Basics of Economics

economy, economics, goods, services, producer, consumer, factors of production

Text A

Economics and Economy

Every group of people must solve three basic problems of daily living: what goods and services to produce, how to produce these goods and services, and for whom to produce these goods and services.

Economics is the study of how society decides what, how, and for whom to produce.

Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Greek for oikos (house) and nomos (custom or law), hence "rules of the house(hold)."

By goods we mean physical commodities such as steel, cars, and strawberries. By services we mean activities such as massages or live theatre performances which can be consumed or enjoyed only at the instant they are produced. In exceptional circumstances, society may find that some of the questions about what, how, and for whom to produce have already been answered; until the arrival of Man Friday, Robinson Crusoe need not worry about the 'for whom' question. In general, however, society must answer all three questions.

By emphasizing the role of society, the definition places economics within the social sciences, the sciences that study and explain human behaviour. The subject matter of economics is that part of human behaviour which relates to the production, exchange, and use of goods and services. The central economic problem for society is how to reconcile the conflict between people's virtually limitless desires for goods and services, and the scarcity of resources (labour, machinery, and raw materials) with which these goods and services can be produced. In answering the questions what, how, and for whom to produce, economics explains how scarce resources are allocated between competing claims on their use. Economics is about human behaviour. Economists analyse problems, not the subject matter of economics. Economists aim to develop theories of human behaviour and to test them against the facts.

The modern market economy is populated by three types of economic agents, whose interaction constitutes economic activity: consumers, producers, and the government. The main social purpose of the economy is to produce goods and services for the satisfaction of the needs and wants of consumers.

Consumers, typically, represent households that.provide labour, and other resources to produce against an income which they use to purchase consumer goods or to save.

Producers, typically, represent enterprises or firms that acquire factors of production, or inputs – labour, land, and capital – from households and combine them to produce outputs, or commodities which can be classified into goods-tangible commodities – and services. The activities of firms move around the sale of their output at a profit.

The third basic element, the government, is involved with the economy, on the one hand, as a producer and consumer and, on the other hand, as a regulator, supervisor and promoter of economic activities.

The economic agents are engaged in a complex web of transactions involving factors of production and outputs. However, the volume of the commodities that can be produced and purchased is limited by the scarcity of resources. This fact has two important consequences as regards economic decision-making:

a) the utilization of resources has to be efficient. In terms of the welfare of economic agents, the utilization of resources is efficient when every opportunity has been exhausted to make some individuals better off without hurting the interests of others;

b) individual economic agents and society as a whole cannot simply use more, they have to make compromises between alternative uses.

Given these constraints, consumers, producers, and the government have to make rational decisions over available resources. Rational decisions reflect choices that draw maximum profit from given resources or obtain desired results with the minimum efforts or cost.

Vocabulary list

1. to produce — производить

n. production — производство

n. producer — производитель

2. commodity — товар

3. service — услуга

4. to consume — потреблять

n. consumption — потребление

n. consumer — потребитель

5. factors of production – факторы производства

syn. agents of production

6. to emphasize — подчеркивать, выделять

7. to define — определять

n. definition — определение

8. Economics — экономика (предмет, дисциплина), экономическая теория

9. economy — экономика (хозяйство)

adj. economic — экономический (относящийся к экономике)

adj. economical — экономичный (приносящий экономию)

v. to economize — экономить, экономно расходовать

10. to exchange something for something — обменивать(ся)

in exchange for – в обмен

11. scarcity — дефицит, редкость

12. resources — ресурсы

13. to allocate — распределять, размещать

n. allocation — распределение, размещение

14. to develop — развивать(ся)

