Economics study
Contents.
Unit 1
What does economics study?........................
History of economic thought.......................
Unit 2
Econometrics..................
The law of demand........................
Unit 3
The traditional economy.......................
The market economy.......................
Unit 4
The planned economy.......................
The mixed economy.......................
Revision Vocabulary Units 1 to 4...................24
Unit 5
Consumer choices.......................
Costs and supply........................
Unit 6
Market structure and competition................30
Monopolies....................
Unit 7
The labour market........................
Supply of labour........................
Unit 8
Factors of production....................
Division of labour........................
Revision Vocabulary Units 5 to 8...................45
Unit 9
Surplus.......................
Price discrimination................
Unit 10
Welfare economics.....................
Government revenue and spending.............53
Unit 11
Wealth, income and inequality....................
Poverty.......................
Unit 12
Macroeconomics................
Aggregate demand and aggregate supply.. 63
Revision Vocabulary Units 9 to 12................ 66
Unit 13
Money.........................
Banks.........................
Unit 14
Fiscal policy........................
Monetary policy........................
Unit 15
Interest rates and the money market............77
Economic shocks........................
Unit 16
Inflation.....................
Unemployment..................
Revision Vocabulary Units 13 to 16...............87
Unit 17
Economic growth........................
The business cycle.........................
Unit 18
The open economy.......................
Exchange rates.........................
Unit 19
Exchange rate mechanisms....................
International trade.........................
Unit 20
Less developed countries.....................
The Russian economy in the 19th century ...105
Unit 21
Contemporary Russia: the fall and
rise of the market economy.......................
Russia's foreign trade.........................
Revision Vocabulary Units 17 to 21.............113
Translation work..........................
Glossary......................
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Дорогие друзья!
Представляем Вам учебно-
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экономическая теория и эконометрика,
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"Масmillan Guide To Economics" может быть использован как на аудиторных занятиях, в группах и при индивидуальном обучении, так и при самостоятельном изучении материала.
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UNIT 1.
Before you read
Discuss the following with your partner.
Do you know much about economics?
Tick which of these statements you think are true.
Then explain to your partner why.
1)Economics is only the study of money.
2 )economics is something governments take care of.
3) An economist basically decides how money is spent.
A Vocabulary
Match the words with the definitions.
budget
business
convenience
data
demand
government
inflation
resources
trade-off
unemployment
A. the people who control a country and make laws
B. information
С. company that sells goods or services
D. easiness
E. the amount of money you have for something
F. how much people want something
G. the number of people without work
H. something such as money, workers or minerals belonging to an organization, country, etc which can be used to function properly
I. rising prices
J. giving away something in exchange for something
Reading 1
What does economics study?(4)
What you think of when you hear the word economics? Money, certainly, and perhaps more complicated things like business, inflation and unemployment. The science of economies studies all of these, but many more things as well
Perhaps you think that economics is all about the decisions that governments and business managers take. In fact, economists study the decisions that we all take every day.
Very simply, economies studies the way people deal with a fact of life: resources are limited, but our demand for them certainly is not. Resources may be material things such as food, housing and
heating. There are some resources, though, that we cannot touch. Time, space and convenience, for example, are also resources. Think of a day. There are only 24 hours in one. and we have to choose the best way to spend them. Our everyday lives are full of decisions like these. Every decision we make is a trade-off. If you spend more time working, you make more money. However, you will have less time to relax. Economists study the trade-offs people make. They study the reasons for their decisions. They look at the effects those decisions have on our lives and our society.
What are
microeconomics and macroeconomics?(5)
Economists talk about microeconomics and macroeconomics. Microeconomics deals with people, like you and me, and private businesses. It looks at the economic decisions people make every day. It examines how families manage their household budgets. Microeconomics also deals with companies - small or large - and how they run their business. Macroeconomics, on the other hand, looks at the economy of a country - and of the whole world. Any economist will tell you, though, that microeconomics and macroeconomics are closely related. All of our daily microeconomic decisions have an effect on the wider world around us.
