21. Complete the following sentences according to the text.

1. Some economists argue that high incomes …

2. Other economists believe that people get …

3. Some economists believe that the government should exercise …

4. There are two ways to earn income: …

5. In return for working people …

6. The term “wage” …

7. “Salary” refers to …

8. Adding the value of all your possessions …

9. If you owned a house, you …

10. Interest and rent are …

22. Arrange sentences according to the text.

1. First they must earn the income.

2. Others believe that people get what they deserve.

3. Wealth can be expressed as the value of the things you own.

4. The question about the distribution of income is among the most controversial in all economies.

5. In return for working people receive a wage or a salary.

6. The total amount of your wealth is a sum of the value of all your possessions, bank accounts, savings and the like.

7. Some think that the government should exercise its power to ensure that a social safety net catches those whose incomes fall below some decent standard of living.

8. Salary refers to earnings paid on a weekly or monthly basis.

9. Before people can consume anything they must do two things.

10. Some argue that high incomes are the unfair results of past inheritance while poverty stems from discrimination.

11. The term “wage” refers to the earnings of workers paid by the hour or unit of production.

12. Then they must decide how the money will be spent.

23. Make up a plan of the text.

24. Speak on the topic “Income and Interest”.

LESSON 8. PROFIT AND PROSPERITY

Grammar Presentation: Согласование времен.

Grammar Revision: Побудительные предложении. Функции инфинитива в предложении.

PROFIT AND PROSPERITY

In addition to wages, interest and rent, economists often talk about a fourth category of income called profits. What are profits? How do they differ from interest and the returns on capital move generally?

Profit, from Latin meaning "to make progress", is defined in two different ways. Pure economic profit is the increase in wealth that an investor has from making an investment, taking into consideration all costs associated with that investment including the opportunity cost of capital. In economics, a firm is said to be making an economic profit when its revenue exceeds the total (opportunity) cost of its inputs.

Accounting profit is the difference between retail sales price and the costs of manufacture. In the accounting sense of the term, net profit (before tax) is the sales of the firm less costs such as wages, rent, fuel, raw materials, interest on loans and depreciation. Costs such as depreciation and amortization tend to be ambiguous.

When accountants calculate profits what do they usually include? Profits are defined as the difference between total revenues and total costs. To calculate profits, start with total revenues from sales. Subtract all expenses (wages, salaries, rents, materials, interest, excise taxes and the rest). What is left over is the residual called profit.

In analyzing profits it is important to distinguish business profits from economic profits. Business profits are the residual income, equal to sales less costs, measured by accountants. Business profits include an implicit return on the capital owned by firms. Economic profits are the residual enjoyed by an entrepreneur after subtracting all the opportunity costs of doing business, including those of the entrepreneur’s own labor and funds and other resources supplied to the enterprise.

In large corporations, therefore, economic profits would equal business profits less an implicit return on the capital owned by the firm along with any other costs (such as unpaid management time) not fully compensated at market prices.

Profits are revenues less costs. Economists consider profits to be chiefly corporate earnings. Economically we must distinguish these three different categories. Perhaps the most important source is profits as an implicit return. Firms generally own many of their own non-labour factors of production – capital, natural resources and patents. In these cases, the implicit return on unpaid or owned inputs is part of profits.

A second source of profit is uncertainty – associated with the return to cover uninsurable risks, and the profits earned by entrepreneurs who introduce new products or innovations.

Finally, profits may result from firms exercising monopoly power on their patents, from special privileges or due to regulation.

The main purpose of an enterprise in a market economy is to maximize profit. The rule of profit maximization is in the following: marginal products of all factors of production in terms of value are equal to their prices or each resource is used until its marginal product in terms of money is equal to its price.

Any enterprise bears expenses. They are numerous. It is important to compare average and marginal costs to define steady position of an enterprise. Stability of a firm is achieved if average and marginal costs are equal to marginal revenue. The result of an enterprise’s activity is total revenue and profit.

Notes on the text

less = minus