’t see it as mainstream monetary policy,” says Charles Wyplosz of the Graduate Institute in Geneva. Yet the terms of its refinancing for banks have clearly led to looser monetary conditions.

Another reason for obfuscation is to mask differences among rate-setters. Monetary-policy hawks can reassure themselves that the policy rate is not too low. Doves are happy that effective interest rates are nearer to zero. And Mr Trichet can claim there is a “consensus”. The terms of the truce make it easier to reverse policy when the time comes. By restricting its liquidity support, the ECB will be able to guide overnight interest rates towards 1% without having to alter its policy rate.

Because the ECB has had one eye on the exit since the start of the crisis it has earned plaudits from those who think the Federal Reserve has been incautious. That judgment is too kind to the ECB, which could afford to have scruples about the medium term because other central banks were taking more care of the present. It is also unfair on the Fed, which had to stand in place of America’s collapsed shadow-banking system. When the economy was in most danger, the ECB could have cut rates more quickly. “If the ECB had been more proactive, the recession would have been less bad,” says Marco Annunziata of UniCredit. The striving for consensus militated against bolder action.

Another criticism is that the ECB has not done more to ease credit conditions by buying government and corporate bonds outright, as the Bank of England and the Fed have done. Its scheme to purchase up to €60 billion of the safest bank bonds, launched this month, is modest by comparison. Mr Trichet believes that focus makes sense, as euro-zone businesses and homebuyers rely more on banks than capital markets for credit. In America, capital markets matter more, so the Fed had to get its hands dirtier by buying commercial paper and mortgage-backed securities.

The ECB is also loth to soil its hands with public debt, though banks flush with central-bank cash are keen buyers of such low-risk assets. If this is monetisation at a remove, so be it. The central bank keeps its independence from government and does not have to worry about selling bonds back into the market once the interest-rate cycle turns. “If you want to stay clean, the exit strategy is easier,” says Thomas Mayer of Deutsche Bank.

But offering ample liquidity support to banks gets you only so far. By buying assets, the Fed allows American banks to shed them, freeing scarce capital for fresh lending. As losses mount in the euro zone, capital may trump liquidity in determining credit growth. Lending to the private sector slowed to 1.8% in the year to May, an all-time low. Until credit starts to revive, the ECB cannot think about tightening policy. It may yet have to be bolder.

1. Read the text.

2. Pick up the key words.

3. Divide the text into logical parts.

4. Make up an outline of the text.

5. Find the main idea in each part of the text.

6. Express the main idea of each part in one sentence.

7. Find supporting details in each part of the text.

8. Compress the text excluding the supporting details.

9. Express the main idea of the text in one sentence.

10. Write a summary of the text using words and word combinations from your active vocabulary and sample summaries.

Text 14. A NEW ECONOMIC ERA IS DAWNING

SOMETIMES you can have too much news. There was so much financial turmoil in the autumn that it was hard to keep up with events. In retrospect it is clear that a change in the economic backdrop akin to the demise of the Bretton Woods system in the early 1970s has taken place. Investors will be dealing with the aftermath for decades to come.

From the mid-1980s onwards the answer to big financial setbacks appeared to be simple. Central banks would cut interest rates and, eventually, the stockmarket would recover. It worked after Black Monday (the day in October 1987 when the Dow Jones Industrial Average fell by 23%) and the Asian crisis of 1997-98. It did not rescue shares after the dotcom bust but the easing led to the housing boom and the underpricing of risk in credit markets.

Easing monetary policy was pretty popular. It lowered borrowing costs for companies and homebuyers. To the extent that savers earned lower returns on their deposit accounts, they were usually compensated by a rebound in the value of their equity holdings.

Indeed, monetary easing appeared to be costless. When policymakers cut interest rates in the 1960s and 1970s they often ignited inflationary pressures. Not so in the 1990s. Whether that was down to the brilliance of central banks or the deflationary pressures emanating from China and India is still a matter of debate.

