3

Contents

МЕТОДИЧЕСКИЕ РЕКОМЕНДАЦИИ ПО РАБОТЕ С ТЕКСТАМИ..................................................................4

FROM THE HISTORY OF ECONOMICS....................................................................................................6
THE MEANING OF ECONOMICS............................................................................................................9
ALLOCATION OF RESOURCES.............................................................................................................12
THE THREE SECTORS OF THE ECONOMY............................................................................................15
DEMAND AND SUPPLY......................................................................................................................18
MICROECONOMICS AND MACROECONOMICS.......................................................................................24
UNEMPLOYMENT..............................................................................................................................27
INFLATION........................................................................................................................................31
ECONOMIC SYSTEMS.........................................................................................................................35
CONSUMPTION..................................................................................................................................38
COMPETITION...................................................................................................................................41
MONEY AND BANKING......................................................................................................................44
THE MONEY SUPPLY........................................................................................................................49
SOME POPULAR CRITICISMS OF ECONOMICS AND ECONOMISTS..........................................................52
ADAM SMITH (1723 - 1790)...........................................................................................................55
DAVID RICARDO (1772 -1823).........................................................................................................57
KARL MARX (1818 - 1883).............................................................................................................58
ALFRED MARSHALL (1842 - 1924)...................................................................................................59
JOHN MAYNARD KEYNES (1883 – 1946)..........................................................................................60
LIONEL ROBBINS (1898 - 1984).......................................................................................................62
THORSTEIN VEBLEN (1857 - 1929)...................................................................................................62
VILFREDO PARETO (1848 - 1923).....................................................................................................63
GLOSSARY...................................................................................................................................64
LIST OF REFERENCES........................................................................................................................77
 4
Методические рекомендации по работе с текстами

Учебное пособие «Economy and Economics» предназначено для студентов II курса

экономических специальностей дневного отделения и студентов I - II курсов заочного
отделения. Цель этого пособия - помочь студентам овладеть базисной экономической
лексикой для последующего использования в чтении профессионально-ориентированной
литературы на языке оригинала, а также научиться понимать и интерпретировать
аутентичные экономические тексты и обсуждать вопросы экономической тематики.

Сборник состоит из четырнадцати разделов, дополненных заданиями. Тексты знакомят

студентов с базовой экономической проблематикой. Все тексты взяты из оригинальных
источников.

Тексты многофункциональны и предназначены для развития умений изучающего и

поискового чтения, включают достаточный лексический материал, необходимый для
самостоятельного чтения студентами литературы по специальности на языке оригинала.

В пособие включен раздел Supplementary Reading, который содержит краткие

биографические данные об ученых, теории которых представлены в этом пособии. Эти
данные носят справочный характер, и материал может быть предложен студентам для
индивидуального чтения.

Составители пособия сочли возможным отказаться от традиционной схемы построения

заданий. Студентам не предлагаются предтекстовые задания, направленные на
предварительное снятие языковых трудностей текста. Это связано с тем, что данное учебное
пособие направлено на развитие одного аспекта, чтения, и является дополнительным к
базовому курсу. Предполагается, что материалы базового курса помогают студентам
облегчит процесс восприятия и понимания содержания текстов.

Послетекстовые задания включают соотношение определений со словами из текста, выбор

правильного слова из ряда предложенных, заполнение пропусков в тексте словами,
упражнения на перевод, ответы на вопросы, истинные и ложные утверждения, выбор ответа
из нескольких предложенных, заполнение таблиц ключевой информацией из текста. Также
студентам предложены вопросы для обсуждения и коммуникативные задания, выполнение
которых требует использования экономических знаний.

Предполагается, что студенты уже имеют сформированное представление о грамматической

системе английского языка, поэтому отдельно упражнения на грамматику не выделены. Для
контроля и дальнейшего совершенствования грамматических навыков представлены
упражнения на перевод.

Каждый блок упражнений пособия построен по определенной схеме. Сначала прорабатыва-

ется и закрепляется новая тематическая лексика (соотношение определений со словами из
текста, выбор правильного слова из ряда предложенных, заполнение пропусков в тексте сло-
вами, упражнения на перевод). Подробная проработка изучаемого лексического материала в
разнообразных упражнениях позволяет совершенствовать лексический навык чтения профес-
сионально-ориентированной литературы.

Далее следуют задания, направленные на проверку понимания содержания текста (ответы на

вопросы, истинные и ложные утверждения, выбор ответа из нескольких предложенных, за-
полнение таблиц ключевой информацией из текста).
 5
В заключительной части разделов представлены коммуникативные задания, которые помога-
ют обучающемуся не только лучше содержание текста, но выводят студентов на обсуждение
затронутых в нем проблем.

Повторяемость слов в тренировочных упражнениях способствует выработке у учащихся

прочного навыка употребления активной лексики.

В конце пособия приводится глоссарий, где представлены определения основных экономиче-

ских терминов. Логический анализ словарного определения обеспечивает полное раскрытие
содержания определяемого научного термина. Таким образом, решается задача семантиза-
ции терминологической лексики. Студенты получают информацию о термине, используя ко-
торую они смогут правильно, точно и свободно понимать смысл терминов при чтении про-
фессионально-ориентированной литературы.

При работе с материалами пособия преподаватель может использовать принцип вариативно-

сти, ориентируясь на уровень языковой подготовки группы. Рекомендуется сочетать ауди-
торную и самостоятельную работу студентов.

Данное пособие апробировано в учебном процессе экономического факультета Пермского

государственного национального исследовательского университета.
 6

From the History of Economics

Economics is a social science studying economy. Why do we study economics? In fact, people do it
for countless reasons. For many people concern for the economy goes no further than the price of
tuition or fear of losing a job. Many others, however, are becoming aware that their job prospects
and the prices they pay are somehow related to national trends in prices, unemployment, and
economic growth. Although few people think in terms of price indexes and graphs, most of us now
recognize the importance of major economic events. And that’s why so many people worry about
such abstractions as unemployment rate, inflation, economic growth, etc.

As a scholarly discipline, economics is two centuries old. The first scientist who made extraordinary
contribution in economics was Adam Smith. He was born in a small fishing town near Edinburgh,
Scotland. At the age of 28 Adam Smith became Professor of Logic at the University of Glasgow.
Some time later he became a tutor to a wealthy Scottish duke. Then he received a grant and with the
financial security of this grant, Smith devoted 10 years to writing his work “The Wealth of Nations”
which founded economic science. It was published in 1776. His contribution was to analize the way
that markets organized economic life and produce rapid economic growth. He showed that a system
of prices and markets is able to coordinate people and business without any central direction.
Almost a century later, as capitalist enterprises began to spread, there appeared the massive critique
of capitalism: Karl Marx’s “Capital”. Marx proclaimed that capitalism was doomed and would soon
be followed by business depression, revolutionary upheavals and socialism.

In 1936 John Maynard Keynes published “The General Theory of Employment, Interest and
Money”. Economics was supposed to help government monetary and fiscal policies to tame the
worst ravages of business cycles. Later in the 80s and 90s the fundamental insights of A. Smith
were discovered again.

What exactly is the subject that economists from Smith to Marx to the present generation have
analyzed?

Economics is the study of how societies use scarce resources to produce valuable commodities and
distribute them among different people.

No brief description can offer clean guidance to the content and character of economics but
numerous writers have attempted that. A notable economist of the last century Alfred Marshall
called economics “a study of mankind in the ordinary business of life”. Another notable economist
Lionel Robbins, in 1930s, described economics as “the science of choice among scarce means to
accomplish unlimited ends”. During much of modern history, especially in the nineteenth century,
economics was called simply “the science of wealth”.

The scope of economics is indicated by the facts with which it deals. These consist mainly of data
on output, income, employment, expenditure, interest rates, prices and related magnitudes
associated with individual activities of production, transportation and trade.
There are four major economic goals that are generally accepted. These goals are:
full employment;
price stability;
economic growth;
an equitable distribution of income.

In each case, the goal itself is formulated through the political process. The economist’s job is to
help design policies that will allocate the economy’s resources in ways that best achieve these goals.
 7
Vocabulary notes

economics экономика
unemployment rate уровень безработицы
inflation инфляция
economic growth экономический рост
monetary policy монетарная политика
fiscal policy фискальная политика
scarce ограниченный
commodity товар
output продукция
income доход
expenditure расход
interest rate процентная ставка

Tasks

I. Match the words from the text and their corresponding definitions.

1) commodity a) diagram consisting of a line or lines showing

the variation of two quantities
2) economy b) rise in prices brought about by the expansion
of the supply of money, credit, etc.
3) income c) plan of actions, statement of aims and ideals
4) graph d) money received during a given period
5) policy e) a system for the management, use and control
of the money, goods and other resources of a
country, community or household
6) expenditure f) lack of jobs
7) inflation g) useful thing, esp. an article of trade
8) output h) amount spent
9) unemployment i) amount which a firm (machine, person) produces

II. Complete the gaps with the words from the box.

economy, economics, economic, economical, economically, economists

1. Marx and Keynes are two famous ………………………. .

2. Those people are studying the science of …………………. .
3. We sometimes call a person’s work his ……………….. activity.
4. People should be very ……………… with the money they earn.
5. The ……………….. system of a country is usually called the national ………………. .
6. The people in that town live very ………………………….. .

III. Translate the following words and word combinations from the text.

to become aware of smth, job prospects, economic growth, price indexes, to recognize the
importance, major economic events, a scholarly discipline, to make contribution, financial security,
capitalist enterprises, to tame ravages, fundamental insights, to produce valuable commodities,
mankind, a notable economist, to accomplish unlimited ends, to achieve goals.
 8
IV. Match the expressions in English with their Russian equivalents.

1) scarce resources a) экономическая наука

2) economic events b) капиталистические
предприятия
3) economic science c) монетарная политика
4) rapid economic growth d) ограниченные ресурсы
5) capitalist enterprises e) полная занятость
6) monetary policy f) устойчивость уровня цен
7) valuable commodities g) экономические события
8) full employment h) распределение дохода
9) price stability i) ценные, полезные товары
10) distribution of income j) быстрый экономический рост

V. True or false?

1. People all over the world are interested in economics.

2. Economics is an old discipline.
3. It was Karl Marx who founded economic science.
4. Adam Smith’s “The Wealth of Nations” was published in 1676.
5. People never returned to the basic principles of Smith’s theory on economics.
6. Economics is a social science.
7. There are only three economic goals generally accepted: economic growth, price stability and
distribution of money.

VI. Answer the question.

1. Why do people study economics? Give your personal opinion.

2. When did economics appear?
3. Who made extraordinary contributions in economics? Do you know the names of other scientists
studying economics?
4. What was the subject of A. Smith’s analysis?
5. What is John Keynes famous for?
6. What is economics? What is the difference between “economy” and “economics”?
7. How many major economic goals generally accepted do you know? What are they?

VII. Translate from Russian into English.

1. Экономика исследует проблемы эффективного использования ограниченных ресурсов или

управления ими с целью достижения максимального удовлетворения материальных
потребностей человека.
2. Идеологии современного мира в значительной мере сложились под влиянием трудов
великих экономистов прошлого, например, Адама Смита, Карла Маркса, Джона Мейнарда
Кейнса.
3. Экономика как общественная наука изучает поведение индивидов и институтов,
занимающихся производством, обменом и потреблением товаров и услуг.
 9
The Meaning of Economics

Economics is a social science that studies how society chooses to allocate its scarce resources,
which have alternative uses, to provide goods and services for present and future consumption.

What exactly are goods and services? A good is anything that satisfies a want. That is the purpose
of production — to provide goods that satisfy wants.

So goods are produced, and the consumption of those goods satisfies wants. Goods can be tangible
or intangible. Tangible goods are physical items such as bulldozers or pizzas. Intangible goods such
as medical care or education are called services. Both goods and services satisfy wants and
therefore can be called goods.

The satisfaction of wants can only be accomplished by using up resources, the inputs, the so-called
factors of production or means of production. These resources can be classified as land, labor,
capital, and entrepreneurship.

Resources are scarce. Scarcity is a relationship between how much there is of something and how
much of it is wanted. Resources are scarce compared to all of the uses we have for them.

We must choose how to use our scarce resources. Scarcity forces choice. It is imposed by limited
factors of production yielding limited output of goods relative to unlimited wants.

The society is faced with the problem of not having enough resources to provide for all wants.
Society must decide which goods will be produced, how to allocate resources to produce goods, and
how to allocate the goods among the population. The method used to decide how these allocations
will be made depends on the kind of economic system the society has chosen.

Because there are always alternative uses of the resources and because scarcity exists, society
cannot produce all that it wants. It must therefore choose among the alternatives. Hence cost is
imposed on society; economists call this cost opportunity cost.
Opportunity cost is not what you choose when you make a choice — it is what you did not choose
in making a choice. Opportunity cost is the value of the forgone alternative — what you gave up
when you got something.

You buy the blue shirt rather than the green or 1,700 pieces of bubble gum, or leave the dollars in
your checking account. Opportunity cost. Your state uses its limited budget to build more roads
rather than schools. Opportunity cost.

Vocabulary notes

goods and services товары и услуги

scarce resources ограниченные ресурсы
consumption потребление
tangible goods материальный (нематериальный)
entrepreneurship предпринимательство
scarcity нехватка, дефицит; недостаточное количество
output of goods выпуск товаров
allocate resources распределять ресурсы
opportunity cost альтернативная стоимость, цена возможности
 10
Tasks

I. Give English equivalents for the following

распределять ресурсы, обеспечивать товары и услуги, материальный, выполнять (достигать),

труд, редкий, предпринимательство, по сравнению с, неограниченные потребности,
ограниченный выпуск, сталкиваться с проблемой, зависеть от, налагать на

II. Match the words from the text with their corresponding definitions.

1) input a) the act of consuming something

2) satisfaction b) the state of needing something that is absent or
unavailable
3) scarcity c) having physical substance and intrinsic monetary
value
4) opportunity cost d) a small and inadequate amount
5) cost e) the act of choosing or selecting
6) tangible f) the act of distributing by allotting or apportioning;
distribution according to a plan
7) consumption g) cost in terms of foregoing alternatives
8) want h) value measured by what must be given or done or
undergone to obtain something
9) choice i) a component of production; something that goes into
the production of output
10) allocation j) act of fulfilling a desire or need or appetite

III. Fill in the blanks with the words in the frame.

entrepreneurship choose good labor opportunity capital scarcity

land scientific alternative social

Anything that satisfies a want is a 1) ……… . The factors of production needed to produce goods
are 2) ……… , 3) ……… , 4) ………. , and 5) ………. . Because human wants are unlimited
and resources are limited, 6) ……….. results. Because there are not enough resources to produce all
the goods that are desired, we must 7) ………. how to use the resources we have.
Resources have 8) ………… uses. The value of what you did not choose is the 9) ……………..cost
of what you did choose. Economics is a 10) ………… science. A social science studies
aspects of human behavior through application of the 11) …………… method.

IV. Choose the correct answer.

1. Economics focuses on:

a) people and how resources are used to satisfy human wants.
b) money.
c) banks.
d) government control of the economy.

2. A resource is scarce if:

a) there is not very much of it.
b) it is not needed or wanted.
c) the quantity people want is more than is available.
d) there is more available than people want.
 11

3. Select the free good.

a) The lunch your friend buys you.
b) Your winnings in the lottery.
c) Hand-me-down clothes.
d) None of the above.

4. Jill spent $15 on a new skirt. Then she saw a blouse for $15 that she liked
better than the skirt. What was the opportunity cost of the skirt?
a) $15.
b) The blouse.
c) Nothing since both cost $15.
d) Cannot be determined.

5. Opportunity cost occurs because:

a) resources are scarce.
b) resources have alternative uses.
c) we must choose how to use our resources.
d) all of the above.

V. Translate from Russian into English.

1. Экономика – это общественная наука, исследующая проблему такого применения или

использования редких ресурсов (средств производства), при котором достигается
наибольшее и максимальное удовлетворение безграничных потребностей общества (цель
производства).
2. Все экономические ресурсы, или факторы производства, обладают одним общим
свойством: они редки или имеются в ограниченном количестве.
3. Экономические ресурсы можно классифицировать как материальные ресурсы (сырье и
капитал) и как людские ресурсы (рабочая сила и предпринимательская способность).

VI. Discussion Questions.

1. In your backyard you raise tomatoes to sell. What are the inputs used and how would an
economist classify them as scarce resources? The scarce resources are land, labor, capital, and
entrepreneurship.

2. Is money a scarce resource? Is our problem really not having enough money?

3. Sometimes time and technology are suggested as resources. Which resource already defined
includes time? Technology?

4. How would an economist interpret the expression “It’s not worth it”?

5. Disney charges one fee to enter its park and no fee for the individual rides. What is the
opportunity cost of a ride at Disney? What is scarce for the average park visitor?

6. A lemon-scented dishwashing soap was distributed as a free sample. Some people mistakenly
thought it was a lemonade mix and served it. Was this sample free? Is any sample really free?

7. What is the opportunity cost to the student of a college education? The parents? The society?

8. How can seed corn show the choice between present and future consumption?
 12
Allocation of Resources

Any process which allocates resources must be able to answer three basic economic questions:

1. What goods will be produced and in what quantities?

2. How will resources be combined to produce the goods?
3. For whom are the goods produced? How much of each good will each consumer get?

The what question is a question of what to produce and in what amount.

Recall that resources have alternative uses, meaning that land, labor, capital, and entrepreneurship
in one combination can be used to produce shower curtains; in another, bubble gum; and in yet
another, physical education instructors.

Somehow, every society must determine which of all the many possible goods will be produced
with the limited resources. All that society wants of each good cannot be produced; therefore, the
society is forced into choice. Not only must the society choose what is to be produced, but the
particular quantity of each good as well. Decisions have to be made whether to produce wedding
rings or not, tanks or not, and if so, what quantity of wedding rings, what quantity of tanks, and
what quantity of all other goods. The answers to the what question become society’s shopping list.

The how question is basically a question of production. How is each good to be produced? Which
resources are to be used up in the production of the good and which method of production, the
technology, will be employed? A labor-intensive method using much labor and little capital is one
alternative; a capital-intensive method is another. A farm may be cultivated with a lot of hired help,
or much labor can be replaced by a tractor.

The for whom question is a question of allocation. Who will consume the goods created by
answering the two previous questions? There are many potential ways to allocate, ranging from an
equal share for everyone, to each according to his or her contribution. There is no “right” method.
The allocation method that is selected will reflect the values of the society.
The combined answers to these questions is called the allocation of resources or resource
allocation.

Vocabulary notes

labor-intensive трудоёмкий
capital-intensive требующий крупных капиталовложений
hired наемный, нанятый
equal share равная доля

Tasks

I. Translate from Russian into English

распределять ресурсы, количество, объединять, предпринимательство, определять,

определенный, трудоемкий, использовать ресурсы, равные доли, отражать ценности

II. Match the words from the text and their corresponding definitions

1) allocation a) an extended social group having distinctive

cultural and economic organization
2) society b) requiring a large expenditure of labour but not
 13
much capital
3) labour-intensive c) the act of distributing by allotting or apportioning;
distribution according to a plan
4) production d) the allotment of some amount by dividing
something
5) alternative e) an ideal accepted by some individual or group
6) potential f) having services engaged for a fee
7) share g) use up (resources or materials)
8) value h) serving or used in place of another
9) consume i) the act or process of producing something
10) hired j) existing in possibility

III. Fill in the blanks with the words in the frame.

income allocation of resources what how circular flow what, how for whom
capitalism economic consumers
for whom resources communism product socialism resource

The three economic questions are 1) ………. , 2) ……….., and 3) ………. . An answer
to the three economic questions is an 4) ………… …………. . The goods to be
produced and the quantity answers the 5)……………. question.
The combination of resources used to produce the good answers the 6) ………….. question.
Who gets the goods answers the 7) ……….. question. The method used to answer the basic
economic questions is an 8) ………… system.

