Market economies

The best examples of this type of economy are to be found in small South-East Asian states like Hong Kong and Singapore, though even they are not pure examples of market economies. Even they contain some businesses owned and run by the state.

In a true market economy the government plays no role in the management of the economy, the government does not intervene in it. The system is based on private enterprise with private ownership of the means of production and private supplies of capital, which can be defined as surplus income available for investment in new business activities. Workers are paid wages by employers according to how skilled they are and how, many firms wish to employ them. They spend their wages on the products and services they need. Consumers are willing to spend more on products and services, which are favoured. Firms producing these goods will make more profits and this will persuade more firms to produce these particular goods rather than less favoured ones.

Thus, we can see that in a market economy it is consumers who decide what is to be produced. Consumers will be willing to pay high prices for products they particularly desire. Firms, which are privately owned, see the opportunity of increased profits and produce the new fashionable and favoured products.

Such a system is, at first view, very attractive. The economy adjusts automatically to meet changing demands. No planners have to be employed, which allows more resources to be available for production. Firms tend to be highly competitive in such an environment. New advanced products and low prices are good ways to increase sales and profits. Since all firms are privately owned they try to make the largest profits possible. In a free market individual people are free to pursue their own interests. They can become millionaires, for example. Suppose you invent a new kind of car. You want to make money out of it in your own interests. But when you have that car produced, you are in fact moving the production possibility frontier outwards. You actually make the society better-off by creating new jobs and opportunities, even though you become a millionaire in the process, and you do it without any government help or intervention.

Not surprisingly there are also problems. Some goods would be underpurchased if the government did not provide free or subsidized supplies. Examples of this type of good and service are health and education. There are other goods and services, such as defence and policing, that are impossible to supply individually in response to consumer spending. Once defence or a police force is supplied to a country then everyone in this country benefits.

Practice 1. Read the text and answer the questions.

1. Where can the most impressive examples of market economy be found in the world?

2. What role does the government play in this type of economy?

3. What are the most typical features of market economy?

4. Who, under market economy, decides what to produce and how much?

5. What in market economy helps increase sales and profits?

6. Are there any disadvantages in this type of economy? If so, what are they?

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- private ownership of the means of production;

- private supplies of the capital;

- surplus income;

- meet changing demands;

- be highly competitive;

- make the largest profits possible;

- pursue one’s own interests;

- in a free market;

- make the society better-off;

- provide free or subsidized supplies.

Practice 3. Match up the words on the left with the definitions on the right.

1. private A. additional to what is needed

2. supplies B. a system of production and trade based on private ownership of wealth

3.consumer C. be useful/profitable/helpful; gain advantage

4. surplus D. intended for a particular person/group, not public

5. persuade E. make somebody willing to do something by reasoning, arguing, asking

6. be willing to F. necessary materials for daily life

7. desire, v G. regard favourably the possibility of doing something; be ready

8. benefit, v H. a person who buys and uses goods and services

9. private enterprise I. wish, want very much

Practice 4. Complete the sentences using the words from the table:

desire private surplus supply

willing persuade consumers benefit

1. Mexico has a large … of oil.

2. Treatment in government hospitals is free, but if you go to a … hospital you must pay.

3. He was unable to … the police that he had been elsewhere at the time of the crime.

4. The electricity … has been threatened by recent strikes.

5. It’s an expensive investment but it will … the company in the long run.

6. The price increases were passed on by the firm to the ….

7. We all … happiness.

8. If the management is …, the talks can be held today.

Practice 5. Complete the table:

noun verb adjective

surplus

persuade

advanced

benefit

management

produce

supply

consumer

Text 7

Pre-reading tasks:

1. Which way are microeconomics and macroeconomics different?

2. What do they deal with?

MICROECONOMICS AND MACROECONOMICS

Many economists specialize in a particular branch of the subject. For example, there are labour economists, energy economists, monetary economists, and international economists. What distinguishes these economists is the segment of economic life in which they are interested. Labour economics deals with problems of the labour market as viewed by firms, workers, and society as a whole. Urban economics deals with city problems: land use, transport, congestion, and housing. However, we need not classify branches of economics according to the area of economic life in which we ask the standard questions what, how and for whom. We can also classify branches of economics according to the approach or methodology that is used. The very broad division of approaches into microeconomic and macroeconomic cuts across the large number of subject groupings cited above.

Microeconomic analysis offers a detailed treatment of individual decisions about particular commodities.

For example, we might study why individual households prefer cars to bicycles and how producers decide whether to produce cars or bicycles. We can then aggregate the behaviour of all households and all firms to discuss total car purchases and total car production. Within a market economy we can discuss the market for cars. Comparing this with the market for bicycles, we may be able to explain the relative output of these two goods. The sophisticated branch of microeconomics known as general equilibrium theory extends this approach to its logical conclusion. It studies simultaneously every market for every commodity. From this it is hoped that we can understand the complete pattern of consumption, production, and exchange in the whole economy at a point in time.

If you think this sounds very complicated you are correct. It is. For many purposes, the analysis becomes so complicated that we tend to lose track of the phenomena in which we were interested. The interesting task for economics, a task that retains an element of art in economic science, is to devise judicious simplifications, which keep the analysis manageable without distorting reality too much.

Microeconomists tend to offer a detailed treatment of one aspect of economic behaviour, but ignore interactions with the rest of the economy in order to preserve the simplicity of the analysis.

Macroeconomics emphasizes the interactions in the economy as a whole. It deliberately simplifies the individual building blocks of the analysis in order to retain a manageable analysis of the complete interaction of the economy.

For example, macroeconomists typically do not worry about the breakdown of consumer goods into cars, bicycles, televisions, and calculators. They prefer to treat them all as a single bundle called "consumer goods" because they are more interested in studying the interaction between households' purchases of consumer goods and firms' decisions about purchases of machinery and buildings.

Practice 1. Read the text and answer the questions.

1. What distinguishes many economists in terms of economics as a science?

2. How can we classify branches of economics?

3. What does the microeconomic analysis deal with?

4. Why is the microeconomic analysis considered so complicated?

5. What do microeconomists focus on?

6. What do they ignore?

7. What does macroeconomics focus on?

Practice 2. Give the Russian equivalents to the words and word-combinations from the text:

- labour economics;

- urban economics;

- according to the approach;

- individual decisions about particular commodities;

- a pattern of consumption;

- at a point in time;

- total car purchases;

- total car production;

- without distorting reality

Practice 3. Match up the words on the left with the definitions on the right.

1.deal with A. place special attention to something to show its particular importance

2.pattern B. plan/invent, esp. cleverly

3. treatment C. easy/possible to control or deal with

4. devise D. take action about something; tackle

5. manageable E. the act of behaving/dealing with in the stated way

6. ignore F. sample, something that is an example to copy

7. emphasize G. keep possession of; avoid losing

8. retain H. take no notice of; refuse to pay attention to

Practice 4. Complete the sentences using the words from the table:

treatment emphasize dealt with manageable

devised retains pattern retains

1. They … a plan for getting the jewels out of the country.

2. The government would be unwise to … the growing dissatisfaction with its economic policies.

3. I’d like to … that we’re ready to meet the management at any time.

4. It was a difficult situation but she …it very effectively.

5. The rate of inflation has been brought down to a more … level.

6. The success of the company set a …for the training of new employees.

7. This village still …its old-world character.

8. The prisoners complained of ill…by their guards.

Practice 5. Complete the table:

noun verb adjective

treatment

complicated

compare

manageable

analysis

approach

distinguish

Text 8

Pre-reading tasks:

1. What do you know about banking system of the UK?

2. Is it different from the Russian one?