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What Economists Do
Scarcity And Choice
Trade-Offs And Opportunity Costs
Factors of Production
Allocation of Products And Resources
Types of Business Firms
Первый год обучения
What is economics?
Unlike history, mathematics, English and chemistry, economics is a subject that most students encounter only briefly sometimes not at all, before they begin college. Economics is a basic discipline, like those just listed, not an applied subject like accounting or drafting in which specific skills are taught.
Economics has some similarities to mathematics because logical reasoning and mathematical tools are used in it extensively. It also has some similarities to history because economics studies people as they interact in social groups.
Like chemistry, economics employs scientific method, although some of economics has a descriptive rather than an analytical flavour. Finally, like English grammar, economics has a few simple rules and principles, but from these principles economics can derive many conclusions.
Economics is the science of making choices. Individuals must decide whether to study another hour or to go for a walk, whether to buy a six-pack of Pepsi or a 0,5 gallon of milk at the grocery, whether to choose fire fighting or teaching as an occupation and whether to play golf or to watch television for an afternoon of recreation. As a group, people must also choose through their governments whether to build a dam or to repair highways with their taxes, whether to invest money to business or to expand national parks.
The common element in all these decisions is that every choice involves a cost. (Reading this text means that you are not enjoying a bike ride).
In fact economics is the study of the choice that people make and the actions that they take in order to make the best use of scarce resources in meeting their wants.
Economics is about the everyday life. How do we get our living? Why do we sometimes get more and sometimes less? Are we producing as efficiently as we could? Are we producing the “right things”? What are the “right things”? Who ought to decide this and why? The study of economics helps us to answer this sort of questions.
Usually a person is not qualified to use the name “economist” without a graduate degree in economics, either a master’s degree or a Ph. D.* By this definition, there are about 100 000 economists in the US.
About half of them are academic economists, who engage in teaching, writing and doing research in colleges and universities. They also write textbooks and journal articles, develop and test new theoretical models, provide consulting services to governments and businesses, and engage in a variety of other professional activities.
The other half of the profession works for business or government. Business economists forecast sales and costs, help firms anticipate (or try to influence) government policy. Some business economists work for private lobbying organizations, helping them prepare their arguments to try to affect tax laws, regulations, etc. Which are important to particular kinds of industries.
Government economists also perform a variety of useful tasks. Often the government economist wears a second hat** as a policy analyst. Economists forecast tax revenues and interest rates, analyze who gains and who loses from particular changes, monitor prices, compute total output and perform other useful tasks in the public sector.
In the broader sense, economists study the ways in which people deal with the problems of scarcity. (1143 t.un.)
NOTES: * Ph. D. – Doctor of Philosophy; ** to wear a second hat – выполнять две или более обязанностей
You have already learned that economics is the study of how people make choices in the world of scarcity. At all times and in all societies, everyone faces the scarcity problem in some form.
Scarcity is a condition that results from the imbalance between relatively unlimited wants and the relatively limited resources available for satisfying those wants. No society has ever had enough resources to produce the full amount and variety of goods and services its members wanted. Everything of vale is scarce – money, goods, time, even human skill – while the desire for goods and services is almost infinite.
Scarcity necessitates choice. If we can’t have everything we would like, we must choose which things we want most. Thus, both individuals and societies must continuously make choices about how to use the scarce resources available to them.
At the level of economy as a whole, the choices to be made are what to produce, how and for whom. How a society answers these questions depends on the type of economic system a particular society uses.
Actually, in every economy societies and individuals have to make these three key choices in the face of scarcity. (1000 t.un.)
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 a trade-off.
Economists describe these kinds of trade-offs as opportunity 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 programme, 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 build, the opportunity costs of the improved road network would be a more powerful navy. (1 000 t.un.)