Economic systems can be distinguished by the degree of centralization of control of the 9)

………….. . If resources are owned and controlled by the individuals in the society, then the system
is 10) ………. . If the resources are owned and controlled by the government, then the system is
11) ……………. . A system in which ownership of resources is shared by the government and the
individuals is 12) ………… . A model which shows the links between consumers and business is
called the 13) …………. model. Consumers obtain 14)…………… by selling
their resources to business. Businesses use the resources to produce goods which they sell to 15)
…………S. These transactions occur in the 16) ……….. market and the 17) ………….. market.

IV. Choose the correct answer.

1. The question that asks who will get the output is:
a) the what question.
b) the how question.
c) the why question.
d) none of the above.

2. Find the false statement:

a) Economic goals may conflict.
b) The economic goals pursued depend on the values of society.
c) Economic goals are always equally desirable.
d) The best use of resources depends upon the goals of society.

3. A society produces output through the use of robots. This society is responding to the economic
question of:
a) what to produce and how much.
b) how to produce.
 14
c) for whom to produce.
d) all of the above.

4. In this economic system, resources are allocated by a central planning committee. It is a system
of:
a) capitalism.
b) socialism.
c) communism.
d) impossible to tell.

V. Translate from Russian into English

1. Решение вопроса о распределении ограниченных ресурсов в обществе зависит от того, что

именно, каким способом и для кого данное общество намерено производить.

2. Поскольку ресурсы редки, экономика полной занятости, полного объема производства не

может обеспечить неограниченный выпуск товаров и услуг. Более того, необходимо
принимать решения о том, какие товары и услуги следует производить, а от каких
отказаться.

VI. Discussion Questions

1. To produce cars, what are the alternative resources and technologies that can be used? Explore
the how question.

2. What economic goals might you choose for your society and how might they trade off?

3. Can you identify the following economic systems?

a) Centralized economic planning.

b) Individual choice with private ownership.
c) A combination of some public ownership and control and some private.

4. Need a wealthy nation like the United States be concerned about scarcity? What do all economic
systems face in common? How do different economic systems deal with the problem of scarcity?

5. Allocating resources includes allocating labor. In the medieval period, sons took the occupations
of their fathers. How is labor allocated under communism? Under capitalism?

6. What is the current news on the economic systems of Russia, Eastern Europe, and the People’s
Republic of China?
 15
The Three Sectors of the Economy

We generally describe the economy as consisting of three sectors.

The primary sector is agriculture and the extraction of raw materials from the earth (coal – mining,
drilling for oil) or the sea (fishing). Some of the food extracted in the primary sector, such as fresh
fruit or fish, is consumed almost immediately after extraction; the rest serves as raw material for the
secondary sector.

The secondary sector involves the transformation of raw materials into finished goods. Although, of
course many of the people working for manufacturing companies do not actually make anything,
but provide a service – administration, law, finance, marketing, selling, computing, personnel, and
so on.

The tertiary sector includes the commercial services that enable industry to produce and distribute
goods to their final consumers (trade, banking, insurance, warehousing, transport, communications,
advertising, and so on), as well as activities like education, health care, leisure and tourism.

The number of people working in the primary sector is regularly declining because agricultural
methods are always becoming more efficient. Western Europe and the USA already produce too
much food with only 3 % of the population working on the land.

The secondary sector is getting smaller in many of these countries because much manufacturing
can be carried out more cheaply in low-wage economies, for example in East and South-East Asian
countries like China, Hong Kong, Taiwan, South Korea, Malaya and Vietnam but not the tertiary
sector if the activities require a lot of training, education, know-how and technology.

Vocabulary notes

to extract добывать
coal-mining добыча угля
to enable позволять
leisure досуг
to carry out осуществлять

Tasks

I. Suggest English equivalents for the following.

добывающая отрасль, добыча сырья, обрабатывающая отрасль, сектор услуг, предоставлять

услуги, конечный потребитель, осуществлять производство, готовое изделие.

II. Match the words from the text with their corresponding definitions.

1) to extract 2) to consume 3) raw material 4) consumer 5) to decline 6) efficient 7) know-how

8) finished goods
a) goods have been made completely and are ready to be sold;
b) to remove raw materials, such as gold or oil, from a place, for example the sea or the ground, so
that they can be sold or used in an industrial or manufacturing process;
c) to become smaller, weaker, fewer;
d) to buy and use goods, services, energy, natural materials;
e) practical ability, knowledge and skill in a technical area;
 16
f) a person who buys goods, products, and services for their own use not for business use or to
resell;
g) a substance that is used to make a product;
h) producing goods using as little time, money, etc as possible.

III. Work with a dictionary. Form parts of speech. Number in brackets corresponds to the
number of letters in the word

verb noun Adjective Adverb

to describe saying in words what Giving a picture in words;
sb/sth is like (11) describing sth, without
expressing feeling or
judging(11)
to decline a gradual and continuous
loss of strength , power,
numbers, etc (7)

to extract the process of removing which can be extracted (11)

sth with effort or by
force (10)
to distribute 1) act of sending goods referring to distribution (12)
from the manufacturer to
the wholesaler and then
to retailers (12)
2) company which sells
goods for another
company which makes
them (11)
3) position of being a
distributor for a
company (15)
to 1) person or company
manufacture which produces
machine-made products
(12)
2) making a product for
sale, using machines
(two words:13; 12)
to consume 1) person or company which can be consumed (10)
which buys and uses
goods and services (8)
2) buying and using
goods and services(11)

to require what is needed (11)

to produce 1) company or country which produces (10) in a productive way
which manufactures (8) (12)
2) thing which is made
or manufactured (7)
3) making or
manufacturing of goods
for sale (10)
 17

IV. Match the following services with their definitions

1 trade 2 banking 3 insurance 4 warehousing 5 transport 6 communications 7 advertising 8

marketing

a) the means of communicating, e.g. roads, railways, telephone lines between places, or radio and
television;
b) techniques used in selling a product (such as packaging, advertising, etc.)
c) the business activity of banks;
d) the activity of carrying goods on vehicles;
e) business of buying and selling;
f) the practice of storing things in a warehouse;
g) business of announcing that sth is for sale or of trying to persuade customers to buy a product
or service;
h) agreement that in return for regular small payments a company will pay compensation for loss,
damage, injury or death.

V. Complete the following extract with these words

agriculture (x2), developing countries, service industries, advanced industrialized countries, post-
industrialized countries.
Two hundred years ago, the vast majority of the population of virtually every country lived in the
countryside and worked in ….. . Today, in what many people call the ….. , only 2-3 % of the
population earn their living from ….. . But some people already talk about the ….. , because of the
growth of ….. , and the decline of manufacturing, which is moving to the ….. .

VI. Classify the following activities according to which sector they belong to

advertising products, calculating prices, distributing added value, marketing products, packaging
products, smelting iron, assembling, cutting metal, laying cables, milling metal, pressing metal,
transportation, building , digging iron ore, maintenance, mining coal, pumping oil, welding metal.

VII. Translate from Russian into English

1. Сейчас преобладание первичного сектора в экономике как правило говорит о крайне

низком уровне экономического развития государства или региона. Примером этому служат
многие страны Африки, где до сих пор большая часть населения занята в сельском
хозяйстве. Но есть и исключения. Первичный сектор (добыча нефти) является основой
экономики богатых стран Персидского залива.

2. Общество, существующее в условиях господствующего первичного сектора, называют

доиндустриальным или аграрным.

3. Вторичный сектор экономики – обрабатывающая промышленность и строительство.

Общество, существующее в условиях господствующего вторичного сектора экономики,
называют индустриальным.

4. Переход к господствующей третичной экономике связан с ростом производительности

труда в промышленности.
 18
Demand and Supply

Demand is a key concept in both macroeconomics and microeconomics. In the former, consumption
is mainly a function of income; whereas in the latter, consumption or demand is primarily, but not
exclusively, a function of price. This analysis of demand relates to microeconomic theory.

The law of demand was discovered by A.A. Cowrnot (1801 – 1877), a professor of mathematics at
the University of Lyons, France, and it was he who drew the first demand curve in the 1830s.

The first practical application of demand theory, by Jules Dupuit (1804 – 1866), a French engineer
and economist, was the calculation of benefits from building a bridge and, given that a bridge had
been built, of the correct toll to charge for its use. The law of demand and supply and the
connection between the cost of production and supply were first worked out by D. Lardner (1793 –
1859), an Irish professor of philosophy at the University of London.

Current theory rests on the foundations laid by Marshall (1890), Edgeworth (1881), and Pareto
(1896). Marshall viewed demand in a cardinal context, in which utility could be quantified. Most
contemporary economists hold the approach taken by Edgeworth and Pareto, in which demand has
only ordinal characteristics and in which indifference or preferences become central to the analysis.

Much economic analysis focuses on the relation between prices and quantities demanded, the other
variables being provisionally held constant. At the various prices that could prevail in a market
during some period of time, different quantities of a good or service would be bought. Demand,
then, is considered as a list of prices and quantities, with one quantity for each possible price. With
price on the vertical axis and quantity on the horizontal axis, the demand curve slopes downward
from left to right, signifying that smaller quantities are bought at higher prices and larger quantities
are bought at lower prices. The inverse relation between price and quantity is usually called the law
of demand.

The law rests on two foundations. One is the theory of the consumer, the logic of which shows that
the consumer responds to lower prices by buying more. The other foundation is empirical, with
innumerable studies of demand in actual markets having demonstrated the existence of downward-
sloping demand curves.

Exceptions to the law of demand are the curiosa of theorists. The best-known exception is the
Giffen effect - a consumer buys more, not less, of a commodity at higher prices when a negative
income effect dominates over the substitution effect.

Another is the Veblen effect - some commodities are theoretically wanted solely for their higher
prices. The higher these prices are, the more the use of such commodities fulfills the requirements
of conspicuous consumption, and thus the stronger the demand for them.

Supply and demand are the two sides of each market transaction. Supply is the quantity of a good
sellers wish to sell at each conceivable price. The higher the price of something, the more of it will
be offered for sale – and vice versa. The supply curve shows the relation between price and quantity
supplied, holding other things constant. The market supply curve can be viewed as the horizontal
summation of the supply curves of all the firms producing the product.
 19

Vocabulary notes

the demand curve кривая спроса

the laws of demand and supply законы спроса и предложения
benefit прибыль, выгода, польза
utility общественная полезность
the supply curve кривая предложения
conceivable price возможная цена
actual markets фактически существующие рынки
conspicuous consumption потребление напоказ
market transaction рыночная сделка

Tasks

I. Translate from Russian into English

потребление, в основном, кривая спроса, расчет прибыли, количественный, качественный,

предпочтения и маловажность, современный, постоянный, переменные, доминировать на
рынке, ось, нисходящая кривая, закон спроса, бесчисленный, исключение, эффект
замещения, выполнять требования, потребление напоказ

II. Match the words in English with their Russian equivalents

1) market transaction a) устойчивый спрос

2) supply b) возможная цена
3) sale c) потребление напоказ
4) benefit d) рыночная сделка
5) commodity e) предложение
6) strong demand f) производить
7) conceivable price g) предмет потребления, товар
8) to produce h) продажа, сбыт
9) conspicuous consumption i) прибыль, выгода

III. True or False?

1. Much economic analysis focuses on the relation between prices and quantities demanded.
2. Marshall viewed demand in a cardinal context, in which utility could be quantified.
3. Consumption or demand is primarily, but not exclusively, a function of price.
4. With quantity on the vertical axis and price on the horizontal axis, the demand curve slopes
downward from left to right.
5. A consumer buys less of a commodity at higher prices when a negative income effect dominates
over the substitution effect.
6. Innumerable studies of demand in actual markets having demonstrated the existence of
downward-sloping demand curves.
7. Consumption is the key concept of microeconomics.
8. Classical economists contributed a lot to the development of the theory of demand.
 20
IV. Complete the table.

PERSONALITY YEAR IDEAS

V. Fill in the blanks with the words in the frame.

direct down price a change in price production supply nature other

goods left increased law of supply quantity supplied up supply

The schedule of different prices and the amount that the seller is willing and able to offer for sale at
each price is known as 1) ……………. When the price changes, the amount the seller will sell, the
2)………….. changes. There is a 3)……… relation between price and the quantity supplied.
The relation is known as the 4)………….. . This means that as price goes up, the quantity supplied
goes 5)………….. . And as the price goes down, the quantity supplied goes 6) …………….. .
The quantity supplied can be changed only by a change in 7) …………. A change in a
determinant of supply will change 8) ………… itself. The determinants of supply include a change
in 9) ………… , the cost of 10)…………, the price of 11) ……… , and the expectation of 12)
………..
When supply decreases, the supply curve shifts 13)…………. A shift of the supply curve to the
right means that supply has 14)…………… .

demand quantity demanded falls law of demand down price demand

related goods income price normal complement right up taste
demand rises
decrease left substitutes complements substitute
quantity demanded inverse

The schedule of different prices and the amount that the buyer is willing and able to buy at each
price is known as 1)…………….. When price changes the amount the buyer will buy, the 2)
………….. changes. There is an 3)………….. relationship between price and quantity demanded.
The relation is know as the 4)…………….. This means that as the price goes up, the quantity
demanded goes 5)………………. And as the price goes down, the quantity demanded goes 6)
……………. The quantity demanded can be changed only by a change in 7)…………….. A change
in a determinant of demand will change 8)…………… itself. The determinants of demand include
the price of 9)……………, 10) ………….., 11) …………, and the expectation of a
change in 12)………………... An increase in income will increase demand for a 13)………….
good. When demand increases, the demand curve shifts to the 14)…………………. An expectation
of lower prices would cause demand to 15)…………... A decrease in demand means that the
demand curve shifts to the 16) …………….. .
 21
Goods that are related are either 17) ………….. or 18)…………. When the price of one good rises,
the demand for its substitute 19)……………. An increase in the price of butter increases the
demand for margarine, its 20) ……………...
When the price of one good rises, the demand for its complement 21)…………... An increase in the
price of shoes decreases demand for shoelaces, a 22)……………….. An increase in the price of
shoes results in a decrease in the 23) …………….for shoes. Also there is a change in 24)
……………… for shoelaces.

VI. Choose the correct answer.

1. Supply tells:
a) how much is produced.
b) how much is purchased.
c) how much it costs.
d) how much is produced at each price.

2. The quantity supplied is directly related to price because:

a) the total cost of production rises as more is produced.
b) more output requires more input which becomes less and less productive.
Thus the extra cost per unit rises and increases the price.
c) the cost of labor goes up as more labor is demanded.
d. It is not. Everyone knows that as you produce more, you give quantity discounts so price and
quantity supplied are inversely related.

3. The law of supply says:

a) as price goes up, the quantity supplied goes up.
b) as price goes down, the quantity supplied goes down.
c) as price goes up, the quantity supplied goes down.
d) both a and b.

4. The substitution effect:

a) means that the quantity demanded increases as the price falls because the lower price makes the
good a more attractive substitute.
b) shows how the demand curve changes when a substitute is introduced.
c) tells why a substitute is always worse than the real thing.
d) is unrelated to demand.

5. When your school increases tuition, the demand for education at its rival:
a) rises.
b) falls.
c) does not change.
d) shifts to the left.

6. Which does not cause a change in demand?

a) A change in the price of the good.
b) A change in the price of a related good.
c) A change in income.
d) Expectations of a change in price.

7. Two goods are substitutes if:

a) an increase in the price of one causes the demand for the other to rise.
b) an increase in the price of one causes the demand for the other to fall.
 22
c) they are not complements.
d) when the price of one good rises, the price of the other good falls.

8. If the demand for good A goes up as the price of good B falls, you can conclude that goods A and
B are:
a) substitutes.
b) normal goods.
c) useful goods.
d) complements.

VII. Read the text below and translate it into Russian.

We can represent the decisions of buyers with the demand curve and the decisions of sellers with
the supply curve.
The demand curve shows the relationship between the price of a good or service and the quantity
consumers will buy, at a specific time, and holding everything else constant. Demand curves
usually slopes downward from left to right. This means that consumers are more willing and able to
buy larger quantities of goods and services at relatively lower prices. This can be explained by the
principle of diminishing marginal utility. After consuming a certain amount people get less and less
satisfaction from each additional purchase.
The supply curve shows the relationship between the price of a good or service and how much
sellers will offer for sale at a specified time and holding everything else constant. In general, supply
curve slopes upward from left to right. This means that at relatively high prices, businesses will
naturally want to produce and sell more. At lower prices less will be produced and supplied.
Buyers will only purchase more at lower prices, while sellers will only sell more at higher prices.
But they can reach an agreement. Their agreement is called equilibrium price and quantity. It is that
price-and-quantity combination of the good in question at which there is no tendency to change
unless something else changes.
Is any and every price an equilibrium price? No. The difference between equilibrium and
nonequilibrium price is that equilibrium prices will remain unchanged as long as nothing else
changes, while nonequilibrium prices will change even when nothing else changes.

VIII. Translate from Russian into English.

1. Спрос описывается шкалой, отражающей готовность покупателей покупать данный

продукт в течение определенного периода по каждой из разных цен, по которым его могут
продавать. Согласно закону спроса, потребители обычно покупают большее количество
продукта по низкой цене, чем по высокой. Поэтому, при прочих равных условиях, связь
между ценой и объемом спроса отрицательная, или обратная, а спрос графически
изображается в виде нисходящей кривой.

2. Предложение описывается шкалой, показывающей количество продукта, которое

производители готовы предлагать к продаже на рынке в течение определенного периода по
каждой из возможных цен, по какой этот товар может быть продан. Закон спроса
утверждает, что, при прочих равных условиях, производители предлагают к продаже
большее количество продукта по высокой цене, чем по низкой. В результате связь между
ценой и величиной предложения прямая, а кривая спроса – восходящая.

IX. Discussion Questions.

1. Suppose that you are on your way to the ice cream parlor. You have only enough money for a
single scoop. When you arrive, there is a special for economics students, two scoops for the price of
 23
one. When you walk out with two scoops, you are showing that the law of demand works. Explain
why the law of demand works.

2. The Too-Sweet Cereal Company is considering a new advertising campaign. What impact would
Too-Sweet hope the advertising to have on the demand for its product?

3. The price of personal computers has dropped. As a result, what has happened to the demand for
computers?

4. When income rises, what would you expect to happen to the demand for cultured pearls as
opposed to the demand for imitation pearls?

5. Give an economic explanation for the sequence of events that start when the price of movie
theater tickets rises. What impact would there be on the demand for popcorn, video cassette
recorders, and video cassette tapes?

6. Which of the following illustrates a change in demand? A change in the quantity demanded?
a) You develop a craving for shrimp and buy more.
b) The price of shrimp falls and you buy more.
c) The price of shrimp falls and you buy more cocktail sauce.
d) The price of shrimp falls and you buy less lobster.

7. When the price of swim suits rises, what happens to the demand for swim suits? What happens to
the demand for swim towels?

8. What is the difference between the income effect and a change in income?

9. Uncle Effron says that the law of demand is false. He says house prices rise and so does the
number bought. Is Uncle Effron right about the law of demand? Explain.

10. Which of the following illustrates a change in supply? A change in quantity supplied?
a) The price of mopeds rises and more are produced.
b) The price of bikes rises and fewer mopeds are produced.
c) A major advancement is made in moped technology.

11. An oil refinery can produce gasoline or diesel fuel. When the price of gasoline rises, what
happens to the supply of gasoline? The supply of diesel fuel?

12. A union in the widget industry successfully negotiates a new contract and raises wages. What
happens to the supply of widgets?

13. When a new hybrid corn is developed that has low moisture requirements and is highly resistant
to disease, what happens to the supply of corn?

14. When the price of Dr. Leedom’s Fabulous Elixir goes down, will Dr. Leedom increase or
decrease production? Explain.

15. Suppose that you are an economics tutor and are paid $3.00 per hour. If the wage went up to
$15.00 per hour, because of your incredible ability, would you tutor more or less? Explain.
 24
16. Uncle Effron does not believe the law of supply. He says that he’s seen the price of gasoline go
up, but a smaller quantity of gasoline is produced. Is Uncle Effron right about the law of supply?
Explain.

