Who Will Get to Use the Goods and Services Produced by the Economy?

UNIT FIVE

The Basic Economic Problem Types of Economic Systems

ESSENTIAL VOCABULARY

1. Allocation n. – the act of allocating something – розміщення, розподіл. Allocation of labour – розподіл робочої сили, resource(s) allocation розподіл/розміщення ресурсів. Syn. distribution.

2. At one’s disposal– available for someone to us e - в розпорядженні. Syn. available.

3. Benefit v. – to be advantageous or helpful to somebody or something; to do good to somebody or something – приносити/отримувати/мати користь/вигоду,допомагати. To benefit a society – приносити користь суспільству, a society benefits - суспільство отримує користь.

4. Combination n. – two ore more different things that exist together or are used or put together – комбінація, поєднання. Factor combination – поєднання факторів, combination of operations – поєднання операцій. Syn. a blend.

5. Consumer n. – anyone who uses goods and/or services – споживач, клієнт. Consumer behaviour – поведінка споживача, consumer choice - вибір споживача/споживчий вибір, consumer goods/commodities – споживчі товари, final/ultimate consumer/customer – кінцевий споживач. Syn. a customer.

6. Distribute v. – to share things among a group of people – розподіляти, розташовувати. Syn. to allocate.

7. Distribution n. – the act of distributing something – розподіл. Distribution of wealth – розподіл (національного) доходу/ багатства, income distribution – розподіл доходу.

9. Encourage v. - to give support, confirmation, or approval to process or action and to rouse a person to greater effort or interest - заохочувати, підтримувати, сприяти, спонукати, стимулювати, надихати.Syn. to favour, to stimulate.

11. Incentive n. – something that serves as a stimulus to action by appealing to self-interest – спонукальний мотив, стимул, заохочення. Incentive to use one’s property – стимул використовувати чиюсь власність. Syn. an encouragement, a motive.

12. Institution n. – a large organization that has a particular kind of work or purpose – установа, організація. Government institution - урядова організація. Syn. an organization.

13. Lack n. – a state of not having something or enough of something - брак, нестача, відсутність. Lack of competition – відсутність конкуренції. Syn. shortage.

14. Ownership n. - a right to hold a thing entirely as one’s own – право власності, власність. Ownership of the means of production – власність на засоби виробництва, private ownership – приватна власність, public/state ownership – усуспільнена/державна власність.

15. Perform v. – to do something difficult or useful – виконувати, здійснювати, робити. To perform an obligation – виконувати зобов’язання, to perform a task – виконувати завдання, to perform a work – виконувати роботу.

16. Property n. – something that is owned or possessed – власність, майно. Individual/personal property - особиста власність, private property - приватна власність, public property - державна/громадська власність. Syn. possessions.

17. Willing adj. – ready to do something without hesitation – готовий. To be willing to do something – бути готовим, робити щось охоче. Syn. ready.

Text

Whenever people gather in a community, they necessarily deal with a few universal economic problems. These fundamental questions are as crucial today as they were at the dawn of human civilization. Every human society - whether it is an advanced industrial nation, a centrally planned economy, or an isolated tribal society – must face and solve three fundamental and interdependent economic questions.

· What goods and services are to be produced, and in what quantities are they to be produced?

· How are these goods and services to be produced?

· Who will receive and consume these goods and services?

The first basic choice is that of what goods a society should produce and in what quantities.

Every economy has limited resources at its disposal but the goods and services wanted by its people are numerous. With the limited resources it can't produce all that is wanted by its people. So an economy faces the problem of what goods and services are to be produced and in what quantities. In other words it faces the problem of resources allocation between their alternative uses.

Should resources be allocated to the production of consumer goods or capital goods; whether to produce civilian goods or goods for defense; whether to construct luxury hotels or houses, all these are problems of choice.

In fact the choice to be made refers to what goods are to be produced and the second choice associated with it relates to the quantities of these goods. In other words what combination of goods and services should be produced? The nature of the combination of goods and services to be produced depends on the consumer choices and the consumer’s preferences * reflected in market prices or on the priority laid down in government policies.

How Are Those Goods and Services to be produced?

A second basic choice is that of how to produce. Most goods can be produced in more than one way by using resources in different quantities and combinations. It is often possible to vary the factor combinationin manufacturing. Any society decides how it will organize its scarce resources in order to use them efficiently. Efficiency is a key criterion deciding how to produce. Efficiency means producing goods and services with a minimum of expense, effort, and waste. As the economy has to economize its limited resources it has to make a choice between various production methods to produce different goods.

