Key words
Value to be aware intimate
Mainstream rugged tough
Self-relience to sojourn to implement
To embarrass to submer boundary
Subordinate excessive to confirm
Alien gratification to diverse
Mould to advance to exaggerate
To perpetuate to assume vague
Affiliation stable reward
Conduct to perceive heritage
To impact allegiance culturally diverse
To perceive awareness collision loyalty
Adequate challenge culture shock similarity
Hierarchy to interpret
U N I T II
E C O N O M I C S
Lead - in
Economics is exciting and important. Anyone who thinks otherwise has failed to realize that economic ideas and practices have moved people to rebellion, and nations to war. Many of the great issues that confront us today – among them unemployment, inflation, ecological decay – have economic roots. In order to diagnose and remedy these ailments, we must first understand their complex nature.
Milton H. Spencer
1. Do you share the opinion that economics is exciting and important? Give your reasons.
2. How can economics help understand the nature of such ailments as unemployment, inflation, etc.?
3. List the main economic problems affecting the world today. How can the
knowledge of economics help solve them?
4. Why are Rembrandts expensive while water is cheap – especially since everyone needs water more than Rembrandts?
5. Why are some luxury apartments vacant while there is shortage of low-cost housing?
6. Why do the prices of some commodities fluctuate while the prices of others remain stable?
Reading
Text 1
Read the text. Be ready to answer the following questions: 1. Why is it important to learn economic terminology? 2. What is an economic institution? 3. How can cultural norms affect economies? 4. What is meant by ‘economic reasoning’?
Introduction
Economists have developed the terminology to describe economic issues. This terminology is important because if you are going to talk about the state of the economy, you need the terminology to do it. Shareholder, GDP, GNP, capital, supply and demand, costs, benefits, exchange rate are just a few of the terms the meaning of which any educated person in modern society needs to know. Two terms to be introduced to you immediately are the economy and economics. The economy is the institutional structure through which individuals in a society coordinate their diverse wants or desires. Economics is the study of the economy. That is, economics is the study of how human beings in a society coordinate their wants and desires.
An economic institution is a physical or mental structure that significantly influences economic decisions. Corporations, governments, and cultural norms are all economic institutions. Many economic institutions have social, political, and religious dimensions. For example, your job often influences your social standing. In addition, many social institutions, such as family, have economic functions. If any institution significantly affects economic decisions, it can be considered as an economic institution. Even cultural norms can affect economies. A cultural norm is a standard people use when they determine whether a particular activity or behaviour is acceptable.
Learning economic reasoning means learning how to think as an economist. People trained in economics think in a certain way. They analyze everything critically. Having put their emotions aside, they compare the costs and the benefits of every issue and make decisions based on those costs and benefits.
Text 2
Read the text. Be ready to answer the questions below it and explain the key terms of the text given both in bold and italics.
Economics
Understanding how various economies work is the basic purpose of studying economics. We seek to know how an economy is organized, how it behaves, and how successfully it achieves its basic objectives.
Economics is concerned with production, distribution, and consumption of goods and services. There are two branches of economics. Macroeconomics (macro derives from Greek word for “large”) investigates how scarce resources are allocated within the economy as a whole or within an entire industry. Scarcity occurs because human wants exceed the production possible with our limited time and resources. Scarcity implies that every decision involves opportunity costs. Opportunity costs exist in all situations where available resources are not abundant enough to satisfy all our desires. You can select only a few of all available alternatives. For example, a little boy goes into a toy store with $10. Many different toys tempt him, but he finally narrows his choice to a Monopoly game and a magic set, each costing $10. If he decides to buy the Monopoly game, the opportunity cost is the magic set. And if he buys the magic set, the opportunity cost is the Monopoly game. If a town hires an extra police officer instead of repaving several streets, the opportunity cost of hiring the officer is not repaving the streets. Opportunity cost is the cost of giving up the next best alternative. Thus scarcity forces us to choose. This idea is reflected in the following definition of economics: Economics is the study of how people, individually or collectively, allocate their limited resources to try to satisfy their unlimited wants. Commonly agreed-upon goals of macro policy include:
High employment. People suffer when many workers cannot find job and manufacturing plants and much machinery are idle.