17. In the sentence of the text in task VII it is said that the equilibrium of price and quantity will
remain the same forever “unless something else changes”. Identify what specific changes might
alter the equilibrium?

Microeconomics and Macroeconomics

Many economists specialize in a particular branch of the subject. For example, there are labour
economists, energy economists, monetary economists, and international economists. What
distinguishes these economists is the segment of economic life in which they are interested. Labour
economics deals with problems of the labour market as viewed by firms, workers, and society as a
whole. Urban economics deals with city problems: land use, transport, congestion, and housing.
However, we need not classify branches of economics according to the area of economic life in
which we ask the standard questions what, how and for whom. We can also classify branches of
economics according to the approach or methodology that is used. The very broad division of
approaches into microeconomics and macroeconomics cuts across the large number of subject
groupings cited above.

Microeconomic analysis offers a detailed treatment of individual decisions about particular

commodities. For example, we might study why individual households prefer cars to bicycles and
how producers decide whether to produce cars or bicycles. We can then aggregate the behaviour of
all households and all firms to discuss total car purchases and total car production. Within a market
economy we can discuss the market for cars. Comparing this with the market for bicycles, we may
be able to explain the relative output of these two goods. The sophisticated branch of
microeconomics known as general equilibrium theory extends this approach to its logical
conclusion. It studies simultaneously every market for every commodity. From this it is hoped that
we can understand the complete pattern of consumption, production, and exchange in the whole
economy at a point in time.

Microeconomists tend to offer a detailed treatment of one aspect of economic behaviour, but ignore
interactions with the rest of the economy in order to preserve the simplicity of the analysis. A
microeconomic analysis of miners' wages would emphasize the characteristics of miners and the
ability of mine owners to pay. It would largely neglect the chain of indirect effects to which a rise in
miners' wages might give rise. When microeconomic analysis ignores such indirectly induced
effects it is said to be partial analysis.

In some instances, indirect effects may not be too important and it will make sense for economists
to devote their effort to very detailed analyses of particular industries or activities. In other
circumstances, the indirect effects are too important to be swept under the carpet and an alternative
simplification must be found.

Macroeconomics emphasizes the interactions in the economy as a whole. It deliberately simplifies

the individual building blocks of the analysis in order to retain a manageable analysis of the
complete interaction of the economy.

For example, macroeconomists typically do not worry about the breakdown of consumer goods into
cars, bicycles, televisions, and calculators. They prefer to treat them all as a single bundle called
"consumer goods" because they are more interested in studying the interaction between households'
purchases of consumer goods and firms' decisions about purchases of machinery and buildings.
 25

Because these macroeconomic concepts are intended to refer to the economy as a whole, the tend to
receive more coverage on television and in the newspapers than microeconomic concepts, which
are chiefly of interest to those who belong to the specific group in question. To give an idea of the
building blocks of macroeconomics, we introduce three concepts, which you have probably read
about.

Gross Domestic Product (GDP) is the value of all goods and services produced in the economy in a
given period such as a year. GDP is the basic measure of the total output of goods and services in
the economy.

The aggregate price level a measure of the average level of prices of goods and services in the
economy, relative to their prices at some fixed day in the past. There is no reason why the prices of
different goods should always move in the line with one another. The aggregate prices level tells us
what is happening to prices on average. When the price level is rising, we say that the economy is
experiencing inflation.

The unemployment rate is the percentage of the labour force without a job. By the labour force we
mean those people of working age who in principle would like to work if a suitable job were
available. Some of the landed gentry are of working age but have no intention of looking for work.
They are not in the labour force and should not counted as unemployed.

Vocabulary notes

congestion перенаселённость
an individual household отдельное домашнее хозяйство
to aggregate собирать в одно целое, обобщать
the relative output относительный объём производства
general equilibrium theory теория общего равновесия
indirectly induced effects воздействие, вызванное косвенными
причинами
partial analysis частичный (неполный) анализ
consumption потребление
the breakdown of consumer goods классификация (подразделение)
товаров потребления
a single bundle отдельная единица, величина (досл.
набор)
Tasks

I. Match the words from the text with their corresponding definitions.

1) microeconomics a) to attend to a problem,

task, etc.; to manage
2) macroeconomics b) to make sth. easy to do or
understand; to make sth simple
3) to deal with sth. c) a result or an outcome
4) to aggregate d) the study of economic
factors affecting individual
consumers and companies
5) output e) to combine separate items,
sets of data, etc. into a
 26
single group or total
6) consumption f) the using up of food, energy,
resources, etc.
7) treatment g) not obviously aimed at; caused
by or resulting from sth
8) indirect h) the study of economic
factors on a large scale,
e.g. national economies
9) effect i) the process or manner of a
person behaving
towards or dealing with a person or thing
10) to simplify j) the amount of sth. that a person,
a machine or an organization produces

II. Choose the correct alternative to complete each sentence.

1. The study and analysis of the economics as a whole is………………… .

a) microeconomics b) macroeconomics c) economics
2. Goods that are bought and used by the public, rather than being used for manufacturing further
goods are called…………… .
a) duty-free goods b) consumer goods c) low-price goods
3. An analysis and classification of something (for example costs) into component parts
is……………. .
a) partial analysis b) theory c) breakdown
4. An analysis that ignores indirectly induced effects is said to be ……………… .
a) partial analysis b) a manageable analysis c) a complete pattern
5. A hypothetical state of balance in all the markets which make up an economy (supply and
demand of goods, labour, capital, etc. ) is…………. .
a) balance of trade b) general equilibrium c) market
6. General equilibrium theory studies…………………… .
a) the economy as a whole b) every market for every commodity c) a single bundle called
“consumer goods”
7. The total value of goods produced (or services performed by a person, a company, an industry, or
a whole country) is………
a) output b) input c) volume

III. Fill in the spaces with the words below:

a detailed analysis, neglect, interactions, building blocks, issues.

Microeconomics offers ……… ……… of particular activities in the economy. For simplicity, it
may …………. some interactions with the rest of the economy. Macroeconomics emphasizes these
…………. at the cost of simplifying the individual…………. …………. . Inflation, unemployment,
and growth are the three of the most important macroeconomic……….. .

IV. Read the text below. Choose the best alternative from the box to fill in each of the gaps.

1. The distinction between microeconomics and macroeconomics is more than the difference
between economics in the small and economics in the large,………………………. .
2. Microeconomics and macroeconomics take different approaches ………..
3. Microeconomics places the emphasis on a detailed understanding of particular markets. To
achieve this amount of detail or magnification, …… .
 27
4. Because macroeconomics is concerned primarily with the interaction of different parts of the
economy, ………….. .
5.Macroeconomics simplifies the building block in order to…………… .
6. Macroeconomics is concerned with broad aggregates ………. .

a) many of the interactions with other markets are suppressed

b) such as the total demand for goods by households or the total spending on machinery and
building by firms
c) to keep the analysis manageable
d) which the Greek prefixes micro and macro suggest
e) focus on how they fit together and influence one another
f) it relies on a different simplification to keep the analysis manageable

V. Which of the following statements are the concern of microeconomics and which of
macroeconomics?
a) Along with other Western economies, the UK faced a sharp rise in the unemployment rate in the
early 1980s.
b) The imposition of higher taxes on tobacco will discourage smoking.
c) Unemployment among building labourers rose sharply in the early 1980s.
d) An increase in a society’s aggregate income is likely to be reflected in higher consumer
spending.
e) A worker who has received a pay rise is likely to buy more luxury goods.
f) A firm will invest in a machine if the expected rate of return is sufficiently high.
g) High interest rates in an economy may be expected to discourage aggregate investment.
h) The level of gross national product in the UK is higher this year than in 1990.

VI. Translate from Russian into English.

1. Уровень макроэкономического анализа относится либо к экономике как целому, либо к

таким составляющим ее подразделениям, или агрегатам, как правительственный сектор,
домохозяйства и частный сектор.
2. Макроэкономические исследования различных экономических проблем охватывают
анализ таких величин, общий объем продукции, общий уровень занятости, общий объем
дохода, общий объем расходов, общий уровень цен и т.д.
3. Микроэкономический анализ имеет дело с конкретными экономическими единицами, с
детальным изучением поведения этих единиц.

Unemployment

A basic understanding of economics tells us that unemployment is a problem of the entire society.

To define unemployment, we start with the idea of the labor force. The population is divided into
two parts, those in and those out of the labour force. Those out of the labor force are categorized as
unable to be employed, in school, housekeeping, or “other.” Everyone else between ages 16 and 65
is in the labor force. The labor force itself is divided into two groups, those employed and those
unemployed but looking for work. The latter group, those unemployed but looking for work, is
what we call unemployed.

Unemployment may be defined as a situation in which people who are qualified for job, and willing
to accept the going wage rate cannot find jobs without considerable delay. There are three important
aspects to this definition.
 28
First, a person has to be qualified for a job. A person is not involuntarily unemployed if one seeks
that one is precluded from obtaining because of lack of training, experience, and education. For
example, one cannot be considered an unemployed truck driver if he is unable to drive a truck.

Second, a person is not considered unemployed if he or she is not seeking a job willing to work at
the market wage rate. Some can decide to withdraw their labour services because they prefer leisure
to work at a market rate. These people represent a type of unemployment, but not the kind that
usually presents a problem.

Third, it may take time to find a job that a person is qualified for and is willing to accept at the
going wage rate. However, the delay should probably not extend beyond a 30- or 60-day period for
most occupations. Some may believe that this time period is too long for people to be without jobs.

The major types of unemployment are frictional, seasonal, cyclical, and structural. Frictional
unemployment includes those people in the process of relocating from one job to another. They
might be moving across country, or taking a vacation between jobs, or finding their first job. At any
point in time, about 4 percent of the labor force is frictionally unemployed. They are counted as
unemployed, but they are not a source of concern. These people are only out of a job for a short
time, and they are voluntarily unemployed.

Seasonal unemployment is also expected. Workers are laid off during the off season. Lifeguards
on the lake shore in Chicago are employed in the summer and not the winter, ski instructors on the
bunny slope in Vermont find the opposite true. There may be fewer construction jobs during the
winter months. Since these individuals are out of work for a major portion of a year, their lack of
employment is of greater concern than is that for individuals who are frictionally unemployed.

Cyclical unemployment is not expected and is a serious concern for society.

Cyclical unemployment occurs when the economy slows down, and there are more unemployed
people than there are available jobs. Then we have people who desire to work on one hand, and a
desire for the products that these people could produce on the other, but the economic system
cannot seem to make the two meet.

Structural unemployment concerns the attempt to put square pegs into round holes. Translated into
human terms, structural unemployment occurs when there are many people unemployed while
there are many jobs available, but the unemployed lack the necessary qualifications for the jobs.
Structural unemployment results from economic changes that cause the demand for specific kinds
of labour to be low relative to the supply in particular markets and regions of the economy.
Typically, there are many job offerings but usually at specified levels of accountants, programmers,
managers, and engineers — all requiring experience, of course. These are not the skills possessed
by the majority of the unemployed.

Structural unemployment is becoming an increasing problem in our rapidly changing industrial

society. New skills become more rapidly obsolete as society and its technology and demands
change. Structural unemployment may be one of the most pressing unemployment problems that we
face.

Voluntary unemployment exists when people choose not to work, often because they cannot find
jobs that pay enough money (e.g. more than social security benefits).

Classical unemployment is the lost of jobs caused when wages are too high.
 29
Vocabulary notes

unemployment безработица
unemployed безработный
lack (of) недостаток ч-л.
market wage rate рыночный уровень заработной платы
occupation род занятий, профессия
lay off увольнять
job offering предложение работы
social security benefits социальные пособия

Tasks

I. Find in the text English equivalents for the following:

рабочая сила, недостаток образования, принимать рыночный уровень заработной платы,

искать работу, вакансии, увольнять, экономические изменения, устаревший (ненужный),
социальные пособия, заработная плата.

II. Consult the dictionary and give Russian equivalents for the followin:

to be qualified for job, to accept the going wage rate, considerable delay, lack of sth, to distinguish
between different types, transitional, temporary unemployment, to arise, a significant problem, flow
of information, long run, to occur, to match, to result from, relatively low, productive capacity,
devastating effect, recession, demand for labour declines, to fluctuate, social security benefits.

III. Find words or expressions in the text which correspond to the following definitions:

1) the workforce
2) a person without any permanent job
3) meeting the proper standards and requirements and training for an office or position or task
4) the accumulation of knowledge or skill that results from direct participation in events or activities
5) the state of being employed or having a job
6) weekly payment given for work done
7) an ability that has been acquired by training
8) an amount of something available for use
9) the ability and desire to purchase goods and services
10) money provided by the government to people who need it

IV. True or false?

1. One cannot be considered an unemployed truck driver if he is unable to drive a truck.

2. Frictional unemployment is long run in nature.
3. Structural unemployment occurs when the skills of available workers do not match the jobs
vacant.
4. Changes in consumer preferences for products expand production and employment in all areas.
5. A decline in aggregate demand in the economy increases total production.
6. Voluntary unemployment exists when people choose not to work.
7. Classical unemployment is the lost of jobs caused when wages are low.
 30

V. Fill in the gaps with the words from the frame.

unemployment rate cyclical structural frictional seasonal cyclical

underemployed structural employment seasonal frictional labor force

Those employed and those unemployed but looking for work make up the 1) ………………. . The
percentage of the labor force that is unemployed is measured by the 2) ………………… . When
workers cannot find full-time jobs equal to their skills, they are classified as 3) ………… .The
major types of unemployment are 4) …………… , 5) ……...., 6) ……….., and 7) ………….. .
People who are voluntarily between jobs compose 8) …………… unemployment. Workers laid off
during the off season compose 9) …………… unemployment. When the economy slows
down, 10)…………….. unemployment occurs. When people lack the qualifications for the
available jobs, we experience 11) ………….unemployment. We may have a
5 or 6 percent unemployment rate yet some economists may call this full 12)………….. .

VI. Choose the correct answer.

1. The unemployment rate is:

a) the percentage of the population who are unemployed
b) the percentage of the labor force who are not able to find work
c) made up of workers who have lost their jobs
d) none of the above

2. The unemployment rate may understate the amount of unemployment because:

a) some unemployed workers become discouraged and leave the labor force
b) some people are underemployed
c) both a and b
d) none of the above

3. Workers laid off for a predictable part of the year make up:
a) structural unemployment
b) cyclical unemployment
c) seasonal unemployment
d) frictional unemployment

VII. Translate into English

1. Экономисты используют термин фрикционная безработица (она связана с поисками или

ожиданием работы) в отношении работников, которые ищут работу или ждут получения
работы в ближайшем будущем.
2. Разница между фрикционной и структурной безработицей весьма неопределенна.
Существенное различие состоит в том, что у “фрикционных” безработных есть навыки,
которые они могут продать. А “структурные” безработные не могут сразу получить работу
без переподготовки, дополнительного обучения, а то и перемены места жительства;
фрикционная безработица носит более краткосрочный характер, а структурная безработица
более долговременный и поэтому считается более серьезной.
3. Под циклической безработицей мы понимаем безработицу, вызванную спадом, то есть той
фазой экономического цикла, которая характеризуется недостаточностью общих, или
совокупных, расходов.
 31
VIII. Discussion Questions

1. How are the population, the labor force, and employment related?

2. Does the unemployment rate measure the amount of unemployment? Explain.

3. Classify the following as frictional, seasonal, cyclical, structural, voluntarily or classical

unemployment:

a) Aunt Ettie fires her elderberry pickers at the end of the season.
b) Cousin Clyde lost his job when the sales of his firm and other firms went
down.
c) Cousin Katy got tired of the cold, quit her job in Cleveland last week, and
found a new job in Orlando. She starts next month.
d) Barney went to school to be a buggy whip maker and cannot find a job.
e) The union went on strike for an 8 % pay rise. They got it, but the company laid off ten of us.
f) It’s crazy- the only jobs available round here pay less than I get from Social Security

4. What do you believe full employment should be and why?

Inflation

Inflation is a rise in the general level of prices. It is caused by an excess of demand over supply,
and is related to an increase in the money supply. Single-digit inflation is usually described by
economists as moderate inflation. Double or triple-digit inflation, which some countries have
survived for quite long periods, is known as galloping inflation. Inflation of four or more digits, as
in Germany in the early 1920s, and Argentina in the early 1980s, is known as hyperinflation.
Hyperinflation is an extreme form of inflation resulting from political or economic instability.

Demand-pull and cost-push inflation that we now experience are more common forms.

If aggregate demand exceeds what a country can produce at full employment prices will rise
(including wages, the prices of labour): this is demand-pull inflation.

Cost-push inflation is a rise in the average price level due to an increase in production costs. Cost-
push originates from the supply side of the economy. Monopoly power significantly contributes to
cost-push inflation. The monopoly power of labour unions may result in wage increases that inflate
the cost of production. The power of monopoly business permits these costs to be passed on to the
consumer in the form of higher prices. Once prices go up, labour realizes that its recent wage gain
has been eroded, and it again raises wages. The increase in wages again causes prices to rise, and
the wage-price spiral repeats itself.

Supply shock is another cause of inflation. Supply-shock inflation results from infrequent drastic
changes in the production cost of fundamental products.
A widespread agricultural disaster such as a drought or freeze may increase food prices and have a
widespread impact on average prices. The most visible case of supply shock was the series of
OPEC increases in 1970s oil prices.

The higher price of oil increased the cost of energy, plastics, and other inputs and resulted in
increased production cost in nearly every productive process in the economy. This in turn increased
the price of final products and therefore average prices. But these shocks by themselves are not
 32
inflation. Inflation is a continued rise in prices. Shocks that affect supply cause a one-time change in
prices that is not inflation. But these shocks may lead to inflation if they set off cost-push inflation.

Inflation can sometimes occur simply because we expect it to. If consumers believe that the prices
of goods are going to rise, they may rush out now and buy before the prices go up. The increase in
demand will cause prices to rise so the expectation comes true. Once people start expecting prices
to rise, and act upon it by buying more, prices will rise, and expectations inflation is the result.
Psychology plays an important role in a social science.

We have seen some possible ways in which inflation can be generated - demand-pull, cost-push,
shocks, and expectations. Yet there is no one way of looking at inflation that always explains its
occurrence. Inflation may result from a combination of causes. The solutions to inflation will in part
depend upon the source of the inflationary pressure.

The opposite of inflation, when prices fall (generally for short periods), is deflation. Government
policies can be inflationary (often by accident), disinflationary and reflationary. Disinflationary
policies might be aimed at slowing down the price inflation or at reducing imports: they involve
reducing demand by raising taxation and/or cutting government spending. Reflationary policies, on
the contrary, involve revitalizing a sluggish economy by increasing consumer demand, either by
cutting taxes or raising benefits, or relaxing monetary and credit restrictions.

Inflation is measured by the retail price index (RPI) in Britain and the consumer price index (CPI)
in the US. These measure the cost of the “basket” of goods and services, including food, clothing,
housing, fuel, transport and medical care. The individual items in price indexes are weighted,
meaning that allowance is made for their relative importance in people’s spending.

Vocabulary notes

general level of prices общий уровень цен

demand-pull inflation инфляция, вызванная превышением спроса
над предложением
cost-push inflation инфляция, вызванная ростом издержек
производства, инфляция издержек
average price средняя цена
taxation налогообложение
government spending государственные расходы
sluggish economy вялая (инертная) экономика
benefits пособия

Tasks

I. Match the words and expressions from the text with their definitions.

1) increase a) an amount by which sth. is larger than sth.

else
2) demand b) government policy designed to increase
economic activity, by increasing
the money supply or reducing taxation or
interest rates
3) supply c) the money stock multiplied by its velocity
4) excess d) a period during which economic activity
(spending, investments) falls, and
 33
unemployment rises
5) inflation rate e) the willingness and ability of consumers to
purchase goods and services
6) taxation f) the percentage amount that prices (e.g. the
retail price index) are higher than a previous
year
7) interest rates g) a rise, a growth, an upward trend
8) disinflation h) the willingness and ability to offer goods and
services for sale
9) reflation i) the cost of borrowing money, expressed as a
percentage of the loan per period of time
10) recession j) the imposition of taxes
11) money supply k) government policy designed to slow down
price inflation

II. Find in the text English equivalents for the following.

умеренный, повышение, превышение, превышать, совокупный спрос, приводить к чему-

либо, являться результатом чего-либо, падение спроса (покупательной способности),
гиперинфляция, запросы опережают возможности экономики предложить товары и услуги,
уровень прибыли, ослабление ограничений, сокращать налоги, индекс потребительских цен,
относительная важность.

