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The human science which studies the relationship between scarce resources and the various uses which compete for these resources.

Every economic society has to answer three fundamental questions, What, How and For whom?

What? Which goods shall be produced and in what quantities? What goods are to be produced with the scarce resources: clothes, food, cars, submarines, television sets? This problem concerns the composition of total output. Having decided the range of goods to be produced, the community must then decide how much of each good should be produced.

How? Most goods can be produced by a variety of methods. The total output of the community depends not only on the total supply of resources available but on the ways in which the resources are combined together. Given that we have basic resources of labor, land, how should we combine them to produce the goods and services which we want?

For whom? This is the third function which an economic system has to perform. The total output has to be shared out among the members of the community. Once we have produced goods and services we then have to decide how to distribute them among the people in the economy. These basic problems are common to all societies no matter the level of economic development they have reached. The methods of solving them will be different from one society to another but the problems are common.

One alternative definition of economics is that it is the study of wealth. By wealth the economist means all the real physical assets which make up our standard of living: clothes, houses, food, roads, schools, hospitals, cars, oil tankers, etc. One of the primary concerns of economics is to increase the wealth of a society, i.e. to increase the stock of economic goods. However, in addition to wealth we must also consider welfare. The concept of welfare is concerned with the whole state of well-being. Thus it is not only concerned with more economic goods but also with public health, hours of work, with law and order, and so on. Modern economics has tried to take account not only of the output of economic goods but also of economic such as pollution. The wealth and welfare connotation is thus a complex aspect of the subject.

A basic understanding of economics is essential if we are to be well-informed citizens. Most of the specific problems of the day have important economic aspects, and as voters we can influence the decisions of our political leaders in coping with these problems. Should America adopt mandatory price and wage controls to restrain inflation? Should we pass a constitutional amendment requiring the Federal government to balance its budget? Should we attempt to break up the huge corporations which seem to dominate certain segments of our economy? What can be done to reduce unemployment? Are existing welfare programs effective and justifiable? Should we continue to subsidize farmers? Is there any justification for protecting certain industries from foreign competition? Should income be distributed more equally? Since the answers to such questions are determined in large measure by our elected officials, intelligence at the polls requires that we have a basic working knowledge of economics. Needless to say, a sound grasp of economics is more than helpful to politicians themselves!

Economics is also a vital discipline for somewhat more mundane and immediate reasons. Economics is of practical value in business. An understanding of the overall operation of the economic system puts the business executives in a better position to formulate policies. The executive who understands the causes and consequences of inflation is better equipped during inflationary periods to make more intelligent decisions than otherwise. Indeed, more and more economists are appearing on the payrolls of large corporations. To gather and interpret economic information upon which economics gives the individual as a worker and income receiver some insights as how to become more secure in facing the effects of inflation and unemployment.

How can one "hedge" against the reduction in the purchasing power of the dollar which accompanies inflation? What occupations are the most immune to unemployment?

In spite of its practical benefits, however, economics is an academic, not a vocational, subject. Unlike accounting, advertising, corporation finance, and marketing, economics is not primarily a how-to-make-money area of study. Knowledge of economics may be helpful in running a business or in managing one's personal finances, but this is not its primary objective. In economics, problems are usually examined from the social, not from the personal, point of view. The production, exchange, and consumption of goods and services are discussed from the view point of society as a whole.


2. Choose the best endings to the following statements.

1) The first major book on economics Adam Smith's "The Wealth of Nations" was published in

a) 1876

b) 1776

c) 1676

2) Economics as an academic discipline is relatively ... .

a) new

b) old

c) dull

3) The guiding idea in economics is ... .

a) production

b) planning

c) scarcity

4) The economist's job is to evaluate the choices that exist for the use of ... .

a) resources

b) food

c) machines

5) One alternative definition of economics is that it is the study of ... .

a) needs

b) wealth

c) services

6) The concept of welfare is concerned with the whole state of ... .

a) health

b) law

c) well-being

7) Every economic society has to answer ... .

a) three fundamental questions

b) two fundamental questions

c) four fundamental questions


3. Read the text again and decide which of the following statements are correct.

1) A basic understanding of economics is essential for citizens.