Another way to look at the science of economics is to ask, what's it good for? Economists don't all agree on the answer to this question. Some practise positive economics. They study economic data and try to explain the behaviour of the economy. They also try to guess economic changes before they happen. Others practise normative economies. They suggest how to improve the economy. Positive economists say, this is how it is. Normative economists say, we should ... .
So what do economists do? Mainly, they do three things: collect data, create economic models and formulate theories. Data collection can include facts and figures about almost anything, from birth rates to coffee production. Economic models show relationships between these different data. For example, the relationship between the money people earn and unemployment. From this information, economists try to make theories which explain why the economy works the way it does.
В Comprehension
Now read the text again and match each paragraph with the correct heading.
PARAGRAPH 1 .......................
PARAGRAPH 2.......................
PARAGRAPH 3.......................
PARAGRAPH 4.......................
PARAGRAPH 5.......................
A How economists work
В Making deals every day
С Various ideas about economics
D Two areas of economics
E Two types of economist
Before you listen
Discuss these questions with your partner.
If you live in a modern economy, life is quite easy.
Before the Industrial Revolution, life was much harder.
In what ways was life more difficult?
С Listening
Listen to someone talking about life before the Industrial Revolution. Which of these things are mentioned?
1 length of life
2 housing
3 illnesses
4 work
5 food
6 having children
Now listen again and match the descriptions with the numbers.
1 life expectancy A about 250
2 number of children who died B 1 in 10
3before they reached five years old number of women who died when they
were giving birth
4 years since the Industrial Revolution D 1is 3
Before you read_(6)
Discuss these questions with your partner.
Do you have any ideal where the word economics comes from?
Do you know the names of any famous economists from the past or anything about their ideals?
1) abundance |
2) concept |
3) consumer |
4) firm |
5) Industrial Revolution |
6) population |
7) precious metals |
8) production process |
9) profit |
10) raw materials |
11) satisfaction |
13) scarcity |
1The.......................
2Sand and limestone are the....................... needed to make glass.
3 The.......................to make a car involves many people and machines
4 The extra money a company makes is called…………….
5People want.......................
6.......................is when there is very little of something.
7....................... is when there is lots of something.
8Gold and silver are examples of........................
9Another word for idea is........................
10 The.......................is the number of people a country has.
11 A business or company is sometimes called a 12en we buy things or use services we are a………………
Reading 2
History of economic thought
Economic thought goes back thousands of years. The ancient Greek, Xenophon, used the word oikonomikos (from oikos. meaning family household, estate, and nomes, for usage, law). He was talking about skilful or clever ways to manage land and households. We could call many of Aristotle's political writings economics, although he did not use the word The English word economies first appeared in the l9th century -two and я halt thousand years after Xenophon.
Early economic thought was all about the meaning of wealth or being rich. These early thinkers ashed, what makes a state or a country wealthy? For nearly 2,000 years, the answer was wry simple: gold. A country or nation's wealth depended on its owning precious metals this simple view of the economy remained unto medieval limes.
During medieval times - roughly the period
Between 1100 and 1500 AD, trading between nations grew, and a new social class appeared. These were merchants, people who made their money through the buying and selling of goods, and they began to write their own thoughts on the economy. They saw the economy as a way wealth depended on stocks of gold and the size of the population. More people meant bigger armies and a stronger state.
These were still simple ideas. However, daily experience had also taught people many basic economic concepts. For example, they understood the importance of trade with other states. They realised that scarcity makes things more expensive and abundance makes them cheaper.
Modern economics was really born in the 19th century. At this time, thinkers like Adam Smith wrote down ideas that are still important today. Adam Smith is often called the Father of Modern Economics, although the science was called political economy then. Smith realised that a nation's wealth depended on its ability to produce goods. The value of these goods depended on the cost of production. The cost of production depended on the cost of workers, raw materials and land. This was really the first example of macroeconomics.