III. Consult the dictionary and give Russian equivalents for the following.

level of prices, an excess of demand over supply, moderate inflation, triple-digit inflation, full
employment, high unemployment, trade union militancy, raw materials, profit margin, to slow
down the price inflation, to raise benefits, to relax restrictions, retail price index, consumer price
index, basket of goods and services, medical care, relative importance.

IV. What kinds of inflation do the following definitions refer to?

1) single-digit inflation;
2) inflation in two or three digits (e.g. 30,60 or 100 %);
3) inflation of several hundred or thousand per cent (e.g. in Germany in the 1920s, Serbia and
Russia in the 1990s, etc.);
4) rising prices caused when total demand exceeds what a country can produce, even at full
employment;
5) when costs (rather than excessive demand) push up prices and wages (e.g. excessive wage
increases or increase in the price of oil);
6) when people expect prices to rise, they buy more before the prices go up; this extra buying
causes the prices to rise;

V. Match the words in English with their Russian equivalents.

1) demand-pull inflation a) денежный запас

2) cost-push inflation disinflation b) индекс розничных цен
3) retail price index c) инфляция издержек
4) money supply d) занятость
5) consumer demand e) налогообложение
6) reflation f) потребительский спрос
7) aggregate demand g) государственные расходы
 34
8) taxation h) рефляция
9) employment i) совокупный спрос
10) government spending j) инфляция спроса

VI. Fill in the gaps with the words in the frame.

demand-pull supply-shock expectations demand-pull cost-push inflation

supply-shock expectations hyperinflation cost-push

A continued rise in the average level of prices is known as 1)……………. An accelerating increase
in the price level is called 2)…………….. Other causes of inflation include 3) ………….., 4)
…………., 5)……………, and 6) …………………. Excess demand at full employment may lead
to 7)…………. inflation. An increase in production costs may lead to 8)………….. inflation.
Sudden increases in production cost of fundamental products results in 9) ……………….. inflation.
People buying more to avoid rising prices causes 10) …………….. inflation.

VII. Translate into English.

1. Инфляция, вызванная избыточным спросом, наблюдается в том случае, если рост уровня
цен происходит под влиянием общего увеличения совокупного спроса.
2. В краткосрочном плане инфляция, вызванная избыточным спросом, вызовет рост уровня
цен и увеличение реального выпуска; в долгосрочном плане произойдет только лишь рост
уровня цен.
3. Инфляция, вызванная ростом издержек, появляется в результате действия факторов,
которые увеличивают издержки производства при любом уровне цен – то есть сдвигают
кривую совокупного предложения влево – и, следовательно, вызывают рост уровня цен.
4. Если правительство не пытается влиять на развитие инфляции, вызванной ростом
издержек, весьма вероятно развертывание спада.

VIII. Discussion Questions.

1. Suppose that inflation is 100 percent per year. What is the impact on the wealthy individual who
can afford to save half of income and only spend half of income, compared to the less wealthy
individual who must spend all income earned and has to borrow an equal amount as well?

2. How would inflation affect your spending power? Can you avoid the effects of inflation?

3. How can inflation rob your savings?

4. What do you believe is the greater evil for you, unemployment or inflation? For the society?
Why?
 35
Economic Systems

There are a number of ways in which a government can organize its economy and the type of
system chosen is critical in shaping environment in which business operates.

An economic system is quite simply the way in which a country uses its available resources (land,
workers, natural resources, machinery, etc.) to satisfy the demands of its inhabitants for goods and
services.

There are three basic approaches to economic decisions about resource allocation. One is based on
tradition – that is, people generally repeat the decisions made at an earlier time or by an earlier
generation.

A second is based on command – that is, decisions are made largely by authority. In a command-
planned or socialist economy the government owns most resources and decides on the type and
quantity of a good to be made. It sets output targets for each district and factory and allocates the
necessary resources. Incomes are often more evenly spread out than in other types of economy.

The third is based on market price. A market or capitalist economy is a system of decentralized
decision making in which individuals and business firms participate in the market through decisions
that are reflected in the supply and demand and forges out of them an interrelated network of
market prices that reflect the preferences of all the participants.

Market prices – and changes in them – act as signals to producers, telling them what buyers want.
Firms decide the type and quantity of goods to be made in response to consumers. An increase in
the price of one good encourages producers to switch resources into the production of that
commodity. Consumers decide the type and quantity of goods to be bought. A decrease in the price
of one good encourages consumers to switch to buying that commodity. People on high incomes are
able to buy more goods and services than are the less well off.

No recent real-world economy is or has been a pure form of a traditional, command or decentralized
market economy. Every existing economy uses a different “mix” of mechanisms to respond to the
basic economic decisions, and has somewhat different institutions, controlling values, and
motivating forces at work that affect the operation of the economy.

In a mixed economy privately owned firms generally produce goods while the government
organizes the manufacture of essential goods and services such as education and health care.

Many economic systems underwent fundamental changes during the last decades of the 20th
century. The element of tradition was more evident in the rural areas of the developing countries of
Asia and Africa, yet even those rural areas participated in elements of a market economy and/or a
command economy.

The element of command economy had been most evident in the former Soviet Union until the
country collapsed. China, which describes itself as a command economy, has many elements of
traditional and market-price economies. The American economy is a mixed capitalistic economy, in
which both government and private decisions are important; it is an economic system in which there
is private ownership of capital, freedom of enterprise, competition, and reliance upon markets.

It should be noted that people of all societies, regardless of the type of economic system, engage in
certain basic economic activities. These include producing, exchanging, and consuming goods and
 36
services, as well as saving and investing so that capital goods and human capital can be
accumulated to increase output and productivity.

Vocabulary notes

output targets производственные цели

interrelated network взаимосвязанная сеть
essential goods товары первой необходимости
reliance уверенность

Tasks

I. Find in the text English equivalents for the following.

важный, формировать окружающую среду, доступные ресурсы, оборудование, жители,

подход к решению проблемы, поколение, власть, определять цели, участвовать,
предпочтения, в ответ на, стимулировать, производство товаров, обеспеченный,
существующий, влиять, необходимые товары и услуги, здравоохранение, подвергаться
изменениям, сельские районы, частная собственность.

II. Find in the text the words or expressions that match the definitions below. Fill in the table
with your answers.

1. The place, in which people live and work, including all the physical conditions that affect them
(paragraph 1).
2. Able to be obtained, taken or used (paragraph 2).
3. The amount of something (paragraph 4).
4. A feeling of liking or wanting someone or something more than someone or something else
(paragraph 5).
5. Something that can be bought or sold, especially basic food products or fuel (paragraph 6).
6. An economic system in which prices, salaries and the supply of goods are controlled by what and
how much people buy, not by the government (paragraph 7).
7. An economic system in which the government controls business and the supply of goods
(paragraph 9).
8. The activities of companies that are trying to be more successful than others (paragraph 10).
9. A business company or organization (paragraph 10).
10. The rate at which goods are produced, especially in relation to the time, money, and workers
needed to produce them (paragraph 11).

English word or Transcription Russian equivalent

expression
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
 37

III. Complete the following sentences with the words and expressions from exercise II.

1. There is no money ___________ for this project.

2. Market prices reflect ____________ of consumers.
3. We need to create a safe working ___________ for all employees.
4. They monitor both quality and ___________ of materials used.
5. The __________ of that factory has gone down over the last 5 years.
6. ____________ has intensified in recent years.
7. ______ ______ tends to be slow when responding to changes in people’s tastes and fashions.
8. In a true _______ ________ the government plays no role in the management of the economy.
9. Last month they switched resources into production of that __________.
10. Euro Disney is a much smaller _________ than its American counterparts.

IV. Fill in the spaces in the following sentences with the words below.

Command, mixed, resources, sector, society, free-market, government, businesses.

1. In a …………..economy the……….. makes all decisions about production and consumption.

2. In a ………….. economy the government plays no role in allocating ………….. .
3. In a ………… economy both the government and the private………..(………… and consumers)
play important role in answering the what, how , and for whom questions for……… as a whole.

V. Explain the following key concepts and name the countries with the mentioned types of
economic systems.
- economic system
- traditional economy
- command economy
- market economy
- decentralized decision making
- mixed economy

VI. Answer the questions.

1. Are incomes often more evenly spread out in a command economy than in other types of
economy? Why?
2. How do firms decide the type and quantity of goods to be made?
3. What does every existing economy use?
4. Did many economic systems undergo fundamental changes during the last decades of the 20 th
century?

VII. Chose a country and make a mini-presentation (3-4 minutes) on the major characteristics of
its economic system

VIII. Translate from Russian into English

1. Среди экономистов нет единого мнения относительно роли государства в обеспечении

экономического роста.
2. В соответствии с одной из высказываемых точек зрения роль государства, по крайней
мере, на начальной стадии роста, должна быть значительной. Это требование во многом
вытекает из характера трудностей экономического развития, с которым сталкиваются
экономически отсталые страны.
 38
Consumption

Consumption is the using up of a resource. Discussions of human consumption of resources play an

important role in both economics and environmentalism. In Keynesian economics, “consumption”
is short-hand for personal consumption expenditure and is determined by the consumption function,
especially by the marginal propensity to consume. It is a part of aggregate demand or effective
demand.

Consumption can also be defined as “the selection, adoption, use, disposal and recycling of goods
and services”, as opposed to their design, production and marketing.

Studies of consumption investigate how and why society and individuals consume goods and
services, and how this affects society and human relationships. Contemporary studies focus on role
of consumption in identity making and the “consumer” society.

Traditionally, consumption was seen as rather unimportant compared to production, and the
political and economic issues surrounding it. With the development of a consumer society,
increasing consumer power in the market place, the growth in marketing, advertising, sophisticated
consumers, ethical consumption etc, it is recognised as central to modern life.

Sociology of consumption has moved well beyond Veblen's early work on “conspicuous”
consumption. Current theories investigate the role of economic and cultural factors in constraining
consumption, as development of an approach that sees consumers as 'victims' of producers and their
social situation.

A counter theory highlights the subversive aspects of consumption, with consumers buying and
using goods, places etc. in ways unintended by the producers. Examples include city squares turned
to skateboard parks, and music sharing on the internet.

Studies of consumption come from a variety of backgrounds. Consumer studies attempt to help
marketing; user research aims to improve product design; feminist studies highlights the importance
of women as consumers, and particularly the role of the domestic arena in consumption; Media
studies try to understand the consumption of media products such as television and video games.

Studying consumption can be done through traditional survey methods, or various ethnographic
techniques. Consumption studies are difficult because they involve investigating everyday life
situations, rather than formalised settings such as the workplace.

Well known studies of consumption include those by Pierre Bourdieu and Daniel Miller. Favourite
topics include studies of food, new technologies, fashion items, and television.

Vocabulary notes

disposal of goods реализация товаров

background предпосылка
survey methods методы исследования
 39
Tasks

I. Translate from Russian into English using the words from the text.

потреблять, предельная склонность к расходованию, совокупный спрос, современный, по

сравнению с, признавать, исследовать, сдерживать, исследование

II. Suggest Russian equivalents for the following economic terms.

personal consumption expenditure, marginal propensity to consume, aggregate demand, market

place, sophisticated consumers, “conspicuous” consumption.

III. Replace the words in italics with the words from the text.

1. The factors influence society and human relationships.

2. The study concentrates on the role of consumption in the modern society.
3. You should examine the role of cultural factors in constraining consumption.
4. A number of economists emphasize the importance of women as consumers.
5. Their study includes investigating everyday life situations.
6. Consumer studies try to help marketing.

IV. Match the words from the text with their corresponding definitions

1) consumption a) a set of questions that you ask a

large number of people or
organizations
2) background b) someone who buys and uses goods
and services
3) expenditure c) a particular way of thinking about or
dealing with something
4) consumer d) information about what has happened in the
past that helps you to understand the
present situation
5) marketing e) change, growth, or improvement over a
period of time
6) development f) the ways in which a company encourages
people to buy its products by deciding
on price, type of customer, and advertising
policy
7) demand g) the place where you work
8) workplace h) the process of buying or using goods, or
the amount that people buy or use
9) survey i) the amount of a product or service that
people want, or the fact that they want it
10) approach j) money spent by a government, organization,
or person

V. Complete the sentences using the information from the text

1. Consumption is ……………………………………………………….
2. Consumption can also be defined as …………………………………
…………………………………………………………………………...
 40
3. Studies of consumption investigate…………………………………..
…………………………………………………………………………...
4. Contemporary studies focus on ……………………………………….
……………………………………………………………………………
5. Traditionally, consumption was seen as ………………………………
…………………………………………………………………………...
6. Current theories investigate …………………………………………..
…………………………………………………………………………...
7. A counter theory highlights …………………………………………..
………………………………………………………………………
8. Studies of consumption come from …………………………………...
9. Studying consumption can be done through ………………………….
…………………………………………………………………………...
10. Well known studies of consumption include ………………………..
…………………………………………………………………………...
VI. Translate from English into Russian.

John Maynard Keynes developed the idea of the consumption function, which sees a consumption
as consisting of two main parts:

1. Induced consumption refers to increases in consumer spending that occur as disposable

income rises. Increases in consumption follow the famous marginal propensity to consume.
An increase in disposable income leads to an increase in consumption, moving along the
consumption function in a graph.
2. Autonomous consumption refers to consumption spending done as part of long-term plans
for the future (smoothing out income fluctuations, providing for retirement and other
expected future events, etc.) and as a result of habits and contractual commitments. Changes
in plans, expectations, habits, etc. leads to shifts of the consumption function in a graph.

Often, as in the permanent income hypothesis, the word “consumption” refers instead to the benefit
received from consumer goods and services (as opposed to the amount spent on such products).

VII. Translate from Russian into English.

1. Потребление – использование продукта в процессе удовлетворения потребностей. В

экономике потребление приравнивается к приобретению благ и услуг. Потребление
становится возможным вследствие получения дохода или траты сбережений.

2. Экономическая теория рассматривает человека в рамках экономических отношений: в

условиях ограниченных ресурсов индивид ищет наиболее эффективные пути для
удовлетворения собственных потребностей.
 41
Competition

An industry is the set of all firms making the same product. The output of an industry is the sum of
the outputs of its firms. Yet different industries have very different numbers of firms. Letters in the
UK are delivered by the Post Office, which we call a nationalized industry because it is owned and
run by the state. However, some sole suppliers are private firms. Eurostar is the only supplier of
train journeys from London to Paris. In contrast, the UK has 200 000 farms and 30 000 grocers.

What about the size and number of firms in industry? Why indeed do some industries have many
firms but others only one? These are questions about market structure.

The market structure is a description of the behavior of buyers and sellers in that market. First it is
useful to establish two benchmark cases, the opposite extremes between which all other types of
market structure must lie. These limiting cases are perfect competition on the one hand and
monopoly or monopsony on the other hand.

A perfectly competitive market is one in which both buyers and sellers believe that their own
buying and selling decisions have no effect on the market price. A monopolist is the only seller or
potential seller of the good in that industry. A monopsonist is the only buyer or potential buyer of
the good in that industry.

In a perfectly competitive industry nobody believes that their own actions affect the market price.
Such an industry must have many buyers and many sellers. In London the New Covent Garden fruit
market confronts many buyers with many sellers. Neither buyers nor sellers believe their own
actions affect the market price. The perfectly competitive firm is too small to worry about the effect
of its own output decision on industry supply. It can sell as much as it wants at the market price.

A monopolist is the sole supplier and potential supplier of the industry’s product.

The firm and the industry coincide. The sole national supplier need not be a monopolist if the good
or service is internationally traded. The Post Office is the sole supplier of UK stamps and is a
monopolist. British Steel, although effectively the sole UK steel supplier, is not a monopolist since
it must compete with imports. Some monopolists are nationalized industries. The state market price
and output decisions may not aim primarily to maximize profits.

Perfect competition and pure monopoly are useful benchmarks of extreme kinds of market
structure. Most markets lie somewhere between these two extremes. What determines the structure
of a particular market? How does the structure of an industry affect the behavior of its constituent
firms?

A perfectly competitive firm faces a horizontal demand curve at the going market price. It is a
price-taker. Any other type of firm faces a downward sloping demand curve for its product and is
called an imperfectly competitive firm.

An imperfectly competitive firm cannot sell as much as at the going price. It must recognize that its
demand curve slopes down and that its output price will depend on the quantity of goods produced
and sold.

There are two intermediate cases of an imperfectly competitive market structure – an oligopoly and
a monopolistically competitive industry. An oligopoly is an industry with only a few producers,
each recognizing that its own price depends not merely on its own output but also on the actions of
its important competitors in the industry. An industry with monopolistic competition has many
 42
sellers producing products that are close substitutes for one another. Each firm has only a limited
ability to affect its output price.

In most countries the car industry is a good example of an oligopoly. The price Rover can charge
for its cars depends not only on its own production levels and sales, but also on the decision taken
by major competitors such as Ford and Toyota.

What makes oligopoly so fascinating is that the supply decision of its firm depends on its guess
about how its rivals will react. However, one should take into consideration the basic tension
between competition and collusion in all oligopolistic situations.

Collusion is an explicit or implicit agreement between existing firms to avoid competition with one
another. Collusion and co- operation between firms is easiest when formal agreements are legally
permitted. Such arrangements are called cartels. The most famous cartel is OPEC, the Organization
of Petroleum Exporting Countries.

Vocabulary notes

competition конкуренция
benchmark пример для сравнения
to confront сталкивать(ся)
to coincide совпадать, соответствовать
intermediate промежуточный
to recognize признавать
rival соперник, конкурент
collusion сговор

Tasks

I. Find in the text English equivalents for the following.

единственный поставщик, данные для сравнения, совершенная конкуренция, влиять на

рыночную цену, сталкивать кого-либо с кем-либо, совпадать, прежде всего, нисходящая
кривая спроса, признавать, близкий заменитель, назначать цену, конкурент. тайное
соглашение, явный, скрытый, существующая цена.

II. Complete the gaps with the words from the box in the proper form:

competitive competitively compete competitiveness competition

1) Several companies are …… with each other to gain the contract.

2) We are in …… with several other companies for the contract.
3) Our firm is no longer … … in world markets.
4) The trouble is you have just no …… priced goods.
5) British …… is declining in world markets.

III. Work with a dictionary. Match the expressions in English with their Russian equivalents.

1)business competition а) свободная конкуренция

2)latent competition b) жестокая конкуренция
3) world competition c) скрытая конкуренция
4) free competition d) чистая конкуренция
 43
5) severe competition e) честная конкуренция
6) fair competition f) мировая конкуренция
7) pure competition g) деловая конкуренция

1) to be drawn into competition a) конкурировать

2) to engage in competition
3) to withstand competition
4) to provoke competition
5) to face competition
6) to avoid competition
7) to win competition
b) выигрывать конкуренцию
c) сталкиваться с конкуренцией
d) быть втянутым в конкуренцию
e) избегать конкуренции
f) создавать конкуренцию
g) выдерживать конкуренцию

IV. Choose the correct alternative to complete the text.

The rare situation in which all producers are too small to affect the market price is called (1) …… .
Where even one producer can affect the price of a good by increasing or withholding output there
is (2) …… . A market with only one producer who can fix an artificial price is called a (3)……. The
opposite situation, where there is only one buyer – e. g. for defence system – is described as (4)
……. .

