Text 2. The economic system

When an artist looks at the world, he sees colour. When a musician looks at the world, he hears music . When an economist looks at the world, he hears a symphony of costs and benefits.

D. Colander

There are many forms of economic order, ranging from the mixed private enterprise system to partially or completely controlled econo­mies. Regardless of their form, however, economic system is the system that a society uses for allocation and distribution of scarce resources.

Private enterprise means that decisions about what and how much to produce are left to the discretion of owners and managers. In controlled economies such decisions are the responsibility of some governmental agency. There is, of course, no economy today that is completely free of governmental influence, nor is this condition necessarily undesirable. There are many beneficial services and protections available from gov­ernment. The question then is a matter of degree. Irrespective of the form of economic order, it performs certain valuable functions in the life of organizations of all types.

Among the functions of the economic order the most important one is to provide some means of resource allocation. In a private enterprise this function is basically performed by the price mechanism. This simply means that demand for and supply of goods and services interact to set their market price. In the case of regulated utilities, there are governmen­tal agencies such as public service commissions that determine the rates that may be charged by utility companies. These rates are set at the level that will allow a fair return on investments made by the companies. This form of regulated monopoly is considered, on balance, preferable to un­checked competition. This is true because of efficiency reasons. In taking actions in the area of employment, government is attempting to control the economy in such a fashion as to help the business community oper­ate at the level of production that will yield full employment.

Without a system of distribution economy simply could not exist. A major part of this distribution system is credit. Economy flourishes on credit or extended methods of payment. Such a system literally affects every link in the distribution chain from the supplier of raw materials to the ultimate consumer. Without this vital financing function being per­formed, the economy would doubtless be forced to a lower order of pro­duction.

Economic goals for a nation include price stability, full employment, economic growth, and equitable distribution of income. Price stability contributes to the efficient allocation of resources and facilitates long-term planning. Full employment means that jobs are available for those seeking work. Higher standards of living require increased output per person (economic growth per capita). An equitable distribution of income means that the fruits of the economy are divided in a way that seems fair to the majority of the people. With the long-run trend toward a more sophisticated, highly integrated economic system, it is becoming increas­ingly important for an individual decision maker to be aware of the macro-economic environment.

EXERCISES

Exercise 1. Define the main idea of each paragraph.

Exercise 2. Answer the questions.

1. What is a system?

2. What are three main concepts of a system? What do they imply?

3. What is an economic system?

4. Who takes decisions in a private enterprise? In controlled economies?

5. What functions does economic order perform?

6. Why the economy could not exist without a system of distribution?

7. What are the economic goals for a nation?

8. What does price stability contribute to?

9. What does full employment mean?

10. What does high standard of living mean? An equitable distribution?

11. Why is it important for an individual decision maker to be aware of the macro-economic environment?

Exercise 3. Insert the word from the line.

Economic reform, Economic goals, economic growth, Institute of Economic Affairs, Economic order, economic policy, prime minister, economic climate (=conditions), EMU Economic and Monetary Union, economic system

1. Among the functions of the …… the most important one is to provide some means of resource allocation.

2. Not many people approve of the current government's ……

3. …… is needed to improve the economic situation in the country..

4. Most members of the …… began using the new currency in 2002.

5. This year the specialists are expecting a fundamental reform of the country's ……

6. …… for a nation include price stability, full employment, economic growth, and equitable distribution of income.

7. …… is slow.

8. In the current …… we must keep costs down.

9. ...... is a British organization formed in 1957 to promote free market economics. Its ideas were popular with Margaret Thatcher, the Conservative ……from 1979 to 90.

Exercise 4. Match each word with a word from the line as they are used in the text.

1. controlled A. utilities

2. private B. trend

3. governmental C. person

4. valuable D. econo­mies

5. market E. enterprise

6. regulated F. commissions

7. public service G. price

8. efficiency H. functions

9. business I. influence

10. full J. distribution

11. system of K. income

12. equitable distribution of L. reasons

13. price M. employment

14. efficient allocation of N. resources

15. long-term O. stability

16. high standards of P. the economy

17. increased output per Q. planning

18. the fruits of R. maker

19. macro-economic S. environment

20. long-run T. living

21. decision U. community

Exercise 5. Insert the correct preposition where needed.

1. Mr Braley was aware … the need for absolute secrecy.

2. Animals communicate … various ways.

3. He had to retire because … ill health

4. … this case, several solutions could be tried.

5. The course is open to anyone, irrespective … age.

6. You can pay … cheque, assuming … course you have a valid cheque card.

7. The law requires equal treatment for all, regardless … race, religion, or sex.

8. This is an extremely unpleasant disease which is, … however, easy to treat .

9. … parts of Canada, French is the first language.

10. After the storm we were … without electricity for five days