UNIT FIVE
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The Basic Economic Problem
Types of Economic Systems
ESSENTIAL VOCABULARY
At one’s disposal – available for someone to use – у розпорядженні. Syn. available.
Benefit v. – to be advantageous or helpful to somebody or something; to do good to somebody or something – приносити/отримувати/мати користь/вигоду, допомагати.
Combination n. – two or more different things that exist together or are used or put together – комбінація, поєднання. Factor combination – поєднання факторів. Syn. a blend.
Consumer n. – anyone who uses goods and/or services – споживач, клієнт. Consumer choice – вибір споживача/споживчий вибір, consumer goods/ commodities – споживчі товари, the consumer(’s) preferences – перевага/ уподобання споживачів. Syn. a customer.
Distribute v. – to share things among a group of people – розподіляти, розташовувати. Syn. to allocate.
Distribution n. – the act of distributing something – розподіл. Distribution of wealth – розподіл (національного) доходу/ багатства, income distribution – розподіл доходу. Syn. allocation.
Encourage v. – to give support, confirmation, or approval to process or action and to rouse a person to greater effort or interest – заохочувати, підтримувати, сприяти, спонукати, стимулювати, надихати. Syn. to favour, to stimulate.
Incentive n. – something that serves as a stimulus to action by appealing to self-interest – спонукальний мотив, стимул, заохочення. Incentive to use one’s property – стимул використовувати чиюсь власність. Syn. an encouragement, a motive.
Institution n. – a large organization that has a particular kind of work or purpose – установа, організація. Government institution – урядова організація. Syn. an organization.
Ownership n. – a right to hold a thing entirely as one’s own – право власності, власність. Private ownership – приватна власність.
Perform v. – to do something difficult or useful – виконувати, здійснювати, робити. To perform work – виконувати роботу.
Property n. – something that is owned or possessed – власність, майно. private property – приватна власність, public property/ownership – державна/ громадська власність. Syn. possessions.
Willing adj. – ready to do something without hesitation – готовий. To be willing to do something – бути готовим, робити щось охоче. Syn. ready.
Text
Whenever people gather in a community, they deal with a few universal economic problems. These fundamental questions are as crucial today as they were at the dawn of human civilization. Every human society – whether it is an advanced industrial nation, a centrally planned economy, or an isolated tribal society – must solve three fundamental and interdependent economic questions.
What goods and services are to be produced, and in what quantities are they to be produced?
How are these goods and services to be produced?
Who will receive and consume these goods and services?
The first basic choice refers to what goods a society should produce and in what quantities. Every economy has limited resources at its disposal but the goods and services wanted by its people are numerous. With the limited resources society can produce all the things its people want. So an economy faces the problem what combination of goods and services should be produced? The nature of the combination depends on the consumers’ choices and preferences reflected in market prices or in government policies.
A second basic choice relates to how to produce goods and services. Most goods can be produced in more than one way by using resources in different quantities and combinations. It is often possible to vary the factor combination in manufacturing. Any society decides how it will organize its scarce resources in order to use them efficiently. As the economy has to economize its limited resources it has to make a choice between various production methods to produce different goods.
No one can get all he wants. Whatever is produced in an economy it cannot be sufficient to meet everybody’s wants. So a problem arises who will get and how much. This is the problem of distribution of a nation’s wealth among different groups.
Production of goods and services is the result of the joint efforts of the owners of the four factors of production: land, labour, capital and entrepreneurship. So the total national income is distributed among the owners of these factors of production. There is no system by which goods and services may directly be distributed among the factor owners. What they get is the money income in the form of rent, wages, interest and profits. With this income they buy the goods and services. How much wage earners and profit earners can buy, land or capital owners can buy depend upon their income. So it is a problem of national income distribution.
The way that a country uses to solve three basic questions is based on its economic system. An economic system is a mechanism that deals with the production, distribution and consumption of goods and services in a particular society.
There are four main types of economic systems present in the world: the traditional economy, the command economy, the market economy, and the mixed economy.
The traditional economy is an economic system in which decisions about what, how, and for whom questions are made on the basis of customs, beliefs, religion, habit, and tradition.
People’s economic roles are the same as those of their parents and grandparents. The ways they produce clothing and shelter are almost exactly the same as those used in the past. Traditions decide what these people work for a living, how their work is performed and who gets what is produced in such an economy.
It has an advantage over other systems, in that there is little disagreement among members because relatively little is disputed. However, it restricts individual initiative and has a lack of advanced goods, new technology, and economic growth.
