Download Supply, Demand and Price

UNIT 1
INTRODUCTION TO ECONOMICS
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What is economics? What is economy? How are they interconnected?
2. What is national economy? What is international (world) economy?
Are they interconnected?
3. What do economists as experts in the science of economics do?
II. Background Reading
Read the following text.
Introduction to Economics
1. Why is it important to study economics or learn about our economy? There are many reasons, but one of the most important ones is concerned with how people get the goods and services they need and want. It
also focuses on money - how it is made, lost, used and misused, issued and
called in. When our economy does well, we as a nation and as people do
well. When our economy is in stagnation, recession or even in crisis, the
nation suffers and we as people don't always get the goods and services we
need. It is important for all people to be informed about the economy.
2. Any society requires an orderly system of producing and distributing the necessities and luxuries of life. Such a system is essential to a
stable society. Economics is the study of systems of production and distribution - which are called economies - and of their fundamentals, dynamics,
and results.
3. Economics is the study of making choices. We need economics
because we as individuals and as a society experience scarcity (of raw materials, of goods and services, of time, and so on) in relationship to our ever-growing needs and wants. Economics examines how we make choices.
Economics aims to explain how economies work and how economic agents
interact. Common distinctions are drawn between various dimensions of
economics: between positive economics (describing "what is") and normative economics (advocating "what ought to be") or between economic theory and applied economics. However the primary distinction is between microeconomics which examines the economic behaviour of agents (includ-
2
ing individuals and firms) and macroeconomics addressing issues of unemployment, inflation, monetary and fiscal policy for an entire economy.
Economists (experts in the science of economics) seek to measure wellbeing, to learn how well-being may increase over time, and to evaluate the
well-being of the rich and the poor.
4. One of the most important parts of the economy is a market which
can refer to any place that brings together a buyer and a seller to agree a
price to exchange goods or services. Markets vary in size, range, geographic scale, location, types and variety of human communities, as well as the
types of goods and services traded. A market can be very formal such as a
shop, a parking lot, a financial market such as the Stock Exchange or it can
be a car boot sale, selling goods from a street corner or an advert in a local
newspaper.
5. National economics of every country is the study of how a nation,
rather than an individual, can be made wealthy. In its study lies the answer
to how all manufacturing that has moved to other countries and all jobs
that have been outsourced can be returned to the country, how real wages
can be dramatically increased, and how, at the same time, the people can
have more leisure.
6. A national economy of any country can focus on producing all of
the goods and services it needs to function. It is more valid when each
country concentrates on the production of one thing that it can do best. Determining how countries exchange goods is the backbone of international
trade theory, as the part of the world economy. International economics describes and predicts production, trade, and investment across countries.
7. The concept of business economics as a science can comprehensively be described with the saying “The economy is to business as the
ocean is to fish”. It is the environment in which business operates. The
more you know about this environment, the better you will function as a
manager, analyst, and decision-maker.
III. Vocabulary Reinforcement
1. Which of the words and phrases below are associated with the following: 1) economic weakness, 2) doing well economy? Translate them.
Boom; the nation suffers; stagnation; a wealthy society; stability; reces-
3
sion; to do well; to eliminate poverty; unemployment; scarcity of goods
and services; wages and incomes rise; to reduce working hours; a decent
home; inflation; price rise; sufficiency of goods.
2. Complete: use an appropriate preposition where necessary.
to (2), about (2), in, of (2), with, at
1. It is important to study … economics and learn … our economy.
2. A market refers … any place that brings together a buyer and a seller.
3. Markets vary … size, range, geographical scale and variety … human
communities.
4. Every family should be provided … a decent home.
5. The more you know economics, the better you will contribute … the
development … our country’s national economy.
6. National economy of any country aims … making the nation wealthy.
3. Use appropriate information from the text to finish the following sentences.
1. It is important for all people to be informed about the economy because …
2. We need economics because … .
3. Economists are experts in the science of economics, they … .
4. National economy of every country is … .
5. International economics predicts … .
6. There are certain distinctions between macroeconomics and microeconomics: … .
4. Translate: give the English equivalents for the following word combinations.
Экономика (наука); экономика (страны); экономическая деятельность;
экономное использование ресурсов; экономика процветает;
экономика находится в застое; экономический анализ; рынки
отличаются размером; производить товары; потреблять товары;
стабильное общество; спад экономики; покончить с бедностью;
дефицит (нехватка) товаров; нерациональное распределение ресурсов;
прогнозировать развитие производства и торговли.
4
IV. Reading
1. Answer the following questions.
1. What does economics as a science study?
2. What are the main concerns of any country’s national economy?
3. Is it important for ordinary people to be informed about economics and
economy? Why?/ Why not?
2. Translate each of these phrases used in the text.
To study economics; economy does well; economy is in stagnation / recession / crisis; economic activity; to experience scarcity of goods and services; a stable and wealthy society; markets vary in size, range … and variety of human communities; to eliminate poverty; inefficient allocation of
resources; to predict production and trade across countries.
3. According to the text, mark these statements T (true) or F (false).
1. It is important only for economists to be informed about the economy.
2. Economics is the study of making choices.
3. Economics aims to explain how economies work.
4. Microeconomics deals with unemployment and inflation.
5. Macroeconomics examines the economic behaviour of individuals and
firms.
6. National economy is the study of how a nation can be made wealthy.
7. It is not valid when each country concentrates on the production of one
thing it can do best.
8. International economics predicts production, trade and investment
across countries.
4. Translate the following economic terms.
Economy, economics, world economics, world economy, scarcity of
goods, market, allocation of resources, economic stability.
5. Give profound answers to the following questions.
1. Why can economics be regarded as the study of making choices?
2. What is the relationship between the way our economy does and the
way our people do?
3. What is a market?
5
4. What is any country’s national economy concerned with?
5. What is world economy? What is world economics?
UNIT 2
MICROECONOMICS AND MACROECONOMICS.
FACTORS OF PRODUCTION
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What is economics / macroeconomics / microeconomics?
2. What are factors of production?
3. What are basic economic questions a country’s economy has to answer?
II. Background Reading
Read the following text. Focus on the meaning of the boldfaced words.
Microeconomics and Macroeconomics.
Factors of Production.
1. For scientists, everything in the earth, air, and water – and beyond –
is a source of data to be observed and studied. Yet, the data often make little sense until they are seen through the lens of a microscope or telescope.
Economic information, as with scientific data, takes on meaning when it is
viewed through the most useful lens. Two of the lenses through which
economists observe economic behaviour are microeconomics and macroeconomics.
2. Microeconomics is the study of the behaviour of individual players
in an economy, such as individuals, families, and businesses. Macroeconomics is the study of the behaviour of the economy as a whole and involves topics such as inflation, unemployment, aggregate demand and aggregate supply. It is concerned with large-scale economic activity.
3. While microeconomics considers the individual consumer, macroeconomics studies the consumer sector. Macroeconomics also examines the
business sector and the public, or government, sector.
4. Consumers have many economic wants. Wants are desires that can
be satisfied by consuming goods or services. When making purchases,
people often make a distinction between the things they need and the
6
things they want. Needs are things, such as food, clothing and shelter that
are necessary for survival.
5. People always want more, no matter how much they have already. In
fact, wants are unlimited, but the resources available to satisfy them are
limited. The result of this difference is scarcity, the situation that exists
when there are not enough resources to meet human wants. Scarcity in
the lives of individual consumers is the gap between their unlimited wants
and limited resources. Scarcity is not a temporary shortage of some desired thing. It is a fundamental and ongoing tension that confronts individuals, businesses, producers, governments and whole societies. Shortages
are often temporary. Scarcity, however, never ends because wants always
exceed the resources available to satisfy them.
6. Indeed, scarcity requires every society to address three basic economic questions: What will be produced? How will it be produced? For whom
will it be produced?
7. To understand how societies answer the first two basic questions –
what to produce and how to produce – economists have identified the factors of production, or the economic (productive) resources needed to produce goods and services. They divide the factors of production into three
basic categories: land, labour, and capital. In addition, many economists
add a fourth factor of production, entrepreneurship, to the list. All of these
factors have one thing in common – their supply is limited. Each factor
plays a unique role in the production of goods, and each factor is clearly
distinguishable from the others.
8. In economic terms, land includes all the natural resources found on or
under the ground that are used to produce goods and services. Land can be
defined as everything in the universe that is not created by human beings.
