Text 9. Read the text and speak about the main functions of economics. The basic functions of economic systems

The central problem of economics is to determine the most effective ways to allocate the factors of production (natural resources, human resources and capital) and solve the problem of scarcity created by society’s unlimited wants and limited resources. In doing so, economic systems must perform three main functions.

One function is to determine what is to be produced and in what quantity. Even a primitive economy must choose between food and shelter, weapons and tools. In modern economy the potential variety of goods and services that may be produced is immense.

The second function an economy must perform is to decide how the desired goods are to be produced. The efficient production of goods requires that certain rules must be followed: no resource should be used in producing one thing when it can be used in producing something more valuable; and each product should be made with the smallest possible amount of resources.

The third function of an economy is to determine who gets the product. One family gets $5,000 worth of goods this year, another family five times as much – how is the division to be decided? The incomes of individuals are determined by the quantities of resources they own (labour skills, capital in all its forms) and the prices they receive for the use of these resources.

Notes

to allocate – размещать to require – требовать

shelter – кров $5,000 worth of goods – товары на сумму $5,000

immense – огромный

Text 10. Read the text and speak about the types of economies. Types of economies

Throughout history, every society has faced the fundamental economic problem of deciding what to produce, and for whom, in a world of limited resources. In the 20^th century two competing economic systems have provided very different answers: command economies directed by a centralized government, and market economies based on private enterprise.

Market economies are decentralized, flexible, practical and changeable. The central fact about market economy is that there is no center. Market economies rest upon the fundamental principles of individual freedom: freedom as a consumer to choose among competing products and services; freedom as a producer to start or expand a business; freedom as a worker to choose a job or career, to change employers.

Command economy or planned economy is the type of economy where resources are allocated by the state through a system of planning. For example, in the former Soviet Union state planners decided what was to be produced. They passed orders down to factories, allocating raw materials, workers, and other factors of production to them. Factories were then told how much they should produce with these resources and where they should be sent. If there was a shortage of goods in the shops, then goods would be rationed through queuing. The market mechanism plays little role in a command economy.

Historical experience shows that planned economies have not produced as high growth as free or mixed economies. For this reason, the command economies of Eastern Europe and the former Soviet Union are currently being transformed into mixed economies.