Smith and other classical economists were writing at a time of great change. The industrial revolution had begun. Paper money began to replace precious metals. The middle classes were growing stronger. Economists' theories echoed these changes. They wrote about the division of labour (each worker taking their part in the production process). They discussed the problems of population growth. They influenced thinking about social classes.
For classical economists, the value of goods depends on the cost of production. However, the price of goods is not always the same as their real cost. Later economists developed new theories to explain this weakness in classical economics. These are known as the neoclassical economists and they were writing at the end of the 19th and early 20th centuries.
In neoclassical economies, supply and demand make the economy work. In other words, the price of goods depends on how much people want them and how easily they can be found. Consumers want satisfaction from their resources (time and money). Firms want profit. In neoclassical economics, this is the basic relationship in the economy. These ideas are still the basis of economic thinking today.
E Comprehension
Now read the text again and decide whether these statements are true or false.
1 Aristotle did not use the word economics, but he did write about
economic ideas. T/F
2 Early economists thought that a nation without gold was poor. T/F
3 People in medieval times didn't understand anything about
economics. T/F
4 In classical economics, the value of something was measured in gold. T/F
5 Economists later found a problem with the classical model. T/F
6 In neoclassical economics, supply and demand control price. T/F
Before you listen(7)
Look at this fact file about Adam Smith. Can you fill in any of the information?
Born in Scotland in (1).............
Lost his father at the age of (2). Kidnapped at the age of (3).....
Went to University of Glasgow at the age of (4)........................
Went to Oxford University at the age of (5)........................
Most famous book is The Wealth of (6)........................
Influenced Karl Marx and the founding fathers of (7)........................
F Listening
Now listen and complete the information about Adam Smith's life.
(8)G Speaking
Discuss these questions with your partner.
What use is the study of economics?
What trade-offs do you make every day?
How do the decisions we make affect the rest of the world?
Task.
Give a two-minute talk on the history of economic thought.
First, read text 2 again and make notes below on the following.
early economic thinking the classical economists
neoclassical economics
Notes:
Pronunciation guide
Convenience
Data
Society
Behaviour
Abundance
Scarcity
Xenophon
Aristotle
Medieval
Precious
H Writing
In this unit you learnt about Adam Smith, a famous thinker from Scotland. Who are the most famous thinkers from your country?
Work with a partner and decide which Russian thinkers have been most influential. Choose from the following: Kondratyev, Leontyev, Stolypin, Lenin.
Magazine article
Write a magazine article about one famous thinker from Russian history. Use the guide to help you organize your article.
Before you read
Discuss the following with your partner.
Econometrics is a term that economists use.
Look at the word: econo + metrics
What do you think it means?
A Vocabulary
Choose the correct word.
1 Prices usually increase / save from one year to the next.
2 People work in order to measure / earn money.
3 My grandmother's only income / salary is her pension.
4 Einstein is famous for his theory / analysis of relativity.
5 The police search for evidence / variables to help them find the criminal.
6 If you increase / combine blue with red you got purple.
7 Government statistics / evidence show that crime is rising.
8 People their money in bank accounts.
9 You can use a ruler to measure / earn the size of things.
10 A person's income / salary is the money they earn each month from work.
11 His theory/analysis of the problem is very good.
12 In experiments, scientists try to find out what makes a variable / evidence change.
13 An expert in a subject who works and teaches at a university is known as an individual / academic .
Reading 1
Econometrics(9)
Economists like to make theories. They theorise about why inflation happens, for example, or what causes unemployment. Hut theories are not useful if you cannot test them. This is true for all sciences, and the same for economies
To test a theory, you first need to gather what scientists call empirical evidence . That's evidence that can be measured, like money spent or babies born. When you have collected the evidence, you're ready to do the maths and statistics to test your theory. Economists call their maths econometries.
