EXERCISE 1. Translate the following words and word combinations




One of the things that young people discover as they grow older is that you can't have everything. You are reminded of it every time you shop. Although you may see twenty or thirty items that you would really like to buy, you know that you will have to limit your selection to one or two. Everyone goes through life having to make choices.

Every business, even sports teams, must pick and choose from among the things they would like to have because, like you and me, they cannot have everything.

Governments, too, cannot have everything. Every year the most important political debates concern questions about spending taxpayers' money.

Neither individuals nor societies can have all the things they would like to have. There simply is not enough of everything to go around. Economists note that there is no limit to the amount or kinds of things that people want. There is, however, a limit to theresources, things used to produce goods and services, available to satisfy those wants. Once that limit is reached, nothing else can be produced.

In other words, when a nation's resources (all its workers, facto­ries, farms, etc.) are fully employed, the only way it will be able to increase the production of one thing will be by reducing the production of something else. This happened during World War II. In its efforts to increase the production of tanks and other military vehicles, our nation's factories stopped producing automobiles. Therefore, if somebody tries to sell you a 1944 Ford or Chevrolet, run, do not walk, to the nearest exit —­ none were produced that year.

To summarize: human wants are unlimited, but the resources necessary to satisfy those wants are limited. Thus, every society is faced with the identical problem, the problem ofscarcity.

Economics: The Study Of Scarcity And Choice

Since there is not enough of everything to go around, everyone — individuals, business firms, and government — needs to make choices from among the things they want. In the process they will try toeconomize, to get the most from what they have. With this in mind, we can defineeconomics as the social science that describes and analyzes how society chooses from among scarce resources to satisfy its wants.

The need to choose is imposed on us all by our income, wealth and ability to borrow. Individuals and families are limited by the size of their personal income, savings and ability to borrow. Similarly, business firms are limited by theirprofits, savings and borrowing power, and governments by their ability to tax and borrow.

Income, savings, profits and taxes enable people, institutions and government to purchasegoods, products you can see or touch, and services, work performed for pay that benefits others. The problem that each must face, however, is that once the decision has been made to choose one set of alternatives, one loses the opportunity to choose the other.

Trade-Offs And Opportunity Costs

Let's suppose that you recently managed to save enough to buy the CD player you always wanted. While you were building up your savings, you discovered the fun of basketball and would now love a pair of pump sneakers. You can afford to buy either a CD player or sneakers, but not both. It's atrade-off.

Economists describe these kinds of trade-offs asopportunity costs. The opportunity cost of something is its cost measured in terms of what you have to give up to get it. Thus, the oppor­tunity cost of the CD player in the example above would be new sneakers.

Business is also faced with the problem of choices and oppor­tunity costs. In planning an advertising program, for example, a local store might have to choose between a newspaper ad or a direct-mail campaign. If it puts its efforts into newspaper advertising, the opportunity cost is the benefits of a direct-mail campaign.

Like individuals and business firms, government also pays opportunity costs. If, for example, the federal government chooses to increase its spending for roads by reducing the number of warships to be built, the opportunity cost of the improved road network would be a more powerful navy.

Microeconomics vs. Macroeconomics

Economists have two ways of looking at economics and the economy. One is the macro approach, and the other is the micro.Macroeconomics is the study of the economy as a whole;microeconomics is the study of individual consumers and thebusiness firm.

Macroeconomics examines questions such as how fast the economy is running; how much overall output is being gener­ated; how much total income. It also seeks solutions to macro-economic problems such as how employment can be increased, and what can be done to increase the output of goods and services.

Microeconomics examines cause-and-effect relationships that influence choices of individuals, business firms and society. It is concerned with things such as scarcity, choice and oppor­tunity costs, and with production and consumption. Principal emphasis is given by microeconomists to the study of prices and their relationship to units in the economy.

The History of Economic Thought

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else." — John Maynard Keynes

The First Modern Economists

The Mercantilists. Between the 16th and 18th centuries, the major countries of Europe believed in the economic theory of mercantilism. Mercantilists argued that nations should behave as if they were merchants competing with one another for profit. Accordingly, governments should support industry by enacting laws designed to keep labor and other production costs low, and exports (sales to foreign countries) high. In this way the nation could achieve what was called a “favorable balance of trade.''

"Favorable balance of trade" described a situation in which exports exceeded imports. The excess, which was like profits to a merchant, would result in an increase in the nation's supply of gold or silver. And, as most people agreed in those days, the true measure of a nation's wealth was its hoard of gold or silver.

To achieve favorable trade balances, the major European powers sought to acquire colonies. Colonies, it was thought, could provide the "mother country" with cheap labor, raw materials and a market for its manufactured goods.

In an effort to attain these goals in their American colo­nies, the British, for example, enacted the Navigation Acts. The Navigation Acts protected British industry by prohibiting the colonies from producing certain goods like hats, woolen products and wrought iron. The laws also listed certain "enumerated articles" (mostly raw materials) which could not be sold to buyers in countries other than England.