Water, forests, and all kinds of wildlife belong in the category of land. So,
too, do buried deposits of minerals, gas, and oil. Land is the passive factor
in production. It is the starting point of all production, and it represents the
most basic limitation on the productive capacity of an economy.
9. Labour, sometimes called human resources, is all the human time,
effort and talent that go into the making of products. Labour is not only the
work done by factory workers and construction workers. It also includes
7
the work of architects, teachers, doctors, shop assistants and government
officials. In economics, labour is a measure of the work done by human beings. Labour is essential to production, since natural resources and capital goods are of no value unless they can be put to use.
10. Capital is all the resources made and used by people to produce
and distribute goods and services. Tools, machinery and factories are all
forms of capital. So are offices, warehouses, stores, roads and airplanes. In
other words, capital is all of a producer’s physical resources. For this reason, capital is sometimes called physical capital, or real capital.
11. It is important to distinguish between capital goods and consumer
goods. Capital goods are human-made resources that are used for the production of other goods and services. Consumer goods are finished products
sold to consumers for their own personal use. Some things can be either
consumer goods or capital goods, depending on how they are used.
12. While businesses invest in real capital, workers invest in human
capital – people’s innate abilities and talents plus the knowledge and skills
gained through experience. Human capital includes such things as a college degree or good job training. When workers possess more human capital, they are more productive.
13. The fourth factor of production, entrepreneurship, brings the other
three factors together. Entrepreneurship is the combination of vision, skill,
ingenuity and willingness to take risks that is needed to create and run new
businesses. Most entrepreneurs are innovators. They try to anticipate the
wants of consumers and then satisfy these wants in new ways. Entrepreneurs are also risk takers. They risk their time, energy, creativity and money in the hope of making a profit.
14. Fixed and Variable factors: In the act of production a firm uses a
variety of goods and services called production resources (factors of production) or inputs. These factors and services include plant and machinery,
factory premises, tools and equipment, land, raw materials, labour etc.
Some of these factors are fixed in size. A machine or manager has to be
employed in its full capacity, irrespective of the volume of the output. Other factors like labour and raw materials can be employed in small or large
units according to the varying quantity of output. These are variable factors
8
of production. Fixed factors are indivisible while variable factors are divisible into small units. Fixed factors are supplementary in nature. Machines make productive activity more convenient and efficient. However,
even in their absence, output of some volume can be produced. Variable
factors are called prime factors without which no output can be produced.
15. The distinction between the two types of factors is the basis of costbenefit analysis and the law of returns. If all the factors of production were
perfectly divisible and variable, the cost of production would have increased in the exact proportion of the output. As this is not the case, a special cost-benefit analysis becomes important.
III. Vocabulary Reinforcement
1. Which of the things below belong to capital goods and which of them
belong to consumer goods?
TV sets; factories; machines; food; clothing; tools; computers; railroads;
automobiles; tractors; airplanes; furniture.
2. Complete: use an appropriate preposition where necessary.
in(4),on, for, of, with, through
1. Economic information takes … meaning when it is viewed … the
most useful lens.
2. Macroeconomics is concerned … large-scale economic activity.
3. All kinds of wildlife belong … the category … land.
4. An economy cannot create goods if it is lacking … natural resources.
5. Some factors of production are fixed … size.
6. There is a great demand … home computers.
7. Small cars are … demand nowadays.
3. Complete: use appropriate information from the text to finish the following sentences.
1. Macroeconomics considers … .
2. Microeconomics examines … .
3. Economists divide the factors of production into … .
4. All the factors of production have one thing in common – … .
5. Physical capital is … , while human capital is … .
9
4. Translate the following word combinations.
Покупательная способность; экономическое поведение; совокупный
спрос;
широкомасштабная
экономическая
деятельность;
государственный
сектор;
удовлетворять
потребности;
производительность; издержки производства; производственная
мощность;
работа,
требующая
высокой
квалификации;
квалифицированная
рабочая
сила;
природные
богатства;
распространять товары и услуги; анализ затрат (издержек);
предвидеть потребности потребителей; средства производства;
предметы потребления.
IV. Reading
1. Answer the following questions.
1. According to the text, what are the differences between microeconomics
and macroeconomics?
2. What is said in the text about the ways scarcity affects both consumers
and producers?
3. What are the four factors of production and how do they relate to scarcity?
2. Translate each of these phrases used in the text.
To observe economic behaviour; to satisfy economic wants; to exceed the
available resources; natural resources; to anticipate the wants of consumers; input and output; raw materials.
3. According to the text, mark these statements T (true) or F (false):
1. Microeconomics is the study of the behaviour of the economy as a
whole while macroeconomics studies the effect of widespread unemployment on the whole nation.
2. Scarcity exists when there are not enough resources to meet human
wants.
3. Factors of production can be divided into four broad categories: land, labour, service, and entrepreneurship.
4. Buried deposits of minerals, gas, and oil do not belong in the category of
land.
5. Labour is a measure of the work done by human beings.
10
6. Offices, warehouses, stores, roads and airplanes are all forms of capital.
7. Businesses invest in real capital while workers invest in human capital.
8. Variable factors of production are sometimes called supplementary factors.
4. Translate the following economic terms.
Fixed factors of production; human capital; natural resources; scarcity;
wants and needs; productive capacity; aggregate demand and aggregate
supply; to meet human wants; real capital; capital goods.
5. Give profound answers to the following questions:
1. What is microeconomics? What is macroeconomics?
2. What is the difference between needs and wants? Explain how a need
may also be a want.
3. What is scarcity and why does it exist? What is a shortage?
4. How does scarcity affect consumers? Producers?
5. Why are people affected by scarcity regardless of their income?
6. What helps economists identify the factors of production?
7. What are the factors of production? What categories are they divided into?
8. What is the difference between fixed and variable factors?
UNIT 3 ECONOMIC SYSTEMS. MARKET AND MARKET
ECONOMY
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What is an economic system? Why do different countries have different
economic systems?
2. What is a market economy? Do you believe it to be the best type of
economy? Does a “pure” market economy exist in any country?
II. Background Reading
Read the following text. Focus on the meaning of the boldfaced words.
Types of Economies. Market and Market Economy
11
1. Every human being in the world would like to have a high standard of living. The dream of all the times and peoples is a society without
scarcity, but unfortunately it exists only in myths. In real world scarcity is
a fact of life. To address it, every society must make choices about three
basic economic questions: output, input and distribution. These are the
questions of “What to produce?”, “How?” and “For whom?”
2. Societies can make their economic choices by the social process of
tradition, the political process of command, or a market process which responds to the free actions of individuals and businesses and works through
a price mechanism. All three of the processes (social, political and market)
are at work to some extent in every society. The kind of economic system
which exists in a society depends mostly on the relative importance of
these three choice-making processes. According to them economists define
a traditional economy, a command economy and a market economy.
3. There have always been disputes of what type of economy is the
most efficient. The main goal of a primitive society is to survive, so families, clans or tribes make economic decisions based on the traditions, customs and beliefs handed down from generation to generation and make up
the type of system called a traditional economy, as they don't know any
other ways. On a more advanced stage, where a society is being advanced
but is still on the way to its benefit, certain control in order to keep social
order is necessary. So the government decides what goods and services
will be produced and how they will be distributed. And this is just what a
command economy is. This type of economy may be considered socially
just, but without any competitiveness it leads to stagnation and as a result
to social dissatisfaction. So finally, the most proper type by now has
seemed to be a market economy.
5. The market process modifies this natural “produce and consume”
cycle in only one way: it gives each person the opportunity to produce one
thing and then consume a different thing. The market process lets you specialize in producing something you are good at, and then trade to get the
other things you want on the market.
6. The historical origin of markets is the physical marketplaces which
would often develop into small communities, towns and cities.
12
7. In professional terms, the concept of a market may be defined as
any structure that allows buyers and sellers to exchange any type of goods,
services and information. The exchange of goods or services for money is
a transaction. Market participants consist of all the buyers and sellers of a
good who influence its price. This influence is a major study of economics
and has given rise to several theories and models concerning the basic
market forces of supply and demand.
8. A market economy may be defined as an economy based on market principles and using market mechanisms for its functioning. In other
words, consumers and producers drive the economy. The former are free to
spend their money as they wish, to enter into business and/or to send their
labour to whomever they want. The latter will decide what goods and services they will offer. They make choices of how to use their limited resources to earn the most money possible.
