Text 3. Three basic economic questions 1 Scarcity forces every economy in the world, regardless of its form of organization or its level of economic development, to address three basic questions: What to produce: all economies must choose what particular goods and services and what quantities of these they wish to produce. How to produce: all economies must make choices on how to use their resources in order to produce goods and services. Goods and services can be produced by use of different combinations of factors of production (for example, relatively more labor with less capital, or relatively more capital with less labor), by using different skill levels of labor, and by using different technologies. For whom to produce: all economies must make choices about how the goods and services produced are to be distributed among the population. Should everyone get an equal amount of these? Should some people get more than others? Should some goods and services (such as education and health care services) be distributed more equally? 2 The way that a country handles these questions is based on their economic system. An economic system is basically the decision making that is done to answer these questions. 3 There are four main types of economic systems present in the world: the traditional economy, the market economy, the command economy, and the mixed economy. But there are also unlimited amounts of variations of these systems. 4 A traditional economy is an economy that answers the three questions based on their social customs and how the society has dealt with these questions in the past. A country’s customs can differ greatly to that of a neighboring country so traditional economies vary from one another. 5 A market economy is the type of economy that the United States has and these 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 producer would create a product that they think would sell well to the public in hopes 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 labor costs. The question involving for whom to produce is based on the buyer who decides what they want or need and what price they are willing to pay for it. 6 A market economy is great for motivating workers to work harder because they are only paid based on what they do. A worker can increase their income or profit by working harder and this chance to profit motivates them. 7 A command economy is an economy where these questions are all answered by the government. Rather than giving individuals the chance to decide what they want or need, the government decides these questions for the country. This type of economy is difficult for the individual because it is impossible for the government to know exactly what is best for each and every citizen. 8 Also, command economies don’t help with their workers’ motivation 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 their extra work because they cannot increase their standard of living any greater than it currently is and they will make just as much as a person who exerts little or no effort. 9 A mixed economy is an economic system that answers the three questions both in the marketplace and in the government. Although the United States government plays a role in our economy, a mixed economy usually involves producers working closer with the government than they do in the United States so the US economic system is still a market economy. 10 The economic system a country has is based on what is best for the country. One person might feel a market economy is best for one country but it may not suit another. Determining how an economy works can help you make better decisions as an individual and participate more in issues involving the economy as a whole. And becoming an economically-effective citizen helps you benefit the entire country. http://www.buckinvestor.com/basics/economic_systems.shtml 1. Read the text and do the tasks/answer the questions below. 1. What are the three economic questions that must be addressed by any economy? 2. What are the four basic types of economic systems? 3. How does a traditional economy answer the three economic questions? 4. List the main characteristics of a market economy. How is the question of how to produce settled within this type of economic system? 5. Who is the main market regulator in a command economy? 6. Which role does a marketplace perform in a mixed economy? 2. Decide whether the following statements are True or False according to the text. 1. There are only four basic forms of economic systems. ___ 2. Social customs play an immense role in a mixed economy. ___ 3. Societies belonging to traditional economies vary dramatically. ___ 4. In a market economy a manufacture decides which price to charge for his produce. ___ 5. The US economic system is the best example of a mixed economy. ___ 3. Scan through the text and find words corresponding to these definitions. para 1 1) to make someone do smth they do not want to do (v) ________________ 2) an amount of smth that can be counted or measured (n) ________________ 3) smth that is fairly small, easy, etc. compared to other things (adv) ________________ 4) the number of people living in a particular area, country, etc. (n) ________________ para 2—5 5) to deal with a situation or problem (v) ________________ 6) in the main or most important ways, without considering additional details or differences (adv) ________________ 7) very large in amount (adj) ________________ 8) people in general, considered in relation to the laws, organizations, etc. that make it possible for them to live together (n) ________________ 9) the part of business activity that is concerned with buying and selling goods in competition with other companies (n) ________________ 10) a general tendency in the way a situation is changing or developing (n) ________________ para 6—8 11) to make someone want to achieve smth and make them willing to work hard in order to do this (v) ________________ 12) the group of people who govern a country or state (n) ________________ 13) used to emphasize that a number, amount, or piece of information is or should be completely correct in every detail (adv) ________________ 14) someone who lives in a particular town, country, or state (n) ________________ 15) more of smth, in addition to the usual or standard amount or number (adj) ________________ para 9—10 16) to include or affect someone or smth (v) 17) to be acceptable or convenient for a particular person or in a particular situation (v) ________________ 18) smth that helps you or gives you an advantage (n) ________________. 4. Use the words from exercise 3 to complete the sentences. 1. Some retailers worry that new regulations will hurt their ability to compete in _________. 2. Some agencies offer a comprehensive marketing research service, some offer a range of specialized services and others offer what is _________ an information-selling service. 3. Lately there has been ________ towards hiring younger, cheaper employees. 4. ________ are planning further cuts in public spending. 5. Due to the high cost of borrowing, many companies have been ________ to close. 6. Huge ________ of oil were spilling into the sea. 7. E-commerce is a ________ recent phenomenon. 8. Instead of thinking of ________ as made up of simple parts, we must think of it as a collection of wholes which together make up one “complex whole”. 9. Most of the world’s ________ doesn’t get enough to eat. 10. Most customers were satisfied with the way their complaints were _______. 11. Implementing every law on every occasion implies _______ police resources. 12. The profit-sharing plan is designed _________ the staff to work hard.