15. to apply — применять

16. to involve — вовлекать

17. tangible – материальный

ant. intangible

18. welfare - благосостояние

19. constraint —ограничение

Notes

1. to reconcile the conflict — зд. погасить конфликт, примирить

2. virtually limitless desires — фактически безграничные желания

3. competing claims on — зд. различные притязания на

4. to test smth against the facts — проверять что-либо фактами

5. to be exhausted — зд. быть использованным

Ex 1. Suggest the Russian equivalents:

consumed at the instant they are produced; in exceptional circumstances; the subject matter of economics; how to reconcile the conflict; the scarcity of resources; to develop theories; interaction; the satisfaction of the needs and wants of consumers; consumer goods; tangible commodities; a regulator, supervisor and promoter of economic activities; to be engaged in a complex web; to regard economic decision-making; without hurting the interests of others; given these constraints; to draw profit.

Ex 2. Fill in the gap with the words and expressions from the text.

1. Economics is the … science that studies the ……, ……, and …… of goods and services.

2. The central economic problem for society is how …… between people’s …… and the scarcity of resources.

3. Economists aim …… of human behavior and …… the facts.

4. The economic agents are …… in a complex web of transactions involving ……

5. In terms of the ……, the utilization of resources is …… when every opportunity …… to make some individuals better off.

6. Rational decisions reflect choices that …… from given resources or …… with the minimum efforts or cost.

Ex 3. Find in the text the English equivalents for the following:

распределение и потребление товаров и услуг; потребляться в момент производства; в исключительных обстоятельствах; подчеркивать роль общества; погасить конфликт; конкурирующие притязания на использование чего-либо; их взаимодействие составляет экономическую деятельность; представлять домашние хозяйства; факторы производства; выпуск продукции; быть ограниченным дефицитом ресурсов; использование ресурсов; учитывая эти ограничения…; достичь желаемых результатов.

Ex 4. Match the term with the appropriate explanation.

Economy, inputs, Economics, output, goods, factors of production, services

1. Resources used in the production process, such as labour and raw or semifinished materials.

2. Physical commodities produced by people for other people’s consumption.

3. The social science that studies the production, distribution and consumption of goods and services.

4. An organized system for the production, distribution and consumption of wealth (the needs of society).

5. The total value of all goods produced and services performed by a producer, an industry or a country.

6. A class of economic goods that consists of the work of human in the form of physical labour, knowledge, advice and other activities.

7. The basic things that are used by man, especially land, labour, capital and enterprise, to produce economic goods.

Ex 5. Answer the questions and do the assignments.

1. What are the three basic problems of daily living every group of people must solve?

2. What does Economics study? Why is it placed within the social sciences?

3. What is meant by goods? By services?

4. Comment on the central economic problem for society.

5. In what way is Economics connected with human behaviour?

6. Whose interaction constitutes economic activity? Expand on their roles.

7. What is the volume of commodities to be produced and purchased limited by? What consequences does this fact involve?

8. What stands for the notion “rational decisions”?

Ex 6. Find in the text the words and phrases that mean:

1. the part of human behavior which relates to the production, exchange and use of goods and services;

2. the production of goods and services for the satisfaction of the needs and wants of consumers;

3. a regulator, supervisor and promoter of economic activities;

4. three types of economic agents;

5. factors influencing economic decision-making.

microeconomics, macroeconomics, household budget, positive economics, normative economics

Text B

What are Microeconomics and Macroeconomics?

Economists talk about microeconomics and macroeconomics. Microeconomics deals with people, like you and me, and private businesses. It looks at the economic decisions people make every day. It examines how families manage their household budgets. Microeconomics also deals with companies - small or large – and how they run their business. Macroeconomics, on the other hand, looks at the economy of a country - and of the whole world. Any economist will tell you, though, that microeconomics and macroeconomics are closely related. All of our daily microeconomic decisions have an effect on the wider world around us.

