Unit three

ECONOMICS MICROECONOMICS VS. MACROECONOMICS

ESSENTIAL VOCABULARY

1. Activity n – things that people do to achieve a particular goal – діяльність, робота. Business activity – господарська/підприємницька діяльність; economic activity – економічна діяльність.

2. Allocate v – to use something for a particular purpose especially after an official decision has been made – розміщувати, розподіляти. Syn. to distribute.

3. Consume v – to buy and use goods, services, energy, or natural resources – споживати.

4. Determine v – to settle or decide (an argument, question, etc.) conclusively, as by referring to an authority – визначати. To determine a price – визначати/ встановлювати ціну. Syn. to establish.

5. Focus on v – to give special attention to a particular person or thing or to make people do this – зосереджувати(ся). Syn. to concentrate on.

6. Involve v – to include or contain as a necessary part – містити (в собі), включати, охоплювати. Syn. to contain, to include.

7. Indicator n – a fact, measurement, or condition that shows what something is like or how it is changing – показник, міра, критерій. Economic indicator – економічний показник. Syn. a measure.

8. Growth n – the process of developing or maturing physically, mentally, or spiritually – ріст; розвиток.

9. On the other hand (side) – from that point of view – з іншого боку, проте, навпаки. On the one hand (side) … on the other hand (side) – з одного боку … з іншого боку. Syn. in contrast, on the contrary (to).

10. Output n – the total amount of goods and services produced in the economy or a part of the economy during a particular time period – обсяг випуску продукції, обсяг виробництва. Total/overall output – загальний обсяг випуску продукції/ виробництва.

11. Overall adj – including or covering everything – загальний, сукупний, валовий. Overall productive/production efficiency – загальна ефективність виробництва. Syn. total.

12. Price n – the amount of money for which something is bought, sold, or offered – ціна. Price level/level of prices – рівень цін.

13. Principle n – a fundamental rule concerning a natural phenomenon or the behaviour of a system – принцип, закон. Syn. a law.

14. Produce v – to make something in large quantities to be sold, bought, used, or enjoyed by people – виробляти. Syn. to make, to manufacture.

15. Solve v – to find the explanation for or solution to a problem, etc. – вирішувати, розв’язати, розв’язувати. Syn. to decide.

16. Seek v – attempt to find (something) – шукати, розшукувати. Syn. to search for, look for.

17. Statement n – that someone says or writes, especially publicly or officially – заява, твердження; виклад; викладення; формулювання. Policy statement – програмна заява. Syn. an assertion.

18. Study n – an investigation and analysis to find out about a particular subject, problem, situation, etc – вивчення, дослідження. Syn. an investigation.

19. Study v – investigate and analyze (a subject or situation) in detail – вивчати, досліджувати: розглядати; обдумувати, обмірковувати. Syn. to examine, to look into/over, to investigate.

TEXT

We have already known that economics deals with the problems of scarcity and choice that face all the societies and nations throughout history. But it must be admitted* that the development (progress) of modern economics began in the 17^th century. Since that time economists have developed methods for studying and explaining how individuals, businesses and nations use their available economic resources.

So, what is economics? There are many various opinions concerning economics, but, in general, economics is the systematic study of choosing which goods and services will be produced and consumed to satisfy society’s wants. Since economics involves interactions among members of society it is a social science that studies the behaviour of people in producing, distributing, exchanging, and consuming goods and services. Understanding economic behaviour and the ways in which economic activity is organized and coordinated are at the heart of economics.

The discipline of economics is divided into two interrelated branches: macroeconomics and microeconomics.

Microeconomics is the study of individual consumers and business firms who make choices on such matters as what to buy and what to sell, how much to work and how much to pay, how much to borrow and how much to save. Microeconomics focuses on how individuals and firms behave, how they interact in the market, and how these interactions establish a price and allocate scarce resources. Microeconomics is not used to determine how a specific individual will act, since it examines how an “average” individual will probably behave under a specific set of conditions. It tracks cause-and-effect relationships that influence choices of individuals, businesses and society and is concerned with issues such as scarcity, choice and opportunity costs, and with production and consumption. Principal emphasis is give by microeconomists to the study of prices and their relationship to any economic units.

Macroeconomics is the study of the economy as a whole. Macroeconomics seeks solutions to macroeconomic problems such as how fast the economy is developing, how employment can be increased, what can be done to increase the overall output of goods and services, how much total income is, how inflation will effect economic growth and how different governmental policies can be used to stabilize the level of business activity in the economy. Macroeconomics looks into the total effect of individual choices on the overall productive efficiency of the economy reflected by such economic indicators as the nation’s price level, total output, and level of employment. Macroeconomics concentrates on determining the overall effect of decisions made in the system.

Just as the whole consists of the sum of its parts, the economy is ultimately driven by individual choices. Thus, an investigation of the big picture – of economic aggregates* such as unemployment and inflation – must begin with an understanding of the individual choices behind those aggregates.

Everyone should realize that economists deal with two worlds: the “world that is”, and the “world that ought to be”. Economists have developed and generally agree on basic economic principles and economic models that try to explain or describe the “world that is”. In many cases, however, economic issues cannot be solved with theories and models alone. Solutions to these problems include opinion, politics, and personal values.

Economists make a distinction between positive economics and normative economics. To the economists the positive-normative distinction is useful because it helps people with very different views about what is desirable to communicate with each other.

For example, economists can use basic principles like the laws of supply and demand and simple economic models to predict that the price of coffee in Ukraine will go up after a freeze destroys much of the coffee crop abroad. This assertion is called positive economic statement. The assertion like “something ought to be done about the high rate of unemployment” is a normative economic statement.

Positive economics looks at/on the facts and the economy as they actually are, avoiding value judgements* and attempting to seek scientific bases about economic activities. It is an approach that deals with “what is” rather than* with “what ought to be” and includes no indication of approval or disapproval. What are the causes of poverty in the country? What will be the effect of higher cigarette taxes on the number of smokers? These questions can be solved only by reference to facts. Notice that a positive statement can be wrong. “The moon is made of green cheese” is incorrect, but it is a positive statement because it is a statement about what exists. Thus, positive economics is used to analyze what is, what was, and what will happen when one activity is performed instead of another activity.

Normative economics, on the other hand, is concerned about what ought to be. It comprises ethical precepts and value judgments* about whether economic policies are good or bad. Normative economics is used to take decisions as for issues of equity, equality, and fairness, since these concepts include judgments about what ought to be. Normative economics attempts to show that one activity is better than another activity. “The world would be a better place if the moon were made of green cheese” is a normative statement because it expresses a judgment about what ought to be. Notice that there is no way of disproving this statement.

Should the government give money to poor people? Should the budget deficit be reduced by higher taxes or by lower spending? There are no right or wrong answers to these questions as they involve ethics and values rather than facts. Thus, these issues can be debated, but they can never be decided by using facts. These questions are solved by political decisions, not by economic science.

Since most assertions are not easily classified as purely positive or purely normative statements, they must be combined to make a good policy statement. One must decide what goals are desirable (the normative part), and choose a way of attaining those goals (the positive part).