Figure 1: Consumer and Producer Surplus

A
Consumer \ Surplus \		, Supply
	V^м
Prod tx #f / Surplus /'		\ Dt»man

Quantity bought and told

Surplus is an important concept In one way it is a measure of the utility that consumers gain from their purchase. It is also a measure of the profit that producers make. Moreover, consumer and producer surplus together are a measure of the benefit everyone gains from the economic transaction. In economist jargon, surplus is a measure of economic welfare.

В Comprehension

Now read the text again and decide whether these statements are true or false.

Market price should please the seller and the buyer.

Some consumers will get more surplus than others.

Aggregate consumer surplus is all the money that buyers spend

Producer surplus is the goods that producers can't sell.

Producer surplus exists because production costs vary.

Surplus is a measure of how happy and well off people are.

Before you listen

Discuss the following with your partner.

Is there anything strange about this price list?

Shampoo €3.00

-> Olrve oil €10.00

Bottle of cola €1.50

MA* * о <т -

di to Economic» Unit f 47

Shops often use odd numbers when they price things. For example, €2.99 or €1.63. Why do they do this? Choose from the list below.

ф С Listening Ц)))

Before you read 13

What does economics study? 17

What are 18

microeconomics and macroeconomics ? 18

Before you listen 20

Before you read 22

History of economic thought 23

Before you listen 26

Before you read 27

Econometrics 28

Before you listen 29

Before you read 33

The law of demand 34

Before you listen 35

Unit 40

Before you read 40

The traditional economy 40

Before you listen 41

Before you read 43

The market economy 43

Before you listen 44

The planned economy 46

Before you listen 51

Before you read 56

Before you listen 59

Revision Vocabulary Units 1 to 4 61

Before you read 63

Consumer choices 65

Before you listen 75

Before you read 77

Costs and supply 77

Before you listen 78

Unit 80

Before you read 80

Market structure and competition 80

Before you listen 81

Before you read 82

Monopolies 82

Unit 87

Before you read 87

The labour market 87

Before you listen 88

Before you read 89

Supply of labour 89

Before you listen 91

44Unit 93

45Before you read 93

70Factors of production 93

85Before you listen 95

Before you read 99

Division of labour 100

Before you listen 101

Revision Vocabulary Units 5 to 8 104

Before you read 104

Surplus 105

Before you listen 106

Before you read 111

Price discrimination 111

Before you listen 112

Welfare economics 114

Before you listen 117

Before you read 118

Government revenue and spending 118

Before you listen 119

Before you read 121

Wealth, income and inequality 122

Before you listen 124

Before you read 125

Poverty 126

Before you listen 130

Macroeconomics 133

Before you listen 134

Before you read 135

ф D Vocabulary 135

Aggregate demand and aggregate supply 135

BP E Comprehension 137

Before you listen 137

0 F Listening *))) 137

ff G Speaking 138

Task 138

Revision Vocabulary Units 9 to 12 140

Unit 141

Before you read 141

Money 141

^ В Comprehension 142

Before you listen 142

В с Listening Ц))) 142

Before you read 142

0 D Vocabulary 143

Banks 148

В E Comprehension 149

Before you listen 149

F Listening Ц))) 149

G Speaking 150

Unit 151

Before you read 151

ff A Vocabulary 151

Fiscal policy 151

P В Comprehension 152

Before you listen 152

С Listening 4))) 152

Before you read 153

0 D Vocabulary 153

Monetary policy 153

Before you listen 156

rehension 156

Before you read 159

A Vocabulary 159

Interest rates and the money market 159

В Comprehension 160

С Listening H))) 161

Before you read 162

fiJ D Vocabulary 162

Economic shocks 162

Before you listen 165

G Speaking 166

Before you read 167

fif A Vocabulary 167

Inflation 167

Before you listen 169

Before you read 171

ff D Vocabulary 171

Unemployment 171

Before you listen 172

F Listening H))) 172

E Comprehension 172

G Speaking 172

9 H Writing 173

Revision Vocabulary Units 13 to 16 174

Unit 175

Before you read 175

Economic growth 176

9 В Comprehension 178

Before you listen 178

ff С Listening Ц))) 179

Before you read 179

ff D Vocabulary 179

The business cycle 180

fi? E Comprehension 181

Before you listen 181

F Listening И))) 182

H Writing 182

Before you read 183

f A Vocabulary 183

The open economy 183

? В Comprehension 184

Before you listen 185

С Listening 4))) 186

Before you read 186

BP D Vocabulary 186

Exchange rates 187

0 E Comprehension 189

Before you listen 189

F Listening H))) 190

G Speaking 191

Task 191

Before you read 192

A Vocabulary 192