Let's lake an example. Imagine that you want to find out why some people save more money than others. You may think that this depends on two things: how much money they earn (their income) and how happy they generally are about saving money. We can express your theory as an amount someone saves = their income x their happiness to save
Of course, we can't measure happiness to save exactly, hut with econometric mathematics we can give it a value. Then we can see how that value differs between groups of people or cultures. Econometrics is about finding relationships between variables - in other words relationships between values that change. Economists try to find out if variable Л changes every time value В changes. They want to find out if variable A is dependent on variable B. This is called analysis, and there are two main kinds of econometric analysis: time-series analysis and cross-sectional analysis.
Time-series analysis shows how variables change over a period of time. How salaries increased over the last century, for example. Cross-sectional analysis compares variables at one point in time. The salaries of men compared to women right now, for example. Of course, economists like to make things more complicated than that. Sometimes they combine cross-sectional with time-series analysis, and this is called panel data analysis.
As we said earlier, econometrics is good for testing economic theories. However, there is also a practical side to econometrics. The same maths and statistics are used by governments and business managers, as well as academics. Econometrics can help governments and companies find out how well they are doing. With the data from all this mathematics, they can make better decisions and plan better for the future.
В Comprehension
Now read the text again and choose the best answer А, В or С to complete each sentence.
1 A theory is only good if you can ...
A express it clearly.
В test it.
С measure it.
2 Empirical evidence is evidence that...
A we can see.
В economists can't use.
С can be measured.
3 Econometrics is ...
A the maths that economists use.
В a way to measure how much someone saves.
С a formula to find out why people save.
4 Panel data analysis ...
A only shows differences over time. В only shows differences between groups. С shows differences between groups and changes over time.
5 Econometrics is ...
A only good for proving theories.
В good for making practical economic
decisions. С only good for academic work.
Before you listen(10)
Discuss the following with your partner.
The table below is an example of econometric data.
What does the table show?
Is this time-series analysis or cross-sectional analysis?
What do you think are the missing numbers?
С Listening )))
Weekly spending by children aged seven to fifteen in the UK
Girls Boys
sweets, snacks and food: £(1).......... £4.60
clothing and personal care: £(2).......... £1.30
mobile phone charges: £ (3).......... £0.40
magazines and books: £0.90 £(4).....
music, DVDs and videos: £0.70 £0.90
games and hobbies: £0.90 £ (5).....
Now listen to somebody talking about a survey of young people's spending habits. Fill in the gaps in the table.
Before you read (11)
Discuss these questions with your partner.
Why do you think gold is expensive?
What might be the reason that so many electrical goods are quite cheap now ?
D Vocabulary
Complete each sentence with a word from the box.
■ applies |
■ available |
■ confusing |
■ curve |
■ demand |
■ exception |
■ impressive |
■ increase |
■ law |
■ limited |
■ set |
■ shift |
■ taxes |
1Some of the puzzles in this book are really.
2 Newton's......................
3 There is a lot of.......................for organic fruit and vegetables these days.
4 When you throw a ball, it follows a....................... back down to earth.
5 Gold is expensive because there is only a very ....................... supply.
6 When a company stops making a product, it isn't .......................any more.
7 Normally I arrive at work at 8.00 am. but Thursday is an........................
8 This rule.......................to everyone in the school, even teachers.
9 Everyone who earns a salary must pay .......................to the government.
10 There has been a.......................in public opinion about the environment recently.
l1 There has been a huge....................... in demand for air conditioners due to the hot weather.
12 Prices have been.......................too high and nobody can afford the goods.
13 I found the work you've managed to do very ........................Well done!
The law of demand
Economics can often be very confusing Econometric formulas and impressive charts are sometimes impossible to understand. Thankfully
though, some economic ideas arc completely
obvious. One of these ideas is the law of demand Economists are always disagreeing with each other, but the law of demand is the only thing they all agree on. They all agree on it because it makes sense even to non-economists like you and me
Demand is how much of the same good. Of service people would like to buy. The law of demand says that demand for something falls as its price rises. Economists show this concept with the demand curve which you can see in figure 1 on page 12.
