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Unit 5 Economic System
Unit 5 Economic System
ESSENTIAL VOCABULARY
1
Text
Whenever people gather in a community, they necessarily deal with a few universal economic
problems. These fundamental questions are as crucial today as they were at the dawn of human
civilization. Every human society - whether it is an advanced industrial nation, a centrally planned
economy, or an isolated tribal society – must face and solve three fundamental and interdependent
economic questions.
What goods and services are to be produced, and in what quantities are they to be
produced?
How are these goods and services to be produced?
Who will receive and consume these goods and services?
The first basic choice is that of what goods a society should produce and in what quantities.
Every economy has limited resources at its disposal but the goods and services wanted by its people
are numerous. With the limited resources it can't produce all that is wanted by its people. So an
economy faces the problem of what goods and services are to be produced and in what quantities. In
other words it faces the problem of resources allocation between their alternative uses.
Should resources be allocated to the production of consumer goods or capital goods; whether to
produce civilian goods or goods for defense; whether to construct luxury hotels or houses, all these
are problems of choice.
In fact the choice to be made refers to what goods are to be produced and the second choice
associated with it relates to the quantities of these goods. In other words what combination of goods
and services should be produced? The nature of the combination of goods and services to be
produced depends on the consumer choices and the consumer’s preferences* reflected in market
prices or on the priority laid down in government policies.
How Are Those Goods and Services to be produced?
A second basic choice is that of how to produce. Most goods can be produced in more than one way
by using resources in different quantities and combinations. It is often possible to vary the factor
combination in manufacturing. Any society decides how it will organize its scarce resources in
order to use them efficiently. Efficiency is a key criterion deciding how to produce. Efficiency
means producing goods and services with a minimum of expense, effort, and waste. As the
economy has to economize its limited resources it has to make a choice between various production
methods to produce different goods.
Who Will Get to Use the Goods and Services Produced by the Economy?
No one can get all he wants. Whatever is produced in an economy it cannot be sufficient to meet
everybody's wants. So a problem arises who will get and how much. This is the problem of
distribution of wealth produced in an economy among different groups.
In fact, what determines who is to receive a particular share of the economic pie?
Production of goods and services is the result of the joint efforts of the owners of the four factors of
production: land, labour, capital and entrepreneurship. So the total production is to be distributed
among the owners of these factors of production. There is no system by which goods and services
may directly be distributed among the factor owners. What they get is the money income in the
form of rent, wages, interest and profits. With this income they buy the goods and services. How
much can wage earners buy or land owners buy or owners of capital buy or profit earners buy? It
will depend upon their income. So it is a problem of national income distribution.
The way that a country uses to solve three basic questions is based on its economic system.
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An economic system is a mechanism that deals with the production, distribution and consumption
of goods and services in a particular society.
The economic system consists of people, institutions and their relationships to resources. It
addresses the problems* of economics, like the allocation and scarcity of resources.
There are four main types of economic systems present in the world: the traditional economy, the
command economy, the market economy, and the mixed economy.
The traditional economy is an economic system in which decisions about what, how, and for
whom questions are made on the basis of customs, beliefs, religion, habit, and tradition.
People’s economic roles are the same as those of their parents and grandparents. The ways they
produce clothing and shelter are almost exactly the same as those used in the past. Traditions decide
what these people work for a living, how their work is performed and who gets what is produced in
such an economy. Since there is little produced, there is little to go around.
It has an advantage over other systems, in that there is little disagreement among members because
relatively little is disputed. However, it restricts individual initiative and has a lack of advanced
goods, new technology, and economic growth.
The command economy is a society where the government institutions make all decisions
concerning what will be produced, how it will be produced, and for whom it will be produced.
In a command economy, a central authority or agency draws up plans that establish what will be
produced and when, sets production goals, and makes rules for distribution.
The government owns a considerable fraction of the means of production that is, they are publicly
owned; it also owns and directs the operations of enterprises in most industries; it is the employer of
most workers and tells them how to perform their work.