Price stability. If average prices are volatile, people may be uncertain about how much their wages will buy or whether to consume now or invest in hopes of future returns.
Economic growth. People want higher incomes each year and most hope their children will be even more prosperous than they are.
Microeconomics (micro derives from Greek word for “small”) studies the economic behavior of individual firms. Three major goals dominate micro policy:
Efficiency. An inefficient economy wastes resources and fails to provide the highest possible standard of living for consumers.
Equity. Huge gaps between the rich and the poor leave most people impoverished while a privileged few live luxuriously.
Freedom. Maximum freedom requires people to have the widest possible range of choices available.
In order to produce anything, we need resources, or factors of production. Factors of production are the inputs – land, labour, and capital (buildings and machinery) – we use to produce final goods and services (output). From an economist's standpoint, resources refer to anything that can be used to produce products, that is, either goods or services.
Every society, from a tiny island nation in the Pacific to the most complex industrial giants, needs these resources: land, labour, capital and entrepreneurial ability. Land and capital are referred to as material resources. Labour and entrepreneurship are referred to as human resources. These are resources for the economy as a whole.
As a resource, land has a much more general meaning than our normal understanding of the word. Economists use the term land in a broad sense to include not only agricultural land and land for building sites but also other natural resources like minerals, water, and timber. The basic payment made to the owners of land is rent.
Capital. In economic terms, capital is ”man-made” goods used to produce other goods or services. Equipment, buildings, tools as well as the money that buys other resources are capital goods.
Labour. The efforts of a factory worker, a lawyer, a sales representative, or anyone who works for a business are defined as labour.
Entrepreneurial ability is the least familiar of four basic resources. The entrepreneur sets up a business, assembles the needed resources, risks his or her own money, and reaps the profits or absorbs the losses of this enterprise.
Although all economies rely on the same basic factors of production, not all are blessed with the same quantity and quality of resources. Besides each economic system reflects the country’s history, traditions, aspirations, and politics. What works for one culture might not work as well for another, and vice versa.
1.What is economics concerned with?
2.What does macroeconomics investigate?
3.Why does scarcity occur?
4.What are the main goals of macro policy?
5.What does microeconomics study?
6.What do resources refer to?
7.How many factors of production does the economic system use? What are they?
Text 3
Read the text. Ask 5-7 questions about the text.
Adam Smith’s Market Economy
The former Scottish professor of philosophy at the University of Glasgow published a monumental book entitled An Inquiry into the Nature and Causes of the Wealth of Nations. Usually known simply as The Wealth of Nations, it is an eloquent statement expounding a doctrine of economic freedom.
The book earned Smith the epithet "the founder of economics" because it was the first complete and systematic study of the subject. Smith argued that individuals know best what is good for them. If unrestricted by government controls or private monopolies, people will be motivated by the quest for profit to turn out the goods and services that society wants, people (businesses) will be led as though by an "invisible hand" to attain the greatest economic good for society. In other words, if each person (or business) is free to work at maximizing his or her economic rewards, the economy will prosper. Consequently, through free trade and free markets, self-interest will be harnessed to the common good.
Adam Smith's theory that the government should not interfere with business is known as laissez-faire capitalism. This French term came about when a French businessman responded laissez nous faire ("leave us alone") after being asked how government could help business. This principle of pure capitalism as Smith saw it has been modified within most modern economies.
Through his approach to economic questions and his organization of the science, Smith cast a mold for the main body of nineteenth-century economic thought. His views on public policy, which became the semiofficial doctrine of the British government, left their imprint on parliamentary debates and governmental reports. For these reasons, and because of his enormous influence upon succeeding generations of scholars, Smith's unique position in the history of economic thought is forever ensured.
Reading The Wealth of Nations today, one can see why the influence of this book reached out beyond the borders of economics. Like the Bible, Smith's treatise contains familiar concepts and well-worn truths on almost every page. As a result, "the shy and absent-minded scholar," as Smith was affectionately called, became the apostle of classical economic liberalism—meaning laissez-faire in his time. Today we tend to refer to such ideas as "conservatism."