III. Vocabulary Reinforcement
1. Which of the words and phrases below are associated with the following: 1) the concept of the market, 2) the concept of traditional economy?
Translate them.
Tradition, distribution, an advanced society, planning, stability, transaction, governmental control, innovation, supply, demand, fixed prices, buyer, seller, command economy, competitiveness, stagnation, inflation, benefit, transaction, competition, social disorder, a primitive society, an inefficient type of economy.
2. Complete: use an appropriate preposition where necessary.
from, to, between, on, at, for (2)
1. If you buy bread at a local shop, you buy it … the market.
2. A transaction is a deal … a buyer and a seller.
3. We produce tractors … international markets.
4. Your goods are not competitive … the domestic market.
5. We produce practically everything … ourselves as we live in a remote village.
3. Complete: use appropriate information from the text to finish the fol-
13
lowing sentences.
1. To answer the three basic economic questions is necessary to … .
2. Economic choices are made by the following processes: … .
3. The main distinctions of traditional economy are: … .
4. The main features of a command economy are the following: … .
4. Translate the following word combinations.
Выйти на мировой рынок, распределение товаров, обойти
конкурентов, конкурентоспособная продукция, обмен товарами и
услугами, заключить сделку, декларировать доход, потребительские
товары, снизить капиталовложения, ценовой механизм, продать по
высокой цене, выйти на более высокий уровень производства.
5. Render the following text in English.
Из выступления бизнес-консультанта перед руководством компании.
…Всем известно, что компания производит потребительские
товары и услуги не только для внутреннего, но и международного
рынка. И если вы хотите экспортировать свою продукцию, то
необходимо принять правила международной торговли.
Помимо
этого,
если
бы
ваша
продукция
была
конкурентоспособной, то вы бы давно уже вышли на мировой рынок.
А выйти на более высокий уровень производства и обойти
конкурентов возможно только за счет внедрения новых технологий.
Анализируя ситуацию на внутреннем рынке, не будем забывать,
что только в обществе с традиционным укладом экономики обмен
товарами и услугами может осуществляться без помощи денег. В
условиях же рыночной экономики просто необходимо хорошо
отрегулировать ценовой механизм. Продавать одежду невысокого
качества по такой высокой цене было неразумно с вашей стороны.
Спрос на вашу продукцию и так невысокий. Лучше бы вы получили
прибыль путем снижения затрат.
IV. Reading
1. Answer the following questions.
1. According to the text, what are three basic economic questions?
14
2. What are the most common types of economy?
3. What is a market? What is a market economy?
2. Translate each of these phrases used in the text.
A society without scarcity; to make economic choices; social dissatisfaction; an advanced stage of development; to keep social order; a society is
on the way to its benefit; a “produce and consume” cycle; to exchange
goods and services; to spend one`s income; to drive the economy.
3. According to the text, mark these statements T (true) or F (false):
1. To address scarcity, every society must introduce market principles.
2. A market process works through the price mechanism.
3. If the government is not involved in the production and distribution
choices, you will have to produce everything for yourself.
4. If you offer a high price, someone will produce and sell whatever you
want.
5. In a modern society, only if you produce much, will you live well.
6. The market process modifies the natural “produce and consume” cycle
in the following way: each human being must produce things they
need.
7. If you spend your income buying something at a local shop, it means
you buy something from the market.
8. A market can be viewed as a place, a concept and a structure.
3. Explain the meaning of the following words and word combinations
and translate them.
The social process of tradition, the political process of command, a market
process, a transaction, a competitor, to produce a service, an economic system, a market economy.
4. Give profound answers to the following questions.
1. What are three basic economic questions?
2. What are three basic economic social choices?
3. Why is it unnecessary to produce by yourself everything you need?
4. Why is the market process said to be an extension of the way things
work in nature?
15
5. In what way does a market modify the natural “produce and consume”
cycle?
6. How is a market defined in professional terms?
UNIT 4
SUPPLY AND DEMAND
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What do you think is primary on the market – supply or demand? Why?
2. Can you give any examples when supply but not demand encouraged the
production?
II. Background Reading
Read the following text. Focus on the meaning of the boldfaced words.
Supply, Demand and Price
1. The most basic laws in economics are the law of supply and the
law of demand. The law of supply states that the quantity of a good supplied rises as the market price rises, and falls as the price falls. If all Belarusian companies producing TV-sets, for example, raised the prices on
their product all of a sudden, it certainly means that the Belarusian market
would be overstocked with domestic TV-sets of “Vityas” and “Horizont”.
Conversely, the law of demand says that the quantity of a good demanded
falls as the price rises, and vice versa.
2. Supply and demand are regulated through a price mechanism.
Price in economics and business is the result of an exchange and from that
trade we assign a numerical monetary value to a good, service or assets. It
is commonly confused with the notion of cost. Price is what a buyer pays
to acquire products from a seller. Cost concerns the seller’s investment
(e.g., manufacturing expense) in the product being exchanged with a buyer.
For marketing organizations seeking to make a profit the hope is that price
will exceed cost so the organization can see financial gain from the transaction.
3. One function of markets is to find “equilibrium” prices that balance the supplies of goods and services and demands for them. In this connection economists often talk of “demand curves” and “supply curves.”
16
An equilibrium price (also known as a “market-clearing” price) is one at
which each producer can sell all he wants to produce and each consumer
can buy all he demands. Naturally, producers always would like to charge
higher prices. But even if they have no competitors, they are limited by the
law of demand: if producers insist on a higher price, consumers will buy
fewer units. The law of supply puts a similar limit on consumers. They always would prefer to pay a lower price than the current one.
4. Markets in which prices can move freely are always in equilibrium
or moving toward it. For example, if the market for a good is already in
equilibrium and producers raise prices, consumers will buy fewer units
than they did in equilibrium, and fewer units than producers have available for sale. In that case producers have two choices. They can reduce
price until supply and demand return to the old equilibrium, or they can
cut production until the quantity supplied falls to the lower number of
units demanded at the higher price. But they cannot keep the price high and
sell as many units as they did before. If ordinary people were aware of the
principle of equilibrium in economy, they would understand why the heads
of most producing companies in the world take unpopular measures during
global financial crises.
5. Why does the quantity supplied rise as the price rises and fall as
the price falls? The reasons really are quite logical. The consumers buy
fewer units than producers have available for sale. First, consider the case
of a company that makes a consumer product. Acting rationally, the company will buy the cheapest materials (not the lowest quality, but the lowest
cost for any given level of quality). As production (supply) increases, the
company has to buy progressively more expensive (i.e. less efficient for
the company) materials or labour to keep the demand (otherwise the buyer
would prefer another producer), and its costs increase. It charges a higher
price to offset its rising unit costs.
6. In a perfect economy, any market should be able to move to the
equilibrium position instantly without travelling along the curve. Any
change in market conditions would cause a jump from one equilibrium position to another at once. If the overall standard of the buyer's living falls
the consequences for the producer may be dramatic. Or in the case when
17
the supply decreases all the buyer's money turns to be worthless and it finally leads to inflation and further even to more global social and political
changes, as it happened in the former USSR at the end of the 1980's. Unfortunately, in real economic systems markets don't behave in an ideal
way, and both producers and consumers spend some time travelling along
the curve before they reach equilibrium position. This is due to asymmetric, or at least imperfect, information. Ultimately both producers and consumers must rely on trial and error as well as prediction and calculation to
find the true equilibrium of a market. But supply and demand curves can
still serve as an excellent tool for making those kinds of predictions.
III. Vocabulary Reinforcement
1. Which of the phrases below are associated with the following: 1)
the increased demand, 2) an equilibrium market position?
The prices rise, production decreases, buyers pay more, more competitors
appear on the market, the quantity of the goods rises, the quality of the
goods rises, sales increase, imbalance, production exceeds sales, harmony
of supply and demand, sales exceed production, consumers look for other
suppliers, prices correspond to the quality and quantity of the product.
2. Complete: use an appropriate preposition where necessary.
along, at, on, in(2), for,
1. Not everyone can afford to buy a plasma TV-set … such a high price.
2. Economic papers report the market to have been travelling … the curve
for 3 months without any results.
3. To predict a sudden increase … production is easy, it's much more difficult to achieve it.
4. No one is going to buy clothes produced by this company; they are out
of fashion and not … demand any more.
