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Chapter 2 scarcity in a world of transition

1. Key terms – matching and translation.

Read aloud the key term and its definition so that they make up a single sentence. (Remember about the agreement between the subject and the predicate!). Translate the sentences you have arrived at from English into Russian.

Set 1

centralized decision making	Capitalism's answer to "who owns?"
2 random selection	When more goods can be produced with fewer resources.
3 laissez-faire	“We do it this way because we always have”.
4 tradition	Equal shares.
5 economic growth	Might makes right, and right makes mine.
6 queuing	First-come/first-served.
7 technological advance	A draft for military service is an example.
8 brute force	Minimal government.
9 private property	One path to this is to increase investment.
10 egalitarianism	System of economic planning that was used in the former Soviet Union

Set 2

1 socialism	The least restrictive form of property rights.
2 increasing costs	A society in which most major economic decisions are centralized.
3 mixed economy	Any activity eventually becomes more difficult the further it is extended.
law of diminishing returns	When your opportunity cost of producing some good is lowest, so that you gain by trading for something else for which your opportunity cost is relatively high.
5 production possibilities frontier	Government acts as “trustee” over most nonhuman resources.
6 markets	Depicts limits to the amounts that given resources can produce.
7 capitalism	Enables buyers and sellers to transact.
8 command economy	Emphasizes private property rights and laissez-faire policies.
9 “fee simple”	A logical extension of the law of diminishing returns.
10 comparative advantage	Some property and decisions are private, others are governmental.

2. Text translation.

Translate the text from English into Russian in writing paying particular attention to the translation of the economic terms in bold as well as words and phrases relevant to the subject of the text. Read out your translation in class and introduce the necessary corrections.

Scarcity in a world of transition

Chapter Objectives

After you have read and studied this chapter, you should be able to show how goods, resources, and incomes move among households through firms and government. You should be able to explain how comparative advantage, specialization, and trade can increase production and consumption. You should be able to use production possibilities curves to describe scarcity, increasing opportunity costs, and choice. You should be able to explain how alternative allocative mechanisms work, and understand some basic differences between capitalism and socialism.

Chapter Review: Key Points

1. Households ultimately own all wealth and provide all resources to business firms or government in exchange for income with which to buy goods. Interactions between households, firms, and government are shown in circular flow models.

2. Comparative advantage is a guide to efficient specialization: You gain by specializing in production where your opportunity costs are lowest and trading your output for things other people can produce at lower opportunity cost.

3. A production-possibilities frontier (PPF) shows the maximum combinations of goods a society can produce. PPF curves assume (a) fixed resources; (b) constant technology; and (c) full and efficient employment of all scarce resources.

4. Opportunity costs are the values of outputs if resources were deployed in their next best alternatives. Opportunity costs are not constant because resources are not equally suited for all types of production. Increasing a particular form of production invariably leads to diminishing returns and increasing opportunity costs, so PPF curves are concave (bowed away) from the origin.

5. The idea that “a point of diminishing returns” has been reached is sometimes cited as a reason for ceasing an activity. This is usually a misuse of this phrase – people intend to say that a point of negative returns has been reached. An activity is often worth doing even though diminishing returns are encountered.

6. Economic growth occurs when technology advances or the amounts of resources available for production increase. Economic growth is reflected in outward shifts of the production-possibilities curve; more of all goods can be produced.

7. The choices a society makes between consumption and investment goods affects its future production-possibilities curve. Lower saving and investment restricts economic growth and PPF expansion.

8. PPF's shapes illustrate different countries' comparative advantages. Trade allows a nation's people to consume far more goods than they could produce in isolation.

9. Alternative allocative mechanisms include: (a) the market system, (b) brute force, (c) queuing, (d) random selection, (e) tradition, and (f) government.

10. Many different economic systems are used in attempts to resolve the problem of scarcity. They can be classified by who makes the decisions {centralized or decentralized) and who owns the resources (public versus private).

11. Property is privately owned under pure capitalism and government follows laissez-faire (hands-off) policies. Thus, decisions are decentralized and rely on individual choices in a market system. Under socialism, government acts as a trustee over the nonhuman resources jointly owned by all citizens, with many socialist economies also relying heavily on centralized production and distribution decisions.

3. Vocabulary practice: switching.

Get ready for an oral (written) translation exercise based on the economic terms in bold, as well as other relevant words and phrases from the text.

Under pure capitalism; следовать к-л политике; laissez-faire policy; полагаться на индивидуальный выбор; non-human resources; обладать в конечном итоге всем богатством; business firms; в равной степени подходить для всех видов производства; наращивать конкретный вид производства; consumption goods; неизменно приводить к ч-л; diminishing returns; растущие альтернативные издержки; concave; investment goods; низкий уровень сбережений; queuing; низкий уровень инвестиций; market system; ограничивать экономический рост; продавать свою продукцию; производить при минимальных альтернативных издержках; PPF=Production Possibilities Frontier; максимально выгодное сочетание товаров; делать что-либо в обмен на получение дохода; покупать ч-л на имеющиеся средства от дохода; взаимодействия; circular flow model; являться руководством к эффективной специализации; household; получать выгоду при специализации; point of diminishing returns; исходить из наличия неизменных ресурсов; production possibilities curve; исходить из наличия неизменной технологии; centralized decision; полная занятость ограниченных ресурсов; являться коллективной собственностью всех граждан; socialist economy; в значительной степени опираться на централизованные решения; production decision; перемещаться между домохозяйствами; comparative advantage; специализация; to be bowed away; увеличивать потребление; alternative allocative mechanism; торговля; origin; быть выгнутым относительно начала координат; negative returns; увеличивать производство; economic growth; технологический прогресс; brute force; количество ресурсов; сдвиг кривой производственных возможностей вверх и вправо; стоимость произведенной продукции; the next best alternative; размещать ресурсы согласно второму из двух лучших вариантов; неизменные альтернативные издержки; расширение кривой производственных возможностей; форма кривой производственных возможностей; comparative advantage; random selection; найти решение проблемы; resolve the problem of scarcity; decentralized decision; общественная собственность на ресурсы; частная собственность на ресурсы; distribution decision; находиться в частном владении.