Smith’s version of the economic system as a naturally self-organizing and self-adjusting “social mechanism” – known as classical economic doctrine was never confirmed by factual evidence, as Newton’s laws of motion were; all the same, classical doctrine dominated economic thinking and national economic policy in all advanced economies for the next 150 years, and it plays its role in many countries to this day.
Text 4
Read the text. Be ready to answer the following questions:
1.What is demand? 2. What is supply? 3.What does the demand (supply) curve represent? 4.What does the intersection of the industry supply and demand curves establish?
How the Market Economy Works
The central function of every economic system is to allocate its limited resources to satisfy the needs and desires of its people. The amount of goods produced depends upon the amount of resources available and on many other factors. At the same time, the people in a society have a great variety of needs and wants. Some of these, such as the need for food and shelter, always exist. Others, such as the desire to own particular style or clothing, continually change. Economies generally try to maintain a balance between the goods and services available from their producers ( supply) and the needs and wants of their customers ( demand).
Demand is the quantity of goods or services consumers are willing and able to buy at a given price. Usually the quantity demanded changes as price changes, and we can use a demand curve to represent this change. The demand curve is a graphic representation of the relationship between various prices sellers charge for goods or services and the amount of those goods or services buyers will desire to buy at a certain price. Each point along the curve represents a different price—quantity combination. A demand curve slopes downward from left to right, reflecting the fact that the quantity of a product demanded varies inversely with the piece. This is called the law of demand. (See fig. 1)
Fig.1
Supply is the quantity of goods or services marketers are willing and able to sell at a given price at a given period of time. The supply curve, or schedule of supply, graphically represents the amount of goods or services marketers will supply at various prices. A supply curve shows that as prices become more attractive to suppliers (marketers), those suppliers will try to provide more of the good or service. Each point along the curve represents a different price-quantity combination. A supply curve slopes upward from left to right, reflecting the fact that the quantity of a product supplied varies directly with the price. This is called the law of supply. (See fig.2)
Fig.2
The intersection of the supply and demand curves determines the equilibrium price and the equilibrium quantity. Thus, at any price above the equilibrium price, the quantity supplied exceeds the quantity demanded and the price tends to fall. At any price below the equilibrium price, the quantity demanded exceeds the quantity supplied and the price tends to rise. At the equilibrium price, the quantity supplied precisely equals the quantity demanded, and hence there is no tendency for the price to change. (See fig.3)
Fig. 3
Text 5
Read the text. Be ready to define the main idea of the text. In each paragraph, find the topic phrase or sentence and those related and unrelated to it.
The Degree of Competition within Markets
Economic competition, or rivalry among competitors, often leads to lower prices and the introduction of differentiated products. For example, videocassette recorders sold for more than $1,500 when they were introduced. After a few short years, the price dropped to less than 20 percent of that figure. In addition, the first videocassettes could record only two hours of programming, but today eight-hour videocassettes are available from numerous new competitors. Cellular telephones have gone the same route.
Foreign and domestic competition influences the interaction of supply and demand forces. The degree of competition varies widely from industry to industry. Some industries are extremely competitive, with numerous competing firms, while others are dominated by one or two companies with large shares of the market. The competitive market structure of an industry—-that is, the number of competing firms and the size of the market each competitor holds—strongly influences business strategies. Pure competition, monopolistic competition, oligopoly, and monopoly are the four basic types of competitive market structure.
Pure competition exists when there are no barriers to competition. Many small competing firms offer almost identical products, and there are many buyers. This means there is a steady supply of and demand for the product, and therefore the price is controlled by neither the buyers nor the sellers; rather, the forces of supply and demand determine prices. An individual producer can make more money by producing and selling more.
The principal characteristic of monopolistic competition is product differentiation—a large number of sellers, for example, selling similar products differentiated (distinguished) by only minor changes in product design, style, or technology. Firms engaged in monopolistic competition have enough influence on the marketplace to exert some control over their own prices.
Oligopoly, the third type of market structure, is an industry controlled by a few large firms. The distinguishing characteristic of an oligopoly, however, is not the size of the company as measured by assets or sales volume but its control over the marketplace as measured by its share of the market. Each company in an oligopoly has a strong influence on product offering, price, and market structure within the industry.