5. It is unreasonable of you to reduce sales! There is a great demand …
your product … the market.
3. Translate the following word combinations.
Пользоваться спросом; сократить складские запасы; сбыт продукции;
производственный процесс; сокращенная рабочая неделя; расширить
18
рынки сбыта; увеличить экспорт на 2 %; неблагоприятная ситуация;
поставить продукцию на рынок; рынки сбыта; увеличить объем
продаж; падение рынка (спроса на рынке); повышенный спрос;
продукция низкого качества; продавать товар в большом количестве.
IV. Reading
1. Answer the following questions.
1. What is said in the text about the basic economic laws?
2. According to the text, what is the difference between “price” and
“cost”?
3. What is an equilibrium price?
4. Why does the quantity supplied rise as the price rises and fall as the
price falls?
5. Do markets behave in an ideal way in real economic systems? Why?/
Why not?
2. Translate each of these phrases used in the text.
Markets overstocked with products; monetary value; manufacturing expense; financial gain; “demand curves” and “supply curves”; to charge
higher prices; to cut production; to act rationally; to offset its rising unit
costs; to rely on trial and error.
2. According to the text, mark these statements T (true) or F (false).
1. The law of supply states that the quantity of a good supplied falls as
the market price rises, while the law of demand says that the quantity
of a good demanded falls as the price rises.
2. It is the main function of a market to increase the production that
balances the supplies of goods and services and demands for them.
3. An equilibrium price (or a “market-clearing” price) is set by the government.
4. Producers would always like to charge higher prices.
5. If ordinary people were aware of the principle of equilibrium in
economy, they would do without economists.
6. In real economic systems markets do not behave in an ideal way.
3. Say what the following economic terms mean.
19
The laws of supply and demand, “equilibrium” price, assets, cost, price,
balance, a price mechanism, a numerical monetary value to a good, goods
available for sale, a perfect economy, inflation, demand.
4. Complete the following sentences.
1. The law of supply states that…, while the law of demand says that …
2. Price in economics and business is …, whereas cost concerns …
3. An equilibrium price (also known as a “market-clearing” price) is …
4. Markets in which prices can move freely are …
5. In real economic systems markets …
UNIT 5. MARKETING AND MARKETING TECHNIQUES.
BUSINESS ETHICS AND SOCIAL RESPONSIBILITY.
I. Anticipating the Issue
1. Discuss your answers to the following questions.
1. Is a good quality or an acceptable price enough to guarantee good sales
of a product? If not, what else should be done to stimulate customers’
demand?
2. What marketing techniques do you know? Are they influential? Why? /
Why not?
3. What do you think should dominate in running a business – profit at all
costs or ethics? Are the two factors interdependent? How?
II. Background Reading
Read the following text. Focus on the meaning of the boldfaced words.
Marketing. Marketing Techniques and Ethics
1. Someone produces the things you want because you are buying
those things and paying a profitable price. You produce what others want
because that's the way you get the money to buy what you want. So, just
like that, the society chooses “what to produce”. The market answers the
question automatically. But in order not to fail in the attempt “to guess” the
needs of the others, something should be done. Special efforts being made
to study the market situation are known as marketing.
2. Marketing is defined by the American Marketing Association as
the activity, set of institutions, and processes for creating, communicating,
20
delivering, and exchanging offerings that have value for customers, clients,
partners and society. Marketing practice tends to be seen as a creative industry, which includes advertising, distribution and selling. It is also concerned with anticipating the customers' future needs and wants, which are
often discovered through market research. The objective of marketing is
not only market studying but also influencing the market situation.
3. In the early 1960s, Professor Neil Borden identified a number of
company performance actions that can influence the consumer decision to
purchase goods or services. Borden suggested that all those actions of the
company represented a “Marketing Mix”. Professor E. Jerome McCarthy,
in the early 1960s suggested the Marketing Mix containing 4 elements and
known as “4 P's”: product, price, place and promotion.
 The product aspects of marketing deal with the specifications of the actual goods or services, and how they relate to the end-user's needs and
wants. The scope of a product generally includes supporting elements
such as warranties, guarantees, and support.
 Pricing refers to the process of setting a price for a product, including
discounts.
 Placement (or distribution) refers to how the product gets to the customer; for example, point-of-sale placement or retailing. This third P
has also sometimes been called Place, referring to the channel by which
a product or service is sold.
 Promotion includes advertising, sales promotion, publicity, and personal selling, branding.
4. There are distinct stages in converting strangers to customers that
govern the communication medium that should be used.
 Advertising is a paid form of public presentation and expressive promotion of ideas aimed at masses. The main objectives of advertising are
to maintain demand for well-known goods, to introduce new and unknown goods and to increase demand for well-known goods, products
or services.
 Branding means creating reference of certain products in mind. A
brand is a name, term, design, symbol, or other feature that distinguishes products and services from competitive offerings. A brand rep-
21
resents the consumers' experience with an organization, product, or service.
 Personal sales are oral presentations given by a salesman who approaches individuals or a group of potential customers. They presuppose live, interactive relationship, personal interest, attention and response.
 Sales promotions are short-term incentives to encourage buying of
products: an example is coupons or a sale. People are given an incentive
to buy, but this does guarantee that the customer is going to buy the customer's product in the future.
 Marketing Public Relations (MPR) stimulate demand through press
release giving a favourable report to a product and secure a higher degree of credibility and, as a result, boost enterprise's image.
5. The point of special attraction even not only in the world of business but also among consumers has recently become ethics of sales and
marketing. Marketing may seek to manipulate our values and behavior.
To some extent society regards this as acceptable, but where is the ethical
line to be drawn? It is considered unethical when a company makes use of
price discrimination, anti-competitive practices, pyramid scheme, spam
(electronic), marketing in schools, black or grey markets, false advertising.
Ethics of production deals with the duties of a company to ensure that
products and production processes do not cause harm. Its main issues are
pollution, environmental ethics, genetically modified food, mobile phone
radiation and health. Ethics of intellectual property states that knowledge
and skills are valuable but not easily "ownable" as objects and focuses on
the issues of patent, copyright and trademark infringement, biopiracy
and industrial espionage. Ethics of accounting information regards misleading financial analysis, bribery, facilitation payments, accounting scandals and other criminal manipulation of the financial markets. Ethics of
human resource management (HRM) covers ethical issues arising around
the employer-employee relationship, such as the rights and duties owed between employer and employee: discrimination issues such as those on the
basis of age (ageism), gender, race, religion, disabilities, occupational safety and health.
22
III. Vocabulary Reinforcement
1. Which of the words and phrases below are associated with the following: 1) a “Marketing Mix”, 2) business crimes? Translate them.
Boom; to set a price, a discount; biopiracy; to distribute products; to manipulate people's values and behaviour; to sell on-line; to advertise products; publicity; to maintain consumers' demand; ethics of production; guarantees; stagnation; pricing; point-of-sale placement or retailing; unemployment; sales promotion; wages and incomes rise; branding; to prolong
working hours; inflation; price rise; misleading financial analysis; stability;
insufficiency of goods, ageism; industrial espionage; gender discrimination.
2. Complete: use an appropriate preposition where necessary.
of(2), to(3), with (2), about, on, into
1. The goal … our advertising campaign is to deliver all the necessary information … our product to the end-user.
2. Ethics … production deals … a company's duties to guarantee that its
products wouldn't cause any harm … the buyers.
3. This brand tells me nothing as we have never had any experience …
the producer.
4. We are concerned not only … a profit but also such issues as environmental pollution and genetically modified food.
5. I am not going to manipulate … your behaviour; I am just appealing …
your common sense.
6. In his business ethics our boss has never focused … the issues of age
and race as a non-European over his 40's has never applied … his company.
7. There are a number of company performance actions that can influence
… customers' choice.
8. Advertising and branding can convert strangers … customers.
3. Complete: use appropriate information from the text to finish the following sentences.
1. Marketing is necessary because …
23
2. A “Marketing Mix” consists of…, while marketing techniques include …
3. The pluses of marketing strategies are ..., while their minuses are the
following: …
4. A brand and a trademark are different things: …
5. The main issues of business ethics are as follows: …
6. Illegal business manipulations result in …
4. Translate the following word combinations.
Предугадать запросы конечного потребителя; исследование рынка;
повлиять на решение покупателя; установить цену на продукт;
сохранять спрос на товар; различать продукт по бренду;
манипулировать сознанием и поведением; загрязнение окружающей
среды; наносить вред здоровью; торговая марка; ложный финансовый
анализ; права и обязанности работодателя и сотрудника; расовая,
половая и религиозная дискриминация.