Another way to look at the science of economics is to ask, ‘what’s it good for?’ Economists don’t all agree on the answer to this question. Some practice positive economics. They study economic data and try to explain the behavior of the economy. They also try to guess economic changes before they happen. Others practice normative economics. They suggest how to improve the economy. Positive economists say, ‘this is how it is’. Normative economists say, ‘we should … ’

So what do economists do? Mainly, they do three things: collect data, create economic models and formulate theories. Data collection can include facts and figures about almost anything, from birth rates to coffee production. Economic models show relationships between these different data. For example, the relationship between the money people earn and unemployment. From this information, economists try to make theories which explain why the economy works the way it does.

Vocabulary List

1. microeconomics – микроэкономика

2. macroeconomics – макроэкономика

3. household budget – бюджет домохозяйства

4. to run a business – управлять компанией, вести бизнес

5. data – данные
sg. datum

Notes

1. positive economics – позитивная экономика

2. normative economics – нормативная экономика

3. data collection – сбор данных

4. birth rate – уровень рождаемости

Ex 1.Suggest the Russian equivalents:

to manage household budgets; to be closely related’ to have an effect on the wider world around us; to practice positive economics; to guess economic changes; to create economic models; why the economy works the way it does.

Ex 2. Answer the questions.

1. What does microeconomics deal with?

2. What’s the field macroeconomics studies?

3. How do positive/normative economists see their tasks?

4. What do economists do in general?

Ex 3.Match the term with the appropriate explanation.

Macroeconomics, budget, business, Microeconomics

1. The branch of economics that examines and explains the behavior of human beings and things in small units: e.g. a particular firm, household etc.

2. The branch of economics that examines and explains economic facts in the aggregate, i.e. in totals for the whole community or nation.

3. An account of probable future income (money coming in) and expenditure (money going out) during a stated period, usually a year, used as a guide in making financial arrangements.

4. A person, firm, company or other organization which makes or produces a product, buys and sells goods or provides some kind of service, use for the purpose of making a profit.

Ex 4. Increase your vocabulary.

A. Fill in the blanks with the right word from the table:

economics, economy, economic, economical, economists, economically, economize

1. Different …… may have opposite points of view on the problems …… studies.

2. In their daily living people have to make a lot of …… decisions.

3. The …… system of a country is usually called the national …….

4. In times of crisis most people have to live very …….

5. You should be …… with the money you earn.

6. In this university we study ……, it’s our core subject.

7. Keynes is know is one of the world’s famous …….

8. The management’s decision …… on the workers’ wages were not approved of by the staff.

Translate into English:

1. Состояние экономики очень тревожное.

2. Экономическая политика правительства часто подвергается справедливой критике.

3. Она очень экономная хозяйка, ни копейки зря не истратит.

4. Мировая экономика – это наука, которая изучает состояние экономики в разных странах мира.

5. Моя новая машина гораздо экономичнее старой.

B. Use these words in the suitable blanks in the sentences below:

produce, producer, production, productive, productive, productivity

1. The company …… a new commodity every year.

2. The company’s newest …… is a special blue soap powder.

3. The …… of soap powders met last year to discuss prices.

4. That factory is not as …… now as it was 5 years ago.

5. The …… of that factory has gone down over the last 5 years.

6. The manager of the factory has decided that they must increase their …… of packets of soap powder.

Translate into English:

1. В этом году наша компания изготовила (выпустила) вдвое больше автомобилей, чем в прошлом.

2. Производители этой модели оборудования не смогли найти для нее рынка сбыта (ready market).

3. Эта фирма известна своей высококачественной продукцией.

4. Производство нового самолета начнется в следующем году.

5. Они работают очень много, но все их усилия не слишком продуктивны.

6. Руководство ищет эффективные способы повышения производительности труда.

C. Put in the necessary prepositions.

1. The term economics is derived … the Greek for oikos and nomos.

2. … goods we mean physical commodities, … services – activities.

3. Services may be consumed only … the instant they are produced.

4. It is not always easy to find a compromise … people’s desires … goods and services, and the scarcity … resource … which they can be produced.