The command economy is a society where the government institutions make all decisions concerning what will be produced, how it will be produced, and for whom it will be produced.
In a command economy, a central authority or agency draws up plans that establish what will be produced and when, sets production goals, and makes rules for distribution. The government owns a considerable portion of the means of production, thus they are publicly owned; it also owns and directs the operations of enterprises in most industries; it is the employer of most workers and tells them how to perform their work.
A hard working citizen has no chance to benefit from his extra work because he cannot increase his standard of living any greater than it currently is and he will earn just as much as a person who makes little or no effort.
The market economy (or free enterprise economy) is an economic system in which the decisions of many individual buyers and sellers interact to determine the answers to the questions of What, How and Who.
In a market economy the fundamental economic questions are answered in the marketplace by the interaction of buyers and sellers. The question of what to produce may be based on what trend is popular right now. The producers create a product that they think they will sell well to the consumers in hope to make a profit. The question of how to produce is usually based on the producer's choice. They might decide to produce a product with more workers or with machines and computers to save on labour costs*. The question involving for whom to produce is based on the consumers who decide what they want or need and what price they are willing to pay for it.
There are several essential elements in a market economy. One of these is private property – the right of individuals and businesses to own the means of production. Unlike command economy with its public property, in a free market economy the major factors of production are privately owned. Private ownership gives people the incentive to use their property to produce things they will sell and make profits.
This desire to earn profits or the profit motive is a second ingredient in a market economy. The profit motive encourages sellers to produce commodities at the lowest possible cost.
The mixed economy is an economic system that answers the three economic questions both in the marketplace and in the government*.
A mixed economy contains both privately and publicly owned enterprises and relies on the market but with a large dose of government intervention. A mixed economy usually involves producers working closer with the government to achieve economic goals.
Since no country in the world have either type of economic system in its pure form, all major economies are mixed ones because markets as well as government decisions* play a role in answering the basic economic questions. The blend of market and government participation is different in different countries with mixed economies. The optimal level of government interference remains a problem which is of interest to economists.
Comments:
labour costs – витрати на робочу силу;
both in the marketplace and in the government – як на ринку, так і в уряді;
market forces as well as government decisions – як ринки, так і урядові рішення.
Exercise 1. Read, translate into Ukrainian in written form and memorize the definitions of the following economic terms and concepts.
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Exercise 2. Give the Ukrainian equivalents for the following.
to be at the dawn ___________________________________________________
wage earners ______________________________________________________
to solve three basic questions _________________________________________
on the basis of _____________________________________________________
there is little disagreement ____________________________________________
a lack of advanced goods _____________________________________________
to set production goals ________________________________________________
to be publicly owned _________________________________________________
to interact to determine the answers to __________________________________
to be based on the producer's choice ____________________________________
to give people the incentive ___________________________________________
a second ingredient _________________________________________________
both privately and publicly owned enterprises ____________________________ ____________________________________________________________________
the blend of market and government participation _________________________
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Exercise 3. Find the English equivalents for the following.
повинне розв’язувати ______________________________________________
його не може бути у достатній кількості ______________________________
спільні зусилля власників ___________________________________________
власники факторів виробництва _____________________________________
заробляти на хліб __________________________________________________
центральна влада __________________________________________________
стільки ж скільки __________________________________________________
мати хороший збут ________________________________________________
бути готовим заплатити ____________________________________________
знаходитися/бути у приватній власності ______________________________
це бажання отримати/заробити прибутки _____________________________
за найменшими можливими витратами _______________________________
значна доля урядового втручання ____________________________________
Exercise 4. Match the verbs/verbal phrases, prepositions (if necessary) and nouns/noun phrases as they occur together in the text: translate the expressions they make into Ukrainian.
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to depend |
from on among for up |
labour costs |
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to be distributed |
the owners |
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to be based |
economic goals |
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to work |
the consumer’s choices and preferences |
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to direct |
its economic system |
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to benefit |
his extra work |
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to save |
the operations |
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to achieve |
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Exercise 5. Match these nouns/noun phrases, prepositions (if necessary) and nouns/noun phrases as they occur together in the text: translate the expressions they make into Ukrainian.
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the factor |
of
with
among |
earners |
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disagreement |
living |
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standard |
capital |
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owners |
mixed economies |
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the profit |
intervention |
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countries |
members |
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government |
owners |
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Exercise 6. Copy out of the text the sentences containing the words and word-combinations listed below and translate these sentences into Ukrainian.
Every human society: __________________________________________________
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the consumer’s choices: _________________________________________________
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the factor owners: _____________________________________________________
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