This time around conventional monetary policy has not been enough. The authorities have also had to resort to quantitative easing, using the balance-sheets of central banks to ensure the funding of clearing banks and to keep the lid on bond yields. And there has been a huge dollop of fiscal easing. Some countries’ budget deficits have soared to 10% of GDP.

The fiscal packages have proved rather less popular than monetary easing. Initially they were seen as bail-outs for greedy bankers. But the focus of criticism has shifted to the deterioration of government finances and the potential for higher future taxes, borrowing costs and inflation.

An eerie parallel seems to be at work. There was a time, back in the 1950s and 1960s, when Keynesian stimulus packages were seen as costless. Governments thought they could fine-tune their economies out of recession. Eventually it was realised that the ultimate result of too much stimulus was higher inflation and excessive government involvement in the economy. Keynesian demand management was abandoned in favour of the monetary approach. The past couple of years have demonstrated that the use of monetary policy had its costs too, not in consumer inflation but in rising debt levels and growing asset bubbles.

The authorities never even considered allowing the financial crisis to continue unhindered. The damage to the economy would have been too great. But the costs of this latest round of government action will be big. Investors will have it in mind during the next boom that governments will rescue the largest banks, slash rates, intervene in the markets and run huge deficits. In other words the moral-hazard problem will be even greater.

Before we get there, however, the authorities will have to work out an exit strategy. Past cycles have shown that the tightening phase, after a long period of low rates, can be very dangerous. Bond markets were savaged in 1994 when the Federal Reserve started to raise rates from 3%. What will bond markets do if central banks also unload the holdings acquired during the crisis? And how will stockmarkets perform if interest rates and taxes are being raised at the same time?

Given these risks, the new era will surely be a lot more fragile than the one that prevailed in the 1980s and 1990s. There is simply more scope for policymakers to go wrong.

In addition, the global financial system has lost its anchor. When Bretton Woods broke down and the last link to gold was severed, there was in theory nothing to stop governments from creating money. It took independent central banks, armed with inflation targets, to reassure creditors. But now central banks have shown they have another priority apart from controlling inflation: bailing out the banks.

The new era is one in which governments are using floating exchange rates, near-zero interest rates and vast fiscal deficits to protect their economies. None of this is good news for creditors, who will surely not put up with the situation for long. The actions they take to protect their portfolios—demanding higher bond yields, pushing for fixed exchange rates—will define the next economic system.

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2. Pick up the key words.

3. Divide the text into logical parts.

4. Make up an outline of the text.

5. Find the main idea in each part of the text.

6. Express the main idea of each part in one sentence.

7. Find supporting details in each part of the text.

8. Compress the text excluding the supporting details.

9. Express the main idea of the text in one sentence.

10. Write a summary of the text using words and word combinations from your active vocabulary and sample summaries.

Text 15. MARKET ECONOMY

The notion of a "free market" where all economic decisions regarding transfers of money, goods, and services take place on a voluntary basis, free of coercive influence, is commonly considered to be an essential characteristic of capitalism. Some individuals contend, that in systems where individuals are prevented from owning the means of production (including the profits), or coerced to share them, not all economic decisions are free of coercive influence, and, hence, are not free markets. In an ideal free market system none of these economic decisions involve coercion. Instead, they are determined in a decentralized manner by individuals trading,bargaining, cooperating, and competing with each other. In a free market, government may act in a defensivemode to forbid coercion among market participants but does not engage in proactive interventionist coercion. Nevertheless, some authorities claim that capitalism is perfectly compatible with interventionist authoritarian governments, and/or that a free market can exist without capitalism.

