1. Do you agree that economics is helpful in everyday life? Give your arguments.
2. Try to think of several important decisions that you have made recently. What was the opportunity cost of each decision?
3. Do you think economics is a theoretical or applied discipline?
4. Imagine a world without a problem of scarcity. Would you enjoy living in such a world?
5. Are there any countries with traditional economies nowadays?
6. Is it correct to say that all major economies in the world are market economies?
7. How can you define the economic system of Belarus?
· Economics is the study of how individuals and society choose to allocate scarce resources in order to satisfy unlimited wants.
· Economy is a system by which industry, trade and money are organized.
· Entrepreneurship is a special type of labour. An entrepreneur combines resources to produce innovative products.
· Macroeconomics applies an economy wide perspective that focuses on such issues as inflation, unemployment, and the growth rate of the economy.
· Microeconomics examines individual decision-making units within an economy.
· Models are simplified descriptions of reality used to understand and predict economic events. An economic model can be stated verbally or in a table, graph, or equation.
· Needs are basic necessities or requirements.
· Opportunity cost is the value of what is foregone in order to have something else.
· Resources are factors of production classified as land, labour, and capital.
· Scarcity is the fundamental economic problem that human wants exceed the availability of time, goods, and resources. Individuals and society therefore can never have everything they desire.
· Types of economies:
In command economies the basic economic questions are answered by government officials.
In a market economy, basic economic questions are answered by individual households and businesses through a system of freely operating markets.
In mixed economies, a distinction is usually made between the private sector, in which decisions are made primarily by individual households and businesses, and the public sector, in which decisions are made by the government.
Transition economies face the task of moving from a centrally-planned system of resource allocation towards a more market-oriented approach.
· Want is a desire for sth.
ECONOMICS AS A SCIENCE
1. Do you know the difference between the terms ‘economics’ and ‘economy’? How can we call a prudent housewife – ‘economic’ or ‘economical’?
2. Are wants similar to needs? How do they differ?
3. Why can’t people have everything they want? Why do they have to make choices? Do you think it will be possible to satisfy all the desires people have some day?
4. Can you give an example of economic goods and services? Do you have an idea what factors of production are required to produce them?
Read the text and do the tasks that follow.
Economics as a Science
Our world is a finite place where people, both individually and collectively, face the problem of scarcity. Scarcity is the condition in which human wants are forever greater than available resources. For an individual, limited resources include time, money and skill. For a country, limited resources include natural resources, capital, labour force and technology. Because of scarcity, it is not possible to satisfy every desire, there are always limits on the economy’s ability to satisfy unlimited wants.
The condition of scarcity is the main problem economics studies. Economics is a social science that studies how individuals, governments, firms and nations make choices on allocating resources to satisfy their unlimited wants. One should distinguish the terms “economics” and “economy”. Economy is a system by which industry, trade and money are organized.
Society makes two kinds of choices: economy-wide, or macro choices and individual, or micro choices. The prefixes macro and micro come from the Greek words meaning “large” and “small,” respectively. Reflecting the macro and micro perspectives, economics consists of two main branches: macroeconomics and microeconomics.
The old saying “Looking at the forest rather than the trees” fits macroeconomics. Macroeconomics is the branch of economics that studies decision making for the economy as a whole. Macroeconomics examines economy-wide variables, such as inflation, unemployment, growth of the economy, money supply, and national incomes.
Examining individual trees, leaves, and pieces of bark, rather than surveying the forest, illustrates microeconomics. Microeconomics is the branch of economics that studies decision making by a single individual, household, firm, industry, or level of government. Microeconomics applies a microscope to specific parts of an economy, as one would examine cells in the body. The focus is on small economic units, such as economic decisions of particular groups of consumers and businesses.
Because of the problem of scarcity nations, businesses, and individuals all must make choices in an effort to satisfy unlimited wants with limited resources.
It is important to point out that there is a difference between wants and needs. Needs are basic necessities such as food, clothing and shelter. Other so-called “needs” are really “wants”. For example, you may want new clothes, but whether or not you need them is a value judgement. Most people’s needs are limited. In contrast, people’s wants are unlimited. Very few people ever reach the stage where they have everything they want. In fact, one want often leads to another.
Economists use the term opportunity cost to refer to the value of what is foregone in order to have something else or, saying otherwise, it is the next best alternative which is given up when a decision is made to use limited resources in a particular way. This value is unique for each individual. You may, for instance, forego ice cream in order to have an extra helping of mashed potatoes. For you, the mashed potatoes have a greater value than dessert. The opportunity cost of an individual’s decisions, therefore, is determined by his or her needs, wants, time and resources (income). Nations, too, are constantly faced with the realities of opportunity costs. For example, the government must decide how much it will spend for national defence and how much will be spent on non-defence programs, such as education, transportation, and other public services.
Opportunity cost is different for each individual and nation. Thus, what is valued more than something else will vary among people and countries when decisions are made about how to allocate resources.