The situation where there are only a few sellers is called (5) …….This frequently arises in
manufacturing industry because of economies of scale - continuously declining unit costs as
production increases – and the cost barrier of entering an industry. A (6) ……is where companies in
the same industry collaborate by coordinating prices, sharing out markets, etc. In many countries,
including the USA, this is illegal, under (7) …… . The situation in which there are only a small
number of relatively large buyers in a market is (8) …….

Some monopolies are legal. For example, inventors are granted (9) ……….. that give them
monopolistic privileges for a certain length of time. There are also natural monopolies, such as
water , gas, electricity and telephones where it may not be economic to have a large number of
competing companies laying cables of pipes to the same consumers. Consequently, (10) ……
companies such as these are frequently granted monopolies, but with prices regulated by the
government.

1. a. communism b. oligopoly c. perfect competition

2. a. capitalism b. monopoly c. imperfect competition
3. a. competitive advantage b. monopoly c. monopsony
4. a. nationalization b. monopoly c. monopsony
5. a. an oligopoly b. an oligopsony c. a recession
6 a. cartel b. conglomerate c. conspiracy
7. a. anti – trust laws b. honesty laws c. trust laws
8. a. a concentration b. an oligopoly c. an oligopsony
9. a. licences b. patents c. trademarks
10 a. useful b. utility c. utilitarian

V. Translate from Russian into English.

1.Олигополия отличается небольшим числом продавцов и это означает, что решения об

определении цен и объемов производства являются взаимозависимыми.
 44
2. Формальное, в письменном виде или устное соглашение между фирмами об установлении
цен на продукт, или об объеме производства индивидуальных фирм, или о географическом
разделе рынка сбыта продукции называется картель.
3. Конкурентная система цен будет перераспределять ресурсы в ответ на изменение в
потребительских вкусах, технологии или запасах ресурсов (чтобы поддерживать
эффективность распределения ресурсов длительное время).

VI. Discussion Questions

1. Show why the following statements are incorrect:

a) Since competitive firms break even in the long run, there can be no incentive to be a competitive
firm.
b) Monopolists always make profits.
c) By introducing a law to break up every monopoly into smaller companies society could always
obtain more output at a lower price.
d) Perfect competition is possible only if all firms face the same cost curves.

Money and Banking

Money is used for buying or selling goods, for measuring value and for storing wealth. Almost
every society now has a money economy based on coins and paper notes of one kind or another.

Although the crucial feature of money is its acceptance as the means of payment or medium of
exchange, money has other functions. It serves as a standard of value, a unit of account, a store of
value and as a standard of deferred payment. We discuss each of the functions of money in turn.

Money, the medium of exchange, is used in one-half of almost all exchange. Workers exchange
labour services for money. People buy and sell goods in exchange for money. We accept money not
to consume it directly but because it can subsequently be used to buy things we do wish to
consume. Money is the medium through, which people exchange goods and services.

To see that society benefits from a medium of exchange, imagine a barter economy. A barter
economy has no medium of exchange. Goods are traded directly or swapped for other goods. In a
barter economy, the seller and the buyer each must want something the other has to offer. Each
person is simultaneously a seller and a buyer.

Trading is very expensive in a barter economy. People must spend a lot of time and effort finding
others with whom they can make mutually satisfactory swaps. Since time and effort are scarce
resources, a barter economy is wasteful. The use of money - any commodity generally accepted in
payment for goods, services, and debts - makes the trading process simpler and more efficient.

Money can also serve as a standard of value. Society considers it convenient to use a monetary unit
to determine relative costs of different goods and services. In this function money appears as the
unit of account, the unit in which prices are quoted and accounts are kept.

In Russia prices are quoted in roubles; in Britain, in pounds sterling; in the USA, in US dollars. It is
usually convenient to use the units in which the medium of exchange is measured as the unit of
account as well. However there are exceptions. During the rapid German inflation of 1922 – 1923
when prices in marks were changing very quickly, German shopkeepers found it more convenient
to use dollars as the unit of account. Prices were quoted in dollars even though payment was made
in marks, the German medium of exchange.
 45

To be accepted in exchange, money has to be a store of value. Nobody would accept money as
payment for goods supplied today if the money was going to be worthless when they tried to buy
goods with it tomorrow. But money is neither the only nor necessarily the best store of value.
Houses, stamp collections, and interest-bearing bank accounts all serve as stores of value. Since
money pays no interest and its real purchasing power is eroded by inflation, there are almost
certainly better ways to store value.

Finally, money serves as a standard of deferred payment or a unit of account over time. When you
borrow, the amount to be repaid next year is measured in pounds sterling or in some other hard
currency. Although convenient, this is not an essential function of money. UK citizens can get bank
loans specifying in dollars the amount that must be repaid next year. Thus the key feature of money
is its use as a medium of exchange. For this, it must act as a store of value as well. And it is usually,
though not invariably, convenient to make money the unit of account and standard of deferred
payment as well.

Different Kinds of Money.

In prisoner-of-war camps, cigarettes served as money. In the 19th century money was mainly gold
and silver coins. These are examples of commodity money, ordinary goods with industrial uses
(gold) and consumption uses (cigarettes), which also serve as a medium of exchange. To use a
commodity money, society must either cut back on other uses of that commodity or devote scarce
resources to producing additional quantities of the commodity. But there are less expensive ways
for society to produce money. A token money is a means of payment whose value or purchasing
power as money greatly exceeds its cost of production or value in uses other than as money.

A $10 note is worth far more as money than as a 3 x 6 inch piece of high-quality paper. Similarly,
the monetary value of most coins exceeds the amount you would get by melting them down and
selling off the metals they contain. By collectively agreeing to use token money, society
economizes on the scarce resources required to produce money as a medium of exchange. Since the
manufacturing costs are tiny, why doesn't everyone make $10 notes?

The essential condition for the survival of token money is the restriction of the right to supply it.
Private production is illegal. Society enforces the use of token money by making it legal tender. The
law says it must be accepted as a means of payment.

In modem economies, token money is supplemented by IOU money. An IOU money is a medium
of exchange based on the debt of a private firm or individual.

A bank deposit is IOU money because it is a debt of the bank. When you have a bank deposit the
bank owes you money. You can write a cheque to yourself or a third party and the bank is obliged
to pay whenever the cheque is presented. Cheques, bankers’ cards, and credit cards are being used
increasingly and it is possible to imagine a world where ‘money’ in the form of coins and paper
currency will no longer be used. Bank deposits are a medium of exchange because they are
generally accepted as payment.

Vocabulary notes

means of payment средство платежа

medium of exchange средство обращения
a standard of value мера стоимости
a unit of account единица учета
 46
a store of value средство сбережения
(сохранения стоимости)
a standard of deferred payment средство погашения
долга
a barter economy бартерная экономика
to swap (also swop; syn. to exchange, to barter) обменивать, менять
a monetary unit денежная единица
to be worthless обесцениваться
an interest-bearing bank account счёт в банке с выплатой
процентов
to erode зд. фактически уменьшать
hard currency твердая (конвертируемая)
валюта
soft currency неконвертируемая валюта
commodity money деньги - товар
token money символические, деньги
(дензнаки)
tiny costs мизерные затраты
legal tender законное платежное средство
IOU money - I owe you я вам должен; деньги –
долговое обязательство
debt (pronounced [det]) долг
a bank deposit вклад в банке

Tasks

I. Match the words from the text with their corresponding definitions.

1) money a) currency of a country with a strong balance of

payments, which is unlikely to lose value
in the near future
2) to exchange b) to receive money that will later have to be paid
back
3) barter c) a means of payment, especially coins and
banknotes; deposits, cheques, etc.
4) to quote d) an amount of money in a bank
5) to borrow e) money owed to someone (for a business this
might include bank loans, bonds, bills for goods
or services, etc.)
6) to lend f) to swap
7) debt g) exchange of one good for another, without the
use of money
8) hard currency h) to allow someone to use the sum of money that
will have to be paid back
9) deposit i) to calculate and offer a price for something, a
legally – binding estimate

II. Choose the correct alternative to complete each sentence.

1. Money in notes and coins is called…………………… .

a) cash b) capital c) reserve
2. The dollar, the mark and the yen are all ……………….. .
 47
a) currencies b) funds c) monies
3. Money borrowed from a bank is a ……………………. .
a) deposit b) income c) loan
4. Borrowed money that has to be paid back constitutes a ……………….. .
a) debt b) fund c) subsidy
5. All the money received by a person or a company is known as ……………. .
a) wages b) income c) capital
6. Money paid by the government or a company to a retired person is a ……………
a) pension b)salary c) debt
7. The income received by someone who lends money is called ………………. .
a) dividends b) interest c) subsidy
8. An amount of money lent is a …………….
a) debit b) debt c) loan
9. If you have to repay someone, you …………… money.
a) owe b) own c) lend
10. To take money that has to be repaid is to .………………. .
a) borrow b) lend c) steal

III. All the words below can be combined with bank in two-word partnership, e.g.
bank holiday. Add the word “bank“ either before or after each of the words below.

1. account
2. central
3. commercial
4. deposit
5. investment
6. manager
7. note
8. robbery
9. savings

IV. Answer the following money quiz.

1. What currencies are used in Japan, Australia, India and Russia?

2. What does the expression “hard currency” mean?
3. Name two credit cards which are usable world – wide?
4. Give two examples of imports that most countries impose customs duties on.
5. Give three example of kind of income that would be classed as unearned.
6. What is the Dow Jones index and what are its equivalents in London and Japan?

V. Fill in the table below for your own, or any other, country.

1. Rate of inflation …………………………………..

2. Exchange rate (against the US dollar) …………………………………..
3. Interest rate …………………………………..
4. Basic level of income tax …………………………………..
5. Rate of VAT (value added tax) …………………………………..
6. Monthly state pension …………………………………..
 48
VI. Read the following text and fill in the space with the words and word combinations below.

a deposit, efficient, the role of banks, a means of payment, money, to withdraw, the gold in their
pockets, goldsmiths, vaults, values, convenient, a letter, purchases, a cheque, payments.

The following story has some basis and explains ………….. . Once upon a time people used gold
bullion as………. . Wanting a safe place to store this bullion, people deposited it with………. –
people who worked with gold and had guarded …………. for storing it safely – and picked it up
when it was needed for making ………… .
Two developments turned goldsmiths from safekeepers into………. . First, people found that,
instead of physically handing over gold as ………….., they could give the seller of
goods………….. transferring the ownership of the gold held by the goldsmith. This letter this what
today we would call………. .
Once cheques became acceptable in payment of …………., people felt that the gold at the
goldsmith’s was as good as gold in their pocket. To figure out how much money they had, people
would count both gold in their pockets and gold held by the goldsmith.
The amount at the goldsmith’s for safekeeping was called……… .
People said their money holdings were ………………. plus their deposits. Since letters of gold
ownership were more……….. to carry around than heavy gold, the invention of deposits made the
payments system more…………. .
Second, and of greater significance, the goldsmiths noticed that they had a lot of gold lying idle in
their …………. . People swapped titles of ownership much more frequently than they
came…………. gold from the vaults.

VII. Translate from Russian into English.

1. Как средство обмена деньги позволяют обществу избежать неудобств бартерного обмена.
2. Деньги выступают также мерой стоимости. Общество считает удобным использовать
денежную единицу в качестве масштаба для соизмерения относительных стоимостей
разнородных благ и ресурсов.
3. Поскольку деньги наиболее ликвидное имущество, они являются очень удобной формой
хранения богатства.
4. Металлические и бумажные деньги являются обязательствами государства и
государственных агентов.
5. Деньги имеют то преимущество, что они могут быть безотлагательно использованы
фирмой или домашним хозяйством для удовлетворения любого финансового обязательства.

VIII. Discussion Questions.

1. A person trades in a car when buying another. Is the used car a medium of exchange? Is this a
barter transaction?
2. Could you tell by watching someone buying mints (white discs) with coins (silver discs) which
one is money?
3. A goldsmith holds 100 per cent reserves against deposits. What happens to the money supply
when a customer withdraws gold from the vault?
4. Initially gold coins were used as money but people could melt them down and the gold for
individual purposes. What must have been the relative value of gold in these two uses? Explain the
circumstances in which gold could become a token money and disappear from monetary circulation
completely?
5. Show why the following statement is incorrect: Since the government is responsible for printing
money, it always knows the exact quantity of the money supply in the UK?
 49
The Money Supply

In a perfect market economy the price level is determined by the interaction between the amount of
money available for use, which is the supply of money, and the amount that people and firms want,
which is the demand for money.

The factors influencing the supply of money depend on whether the money is privately produced
(for example, by firms that produce gold) or is supplied by the government. If money is privately
produced, the supply depends on the profitability of producing it. If money is supplied by the
government, the amount supplied depends on the reasons that the government has for supplying it.
These reasons are, in practice, closely related to government policies that are designed to affect the
outcome of the economy.

Following the monetarist argument that the average level of prices and wages is determined by the
amount of money in circulation, and its velocity of circulation, many central banks now set money
supply targets. By increasing or decreasing the money supply, the central bank indirectly influences
interest rates, demand, output, growth, unemployment and prices. The central bank can reduce the
reserves available to commercial banks by changing the reserve requirements. This reduces the
amount of money that banks can create and makes money tight or scarce. Alternatively, the central
bank can engage in what are called open market operations, which involve selling short-term
government bonds (such as three-month Treasury bills) to the commercial banks, or buying them
back.

In the UK, the government uses several definitions of the supply of money that is available to meet
the demand for making transactions and for precautionary and speculative purposes. These include:

M0 , the wide monetary base, or high-powered money; all notes and coins in circulation and in
banks, plus the banks′ balances in the central bank.

M1 measures the domestic currency in circulation plus the bank deposits or current accounts of
private households and firms against which cheques may be written. In the US, the amount of notes
and coins in circulation plus demand deposits – checking accounts from which money can be
withdrawn on demand. Also referred to as narrow money.

M2, broad money; a US measure including notes and coins plus time deposits (interest-bearing
savings accounts).

M3 is M1 plus time deposits ( or savings accounts) in the banking system.

The widest measure M4 includesM3 plus all the money deposited in building societies in the UK
and savings and loan associations and money market funds in the US.

Thus there is a spectrum of money, ranging from cash and bankers^ balances (MO) to wide
definitions such as M4. In modern financial systems, one form of deposits can quickly and cheaply
be converted into another. One sequence of this is that attempts by the government to regulate one
particular measure of the money supply quickly lead to people switching to forms of deposit that
remain unregulated.

Vocabulary notes

to determine определять
to affect влиять
 50
argument доказательство, спор
velocity скорость
reserve requirements резервные требования
to engage in sth заниматься чем-либо
Treasury bills казначейские векселя
precautionary предупредительный

Tasks

I. Translate from Russian into English.

рынок совершенной конкуренции, взаимодействие, спрос на деньги, политика направлена на,

средний уровень цен, скорость обращения, влиять косвенно, сократить количество,
краткосрочный, государственные облигации, проводить сделку, текущий счет, снимать
деньги, ссуда, пытаться регулировать

II. Suggest Russian equivalents for the following.

money supply, money available for use, demand for money, privately produced, to affect the
outcome of the economy, following the monetarist argument, to set money supply targets, to
influence indirectly, reserve requirements, open market operations, government bonds, domestic
currency, current account.

III. Insert the following words in the paragraph.

credit, inflation, output, unemployment, interest rates, the exchange rate, aggregate demand.

When money is tight,

1…………… rise, because commercial banks have to borrow at a higher rate on the inter-bank
market.
2…………… falls, because people and businesses borrow less at higher rates.
3…………… falls, because people and businesses buy less, as they have less money.
4……………. falls too, because with less consumption, firms produce less.
5…………… rises, because companies are producing and selling less, and so require less labour.
6…………… falls, because there is less money in circulation.
7…………… will probably rise, if there is the same demand but less money, or if there is higher
demand, as foreigners take advantage of the higher interest rates to invest in the currency.
Increasing the money supply, by making more reserves available, has the opposite effects.

IV. Find words and expressions in the text which correspond to the following definitions.

1) the value of the total stock of money, the medium of exchange in circulation;
2) a demand for real money balances;
3) a person who favors monetarism;
4) a minimum ratio of cash reserves to deposits that central bank requires commercial banks to
hold;
5) the exchange of high powered money for financial securities;
6) securities that are traded on a stock market known as gilt-edged securities or gilts in the UK;
7) a bank account from which money can be withdrawn without previous notice.
 51
V. Chose the correct alternative to complete each sentence.

1. The monetary base M0 is currency in circulation plus………………..

a) building society deposits b) banks^ cash reserves c) soft currency
2. The wide monetary base is ………………………………………………
a) M2 b)M0 c)M4
3. The average level of prices and wages is determined by ………………..
a)the amount of money in circulation b) money velocity of circulation
c)both
4. Open market operations occur when the central bank alters the monetary base by buying or
selling financial securities ………………………………..
a) in the open market b) in the UK c) to the public
5. M2 is notes and coins plus ……………………………………………..
a) time deposits b) building society deposits c) Treasury bills.

VI. Are the following statements true or false?

1. Most money exists on paper, in bank accounts, rather than in notes and coins.
2. Banking customers can withdraw time deposits whenever they like.
3. The amount of money spent is the money supply multiplied by its velocity of circulation.
4. Central banks can try to control the money supply.
5. Commercial banks can choose which percentage of their deposits they keep in their reserves.

VII . There are some word combinations with the word “money”. Match the word combinations
below with their definitions.

easy money, paper money, broad money, narrow money, funny money, hush money, spending
money.

1) money in the form of banknotes, rather than coins and gold;

2) money that you have available to spend on small personal expenses;
3) cash and the forms of money that can most easily be turned into cash;
4) money that you earn very easily, without having to work hard;
5) money that has been printed illegally;
6) cash and all the forms of money that cannot easily be turned into cash;
7) money paid to someone to prevent them from telling other people about something embarrassing
or dishonest.

Chose one of the word combinations above to complete the sentences.

1) People were tempted into the trade by the thought of………… .

2) …………… refers to money balances which are easily available to finance day-to-day spending,
that is , for transactions purposes.
3) Police issued a warning about ……………… after a motorist paid for petrol with a forged ₤ 20
note.
4) …………… refers to be held both for transactions purposes and as a form of saving.
5) It was the start of an elaborate plan to get ……………… from his employer.
6) He argues that ………………… is being printed so rapidly that it is worthless.
7) The winner will receive a holiday for two in Thailand, plus ₤ & 1000 …………. .
 52
VIII. Fill in the gaps in the extract with the proper terms below.

cheques, interest rate, assets, circulation, supply, deposits, accounts, liability, currency.

The narrowest measure M1 of the money ….. is ….. in circulation outside the banking system
plus the sight ….. of commercial banks against which the private sector can write ….. . Thus the
money supply is partly a ….. of the Bank (currency in private …..) and partly a liability of
commercial banks (checking ….. of the general public). The demand for money is the quantity of
liquid ….. people are willing to have in hand at any given moment. It depends on the income they
gain and the opportunity costs connected with the ….. .

IX. Translate from Russian into English.

1. Деньги, которые в сущности являются долговыми обязательствами государства и

депозитных учреждений (коммерческих банков и сберегательных учреждений) имеют
стоимость благодаря товарам и услугам, которые приобретаются за них на рынке.
Поддержание покупательной способности денег в значительной степени зависит от
эффективности государственного регулирования денежного предложения.
2. В узком смысле предложение денег, обозначаемое М1, состоит из двух элементов:1)
наличность, то есть металлические и бумажные деньги, находящиеся в обращении; 2)
чековые вклады, то есть вклады в коммерческих банках, различных сберегательных
учреждениях , на которые могут быть выписаны чеки.

X. Discussion Questions.

1. Suppose the Bank conducts a ₤ 1 million open market sale of securities to Mr. Jones who banks
with Barclays. What happens to the money supply?

2. Explain why the following statements are incorrect:

a) Interest rates are high. This proves that the money supply has been tightly controlled.
b) The abolition of reserve requirements implied that the Bank had given up any attempt to control
the money supply.