5. The modern market economy comprises … three types of economic agents.

6. Consumers represent households that provide labour and other resources to produce … an income which they use to purchase consumer goods.

7. Producers acquire factors … production … households.

8. Outputs can be classified … goods and services.

9. The government is involved … the economy as a producer, consumer? Regulator and supervisor … economic activities.

10. Consumers, producers and the government have to make rational decisions … available resources.

11. The aim of the firm is to draw maximum profit … given resources or obtain desired results … the minimum efforts or cost.

Writing

Task I. Write a Summary and a GIST of Text A.

Task II. Fill in the table and comment on it.

Notion	Definition	Explanation	Example
Goods
Services
Microeconomics
Macroeconomics
Inputs
Output

Speaking

Task I. Comment on the table (Writing, Task II)

Task II. Prepare a talk on the subject of the Unit and present it in class.

Task III. Act as an interpreter for Parts A, B.

1. Мы рады приветствовать профессора Брэдфорда, доктора экономики, ведущего специалиста Лондонского Университета. Итак, профессор, наш первый вопрос: каков предмет изучения экономической науки? 2. Интересно было бы также узнать, в чем конкретно видят свою задачу экономисты. 3. Мы знаем, что современная модель экономики включает в себя 3 группы участников – производителей, потребителей и государство. Не могли бы вы поподробнее остановиться на роли каждого из них? 4. А в чем смысл деления экономической теории – науки, изучающей экономические законы и отношения, на макроэкономику и микроэкономики? 5. Большое спасибо, профессор, за интересную беседу.

Well, I’m really glad to have the opportunity to … There are some important points I’d like to make…     The point is that…     Let’s go into this in more detail.     Yes, that’s a very good point.     I hope you have found this useful.

Part 2

Text A

The system of higher education in the United States

The system of higher education in the United States differs from its counterparts in Europe in certain ways. In the United States, there is a nationwide assumption that students who have completed secondary school should have at least two years of university education. Hence, a great number of “junior colleges” and “community colleges” have sprung up to provide two years of undergraduate study, in contrast to the traditional universities and colleges, where a majority of students complete four years of study for a degree and where substantial numbers go on for one to three years of postgraduate study in a “graduate school”. Universities that provide four-year study courses are either privately funded foundations or are state or city foundations that depend heavily on the government for financial support. Private universities and colleges depend largely on tuition charges levied on students. The individual state governments fund the nation’s highly developed system of state universities, which ensure the provision of higher education for the vast majority of those willing and academically qualified to receive such education.

In the American system, the four-year, or “bachelor’s” degree is ordinary obtained not by passing a “finals” examination but rather by the accumulation of course “credits”, or hours of classroom study. The quality of work done in these courses is assessed by means of a continuous record of marks and grades in a course transcript. The completion of a certain number (and variety) of courses with passing grades leads to the “bachelor’s” degree. The first two years of a student’s studies are generally taken up with prescribed courses in a broad range of subject areas, along with some “elective” courses selected by the student. In the third and fourth years of study, the student specializes in one or perhaps two subject fields. Postgraduate students can pursue either advanced studies or research in one of the many graduate schools, which are usually specialized institutions. At these schools students work toward either a “master’s” degree (which involves one to two years of postgraduate study) or a doctoral degree (which involves two to four years of study and other requirements).

Text B

Education in the United States

The United States does not have a national school system. Nor, with the exception of the military academies, are there schools run by the federal government. But the government provides guidance and funding for federal educational programs in which both public and private schools take part, and the U.S. Department of Education oversees these programs.

In the United States, a college is an institution of higher learning that offers courses in related subjects. A liberal arts college, for example, offers courses in literature, languages, history, philosophy, and the sciences, while a business college offers courses in accounting, investment, and marketing. Many colleges are independent and award bachelor's degrees to those completing a program of instruction that typically takes four years. But colleges can also be components of universities. A large university typically comprises several colleges, graduate programs in various fields, one or more professional schools (for example, a law school or a medical school), and one or more research facilities. (Americans often use the word "college" as shorthand for either a college or a university.)

