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Unit 5. Free-enterprise system
TEXT A: What is free enterprise?
TEXT B: Role of government in a free-enterprise economy
TEXT C: Invisible hand
BUSINESS COMMUNICATION: At the airport
GRAMMAR: Future Tenses. The Imperative Mood
Everything that is really great and inspiring is created by the individual who can labor in freedom.
Albert Einstein (1879 - 1955),
a German theoretical physicist
Lead-in
1. Do you feel free? What freedoms do you enjoy? What freedoms are guaranteed in a democratic society? How do you understand economic freedom?
2. If you are free, it means that it is no one but you who makes decisions. What motivates you in decision-making? What motivates people in making economic decisions?
3. While the pure market economy does not imply government’s interference at all, the free enterprise economy does. In what spheres do you think government can perform better than private companies?
PRE-TEXT EXERCISES
A. Reading drills
Ex.1. Read the words with the following letter combinations.
ou [au] output, account, household
[ʌ] country, double, nourish
ea [i:] each, deal, feature, increase, mean, means
[e] health, wealth, measure, instead
[ei] great, break
ow [au] how, now, power
[ou] low, own, slow
au [ɔ:] because, automatic, automobile
ch [t∫] search, purchase, choose, exchange, channel
[k] mechanism, chemical, character
[∫] machine, chef, brochure
Ex.2. Read the following words with the letter c in different positions.
[k] economy, Cuba, occur, considerable, sector, country, occupation
[s] produce, service, difference, resource, society, decide, incentive, necessary, receive
[k]-[s] scarce, consequence, success, coercive
[∫] socialist, efficiency, beneficial, financial, artificial
[t∫] which, China, purchase, choose, exchange, channel
[k] mechanism, school, chemistry, chronicle
Ex.3. Read the words in the groups bellow. Pay attention to the word stress.
a) words with the stress on the first syllable:
mechanism, utilize, private, enterprise, difference, social, value, motivate, consequence, innovator, satisfy, borrow, voluntary, contract, surplus, shortage, rationing, indicate;
b) words with the stress on the second syllable:
identical, produce (v), unique, involve, considerable, occur, component, economy, resource, society, objective, creative, productive, pursue, decision, determine, incentive, employer, consumer, possess, potential, competitive, maintain, abundant;
c) polysyllabic words with the main and secondary stress:
economic, manufacturing, beneficial, occupation, employee, inability, artificial, interference.
Ex.4. Practice reading the following words.
Identical, mechanism, utilize, occur, private, creative, highly, efficiency, pursue, beneficial, artificial, determine, extremely, reward, consequence, scarce, purchase, sovereignty, entrepreneur, necessarily, interference, coercive, guide.
B. Word formation
Ex.5. Study the following typical endings of nouns. Using one of them, change each of the following words into a noun.
Membership; socialism; sadness; information; government; beauty; marriage; excellence.
Kind, real, move, human, elect, intelligent, permanent, confuse, leader, improve, equal.
Ex.6. Make up adjectives from the following verbs as in the model.
Model: verb + - ive → adjective
e.g. to produce → productive
Create, decide (d→s), innovate, protect, impress, attract.
Ex.7. Form adjectives adding prefix in- (im- before p, il- before l, ir- before r) as in the model. Explain what new meaning the prefix adds to adjectives.
Model: possible → impossible
Complete, capable, correct, definite, sensitive, patient, perfect, legal, logical, liberal, regular, rational, relevant.
Text a: what is free enterprise?
Active Vocabulary
Key terms: private enterprise, private and public sectors, free enterprise economy, efficiency, costs, economic resources, decision making, economic incentives, profit, employee, employer, unemployment, household, consumer, entrepreneur, resource market, product market, financial market, intermediary, price system, rationing, surplus, shortage.