Some Popular Criticisms of Economics and Economists

Economics is a non-subject. It is well known that no two economists ever agree. It is important to
distinguish positive economics and normative economics. Positive economics deals with objective
or scientific explanations of the working of the economy. Normative economics offers prescriptions
or recommendations based on personal value judgments. Even if all economists agreed on a positive
economic analysis of how the world works, there would be enormous scope for disagreement on
normative recommendations based on differing value judgments. A great deal of the disagreements
between economists fall under this heading.

Nor is it surprising that there are important and persistent disagreements in positive economics.
Economics can only rarely be an experimental science. It would be prohibitively expensive to
induce half of the population to become unemployed merely to find out how the economy then
works. Since we cannot typically undertake such experiments, we have to try to disentangle
different factors from past data to overcome the problem of other things equal. Using data from a
large number of years makes it easier to do this unravelling but introduces a new problem. Since
attitudes and institutes are slowly changing, data from many years ago may no longer be relevant to
current behaviour. The problems we confront are difficult ones and we simply have to do the best
we can.
 53

Models in economics are hopelessly simple. They have nothing to do with reality. A model is a
deliberate simplification to help us think more clearly. A good model simplifies a lot but does not
distort reality too much. It is successful in capturing the main features of the problem. The test of a
good model is not how simple it is, but how much of observed behavior it is capable of explaining.

Sometimes we can get a long way with a very simple model. On other occasions, the behavior we
wish to describe is genuinely complex and a simple model may be insufficient.

People are not as mercenary as economists make out. Prices, incomes, and profit are not the
mean determinants of behaviour. We can certainly think of decisions where this is a fair comment.
Marriage is typically though not exclusively determined buy non-economic considerations.
Economists believe that most of the phenomena they study, such as the decision about whether to
travel by bus or tube, are determined primarily by economic incentives. This is very different
asserting that only economic incentives matter.

Economists recognize that knowledge of politics, sociology, and psychology would necessary to
provide a more complete description of human behaviour. These are all factors that economists
subsume under the heading “other things equal”. Economics emphasizes the effect of economic
incentives. Social attitudes change only slowly and for many purposes may be treated as being held
constant. However, if an economist were told, or discovered, that there had been an important
change in social attitudes, it would be straightforward to include this in the analysis.

People are human beings. You cannot reduce their actions to scientific laws.
Physicists accept the molecules behave randomly but that it is possible to construct and test theories
based on average and systematic behaviour. Economists take the same about people. However,
random differences in behaviour tend to cancel out on average. We may be able to describe average
behaviour with a lot more certainty.

If behaviour shows no systematic tendencies - tendencies to do the same thing when confronted by
the same situation - there is really nothing to discuss. The past will be no guide to the future and
every decision is a one-off decision. Not only is this view unconstructive, but it is not usually
supported by the data. In the last resort the economic theories that survive are those that are
consistently compatible with the data. The more random is human behaviour, the less will be the
systematic element about which we can form theories and use to make predictions. Nevertheless, it
is better to be able to say something about behaviour than nothing at all.

Vocabulary notes

consistent последовательный, совместимый

to induce убеждать, заставлять
to disentangle распутывать
unravelling загадка, разгадка
mercenary корыстный
to assert утверждать
Tasks

I. Find English equivalents for the following

выделять, изучать, постоянные разногласия, убеждать, проводить эксперимент,

незначительный определяющий фактор, относящийся к чему - либо, искажать реальность,
побуждение, случайный /беспорядочный.
 54

II. Find Russian equivalents for the following.

personal value judgement, to fall under the heading, prohibitively expensive, to overcome a
problem, to confront problems, capable of explaining, economic incentive, other things equal, to
subsume, to make predictions, in the last resort.

III. Match the words from the text with their corresponding definitions.

1) analysis (pl analyses) 2) judgement 3) model 4) to distort 5) feature 6) behaviour (US

behavior) 7) mercenary 8) determinant 9) phenomenon (pl phenomena) 10) incentive 11) attitude
12) random 13) tendency 14) to confront 15) data

a) to face sb /sth so that they cannot avoid it ;

b) a way of thinking about sb/sth or behaving towards sb/sth;
c) the study of sth by examining its parts and their relationship;
d) to give a false account of sth;
e) a series of simplifying assumptions from which it deduced how people will behave; a deliberate
simplification of reality;
f) facts or information used in deciding or discussing sth;
g) a distinctive characteristic, an aspect;
h) done, chosen etc without method or conscious choice;
i) an opinion about sth , often based on careful thought;
j) the way sb/ sth acts or functions in particular situations
k) a thing that decides whether or how sth happens;
l) a trend;
m) a fact or an event esp in nature and society;
n) concerned with making money or gaining some personal advantage;
o) encouragement, a thing that encourages sb to do sth.

IV. Answer the questions.

1. What are the popular criticisms of economics and economists?

2. Give the definitions of positive economics and normative economics.
3. Why do economists use models?
4. What do economists subsume under “other things equal”?
5. Why is human behaviour so important to be included in the economic analysis?

V. Which of the following statements are normative, and which are positive?

a) The price of oil more than tripled between 1973 and 1974.
b) In 1984, poor countries received less than their fair share of world income.
c) The world distribution of income is too unjust, with poor countries having 61 per cent of the
world’s population, but receiving only 6 per cent of world income.
d) In the early 1980s, most Western economies faced sharp rise in the aggregate unemployment
rate.
e) The UK government ought to introduce policies to reduce the unemployment rate.
f) Smoking is antisocial and should be discouraged.
g) The imposition of higher taxes on tobacco will discourage smoking.
h) The economy of Hong Kong is closer to a free market system than that of Albania.
 55
VI. Translate from Russian into English.

1.Все науки – эмпирические. Это означает, что все они базируются на фактах, то есть на
наблюдаемых и поддающихся проверке изменениях известных данных или определенных
явлений.
2. Экономические принципы и теории неизбежно оказываются абстракциями. Они не
отражают всех красок реальной действительности. К сожалению, абстрактный характер
экономической теории побуждает несведущих людей расценивать эту теорию как нечто
непрактичное и нереалистичное.

SUPPLEMENTARY READING

Adam Smith (1723 - 1790)

Although others wrote about economic issues and principles before him, Adam Smith is regarded
by most people as the father of economics.

This honor stems neither from the originality of his ideas nor from the techniques of economic
analysis that he pioneered. Rather, Smith is regarded as the father of economics due to his vision of
capitalism as an economic system that makes everyone better off. Smith was the first person to see
the benefits stemming from greater competition and to argue for policies that promote greater
competition. This required both reduced government involvement in the economy, and also
government actions to counter monopolistic tendencies and practices.

Smith was born in 1723 in Kirkcaldy, a small town near Edinburgh, Scotland. His father, a lawyer
and controller of customer duties, died shortly before he was born, so Smith was raised by his
mother and by guardians appointed in his father’s will.

Although he was a sickly child, Smith had a great passion for books and was an avid reader. At age
fourteen, he was sent by his parents to the University of Glasgow, where he studied moral
philosophy, mathematics, and political economy. In 1740, he won a scholarship to Oxford
University and studied at Balliol College for the next six years.

In 1751 Smith was hired to fill the Chair of Logic at the University of Glasgow. A year later he took
over the Chair of Moral Philosophy. His lectures on ethics were well attended and formed the basis
of his first literary success – The Theory of Moral Sentiments (Smith 1759).

The Theory of Moral Sentiments tried to explain how people acquired the moral feelings that
enabled them to distinguish right from wrong. It found the answer in the ability people had to put
themselves in the position of an impartial spectator. This allowed people to judge actions not only
from the viewpoint of their own selfish interests, but also from the perspective of an objective
observer. Like the conscience, this ability led people to act in ways that were morally right.

When Charles Townshend read The Theory of Moral Sentiments he decided that he could do no
better than to put his stepson, the Duke of Buccleuch, under the tutelage of Smith. So Townshend
hired Smith, and Smith resigned from his professorship at Glasgow to accompany the young Duke
to France. This new job gave Smith lots of free time to read and reflect, and by traveling to France,
Smith was able to meet the leading Physiocrats, including Francёois Quesnay. In early 1764, Smith
began writing a book ‘‘to pass away the time’’, as he noted in a letter to his friend David Hume.
 56
After traveling around France for three years, Smith returned to Kirkcaldy and then spent the next
decade finishing his book. The Wealth of Nations was published in 1776, and it brought Smith both
fame and fortune.

In contrast to The Theory of Moral Sentiments, The Wealth of Nations assumed that people act
according to their own self-interest. Yet, The Wealth of Nations argues that individual acts of
selfishness contribute to the public good.

The Wealth of Nations set out to analyze what caused the national standard of living to rise, and to
show how self-interest and competition contributed to economic growth. It also examined how
governments affect economic performance. These studies of the principles of economics also led to
an attack on the economic theories and policies of the mercantilists.

While generally regarded as the patron saint of laissez-faire economics and an opponent of
government, Smith did not really oppose all government intervention into economic affairs. In fact,
he recognized four important functions for government.

The first is in preventing monopoly or guaranteeing a competitive environment. Second, Smith

recognized that only governments could provide for the defense of the entire nation against outside
threats. Third, government had to provide for internal order and defense; that is, it had to protect
each member of society from every other member of society. Government was thus responsible for
setting up a police force and a judicial system.

Smith began by distinguishing the market price of a good from the natural price of a good. The
market price was the price that people paid in their everyday economic transactions. Market prices
were determined by the fixed quantity of goods brought to market as well as by the demand for
those goods. In contrast, the natural price of a good was an equilibrium price, or the price towards
which market prices moved or gravitated. Smith thought that an automatic mechanism would bring
the natural price and the market price into equality. If market price exceeded natural price for some
good, then landowners and employers would shift their land and capital to produce more of this
good. This would tend to reduce market price and move the market price closer to the natural price.
On the other hand, if market price were below the natural price, landowners and employers would
seek some other good to produce, or some other use for their land or capital. This would reduce the
supply of this good, increase its market price, and move the market price towards its natural price.

Smith argued against mercantilist restraints on trade, and wanted the British government to control
monopolies and observe care in the manner by which it taxed its citizens.

Smith’s vision was an optimistic one, involving competitive capitalism increasing living standards
and making everyone better off. In the time since The Wealth of Nations was published, this vision
has largely come to pass. But it was not a quick transformation. Nor was it an easy one. What Smith
did not live long enough to see the set of serious and deep problems that would accompany
economic growth – unemployment, pollution, the poverty of British workers, and the deterioration
of industrial cities in Britain. These were the problems that Smith’s successors were forced to
grapple with.
 57
David Ricardo (1772 -1823)

David Ricardo was one of those rare people who achieved both tremendous success and lasting
fame. After his family disinherited him for marrying outside his Jewish faith, Ricardo made a
fortune as a stockbroker and loan broker. When he died, his estate was worth more than $100
million in today’s dollars. At age twenty-seven, after reading Adam Smith’s The Wealth of nations,
Ricardo got excited about economics. He wrote his first economics article at age thirty-seven and
then spent the following fourteen years—his last ones—as a professional economist.

Ricardo first gained notice among economists over the “bullion controversy.” In 1809 he wrote that
England’s inflation was the result of the Bank of England’s propensity to issue excess banknotes. In
short, Ricardo was an early believer in the quantity theory of money, or what is known today as
monetarism.

In his Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815), Ricardo
articulated what came to be known as the law of diminishing marginal returns. One of the most
famous laws of economics, it holds that as more and more resources are combined in production
with a fixed resource—for example, as more labor and machinery are used on a fixed amount of
land—the additions to output will diminish.

Ricardo also opposed the protectionist Corn Laws, which restricted imports of wheat. In arguing for
free trade Ricardo formulated the idea of comparative costs, today called comparative advantage - a
very subtle idea that is the main basis for most economists’ belief in free trade today. The idea is
this: a country that trades for products it can get at lower cost from another country is better off than
if it had made the products at home.

Say, for example, Poorland can produce one bottle of wine with five hours of labor and one loaf of
bread with ten hours. Richland’s workers, on the other hand, are more productive. They produce a
bottle of wine with three hours of labor and a loaf of bread with one hour. One might think at first
that because Richland requires fewer labor hours to produce either good, it has nothing to gain from
trade.

Think again. Poorland’s cost of producing wine, although higher than Richland’s in terms of hours
of labor, is lower in terms of bread. For every bottle produced, Poorland gives up half of a loaf,
while Richland has to give up three loaves to make a bottle of wine. Therefore, Poorland has a
comparative advantage in producing wine. Similarly, for every loaf of bread it produces, Poorland
gives up two bottles of wine, but Richland gives up only a third of a bottle. Therefore, Richland has
a comparative advantage in producing bread.

If they exchange wine and bread one for one, Poorland can specialize in producing wine and trading
some of it to Richland, and Richland can specialize in producing bread. Both Richland and
Poorland will be better off than if they had not traded. By shifting, say, ten hours of labor out of
producing bread, Poorland gives up the one loaf that this labor could have produced. But the
reallocated labor produces two bottles of wine, which will trade for two loaves of bread. Result:
trade nets Poorland one additional loaf of bread. Nor does Poorland’s gain come at Richland’s
expense. Richland gains also, or else it would not trade. By shifting three hours out of producing
wine, Richland cuts wine production by one bottle but increases bread production by three loaves. It
trades two of these loaves for Poorland’s two bottles of wine. Richland has one more bottle of wine
than it had before, and an extra loaf of bread.

These gains come, Ricardo observed, because each country specializes in producing the good for
which its comparative cost is lower.
 58
Writing a century before Paul Samuelson and other modern economists popularized the use of
equations, Ricardo is still esteemed for his uncanny ability to arrive at complex conclusions without
any of the mathematical tools now deemed essential. As economist David Friedman put it in his
1990 textbook, Price Theory, “The modern economist reading Ricardo’s Principles feels rather as a
member of one of the Mount Everest expeditions would feel if, arriving at the top of the mountain,
he encountered a hiker clad in T-shirt and tennis shoes.”

One of Ricardo’s chief contributions, arrived at without mathematical tools, is his theory of rents.
Borrowing from Thomas Malthus, with whom Ricardo was closely associated but often
diametrically opposed, Ricardo explained that as more land was cultivated, farmers would have to
start using less productive land. But because a bushel of corn from less productive land sells for the
same price as a bushel from highly productive land, tenant farmers would be willing to pay more to
rent the highly productive land. Result: the landowners, not the tenant farmers, are the ones who
gain from productive land. This finding has withstood the test of time. Economists use Ricardian
reasoning today to explain why agricultural price supports do not help farmers per se but do make
owners of farmland wealthier. Economists use similar reasoning to explain why the beneficiaries of
laws that restrict the number of taxicabs are not cab drivers per se but rather those who owned the
limited number of taxi medallions (licenses) when the restriction was first imposed.

Karl Marx (1818 - 1883)

Karl Marx was communism’s most zealous intellectual advocate. His comprehensive writings on
the subject laid the foundation for later political leaders, notably V. I. Lenin and Mao Tse-tung, to
impose communism on more than twenty countries.

Marx was born in Trier, Prussia (now Germany), in 1818. He studied philosophy at universities in
Bonn and Berlin, earning his doctorate in Jena at the age of twenty-three. His early radicalism, first
as a member of the Young Hegelians, then as editor of a newspaper suppressed for its derisive
social and political content, preempted any career aspirations in academia and forced him to flee to
Paris in 1843. It was then that Marx cemented his lifelong friendship with Friedrich Engels. In 1849
Marx moved to London, where he continued to study and write, drawing heavily on works by David
Ricardo and Adam Smith. Marx died in London in 1883 in somewhat impoverished surroundings.
Most of his adult life, he relied on Engels for financial support.

At the request of the Communist League, Marx and Engels coauthored their most famous work,
“The Communist Manifesto,” published in 1848. A call to arms for the proletariat—“Workers of the
world, unite!”—the manifesto set down the principles on which communism was to evolve. Marx
held that history was a series of class struggles between owners of capital (capitalists) and workers
(the proletariat). As wealth became more concentrated in the hands of a few capitalists, he thought,
the ranks of an increasingly dissatisfied proletariat would swell, leading to bloody revolution and
eventually a classless society.

It has become fashionable to think that Karl Marx was not mainly an economist but instead
integrated various disciplines - economics, sociology, political science, history, and so on—into his
philosophy. But Mark Blaug, a noted historian of economic thought, points out that Marx wrote “no
more than a dozen pages on the concept of social class, the theory of the state, and the materialist
conception of history” while he wrote “literally 10,000 pages on economics pure and simple.”

According to Marx, capitalism contained the seeds of its own destruction. Communism was the
inevitable end to the process of evolution begun with feudalism and passing through capitalism and
 59
socialism. Marx wrote extensively about the economic causes of this process in Capital. Volume
one was published in 1867 and the later two volumes, heavily edited by Engels, were published
posthumously in 1885 and 1894.

The labor theory of value, decreasing rates of profit, and increasing concentration of wealth are key
components of Marx’s economic thought. His comprehensive treatment of capitalism stands in stark
contrast, however, to his treatment of socialism and communism, which Marx handled only
superficially. He declined to speculate on how those two economic systems would operate.

Alfred Marshall (1842 - 1924)

Alfred Marshall was the dominant figure in British economics from about 1890 until his death in
1924. His specialty was microeconomics - the study of individual markets and industries, as
opposed to the study of the whole economy. In his most important book, Principles of Economics,
Marshall emphasized that the price and output of a good are determined by both supply and
demand: the two curves are like scissor blades that intersect at equilibrium. Modern economists
trying to understand why the price of a good changes still start by looking for factors that may have
shifted demand or supply, an approach they owe to Marshall.

To Marshall also goes credit for the concept of price elasticity of demand, which quantifies buyers’
sensitivity to price.

The concept of consumer surplus is another of Marshall’s contributions. He noted that the price is
typically the same for each unit of a commodity that a consumer buys, but the value to the
consumer of each additional unit declines. A consumer will buy units up to the point where the
marginal value equals the price. Therefore, on all units previous to the last one, the consumer reaps
a benefit by paying less than the value of the good to himself. The size of the benefit equals the
difference between the consumer’s value of all these units and the amount paid for the units. This
difference is called the consumer surplus, for the surplus value or utility enjoyed by consumers.
Marshall also introduced the concept of producer surplus, the amount the producer is actually paid
minus the amount that he would willingly accept. Marshall used these concepts to measure the
changes in well-being from government policies such as taxation. Although economists have
refined the measures since Marshall’s time, his basic approach to what is now called welfare
economics still stands.

Wanting to understand how markets adjust to changes in supply or demand over time, Marshall
introduced the idea of three periods. First is the market period, the amount of time for which the
stock of a commodity is fixed. Second, the short period is the time in which the supply can be
increased by adding labor and other inputs but not by adding capital (Marshall’s term was
“appliances”). Third, the long period is the amount of time taken for capital (“appliances”) to be
increased.

To make economics dynamic rather than static, Marshall used the tools of classical mechanics,
including the concept of optimization. With these tools he, like neoclassical economists who have
followed in his footsteps, took as givens technology, market institutions, and people’s preferences.
But Marshall was not satisfied with his approach. He once wrote that “the Mecca of the economist
lies in economic biology rather than in economic dynamics.” In other words, Marshall was arguing
that the economy is an evolutionary process in which technology, market institutions, and people’s
preferences evolve along with people’s behavior.
 60
Marshall rarely attempted a statement or took a position without expressing countless qualifications,
exceptions, and footnotes. He showed himself to be an astute mathematician—he studied math at
St. John’s College, Cambridge—but limited his quantitative expressions so that he might appeal to
the layman.

Marshall was born into a middle-class family in London and raised to enter the clergy. He defied his
parents’ wishes and instead became an academic in mathematics and economics.

John Maynard Keynes (1883 – 1946)

So influential was John Maynard Keynes in the middle third of the twentieth century that an entire
school of modern thought bears his name. Many of his ideas were revolutionary; almost all were
controversial. Keynesian economics serves as a sort of yardstick that can define virtually all
economists who came after him.