Industries with only one producer firm are called monopolies. In a monopoly, no substitute products are available and the monopolist may charge any price. The monopolist will set the price to maximize its profits.
Look through the text once again and characterize each type of competitive market structure. Give your own examples.
Text 6
Read and translate the following terms: peak, boom, recession, capacity utilization rate, expansion, unemployment rate, downturn, depression, trough, upturn. Read the text and be ready to explain what each of them means.
Business Cycles
Business cycles have varying durations and intensities. Why are businesses so interested in the state of the economy? They want to be able to predict whether it's going into a contraction or an expansion. Making the right prediction can determine whether the business will be profitable or not. That's why a large amount of economists' activity goes into trying to predict the future course of the economy.
The top of a cycle is called the peak. A very high peak, representing a big jump in output, is called a boom. Eventually an expansion peaks. When the economy starts to fall from that peak, there's a downturn in business activity. If that downturn persists for more than two consecutive quarters of the year, that downturn becomes a recession. In a recession the economy isn't doing so great; many people are unemployed and a number of people are depressed.
A large recession is called a depression. There is no formal line indicating when a recession becomes a depression. In general, a depression is much longer and more severe than a recession. This ambiguity allows some economists to joke, "When your neighbor is unemployed, it's a recession; when you're unemployed, it's a depression." It is generally accepted that if unemployment exceeds 12 percent for more than a year, the economy is in a depression.
The bottom of a recession or depression is called the trough. When the economy comes out of the trough, economists say it's in an upturn. If an upturn lasts two consecutive quarters of the year, it's called an expansion, which leads us back up to the peak. And so it goes.
Two measures that economists use to determine where the economy is on the business cycle are the unemployment rate (the percentage of people in the labor force who can't find a job) and the capacity utilization rate (the rate at which factories and machines are operating compared to the rate at which they could be used). Generally economists say that 5-6 percent unemployment and 80-85 percent capacity utilization are about as much as we should expect from the economy. Therefore, they use them as targets. Thus the target rate of unemployment is defined as the lowest sustainable rate of unemployment economists believe is possible under existing conditions.
Economists translate the target unemployment rate and target capacity utilization rate into the level of output with which those rates will be associated. That level of output is called potential output (or potential income, because output creates income). Potential output is the output that would materialize at the target rate of unemployment and the target level of capacity utilization. Potential output grows at the secular (long-term) trend rate of 3.5 percent per year. When the economy is in a downturn or recession, actual output is below potential output. When the economy is in a boom, actual output is above potential output.
Text 7
Read the text. Divide it into logical parts. Give the title to the text. Make a list of the economic terms used in the text. Be ready to explain what they mean.
A firm generally measures how busy it is by how much it produces. To talk about, how well the aggregate economy is doing, national income accounting uses a corresponding concept, aggregate output, which goes under the name gross domestic product (GDP). GDP is the total market value of all final goods and services produced in an economy in a one-year period. It's probably the single most-used economic measure. When economists, journalists, and other analysts talk about the economy, they continually discuss GDP: how much it has increased or decreased, and what it's likely to do. In every country the production of goods and services provides the food, clothing, and shelter that allow its people to survive and prosper. Some countries produce an abundance of raw materials such as coal and timber while others produce manufactured goods like steel and automobiles. Some countries may concentrate on producing foodstuffs like rice and butter while others produce services—movies, insurance, or banking. Whatever is not consumed in the country itself can be sold to other countries as exports. The size of a country's economy is determined by the total amount of goods and services that country produces. As more and more goods and services are produced, the economy grows—and the best way to measure this growth is to put a monetary value on everything bought or sold. Although money is not the only measure of an economy's size, it is the easiest way to sum up the value of all the apples and oranges, automobiles and computers, football games and college classes that a country produces in the course of a given year. The monetary value of all these goods and services can then be added up and compared with that of other countries. Since