Who Will Get to Use the Goods and Services Produced by the Economy?

No one can get all he wants. Whatever is produced in an economy it cannot be sufficient to meet everybody's wants. So a problem arises who will get and how much. This is the problem of distribution of wealth produced in an economy among different groups.

In fact, what determines who is to receive a particular share of the economic pie?

Production of goods and services is the result of the joint efforts of the owners of the four factors of production: land, labour, capital and entrepreneurship. So the total production is to be distributed among the owners of these factors of production. There is no system by which goods and services may directly be distributed among the factor owners. What they get is the money income in the form of rent, wages, interest and profits. With this income they buy the goods and services. How much can wage earners buy or land owners buy or owners of capital buy or profit earners buy? It will depend upon their income. So it is a problem of national income distribution.

The way that a country uses to solve three basic questions is based on its economic system.

An economic system is a mechanism that deals with the production, distribution and consumption of goods and services in a particular society.

The economic system consists of people, institutions and their relationships to resources. It addresses the problems* of economics, like the allocation and scarcity of resources.

There are four main types of economic systems present in the world: the traditional economy, the command economy, the market economy, and the mixed economy.

Ø The traditional economy is an economic system in which decisions about what, how, and for whom questions are made on the basis of customs, beliefs, religion, habit, and tradition.

People’s economic roles are the same as those of their parents and grandparents. The ways they produce clothing and shelter are almost exactly the same as those used in the past. Traditions decide what these people work for a living, how their work is performed and who gets what is produced in such an economy. Since there is little produced, there is little to go around.

It has an advantage over other systems, in that there is little disagreement among members because relatively little is disputed. However, it restricts individual initiative and has a lack of advanced goods, new technology, and economic growth.

Ø The command economy is a society where the government institutionsmake all decisions concerning what will be produced, how it will be produced, and for whom it will be produced.

In a command economy, a central authority or agency draws up plans that establish what will be produced and when, sets production goals, and makes rules for distribution.

The government owns a considerable fraction of the means of production that is, they are publicly owned; it also owns and directs the operations of enterprises in most industries; it is the employer of most workers and tells them how to perform their work.

The individual has very little say* as to how the basic economic questions are answered.

Command economies don't help * their workers' incentives because everyone is given the same amount of goods and the same standard of living. A hard working citizen would not be given a chance to benefit from his extra work because he cannot increase his standard of living any greater than it currently is and he will earn just as much as a person who makes little or no effort.

Ø The market economy (or so called free market economy or free enterprise economy) is an economic system in which the decisions of many individual buyers and sellers interact to determine theanswers to the questions of What, How andWho.

In a market economy the fundamental economic questions are answered in the marketplace by the interaction of buyers and sellers. For example, the question of what to produce may be based on what trend is popular right now. The producers can create a product that they think they will sell well to the consumers in hope to make a profit. The question of how to produce is usually based on the producer's choice. They might decide to produce a product with more workers or they might decide to produce it more with machines and computers to save on labour costs *. The question involving for whom to produce is based on the consumers who decide what they want or need and what price they are willing to pay for it.

There are several essential elements in a market economy. One of these is private property - the right of individuals and businesses to own the means of production. In a free market economy, the major factors of production are privately owned. Private ownership gives people the incentive to use their property to produce things they will sell and make profits.

This desire to earn profits or the profit motive is a second ingredient in a market economy.

The profit motive encourages sellers to produce at the lowest possible cost.

Ø The mixed economy is an economic system that answers the three economic questions both in the marketplace and in the government*.

A mixed economy contains both private and public, or state-owned (or controlled) enterprises and relies on the market but with a large dose of government intervention. A mixed economy usually involves producers working closer with the government to achieve economic goals. interference

Since no country in the world exemplifies either type of economic system in its pure form, all major economies are mixed ones because market forces as well as government decisions* play a role in answering the basic economic questions. The blend of market and government participation is different in different countries with mixed economies. The optimal level of government interference remains a problem which is of interest to economists.

COMMENTS:

the consumer’s preferences – перевага / уподобання споживачів;

it addresses the problems -вона має справу з/займається проблемами;

the individual has very little say – окрема людина/особа мало що вирішує;

command economies don't help – командна економіка не заохочує;

labour costs – витрати на робочу силу;

both in the marketplace and in the government – як на ринку, так і в уряді;

market forces as well as government decisions – як ринки, так і урядові рішення.