Other words and expressions: identical, to deal with, unique, to utilize, to involve, considerable, both…and, trait, to turn into, to occur, to reflect, to force, to pursue, to result in, compatible, to mean, means, to turn into, to own, to possess, to motivate, to determine, to seek, to search (for), to benefit from, consequence, to fail, to indicate, to provide, properly, to purchase, to influence, to satisfy needs, to bring together, complex, to borrow, to save, cornerstone, interference, to define, to enforce, to maintain, to perform, vital, scarce, abundant, value, artificial, to channel.
Linking words and phrases: even though, although, to a large (small, certain, limited) extent, therefore, instead, in addition to, however, in essence, on the one hand, on the other hand.
Just as people are different, so are economic systems. The world has scores of economic systems, no two of which are identical. All have different blends of traditions, commands and markets, that is why they are called mixed economies. Even though they deal with the same economic problems – What to produce? How to produce? For whom to produce? - each system does so in a unique way. For example, market mechanisms have been utilized in a handful of socialist states, such as Cuba, to a very limited extent. The People's Republic of China is run by the Communist Party, but its economy involves considerable private enterprise and market forces in both private and public sectors. In the United States there are more market economy traits than in Western European countries. These differences occur because economic systems are more than simply means of turning resources into goods and services. They are ways of life, and they reflect the differences in the social values and objectives of each nation.
Many states which are said to have a market economy have a high level of market freedom, therefore they are often called free market or free enterprise economic systems. In this system, no one forces people to be creative and productive. Instead, people themselves pursue what they believe to be best for them. By producing the goods and services that society values most highly, a free enterprise system results in the greatest efficiency, or lowest costs, of any economic system. This system is most compatible with individual freedom and political democracy.
What Is Free Enterprise? Free enterprise means that men and women have the opportunity to own economic resources, such as land, minerals, manufacturing plants and computers, and to use these resources to create goods and services for sale. If nobody but a person himself decides what is best to create, what motivates him in this decision-making? In the free enterprise system economic incentives help people determine which course of action will be the most beneficial for them. Businessmen seek high profits. Property owners want the highest price possible for their resources. Workers seek the highest salary possible for a given occupation. Consumers search for the lowest price for a given product. The system of incentives is an extremely important feature of free enterprise. The promise of rewards stimulates employees to produce more and employers to use resources efficiently. People are willing to do this because they, personally, benefit from it. Economic incentives also serve to direct scarce resources to the production of the goods and services people value the most.
The system of incentives also includes punishments. People may face unpleasant consequences when they fail to do something. In the free enterprise system, punishments usually take the form of losses (or failure) for businesses and low salaries (or perhaps unemployment) for individuals. They indicate that the "what to produce" and/or the "how to produce" questions are not being answered properly, for example, the business or individual is using scarce resources to provide too much of a product or a product not wanted at all.
Four components of most free enterprise systems are households, businesses, markets and governments.
Households—the Owners. In a free enterprise system, households own most of the country’s economic resources and decide how to use them. One of the resources that households possess is their labour. They can sell it to existing firms or use to form new businesses. In addition to selling their resources where they can get the highest price or largest profit, households also act as consumers. The wages and salaries of households purchase about two-thirds of all the production in a typical free enterprise economy. Choosing how to spend their money, consumers influence production directing it toward the goods and services they want to get. This is called consumer sovereignty.
Businesses—the Organizers. Businesses organize economic resources to produce a good or service. The people who start businesses are called entrepreneurs. They are the organizers and innovators, constantly discovering new and better ways to bring resources together in the hope of making a profit. Like some fuel, profit makes the engine of business work. Entrepreneurs, guided by the potential for profits, create new businesses to satisfy consumers’ needs and desires. The inability to make profits signals businesses to close or to reorganize their resources more efficiently. Efficiency means that resources are being used to produce the goods and services that society most desires at the lowest economic cost. In a competitive industry, the presence or absence of profits sends an important signal about the industry’s economic efficiency.