The individual has very little say* as to how the basic economic questions are answered.
Command economies don't help* their workers' incentives because everyone is given the same
amount of goods and the same standard of living. A hard working citizen would not be given a
chance to benefit from his extra work because he cannot increase his standard of living any greater
than it currently is and he will earn just as much as a person who makes little or no effort.
The market economy (or so called free market economy or free enterprise economy) is an
economic system in which the decisions of many individual buyers and sellers interact to
determine the answers to the questions of What, How and Who.
In a market economy the fundamental economic questions are answered in the marketplace by the
interaction of buyers and sellers. For example, the question of what to produce may be based on
what trend is popular right now. The producers can create a product that they think they will sell
well to the consumers in hope to make a profit. The question of how to produce is usually based on
the producer's choice. They might decide to produce a product with more workers or they might
decide to produce it more with machines and computers to save on labour costs*. The question
involving for whom to produce is based on the consumers who decide what they want or need and
what price they are willing to pay for it.
There are several essential elements in a market economy. One of these is private property - the
right of individuals and businesses to own the means of production. In a free market economy, the
major factors of production are privately owned. Private ownership gives people the incentive to
use their property to produce things they will sell and make profits.
This desire to earn profits or the profit motive is a second ingredient in a market economy.
The profit motive encourages sellers to produce at the lowest possible cost.
The mixed economy is an economic system that answers the three economic questions both
in the marketplace and in the government*.
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A mixed economy contains both private and public, or state-owned (or controlled) enterprises and
relies on the market but with a large dose of government intervention. A mixed economy usually
involves producers working closer with the government to achieve economic goals. interference
Since no country in the world exemplifies either type of economic system in its pure form, all major
economies are mixed ones because market forces as well as government decisions* play a role in
answering the basic economic questions. The blend of market and government participation is
different in different countries with mixed economies. The optimal level of government interference
remains a problem which is of interest to economists.
COMMENTS:
the consumer’s preferences – перевага / уподобання споживачів;
it addresses the problems - вона має справу з/займається проблемами;
the individual has very little say – окрема людина/особа мало що вирішує;
command economies don't help – командна економіка не заохочує;
labour costs – витрати на робочу силу;
both in the marketplace and in the government – як на ринку, так і в уряді;
market forces as well as government decisions – як ринки, так і урядові рішення.
Exercise 1. Read, translate into Ukrainian in written form and memorize the definitions
of the following economic terms and concepts.
1. Command economy: an economic ___________________________________________
system in which major decisions ___________________________________________
concerning the resources allocation are ___________________________________________
made by agencies of the government. ___________________________________________
2. Economic system: the approach a ___________________________________________
country uses to deal with the scarcity ___________________________________________
and achieve its economic goals. ___________________________________________
3. Free enterprise system: an economic ___________________________________________
system based on the private ownership ___________________________________________
of property, competition, and the profit ___________________________________________
motive. ___________________________________________
4. Market economy: an economic system ___________________________________________
in which national economic decisions ___________________________________________
are the result of decisions of individual ___________________________________________
buyers and sellers in the market place. ___________________________________________
5. Mixed economy: an economic system ___________________________________________
that combines elements of public ___________________________________________
ownership of the means of production ___________________________________________
with private ownership. ___________________________________________
6. Private property: the basic right of the ___________________________________________
free enterprise system that guarantees ___________________________________________
the individual’s right to own, use, and ___________________________________________
dispose of things of value. ___________________________________________
7. Profit motive: the desire to benefit ___________________________________________
from the investment of time and money ___________________________________________
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in a business enterprise. ___________________________________________
8. Traditional economy: an economic ___________________________________________
system that allocates scarce resources ___________________________________________
according to custom; change and ___________________________________________
growth are very slow; people do what ___________________________________________
their parents did before them; most ___________________________________________
goods are produced and consumed ___________________________________________
locally. ___________________________________________
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12. розробляти план _____________________________________________________________
13. стільки ж скільки ____________________________________________________________
14. вільна ринкова економіка _____________________________________________________
15. мати хороший збут ___________________________________________________________
16. бути готовим заплатити _______________________________________________________
17. знаходитися/бути у приватній власності _________________________________________
18. це бажання отримати/заробити прибутки ________________________________________
19. за найменшими можливими витратами __________________________________________
20. значна доля урядового втручання _______________________________________________
21. як ринки, так і урядові рішення _________________________________________________
Exercise 4. Match the verbs/verbal phrases, prepositions (if necessary) and nouns/noun
phrases as they occur together in the text: translate the expressions they make into
Ukrainian.