NOTES: a trade-off – альтернатива, выбор; an opportunity cost – альтернативные издержки, издержки неиспользованных возможностей
The Role of Production of Material Values
Man’s conscious labour and his first tools marked the beginning of the establishment of human society. Human beings embarked upon an entirely new way of life, unlike the life led by animals. Animals can only make use of those benefits which nature provides for them. Labour freed man from this complete dependence upon nature.
With the aid of his new tools man was able to get benefits from nature that were formerly inaccessible to him. He was also able to change these natural benefits and to make them more useful to himself. Tools of stone and wood made it possible for primitive man to considerably extend his use of material values.
Man began to kill large, strong animals and thus added quantities of nourishing meat products to his diet. He learned to work the skins of animals and used them to protect his bode from the cold. Man also used his tools to build shelters. It was the production of material values that became the basis of life in human society.
As production developed man increased his active influence n nature. He found that he could satisfy his needs more readily through the material values he himself created.
The production of material values is not stationary; it grows, develops and is perfected constantly. In order to exist mankind must constantly produce material values in ever-increasing quantities.
The development of production is an objective necessity, independent of the will and desire of people. It is a law of social existence. (1258 t.un.)
The resources that go into the creation of goods and services are called the factors of production. The factors of production include natural resources, human resources, capital and entrepreneurship. Each factor of production has a place in our economic system, and each has a particular function. People who own or use a factor of production are entitled to a “return or reward”. This generates income which, as it is spent, becomes a kind of fuel that drives the economy.
Natural resources or land. Natural resources are the things provided by nature that go into the creation of goods and services. They include such things as mineral, wildlife and timber resources, as well as the air we breathe. Economists also use the term “land” when they speak of natural resources as a factor of production.
The price paid for the use of land is called rent. Rent becomes income to the owner of the land.
Human resources or labour. Economists call the physical and mental effort that people put into the creation of goods and services labour.
The price paid for the use of labour is called wages. Wages represent income to workers, who own their labour.
Capital. To the economist, physical capital (or “capital” as it is commonly called) is something created by people to produce other goods and services. A factory, tools and machines are capital resources because they can be used to produce other goods and services. So too is the truck that delivers gasoline to the local service station. The term “capital” is often used by business people to refer to money they can use to buy factories, machinery and other similar productive resources.
Payment for the use of someone else’s money, or capital, is called interest.
Entrepreneurship. Closely associated with labour is the concept of entrepreneurship, the managerial or organizational skills needed by most firms to produce goods and services. The entrepreneur brings together the other three factors of production. When they are successful, entrepreneurs earn profits. When they are not successful, they suffer losses.
The reward to entrepreneurs for the risks, innovative ideas and efforts that they have put into the business are profits, whatever remains after the owners of land, labour and capital have received their payments. (1930 t.un.)
The pure market economy, without any government control whatsoever, allocates (distributes) products and resources to get maximum profits. The quest for profit, or the profit motive as it is often called, is the force that drives the free enterprise economic system.
As to the command economy, it allows the government to act as a dictator.
In a mixed economy three quarters of production is carried out by the private sector through the market, though subject to varying degrees of government control. For the other quarter the government is directly responsible through the public sector. Thus the government influences the allocation of the goods and services produced.
Microeconomics studies particular firms, households, banks, etc. Business organizations may be considered as firms or companies. They produce goods and render services. They also rent or purchase buildings, land, equipment. They market and advertise their products. They deal with government and courts, as well as with banks, insurance companies.
From the legal point of view there are three basic kids of business firms: 1) proprietorships, 2)partnerships and 3) corporations. A proprietor is responsible for all personal and business debts and losses, he provides the capital and executes the total management. To start the business of this kind it is necessary to obtain licenses required by the law.
The proprietorship form has several advantages, such as: simplicity of organization, freedom to make all decisions, tax advantages, etc. Among disadvantages the following are worth mentioning: possible lack of ability and experience, difficulty in raising capital.
Partnerships are firms owned jointly by two or more persons who are co-owners of business. Partnerships are based on agreement, which should cover all areas of possible disagreement among the partners. Advantages of the partnership may be combined talents, judgements, skills as well as larger capital and tax advantages. Disadvantages of this form are divided authority, danger of disagreement, etc.