IV. Reading
1. Answer the following questions.
1. According to the text, what is marketing? What are its main strategies?
2. What does a “Marketing Mix” consist of?
3. What are the main marketing strategies?
4. What issues does business ethics include?
2. Give the best explanation for each of these phrases used in the text.
Marketing strategies; marketing practice; supporting elements; “Marketing
Mix”; retailing; end-user's needs and wants; point-of-sale placement or retailing; publicity; personal selling; to govern the communication medium.
2. According to the text, mark these statements T (true) or F (false).
1. Marketing is defined by the American Marketing Association as a
paid form of public presentation and expressive promotion of ideas
aimed at masses.
2. Marketing practice tends to be seen only as a creative industry,
which includes advertising, distribution and selling.
24
3. Marketing Mix contains 4 “P”- elements: product, price, place and
promotion.
4. The product aspects of marketing deal with setting a price for a
product.
5. A brand is a name or symbol which makes an association with a
product in customers' minds.
6. Marketing always seeks to manipulate our values and behaviour in a
dishonest way.
7. Ethics of production deals with price discrimination, anti-competitive
practices, pyramid scheme.
8. Relations between the employer and the employee are regulated by
the ethics of human resource management.
3. Translate each of these economic terms.
Advertising, marketing, warranties, guarantees, pricing, branding, sales
promotion, intellectual property, a trademark, industrial espionage, company's performance, a grey market, price discrimination, anticompetitive
practice, patents.
4. Give profound answers to the following questions.
1. What is marketing? What is its objective? Its role and practice?
2. What is a “Marketing Mix”?
3. Why is the society concerned with business ethics?
4. What is branding?
5. What is trademark infringement?
UNIT 6
PRODUCTION COSTS
I. Anticipating the Issue
Discuss your answers to the following questions.
1. Do you know what production costs mean?
2. Can you illustrate the concept of production costs on the examples of
an enterprise, a shop, a farm?
3. What factors of production compose production costs?
II. Background Reading
25
Read the following text. Focus on the meaning of the boldfaced words.
Production Costs
1. The goal of any business is to earn as much profit as possible.
Profit is the money that businesses get from selling their products, once
the money it costs to make those products has been subtracted. Businesses
use several measures of costs to make sure that they are operating efficiently.
2. The cost that a business has to pay even if a factory is unused and
output is zero is called fixed cost. Fixed cost includes such things as interest payments on debts, rents, and taxes. It also includes depreciation,
which is a measurement of the decreasing value of capital goods, such as
machinery, as they are used over and over again. Total fixed cost is called
overhead.
3. Variable costs are production costs that change when the level of
production changes. For example, labour costs change when workers work
overtime or are laid off. Other examples include gasoline for delivery
trucks and packaging supplies. Another example of a variable cost is the
cost of the electric power to run machines. If the machines are not running,
there is no cost for electricity. But when the machines are being used, the
business has to pay for the electricity to run them. The sum of all fixed
costs and variable costs is the total cost.
4. Businesses find that marginal cost is the most useful measure of
cost. It is the extra cost of producing one additional unit of output. For example, if the addition of one worker yields a marginal product of 7 units
and increases variable costs by $90, each additional unit of output has a
marginal cost of $12.86, or $90 divided by 7. In this way, the marginal cost
per unit can be found for each additional worker. As a result, a firm knows
the cost of producing each new unit of output as variable costs rise.
5. Inputs affect production because different inputs have different
costs, and inputs can be combined in different ways. For example, a gas
station is likely to have large fixed costs, such as the cost of the lot and
taxes. The variable costs are probably small, such as employee wages and
the cost of electricity. Because of this, the owner might be able to keep the
26
gas station open 24 hours a day for a fairly low cost. Since the variable
costs are small, they may be covered by the profits of the extra sales.
6. Fixed and variable costs affect the way a business chooses to operate. For this reason, many stores are doing business on the Internet.
Businesses engaged in e-commerce – an electronic business conducted
over the Internet – reduce their fixed costs in many ways. They do not have
to rent a building for their store(s) or hold inventory.
7. When a business knows its total costs, it can determine how many
goods and services it must produce for its total costs to equal its total revenue. This is called the break-even point. Most firms, however, want to
earn a profit.
8. Businesses use two key measures to find the level of production
that will generate the greatest profit – total revenue and marginal revenue.
Total revenue is the total amount a firm earns. Total revenue is equal to
the number of units sold multiplied by the average price per unit. For example, if 148 units of total output are sold for $15 each, total revenue is
$2,220. Marginal revenue is the more important measure. It is the extra
revenue from the sale of one additional unit of output. Businesses find their
marginal revenue by dividing the change in total revenue by the marginal
product.
9. Marginal analysis is a way to make an informed decision by
comparing the extra costs of doing something to the benefits gained from
it. Marginal analysis helps in finding the break-even point – the total product the business needs to sell in order to cover its costs. For businesses, this
means gradually adding variable inputs (for example, workers) and then
comparing the extra benefit (marginal revenue) to the extra cost (marginal
cost). As long as marginal cost is less than marginal revenue, the business
can continue to increase its variable inputs. Eventually, marginal cost and
marginal revenue are equal, and the profit-maximizing quantity of input is
reached. This means the firm has reached its greatest total profit. If marginal cost exceeds marginal revenue, profits will begin to fall.
III. Vocabulary Reinforcement
1.Which of the cost items offered below are: 1)fixed costs, 2) variable
27
costs?
Raw material to be processed; energy; personnel; amortisation of capital
goods; plant space (if rented); plant space (if in ownership); advertising;
R&D (research and development).
2. Complete: use an appropriate preposition where necessary.
of (5), for (2), since, on, by(2), to, per, as
1. … a result, a firm knows the cost … producing each new unit … output
as variable costs rise.
2. Because … this, the owner might be able to keep the gas station open 24
hours a day … a fairly low cost.
3. … the variable costs are small, they may be covered … the profits …
the extra sales.
4. … this reason, many stores are doing business … the Internet.
5. Total revenue is equal … the number … units sold multiplied … the average price … unit.
3. Complete: use appropriate information from the text to finish the following sentences.
1. Marginal analysis is the decision made … .
2. Fixed cost includes such things as… .
3. Variable costs are production costs that … . For example, … .
4. The profit-maximising quantity of input is reached when … .
5. When a business knows its total costs, it … .
6. Businesses use two key measures … .
7. Businesses find their marginal value by … .
4. Translate the following word combinations.
Издержки производства; постоянные затраты (издержки); переменные
затраты; предельные затраты; полная себестоимость; накладные
затраты; приносить прибыль; приносить убыток; порог (точка)
рентабельности;
работать
сверхурочно;
быть
уволенным;
маржинальный анализ (анализ по предельным показателям); работать
эффективно;
покрывать
расходы;
максимизация
прибыли;
процентные платежи по долгам и аренде; снижающаяся ценность
средств производства.
28
IV. Reading
1. Answer the following questions.
1.What should a business do to operate efficiently?
2. Why are many stores doing their business on the Internet nowadays?
3. Do you share the opinion that inputs affect production? Why / Why not?
1. Translate each of these phrases used in the text.
To generate profit; to yield a product; to be laid-off; extra benefit; marginal analysis; average price; to affect production; profit-maximizing quantity
of input.
3. According to the text, mark these statements T (true) or F (false).
1. The goal of every business is to make profit.
2. Fixed cost includes such things as interest payments on debts, rents, the
cost of the electric power, etc.
3. The sum of all fixed costs and variable costs is the total cost.
4. Businesses find that the variable cost is the most useful measure of cost.
5. Many stores are doing businesses on the Internet because it has low
fixed costs.
6. Marginal analysis is the decision made by examining extra costs and extra labour.
7. The break-even point is the total product the business needs to sell in
order to cover its costs.
8. If marginal cost exceeds marginal revenue, profits will begin to rise.
9. When the profit-maximizing quantity of input is reached, it means that
the firm has reached its greatest total profit.
4. Give the best definition for the following economic terms and translate
them.