Markets—the Agents. Buying and selling activities take place in markets. Although markets are not necessarily people, they act as agents to bring buyers and sellers together. Over time, markets have become increasingly complex. Now, buying and selling can occur 24 hours a day from anywhere in the world via the Internet. A market is any place or any way that buyers and sellers can use to exchange goods, services, resources or money. There are three categories of markets in a free enterprise society: resource markets, product markets and financial markets. Households go through resource markets to sell their labour to businesses. Businesses go through product markets to sell goods and services to households. And both households and businesses use financial markets to borrow and save money. Typically, businesses borrow money that households save, using financial institutions as the intermediary.
Governments—the Protectors. The cornerstone of a truly free enterprise economy is the absence of government interference in economic matters. However, the government still plays an important role in any free enterprise system. This is because unlimited freedom is impossible: one person’s freedom may sometimes conflict with another’s. So, the main role of government in a free society is to define and enforce the rules of society. Government has the power to maintain law and order and protect people’s right to own property. In essence, government provides the umbrella under which the free enterprise system operates. Governments also provide goods, such as national defence, that the private market alone would have a hard time producing.
What connects consumers, producers and markets? This linking function is performed by the price system. Prices tell people about the demand for a good, and they also tell them how scarce or abundant the good is. Prices provide information that is vital to making economic decisions. Without market prices, it would be very difficult for people to measure the value to society of each good and the scarcity or abundance of our resources. If a system tries to make decisions without prices, as the command system does, then it probably produces too many of some goods and too few of others. In the first case surplus occurs, when there are more goods than demanded in the market. The opposite of surplus is shortage, that is the situation when there are not enough goods and services that are needed. In the free enterprise system, the market itself regulates the situation with the help of price change. In the case of government intervention in the market, shortages may result in so-called black markets, artificial controls on demand, such as rationing, and price discrimination.
But if we say that all people seek their own benefit, how does free enterprise result in such beneficial outcomes for society? That’s where competition plays its great role. It helps to channel scarce resources into the production of goods and services that consumers value highly and away from those of low value. For example, when a business makes a large profit, there is incentive for other individuals to enter that business. On the other hand, if a business is losing money or members of an occupation receive a low wage, there is incentive to enter a different line of business or a different occupation. In this way, resources are guided toward the production of goods and services receiving economic rewards and away from those receiving economic punishments.
Language notes:
scores of... – безліч;
a handful of ... – невелика кількість ч-н;
consumer sovereignty – суверенітет споживача (право вибору благ);
intermediary – посередник;
the coercive power – примусова сила;
without market prices, it would be very difficult… - без системи ринкових цін було б важко…;
price discrimination – цінова дискримінація (продаж одного і того ж товару або послуг різним покупцям за неоднаковими цінами).
Vocabulary focus
Ex.1. Find the English equivalents in the text.
Однакові типи економічних систем; розглядати одні і ті ж проблеми; у дуже обмеженому масштабі; як у приватному, так і в громадських секторах; перетворювати ресурси на товари та послуги; відображати різницю в громадських цінностях; переслідувати (мету); приводити до якогось результату; найбільша ефективність або найменші витрати; найбільш сумісний з; володіти; економічні стимули; спонукати кого-небудь до дії; направляти дефіцитні ресурси на виробництво товарів і послуг; зіткнутися з неприємними наслідками; зазнати невдачі; правильно/належним чином; отримати найбільший прибуток; придбати дві третини продукції; самостійність споживача; відкривати/починати свою справу; задовольняти потреби та бажання споживачів; з найбільш низькими економічними витратами; посилати важливий сигнал; звести разом покупців і продавців; обмінюватися товарами, послугами, ресурсами або грошовими коштами; займати та накопичувати кошти; посередник; втручання уряду в економічні питання; визначати і вводити громадські правила; дотримуватись закону і порядку; виконувати сполучну функцію; брак/дефіцит або надлишок ресурсів; «ручне»/штучне управління попитом; цінова дискримінація; нормування.
Ex.2. Give Ukrainian equivalents of the following words and phrases.