Exchange rate mechanisms 192

й В Comprehension 193

Before you listen 193

0 С Listening 4))) 193

Before you read 194

9 D Vocabulary 194

International trade 194

Before you listen 195

В F Listening 4))) 195

G Speaking 196

Task 196

Unit 197

Before you read 197

В A Vocabulary 197

Less developed countries 198

в В Comprehension 199

Before you listen 199

0 С Listening *))) 199

Before you read 199

В D Vocabulary 199

The Russian economy in the 19th century 200

fij E Comprehension 201

Before you listen 201

F Listening 4))) 201

Task 203

H Writing 203

A Vocabulary 203

в? В Comprehension 205

Before you listen 205

0 С Listening 4))) 205

Before you read 205

ff D Vocabulary 205

Russia's foreign trade 206

9 E Comprehension 207

Before you listen 207

Revision Vocabulary Units 17 to 21 209

1. Shop assistants won't be able to steal □ money from the shop.

Now listen and check your answers.

Before you read

Discuss the following with your partner.

Look at the picture opposite:

-* What is happening?

-* What kind of things are sold here?

-* What are the advantages or disadvantages of this way of buying and selling?

ff D Vocabulary

Complete each sentence with a word or phrase from the box.

■ accordingly I auction ■ degree

discount discrimination guesswork in bulk markup price pensioners retailers fc risk-taking wholesaler

. Some people like dangerous sports because they enjoy

In an the item for sale is sold to the

customer who offers the highest price.

The is the extra money shops add to

the value of something in order to make a profit.

In the pasi, forecasting the weather was just

When you are in a formal situation, you have to dress and behave

In the winter sales the shops often give a of up to 50%.

When you buy you buy very large

quantities of something.

iswhen you treat some people

differently to others.

are people who sell things.

A isa company that buys large

quantities of goods from factories and sells them on to shopkeepers.

. To what you do something, means

how much you do it.

4S NiihiIIh Gu<d« to Economic* Uoit »

Because retired people usually receive a pension, they are often called

		-
Л	Ф
^ iY ^		^41 —i

S Reading 2

Price discrimination

The market price t<>r a product is like .1sjgn]»ost tor companies. It shows them more or less what people are prepared to pay Nevertheless, companies can s(.t their prices just above <>r just below the market price itthey want They ean even choose to ignore the market price completely In the real World <«|' business,setting prices involves skill, guesswork and risk-taking < с ■nipanii s ha\e lots • >t pricing tricksw Inch help to increase profits < >ne of these tricks is price dim riniiruition

I'rice discrimination means charging a different price for the same product to different customers For example, you walk hid • a sh< >p and buy a (A» for €15 A few minutes later. I walk into the sanu shop and buy another copy of exactly the same (:i> This time, the shopkeeper charges me €2<i! Thai's price discrimination.

There are different types, or degrees, of price discrimination. First i/cym prici ilisi-rimituttmn is when almost every consumer pays a different price for tile same product. How can iliis happenV Remember that the demand curve slopes downward, hi theory, every consumer has their own point on the curve, in other words.

each person values the product differently. Von may think that an hlton John CD is worth €2'». whereas 1 think it's only worth 5<> cents! We an­on different points on the demand curve. With first degree discrimination, each consumer will pay what he or she thinks the product is worth, anil sellers charge each person accordingly

This all sounds great. but it is not usually practical m the real market place. Nevertheless, it is sometimes possible. An auction, for example, works in this way. In an auction, each consumer makes a bid for the product, and the highest bid wins. In ibis way. the product is sold at a price that the buyer thinks is right. Auctioning is becoming more and more common on the World Wide Web. and auctioning websites have become very big business.

Second degree price discriminationis more common than first degree discrimination. It involves changing price according to how much of the product is sold For example, if a customer buys three pencils, they pay oneeuro per pencil If they buy ,MX> pencils, they pay only 75 cents ]4'r pencil. This is a kind of reward for buying large amounts. This kind of discrimination is important for retailers It allows shopkeepers to buy i>oi4ls in bulk from wholesalers at lower prices. Shopkeejx'rs then add a markup price when they sell the gootls on to ordinary customers.