Production costs, fixed cost, depreciation, variable cost, break-even point,
interest payments on debts and rents, total cost, marginal cost, revenue, decreasing value of capital goods.
5. Give profound answers to the following questions.
1. What is the goal of any business?
2. What is the difference between fixed and variable costs?
29
3. Why is marginal cost considered to be the most useful measure of
cost?
4. How do fixed and variable costs affect the way the business operates?
5. What is break-even point?
6. Why is labour an important variable cost for most businesses?
7. What happens when marginal cost of producing a product continues
to be greater than marginal revenue of a product?
8. At which stage of production is the profit-maximizing quantity of input most likely to be reached?
UNIT 7
EMPLOYMENT AND UNEMPLOYMENT
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What is employment? What is unemployment? Are there any countries with full employment?
2. What does high unemployment level indicate?
3. How does unemployment affect the country’s economy? Individuals?
II. Background Reading
Read the following text. Focus on the meaning of the boldfaced words.
Employment and Unemployment
1. Types of Unemployment: After the Great Depression (1929-33),
two major economic problems that world economies have been facing are
Unemployment and Inflation. Expert economists advise government officials about the causes and cures of economic problems. One statistic they
consider is the unemployment rate. This is the percentage of the civilian
labour force without jobs but actively looking for work. High unemployment indicates that the economy is not doing well and human resources are
being wasted. Therefore, low unemployment is a major goal in stabilizing
the economy.
2. The public authority of any nation today has the primary responsibility of minimizing the level of unemployment and aiming for the full
30
employment condition. This requires large-scale public spending on employment promotion schemes and on the payment of unemployment doles.
3. For most of the twentieth century, people often thought of “a job”
(or at least a good job) as something you typically did Monday through
Friday, 40 hours a week, for a wage or salary and benefits (such as health
insurance and pension plans). People often expected to stay in the same job
for years, or even decades. In recent years, it has become popular to talk
about how employment is becoming more flexible.
4. Despite its name, full employment does not mean a zero unemployment rate. Instead, it means a level of unemployment in which none of
the unemployment is caused by a decreased economic activity. Economists
generally believe that full employment exists when unemployment rate is
below 5 percent. Even in a healthy economy there is always some level of
unemployment. In other words, some amount of unemployment is inevitable.
5. Economists pay attention not only to the unemployment statistics,
but also to the reasons for unemployment. Economists recognize the following main types of unemployment:
6. Frictional unemployment, temporary unemployment experienced
by people changing jobs. It is a reflection of workers’ freedom to find the
work best suited for them at the highest possible wage. Economists consider frictional unemployment normal and not a threat to economic stability.
7.Seasonal unemployment, unemployment linked to seasonal work.
Demand for some jobs changes dramatically from season to season, resulting in seasonal unemployment.
8.Structural unemployment, a situation where jobs exist but workers looking for work do not have the necessary skills for these jobs. There
are a number of possible triggers for structural unemployment. New technology can replace human workers or require workers to retrain. New industries requiring specialized education can leave less well-educated workers out of work. A change in consumer demand can shift the type of workers needed. Offshore outsourcing – the contracting of work to suppliers in
other countries – is another source of structural unemployment.
31
9.Cyclical unemployment, unemployment caused by a part of the
business cycle with a decreased economic activity. It results when the
economy hits a low point in the business cycle and employers decide to lay
off workers. Workers who lose their jobs during a recession can have trouble finding new jobs because the economy as a whole is scaling back, and
the demand for labour declines. When the economy picks up again, many
workers are again able to find jobs.
10.Disguised Unemployment, a situation under which productivity
of the working force is very low. This is because an excessive number of
workers are employed than what is optimally desirable.
11. The duration of unemployment in these types ranges widely, but
the average duration of unemployment is relatively short.
12. The impact of unemployment: Although some unemployment is
unavoidable, excessive or persistent unemployment hurts the economy in
several ways. It reduces efficiency, it hurts the least economically secure,
it damages workers’ self-confidence.
Efficiency. Unemployment is inefficient. It wastes human resources,
one of the key factors of economic growth.
Inequality. Unemployment does not follow equal opportunity rules. In
an economic slowdown, those with the least experience lose their jobs first.
Also, with fewer jobs available, people on the lower rungs of the employment ladder have less opportunity to advance.
Discouraged Workers. People who are unemployed – or underemployed – for long periods of time may begin to lose faith in their abilities to
get a job that suits their skills. Potentially productive workers may give up
their search for work. If they are underemployed, they may not be motivated to do their work best.
13. Whether an economy is able to generate and sustain “good jobs”
depends on the whole institutional structure and dynamics of the national
economy. The responses of a country’s business leaders, policy makers,
workers and consumers to natural resource constraints and to the challenges and opportunities offered by participation in global markets for goods,
services, and finance have a further significant impact on the employment
situation.
32
III. Vocabulary Reinforcement
1. Which of the words and phrases below are associated with unemployment? Translate them.
To waste human resources; decreased economic activity; the economy
picks up; economic slowdown; the economy scales back; to lay off workers; natural resources constraints; available jobs; a threat to economic stability; a wealthy economy.
2. Which of the words below can make word partnerships with the word
economic?
Boom; stagnation; workers; recession; unemployment; downturn; inflation;
stability; businesses; the unemployed; decline; trigger; owner; development.
3. Complete: use an appropriate preposition where necessary.
to (2), for (4), in (2), at, from
1. Low unemployment is a major goal … stabilizing the economy.
2. Economists pay attention … the reasons … unemployment.
3. People used to stay … the same job … years, or even decades.
4. People try to find the work best suited … them … the highest possible wage.
5. Demand … some jobs changes dramatically … season … season.
4. Complete: use appropriate information from the text to finish the following sentences.
1. Expert economists advise government officials … .
2. The unemployment rate is … .
3. Cyclical unemployment is caused by …, while seasonal unemployment is determined by … .
4. A dynamic economy will often create structural unemployment because … .
5. Unemployment is inefficient because … .
5. Translate the following word combinations.
Уровень безработицы; полная занятость; фрикционная безработица;
33
сезонная занятость; динамично развивающаяся экономика; спад
экономической активности; работники, занятые неполный рабочий
день или месяц, (частично безработные); создавать новые рабочие
места; выплата пособий по безработице; неизбежные траты; угрожать
экономической стабильности государства; имеющиеся вакансии.
IV. Reading
1. Answer the following questions.
1. What main statistics related to economic problems do economists
consider?
2. What main types of unemployment are recognized by economists?
3. What are the main impacts of unemployment?
2. Translate each of these phrases used in the text.
Unemployment rate; unemployment dole; employment is becoming more
flexible; causes and cures of economic problems; high and low unemployment; the economy scales back; the economy picks up; some amount of
unemployment is inevitable; natural resource constraints; to sustain jobs.
3. According to the text, mark these statements T (true) or F (false):
1. Full employment means a zero unemployment rate.
2. Some amount of unemployment is inevitable in any economy.
3. Frictional unemployment is a threat to economic stability.
4. Unemployment wastes human resources.
5. The whole institutional structure and dynamics of the national economy influence the ability of an economy to generate and sustain jobs.
4. Give the best definition for each of these economic terms and translate
them.
Employment promotion schemes, full employment, a healthy economy, a
dynamic economy, offshore outsourcing, households, available jobs, a
threat to economy.
5. Give profound answers to the following questions.
1. Why is it difficult to measure unemployment? What measures are required to eliminate unemployment?
2. What is full employment? Is it a myth or reality?
34
3. What type of unemployment depends on business cycles and what
type of unemployment is caused by changes in the economy such as
technology or prices of resources?
4. How does unemployment affect the country’s economy and individuals?
5. What factors affect the employment situation in a country?
UNIT 8
FINANCE. FINANCIAL SYSTEM
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What is finance?
2. What types of finance do you know?
II. Background Reading
Read the following text. Focus on the meaning of the boldfaced words.
Finance. Financial System.
1. There are two things you can do with your money – spend it or
save it. Savings is income not used for consumption, in other words, not
spent on immediate wants. Savings that are put to use are investments. In
general, investment is the use of income today in a way that allows for a
future benefit. More specifically, economic investment refers to money
lent to businesses. Personal investment refers to the act of individuals putting their savings into financial assets, i.e. the written confirmation of the
transaction. By saving, you make funds available for the bank to lend.