Resentment towards the Navigation Acts was so great that they are regarded as one of the principal causes of the Revolutionary War.

Today there are people who still argue that our country should promote a "favorable balance of trade," that the federal government should do what it can to restrict imports and promote exports. For that reason, they are often described as neo-mercantilists or "new" mercantilists.

The Physiocrats. For one group of 18th-century French philosophers and economists, the suggestion that nations should go out of their way to protect business and industry made no sense at all. These were the physiocrats.

The physiocrats argued that the products of agriculture and other natural resources were the true source of wealth. Since these were God-given, it made little sense for government to go out of its way to help business and industry increase profits. For similar reasons, they opposed government efforts to promote a "favorable balance of trade."

In other words, since real wealth came from the land, it followed that the wisest thing government could do would be to keep its hands off business and let nature take its course. This idea was expressed in the slogan "laissez faire," (let people do as they choose).

Interestingly, the 200-year-old argument between those favoring regulation of the economy and those supporting laissez faire is still with us. Whether the problem involves individuals (like those living in poverty and unemployment) or institutions (such as a rising tide of business or bank failures), there are those who find the solution in govern­ment intervention, and others who favor "laissez faire," letting natural economic forces take their course.

The Basic Economic Problem

The central problem of economics is to determine the most efficient ways to allocate the factors of production and solve the problems of scarcity created by society’s unlimited wants and limited resources. In doing so, every society must provide answers to the following three questions:

· What goods and services are to be produced? And in what quantities are they to be produces?

· How are those goods and services to be produced?

· Who will receive and consume those goods and services?

Types Of Economic Systems

Every society has worked out a way to answer the questions of What, How and Who. These economic systems, as they are called, generally fall into one of three categories:traditional, command andmarket economies.

The Traditional Economy. As the name implies, the answers to the What, How and Who questions are decided by tradition in these economies.

Traditional economic systems are usually found in the more remote areas of the world. Such systems may characterize isolated tribes or groups, or even entire countries. They are less common today than they were in earlier decades. Typi­cally, in a traditional economy, most of the people live in rural areas and engage in agriculture or other basic activities such as fishing or hunting. The goods and services produced in such a system tend to be those that have been produced for many years or even generations. They are produced as they always have been. In short, the questions of what the traditional society produces and how it is produced are determined by very slowly changing traditions.

Who gets to keep what is produced in such an economy? Since there is little produced, there is little to go around. Most individuals live near asubsistence level: They have enough to sustain them but little more than that. In some years, when the harvest is poor, some will not be able to subsist and will either leave the society or die. In better years, when the yield is high, there may be more than enough to allow subsistence. When such a surplus exists, it will be distributed tradition­ally. For example, the bulk of the produce might go to a tribal chief or large landholder, while the balance is distributed according to custom.

The Command Economy. Countries such as the Soviet Union and China used to serve as examples of command economies. Groups of high-level technicians, made up of engineers, economists, computer experts and industry specialists known as "planners," advise political leaders who develop and imple­ment a plan for the entire economy.

Essentially, it is the planners who decide what goods and services will be produced. If they want ship production expanded and mining operations cut back, they issue the orders to do so. If more food is needed, the planners might direct tractor production to be increased or fertilizers to be imported from the West. Those same plans might also encourage labor to remain on the farms and direct that transportation and storage facilities be made available to move and hold farm products.

How are goods produced in a command economy? The planners decide which products will be made. They decide where to locate a new truck assembly plant and whether the factory will use more or more modern machinery.

It is the planners, too, with guidance from the country's political leadership, who decide who will receive the goods and services produced. By setting wage rates for everyone, as well as interest rates, profits and rents, the planners directly answer the question: Who will receive the goods and services produced?

The Market Economy.

When the fastest-rising young rock group, the And-So-Forths, appeared recently in a televised concert, they wore old-fashioned saddle shoes. That week shoe stores around the country reported receiving calls for saddle shoes "like the And-So-Forths wear." Although some of the storekeepers thought the first customers to ask for the strange shoe style were joking, they soon got the message. Before long, saddle shoes could be seen in most of the nation's shoe stores.

The events described in the paragraph above probably would not have taken place in a traditional or a command economy. Changes in clothing styles in a traditional society could occur only over a period of many years. Those who make the deci­sions in a command economy might give in to public pressure and produce saddle shoes, but it is their decision to make. In a market economy, orfree enterprise system as it is some­times called, it is likely that if consumers really want saddle shoes, they will get them.

A market, orfree enterprise, economy is one in which the decisions of many individual buyers and sellers interact to deter­mine the answers to the questions of What, How and Who.

In addition to buyers and sellers, there are several other essential elements in a market economy. One of these isprivate property. By "private property" we mean the right of individuals and business firms to own the means of produc­tion. Although markets exist in traditional and command econ­omies, the major means of production (firms, factories, farms, mines, etc.) are usually publicly owned. That is, they are owned by groups, of people or by the government. In a market economy the means of production are owned by private individuals. Private ownership gives people the incentive to use their property to produce things that will sell and earn them a profit.