Corporation is a firm owned by a group of people, called stockholders, and given rights, privileges and liabilities by law. Advantages of the corporation is a variety of skills, abilities and ideas, ease of expansion. Disadvantages of this form of ownership may be as follows: government regulation, profit sharing, taxes.
Corporation has the right to conduct business as if it were one person. (1520 t.un.)
Второй год обучения
The consumer goods industry is concerned with producing goods bought and used by the people, e.g. foods, furniture, clothes, domestic appliances, etc.
Consumer goods may be perishables, consumer durables or non-durables.
The capital goods industry is concerned with manufacturing durables, e.g. machinery, equipment and vehicles.
Commerce is concerned with the distribution and exchange of goods and services.
Distribution covers getting goods from the producer to the consumer. Exchange covers the buying and selling of goods and services, goods are exchanged for money and money is exchanged for goods. Between the producer and consumer there may be many layers of buyers and sellers.
Manufacturers buy raw materials from commodity markets and sell in bulk their products to wholesalers. To wholesale means to sell in large quantities. To sell in small quantities means to retail.
Very primitive trade may be the exchange of goods for other goods. It is called barter. The difficulties of barter do not allow for trade to develop widely.
What is needed for trade to develop is something that people are prepared to accept in exchange for anything. The value of goods was first measured by shells, herds, metal pieces and other things. Finally metal money proved most suitable. Thus money was used as measure of value.
Today each country has its own money, or currency, which is acceptable inside its frontiers, but not outside.
This is the way money goes round: 1) People earn wages for producing goods and services. 2) Their wages are spent in shops, etc. on goods and services. 3) Shops bank their profits. 4) Banks lend money to industries.
The retailer performs the last stage of the production process for it is he who puts the goods in the hands of the actual customer. His work is “to have the right goods in the right place at a right time”.
There are four types of retail institutions: 1)specialty stores, 2) supermarkets, 3) general merchandise stores, 4) nonstore retailing.
Often specialty stores sell one type of product, such as clothing, jewelry, furniture, books. These stores, having a better feeling of their market, compete against giant department stores. They can adjust more quickly to market conditions.
Big supermarkets are usually well located. All the goods are arranged on trays and shelves. All the prices are clearly marked. The goods are ready-weighed and beautifully packed. There you can find everything you need. The prices are responsible.
General merchandise stores (GMS) carry a wide variety of products. There are three types of GMS, a) department stores, b) discount stores, c) hypermarkets. Big department stores started in America more than 50 years ago, and then the idea was brought to European countries. These stores are wonderful places. People can do all their shopping under one roof. All the things for sale are displayed so that they can be easily seen, and the customers walk around and choose what they want.
The store is divided into departments: women’s clothes, men’s clothes, shoes, toys, sport goods, china and glass, etc. There may be a restaurant with an orchestra and sometimes a tea-room as well. You will also find a room where you can rest if you are tired. There’s an office where you can book seats for the theatre or arrange to travel anywhere in the world.
Low price is a major attraction of the discount stores. These stores sell the most popular items, colours and sizes. The stores keep long hours and usually open on Sundays. Hypermarket is a type of discount store that was developed in Germany. They are very large stores with low-price and high-turnover products. Hypermarkets achieve cost savings by simplifying their unpacking and display.
There are three major types of nonstore retailing: a) vending machines, b) door-to-door sales, and c) catalogue sales. (1830 t.un.)
NOTES: to book – заказывать; discount store – розничный магазин, торгующий по сниженным ценам; door-to-door sales – продажа через торговых агентов на дому; general merchandise store – магазин со смешанным товаром; hypermarket – гигантский супермаркет; non-store retailing – продажа помимо магазина; specialty store – специализированный магазин розничной торговли; turnover – оборот, товарооборот; vending machine – торговый автомат
|Протокол №5 от 08. 11. 2012|
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