Exercise 1. Read, translate into Ukrainian in written form and memorize the definitions of the following economic terms and concepts.

1. Command economy:an economic system in which major decisions concerning the resources allocation are made by agencies of the government.	____________________________________________________________________________________________________________________________________________________________________________
2. Economic system:the approach a country uses to deal with the scarcity and achieve its economic goals.	_________________________________________________________________________________________________________________________________
3. Free enterprise system:an economic system based on the private ownership of property, competition, and the profit motive.	____________________________________________________________________________________________________________________________________________________________________________
4. Market economy: an economic system in which national economic decisions are the result of decisions of individual buyers and sellers in the market place.	____________________________________________________________________________________________________________________________________________________________________________
5. Mixed economy: an economic system that combines elements of public ownership of the means of production with private ownership.	____________________________________________________________________________________________________________________________________________________________________________
6. Private property:the basic right of the free enterprise system that guarantees the individual’s right to own, use, and dispose of things of value.	____________________________________________________________________________________________________________________________________________________________________________
7. Profit motive: the desire to benefit from the investment of time and money in a business enterprise.	_________________________________________________________________________________________________________________________________
8. Traditional economy: an economic system that allocates scarce resources according to custom; change and growth are very slow; people do what their parents did before them; most goods are produced and consumed locally.	__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ___________________________________________

Exercise 2. Give the Ukrainian equivalents for the following.

1. to be at the dawn ______________________________________________________________

2. the problem of resources allocation _______________________________________________

3. the priority laid down in government policies ________________________________________

_______________________________________________________________________________

4. a key criterion ________________________________________________________________

5. a particular share ______________________________________________________________

6. wage earners _________________________________________________________________

7. to solve three basic questions ____________________________________________________

8. on the basis of ________________________________________________________________

9. there is little disagreement ______________________________________________________

10. a lack of advanced goods _______________________________________________________

11. to set production goals _________________________________________________________

12. to be publicly owned ___________________________________________________________

13. workers' incentives ____________________________________________________________

14. to interact to determine the answers to _____________________________________________

15. to be based on the producer's choice ______________________________________________

16. to give people the incentive _____________________________________________________

17. a second ingredient ____________________________________________________________

18. the profit motive ______________________________________________________________

19. both private and public enterprises ________________________________________________

20. the blend of market and government participation ____________________________________

_______________________________________________________________________________

Exercise 3. Find the English equivalents for the following.

1. повинне стикатися та розв’язувати ______________________________________________
_______________________________________________________________________________

2. взаємовиключні використання __________________________________________________

3. вибір, який необхідно зробити __________________________________________________

4. різні технології _______________________________________________________________

5. його не може бути у достатній кількості _________________________________________

6. спільні зусилля власників ______________________________________________________

7. власники факторів виробництва ________________________________________________

8. економічна система складається з _______________________________________________

9. заробляти на хліб ____________________________________________________________

10. обмежувати особисту ініціативу ________________________________________________

11. центральна влада ____________________________________________________________

12. розробляти план _____________________________________________________________

13. стільки ж скільки ____________________________________________________________

14. вільна ринкова економіка _____________________________________________________

15. мати хороший збут ___________________________________________________________

16. бути готовим заплатити _______________________________________________________

17. знаходитися/бути у приватній власності _________________________________________

18. це бажання отримати/заробити прибутки ________________________________________

19. за найменшими можливими витратами __________________________________________

20. значна доля урядового втручання _______________________________________________

21. як ринки, так і урядові рішення _________________________________________________

Exercise 4. Match the verbs/verbal phrases, prepositions (if necessary) and nouns/noun phrases as they occur together in the text: translate the expressions they make into Ukrainian.

1.	to depend		labour costs
2.	to be distributed		the owners
3.	to be based	from	economic goals
4.	to work	on	the consumer’s preferences
5.	to draw		its economic system
6.	to set	among	his extra work
7.	to direct	for	the operations
8.	to benefit	up	production goals
9.	to save		a living
10.	to achieve		plans

Exercise 5. Match these adjectives and nouns as they occur together in the text: translate the expressions they make into Ukrainian.

1.	alternative	goods
2.	a key	authority
3.	various	elements
4.	essential	production
5.	the total	criterion
6.	economic	uses
7.	a central	techniques
8.	different	roles

Exercise 6. Match these nouns/noun phrases, prepositions (if necessary) and nouns/noun phrases as they occur together in the text: translate the expressions they make into Ukrainian.