1. to depend labour costs
2. to be distributed the owners
3. to be based from economic goals
4. to work on the consumer’s preferences
5. to draw its economic system
6. to set among his extra work
7. to direct for the operations
8. to benefit up production goals
9. to save a living
10. to achieve plans
Exercise 5. Match these adjectives and nouns as they occur together in the text: translate the
expressions they make into Ukrainian.
1. alternative goods
2. a key authority
3. various elements
4. essential production
5. the total criterion
6. economic uses
7. a central techniques
8. different roles
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Exercise 6. Match these nouns/noun phrases, prepositions (if necessary) and nouns/noun phrases as
they occur together in the text: translate the expressions they make into Ukrainian.
1. the factor earners
2. disagreement of living
3. standard motive
4. owners with mixed economies
5. profit intervention
6. countries among members
7. government owners
8. the profit capital
Exercise 7. Copy out of the text the sentences containing the words and word-combinations listed
below and translate these sentences into Ukrainian.
Every human society: ______________________________________________________________
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the consumer’s preferences: _________________________________________________________
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the factor owners: _________________________________________________________________
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________________________________________________________________________________
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is based on: ______________________________________________________________________
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work for a living: _________________________________________________________________
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to perform their work: _____________________________________________________________
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makes little or no effort: ____________________________________________________________
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will sell well: ____________________________________________________________________
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private ownership: ________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
relies on the market: _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
markets as well as government decisions: ______________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Exercise 8. Choose from the box the words and word-combinations having the same or
similar meaning to the words listed below. More than one is possible.
1. бути готовим робити (2)
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2. бути у розпорядженні (2)
3. власність (3)
4. втручання (3)
5. державна власність (2)
6. дуже важливий (3)
7. кінцевий споживач (2)
8. нестача (3)
9. особиста власність (2)
10. поєднання (2)
11. приватна власність (2)
12. розподіл (2)
13. розподіляти (2)
14. споживач (2)
15. сприяти (3)
16. стимул (3)
17. технологія виробництва (2)
18. установа (2)
19. частина (2)
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modernize. By setting wage rates for everyone, (центральна влада вирішує) who will receive
(вироблені товари та послуга).
The most widely accepted economic system today is (ринкова економіка). In this type of economy
it is (діяльність та рішення) of the buyers and sellers of goods, services and resources that
(керують економічною системою).
Since there are no (як чистих командних, так і чистих ринкових економік), it is perhaps better to
describe (більшісь сучасних економік) as (змішані економіки), in which (як уряд, так і
приватні особи) have their economic (вплив на ринок) effect on the marketplace.
Exercise 10. On the left of the page there are the first halves of sentences. The second
halves of the sentences are on the right, though not in the same order. Pair the halves
and then write your own list of the completed sentences. Translate into Ukrainian.
1. Since there will not be enough produced to a. as its economic system.
meet everybody’s wants,
2. The central problem of economics is b. in accordance with the laws of supply and
demand.
3. The market system and the ownership of c. to make the most productive use of their
wealth are means of production
4. In command economies the major means of d. some way will have to be chosen to
production are determine how the output is distributed.
5. Private property provides people with the e. to obtain the greatest profits at the lowest
incentive possible cost.
