Reading economic policy: efficiency, equity, growth, market equilibrium

Economic theory helps us understand how the world is working, but the formulation of economic policy requires a second step. We must have objectives. What do we want to change? Why? What is good and what is bad about the way the system is operating? Can we make it better? Such questions force us to be specific judging what is preferable. What does it mean to be better? Four criteria are frequently applied in making these judgments: efficiency, equity, growth, market equilibrium.

EFFICIENCY. In economics efficiency means allocative efficiency. An efficient economy is one that produces what people want and does so at the least possible cost. If the system allocates resources to the production of things that nobody wants, it is inefficient. To use the term more technically, an efficient change in the allocation of resources is one that at least potentially makes some people better off without making others worse off. The clearest example of an efficient change is a voluntary exchange. If two persons want something that the other has and they agree to exchange, they are both better off, and no one loses.

There are two important things to understand in the concept of efficiency. First, it assumes that the ultimate purpose of an economic system is to produce what people want. Second, since most changes will leave some people better off and others worse off, we must have a way of comparing the gains and losses. That may result from any given change. A change is potentially efficient if the value of the resulting gains exceeds the value of the resulting losses.

EQUITY. While efficiency has a fairly precise definition that can be applied with some degree of rigour, every man has its own idea of equity or “fairness”. Few people agree on what is fair and what is unfair. To many fairness implies a more equal distribution of income and wealth. Despite the impossibility of defining equity or fairness universally, public policy makers judge the fairness of economic outcomes all the time. Rent control laws were passed because some legislators thought that landlords treated low-income tenants unfairly. Certainly most social welfare programs are created in the name of equity.

GROWTH. When we devise new and better ways of producing the things we are using now and develop new products and services, the total amount of production in the economy increases. Economic growth is an increase in the total output of an economy. If output grows faster than the population, output per capita rises, and standards of living increases. Presumably, when an economy grows there is more of what people want. Rural and agrarian societies become modern industrial societies as a result of economic growth and rising per capita output.

MARKET EQUILIBRIUM. The operation of the market clearly depends on the interaction between suppliers and demanders. At any moment, one of three conditions prevail in every market: 1) the quantity demanded exceeds the quantity supplied at the current price, a situation called excess demand; 2) the quantity supplied exceeds the quantity demanded at the current price, a situation called excess supply; or 3) the quantity supplied equals the quantity demanded at the current price, a situation called equilibrium.

When excess demand occurs in an unregulated market, there is a tendency for price to rise as demanders compete against each other for the limited supply. This tendency continues until the excess demand is eliminated then the situation reaches the point of equilibrium, when there is no natural tendency for further adjustment of supply and demand. In case of excess supply there is a surplus of a particular product which remains unsold. In any event when quantities supplied exceed quantities demanded at the current prices, stores cut prices.

Comprehension check

I. Was it easy for you to understand the text? Did you mean the same when you discussed questions before reading? Do you agree that the aim of economic policy is to make people better off? If not, why?

II. Answer the following questions.

1. What does economics help us understand?

2. Which four criteria for judging economic outcomes do you know?

3. What does the category of efficiency mean in economics?

4. Why is voluntary exchange of goods efficient?

5. What is equity in your own opinion?

6. Do all people agree what is fair and what is unfair?

7. Under what conditions does the total amount of production in the economy increase?

8. When does per capita output rise?

9. What does the operation of the market depend on?

10. When may a market equilibrium be achieved?

11. How long does a tendency for price to rise continue in the market?

12. Under what conditions do stores cut prices?

III. Say if the statements are true or false.

- In economics efficiency means the best way of production.

- It is good when people exchange things they produce and everybody makes profit.

- All people have the same idea of “fairness”.

- New and better ways of production contribute to the development of economy.

- People don’t gain from economic growth.

- Supply and demand are the main forces regulating the market.

IV. Translate into English.

1. Вам не нужно жертвовать качеством товара ради количества.

2. В современных условиях каждый из нас должен положиться на свое чутье.

3. Чтобы выйти из кризиса национальная экономика должна производить больше продукта при наименьших затратах ресурсов.

4. Мало людей сходятся на том, что справедливо и что несправедливо.

5. Я едва свожу концы с концами, но я знаю, что многие живут не по средствам.

6. Показатели эффективности и экономического роста свидетельствуют о стабильности экономического положения в стране.

7. Уровень производства на душу населения в США гораздо выше, чем в остальных странах.

8. Наша компания создает новые товары, чтобы успешно конкурировать на рынке.

9. Сейчас вы можете купить все, но по высокой цене.

10. Переговоры длились несколько часов, в конце концов, здравый смысл восторжествовал, и мы пришли к согласию.