What а1н>ш third degree phce discriminationV This is when certain types of customer are charged different prices. For example, pensioners and students often j>et discounts on public transport or for arts events. These jx'ople cannot afford the normal market price. Ну offering discounts, companies widen their market share but still make a profit.

Ftegrstration kxm for proxy, telephone or internet trading

Now read the text again and choose the kind of price discrimination that matches these descriptions.

A different price is charged to each customer first degree second degree third degree

it helps make products and services more affordable to some people, first degree second degree third degree

It rarely happens in real markets, first degree second degree third degree The price falls as quantity rises, first degree second degree tliird degree It happens on the Internet, first degree second degree third degree

Before you listen

Discuss the following with your partner.

eBay is an online auctioning website. Have you heard of it? Tell your partner what you know about eBay.

F Listening H)))

Now listen and complete the summary with words or numbers.

The online auction site eBay was started m

(1)D by Pierre Omidyar. He started

it as a (2) but it became a huge

business. On eBay, sellers show what they have and

buyers make (3) for the item. The

highest bidder wins. The system is an example of

4. ) degree price discrimination and

it is very successful. Worldwide, the website has

4. ) users. It trades $1.800 worth of

goods every (6)The most expensive

item sold on eBay was an (2) It sold

for $ (8)

Н«»|||Ц (ill! • , [h . « - t * 49

G Speaking

Discuss these questions with your partner.

Do you think consumer surplus is a good measure of welfare?

Is price discrimination fair?

Would you ever buy something at an auction or on the Internet?

Task

Give a two-minute talk on price.First make notes below on the following.

Whai is market price? (See Reading 1)

What is consumer and producer surplus? iSer Reading 1)

What is price discrimination and why do producers use it? (See Reading 2)

During your talk, use figure 1 on page 47 to help explain the idea of surplus. Also, give real examples that you know about to illustrate your points.

В н Writing

Imagine that you've got a good idea for an Internet commerce site (an Internet site which is also a business).Tell your friend what your idea is.

Informal letter to a friend

PARAGRAPH 1

Thank your friend for his her last letter. Make a comment about news that they told you in their letter. Tell them your news.

PARAGRAPH 2

Describe your idea for an Internet commerce site.

What product will you sell what service will you provide?

PARAGRAPH 3

Explain how you got the idea. Say why you think it will work.

Sign off Write 100-150 words

Notes:

(

Pronunciation guide

Bargain n) Чккдлп. Jargon (Цшра Similarly \iire>Wi

Harm»l ii Guxjt to t( pmr u U'>>t V

Aggregate i .-.dp a.jngatj vi a^jrigen Auction хк I i*i Wholesaler 'fcxikeibtri Discrimination disknniincijn Signpost 4ampcx>st

Unit

the amount of a product that people buy or use

rule made by government, and or the course it follows

policy

consumption

an exchange such as buying and selling

idea of being the same equal

level, for example from left to right

going straight up and down

someone who sets up a new business of their owr.

punish

income

f to ireat people reasonably and in the right way

to treat people unreasonably or in the wrong way

look into

share out

effect

a person

■ something important that people talk about

something that happens without being expected

Before you read

Discuss this question with your partner.

Welfare economics has been called economics with <i heart.What does this tell you about welfare economics?

A Vocabulary

Match the words and phrases with the definitions.

vertical

horizontal equity

distribute to bo fair

investigate an individual issue

to be unjust

penalise

entrepreneur

economic transaction

impact

earnings

externality

ь taxation

system of taking part of people's earnings to give governments an income

E Reading 1

Welfare economics

behind tin- numbers, charts and formulas of economies, there are people. Phis is sometimes easy to forget Economies isn't only about profits, losses and utility. It's about society. Economic ideas and theories often seem to 1ч- issues that art far removed from people's everyday lives.Welfare economics, however, tries to correct this It looks at how economic policies affect society, families and the individual.

t )nc of the big issues in welfare economics is c<tuitxEquity means fairness, and xrcltmc

Mtf mllin Oml4* to CconoMict Utn I® 51

economistsarc interested in measuring how lair our eeonomie systems are. < )ne way they do this is to look at how income and wealth are distributed among the population. Wei tare economists also investigate the effects of government policy on equity.