6. A market, or free enterprise system, as it is f. to determine the most efficient ways of
sometimes called, is allocating the factors of production and
solving the problem of scarcity.
7. Private property and the profit motive are g. privately owned.
8. The profit motive encourages people h. the key elements in determining who will be
rich, middle or poor.
9. In market economies the major means of i. one in which the decisions of many
production are individual buyers and sellers interact to
determine the answers to the questions of
What, How and Who.
10. The way in which a society provides j. essential elements in a market economy.
answers to the What, How and Who
questions is known
11. Resources in a market economy are allocated k. usually publicly owned.
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_______________________________________ _______________________________________
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Exercise 11. Match each term in column A with its definition in column B.
A B
1. Command economy a. An organized way of providing answers to the fundamental
economic questions of What, How and Who.
2. Economic system b. The natural desire of every entrepreneur to make as much profit as
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possible.
3. Free enterprise c. A type of economic system in which the activities of firms and the
system allocation of productive resources are determined by government
direction rather than the market forces.
4. Market economy d. An economic system in which the decisions concerning the
productive resources allocation are based on tradition and custom.
5. Mixed economy e. A form of organization of the economy in which decisions on
resources allocation are left to the independent decisions of
individual buyers and sellers acting in their own best interest without
central direction.
6. Private property f. A form of organization of the economy in which some goods and
services are produced by the government and some by private
enterprises.
7. Profit motive g. One of the essential elements in a market economy that gives each
individual the right to own, use and dispose of things of value.
8. Traditional economy h. An economic system characterized by private ownership of property
and productive resources, the profit motive to stimulate production,
competition to ensure efficiency, and the forces of supply and
demand to direct the production and distribution of goods and
services.
1. and economy
1 2 3 4 5 6 7 8
Exercise 12. Correct the following statement if you find them wrong. Make sure you begin your
answers with such commonly accepted phrases as:
I quite agree with smb/smth.
Yes, that's quite right.
I don't think that's quite right.
I am afraid I don't/can’t agree with smb/ smth.
I'm afraid that's completely wrong.
That's not quite right/true.
I wouldn't say so.
Oh, no, quite on the contrary.
As far as I remember…
1. There is no need for a society to resolve three fundamental and interdependent economic
questions.
2. The reason every society provides answers to the fundamental economic questions is that there
is enough of everything to go around.
3. All countries in the world have just the same approaches to address the basic economic
questions.
4. Most economic systems function as command economies.
5. The advantage that a society with a traditional economy has over other systems is that people
benefit from their extra work and raise their standard of living.
6. In answering the basic economic questions a free market economy relies on decisions made by
government
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7. Command economies combine market-type systems with some degree of government
intervention.
8. In a mixed economy the means of production are privately owned and all national economic
decisions are the result of decisions of individual buyers and sellers in the market place.
Exercise 13. Translate the sentences into English using the active vocabulary.
1. Проблема нестачі ресурсів стосується _________________________________________
проблеми розподілу ресурсів. _________________________________________
2. Кожне суспільство вибирає свій _________________________________________
особистий шлях надання відповіді на _________________________________________
основні економічні питання Що, Як і для _________________________________________
Кого виробляти. _________________________________________
3. У суспільстві з традиційною _________________________________________
економікою більшість людей не вільні _________________________________________
приймати рішення, які грунтуються на _________________________________________
тому, що вони хочуть або що хотіли б _________________________________________
мати. _________________________________________
_________________________________________
4. В деяких сучасних суспільствах уряд _________________________________________
відіграє значу роль у відповідях на
_________________________________________
основні питання що, як і хто.