Borrowers use these funds for many purposes, such as investing in new
businesses or in new equipment for established businesses.
2. Consumers, business firms, and governments often do not have the
funds available to make expenditures, pay their debts, or complete other
transactions and must borrow or sell equity to obtain the money they need
to conduct their operations. Savers and investors, on the other hand, accumulate funds which could earn interest or dividends if put to productive
use. These savings may accumulate in the form of savings deposits, savings and loan shares, or pension and insurance claims; when loaned out at
interest or invested in equity shares, they provide a source of investment
35
funds. Finance is the process of channeling these funds in the form of
credit, loans, or invested capital to those economic entities that most need
them or can put them to the most productive use. The institutions that
channel funds from savers to users are called financial intermediaries.
They include commercial banks, savings banks, savings and loan associations, and such nonbank institutions as credit unions, insurance companies, pension funds, investment companies, and finance companies.
3. Three broad areas in finance have developed specialized institutions, procedures, standards, and goals: business finance, personal finance,
and public finance. In developed nations, an elaborate structure of financial
markets and institutions exists to serve the needs of these areas jointly and
separately.
4. Business finance is a form of applied economics that uses the
quantitative data provided by accounting, the tools of statistics, and economic theory in an effort to optimize the goals of a corporation or other
business entity. The basic financial decisions involved include an estimate
of future asset requirements and the optimum combination of funds needed
to obtain those assets. Business financing makes use of short-term credit in
the form of trade credit, bank loans, and commercial paper. Long-term
funds are obtained by the sale of securities (stocks and bonds) to a variety
of financial institutions and individuals through the operations of national
and international capital markets.
5. Personal finance deals primarily with family budgets, the investment of personal savings, and the use of consumer credit. Individuals typically obtain mortgages from commercial banks and savings and loan associations to purchase their homes, while financing for the purchase of consumer durable goods (automobiles, appliances) can be obtained from banks
and finance companies. Charge accounts and credit cards are other important means by which banks and businesses extend short-term credit to
consumers. If individuals need to consolidate their debts or borrow cash in
an emergency, small cash loans can be obtained at banks, credit unions, or
finance companies.
6. The level and importance of public, or government, finance has
increased sharply in Western countries since the Great Depression of the
36
1930s. Governments finance their expenditures through a number of different methods, by far the most important of which is taxes. Government
budgets seldom balance, however, and in order to finance their deficits
governments must borrow, which in turn creates public debt. Most public
debt consists of marketable securities issued by a government, which must
make specified payments at designated times to the holders of its securities.
III. Vocabulary Reinforcement
1. Which of the words and phrases below are associated with the following: 1) the financial system, 2) what you can do with your money?
Public debt, savings and investment, a wealthy society, insurance markets,
bond markets, wages and incomes, stock markets, financial intermediaries,
capital, revenue, assets, marginal costs, depreciation, interest payments, extra benefit, to spend, to save, to grow, to borrow, to do, to lend, to earn, to
owe, to hoard, to lose, to repay, to waste, to rise, to collect, to purchase, to
invest, to decrease, to make, to store, to put aside, to withdraw, to boost, to
charge.
2. Complete: use an appropriate preposition where necessary.
for, by (3), on (2), in, of (3), to
1. The increased revenue was achieved only … heavy expenditure …
promotion.
2. The interest rate … the loan was twelve percent.
3. Investment is the use … income today … a way that allows … a future benefit.
4. Most public debt consists … marketable securities issued … a government.
5. Long-term funds are obtained … the sale … securities … a variety of
financial institutions and individuals.
3. Complete: use appropriate information from the text to finish the following sentences.
1. The financial system consists … .
2. Financial intermediaries are … .
37
3.
4.
5.
6.
Business finance is … , while personal finance deals … .
Investments are savings … .
Finance is the process of … .
Public debt is created because … .
4. Translate the following word combinations.
Страховой рынок; требования по гарантии, претензии по гарантии;
сберегательный
вклад;
обыкновенные
акции,
акции
с
нефиксированными дивидендами; личные инвестиции; фондовая
биржа; аккумулировать средства; сберегательный банк; страховая
компания; долгосрочный кредит; приобретать средства, имущество,
фонды; потребительский кредит; получить закладную, ипотеку;
потребительские товары длительного пользования; государственный
долг.
IV. Reading
1. Answer the following questions.
1. What is economic investment?
2. What is finance and what are its three broad areas?
3. What is a financial system?
2. Translate each of these phrases used in the text.
A savings account; to fuel the nation’s economy; the transfer of funds between savers and investors; to accumulate funds; savings deposits; savings
and loan shares; pension and insurance claims; to be loaned out at interest;
an estimate of future asset requirements; in an emergency; at designated
times.
3. According to the text, mark these statements T (true) or F (false).
1. Savings is income used for consumption.
2. By saving, you make funds available for the bank to lend.
3. Financial intermediaries are institutions that channel funds from users to savers.
4. Governments finance their expenditures through taxes.
4. Give the best definition for each of these economic terms and translate
38
them.
Financial system, securities, economic investment, personal investment,
business finance, personal finance, public finance, financial intermediaries,
immediate wants, public debt, credit, loan, tax, a short-term credit, assets.
5. Give profound answers to the following questions.
1. How are savings and investment related?
2. What is the purpose of the financial system?
3. What is the role of financial intermediaries in the circular flow of the
financial system?
4. Why do businesses and governments often have to borrow or sell
equity?
5. What is business finance / personal finance / public finance?
6. What creates public debt?
UNIT 9
MONEY
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What is money to your mind?
2. What were the last economic transactions you completed using money? Tuition at the university? A bus fare? A cup of coffee at a cafe?
II. Background Reading
Read the following text. Focus on the meaning of the boldfaced words.
Money
1. What do the following things have in common: cattle, corn, rice,
salt, copper, gold, silver, seashells, stones, and whale teeth? At different
times and in different places, they have all been used as money. In fact,
money is anything that people will accept as payment for goods and services. Whatever it is that people choose to use as money, it should perform
four important functions. Therefore money is commonly defined in terms
of its functions.
2. Let’s have a closer look at money in terms of its functions.
Money must serve as a medium of exchange, or the means through which
goods and services can be exchanged. Without money, economic transac-
39
tions must be made through barter – exchanging goods and services for
other goods and services. Barter is cumbersome and inefficient because
two people who want to barter must at the same time want what the other
has to offer. Money allows for the precise and flexible pricing of goods and
services, making any economic transaction convenient.
3. Money acts as a common measure of values of all goods and services. In this form money acts as a unit of account. Money also serves as a
standard of value, i.e. it determines the economic worth in the exchange
process. Finally, money acts as a store of value, i.e. something that holds
its value over time. People, therefore, do not need to spend all their money
at once and in one place; they can put it aside for later use. They know that
it will be accepted wherever and whenever it is presented to purchase
goods and services. One situation where money does not function well as a
store of value is when the economy experiences significant inflation.
4. Useful money must have the following economic properties:
1. Stability of Value. Money’s purchasing power, or value, should be relatively stable. Rapid changes in money’s purchasing power would mean
that money would not successfully serve as a store of value.
2. Scarcity. Money must be scarce to have any value. When the supply of
a product outstrips demand, there is a surplus and prices for that product
fall. Similarly, when the supply of money outstrips demand, money loses
value, or purchasing power.
3. Acceptability. People who use the money must agree that it is acceptable – that it is a valid medium of exchange. In other words, they will accept
money in payment for goods and services because others will also accept it
as payment.
5. Types of money. Money draws its value from three possible
sources. Commodity money derives its value from the type of material
which it is made from. Over the course of history gold, silver, precious
stones, salt, olive oil, spices and rice have all been valued enough for their
scarcity or for their usefulness to be used as money. One problem with
commodity money is that if the item becomes too valuable, people will
hoard it rather than circulate it, hoping it will become more valuable in the
future. Representative money is paper money backed by something tangible – such as silver or gold – that gives its value. One problem with representative money is that its value fluctuates with the supply and price of
40
gold or silver, which can cause problems of inflation and deflation. Fiat
money has no tangible backing; it has value only because the government
has issued a fiat, an order, saying that this is the case. Fiat money has value
because the government says it can be used as money and because people
accept that it will fulfill all the functions of legal tender.
III. Vocabulary Reinforcement
1. Which of the words and phrases below are associated with the following: 1) commodity money, 2) representative money, 3) fiat money?