A legal system that grants and protects property rights provides property owners the entitlement to sell their property in accordance with their own valuation of that property; if there are no willing buyers at their offered price they have the freedom to retain it. According to standard capitalist theory, as explained by Adam Smith, when individuals make a trade they value what they are purchasing more than they value what they are giving in exchange for a commodity. If this were not the case, then they would not make the trade but retain ownership of the more valuable commodity. This notion underlies the concept of mutually-beneficial trade where it is held that both sides tend to benefit by an exchange.

In regard to pricing of goods and services in a free market, rather than this being ordained by government it is determined by trades that occur as a result of price agreement between buyers and sellers. The prices buyers are willing to pay for a commodity and the prices at which sellers are willing to part with that commodity are directly influenced by supply and demand (as well as the quantity to be traded). In abstract terms, the price is thus defined as the equilibrium point of the demand and the supply curves, which represent the prices at which buyers would buy (and sellers sell) certain quantities of the good in question. A price above the equilibrium point will lead tooversupply (the buyers will buy less goods at that price than the sellers are willing to produce), while a price below the equilibrium will lead to the opposite situation. When the price a buyer is willing to pay coincides with the price a seller is willing to offer, a trade occurs and price is determined.

However, not everyone believes that a free or even a relatively-free market is a good thing. One reasonproffered by many to justify economic intervention by government into what would otherwise be a free market ismarket failure. A market failure is a case in which a market fails to efficiently provide or allocate goods and services (for example, a failure to allocate goods in ways some see as socially or morally preferable). Some believe that the lack of "perfect information" or "perfect competition" in a free market is grounds for government intervention. Other situations or activities often perceived as problems with a free market may appear, such monopolies, monopsonies, information inequalities (e.g. insider trading), or price gouging. Wages determined by a free market mechanism are also commonly seen as a problem by those who would claim that some wages are unjustifiably low or unjustifiably high. Another critique is that free markets usually fail to deal with the problem of externalities, where an action by an agent positively or negatively affects another agent without any compensation taking place. The most widely known externality is pollution. More generally, the free market allocation of resources in areas such as health care, unemployment, wealth inequality, and education are considered market failures by some. Also, governmentsoverseeing economies typically labeled as capitalist have been known to set mandatory price floors or price ceilings at times, thereby interfering with the free market mechanism. This usually occurred either in times of crises, or was related to goods and services which were viewed as strategically important. Electricity, for example, is a good that was or is subject to price ceilings in many countries. Many eminent economists have analyzed market failures, and see governments as having a legitimate role to mitigate these failures, for examples through regulation and compensation schemes.

However, some economists, such as Nobel prize-winning economist Milton Friedman as well as those of the Austrian School, oppose intervention into free markets. They argue that government should limit its involvement in economies to protecting freedom rather than diminishing it for the sake of remedying "market failure." These economists believe that government intervention creates more problems than it is supposed to solve. Laissez-faireadvocates do not oppose monopolies unless they maintain their existence through coercion to prevent competition, and often assert that monopolies have historically only developed because of government intervention rather than due to a lack of intervention. They may argue that minimum wage laws cause unnecessary unemployment, that laws against insider trading reduce market efficiency and transparency, or that government-enforced price-ceilings cause shortages.

1. Read the text.

2. Pick up the key words.

3. Divide the text into logical parts.

4. Make up an outline of the text.

5. Find the main idea in each part of the text.

6. Express the main idea of each part in one sentence.

7. Find supporting details in each part of the text.

8. Compress the text excluding the supporting details.

9. Express the main idea of the text in one sentence.

10. Write a summary of the text using words and word combinations from your active vocabulary and sample summaries.

ARTICLE 1. ELEMENTARY SCHOOL EFL LEARNERS’ ADOPTION OF ENGLISH NAMES AND IMPLICATIONS FOR CLASSROOM PRACTICE

Abstract – The adoption of English names is common among elementary school English as Foreign Language (EFL) learners in Taiwan. In this study 86% of participants in this study have their own English name and 67.5% of those who do not have one would like to. However, none of the students who have an English name know its meaning or have been told why their particular name was chosen for them. English names were mostly given to learners by English teachers at their school or a private language school. The younger the learners are, the more they feel that the adoption of an English name makes them feel like an English native speaker. Younger EFL learners also feel that having an English name makes a positive impact on their English learning and attitude. Suggestions are provided on giving EFL learners’ English names and using English names as a means of cultural learning.