(iovernments" main weapon to light inequity (unfairness) is taxation. Welfare economists try to find out how taxation affects vertical equity and horizontal e<piity.which are two ideas that taxation systems can 1ч- based on. The idea behind vertical equity is that people with more income will pay more than those with less income. The idea behind horizontal equity is that people with the same income will pay the same amount of tax. Ideally, a tax system will have both vertical and horizontal equity.

However, some economists feel that any kind of taxation on people's earnings is unjust They believe it is unfair to penalise entrepreneurs and hard-workers. Why should people who are less able or less hard-working 1ч' supported by others': In this view of welfare economies, inequity is a natural feature of every economic system. Trying to create equity, they say. is just a waste of time. Instead, it is better to make economic systems more efficient. A more efficient economy grows faster ami everyone in society benefits.

Welfare economics isn't only alnnit the fairness of eeonomie systems. It's also about the impact that economic choices have on our lives. Kconomic transactions often affect oilier people who are not directly involved ill those transactions. Economists call these results елternalities. Externalities are sometimes good and sometimes bad for society. For example, pollution is anegative externalityof the ear industry. Hut cars give people better mobility, which is a positive externalityof the same industry.

52 M j < m j п :'д - •4 •'■ •t »neir 'O !

Production is not the only cause of negative externalities for society. Many are due to our use or consumption of goods. People's litter in parks and on beaches is one example, noisy neighbours playing their < I) player loudly is another. These are both examples of externalities causing pollution However, health problems from smoking and drinking alcohol are also externalities from economic transactions. These have a eosi for individuals, but also for soeietv as a whole.

Now road the text again and answer these questions in your own words in the space provided below.

According to the text, what do people often forget about economics?

How do governments try to make the economy fair?

What is the difference between horizontal and vertical equity?

Why do some economists think equity is not important?

What are externalities?

Before you listen

□ □ □ □ □ □

Discuss the following with your partner.

-> When externalities are good for society, they are called positive externalities. Can you think of any economic transactions that could have positive externalities?

С Listening И)))

Now listen and tick which transactions in the list are mentioned.

1. buying a new house

2. fixing up an old home

3. buying books

4. paying for a course at a local college

5. joining a gym

6. going on holiday

Before you read

Discuss these questions with your partner.

What do you think your government spends money on?

Whore do you imagine most of the government's money goes?

В D Vocabulary

Would you say the? government spends wisely?

Complete each sentence with a word or phrase from the box.

benefits ■ charge ■ discourage essential financial ■ harmful income gap luxuries * source taxation

If you give someone help, you give

them money.

are money that the government

qives to people who need help.

If you someone from doing

something, you persuade them not to do it.

things are not good for your health.

The difference between the highest salaries and the lowest is called the

Companies customers for

their services.

For most people, the of their income

is paid work.

Governments get moat of their money through

Water ш to life, but it costs

very little.

10 are expensive things that we don't

really need.

Government revenue and spending

м t г. * c, i, j« ■ i < '53

In the ГК. the government spends about v5(Ht billion a year. Where docs such a huge amount of money eome i'rornV Perhaps more importantly, what Jot-s the government spend it oil- The money governments have to spend is called revenueRevenue comes from several sources, including charging lor services and borrowing. However, a government's main source of revenue is taxation. There arc different kinds of taxes. For example, anyone w ith a regular income has to pay income tax on their earnings This is a percentage of their income which gives to the government. Many countries operate a system called /irogre.s-.4ttx income tax.1'nder this system, people with a higher income pay a higher percentage to the government. Another kind of tax is value added tax.This is paid when we buy goods or serv iceswhich are not essential or arc regarded as luxuries.

Taxation, however, is not only a way tor a governmentto earn revenue. Through taxation, governments also achieve a number ot other things. Income tax. for example, should help to make the income gap between the rich and the poor smaller. Tax on harmful products like tobacco and alcohol should discourage people from consuming them. Finally, taxation is a way for the governmeut to control overall supply and demand in the market. For instance, a ver> high tax on a product will mean Jew jK-ople can buy it and therefore its market will be very small.

S> where does the money gor Revenue is generally spent on a combination of public services and something called transfer payments. Transfer payments are benefits that are given to families and individuals in society who need financial support. In Britain, transfer payments make up almost a third ot all public spending. These payments include sqfety net benefitssuch as unemployment benefit and social security benefits for families who do not have enough income to get by.