The reason why the law of demand works is quite obvious: the money we have is limited. If
something becomes more expensive, we will have less money available to spend on our other needs.
lf the product or service is not a necessity, we will decide to buy less of it
Most rules haw exceptions, but economists agree that there are very few exceptions to the law of demand. It even applies to basic necessities like water. When water becomes more expensive, people find ways to use less When the government put higher taxes on petrol, people try not to use their cars so often. The fall in demand might be very small, but it is real. So price has an effect on demand, but the strength of the effect varies. The strength of the price / demand relationship is called price elasticity. Economists use a simple econometric formula to measure price elasticity for a certain product in a particular market. This helps governments and companies set prices at the correct level for a particular time and plan price increases.
Don't forget, though, that other things affect demand apart from price. For example, during a very cold winter, demand for heating fuel like gas or coal will rise at any price. If the winter is unusually warm, then demand for fuel will fall. Economists say that these situations cause a shift in the demand curve. You can see this in figure 2.
In figure 2. the curve is still the same shape because price still has the same effect on demand. However, something else has caused a general increase in demand at all prices. Л rise or fall in people's incomes, fashion, climate and many other things can influence demand in this way.
E Comprehension(12)
Now read the text again and decide whether these statements are true or false.
The law of demand is easy to understand.
The law of demand says that when people want more of something, its price rises.
There are no exceptions to the law of demand.
Price elasticity shows how much prices change when demand changes.
There are many reasons why people decide to buy something, not only price.
A shift in demand changes the shape of the demand curve.
Before you listen_
Discuss the following with your partner.
The graph below shows one of the basic relationships in economics: supply and demand.
Talk about the graph with your partner.
Can you label the diagram with the words from the box?
Listening )))
Now listen and check if you were right.
■ Amount bought and sold |
|
■ Demand curve |
■ Equilibrium point |
■ Price |
■ Supply curve |
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G Speaking
Discuss these questions with your partner.
Apart from price, what other things affect demand for a product or service?
If you were a producer, how would you react to increases, or the opposite - decreases in demand?
What products or services are most in demand in your country now?
Task
Give a two-minute talk on the relationship between demand and supply.
First, read text 2 again and look at the diagram for exercise F Listening. Then make notes on the following:
• the law of demand and the reasons for changes in demand
the supply curve and the reasons for it
• how the market takes into account the needs of producers and consumers
Pronunciation guide
Econometrics
Variable
Empirical
Curve
Necessity
Elasticity
Fuel
H Writing
With a partner, look at the supply and demand charts for ice cream and answer the following questions together.
What do the two charts compare?
What happens to the supply of ice cream as price increases?
What happens to demand for ice cream as price increases?
What changes m June - supply or demand?
Why do you think there is a shift in demand for ice cream in June?
Report
Now write a short report describing the information in the charts. Organise your report like this.
PARAGRAPH 1
Introduction. Explain briefly what the charts are about and, very generally, what they show Begin like this: Both charts show demand and supply curves for ice cream. The charts also show
...
PARAGRAPH 2
The supply curve. Describe the supply curve for ice cream. Explain the relationship between price and supply. Give example figures from the chart to illustrate your points. Note that the supply curve is the same for both months. Begin like this: The supply curve for both December and June is the same. When production is low. the price ...
PARAGRAPH 3
The demand curve. Describe the general relationship between price and demand. Give example figures from the chart to illustrate your points.
Begin like this: The charts also show that there is a relationship between demand for ice cream and price. Demand rises ...
PARAGRAPH 4
Shift in demand. Describe the difference between the demand curve for December and June. Mention that the equilibrium point is higher in June than in December (give figures). Give reasons for the shift in demand. Begin like this: However, there is a big difference between the demand curve for December and the demand curve for June ...
Write about 220 words
Before you read _(14)
Discuss these questions with your partner.
Imagine a world without money.
How do you think society would be run?
Would there be an economy as we understand it?
Can you think of any examples of situations where people don't use money, either from the past or now?
