Finance and economics

 

Finance is:

■ money provided or lent for a particular purpose.

■ the management of money by countries, organizations or people.

■ the study of money management.

High finance involves large amounts of money used by governments and large companies. A person’s or organization’s finances are the money they have and how it is managed, etc. The related adjective is financial.

 

Economics is:

■ the study of how money works and is used.

■ calculations of whether a particular activity will be profitable.

Related adjectives: a profitable activity is economic; an unprofitable one is uneconomic. If something is economical, it is cheap to buy, to use or to do. If not, it is uneconomical.

Economic indicators are figures showing how well a country’s economy (economic system) is working.

 

1. Complete these sentences with expressions from above.

1. Eating pasta, potatoes and rice rather than meat and fish is...........

2. Buying your food at a small local shop rather than at a big supermarket is...........

3. Someone who arranges multibillion-dollar loans to governments works in............

4. Someone who is heavily in debt has problematic............

5. If you obtain money for investment in a business project, you raise............

6. Someone who teaches about trade between countries is a teacher of............

7. Pig farming is at present unprofitable and............

2.Notable Quotable. Comment on the following:

It's good to have money and the things that money can buy, but it's good, too, to check up once in a while and make sure that you haven't lost the things that money can't buy.

George H. Lorimer

 

3. Read and translate the text. Answer the following questions:

a) Explain in your own words the term Homo Economicus.

b) Who was the first to explain the idea?

c) How is the idea of Homo Economicus related to the notion of costs and benefits? Give examples.

d) Why do you think people mostly take quick decisions based on past experience, habit, and rules of thumb?

e) Why is the idea of "economic man" still useful nowadays?

 

 

Man is a Cold Rational Calculator

Economic man

 

Most economic models are underpinned by the assumption that humans are essentially rational, self- interested beings. This is Ноmo Economicus, or “economic man. The idea - which applies equal to men and women - assumes that every individual makes decisions designed to maximize their personal well-being, based on a level-headed evaluation of all the facts. They choose the option that offers the greatest utility (satisfaction) with the least effort. This idea was first expounded by Adam Smith in his 1776 work, The Wealth of Nations.

Smith’s central belief was that human economic interaction is governed mainly by self-interest. He argued that "it is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest”. In making rational decisions, suppliers seek to maximize their own profit; the fact that this supplies us with our dinner matters little to them. Smith's ideas were developed in the 19th century by the British philosopher John Stuart Mill. Mill believed people were beings with desire to possess wealth, by which he meant not just money, but a wealth of all things good. He saw individuals as motivated by the will to achieve the greatest well-being possible, while at the same time expending the least possible effort to achieve these goals.

Today, the idea of Homo Economicus is referred to as rational choice theory. This says that people make all kinds of economic and social decisions based on costs and benefits. For example, a criminal thinking of robbing a bank will weigh up the benefits (increased wealth, greater respect from other criminals) against the costs (the chances of getting caught and the effort involved in planning the raid), before deciding whether to commit the crime.

Economists consider actions to be rational when they are taken as a result of a sober calculation of costs and benefits in relation to reaching a goal. Economics may have little to say about the goal itself, and some goals may appear to be quite irrational to most people. For example, while to most of us it may seem a dangerous decision to inject the human body with unverified performance­-enhancing drugs, for numerous athletes - in the context of the desire to be the best - the decision may be a rational one.

Some people have questioned whether the idea of Homo Economicus is realistic. They argue that it does not allow for the fact that we cannot weigh up every relevant factor in a decision - the world is too complex to collate and evaluate all the relevant facts needed to calculate costs and benefits for every action. In practice we often take quick decisions based on past experience, habit, and rules of thumb.

The theory also falters when there are conflicting long- and short-term goals. For instance, someone might buy an unhealthy burger to stave off immediate hunger, despite knowing that this is an unhealthy choice. Behavioural economists have begun to explore the ways in which humans act differently to Homo Economicus when making choices. The ideas of "economic man" may not be entirely accurate for explaining individual behaviour, but many economists argue that it remains useful in analysing the actions of profit-maximizing firms.

 

economic man	экономически мыслящий человек: в традиционной экономической теории утверждается, что только экономически мыслящий человек, т.е. человек способный определять задачи и добиваться их решения, способен найти рациональное решение
behavioural economists	экономисты, сторонники поведенческой теории

4. Summarise the article using the outline given below:

1) As individuals we are self interested.

2) We aim to improve our personal well-being by consuming goods and services, and achieving goals.

3) We make decisions by collecting information and calculating which actions will help us achieve our aims without being too costly.

4) Man is a cold rational thinker.