Different blends of traditions; commands and markets; to do smth in a unique way; to utilize market mechanisms; a handful of countries; to involve market forces; market economy traits; these differences occur; a high level of market freedom; to force people to be creative; to value smth most highly; the most beneficial course of action; to seek high profits; to search for the lowest price; to indicate smth; to provide too much of a product; in addition to selling resources; in the hope of making a profit; an inability to do smth; to act as agents; to become increasingly complex; to use a financial institution as an intermediary; to be the cornerstone of smth; to have the coercive power to do smth; to have a hard time doing smth; vital information for making decisions; to channel scarce resources; to receive economic rewards or economic punishments.
Ex.3. Give three forms of the following verbs. Find the sentences with these verbs in the text.
Deal, occur, say, result, mean, seek, search, get, purchase, start, make, send, bring, become, go, tell, try, do, lose.
Ex.4. Match the words on the left with the definitions on the right.
1
private enterprise
a
a person who makes money by running businesses, especially when this involves taking financial risks
2
public sector
b
a structure which helps buyers and sellers get together to exchange goods or services
3
rationing
c
a situation when there is not enough of something that is needed
4
economic resources
d
the ability to do something well without wasting time or money
5
incentives
e
the policy of limiting the amount of food, fuel, etc. that people are allowed to have when there is not enough for everyone to have as much as they want
6
profit
f
an amount that is extra or more than you need
7
employer
g
a person or company that pays people to work for them
8
employee
h
a business that is owned by individuals or other companies, not by the government
9
benefit
i
something that encourages people to do something, especially to work harder, spend more money, etc.
10
household
j
a supply of something such as money, labour, etc. that an organization or a person has and can use
11
market
k
a person or an organization that helps other people or organizations to reach an agreement
12
entrepreneur
l
the part of the economy of a country that is owned or controlled by the government
13
sovereignty
m
complete independence
14
efficiency
n
the practice of selling the same product to different types of customers at different prices
15
intermediary
o
getting involved in and trying to influence the situation
16
interference
p
a person who is paid to work for somebody
17
surplus
q
a helpful and useful effect that something has
18
shortage
r
all the people living together in a single house or flat/apartment, considered as a unit
19
price discrimination
s
the money that you make in business or by selling things, especially after paying the costs involved
Ex.5. Make up verb+noun collocations (there may be several variants).
to make
an important signal
to satisfy
vital information
to start
resources
to send
an economic decision
to exchange
law and order
to borrow and save
a high profit
to play
consumer’s needs and wants
to maintain
money
to provide
a great role
to make
a new business
Ex.6. Fill in the gaps in the following verb collocations with appropriate prepositions or adverbs.
To deal ____ the same economic problems; to do something ____ a unique way; to utilize market mechanisms ____ a very limited extent; to turn resources ____ goods and services; to result ____ the greatest efficiency; to be compatible ____ individual freedom; to produce goods and services ____ sale; to search ____ the lowest price ____ a given product; to benefit ____ the efficient use of resources; to direct production ____ goods and services people want to get; to produce goods and services ____ the lowest economic cost; to bring buyers and sellers ____ ; to conflict ____ individual freedom.
Ex.7. Choose the appropriate word or a phrase to complete the following sentences.
Households, most compatible, labour, surplus, borrow and save, purchase, bring together, in a unique way, economic incentives, shortage, competition, to a very limited extent, define and enforce, businesses
Each economic system deals with What? How? and For whom? problems ____.
In some countries, market mechanisms are utilized ________ .
Free enterprise systems are ________ with individual freedom and political democracy.
In the free enterprise system ________ help people answer What? How? and For whom? questions in the most beneficial way, e.g. low prices for goods or services for consumers and high profit for producers.
________ , one of the components of the free enterprise system, own most of the country’s economic resources and with their wages and salaries ________ two-thirds of all the country’s production.
One of the resources that households have is their ________ , which they can sell to businesses.
Another component of the free enterprise system, ________ , performs the role of organizers.
Markets act as agents which ________ buyers and sellers ________ .
Financial markets are used by both households and businesses that want to ________ money.
The main role of government in the free enterprise system is to ________ the rules of society.