1.	the factor		earners
2.	disagreement	of	living
3.	standard		motive
4.	owners	with	mixed economies
5.	profit		intervention
6.	countries	among	members
7.	government		owners
8.	the profit		capital

Exercise 7. Copy out of the text the sentences containing the words and word-combinations listed below and translate these sentences into Ukrainian.

Every human society: ______________________________________________________________

the consumer’s preferences: _________________________________________________________

the factor owners: _________________________________________________________________

is based on: ______________________________________________________________________

work for a living: _________________________________________________________________

to perform their work: _____________________________________________________________

makes little or no effort: ____________________________________________________________
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

will sell well: ____________________________________________________________________
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

private ownership: ________________________________________________________________
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

relies on the market: _______________________________________________________________

markets as well as government decisions: ______________________________________________
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Exercise 8. Choose from the box the words and word-combinations having the same or similar meaning to the words listed below. More than one is possible.

1. бути готовим робити (2)
2. бути у розпорядженні (2)
3. власність (3)
4. втручання (3)
5. державна власність (2)
6. дуже важливий (3)
7. кінцевий споживач (2)
8. нестача (3)
9. особиста власність (2)
10. поєднання (2)
11. приватна власність (2)
12. розподіл (2)
13. розподіляти (2)
14. споживач (2)
15. сприяти (3)
16. стимул (3)
17. технологія виробництва (2)
18. установа (2)
19. частина (2)

public ownership		key	a customer		an institution	a participation
a technology		a dose	property		to encourage	a combination
private ownership		allocation	a share		an intervention	an organization
a final consumer		a consumer	a blend		to distribute	to favour
an encouragement		essential	possessions		a shortage	private property
an individual property		a lack	a motive		distribution	to be willing
an interference		crucial	a deficit		to be ready	to be available
personal property		to stimulate	to allocate		state property	an incentive
an ultimate customer	to be at one’s disposal			a production method			ownership

Exercise 9. Translate the words in brackets into Ukrainian.

Every economy has limited resources (у своєму розпорядженні) to meet (необмежені людські бажання). So the (проблема вибору) arising out of (нестачу ресурсів) faces every economy. All societies have to decide what they (готові відмовитися) to get the things they want. It is the task of an economic system to (ефективно поєднати своїї ресурси), wants and (технології виробництва). To do so, it must answer (три основні та взаємозалежні економічні питання): What to produce, How to produce, and For Whom to produce with its limited resources.

Not all societies choose to answer these questions in the same way, however, (кожне суспільство намагається) to answer them (еффективно). The economic system a country has (грунтується на) what is best for the country. The way each question is answered identifies (тип економічної системи) that exists (у певному суспільстві). (Загалом існує) three kinds of economic systems (у світі). They are: traditional, command, and market economies.

вирішує (У традиційній економіці), the custom or tradition of the society (надає відповіді на) the What, How, and Who questions.

(У суспільстві з командною економікою) it is (урядові установи) that (приймають рішення) which products will be made, they decide where (розташувати новий завод) and what factory to modernize. By setting wage rates for everyone, (центральна влада вирішує) who will receive (вироблені товари та послуга).

The most widely accepted economic system today is (ринкова економіка). In this type of economy it is (діяльність та рішення) of the buyers and sellers of goods, services and resources that (керують економічною системою).

Since there are no (як чистих командних, так і чистих ринкових економік), it is perhaps better to describe (більшісь сучасних економік) as (змішані економіки), in which (як уряд, так і приватні особи) have their economic (вплив на ринок) effect on the marketplace.

Exercise 10. On the left of the page there are the first halves of sentences. The second halves of the sentences are on the right, though not in the same order. Pair the halves and then write your own list of the completed sentences. Translate into Ukrainian.

1. Since there will not be enough produced to meet everybody’s wants,	a. as its economic system.
2. The central problem of economics is	b. in accordance with the laws of supply and demand.
3. The market system and the ownership of wealth are	c. to make the most productive use of their means of production
4. In command economies the major means of production are	d. some way will have to be chosen to determine how the output is distributed.
5. Private property provides people with the incentive	e. to obtain the greatest profits at the lowest possible cost.
6. A market, or free enterprise system, as it is sometimes called, is	f. to determine the most efficient ways of allocating the factors of production and solving the problem of scarcity.
7. Private property and the profit motive are	g. privately owned.
8. The profit motive encourages people	h. the key elements in determining who will be rich, middle or poor.
9. In market economies the major means of production are	i. one in which the decisions of many individual buyers and sellers interact to determine the answers to the questions of What, How and Who.
10. The way in which a society provides answers to the What, How and Who questions is known	j. essential elements in a market economy.
11. Resources in a market economy are allocated	k. usually publicly owned.