Every state has its own university, and some states operate large networks of colleges and universities. Some cities also have their own public universities. In many areas, junior or community colleges provide a bridge between secondary school and four-year colleges for some students. In junior colleges, students can generally complete their first two years of college courses at low cost and remain close to home. Unlike public elementary and secondary schools, public colleges and universities usually charge tuition.

Community Colleges

Community colleges provide the first two years of a university education. Students are able to transfer to a university for an additional two years to complete the Bachelor’s Degree. This system is called “2+2”. These institutions are an important sector of the US higher education system. There are nearly 1200 accredited community colleges with an enrollment of 11 million students.

Increasing numbers of international students are choosing to begin their higher education in the US at community colleges. During the past decade, the growth of international students attending US community colleges increased by 57 percent.

The Ivy League

The Ivy League is an association of eight Northeastern American universities. The term, “Ivy League” has connotations of academic excellence as well as a certain amount of elitism. These schools are also sometimes affectionately referred to as the Ancient Eight.

All of the Ivy League universities share some general characteristics: they are among the most prestigious and selective universities in the US; they rank within the top one percent of the world’s universities in terms of financial endowment; and they attract top-tier students and faculty. The Ivies are also among the oldest universities in the United States – all but Cornell University were founded during America’s colonial era.

All but one of the Ivy League universities are privately owned and controlled, although many of them receive funding from federal or state governments to pursue research. One of the eight, Cornell, has four state supported academic units, termed statutory colleges, that are an integral part of the university.

The eight Ivy League universities:

Brown University
Columbia University
Cornell University
Dartmouth University
Harvard University
University of Pennsylvania
Princeton University
Yale University

Ex 1. Answer the questions.

1. Can we say that in the US higher education is quite accessible to everyone?

2. Is the system of higher education in the US well developed?

3. Is it necessary to pass a special examination to obtain the bachelor’s degree? A master’s degree?

4. What characteristic feature did American education derive from the German model? What do you think of this model? Does it appeal to you?

5. What is the difference between university and a college?

6. Why are community colleges an important sector of the US higher education system?

7. What is the Ivy League?

Ex 2. The US school system is very different from that of Russia. Try to match the components of the US school system with their definitions.

A preschool for children age 4 to 6 to prepare them for elementary school   First year student in either high school or college   An institution of higher learning that grants the bachelor’s degree in liberal arts or science or both   Second year student in either high school or college   A school for the first six to eight years of a child’s formal education, often including kindergarten   A degree from a university or college, also known as a Bachelor’s Degree   An academic degree such as MA (Master of Arts) or PhD conferred by a college or university upon those who complete at least one year of prescribed study beyond the Bachelor’s Degree   Third year student in either high school or college   Fourth year in either high school or college   A secondary school that usually includes grades 9 or 10 through 12   A school at a level between elementary and high school, typically including grades seven through nine

Kindergarten   Elementary School     Middle School   High School     College   Graduate Degree   Undergraduate Degree     Freshman     Sophomore     Junior     Senior

Glossary

1. tuition – fee, money paid for instructions

2. elementary school – the first six to eight years of a child’s formal education, also called grade school, grammar school, primary school

3. junior high school – a school generally including the seventh, eighth, and sometimes ninth grades

4. curriculum – all the courses of study offered by an educational institution

5. home schooling – being educated at home

6. liberal arts – academic disciplines, such as languages, literature, history, philosophy, mathematics, and science.

7. college – an institution of higher learning

Ex 3. Match the expressions with the institutions.

Professor, Principal, Bachelor of Arts, Bachelor of Science, Undergraduate Studies, Freshman, Senior, Tuition, Private, Curriculum, Graduation, Home Schooling

College:_____________________________________________________________________________________________________________High School:______________________________________________

__________________________________________________________

Ex 4. Speak about the higher education system in Russia. What is it based on? What leading educational institutions do you know?