The situation when there are more goods than demanded is called ________ . When the opposite occurs, it is called ________ .
Another economic incentive in the free enterprise system is ________ , which stimulates businesses to make the most efficient decisions.
Ex.8. Combine two parts logically to make complete sentences.
1
All economic systems have
a
in each nation’s social values and objectives.
2
Free market or free enterprise economic systems
b
consumers’ needs and wants.
3
Economic systems reflect the differences
c
unpleasant consequences or so-called economic punishments.
4
Free enterprise means that people
d
different blends of traditions, commands, and markets.
5
Entrepreneurs, who are guided by the economic incentive of profit, create businesses which satisfy
e
employees to produce more and producers to use resources more efficiently.
6
The promise of profit stimulates
f
is provided by the price system and competition.
7
When people fail to make good economic decisions, they may face
g
have a high level of economic freedom.
8
In the free market system, economic “punishment” may take the form of
h
losses for businesses and low salaries or unemployment for workers.
9
Entrepreneurs constantly discover new and better ways
i
have the opportunity to own and use economic resources.
10
A market is any place or any way
j
that buyers and sellers can exchange goods, services, resources, or money.
11
In the free enterprise system, the vital information for decision-making
k
in the hope of making a profit.
Ex.9. Look through the text again and replace the words in bold with the linking words and phrases given below.
Even though/although, to a limited extent, therefore, instead, in addition to, however, in essence, on the other hand
In a free-enterprise economy, nobody forces entrepreneurs to be creative and productive. In the place of that, business people themselves choose what is best for their business.
Most countries in the world have a high level of market freedom. That is why, their economic systems are frequently called free market or free enterprise systems.
All economies deal with the same economic problems – What? How? and For whom? But they do it in their own unique way.
In some economies, such as Cuba, the market mechanisms are realized only in certain limits.
Despite the fact that markets are not necessarily people, they act as agents to bring buyers and sellers together.
Besides selling their resources to get profit, households also act as consumers.
Even if the market system is characterized by the absence of government interference, the government still plays an important role.
If a business is profitable, there is incentive for other people to join it. Alternatively, if it suffers losses or pays low wages, there is incentive to change it for another one.
The role of government in some aspects is so important that, in fact, it acts as an umbrella under which the free enterprise system operates.
Ex.10. Translate into English.
У світі існує безліч типів економічних систем, які відповідають на головні питання економіки - Що виробляти? Як виробляти? Для кого виробляти? - своїм особливим чином.
Економічні системи відображають відмінності в соціальних цінностях і цілях суспільства.
Високий ступінь ринкової свободи називають економічною системою вільного підприємництва.
Виробляючи товари і послуги, необхідні для суспільства, система вільного підприємництва призводить до найвищої ефективності або найменших витрат економіки.
Економічні стимули допомагають людям вибрати найбільш вигідний спосіб дій.
Якщо люди приймають неправильні рішення, вони можуть зіткнутися з неприємними наслідками, такими як втрати бізнесу або низька зарплата або навіть звільнення працівників.
Учасниками економічної діяльності в більшості систем вільного підприємництва є домашні господарства, компанії, ринки і уряд.
Домашні господарства володіють більшою частиною економічних ресурсів країни і на свою зарплату купують дві третини всієї продукції країни.
Нездатність заробити прибуток є сигналом для компаній про необхідність використовувати свої ресурси більш ефективно.
Ринок - це будь-яке місце або спосіб, які допомагають покупцям і продавцям обмінюватися товарами, послугами, ресурсами або фінансами.
Як домашні господарства так і компанії використовують фінансові ринки для позик або накопичення грошей.
Наріжним каменем системи вільного підприємництва є відсутність втручання уряду в економічні питання.
Уряд забезпечує дотримання закону і порядку і охороняє право людини на приватну власність.
Система цін є важливою інформацією про попит на будь-який товар і про його нестачу або надлишок на ринку.
Конкуренція також допомагає направити ресурси на виробництво товарів і послуг, які споживачі цінують більше за все.