This desire to earn profits is a second ingredient in a market economy. Often referred to as theprofit motive, it provides the fuel that drives sellers to produce the things that buyers want, and at a price they are willing to pay.

The profit motive also gives sellers the incentive to produce at the lowest possible cost. Why? Because lower costs enable them to (1) increase their profit margins, the difference between cost and selling price, or (2) reduce prices to undersell the competition, or (3) both.

Economists often compare markets to polling booths. However, unlike the booths in which people vote for politicians, markets provide a kind of economic polling booth for buyers to cast their votes (in the form of purchases) for the goods and services they want. Producers who interpret the votes correctly by producing the things that buyers demand can earn profits. Those who interpret the voting incorrectly, producing too much or too little, or charging a price that is too high or too low, do not earn profits. In fact, they often lose money.

Consumer votes can be a matter of life and death to business in a market economy. We will learn about some of the things that firms can do to: (1) determine what consumers want, and (2) create a demand for goods and services where none previously existed.

As hundreds of thousands of followers of the And-So-Forths descended upon their local shoe stores in search of saddle shoes, the store managers did their best to find the hot new item. They did this because they knew that the sales of these shoes would add to their profits. Manufacturers soon learned about the calls for the new shoe style from their wholesale customers and did their best to satisfy the requests because they too were interested in profits.

Mixed Economies. What most distinguishes command econ­omies from market economies is the role of government and the ownership of the means of production. We have seen that in command economies factories, farms, stores, and other productive resources are government owned. We have also noted that the economic questions of What, How, and Who are answered by government planners. In contrast, market econ­omies look to the decisions of individual buyers and sellers to answer the same questions, and the means of production are privately owned. Government plays a relatively minor part in this model.

There are, however, no "pure" market economies in the world today. While we can say that markets account for most economic decisions in this country, government has been playing an ever-widening and important role. For example, 50 years ago, government purchased 15 percent of all American goods and services. It now purchases 20 percent.

This blend of market forces and government participation has led economists to describe our economic system and those of most other democratic countries asmixed economies.


Economics has been described as the study of scarcity and choice. Scarcity exists because human wants are virtually unlimited, whereas the resources necessary to satisfy those wants are limited.

The resources, or factors of production as they are called, are land, labor, capital and entrepreneurship. Owners of these resources are paid rent, wages, interest, or profits for their use.

Since there is a limit to the amount of resources available at any point in time, there is also a limit to the amount of goods and services that can be produced. For that reason individuals, business firms, and governments must pick and choose from among the things that they would like in order to get the most from their resources.

In exercising the choices imposed upon them by their unlimited wants and limited resources, every society must come to grips with the fundamental economic questions:

· What goods and services are to be produced?

· How are they to be produced?

· Who will receive them?

The way in which a society goes about answering these fundamental questions is known as its economic system. Economic systems may be classified as traditional, command, or market systems. As the names suggest, resources allocated (distributed) in a traditional economy in accordance with tradition and in a command economy by government planners. Resources in a market economy are allocated in accordance with the laws of supply and demand.

EXERCISE 1. Translate the following words and word combinations.

А. Scarcity, economize, individual, we can define economics as, similarly, borrowing power, savings, it enables people to purchasegoods, trade-off, to make a trade-off, sneaker (=BrE plimsoll), describe sth as, opportunity costs, to put sb’s efforts into (doing) sth, cause and effect, cause-and-effect relationships, it is commonly understood that, they argued that, to enact a law designed to, in this way, it resulted in, hoard of gold, to attain a goal, resentment towards / against, to go out of one’s way to, for similar reasons, it follows that, laissez faire, interestingly, economic forces, remote areas of the world, in short, rural areas, to engage in agriculture, subsistence level, to cut back production, fertilizers, wage rates, the means of production, to undersell the competition, to cast a vote (for sb, sth), to come to grips with a problem.

B. Дефицит, взрослеть, деньги налогоплательщиков, ресурсы страны, наращивать производство танков, "Форд" 1944 года выпуска, желания человека, таким образом, сталкиваться с проблемой, экономить, сходным образом, кредитоспособность (лица или фирмы), сбережения, компромисс, кеды / тенниски, реклама в газете, военный корабль, военно-морской флот, искать решения, увеличивать производство товаров и услуг, элемент (народного) хозяйства, причинно-следственные связи, принимать законы, золотой запас, достигать цели, негодование, делать все возможное, война за Независимость, невмешательство государства в экономику; интересно отметить, что; экономические процессы / факторы, одним словом, сельская местность, заниматься сельским хозяйством, прожиточный минимум, вождь племени, плановик, (амер.) двухцветные кожаные туфли (у которых носок и пятка одного цвета, а средняя часть — другого), средства производства, кабина для голосования, серьезно взяться за проблему / подойти вплотную к разрешению проблемы.

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