2) A sound grasp of economics isn't essential for politicians.

3) Economics is a vital discipline for business.

4) The businessman who understands operation of the economic system is better equipped.

5) Economists can't help businessmen to become more secure in facing the effects of inflation.

6) Economics is a vocational subject.

7) Discussing the problems from the personal point of view is the main objective of economics.


4. Answer the following questions.

1) How can citizens influence the economic decisions of political leaders?

2) Does life require that we have a basic knowledge of economics?

3) Why is economics of practical value in business?

4) Why is economics an academic subject?

5) How does economics as an academic discipline serve society?

6) Why is economics a vital discipline?

7) Is economics a how-to-make money area of study?

8) What is an underlying problem of economics?


5. Make questions usin the information below and answer them.

1) if economics is as old as the human race;

2) what branches of economics there are;

3) what economics is;

4) what the definition of Alfred Marshall is;

5) what the guiding idea is;

6) who feels deprived;

7) if we have limited resources both in rich countries and poor countries;

8) what people want;

9) how we could define economics;

10) about one of the primary concerns of economics.


6. Identify the paragraph in the text that talks specifically about wealth and welfare.


7. Find key words, phrases and the topic sentences which best express the general meaning of each paragraph of the text.


8. Using the information obtained from the paragraphs make an outline of the text.


9. Which of the following expresses the main idea of the text best of all?

· Different applications of economics

· Economics for citizens

· Economics as an academic subject


10. Summarize the main points of the text in 4 — 7 sentences. Use the following cliches:

The text deals with ... . The author points out that ... . Attention is drawn to the fact that ... . It is pointed out that.... It should be noted that ... . The author comes to the conclusion that ... . I find the text rather/very ... .

Text B

1. Read the text below and do the tasks that follow.


The Business Cycle

The business cycle or trade cycle is a permanent feature of market economies: gross domestic product (GDP) fluctuates as booms and recessions succeed each other. During a boom, an economy (or at least parts of it) expands to the point where it is working at full capacity, so that production, employment, prices, profits, investment and interest rates all tend to rise. During a recession, the demand for goods and services declines and the economy begins to work at below its potential. Investment, output, employment, profits, commodity and share prices, and interest rates generally fall. A serious, long-lasting recession is called a depression or a slump.

The highest point on the business cycle is called a peak, which is followed by a downturn or downswing or a period of contraction. The lowest point on the business cycle is called a trough, which is followed by a recovery or an upturn or upswing or a period of expansion. Economists sometimes describe contraction as 'negative growth'.

There are various theories as to the cause of the business cycle. Internal (or endogenous) theories consider it to be self-generating, regular, and indefinitely repeating. A peak is reached when (or just before) people begin to consume less, for whatever reason. As far back as the mid-nineteenth century, it was suggested that the business cycle results from people infecting one another with optimistic or pessimistic expectations. When economic times are good or when people feel good about the future, they spend, and run up debts. If interest rates rise too high, a lot of people find themselves paying more than they anticipated on their mortgage or rent, and so have to consume less. If people are worried about the possibility of losing their jobs in the near future they tend to save more. A country's output, investment, unemployment, balance of payments, and so on, all depend on millions of decisions by consumers and industrialists on whether to spend, borrow or save.

Investment is closely linked to consumption, and only takes place when demand and output are growing. Consequently, as soon as demand stops growing at the same rate, even at a very high level, investment will drop, probably leading to a downturn. Another theory is that sooner or later during every period of economic growth – when demand is strong, and prices can easily be put up, and profits are increasing employees will begin to demand higher wages or salaries. As a result, employers will either reduce investment, or start to lay off workers, and a downswing will begin.

External (or exogenous) theories, on the contrary, look for causes outside economic activity: scientific advances, natural disasters, elections or political shocks, demographic changes, and so on. Joseph Schumpeter believed that the business cycle is caused by major technological inventions(the steam engine, railways, automobiles, electricity, microchips, and so on), which lead to periods of ‘creative governments beginning their periods of office with a couple of years of austerity programmes followed by tax cuts and monetary expansion in the two years before the next election.



2. Complete the sentences using the words given below.

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