Do you know what a traditional economy is?
A Vocabulary
Choose the correct answer А, В or С from the list below.
1 Although we can buy meat in the shops, some people still like to.....................animals as a hobby
2.......................is another word for extra things that are not needed.
3 There are still.......................of people living traditional lives in the rainforests of South America.
4 In most modern societies.....................
5 Corn and wheat are two.......................that
6 One of the.......................of playing sports is that you keep fit.
7 One of the....................of living in a city is the noise.
8 Many African countries suffer from regular .......................when no rain falls for months.
9 Heavy rain causes.......................
10 East Asian countries are well known for
their .......................
and cameras.
11 Exercises and sports at school are sometimes called.......................
1a chase |
1b hunt |
1c eat |
2a surplus |
2в goods |
2c shortage |
3a customs |
3b tribes |
3c pygmies |
4a parties |
4b patterns |
4c customs |
5a crops |
5b animals |
5c foods |
6a goods |
6b disadvantages |
6c benefits |
7a drawbacks |
7b benefits |
7С customs |
8a floods |
8b droughts |
8c hurricanes |
9a floods |
9b droughts |
9c hurricanes |
10a agricultural |
10b heavy |
10c technology |
11a physical |
11в mental |
11c fun |
Reading 1
The traditional economy
It's hard to imagine our lives without coins, banknotes and credit cards. Yet for most of human history people lived without money. For thousands of years human societies had very simple economies There were no shops, markets or traders. There were no employers, paid workers or salaries. Today, we call this kind of economy the traditional
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parts of Asia, South America and Africa this system still exists.
People who live in a traditional economy don't have money because they don't need it. They live lives of subsistence. That means they hunt, gather or grow only enough food to live. There is almost no surplus in the traditional economy, and there is almost no property Families may own simple accommodation, but land is shared by all the tribe. Economic decisions are taken according to the customs of the tribe. For example, every family may need to give some of the crops they grow to the tribal leader, but keep the rest for themselves. They don't do this because it makes economic sense. They do it because the tribe has always done it. It's simply a custom.
Custom, also, decides what jobs people do in the traditional economy. People generally do the jobs that their parents and grandparents did before them. Anyway, there aren't many jobs to choose from in the traditional economy. Men are hunters, farmers or both. The woman's place is at home looking after children, cooking and home-making. This division of labour between men and women is another characteristic of the traditional economy. Whatever the work is, and whoever does it. you can be sure it's hard work. This is because traditional economies have almost no technology. Physical strength and knowledge of the environment are the tools for survival.
Like any other economic system, the traditional economy has its benefits and drawbacks Probably the biggest benefit is that these are peaceful societies. People consume almost everything they produce and own practically nothing. They are equally poor. For all these reasons, war is almost unknown in these societies.
However, people who live in traditional societies are among the poorest people in the world. Because custom decides what people do. nothing in these societies ever changes. Because there is no technology, people depend on nature to survive, They have no protection from environmental disasters like droughts and foods. They are always in danger of hunger and disease.
But the traditional economy is in danger itself. There arc only a few examples left on the planet .In 100 years from now, it may have disappeared forever.
В Comprehension
Now read the text again and match each paragraph with the correct heading.
PARAGRAPH 1.......................
PARAGRAPH 2.......................
PARAGRAPH 3.......................
PARAGRAPH 4.......................
PARAGRAPH 5.......................
PARAGRAPH 6.......................
A Life without money
B The advantages of the traditional economy
C The future of the traditional economy
D The disadvantages of the traditional economy
E The importance of tradition
F Work in the traditional economy
Before you listen_
Discuss these questions with your partner.
What kind of people do you think still live in a traditional economy today?
Where do they live?
What are their lives like?
С Listening )))
Now listen and complete the notes about the Mbuti. Use one to three words for each gap. Then listen again and check your answers.
Pygmies
Pygmies live in parts of Africa and
(1)........................
Pygmies are known for their
(2)........................