To issue a fiat; gold; salt; olive oil; spices; to share; to circulate; paper
money; to store; silver; precious stones; to be backed by smth tangible; to
fluctuate; inflation; deflation; government.
2. Complete: use an appropriate preposition where necessary.
on, in(3), of(2), for(2), through, as
1. A market economy is based … voluntary exchange.
2. Money is a medium … exchange because the seller will accept it …
exchange … good or service.
3. … the past governments used paper money … the form of gold or
silver certificates to issue representative money.
4. The value of money is set …a government fiat or order. Money has
value because the government has ordered that it should be acceptable … payment … dept.
5. When there is rapid and unpredictable inflation, money’s ability to
act … a store of value decreases.
3. Translate the following word combinations.
Tоварные деньги (деньги, представленные каким-л. товаром и
имеющие реальную внутреннюю стоимость), бумажные деньги,
полностью обеспеченные золотом или серебром; бумажные деньги
(не обеспеченные золотом); бартер, средство обращения; мера
стоимости; масштаб цен; средство сбережения.
IV. Reading
1. Translate each of these phrases used in the text.
Flexible pricing of goods; to experience significant inflation; to put money
aside; purchasing power; barter; acceptability of money; to outstrip de-
41
mand; to fulfill the functions of legal tender; to be backed by something
tangible.
2. Answer the following questions.
1. What types of money are discussed in the text? How do they differ?
2. Explain how money serves, acts, circulates and works.
3. What economic properties of money do you know?
3. According to the text, mark these statements T (true) or F (false).
1. Money has always served as a medium of exchange.
2. Being easy and efficient, barter makes any economic transaction convenient.
3. Money determines the economic worth in the exchange process.
4. Money serves as a standard of value, something that holds its value over
time.
5. Money allows for the precise and flexible pricing of goods and services.
4. Give the best definition for the following economic terms.
Money, commodity money, fiat money, representative money, surplus, a
unit of account, a medium of exchange, a measure of values, a standard of
value, a store of value.
5. Give profound answers to the following questions.
1. Why are economic transactions easier with money than with barter?
2. Why is it important for money to be divisible?
3. How are the economic properties of money related to its functions?
4. What is fiat money? Why is fiat money said to have no tangible backing?
5. Must money be scarce? Why/ Why not?
UNIT 10
INFLATION
I. Anticipating the Issue
Discuss your answers to the following questions.
1. What is inflation? How does inflation affect people’s income and
wealth?
2. Why should inflation cause concern of the government?
II. Background Reading
42
Read the following text. Focus on the meaning of the boldfaced words.
Inflation
1. Inflation occurs when the general level of prices of goods and
services increases, while deflation occurs when the price level decreases.
The most popular measure is the consumer price index (CPI). In order to
compile a CPI, first select a market basket that represents commonly purchased goods and services. Then, find the average price of each item and
select a base year from which to compare all other years. Finally, convert
the currency cost of the market basket into an index value by dividing the
cost of every market basket by the base-year market basket cost.
2. To measure inflation, divide the change in the CPI by the beginning value of the CPI. Today many developed countries have creeping inflation – low inflation in the range of 1 to 3 percent. Sometimes inflation
can soar, causing hyperinflation in the range of 500 percent or more a
year. A period of slow economic growth and inflation is called stagflation.
3. Economists also use the producer price index (PPI) – to measure
prices domestic producers receive – and the implicit GDP price deflator –
to measure price changes in the GDP.
4. Almost every period of inflation is caused by either one or a combination of the following: a demand-pull inflation, cost-push inflation,
wage-price spiral, and/or excessive money growth. According to the demand-pull inflation theory, prices rise because all sectors of the economy
try to buy more goods and services than the economy can produce. Excessive demand creates shortages that pull up prices. The cost-push inflation
theory claims that rising input costs, especially energy and organised labour, drive up the prices of products. This leads manufacturers to recover
increased costs by raising prices. The wage-price spiral, on the other hand,
explains that rising prices do not result from a particular group or event but
is instead a self-maintaining spiral of wages and prices that is difficult to
stop. The spiral may begin when higher prices make workers demand
higher wages, which leads to producers trying to recover that cost with
higher prices. Excessive monetary growth – when the money supply grows
faster than real GDP – is the most popular explanation for inflation.
43
5. High inflation can reduce purchasing power, distort spending, encourage speculation, and affect the distribution of income. Inflation reduces consumers’ purchasing power because the currency buys less as prices
rise. In this way, the dollar loses value over time. The reduced purchasing
power of the dollar is especially hard for people with fixed incomes, such
as retirees.
6. When prices rise, distorted spending patterns emerge because
people use their money differently. For example, when there has been a
rise in interest rates in the past, spending on durable goods has fallen dramatically. Inflation also encourages speculation. People may try to take
advantage of rising prices by investing in ventures with higher risks. However, such investments can lose money, and the average consumer usually
can’t absorb heavy losses. Finally, inflation can distort the distribution of
income. During periods of long inflation, a creditor, a person or institution
who lends money, is generally hurt more, because the debtor, a person who
borrows and therefore owes money, pays the earlier loan back with currencies that buy less.
III. Vocabulary Reinforcement
1. Which of the words and phrases below are associated with the
measures of inflation? Translate them.
Price index, consumer price index, interest rate, wage-price spiral, market
basket, a debtor, durable goods, base year, price deflator, input costs.
2. Complete: use an appropriate preposition where necessary.
for, up, to, from, through, by, with (2), in (3), of (2)
1. Inflation is measured … two indexes. One index measures how pricing is affecting consumers, or buyers. The other index measures how
pricing is affecting producers, or suppliers and vendors.
2. Inflation concerns are likely to continue to drive … commodity prices.
3. For people … a low fixed income life can be hard as there are many
expenses and not enough money to pay … them all.
4. According … the latest statistics a rise … interest rates has discouraged a mortgage refinancing boom.
44
5. People who invest ... start-up companies … big risks hope to get high
returns … a period ... time.
6. The Philippines is in a good position to take advantage … rising
metal prices encouraged … huge demand … China.
3. Complete: use appropriate information from the text to finish the following sentences.
1. As a rule, inflation is a common phenomenon and is happening when …
2. Economists offer the following causes of inflation: … .
3. When discussing a country’s high inflation, we at once think of … .
4. The reduced purchasing power of money can lead to … .
5. If economists want to measure inflation, they … .
6. During periods of long inflation … .
4. Translate the following word combinations.
Инфляция, стагфляция, гиперинфляция, цены растут, инфляция
спроса, инфляция издержек, бурный рост, потребительская корзина,
исходный (базисный) год, дефлятор цен, индекс потребительской
корзины, индекс цен на потребительские товары, товары
долговременного пользования.
IV. Reading
1. Answer the following questions.
2. What types of inflation are mentioned in the text? How do they differ?
3. What is the difference between “inflation” and “deflation”?
2. Translate each of these phrases used in the text.
To measure inflation; to maintain inflation; consumers’ purchasing power;
a market basket; a base year; a price index; a rise in interest rate; to lose
value (about money); fixed incomes; durable goods.
3. According to the text, mark these statements T (true) or F (false).
1. Inflation occurs when the general level of prices of goods and services increases.
2. Sometimes inflation can soar, causing hyperinflation.
3. The cost-push inflation theory claims that prices rise because all sectors of the economy try to buy more goods and services than the
45
4.
5.
6.
7.
8.
economy can produce.
Excessive monetary growth happens when real GDP grows faster
than the money supply.
Inflation reduces consumers’ purchasing power because the currency
buys less as prices rise.
The reduced purchasing power of the currency is especially hard for
people with fixed incomes.
Inflation discourages speculation.
People may try to take advantage of rising prices by investing in ventures with higher risks.
4. Give the best definition for the following economic terms and translate
them.
Inflation, hyperinflation, stagflation, deflation, cost-push inflation, demand-pull inflation, wage-price spiral.
5. Give profound answers to the following questions:
1. Why does inflation occur? What does inflation affect? How?
2. How is a CPI compiled?
3. How are cost-push inflation and demand-pull inflation alike and how
are they different?
4. What does the wage-price spiral explain?
5. How can inflation distort the distribution of income?
6. Who do you think loses from inflation?
7. Why is stagflation considered to be the result of cost-push inflation
but not demand-pull inflation?