Word power

I. Give English equivalents for the following words and phrases from the text.

Формирование экономической политики, занимать определенную позицию в отношении чего-либо, повысить эффективность чего-либо, мнение (суждение), улучшить (ухудшить) положение людей, конечная цель, быть справедливым (несправедливым), общественная благотворительная программа, судить о справедливости экономических решений, доход на душу населения, рыночное равновесие, по текущим ценам, избыточный спрос, конкурировать друг с другом.

II. Match synonyms in columns A and B.

A. B.

objective to operate

to want per head

ultimate balance

to gain strictness

to work aim

equity final

equilibrium to wish

rigour to profit

policy maker fairness

tenant resident

to increase politician

per capita surplus

demander to rise

excess to lower

to cut consumer

III. Translate the following chains of words. Determine the part of speech and the way of word – building.

efficient – efficiency – effective – effectuate

grow – growth – growing

define – definition – definite – definable – definitive

possible – possibly – possibility

industry – industrial – industrialize – industrialized

regulate – regulator – regulation – regulated – unregulated

Which of these words did you come across in the text? Use some of them in your own sentences.

IV. Make your own sentences using the following phrases.

1. to do smth for a specific purpose – делать что-либо с определенной целью

2. use your own judgment – полагаться на свое чутье

3. to rely on smb’s judgment – прислушиваться к мнению кого-либо

4. in all fairness I must say – справедливости ради надо сказать

5. to reduce smb. to despair – доводить до отчаяния

6. to live in poverty – жить в бедности

7. in the name of equity – во имя справедливости

8. to flood the market with goods – завалить рынок товарами

9. to be beyond price – слишком дорого стоить

10. to give a discount of … percent – делать скидку в …. процентов

11. to live beyond one’s income – жить не по средствам

Grammar Revision

I. Translate the following sentences into Russian paying attention to Continuous Forms in Active and Passive Voice.

1. These two companies are competing severely against each other in the field of power generation.

2. Unemployment is increasing constantly in the countries with unstable economy.

3. The conditions that were prevailing on the world market suited every nation.

4. The market in our country is being flooded with false goods, which harms our economy.

5. The authorities of the region decided that they would be investing in high-tech sphere to speed up economic growth.

6. As his business was developing successfully, he made up his mind to subsidize a sport club out of his profits.

7. Social decisions are always guided by general economic situation of a country.

8. You are always exaggerating to such an extent that in the end no one believes you.

9. Mother saw that her son was living beyond his income, but she didn’t dare to ask where he took money from.

10. The company manager plans they will be producing more of product with fewer resources for the next five years.

II. Translate into English.

1. Согласно статистическим данным, благосостояние населения улучшается с каждым годом.

2. В данный момент изучается поведение потребителей в условиях рыночной экономики.

3. В переходный период к рыночной экономике положение одних людей улучшалось, а положение других – ухудшалось.

4. Производители будут снижать цены до тех пор, пока силы спроса и предложения не достигнут баланса.

5. На вашу информацию нельзя положиться. Вы всегда преувеличиваете.

6. В тот период решения по социальным вопросам определялись, главным образом, без учета реальных потребностей населения.

7. Экономический рост стран Тихоокеанского региона все больше ускоряется.

8. Месторождения полезных ископаемых, таких как олово и уголь, разрабатывались уже во время промышленной революции.

Quick Reading

Read the text and fill the chart below it. Summarize the main facts of the text.

The law of demand was discovered by A.A.Cournot (1801-1877), a professor of mathematics at the University of Lyon, France, and it was he who drew the first demand curve in the 1830s.

The first practical application of demand theory, by Jules Dupuit (1804-1866), a French engineer and economist, was the calculation of the benefits from building a bridge and, given that a bridge had been built, of the correct toll to charge for its use.

The laws of demand and supply and connection between the costs of production and supply were first worked out by Dionysius Lardner (1793-1859), an Irish professor of philosophy at the University of London.

D.Lardner showed railway companies how they could increase their profits by cutting rates on long distance business, where competition was fiercest. And how they could raise rates on short-haul business, where they had less to fear from other suppliers.

The principles first worked out by Lardner in 1850s are now used by economists in the field of transportation to work out freight rates and passenger fares.

Who?	What was discovered?	When?
1.
2.
3.

Text 5

Pre-reading task

a) Discuss the following questions before reading the text.

1. Can you say that Russian economy is a part of word economy? How can you prove it?

2. Do you know what does “WTO”mean? Where did you hear this word? In what connection?

3. Do you think WTO membership provides new opportunities for Russia? Does it guarantee stability? On what conditions should world economic cooperation be developed?

b) Key words: restructuring, foreign activity, cooperation, stability, security.

Look up the key words in the dictionary to find out the exact meaning. Write them out.