Unit 15. Economy

Warm up

Exercise 1.Match the English words on the left with their Russian equivalents on the right. Learn the words by heart.

1. oligopoly	a) общеенаправление, тенденция;
2. manufacture	b) предложение;
3. tend	c) собирать, формировать;
4. insurance	d) спрос;
5. to assemble	e) рынок (товаров);
6. an invisible hand	f)монополия, олигополия;
7. a marketplace	g) страхование;
8. supply	h) конкурентный рынок;
9. demand	i) невидимая рука;
10. a competitive market	j) производство.

READING

Exercise 2.Read and translate the following text. Use the dictionary when necessary.

Large corporations in the usa

Many American industries are oligopolies – industries dominated by only a few very large firms. In the manufacture of products as diverse as automobiles, chewing gum, tennis balls, razor blades, cigarettes, detergents, steel, canned soups, and cameras, the four largest firms are responsible for over 80 percent of total United States output. The effects of this are to reduce competition and to make it hard for a new company to enter one of these businesses. Overall, about 60 percent of manufacturing in this country is oligopolistic. In addition, there are signs that the trend toward increasing concentration is now spreading to the economy’s service sector (those firms that provide the public with services rather than tangible goods). The fifty largest banks in the nation employ about a third of all banking personnel, and about half of all those in the insurance industry work for the fifty largest insurance firms. In short, the trend toward oligopoly seems likely to continue, at least into the near future.

America’s large corporations are very different from the sort of businesses that the founders of capitalist theory had in mind. The most famous of these early theorists, Adam Smith (1776), thought that capitalism would be a system in which individual capitalists operated independently and in which order was brought to the whole economy by what he called the “invisible hand”. This invisible hand was his phrase for market pressure, the automatic reward for work, creativity, and risk and the punishment for sloth, conventionality, and excessive caution that would be enforced by market prices.

For the invisible hand to work, however, the individuals in the marketplace had to be more or less equally vulnerable to market forces. In theory, for example, businesses introduce new products (supply), customers make a rational choice of the best product (demand), and its producer thrives accordingly. This stimulates competitors to work harder and come up with better or cheaper competing products. In fact, however, when the marketplace is dominated by a few giant corporations, small producers, however good and innovative their products, are at a great disadvantage. The large corporation has vast resources to produce and promote its products and to create demand through sophisticated advertising. Moreover, the large corporation can take advantage of economies of scale, selling its products for less because it manufactures in very large quantities, which makes each product less expensive to assemble. Faced with new competition, it can cut prices on its own product, offer rebates, or launch aggressive promotion – all of which are beyond the resources of a new small business.

When a few corporations provide nearly all of a particular product, those companies are virtually free from the restraints that exist in a competitive market. They can charge as much for the product as consumers will pay before they turn to less desirable substitutes. And through extensive advertising, corporations can often ensure that demand for their product will remain high despite an inflated price tag. In addition, by taking out patents, controlling raw materials, and either convincing the government to suppress competition or colluding with other corporations, oligopolies can prevent new firms from entering the market. They can also buy up other companies – competitors, suppliers, manufacturers of related or different products – and become a conglomerate, thus controlling even more resources and jobs through subsidiaries.

In addition, by deciding when and at what pace to invest, huge corporations determine the rate of growth not only of their own corporations but of related industries as well.

Large corporations are also free to decide what new technologies to explore through research and development and what innovations will be translated into new products and services. Technology has a profound impact on all aspects of social life.

Exercise 3.Decide whether the following statements are true or false.

1. The five largest firms are responsible for over 80 percent of total United States output.

2. The tendency toward oligopoly will continue.

3. The invisible hand was Adam Smith’s phrase for the marketplace.

4. New small business can cut prices on its own product, offer rebates, or launch aggressive promotion.

5. Huge corporations determine the rate of growth of related industries.

Exercise 4. Answer the following questions.

1. What is oligopoly?

2. What reduces competition and makes it hard for a new company to enter the business?

3. What are America’s large corporations different from?

4. What did Adam Smith think about capitalism?

5. Who had to be more or less equally vulnerable to market forces?

6. What was supposed to be in Adam Smith’s theory?

7. What is going on when the marketplace is dominated by a few giant corporations?

8. What does economy of scale mean?

9. What companies are virtually free from the restraints that exist in a competitive market?

10. How can oligopolies become a conglomerate?

Exercise 5.Match each definition with the correct word. Translate the words into Russian and learn them by heart.

1. a theory	a) to progress well or succeed; prosper;
2. independently	b) thing that takes the place of another;
3. sloth	c) to advertise or otherwise encourage the purchase of;
4. to thrive	d) a business enterprise controlled by another company;
5. to promote	e) to demand or ask as a price;
6. rebate	f) dislike of work or exercise; laziness;
7. to charge	g) a product in its natural or original state, before processing or assembling;
8. substitute	h) not ruled by another; self-governing;
9. raw material	i) a portion of a credited payment or charge that is returned, especially in cash; refund of part of a charge;
10. subsidiary	j) a proposed explanation of something, usually based on abstract reasoning.

Exercise 6.Now read and translate the text on The Economy, Business, and Work in the USA. Use the dictionary when necessary.