A) Learn the information below to get a handle on some economic terms used in the text.

Economy of scale means a proportionate saving in costs gained by an increased level of production.

Economy of scope means a proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each separately.

Social equity implies fair access to livelihood, education, and resources; full participation in the political and cultural life of the community; and self-determination in meeting fundamental needs. As Martin Luther King observed, "where there is injustice for one, there is injustice for all." Social equity is the cornerstone of society, which cannot be maintained for a few at the expense of the many. Increased equity results in decreased spending on prisons, security enforcement, welfare, and social services. It also creates new potential markets.

Social equality is a social state of affairs in which all people within a specific society or isolated group have the same status in a certain respect.

Public sector, sometimes referred to as state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.

Government failure is a situation where government intervention in the economy to correct a market failure creates inefficiency and leads to a misallocation of scarce resources.

Market failure occurs when the work of the price mechanism is imperfect and results in an inefficient or unfair allocation of resources from the perspective of society. Examples include, the education and defense markets. This is a case in which prices are unable to adequately adjust to reflect changes in supply or demand. Market failures may occur due to unexpected disruptive events such as wars or natural disasters, or due to economic barriers such as trade restrictions or monopolies.

Income distribution means the distribution of wages earned across a company, industry, or country. Income distribution reveals what percentage of individuals are at various wage levels, information that can reveal more about overall wage patterns (общая структура заработной платы) than average income can.

Non-rival consumption occurs when the consumption of a good does not stop others from using the good e.g. air.

Public goods are items which can be jointly consumed by many consumers simultaneously without any loss in quantity or quality of provision e.g. a lighthouse. Public goods are therefore goods that would not be provided in a pure free-market system (система свободного предпринимательства). This is because they display two particular characteristics: 1. Non-rivalry - consumption by one person does not reduce the amount available for others. 2. Non-excludability (неисключаемость) - once the good is provided it is impossible to stop people consuming it even if they haven't paid. An example of this is defense. It is impossible to charge people for defense as they consume it as the whole country is being defended at once. Also one person being defended does not stop others being defended.

Externalities means a consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices, such as the pollination (опыление) of surrounding crops by bees kept for honey. These are spillover effects (сопутствующие эффекты) of production or consumption for which no payment is made. Externalities can be positive or negative. For example all fax users gain as new users become connected (positive); and smoke from factory chimneys (negative).

Network effect (also called network externality or demand-side economies of scale) is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service is dependent on the number of others using it.

Public choice theory in economics means the use of modern economic tools to study problems that traditionally are in the province of political science. Public choice seeks to understand and predict the behavior of politicians and bureaucrats in the polity by using analytical techniques developed from economics, based on the postulate of rational choice. In other words, public choice is an application of neoclassical economic tools (self interest and utility maximization) to explain political behavior. Public choice theory is about the analysis of governmental behavior, and the behavior of individuals who interact with government.

The theory came about when economists looked at some apparent contradictions in human behavior. Think about it in this way - what do governments exist for? You might argue that they are there to act in the public interest. Acting in the public interest might be defined as a case where decision making is based on a principle where the maximum benefit is gained by the largest number of people. Any decision will involve some sort of cost, so there will be some people that will be affected adversely by those decisions. If those people are in the minority and the benefits to the majority outweigh those costs, a decision might then be regarded as acting in the public interest. In public choice, individuals, interest groups, bureaucrats, and politicians are assumed to seek their own self interest as in the market place. Decisions made depend on the costs and benefits of an action taken whereby each group attempts to maximize their own net benefits. Benefits can take the form of monetary or non-monetary rewards and can include ideologies, goals, and cultural values.

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