Vocabulary Notes to Text 1.7.1.3

1. the allocation of labour — размещение (распределение) труда

2. economies of scale — экономия на масштабах производства

3. acquiring of specialist skills — приобретение специальных навыков

4. the saving of time — экономия времени

1.7.1.4. Read the text “Economies of Scale” and discuss it in the form of a dialogue.

Economies of Scale

The size and cost of supplied goods are of great importance in international trade. In its turn, it

primarily depends upon economies of scale. By economies of scale economists mean factors which

cause the average cost of producing a commodity to fall as output of the commodity rises. For

instance, a firm or industry which would less than double its costs, if it doubled its output, enjoys

economies of scale.

There are two types of such economies. The first — called internal — accrue to the individual

firm regardless of the size of its industry. They generally result from technological factors which

ensure the optimal size of production is large: (a) With high fixed costs in plant and machinery, the

larger its production, the lower the cost per unit of the fixed inputs. For example, producing steel

without a blast furnace is possible but very expensive; once a blast furnace is built, it is inefficient

only to make small quantities of steel with it: hence, steel companies tend to be large, (b) Large

firms can also arrange for the specialization of labour and machines — as in the techniques of the

production line which can increase productivity. (Smith, A.) (c) Only large firms can afford the

high costs of research and development. Non-technological factors are important too, however.

For example, by buying inputs in bulk, large firms can get discounts from their suppliers (who

grant them because of economies of scale in distributing the supplies). There are also economies of

scale in business finance.

The second type — external economies — arise because the development of an industry can

lead to the development of ancillary services of benefit to all firms: a labour force skilled in the

crafts of the industry; a components industry equipped to supply precisely the right parts; or a trade

magazine in which all firms can advertise cheaply. These can at least partially explain the much

observed tendency for firms to cluster geographically more often than would be predicted from

random location decisions.

The existence of economies of scale in most industries is used to explain the predominance of

large firm s in the world economy, but recently there has been some reassessment of the relative

importance of technological economies of scale as such.

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Commentary and Notes to Text 1.7.1.4

1. to accrue — нарастать

2. the size of industry — объем промышленности

3. the fixed inputs — постоянные затраты

4. production line — производственная линия

5. development — разработка

6. outputs — объем производства

7. business finances — (амер.) финансы частных предприятий

8. ancillary services — вспомогательные услуги

9. reassessment — переоценка

1.7.1.5. Read the text “Theoretical Aspects of International Trade” and make a synopsis of it in

Russian.

Theoretical Aspects of International Trade

The essence of the principle put forward by Heckscher- Ohlin is that a country will export those

commodities that are intensive (capital-intensive; labour-intensive) in the factor in which it is most

well endowed. The law of comparative advantage (Ricardo, D.) had been established by economists

as an explanation for the existence and pattern of international trade based on the relative opportunity-

cost advantages between different countries producing different commodities.

Due to Heckscher—Ohlin principle opportunity cost acquires particular importance. By it we

understand the value of that which must be given up to acquire or achieve something. Economists

attempt to take a comprehensive view of the cost of an activity. If a firm invests undistributed

profits to spend ￡1,000 on new machinery which requires less electricity to run than the equipment

it replaces, the cost of that machinery is not the outlay of ￡1,000 alone: what could be earned from

the best alternative use of the money also has to be taken into account. If, for example, the firm is

paying 12 per cent interest on an overdraft and the saving in electricity is less than ￡120 a year, it

would be better for the firm to pay off its overdraft than to invest in the new machinery. If a selfemployed

person makes a profit of ￡8,000 a year but pays himself no wage, he needs to consider the

alternative use to which his time could be put. He might, for example, be able to earn ￡10,000 a

year working for someone else: this is the opportunity cost of his time. Accounting costs, as in these

examples, normally allow only for cash outlays, but cash outlays will only approximate to opportunity

costs where competition ensures that the prices of all factors of production are equal to those

for their best alternative use (Wieser, F. von). (Under the assumptions of perfect competition, the

self-employed person would be aware that he could earn more in employment and, since we assume

profit maximization, he would do so.) Economists also distinguish between private costs and

social costs and costs in real terms and money terms.

However, the economists interpreted the law of D. Ricardo in different ways. The law says nothing

about why or how a comparative advantage exists. The Heckscher—Ohlin principle states that

advantage arises from the different relative factor endowments of the countries trading. The principle

was first put forward by Eli F. Heckscher (1879—1952) in an article published in 1919 and

reprinted in Readings in the Theory of International Trade (1949). It was refined by Ohlin in his

Interregional and International Trade (1933). The principle has been developed further.

Commentary and Notes to Text 1.7.1.5

1. to endow — обеспечивать

2. to take a comprehensive view of the cost — рассмотреть всесторонне издержки

3. undistributed profits — нераспределенная прибыль (доходы)

4. outlay — расходы (издержки)

5. on an overdraft — по овердрафту (по счету)

6. to pay off — рассчитываться

7. to put the time — затратить (использовать) время

8. accounting costs — калькуляция, затраты на ведение бухгалтерского учета

9. cash outlays — наличные расходы

10. in employment — будучи нанятым

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11. profit maximization — максимизация прибыли (дохода)

12. social costs — социальные издержки

13. costs in real terms — издержки в реальном выражении (с учетом изменяющихся условий,

например, инфляции)

14. in money terms — в денежном выражении

15. different relative factor endowments — сравнительная обеспеченность факторами

(производства)