almost every country uses a different currency, the totals from each country have to be translated—by using currency exchange rates—to compare the size of one country's economy to another. For example, the yen value of the Japanese economy can be converted into U.S. dollars to compare it to the American economy. The measure of economic activity that includes all the goods and services bought or sold in a country over the course of a year is called gross domestic product (GDP). GDP measures a country's economic activity. A healthy economy grows steadily, over a period of months or years. When the international activities of a country's residents are added to GDP, a wider more global measure of a country's total economic activity is created: gross national product or GNP. Both measures tell more or less the same story—GDP concentrates on the purely "domestic" production of goods and services covering only the economic activity which takes place within the country's borders, while GNP includes net international trade and investment, which includes everything from exports of movies and compact disks to foreign earnings and travel abroad. GDP and GNP try to measure every legal good and service that an economy produces. A farmer selling fresh vegetables, an automobile dealer selling used cars, a poet selling a new book, a hairdresser, prize fighter, or lifeguard selling his goods and services all contribute to economic activity, as measured by GDP and GNP. At each stage of production, every time that monetary value is added, a country's GDP and GNP are increased. Government policymakers and businesspeople use GNP to forecast trends and to analyze the economy’s performance. Although the measure is well entrenched, many economists complain that it is sometimes misleading. The value of all shadow economy, for example, is not reflected in GNP figures. Revenues from illegal transactions are not included because they are not reported. Besides, the value of bartering goods and services cannot easily be measured because money is not used in the transactions.
Look through the text once again and answer the following questions:
1. How does a firm generally measure its activity?
2. What concept is used to measure how well the aggregate economy is doing?
3. In what does aggregate output differ from GDP?
4. What does a country do with the goods not consumed in the country itself?
5. How is the size of a country’s economy determined?
6. What is the best way to measure the growth of the economy?
7. The totals from each country have to be translated by using currency exchange rates. What for?
8. What does GNP measure?
9. What is GNP used to forecast?
10. Why do many economists complain that GNP is sometimes misleading?
Language
1. Practise reading the following words correctly. If necessary, use a dictionary.
insights, issue, endure, exceed, scarcity, prosperous, privileged, luxurious, entrepreneurship, impoverish, emerge, occur, volatile, satisfy, legitimate, expound, quest, determine, purchase, relative, equilibrium, curve, increase (v, n), decrease (v, n), entrepreneur
2. Read the following international words. Which are translator’s “false friends”? Give their Russian equivalents.
e.g. generate—генерировать -- порождать
Dominance, accurate, total, complementary, furniture, design, collaborator, stress, specifications, basis, package, ratio, rational, actual, determine, figure.
3. When describing an economic situation and different trends in the economy, the following words can be used. Make your own sentences with these words. Translate them into Russian.
Crucial(ly), dramatic, vital, increase, decrease, go down, decline, soar, drop, remain stable, hold, maintain, reduce, turn down, fall, raise, rise, systematically, slow(ly), gradual(ly), slight(ly), considerably, rapid(ly), significant(ly), constant(ly)
4. Reproduce the context the following words are used in:
Economic reasoning, economic terminology (text 1); wants and desires, opportunity costs, factors of production, material resources, human resources (text 2); a doctrine of economic freedom, invisible hand, laissez-faire, economic thinking (text 3); demand curve, supply, equilibrium price (text 4); economic competition, competitive market structure, pure competition, oligopoly, monopoly, share of the market (text 5); future course of the economy, consecutive quarters of the year, recession, trough, sustainable rate of unemployment (text 6); aggregate output, most-used economic measure, monetary value of all goods and services; total market value, net international trade, illegal transactions ( text 7)
5. The following verbs are close in their meanings. Which of them are synonyms? Give your own examples to show you understand their exact meaning.
Contain, constitute, consist, compose, compile, construct, comprise, embody, include, incorporate, form, mold, build, establish, set up, embrace
6. Read and translate into Russian the following word-combinations. Pay attention to the way some words change their meaning depending on the word-combination they are used in.
a) domestic animal, domestic science, domestic market;
b) interest rate, growth rate, unemployment rate, capacity utilization rate, target rate; tax rate, birth rate, exchange rate;
c) foreign language, foreign market, foreign investments, foreign earnings;
7. Complete the following table