They live in societies that still have a
(3)........................
The Mbuti
The Mbuti live in central (4)........................
They live in houses made from
(3)........................
(6).......................do the hunting.
(7).......................
(8).......................look after the children.
Before you read_
Discuss these questions with your partner.
Do you think most countries have a market which is free from government management?
Can you think of any examples supporting or disagreeing with this idea?
D Vocabulary
Complete each sentence with a word or phrase from the box.
■ advertise |
■ afford |
■ competition |
■ controlled |
■ costs |
■ incentive |
■ limit |
■ prepared |
■ profit |
■ raise |
■ reduce |
■ role |
■ street market |
■ theoretical |
|
1 Every Saturday this road becomes the local .......................where people come to buy fruit
and vegetables.
2 Businesses....................
3 My.......................in the business is to meet customers and find out what they want.
4 Making money is the main.......................to work.
5 bought this old camera for €50 and sold it for €75. That's €26........................
6 If there's only one producer in the market, there's no........................
7 Production....................
8 The idea that life exists on other planets is ........................Nobody knows for sure.
9 A.......................
10 The speed.......................on this road is 90 kilometers’ per hour.
11 When there is a demand we.......................
12 I can't.......................
13 People are.......................to pay a lot for services if they are of a good quality.
The market economy(16)
Have you ever walked through a busy street market? People push their way through crowds of others in order to reach the stalls first. The air is full of deafening shouts. Stall owners уеll to advertise their goods. Buyers cry out their orders It's hard to imagine, but behind this noisy confusion is a very logical economic theory, the
market economy.
The market economy is sometimes called the free market. A free market is not controlled in any way by a government. It is also free from the influence of custom or tradition. In a free market, the only reason why things arc bought and sold is because there is a demand for them Prices for goods and services are simply what people are prepared to pay. The market economy is not really controlled by anyone. It controls itself.
The street market where we began has many of the characteristics of the free market. Customers arrive at the market with a shopping list of things they need. They also come with an idea of how much they are prepared to pay Stall owners sell what customers demand, and try to get the highest price they can for it. Supply and demand control what is on the market and how much it sells for. In the wider economy, we are all customers, and the stall owners are like companies.
The role of the company in the free market is to supply what people want. However, companies need an incentive. The incentive is profit There arc two ways for companies to make a profit. The first way is to raise their prices. The second way is to reduce their production costs. And this brings us to two more features of the market economy: competition and technology.
Competition exists in a free market because, theoretically, anyone can be a producer. This means that companies have to compete with each other for a share of the market. Competition is good for consumers because it helps to control prices and quality. If customers aren't happy with a product or service, or if they can't afford it, they will go to a competitor.
Technology exists in a free market because producers need ways to reduce their costs. They cannot buy cheaper raw materials. Instead, they must make belter use of lime and labour Technology is the use of tools and machines to do jobs in a better way. This helps companies produce more goods in less time and with less effort. The result: more profit.
People often think that most economies are free markets. However, at the macroeconomic level, a truly free market economy does not exist anywhere in the world. This is because all governments set limits in order to control the economy. Some governments set many limits, other governments set very few. but they all set some. For this reason, a true market economy is only theoretical. Nevertheless, many of the features of the market economy do exist in most societies today.
E Comprehension
Now read the text again and answer these questions in your own words in the space provided below.
Who controls a market economy?
Who decides what products are for sale in a free market?
What do companies want?
Why is competition a good thing?
Why does technology exist in the market economy?
Why are there no true market economies in the world today?
Notes:
Before you listen(17)
Discuss these questions with your partner.
Do you think the free market is a good idea? Is it good for society? Why / Why not?
F Listening )))
Now listen and choose the correct answer.
Adam Smith's invisible hand theory:
1 People are naturally selfish / helpful.
2 The free market only demands what is good for society / producers.
3 When people work for their own good, they do good for consumers / society also.
In the real economy:
4 In the free market there is a demand for goods which are not expensive / necessary.
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