THE BASIC ECONOMIC PROBLEM

The central problem of economics is to determine the most efficient ways to allocate the factors of production and solve the problem of scarcity created by society’s unlimited wants and limited resources. In doing so, every society must provide answers to the following three questions:

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

2. How are those goods and services to be produced?

3. Who will receive and consume (get to use) those goods and services?

The solution of these questions depends on the economic system of each particular society.

The economic system determines how the nation's resources of land, labour, machinery and raw materials are allocated and used. The problem of allocating resources is a central theme of economics, because most resources are scarce. The allocation of scarce resources and the distribution of the product of those resources are a major part of the subject matter of economics.

In Western economies many resources are allocated to whoever is willing and able to pay the most for them. The distribution is determined by the amounts of money paid as wages, rent and other forms of income.

A country's economic system is its way of organizing economic activities, including the ways in which people come to specialize in particular tasks they do best. The more goods and services can be produced from limited resources, the higher the standard of living enjoyed by the country’s citizens.

Different economic systems answer the “what”, “how” and “for whom” questions differently. There is a variety of economic systems, which can be divided into three groups:

a) Market or decentralized economic systems.

In a true market economy the government plays no role in the management of the economy, the government does not intervene in it. The system is based on private enterprise with private ownership of the means of production and private supplies of capital.

b) Planned or centralized economic systems, in which economic decisions are taken by government planners.

Planned economies are economies with a large amount of central planning and direction, when the government takes all the decisions, the government decides production and consumption. A planned economy is simple to understand but not simple to operate.

c) Mixed economic systems, in which many economic activities are organized in a decentralized way, but in which the government takes some of the most important economic decisions. In mixed economies some resources are controlled by the government whilst others are used in response to the demands of consumers. In a mixed economy the government and the private sector interact in solving economic problems.

In practice, every economic system is mixed to some extent.

Study carefully the meaning of the following phrases and word combinations to avoid any difficulty in understanding the following text.

1. …that involve everyone – …которые касаются каждого

2. economics is concerned with – экономика имеет дело с (занимается…)

3. by examining – путем изучения

4. … are regarded as uniform enough – …рассматриваются как достаточно однородные

5. … that called for a take - over of the state by the workers – …которая предусматривала, что рабочие возьмут на себя руководство государством

6. did bring about strong economic growth – действительно привело к экономическому росту

7. supply and demand – спрос и предложение

8. in a decentralized way – децентрализовано

9. to some extent – до некоторой степени

 

COMPREHENSION CHECK

 

I. Give English equivalents to the following:

Распределять ресурсы, удовлетворять неограниченные потребности, владеть и управлять бизнесом, вмешиваться, частное предпринимательство, частная собственность на средства производства, частный капитал, распределение доходов, правительственные власти, основные экономические проблемы, состояние экономики, уровень занятости, распределять ресурсы, имеющиеся в распоряжении ресурсы, иметь высокий жизненный уровень, факторы производства, зависеть от, размещение и распределение ресурсов, быть конкурентоспособным, большой объем, центральное планирование и руководство, частный сектор, взаимодействовать в решении проблем.  

II. Read the words and guess their meanings:

Factors of production, production and consumption, natural resources, capital and entrepreneurship, competitive, state ownership, public property/common ownership, large-scale intervention, state-controlled industry, considerable economic freedom of choice, the government controls a share of the output, labour-intensive production, to allocate the factors of production, the problem of allocating resources, the subject matter of economics, money paid as wages, rent and other forms of income, to specialize in particular tasks, the standard of living, in a decentralized way, in response to the demands of consumers, in solving economic problems.  

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