Keynes was born in Cambridge and attended King’s College, Cambridge, where he earned his
degree in mathematics in 1905. He remained there for another year to study under Alfred Marshall
and Arthur Pigou, whose scholarship on the quantity theory of money led to Keynes’s Tract on
Monetary Reform many years later. After leaving Cambridge, Keynes took a position with the civil
service in Britain. While there, he collected the material for his first book in economics, Indian
Currency and Finance, in which he described the workings of India’s monetary system. He returned
to Cambridge in 1908 as a lecturer, then took a leave of absence to work for the British Treasury.
He worked his way up quickly through the bureaucracy and by 1919 was the Treasury’s principal
representative at the peace conference at Versailles. He resigned because he thought the Treaty of
Versailles was overly burdensome for the Germans.

After resigning, he returned to Cambridge to resume teaching. A prominent journalist and speaker,
Keynes was one of the famous Bloomsbury Group of literary greats, which also included Virginia
Woolf and Bertrand Russell. At the 1944 Bretton Woods Conference, where the International
Monetary Fund was established, Keynes was one of the architects of the postwar system of fixed
exchange rates. In 1925 he married the Russian ballet dancer Lydia Lopokova. He was made a lord
in 1942. Keynes died on April 21, 1946, survived by his father, John Neville Keynes, also a
renowned economist in his day.

Keynes became a celebrity before becoming one of the most respected economists of the century
when his eloquent book The Economic Consequences of the Peace was published in 1919. Keynes
wrote it to object to the punitive reparations payments imposed on Germany by the Allied countries
after World War I. The amounts demanded by the Allies were so large, he wrote, that a Germany
that tried to pay them would stay perpetually poor and, therefore, politically unstable. We now
know that Keynes was right. Besides its excellent economic analysis of reparations, Keynes’s book
contains an insightful analysis of the Council of Four (Georges Clemenceau of France, Prime
Minister David Lloyd George of Britain, President Woodrow Wilson of the United States, and
Vittorio Orlando of Italy).

Keynes wrote: “The Council of Four paid no attention to these issues [which included making
Germany and Austro-Hungary into good neighbors], being preoccupied with others—Clemenceau
to crush the economic life of his enemy, Lloyd George to do a deal and bring home something
which would pass muster for a week, the President to do nothing that was not just and right”.
 61
In the 1920s Keynes was a believer in the quantity theory of money (today called Monetarism). His
writings on the topic were essentially built on the principles he had learned from his mentors,
Marshall and Pigou. In 1923 he wrote Tract on Monetary Reform, and later he published Treatise
on Money, both on monetary policy. His major policy view was that the way to stabilize the
economy is to stabilize the price level, and that to do that the government’s central bank must lower
interest rates when prices tend to rise and raise them when prices tend to fall.

Keynes’s ideas took a dramatic change, however, as unemployment in Britain dragged on during
the interwar period, reaching levels as high as 20 percent. Keynes investigated other causes of
Britain’s economic woes, and The General Theory of Employment, Interest and Money was the
result.

Keynes’s General Theory revolutionized the way economists think about economics. It was
pathbreaking in several ways, in particular because it introduced the notion of aggregate demand as
the sum of consumption, investment, and government spending; and because it showed (or
purported to show) that full employment could be maintained only with the help of government
spending. Economists still argue about what Keynes thought caused high unemployment. Some
think he attributed it to wages that take a long time to fall. But Keynes actually wanted wages not to
fall, and in fact advocated in the General Theory that wages be kept stable. A general cut in wages,
he argued, would decrease income, consumption, and aggregate demand. This would offset any
benefits to output that the lower price of labor might have contributed.

Why shouldn’t government, thought Keynes, fill the shoes of business by investing in public works
and hiring the unemployed? The General Theory advocated deficit spending during economic
downturns to maintain full employment. Keynes’s conclusion initially met with opposition. At the
time, balanced budgets were standard practice with the government. But the idea soon took hold
and the U.S. government put people back to work on public works projects. Of course, once
policymakers had taken deficit spending to heart, they did not let it go.

Contrary to some of his critics’ assertions, Keynes was a relatively strong advocate of free markets.
It was Keynes, not Adam Smith, who said, “There is no objection to be raised against the classical
analysis of the manner in which private self-interest will determine what in particular is produced,
in what proportions the factors of production will be combined to produce it, and how the value of
the final product will be distributed between them.” Keynes believed that once full employment had
been achieved by fiscal policy measures, the market mechanism could then operate freely. “Thus,”
continued Keynes, “apart from the necessity of central controls to bring about an adjustment
between the propensity to consume and the inducement to invest, there is no more reason to
socialise economic life than there was before” .

Little of Keynes’s original work survives in modern economic theory. His ideas have been
endlessly revised, expanded, and critiqued. Keynesian economics today, while having its roots in
The General Theory, is chiefly the product of work by subsequent economists including John Hicks,
James Tobin, Paul Samuelson, Alan Blinder, Robert Solow, William Nordhaus, Charles Schultze,
Walter Heller, and Arthur Okun. The study of econometrics was created, in large part, to
empirically explain Keynes’s macroeconomic models. Yet the fact that Keynes is the wellspring for
so many outstanding economists is testament to the magnitude and influence of his ideas.
 62
Lionel Robbins (1898 - 1984)

Although recognized equally for his contributions to economic policy, methodology, and the history
of ideas, Lionel Robbins made his name as a theorist. In the 1920s he attacked Alfred Marshall’s
concept of the “representative firm,” arguing that the concept was no help in understanding the
equilibrium of the firm or of an industry. He also did some of the earliest work on labor supply,
showing that an increase in the wage rate had an ambiguous effect on the amount of labor supplied.

Robbins’s most famous book is An Essay on the Nature and Significance of Economic Science, one
of the best-written prose pieces in economics. That book contains three main thoughts. First is
Robbins’s famous all-encompassing definition of economics, still used to define the subject today:
“Economics is the science which studies human behavior as a relationship between given ends and
scarce means which have alternative uses”. Second is the bright line Robbins drew between positive
and normative issues. Positive issues are questions about what is; normative issues are about what
ought to be. Robbins argued that the economist should be studying what is rather than what ought to
be. Economists still widely share Robbins’s belief. Robbins’s third major thought is that economics
is a system of logical deduction from first principles. He was skeptical about the feasibility and
usefulness of empirical verification. In this view he resembled the Austrians - not surprising since
he was a colleague of the famous Austrian economist Friedrich Hayek, whom he had brought from
Vienna in 1928.

In 1930, when Keynesianism was starting to take over in Britain, Robbins was the only member of
the five-man Economic Advisory Council to oppose import restrictions and public works
expenditures as a means of alleviating the depression. Instead, Robbins sided with the Austrian
view that the depression was caused by undersaving (i.e. too much consumption), and he built on
this concept in The Great Depression, which exemplifies his anti-Keynesian views. Although he
remained an opponent of Keynesianism for the remainder of that decade, Robbins’s views
underwent a profound change after World War II. In The Economic Problem in Peace and War
Robbins advocated Keynes’s policies of full employment through control of aggregate demand.

The London School of Economics was home to Robbins for almost his entire adult life. He
completed his undergraduate education there in 1923, taught as a professor from 1929 to 1961, and
continued to be associated with the school on a part-time basis until 1980. During World War II he
served briefly as an economist for the British government. Although Robbins was an advocate of
laissez-faire, he made numerous ad hoc exceptions. His most famous was his view, known as the
Robbins Principle, that the government should subsidize any qualified applicant for higher
education who would not otherwise have the current income or savings to pay for it. His view was
adopted in the 1960s and led to an expansion of higher education in Britain in the 1960s and 1970s

Thorstein Veblen (1857 - 1929)

Thorstein Veblen was odd man out in late-nineteenth- and early-twentieth-century American
economics. His position on the fringe started early. Veblen grew up in a Norwegian immigrant
farming community in Wisconsin. He spoke only Norwegian at home and did not learn English
until his teens. He studied economics under John Bates Clark, a leading neoclassical economist, but
rejected his ideas. He did his graduate work at John Hopkins University under Charles Sanders
Peirce, the founder of the pragmatist school in philosophy, and at Yale University under laissez-
faire proponent William Graham Sumner. He repudiated their views as well.
 63
Veblen is best known for his book The Theory of the Leisure Class, which introduced the term
“conspicuous consumption” (referring to consumption undertaken to make a statement to others
about one’s class or accomplishments). This term, more than any other, is what Veblen is known
for.

Veblen did not reject economists’ answers to the questions they posed; he simply thought their
questions were too narrow. Veblen wanted economists to try to understand the social and cultural
causes and effects of economic changes. What social and cultural causes were responsible for the
shift from hunting and fishing to farming, for example, and what were the social and cultural effects
of this shift? Veblen was singularly unsuccessful at getting economists to focus on such questions.
His failure may explain the sarcastic tone his writing took toward his fellow economists.

Veblen had to struggle to stay in academia. In the late nineteenth century many universities were
affiliated in a substantial way with churches. Veblen’s skepticism about religion and his rough
manners and unkempt appearance made him unattractive to such institutions. As a result, from 1884
to 1891 Veblen lived on the largesse of his family and his wife’s family. His big break came in
1892 when the newly formed University of Chicago hired his mentor, J. Laurence Laughlin, who
brought Veblen with him as a teaching assistant. Veblen later became the managing editor of the
Journal of Political Economy, which was and is edited at the University of Chicago. Veblen spent
fourteen years at Chicago and the next three at Stanford. He died in obscurity in 1929.

Vilfredo Pareto (1848 - 1923)

Pareto is best known for two concepts that are named after him. The first and most familiar is the
concept of Pareto optimality. A Pareto-optimal allocation of resources is achieved when it is not
possible to make anyone better off without making someone else worse off. The second is Pareto’s
law of income distribution. This law, which Pareto derived from British data on income, showed a
linear relationship between each income level and the number of people who received more than
that income. Pareto found similar results for Prussia, Saxony, Paris, and some Italian cities.
Although Pareto thought his law should be “provisionally accepted as universal,” he realized that
exceptions were possible; as it turns out, many have been found.

Pareto is also known for showing that the assumption that the utility of goods can actually be
measured is not necessary to derive any of the standard results in consumer theory. Simply by being
able to rank bundles of goods, consumers would act as economists had said they would.

In his later years Pareto shifted from economics to sociology in response to his own change in
beliefs about how humans act. He came to believe that men act nonlogically, “but they make
believe they are acting logically.”

Born in Paris to Italian exiles, Pareto moved to Italy to complete his education in mathematics and
literature. After graduating from the Polytechnic Institute in Turin in 1869, he applied his
prodigious mathematical abilities as an engineer for the railroads. Throughout his life Pareto was an
active critic of the Italian government’s economic policies. He published pamphlets and articles
denouncing protectionism and militarism, which he viewed as the two greatest enemies of liberty.
Although he was keenly informed on economic policy and frequently debated it, Pareto did not
study economics seriously until he was forty-two. In 1893 he succeeded his mentor, Leon Walras,
as chair of economics at the University of Lausanne. His principal publications are Cours
d’économie politique (1896–1897), Pareto’s first book, which he wrote at age forty-nine; and
Manual of Political Economy (1906).
 64
A self-described pacifist who disdained honors, Pareto was nominated in 1923 to a senate seat in
Mussolini’s fledgling government but refused to become a ratified member. He died that year and
was buried without fanfare in a small cemetery in Celigny.

GLOSSARY

accountant noun [ countable ] a professional person whose job is to keep and check the financial
records of an organization, or to advise clients on tax and other financial matters;

accumulate verb 1 [ transitive ] to get, earn, or obtain something gradually over a period of time;
2 [ intransitive ] to increase or develop gradually over a period of time;
accumulated adjective [ only before a noun ];

advertising noun [ uncountable ] telling people publicly about a product or service in order to
persuade them to buy it ;

agreement noun [ countable ] 1 an arrangement or promise to do something, made by two or more

people or organizations ;
2 an official document that people sign to show that they have agreed to something;

aggregate noun [ countable ] 1 the total after a lot of different parts or figures have been added
together;
2 one of the measurements used when calculating the amount of money in an economy at a
particular time;

aggregate adjective [ only before a noun ] total and combined;

allocate verb [ transitive ] to decide officially that a particular amount of money, time etc should
be used for a particular purpose;

allocation noun [ countable, uncountable ] the amount or share of something allocated to a person
or organization, or the act of deciding how much of something each person or organization should
get;

resource allocation [ countable, uncountable ] the way that the resources of a company, country etc
are used for different purposes, and how this is decided;

amount noun [ countable, uncountable ] a quantity of something;

authority noun plural authorities 1 [ countable ] an official organization which controls a

particular activity and checks that the rules and laws relating to it are being obeyed;
local authority [ countable ] a government organization in Britain that is responsible for providing
public services such as schools, the collection of rubbish etc in a particular area;
2 the authorities [ plural ] the organizations that are in charge of a particular country or area or a
particular activity;
3 [ uncountable ] the power that a person or organization has because of their official or legal
position;

barter verb [ intransitive, transitive ] to exchange goods for other goods or to do work for someone
in exchange for work they do for you, rather than using money;
 65
barter noun [ uncountable ] a system of exchanging goods or work for other goods or work, rather
than using money;

behaviour BrE , behavior AmE noun [ uncountable ] also behaviours the way that someone or
something acts in different situations;
consumer behaviour BrE , consumer behavior AmE [ uncountable ] the study of where and how
people buy things, why they choose one thing and not another etc;

benefit 1 noun [ countable ] a good effect or advantage that something has, for example a product
or service;
2 [ countable, uncountable ] BrE money provided by the government to people who are old and no
longer work, or to people who are unemployed, ill, or on a low income etc ; = AmE WELFARE;
3 [ countable ] money paid out on certain insurance policies, especially health insurance;
4 [ countable ] something, especially money, that an employer gives to workers in addition to their
normal pay, to encourage them to work harder or be satisfied where they work;
bond noun [ countable ] 1 an amount of money borrowed by a government or an organization. The
government or organization produces a document promising that it will pay back the money that it
has borrowed, usually with interest. The document, which can be bought and sold, is also called a
bond;
government bond a bond issued by a government;
Treasury bond also T-bond a bond issued by the US federal government;

breakdown noun 1 [ countable ] a statement showing information or a total amount separated into
parts so that it is easier to understand;
2 [ countable, uncountable ] when something fails or stops working properly, especially because
people cannot agree;

capital noun [ uncountable ] 1 money or property used to produce wealth;

human capital people and their skills considered as a factor of production (=one of the things an
economy or organization must have to create wealth);
2 money from shareholders and lenders that can be invested by a business in assets in order to
produce profit;

cheque BrE , check AmE noun [ countable ] 1 a printed form that you use to pay for something
instead of using money. You write on it the amount in words and numbers, the date, the person
being paid, and sign your name;

circulation noun 1 [ uncountable ] the exchange of money within an economy;

2 [ uncountable ] if money is in circulation, it is being used by people in an economy. If money is
out of circulation, it is not being used;
3 [ countable, usually singular ] the average number of copies of a newspaper or magazine that are
sold each day, week, or month;

collusion noun [ uncountable ] when people or businesses share information or secretly make
arrangements among themselves to get an unfair advantage;

combine verb [ intransitive, transitive ] join together;

commodity noun plural commodities [ countable ] a product that can be sold to make a profit,
especially one in its basic form before it has been used or changed in an industrial process.
Examples of commodities are farm products and metals.
 66
company noun plural companies [ countable ] an organization that makes or sells goods or
services in order to make profit;
constituent company a company that is one of a group of organizations that have been joined
together;

compete verb [ intransitive ] when one company or country competes with another, it tries to get
people to buy its goods or services rather than those available from another company or country;

competition noun [ uncountable ] 1 a situation in which businesses are trying to be more

successful than others by selling more goods and services and making more profit;
2 the competition all the businesses that compete with a particular business, seen as a group;

consume verb1 [ intransitive, transitive ] to buy and use goods, services, energy, or natural
materials;
2 [ transitive ] to use money or time that could be used for something else;

consumer noun [ countable ] 1 a person who buys goods, products, and services for their own use,
not for business use or to resell;
ultimate consumer also end consumer the person who buys and uses a product after it has passed
through all the stages of production ; = END-USER ; ULTIMATE CUSTOMER;
2 a person, organization, industry, or country that uses products, services, energy, or natural
materials ;

consumption noun [ uncountable ] 1 the amount of goods, services, energy, or natural materials
used in a particular period of time;
2 the act of buying and using products, services etc;
conspicuous consumption when consumers buy expensive goods to impress people and show how
rich they are;
3 the amount spent on goods by consumers in a particular period of time;
domestic consumption also home consumption or internal consumption goods and services
consumed in the country where they are produced;

cost noun 1 [ countable, uncountable ] the amount of money that you have to pay in order to buy,
do, or produce something;
opportunity cost [ uncountable ] the real cost of doing something, including the cost of things that
you cannot do because of the choice you have made;

currency written abbreviation cur noun plural currencies [ countable, uncountable ] the system or
type of money used in a particular country;
domestic currency also local currency [ countable, uncountable ] the currency of the home
country of a particular user ;
floating currency [ countable, uncountable ] a currency whose value is allowed to change in
relation to other currencies;
foreign currency [ countable, uncountable ] a currency or currencies not belonging to your own
country;
hard currency [ countable, uncountable ] a currency that keeps its value or whose value increases
in relation to other currencies, and is used for international payments;
soft currency also weak currency [ countable, uncountable ] a currency that regularly loses value
in relation to others ;
 67
curve noun [ countable ] a diagram showing how a price or an amount changes in relation to
another price, amount etc;
demand curve how much of a product or service will be bought at different prices;
debt noun 1 [ countable ] money that one person, organization, country etc owes to another;
2 [ uncountable ] the state of owing money;
3 [ uncountable ] capital borrowed by a business or government organization on which it pays
interest ;
long-term debt [ uncountable ] debt that is to be repaid a long time after the money is borrowed ;
national debt [ uncountable ] money borrowed and still owed by a country;
short-term debt [ uncountable ] debt that is to be repaid a short time after the money is borrowed,
usually within one year;

decline verb [ intransitive ] if an industry or country declines, it becomes less profitable,

productive, wealthy etc;
2 if sales, profits, production etc decline, they become less;

decline noun [ countable, uncountable ] 1 when sales, profits, production etc become less;;
2 when an industry or country becomes less profitable, productive, wealthy etc;

decrease verb [ intransitive, transitive ] to go down to a lower level, or to make something do this ;
decreasing adjective [ only before a noun ];

decrease noun [ countable, uncountable ] the process of reducing something, or the amount by
which it reduces;

defer verb deferred , deferring [ transitive ] to delay something until a later time or date;

deflate verb [ intransitive, transitive ] 1 if a government deflates the economy, it reduces the
demand for goods and services by raising interest rates and taxes, limiting wage increases, reducing
government spending, or a combination of these;
2 if the price of something deflates, it goes down;
— compare reflate ;

deflation noun [ uncountable ] when a government reduces demand for goods and services by
raising interest rates and taxes, limiting wage increases, or reducing government spending, or a
combination of these;
deflationary adjective;
— compare disinflation, inflation;

demand noun [ uncountable ] 1 the amount of spending on goods and services by companies and
people in a particular economy;
2 the total amount of a type of goods or services that people or companies buy in a particular period
of time;
3 law of demand the idea that the more something costs, the less demand for it there is;
aggregate demand the total demand for goods and services in an economy;
consumer demand demand for goods and services from people rather than businesses;

deposit noun 1 [ countable ] an amount of money paid into a bank account or held in a bank
account, especially when it is earning interest;
fixed deposit [ countable ] an amount of money held in a bank account and earning a particular rate
of interest for a fixed period of time;
2 deposits [ plural ] the total amount of money held in bank accounts etc within an economy;
 68
bank deposits [ plural ] the total amount of money that customers have paid into a particular bank
or into all banks in a particular area or economy;
3 [ countable ] also deposit account a bank account in which money can be held and will earn
interest;
call deposit [ countable ] a type of bank account from which you can take out money immediately
without paying a charge and without informing the bank in advance ;
demand deposit [ countable ] another name for a call deposit;
sight deposit [ countable ] another name for a call deposit;
term deposit also time deposit [ countable ] a bank account in which you must leave your money
for a minimum period of time and from which you can only take out money after informing the
bank in advance;

deposit verb [ transitive ] to leave money or other valuable things at a bank;

determine verb [ transitive ] 1 to find out the facts about something;