Most of the list of the revenue goes on publicgoods.These can be divided into two areas: pure publicgoo</s and mixed jnihlicgoor/.ч. Pure publicgotnlsare things like street lighting or national defence. These are important for everyone in a society, but they cannot be supplied by private business To understand why not. let's look at the example of street lighting. Lighting needs to 1ч- offered to everyone who uses the streets If a private business provided street lighting, they would need to charge for it. But how could they make everyone pay? Non-payers would benefit from the lighting, too. it would 1ч» impossible to stop them This is why a government, and not private businesses, offers street lighting: everyone pays for it through their taxi's.

54 Ни- anGmdvreEronon-ct 'tip

Mixed public goods are things which people ought to have because they are beneficial, such as health care and education. Why do many governments fund these things- The reason is that having a healthy, educated population is good for the economy and for society as a whole. People, especially those on low incomes, may not be able to sjK'iid money on these services (iovernments fund tile services sothat every one can afford them, and this encourages people to use them.

Now read the text again and match each paragraph with the correct heading.

PARAGRAPH

PARAGRAPH '

PARAGRAPH i

PARAGRAPH 1

PARAGRAPH

The aims of taxation Services that businesses won't provide Providing what's good for us Providing social support Collecting income

Before you listen

Discuss the following with your partner.

The pie chart below shows how the UK government spends its revenue. Each segment of the pie (A to H) shows a different area of spending. The key shows what these areas are. Some labels are missing. Which of these areas do you think they are?

Defence

Education

Environment

Health care

Transport

B? F Listening H)))

Now listen and complete the chart. UK Government Spending: Where does the money go?

Discuss these questions with your partner.

In your opinion, what is more important for ar. economic system - equity or efficiency?

Do you think the tax system in your country is fair? Why / Why not?

Work in groups of four. Each of you has one of the following roles.

Finance Minister - you decide on how govornment revenue should be spent. Education Minister - you want more spending on education.

Talk about:

overcrowded classrooms lack of facilities teacher training Environment Minister - you want more spending on roads and public transport.

Talk about:

dangerous roads improving country roads increased underground train system free transport for retired people Health Minister - you want more spending on hospitals and health care.

Talk about:

cheaper medicine waiting lists in hospitals length of time to get a doctor's appointment hospital facilities Ministers: persuade the Finance Minister to give you more money. Finance Minister: ask questions to decide who needs more money.

Pronunciation guide Issue i[m

Consumption k.">ns\mpjn Equity /ekwirti Externality eksnrniebti Beneficial henifrjl Percentage ixvsentulv' Revenue 'ievonju: Taxation taekseifn

Write the following composition:'What is welfare economics and why is it important?'

First read through the texts again and make notes, then use the outline plan to organise your composition.

Composition

PARAGRAPH 1

Explain what welfare economics studies.

Points to include:

economics is not just numbers, economics with a heart, government policies affect society

Useful words and phrases:everyday lives, equity, externalities

PARAGRAPH 2

Say how economic relationships affect the welfare of a society.

Mention, these relationship»-.

Buyers and sellers how do prices affect people's lives?

Workers and employees how does work affect people's lives?

Factories and the environment what is the affect of the economy on our environment?

Useful words and phrases:cost of living, wages, working conditions, damage, pollution

PARAGRAPH 3

Explain how taxation can create equity m the economy.

Points to include:

What is equity?

How can taxation help to create equity? How can a tax system have vertical and horizontal equity?

Useful words and phrases:fairness, unfairness, income, distribute, wealth

PARAGRAPH4

Sum up by saying why you think welfare economics is important.

Points to include:

Importance of understanding how economics effects our lives.

Can economic policies make our lives better?

Useful words and phrases: to sum up. in my

view, helps us appreciate, impact, improve

Write 200-250 words

Hit m «0 £..iidc t о Uo>«" • » u»'t c> S5

a way of saving money for when you got old and stop working

things someone owns, but usually thmgs that can be moved

if you save money in a bank, you get this extra money for keeping it there

movement like a river

important or worth money

a collection or supply of tilings kept for later use

part of the value of a company - people buy ana sell these

Before you read

Discuss these questions with your partner.

What do you think it means to be wealthy? Why are some people wealthier than others?

' A Vocabulary

Match the words and phrases with the definitions.