Index Terms – adoption of English names, identity, English learning attitude

I. INTRODUCTION

In Taiwan, elementary school students who have previously attended private English language institutions have their own English names, while those who haven’t learned English before usually do not. On the first day of the school year, English teachers call the roll and students who do not have English names often ask the teacher to choose one for them. The majority of students who have English names do not know the meaning of their English name or the reason why they are called such a name. Some students will pick very strange names, such as Pig, Mimi, or Elephant. One girl in this study insisted on calling herself “David,” no matter how many times she was told that David is a boy’s name.

This study discusses English as a foreign language (EFL) young learners’ adoption of English names and the relationship between English names and English learning attitude and identity. First, what is the current situation regarding elementary school EFL learners’ adoption of English names? Second, what is the relationship between adopting an English name and English learning attitude? Finally, suggestions are provided on giving EFL learners‟ English names and using English names as a means of cultural learning.

II. LITERATURE REVIEW

A name defines a person and tells people who he or she is. A person’s name is both literally and symbolically a part of them (Blau, 1996; Liu, 2001). A name enfolds the identity of an individual, signaling social and ideological affiliations (Chatterjee, 2003; Liu, 2001).

Scholars have studied how language learners adopt English names, why they chose the names they do, and what their attitudes toward their English names are (Chatterjee, 2003; Edwards, 2006; Wang 2009). In Edwards‟ (2006) study, she found that the practice of Chinese learners‟ adopting English names was widespread. However, none of the Chinese students interviewed in Chatterjee’s study felt any anxiety about taking on English names. One teacher interviewed claimed that from the 1960s to the 1990s there was some resistance to English names, but that the current generation are eager to have an English name. For them, it is a way of “feeling close to the local people” or to make it easier for “native English speakers” to pronounce their names.

The majority of language learners were given an English name by their teachers (Edwards, 2006; McPherron, 2009), so Chatterjee (2003) suggests that teachers should spend some time getting the names right. Blau (1996) asked his students to write down their names, and to brainstorm lists of words, images, or feelings conjured up by their names. Blau also asked students to write stories about their names.

There are eight factors that affect how EFL learners choose their English names.

First, some of them choose to name themselves after their favorite basketball player or a famous person (Chatterjee, 2003; McPherron, 2009). Second, students may choose their name from a dictionary (Chatterjee, 2003); this can give rise to weird and unique names (e.g. Talent, Elephant) (Wang, 2009), or to the playful creation of words (e.g. Dodo) (McPherron, 2009). Third, students may choose names that are phonetically similar to their Chinese name, such as Lulu or Lily (Chatterjee, 2003; Edwards, 2006). Fourth, students like their English names to be easy to pronounce and to remember (McPherron, 2009; Wang, 2009). Fifth, students are concerned with the meanings, especially the literal or original meanings, of their English name (Wang, 2009). Sixth, students choose their English names because parts of these may reflect parts of their Chinese personal name. In this study, Zelda and QQ chose their names because their Chinese names begin with Z and Q respectively. One student called himself Joe because it sounded Chinese, whilst another called himself Joe because his family name was Zhou (a very similar sound) (Edwards, 2006; McPherron, 2009). Seventh, some students choose their names to represent how they would like to be viewed by others (Edwards, 2006; McPherron, 2009; Wang, 2009). Bonnie chose her name because it means “beauty and intelligence”. Iris chose hers because it means rainbow goodness. Derrick chose his because it means strength. Eighth, students may translate the concepts in their Chinese names directly into English: for example, Sky, Ocean, Summer, Apple, Tiger, Long, Sun, Moon, etc (Edwards, 2006).

