The economy and economic systems

The word “economy” is a word we hear or read almost every day. For example, we may be told that “the world economy is in the doldrums”, or “the European economy is making little progress”, or “the Russian economy is beginning to recover”. But what is meant by the economy? What is an economy? How does an economy work? The economy is a social mechanism which answers these three questions.

The economy means a system for the management, use and control of the money, goods and other resources of a country, community or household. In other words an economic system is the method society uses to allocate its resources (land, labour, capital and entrepreneurship) to satisfy its needs. The degree of economic development of the country is determined by the level and character of production forces and production relations. Due to public labour division the economy of a society is subdivided into separate branches, industrial complexes, economic regions and production infrastructure. What distinguishes one economic system from another is the control of the factor of production and the interaction of business, government and consumers.

In the modern world there are three main types of economic system: capitalism (or pure capitalism), mixed capitalism and communism (socialism). Capitalism (of pure capitalism, or a market economy), as it was originally described by Adam Smith in his eighteenth century book “Wealth of Nations“, is an economic system where the factors of production are in private hands and economic decision are made freely according to the market forces of supply and demand. In this system the economic questions of

- What is to be produced?

- How much will be produced? Who will produce it?

- How much will it cost? Who will get it?

are determined by the consumers in the marketplace. In pure capitalism industry and individuals use resources as they choose. The government takes a hands-off approach and does not interfere in the economic system. Producers and consumers pursue their own self-interests. Producers make as much as they can sell and consumers buy as much as they can afford.

In this system each person behaves in the best interests of society, as if guided by an invisible hand. The marketplace is regulated by the interaction of the buyers and producers. If a company produces a defective product or charges too much for the product it is rejected by consumers. As a result, the producer has to improve the quality of the product or reduce the price to make any sales. The market place, in essence the invisible hand, regulates economic conduct. Government does not have to do any regulating.

McConnell C.R., Brae S.L. Economics

Wordlist

doldrums	спад в экономике
to recover	восстанавливаться
means	средства
goods	товары
resource	ресурс
community	общество
to allocate	распределять
entrepreneurship	предпринимательство
branch	отрасль, отделение
to distinguish	различать
interaction	взаимодействие
private hands	в частной собственности
according to	в соответствии с, согласно
supply	предложение
demand	спрос
marketplace	рынок
hands-off approach	пассивный подход, невмешательство
to interfere	вмешиваться
to pursue	преследовать
to afford	быть в состоянии, позволить себе
to be guided by	быть управляемым кем-либо
to reject	отклонять, отказываться
to reduce	сокращать, снижать
in essence	по существу

Exercise 15. Answer the following questions.

1. What is an economic system?

2. What distinguishes an economic system from another one?

3. What types of economic system do you know?

4. In whose hands are the factors of production in capitalism?

5. Who makes economic decisions under capitalism? Does the marketplace have influence on them?

6. Whose interests do producers and consumers pursue in the market?

7. If a company produces a defective product, will it be sold or rejected by consumers? What do you think of it?

8. Are you for or against the government’s regulating of economic conduct in Russia?

Exercise 16. Give English equivalents to the following words and phrases from the text.

Экономическая система, труд, преследовать собственные интересы, снижать цены, распределять ресурсы, удовлетворять общественные потребности, чистый капитализм, факторы производства, взаимодействие производителей и покупателей, отвергнуть товар, регулировать предпринимательство.

Exercise 17. Translate into English.

1. Рынок регулируется взаимодействием покупателей и производителей.

2. Экономическая система - метод, который используется обществом для распределения своих ресурсов.

3. Нам говорят каждый день, что экономика России выздоравливает.

4. Степень экономического развития страны определяется уровнем и характером производительных сил и производственных отношений.

5. При капитализме экономические решения принимаются в соответствии с рыночными законами спроса и предложения.

6. Экономическая обстановка регулируется рынком.

7. Товар отвергается покупателями, если он бракованный или стоит слишком дорого.

8. Большое количество новых товаров производится промышленными предприятиями ежегодно.

Exercise 18. Match synonyms in columns A and B.

A	B
doldrums	to get better
progress	to distribute
country	to require
to distinguish	advance
to allocate	to define
to demand	State
to recover	depression
to produce	to purchase
to buy	to manufacture
defective	to lower
to reduce	conduct
behaviour	faulty

Exercise 19.  Before you listen, look at the chart of Supply and Demand and fill in the blank spaces with the words from the table. Then listen and check if you were right.

Exercise 20. Match the terms with the definitions.

Capitalism	deals with the functioning of individual industries and the behaviour of individual economic decision making units: single business firms and households.
Economy	explores the decisions that individual businesses and consumers make
Microeconomics	is an economic system where the factors of production are in private hands and economic decision are made freely according to the market forces of supply and demand.
Macroeconomics	is a system for the management, use and control of the money, goods and other resources of a country, community or household

Exercise 21. Translate the words in brackets into English.

1. The most important economic questions (затронуты) in the Financial Times and the Economist.

2. Adam Smith (по праву считается) the founder of political economics.

3. A lot of questions (задают и отвечают) at the lectures on economics.

4. The United Kingdom is considered one of the world’s (мировой лидер производства товаров).

5. About two per cent of the population of the UK (вовлечены/заняты) in agriculture.

6. Today gold is mostly (добывается) by mining.

7. Every country is interested in (экспорте) its manufactured goods.

8. What questions (обсуждаются) during business talks?

9. The Leipzig Fair, which is (проводится) twice a year, is very popular with businessmen of different countries.

10. Foreign firms are interested in (внедрение) their goods to new markets.

Exercise 22. Discuss the following points.

1. The significance of economics nowadays.

2. The reasons why some people are rich while some are poor.

3. The main types of economic systems.

4. Future of Russian economics.