Economic practice and economic theory (Экономическая практика и теория)

Exercise 1. Read the text and understand it.

The global economy consists of more than a hundred independent national systems in which people live and most of them work in order to earn their living. People are either self-employed or work for businesses or for government. They produce goods (manufactured, agricultural or public) and/or services. The work which people do is called their economic activity. They get money for their work with which they can buy either essential commodities (food, clothes, shelter), or non-essentials (like visits to the cinema or books). Every decision people make about what to buy with money is a trade-off. The economic system is the sum-total of what people do and what they want.

The science which studies the way people and businesses deal with the fact that resources are limited, but the demand for them is not, the decisions governments, business managers and individuals make is called economics. Economists study everyday life and try to explain how the system works; they study allocation of resources, production, distribution, and use of goods, money, unemployment and many other things. It deals with the activities of businesses, workers and households that produce and consume output of the country. As Adam Smith – the father of modern economics – said, economics is ‘an inquiry into the nature and causes of the wealth of nations’.

There are several key aspects of economics. First, there are two main branches of economics: microeconomics and macroeconomics. Microeconomics holds a microscope over some portion of the economy – a particular industry and kind of work or geographic area. It examines how consumers choose among jobs, how a business decides what to produce and what production methods to use, how families manage their household budgets. Macroeconomics looks at totals for the economy as a whole: total output and income, the level of employment, the amount of money in circulation, the level of prices. Microeconomics and macroeconomics must be related, since they deal with the same body of experience. The questions, which lie at the core of microeconomics, are a necessary foundation for macroeconomics as well.

Economics is a special way of thinking that uses its own terms which differ in meaning from ordinary words. Besides verbal expressions, economists use three more alternative languages: arithmetic illustration, geometric equivalent and algebraic expression. Economists do not try to deal directly with economic events because of their complexity. They work with simplified pictures of reality called economic models. The use of such models to explore reality, to explain and predict economic events is called positive economics. Economics is also a policy science with important applications to government. Positive economics can clarify policy alternatives, but choices among these alternatives involve what is called normative economics which suggests how to improve the economy.