_________________________________________
5. Командна економіка – це така, в якій _________________________________________
уряд приймає усі рішення щодо _________________________________________
виробництва та розподілу багатства _________________________________________
країни _________________________________________
6. В ринковій економіці основні засоби _________________________________________
виробництва знаходяться у приватній _________________________________________
власності. _________________________________________
7. Не існує ринкових економік без _________________________________________
втручання уряду в деякі економічні _________________________________________
проблеми. _________________________________________
8. Ринкова система надає окремим лю- _________________________________________
дям та торгівельно-промисловим підпри- _________________________________________
ємствам стимул виробляти речі, які _________________________________________
хочуть покупці та за ціною, яку вони _________________________________________
готові заплатити. _________________________________________
9. Велика кількість незалежних покупців _________________________________________
і продавців, приватна власність та мотив _________________________________________
прибутковості – найважливіші складові _________________________________________
ринкової економіки. _________________________________________
_________________________________________
10. Усі сучасні суспільства – це суспіль-
_________________________________________
ства зі змішаними економіками, що
_________________________________________
поєднують елементи ринкової та
_________________________________________
командної економік.
_________________________________________
11. У змішаних економіках рішення що _________________________________________
виробляти, як його виробляти і для кого _________________________________________
приймаються як ринком, так і урядом. _________________________________________
_________________________________________
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Exercise 14. Answer the following questions.
1. What are the three basic economic questions that every society must answers?
2. What makes each society look for the answers to the basic economic questions?
3. Why must individuals and societies provide answers to the basic economic questions?
4. How does each society make its decisions to solve the problem of scarcity?
5. What does the What question refer to?
6. What are the ways of providing answer to the How question?
7. What does the Who question mean?
8. What is an economic system?
9. What determines the type of an economic system?
10. What categories do economic systems fall into?
11. What is a traditional economy?
12. How are the answers to What, How and Who questions decided in a society with a traditional
economy?
13. Why are there few social changes within a traditional economy?
14. What is a command economy?
15. Who makes decisions on the fundamental economic questions in a society with a command
economy?
16. Who owns the major means of production in a command economy?
17. Why do the individuals have very little say as to how the basic economic questions are
answered.
18. What is a market economy?
19. How is sometimes a market economy called?
20. What is a free enterprise system?
21. What is a free enterprise system based on?
22. Who owns the means of production in a society with a market economy?
23. How are the basic questions decided in a market economy?
24. What role do buyers and sellers play in a market economy?
25. What is private property?
26. What role does private property play in a market economy?
27. What is the profit motive?
28. What is the main incentive of a free enterprise, or market, economy?
29. How do the individuals benefit from a market economy?
30. What is a mixed economy?
31. Why are there neither pure market economies nor pure command economies?
32. Why are economic systems of most democratic countries called mixed economies?
2. The “profit motive” is sometimes said to be the most fundamental feature of a market system.
What do you suppose is meant by the “profit motive”? _________________________________
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3. If no pure market economy exists and no pure command economy exists, why does economics
deal with these concepts? ___________________________________________________________
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4. List some ways in which your country's economic system functions as a free market.
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5. List some ways in which your country's economic system functions as a planned economy.
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6. Choose the right variant. In some tasks more than one is possible.
1. Which of the following best describes the three fundamental economic questions?
a. What to produce, when to produce, and for whom to produce.
b. What to produce, when to produce, and where to produce.
c. What time to produce, what place to produce, and how to produce.
d. What to produce, how to produce, and for whom to produce.
e. What do corporations want, how can corporations control government, and for whom is the
land despoiled.
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f. The government makes all economic decisions.
4. To a supporter of a free enterprise economic system, the factors of production are put to best use
when controlled by:
a. private individuals
b. labour unions
c. public officials
d. foreign investors
6. A market exists
a. where consumers express their needs and wants.
b. when products are advertised.
c. where merchants build shops.
d. where buyers and sellers exchange goods and services
7. Which of the following statements is incorrect regarding the free market systems?
a. Private property does not exist.
b. Innovation and entrepreneurship are central to free market systems.
c. Some economic activity is not determined by the price mechanism and is provided by the
government in the form of public goods.
9. In a mixed economy, economic decisions regarding scarcity and factors of production are made
by the
a. corporations and labour sector.
b. private sector.
c. public sector.
d. public and private sectors.
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