Ex 5. Work in pairs. Discuss differing and similar features of the American and Russian systems of education.

Ex 6. Hold a discussion on pros and cons of higher education systems in different countries.

Unit III

Part 1

Market. Types of Economies

economic resources, economic system, supply, demand, production costs, opportunity costs, planned economy, labor-intensive production, mixed economy

Text A

Market

Economic resources may be classified as material resources (raw materials and capital) and labour resources (labour force and entrepreneurship). Scarcity of resources makes it necessary to save them. As a result, any economic system is trying to find the most effective and efficient ways of utilizing resources for the production of goods and services. The rational solution to the problem brings about the maximum economic growth, full employment, stable prices, equitable distribution of revenues, and social security of the needy.

There are different economic systems in the world today. Many economists argue that free enterprise, or the market economy, is the most effective system, because the businesses are free to choose whom to buy from and sell to and on what terms, and free to choose who to compete with. How can a market economy solve what, how and for whom to produce?

It is done through a market, which is a set of arrangements through which buyers and sellers make contact and business, in which choices concerning the allocations of production, incomes, goods and services are left to countless independent decisions of individual consumers and producers acting on their own behalf.

One of the main laws of the market is the law of supply and demand. For a given market of a commodity, demand shows the quantity that all prospective buyers will be prepared to purchase at each unit price of the good. The law of demand states that the higher the price of a product, the less of it people would be willing to buy. Supply is the relation between the price of a good and the quantity available for sale from suppliers (such as producers) at this price. The higher the price at which the good can be sold, the more of it producers will supply. The higher price makes it profitable to increase production. Thus, the law of supply and demand says that if demand exceeds supply, the price tends to rise and when supply exceeds demand the price tends to fall.

Given the scarcity of resources, the market functions as a rationing device with the price mechanism as its principal mechanism. In free markets, prices direct allocations of inputs of firms that make the most profitable use of them. The price mechanism also guides the decisions of producers concerning the compositions of their output. Finally, the price mechanism also governs the distribution process.

Thus, the market mechanism brings about an allocation of resources that reflects two basic factors: consumer preferences and production costs. The prices which play the coordinating role of the market mechanism are determined through the interaction of demand and supply.

Opportunity Costs

Opportunity costs are caused by the situation when you want to buy something and another thing but you can’t have one of them so that becomes your opportunity cost. In economics, opportunity cost, or economic cost, is the cost of something in terms of an opportunity forgone (and the benefits which could be received from that opportunity), or the most valuable forgone alternative (or highest-valued option forgone), i.e. the second best alternative.

For example, if a city decides to build a hospital on vacant land it owns, the opportunity cost is the value of the benefits forgone of some other thing which might have been done with the land and construction funds instead. In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city’s debt, since those uses tend to be mutually exclusive. Also included in the opportunity cost would be what investments or purchases the private sector would have made if it were not taxed to build the hospital. The total opportunity costs of such an action can never be known with certainty (and are sometimes called “hidden costs” or “hidden losses”, what has been prevented from being produced cannot be seen or known).

Opportunity cost need not be assessed in monetary terms, but rather can be assessed in terms of anything which is of value to the person or persons doing the assessing (or those affected by the outcome). For example, a person who chooses to watch, or to record, a television program cannot watch (or record) any other at the same time.

Note that opportunity cost is not the sum of the available alternatives, but rather of benefit of the best alternative of them. The opportunity cost of the city’s decision to build the hospital on its vacant land is the loss of the land for a sporting center, or the inability to use the land for a parking lot, or the money which could have been made from selling the land, or not all of these altogether because the land cannot be used for more than one of these purposes.

However, most opportunities are difficult to compare. Opportunity cost has been seen as the foundation for a number of economic theories.

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