Language learners hold varying attitudes toward the adoption of English names. For some Chinese students, taking on an English name was only temporary. Others cannot relate to their English names and often cannot recognize it as theirs (Chatterjee, 2003). One of the students interviewed by Chatterjee (2003) said he would continue to use his adopted “English” name because he has had it for a long time and is known by it. Most of the students replied “No, it’s just a name. It does not mean anything” to the question “Does adopting an English name make you feel any different?” However, one student, Lily, indicated that choosing an “English” name gave her a sense of autonomy. She felt that renaming herself gave her a sense of being able to decide on an important aspect of her personality (Chatterjee, 2003). Furthermore, the 19 undergraduate students in China and Canada in Wang’s (2009) survey regarded their English names as a kind of social investment in imagined communities of English learning or employment by a Hong Kong, Taiwanese, or foreign company in China; or even by living or working in English-speaking countries or regions. They associated their English name with their reality, such as their life goals and their ideal personal qualities.

The above studies focus on how EFL adult learners choose their English names and their attitudes toward those English names. This study aims to discuss whether EFL young learners‟ having English names and knowing the meanings of the names makes a difference to their English learning attitude and identity.

III. METHODS

A. Subjects

The subjects of this study are 132 EFL middle to upper grade learners in a rural elementary school in Taiwan, consisting of 36 fourth graders, 50 fifth graders, and 46 sixth graders. Of the 132 participants, 70 are boys and 62 are girls, all of whom have received formal English education since the first grade. They have experienced three forty-minute English classes a week in the first and second grades and four forty-minute English classes in the middle and upper grades.

B. Instruments

The learners answered a questionnaire in Chinese which included 15 statements about English names. For the first ten statements, students had to choose yes/no or fill in the blank. The last five statements were measured by a 5-point Likert scale (1= strongly disagree; 5= strongly agree). The statements were written based on the current literature on language learners’ adoption of English names and on language learning identity.

IV. RESULTS

The analysis is divided into two parts covering the adoption of English names and attitudes toward them.

A. Current Situations of Adopting English Names

Of the 132 participants, 86% (114) have English names. Nineteen students could not spell their English names at all, while others spelt their names incorrectly such as “jimmy,” “Danil,” “andrew,” “Llo,” “Wilsno,” “Tin,”or “gary.” Of these nineteen, seven were fourth graders.

Some students picked strange or unusual names, such as Apple, Not, Bell, Mango, Nett, or Pig. One girl gave herself a boy’s name: Tommy. The most common boys’ name is Jason, followed by Martin and Kevin. The most common girls’ names are Amy and Cindy.

(GRACE CHIN-WEN CHIEN

Department of English Instruction, National Hsinchu University of Education, Hsinchu City, Taiwan )

• Read the article.

• Make some general remarks concerning the content of the paper using words and expressions from Useful Vocabulary Section.

• Discuss the structure of the paper.

• Give some positive comments.

• Express your criticism or objections.

• Analyze the data, results and their presentations.

• Make a conclusion.

ARTICLE 2. IS THE EARTH FLAT OR ROUND? PRIMARY SCHOOL CHILDREN’S UNDERSTANDINGS OF THE PLANET EARTH: THE CASE OF TURKISH CHILDREN

Abstract

The purpose of this study is to explore primary school children’s understandings about the shape of the Earth. The sample is consisted of 124 first-graders from five primary schools located in an urban city of Turkey. The data of the study were collected through children’s drawings and semi-structured interviews. Results obtained from the drawings showed that only one third of the participants have drawn scientifically acceptable images of the earth. However, the subsequent semi-structured interviews revealed that more children have scientific knowledge about the shape of the Earth. The results also revealed that cartoons, story books and daily life experiences are the reasons for children’s misconceptions.

Keywords: Drawings of earth, children’s drawings, children’s conceptions of planet Earth