2 to make an official decision about something;
3 to decide the exact meaning of the conditions of a contract, for example when there are
disagreements about it;
determination noun [ uncountable ];

disinflation noun [ uncountable ] when a government reduces the rate of inflation without also
reducing the general level of economic activity or increasing unemployment. This may be done by
raising interest rates, controlling the amount of credit available to people, and limiting the
availability of goods which are in short supply. Disinflation is a gentle form of deflation;
disinflationary adjective;

disposal noun 1 [ uncountable ] when someone gets rid of something they no longer need or want;
2 [ countable ] an asset that is sold, and the act of selling it;

dispose verb dispose of something phrasal verb [ transitive ] 1 to get rid of something that is no
longer needed or wanted;
2 to sell an asset;

distribute verb [ transitive ] 1 to make goods available to customers after they have been produced;
2 to divide up a company's profits for a particular period of time and give them to shareholders in
the form of dividends or new shares;

domestic adjective [ only before a noun ] 1 relating to the home or the family ;
2 relating to the country you live in, rather than abroad;

economic growth an increase in the value of goods and services produced in a country or area;

economics noun1 [ uncountable ] the study of the way in which wealth is produced and used;

economize also economise BrE verb [ intransitive ] to reduce the amount of time, money, goods etc
that you use;

economy noun plural economies 1 [ countable ] the system by which a country's goods and
services are produced and used, or a country considered in this way;
command economy also controlled economy [ countable ] an economy in which the government
of a country owns most of the industry and makes all economic decisions;
— compare market economy;
 69
free economy also free market economy [ countable ] another name for market economy also
free economy , free market economy [ countable ] an economy in which companies are not
controlled by the government but decide for themselves what to produce and sell, based on what
they believe they can make a profit from;
mixed economy [ countable ]an economy in which some industries are owned by the government
and some are owned by private companies;
planned economy [ countable ] another name for command economy;
political economy 1 [ uncountable ] the study of the way countries organize the production and the
use of wealth;
2 [ countable, uncountable ] the way an economy is organized in a particular country;

employ verb [ transitive ] to pay someone to work for you;

employment noun [ uncountable ] 1 work that you do to earn money;

2 the number of people in an area or a country who have jobs, the types of jobs they have etc;
full employment when almost everyone in an area or country who wants a job has one;

enterprise noun [ countable ] a company or business;

entrepreneur noun [ countable ] someone who starts a company, arranges business deals, and
takes risks in order to make a profit;
entrepreneurial adjective;
entrepreneurship noun [ uncountable ];

exchange noun 1 [ countable ] a market where goods, services, or shares are bought and sold, in
return for money;
2 [ uncountable ] also foreign exchange the activity of buying and selling currencies ; = FOREX;
3 [ uncountable ] money in the currency of a foreign country, for example money obtained through
exports;

exchange verb [ transitive ] 1 to give someone something and receive something in return;
2 if a shop or company exchanges something you have bought, they take it back and give you a
new one, for example because the thing you first bought has a fault;
3 if you exchange money, you get money in one currency for money in another;

expenditure noun [ countable, uncountable ] the total amount of money that a government,
organization, or person spends during a particular period of time;

extract verb [ transitive ] to remove raw materials , such as gold or oil, from a place, for example
the sea or the ground, so that they can be sold or used in an industrial or manufacturing process;

fiscal adjective [ only before a noun ] connected with government taxes, debts, and spending;

force noun 1 [ countable ] a group of people who have been trained and organized for a particular
purpose;
labour force BrE , labor force AmE [ countable ] all the people who work for a company or in a
country;
2 market forces [ plural ] the way that the behaviour of buyers and sellers affects the levels of
supply and demand in a particular market, especially when the government does nothing to change
this;

goods noun [ plural ] things that are produced in order to be used or sold;
 70
capital goods goods such as machinery, equipment etc, used by businesses to produce other goods;
= INDUSTRIAL GOODS;
consumer goods goods bought by people for their own use, rather than by businesses and
organizations;
consumption goods another name for consumer goods;
finished goods goods that have been made completely and are ready to be sold;
luxury goods expensive goods bought for comfort and pleasure, not as a basic need;

gross domestic product abbreviation GDP noun [ singular, uncountable ] the total value of goods
and services produced in a country's economy, not including income from abroad;
per capita gross domestic product the gross domestic product of a country divided by the number
of people living there;

gross national product abbreviation GNP noun [ singular, uncountable ] the total value of goods
and services produced in a country's economy, including income from abroad;
per capita gross national product the gross national product of a country divided by the number
of people living there;

growth noun [ uncountable ] an increase in size, amount, or degree;

increase verb 1 [ intransitive ] to become larger in amount, number, or degree;

2 [ transitive ] to make something larger in amount, number, or degree;
increasing adjective [ only before a noun ];

increase 2 noun [ countable, uncountable ] a rise in amount, number, or degree;

inflate verb [ intransitive, transitive ] if the cost or level of something inflates or is inflated, it
increases, often above what is reasonable or normal;

inflation noun [ uncountable ] a continuing increase in the prices of goods and services, or the rate
at which prices increase;

health care noun [ uncountable ] the activity of looking after people's health, considered as an
industry;

hire verb [ transitive ] 1 to employ a person or an organization for a short time to do a particular
job for you;
2 to agree to give someone a permanent job;

household 1 adjective connected with looking after a house and the people in it;
household 2 noun [ countable ] all the people who live together in one house;

income noun 1 [ countable, uncountable ] money that you earn from your job or that you receive
from investments;
national income [ countable, uncountable ] the value of all the goods and services sold in a
country in a particular period of time, usually a year;
per-capita income [ countable, uncountable ] the income of a country, its GDP divided by the
number of people living there. This shows how rich or poor the people are on average;

inflation noun [ uncountable ] A continuing increase in the prices of goods and services, or the
rate at which prices increase;
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input noun also factor input [ countable usually plural, uncountable ] something or someone
that is involved or used in a business;

insurance noun 1 [ countable, uncountable ] an arrangement in which a company collects

premiums (= regular payments ) from a person or organization and in return agrees to pay them a
sum of money if they are involved in an accident, have something stolen, or cause harm or injury to
others;

intangible adjective used to describe something that has value but does not exist physically;

interest noun 1 [ uncountable ] an amount paid by a borrower to a lender, for example to a bank
by someone borrowing money for a loan or by a bank to a depositor (= someone keeping money in
an account there );

interest rate noun [ countable ] the percentage rate used for calculating interest over a particular
period of time, usually one year ;

industry noun plural industries 1 [ uncountable ] the production of raw materials (=basic
materials used in manufacturing) and of goods;
2 [ uncountable ] the people and organizations that work in industry;
3 [ countable ] business that produce a particular type of thing or provide a particular service;
capital-intensive industry [ countable ] an industry which needs a lot of money for equipment,
machinery etc;
labour-intensive industry BrE , labor-intensive industry AmE [ countable ]
an industry needing a lot of people to operate, usually manual workers;

invest verb [ intransitive, transitive ] 1 to buy shares, bonds, property etc in order to make a profit;
2 to save money in a high interest bank account or to buy an insurance policy that pays bonuses;
3 to spend money on things that will make a business more successful and profitable;

labor noun [ uncountable ] 1 work involving a lot of physical or mental effort;

2 all the people who work for a company or in a country;

machinery noun [ uncountable ] equipment that uses power such as electricity or petrol;
heavy machinery very large machines used in manufacturing, the building industry etc;
office machinery equipment such as telephones, computers etc that are used in offices;

marketing noun [ uncountable ] activities to design and sell a product or service by considering
buyers' wants or needs, for example where and how they will buy it, how much they will be willing
to pay etc;

money noun [ uncountable ] coins banknotes and bank deposits (=money held in banks) used to
buy things and to show their value;
broad money 1cash and all the forms of money that cannot easily be turned into cash;
2 a measure of how much money is available;
narrow money cash and the forms of money that can most easily be turned into cash;

money supply also money stock noun [ singular ] 1 the amount of money in an economy at a
particular time, and the speed with which it is used;
2 M0/M1/M2 etc different measures of a country's money supply depending on the types of money
they include, such as cash, bank deposits (=money held by banks), commercial paper (=borrowing
for short periods of time by organizations) etc;
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monopoly noun plural monopolies [ countable, uncountable ] a situation where a business activity
is controlled by only one company or by the government, and other companies do not compete with
it;

nationalize also nationalise BrE verb [ transitive ] if a government nationalizes a company or

industry, it brings it under state control;
— compare PRIVATIZE;
nationalized adjective;

occupation noun [ countable ] a job or profession, used especially on official forms or for writing
about the jobs people do;

output noun 1 [ countable, uncountable ] the amount of goods or services produced by a person,
machine, factory, company etc; = OUTTURN;
2 [ uncountable ] the total amount of goods and services produced in the economy or a part of the
economy during a particular period of time;

own verb [ transitive ] to have or possess something that is legally yours;

personnel noun 1 [ plural ] the people who work for a company or organization;
2 [ uncountable ] the department in an organization that deals with employing, training, and helping
employees ; = HUMAN RESOURCES;

power noun 1 [ uncountable ] the ability or right to control people, organizations, events etc ;
buying power 1 [ uncountable ] the ability of a person or organization to buy things, depending on
the amount of money they have available; = PURCHASING POWER, SPENDING POWER;
2 [ uncountable ] the amount that a unit of a particular currency buys at a particular time ; =
PURCHASING POWER;
purchasing power 1 [ uncountable ] the ability of a person or organization to buy things,
depending on the amount of money they have available ; = BUYING POWER, SPENDING
POWER ;
2 [ uncountable ] the amount that a unit of a particular currency buys at a particular time ; =
BUYING POWER;
spending power [ uncountable ] another name for PURCHASING POWER;

price noun 1 [ countable, uncountable ] the amount of money for which something is bought, sold,
or offered;
consumer price [ countable ] the price paid by the public for goods and services, rather than by
businesses;
fixed price 1[ countable ] a price that is definite and that cannot be reduced or increased; =
GUARANTEED PRICE;
2 [ countable ] an official price for a product or service, set by a government. When the amount has
been set, it is illegal to sell the item above this price ; = GUARANTEED PRICE;
market price1 [ countable ] the price of something on a market at a particular time;
2 [ countable ] used to talk about the real price or cost of something that a market decides, rather
than one calculated or fixed, for example by a government;
3 [ countable ] the price of something calculated in relation to what buyers are willing to pay at a
particular time, rather than in some other way;
retail price [ countable ] the price of something in a shop, rather than to a WHOLESALER (= a
seller that sells to shops etc rather than to the public) ; = STREET PRICE AmE;
selling price [ countable ] the price at which something can be bought, or at which it has been sold;
 73
price taker noun [ countable ] a company or person that has little influence on the price of
something, and has to follow what other companies and people do;

privatize also privatise BrE verb [ transitive ] if the government privatizes a company or activity
that it owns or operates, it sells the company etc to a business or to members of the public, who
become its new shareholders;
— compare nationalize;
privatized also privatised BrE adjective;

product noun 1 [ countable ] something useful and intended to be sold that comes from nature or is
made in a factory;
2 [ countable ] a service;
3 [ uncountable ] products in general;
commercial product 1 [ countable ] a product that can be sold, rather than one still being
developed;
2 [ countable ] another name for CONSUMER PRODUCT;
commodity product 1 [ countable ] a product such as a metal, farm product, oil etc;
2 [ countable ] a product that is hard to differentiate (=make seem different) from other products of
the same kind;
consumer product [ countable ] a product for use by people rather than businesses;
household product [ countable ] a cleaning product used in people's homes etc;

productivity noun [ uncountable ] the rate at which goods are produced, and the amount produced
in relation to the work, time, and money needed to produce them;

profit noun [ countable, uncountable ] money that you gain from selling something, or from doing
business in a particular period of time, after taking away costs;
net profit the profit from a deal, or from business activity for a particular period of time, after all
costs and taxes are taken away; = NET;

profitability noun [ uncountable ] the state of producing a profit, or the degree to which an activity,
company etc is profitable;

propensity noun plural propensities [ countable ] 1 a tendency to behave in a particular way;

2 marginal propensity to consume the relationship between a change in people's income and the
change in the amount that they spend on goods;

provide verb [ transitive ] 1 to give someone what they need, or to make sure they get it;
2 to produce a useful result, opportunity etc;

purchase noun 1 [ uncountable ] the act of buying something;

2 make a purchase to buy something;
3 [ countable ] something that has been bought;

quantify verb past tense and past participle quantified [ transitive ] to measure something and
express it as a number, especially something that is difficult to measure;

raw materials noun [ countable usually plural ] something you need to make or do something;
raw material a substance that is used to make a product;
 74
recycle verb [ intransitive, transitive ] to put used objects or materials through a special process, so
that they can be used again;
recyclable adjective;
recycled adjective;
recycling noun [ uncountable ];

reflate verb [ intransitive, transitive ] if a government reflates the economy, it increases

government spending, reduces interest rates etc in order to increase demand and encourage
economic activity;
— compare deflate;
reflation noun [ uncountable ];
reflationary adjective;

requirement noun 1 [ countable ] something that an official organization says a company or person
must have or do;
2 [ countable ] something that someone needs or wants;
capital requirement 1 [ countable ] the capital needed by a company to operate, grow etc;
2 [ countable ] the capital that a government says that a financial institution must have in relation to
the amount that it lends, so that it can operate safely;
reserve requirement [ countable ] AmE an amount of money the government says that banks must
possess, or leave with the central bank , calculated in relation to the amount of the loans that they
make;

reserve verb [ transitive ] 1 to arrange for a place on a plane, in a hotel, in a restaurant etc to be kept
for a customer who will arrive later ; = BOOK BrE;
2 to keep or restrict something so that it can be used only by a particular person or for a particular
purpose;
reserve noun [ countable ] a minimum price that a seller will accept, usually in an auction ; =
RESERVE PRICE ;
—see also reserves;

reserves noun [ plural ] 1 a company's profits from previous periods of time that have not been
paid to shareholders;
2 AmE amounts kept aside by a company in its accounts to be used if needed. The amount a
company has in reserves has to be taken away when calculating profit for a particular period of
time;
3 also bank reserves money held by a bank and used to pay out money to customers when they
ask for it. The amount that must be kept in this way is decided by government;
capital reserves money that a company, financial institution, or government has available for future
spending;
currency reserves also foreign reserves , international reserves money in foreign currency held
by a country and used to support its own currency and to pay for imports and foreign debts;

resource 1 noun [ countable usually plural ] 1 something such as money, property, skill, labour etc
that a company has available;
2 something such as oil, land, or natural energy that exists in a country and can be used to increase
its wealth;
resource 2 verb [ transitive ] to provide money or other resources that are needed to do particular
work;
resourcing noun [ uncountable ];
restriction noun [ countable ] an official rule that limits or controls what people can do or what is
allowed to happen;
 75

rival noun [ countable ] 1 a person, group, or organization that you compete with; 2 one of a
number of products that people can choose between;

salary noun plural salaries [ countable, uncountable ] money that you receive as payment from the
organization you work for, usually paid to you every month;

scarce adjective if something is scarce, there is not enough of it available;

scarcity noun [ singular, uncountable ];

sector noun [ countable ] all the organizations or companies in a particular area of activity,
industry etc;

service sector also tertiary sector [ singular ] the companies, organizations, and activities in an
economy that provide services such as banking, transport, tourism etc, rather than manufacturing
goods;

share noun 1 [ countable ] one of the parts into which ownership of a company is divided;

society noun plural societies 1 [ uncountable ] people in general, considered in relation to the
structure of laws, organizations etc that make it possible for them to live together;
2 [ countable, uncountable ] a particular large group of people who share laws, organizations,
customs etc;
consumer society [ countable usually singular ] a society in which buying goods and services is
considered to be one of the most important parts of people's lives;

substitution noun [ countable, uncountable ] when you use or do something new or different
instead of something else, or something new that is used or done like this;

supply noun plural supplies 1 [ countable ] an amount of something that is available to be sold,
bought, used etc;

supply verb past tense and past participle supplied [ transitive ] 1 to provide goods or services to
customers, especially regularly and over a long period of time;
2 to give someone something they want or need;

tangible adjective 1 tangible results, proof, benefits etc can clearly be seen to exist or to have
happened;
2 able to be touched and felt;

tax noun [ countable, uncountable ] an amount of money that you must pay to the government
according to your income, property, goods etc, that is used to pay for public services;
income tax that rises in stages according to a taxpayer's income;
value-added tax abbreviation VAT [ countable, uncountable ] a tax on some goods and services;

taxation noun [ uncountable ] 1 the act or system of charging taxes;

2 money collected from taxes;

tertiary adjective [ only before a noun ] tertiary industries or companies are involved in providing
services, rather than the production of raw materials (=materials used in manufacturing) or
manufacturing;
 76
transaction noun [ countable ] 1 a payment, or the process of making one;
2 a business deal;

unemployment noun [ uncountable ] 1 when you do not have a job;

2 the number of people in a country who do not have a job;

utility noun plural utilities 1 [ countable usually plural ] a large company that provides services
such as gas or electricity;
2 [ countable usually plural ] a service such as gas or electricity, provided for people to use;

vacation noun [ countable ] 1 AmE a period of time when people are on holiday or not working;
2 a period of time when universities and certain law courts or other organizations are closed;

velocity noun [ uncountable ] the number of times a particular unit of money is spent over a period
of time. A country's GDP is the total amount of money available and its velocity;

wage noun [ countable ] also wages money that someone earns according to the number of hours,
days, or weeks that they work, especially money that is paid each week;

warehousing noun [ countable ] a large building used for storing goods in large quantities;

wealth noun [ uncountable ] 1a large amount of money or valuable possessions;

2 the total value of goods and services produced in a country in a particular period of time;

well off , well-off adjective having more money than other people, or enough money to live
comfortably;
— opposite badly off;

withdraw verb past tense withdrew past participle withdrawn

1 [ transitive ] to take money out of a bank account;
2 [ transitive ] to remove something or take it back, often because of an official decision ;
3 [ transitive ] if a company withdraws a product or service, it stops making it available, either for a
period of time or permanently ;
4 [ intransitive ] to no longer take part in something or to no longer belong to a particular
organization;
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List of References

1. Arleen J. Hoag, John J. Hoag. Introductory Economics, Fourth edition, World Scientific
Publishing Co., 2006.

2. David M. Kreps A. Course in Microeconomic Theory, Causeway Press Ltd, 1990.

3. J. Gali. Monetary Policy, Inflation, and the Business Cycle, South Western Educational
Publishing, 2008.

4. Kevin Lawler, Hamid Seddighi. International Economics: Theories, Themes and Debates,
Princeton University Press, 2001.

5. Michael Wetzstein. Microeconomic Theory: Concepts and Connections, Pearson Education,

2004.

6. Kaushik Basu. Collected Papers in Theoretical Economics Volume I: Development, Markets,

and Institutions, McGraw-Hill Publishing Co, 2004.

7. Bryan Ellickson. Competitive Equilibrium, McGraw-Hill Publishing Co, 1994.

8. Helmut Frisch. Theories of Inflation, Cambridge University Press, 1884.

9. John E. King (Ed.). Economic Growth in Theory and Practice: A Kaldorian Perspective, Oxford
University Press, 1994.

10. Pete Docherty. Money and Employment: A Study of the Theoretical Implications of
Endogenous Money, South Western Educational Publishing, 2005.