Completed sentences

Translation

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Exercise 11. Match each term in column A with its definition in column B.

A	B
1. Command economy	a. An organized way of providing answers to the fundamental economic questions of What, How and Who.
2. Economic system	b. The natural desire of every entrepreneur to make as much profit as possible.
3. Free enterprise system	c. A type of economic system in which the activities of firms and the allocation of productive resources are determined by government direction rather than the market forces.
4. Market economy	d. An economic system in which the decisions concerning the productive resources allocation are based on tradition and custom.
5. Mixed economy	e. A form of organization of the economy in which decisions on resources allocation are left to the independent decisions of individual buyers and sellers acting in their own best interest without central direction.
6. Private property	f. A form of organization of the economy in which some goods and services are produced by the government and some by private enterprises.
7. Profit motive	g. One of the essential elements in a market economy that gives each individual the right to own, use and dispose of things of value.
8. Traditional economy	h. An economic system characterized by private ownership of property and productive resources, the profit motive to stimulate production, competition to ensure efficiency, and the forces of supply and demand to direct the production and distribution of goods and services.

1. and economy

1	2	3	4	5	6	7	8

Exercise 12. Correct the following statement if you find them wrong. Make sure you begin your answers with such commonly accepted phrases as:

Ø I quite agree with smb/smth.

Ø Yes, that's quite right.

Ø I don't think that's quite right.

Ø I am afraid I don't/can’t agree with smb/ smth.

Ø I'm afraid that's completely wrong.

Ø That's not quite right/true.

Ø I wouldn't say so.

Ø Oh, no, quite on the contrary.

Ø As far as I remember…

1. There is no need for a society to resolve three fundamental and interdependent economic questions.

2. The reason every society provides answers to the fundamental economic questions is that there is enough of everything to go around.

3. All countries in the world have just the same approaches to address the basic economic questions.

4. Most economic systems function as command economies.

5. The advantage that a society with a traditional economy has over other systems is that people benefit from their extra work and raise their standard of living.

6. In answering the basic economic questions a free market economy relies on decisions made by government

7. Command economies combine market-type systems with some degree of government intervention.

8. In a mixed economy the means of production are privately owned and all national economic decisions are the result of decisions of individual buyers and sellers in the market place.

Exercise 13. Translate the sentences into English using the active vocabulary.

1. Проблема нестачі ресурсів стосується проблеми розподілу ресурсів. 2. Кожне суспільство вибирає свій особистий шлях надання відповіді на основні економічні питання Що, Як і для Кого виробляти. 3. У суспільстві з традиційною економікою більшість людей не вільні приймати рішення, які грунтуються на тому, що вони хочуть або що хотіли б мати. 4. В деяких сучасних суспільствах уряд відіграє значу роль у відповідях на основні питання що, як і хто. 5. Командна економіка – це така, в якій уряд приймає усі рішення щодо виробництва та розподілу багатства країни 6. В ринковій економіці основні засоби виробництва знаходяться у приватній власності. 7. Не існує ринкових економік без втручання уряду в деякі економічні проблеми. 8. Ринкова система надає окремим лю-дям та торгівельно-промисловим підпри-ємствам стимул виробляти речі, які хочуть покупці та за ціною, яку вони готові заплатити. 9. Велика кількість незалежних покупців і продавців, приватна власність та мотив прибутковості – найважливіші складові ринкової економіки. 10. Усі сучасні суспільства – це суспіль-ства зі змішаними економіками, що поєднують елементи ринкової та командної економік. 11. У змішаних економіках рішення що виробляти, як його виробляти і для кого приймаються як ринком, так і урядом.

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Exercise 14. Answer the following questions.

1. What are the three basic economic questions that every society must answers?

2. What makes each society look for the answers to the basic economic questions?

3. Why must individuals and societies provide answers to the basic economic questions?

4. How does each society make its decisions to solve the problem of scarcity?

5. What does the What question refer to?

6. What are the ways of providing answer to the How question?

7. What does the Who question mean?

8. What is an economic system?

9. What determines the type of an economic system?

10. What categories do economic systems fall into?

11. What is a traditional economy?