GE-6

1. Vocabulary.

Match words to their definitions.

1. commodity

2. standard

3. socialist

4. industry

5. steel

6. indicate

7. warning system

8. shortage

9. rapidly

10. ration

11. solution

12. hoard

13. operate

14. wages

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1. when the government sets a limit on how much of something people can buy

2. when there is not enough of something

3. a strong metal made from iron

4. something you can buy or sell

5. what is usual or typical

6. all the businesses involved in the production of heavy goods, food, technology, etc.

7. describe someone or something aiming to share wealth equally

8. secretly hiding and storing goods for later use

9. work

10. show

11. very quickly

12. money paid regularly for work done

13. answer to a problem

14. a system which tells us that something bad is going to happen

2. Reading.

The planned economy

In many ways the planned economy is direct opposite of the market economy. In the market economy, the forces of demand and supply decide everything: what is produced, how much is produced, the methods of production and the price. In a planned economy all of this is decided by the government. While the market economy is free, the planned economy is controlled.

Unfortunately, no economic system is perfect. If there was a perfect system, economists would have nothing to argue about. Market economy has its strengths, but it has its weaknesses, too. Planned economy tries to provide solutions to these problems. For example, the free market supplies the things people want. However, what people want and what they need are not always the same: fast food is always in demand, but it`s bad for us. In a planned economy the government could decide to stop fast food restaurants operating in the market.

A second problem with the free market is that producers always want the highest price. Often the poor can`t afford things. In a planned economy the government sets prices. They make sure that everyone can afford basic commodities. This is one of the ways in which a planned economy tries to share things equally. Another way is to control how much people earn.

In a planned economy workers` wages depend on the service they provide to the society. If people can live without their service, they earn less. This is very different from the free market. In the free market someone`s salary depends on the demand for his or her work. If people like what you do, you earn more.

Before 1900, there were few examples of planned economies. During the 20^th century, however, planned economy became the standard for socialist governments like the USSR and China. These countries experienced amazing economic growth in a very short time. In a market economy, it takes a lot of time for big industries to grow from small companies. In a planned economy, however, a huge industry can grow overnight. The government simply decides to spend money on factories, and factories appear. Britain, for example, took centuries to develop their steel industry in the market economy. China developed its industry in a few decades.

But, as we said, no economic system is perfect. The planned economy has many weaknesses. One of them is problem with supply. It is difficult for governments of planned economies to know exactly how much to produce to meet the demand. In a market economy, when the price of a commodity rises, this indicates the rise in demand. Then companies supply more commodity on the market. This warning system does not work in a planned economy, because the price is controlled by the government. The result is shortages.

When shortages happen, governments can do 2 things: ration products or raise prices. in this situation people start to hoard things, and the problem gets worse. As the population gets bigger, shortages like this become more common. For this reason, China – once the world`s biggest planned economy – is rapidly moving towards another system: the mixed economy.

3. Comprehension.

Decide, if the statements are true or false.

1. In a planned economy governments decide how products are made.

2. In a planned economy suppliers can sell anything that is in demand.

3. In a planned economy a doctor should earn more than a footballer.

4. Planned economies grow more slowly than market economies.

5. In a market economy greater demand for something makes it cheaper.

6. Planned economies are difficult to run in countries with bigger population.

4. Listening.

Rita lives in a country with a planned economy. Listen to her talk about her life and the problems she faces. Tick the problems she mentions:

1. food shortages

2. low wages

3. unemployment

4. lack of career opportunities

5. lack of luxury items

6. high prices