2.2.
ECONOMIC SYSTEMS
DISCOVERING CONNECTIONS
1. What is your idea of an economic system?
2. How many economic systems do you know?
3. What is the basic difference between market and planned economies?
4. What kind of economic system does Belarusian economy belong to?
READING
Text 1
As you read the text, focus on the concept “economic system”.
Economic System
People and societies organize economic life to deal with the basic problems
raised by scarcity and opportunity cost through economic systems. An eco-
nomic system works via the interaction of three invisible forces: the invisible
hand (economic forces), invisible foot (political forces) and invisible hand-
shake (social forces).
An economic system can be described as the collection of institutions,
laws, activities, controlling values, human incentives that collectively pro-
vide a framework for economic decision-making. An economic system is
closely tied to a political system through which people decide what their so-
ciety desires. In a democracy, voting procedures determine society’s will. In
an autocracy, a ruling individual or group of individuals decides what soci-
ety’s desires are.
Before we discuss how the invisible forces operate, we need to find out
what people can reasonably expect from an economic system.
There are three basic economic questions that every nation must consider.
They are (1) What goods and services shall be produced? (2) How shall they
be produced? and (3) For whom shall they be produced? Let us briefly exam-
ine each of these questions.
Within every nation, people must have some method of deciding what
combination of goods and services they should produce with their limited
resources. For example, they must decide what portion of total production
will be devoted to capital goods and what portion will be devoted to con-
sumer goods. Once this decision is made, it is necessary to decide what
kinds of consumer and capital goods will be produced. For example, will
the production of consumer goods be restricted to the basic necessities, or
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will luxury goods, such as stereos and cameras, be produced as well? If
luxury goods are to be produced, what kind and how many of each will be
produced?
Once the question of what to produce is answered, it is necessary to decide
what production methods are to be used. For example, food can be produced
by a large number of workers using simple and inexpensive tools, or by a
small number of workers using complex and expensive machinery. The same
is true of the production of most items you use every day.
Because no nation can produce enough goods and services to satisfy every-
body’s wants, it is necessary for people to have a method of deciding who gets
the goods and services produced. Should everybody get an equal share, or
should some people get more goods and services than others? If some people
are to get more, how much more should they receive? This second question is
perhaps the most difficult of all because it involves the issue of fairness;; and
different people have different ideas about what is fair.
Any economic system must use one or more decision – making methods or
rules. Though the list of ways to make decisions is long, there are three basic
approaches to economic decisions.
One of them is based on tradition (families often decide to do something
the “old way”;; people generally repeat the decisions made at an earlier time or
by an earlier generation, etc.).
The second approach is based on authority or command (the boss, ap-
pointed or elected, can decide what is produced and who gets it).
The third is based on markets (individuals bargain with one another pri-
vately to obtain goods) and so on.
Most economic systems use one of three basic methods to make economic
decisions.
Vocabulary Focus
Ex. 1. Match the words in column A with their definitions in column B.
A B
1) invisible hand a) social forces
2) invisible foot b) economic forces
3) invisible handshake c) physical and mental talents that people
4) autocracy can make available for production
5) labour resources d) political forces
e) absolute power
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Ex. 2. Complete the sentences, use the words and expressions from the text.
1. An economic system works via … of three invisible forces.
2. An economic system can be described as the collection of laws, activities,
values and human ….
3. In a … voting procedures determine society’s will.
4. In an …, a ruling individual decides what society’s desires are.
5. Before we discuss how the … operate, we need to find out what people can
expect from an economic system.
6. It is necessary to decide if the production of … will be restricted to the….
7. If … are to be produced, what kind and how many of each will be produced.
8. There are three basic … to economic decisions.
9. One of them is based on… or command.
Words for reference invisible forces, basic necessities, approaches, the in-
teraction, incentives, autocracy, democracy, consumer goods, luxury goods,
authority.
Ex. 3. Match the Russian word combinations from A with their English
equivalents from B.
A B
1) альтернативная стоимость, цена возможности a) capital goods
2) невидимые силы b) opportunity cost
3) средства производства c) economic decision
4) потребительские товары d) invisible forces
5) процедура голосования e) bargain
6) удовлетворить потребности f) voting procedures
7) торговаться о цене g) satisfy wants
8) экономическое заключение h) consumer goods
Ex. 4. Fill in the following prepositions: into, for, by, with, from, out, through, to.
1. An economic system is closely tied … a political system.
2. … a political system people decide what their society desires.
3. We need to find … what people expect … an economic system.
4. People must decide what goods and services they should produce … their
limited resources.
5. Food can be produced … a large number of workers.
6. It is necessary … people to have a method of deciding who gets the goods
and services produced.
7. Economic systems are classified … four broad categories.
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Comprehension
Ex. 1. Complete the sentences, use the information from the text.
1. People and societies organize economic life through … .
2. An economic system works via the interaction of three invisible forces.
They are… .
3. An economic system can be described as … .
4. There are three basic economic questions that every nation must consider.
They are ...
5. Three basic approaches to economic decisions are … .
Ex. 2. Say if the statements are true or false.
1. An economic system works via the interaction of three invisible forces: the
invisible hand (economic forces), invisible foot (political forces) and in-
visible handshake (social forces).
2. An economic system is interrelated with a political system.
3. In an autocracy voting procedures determine society’s will.
4. In a democracy a group of individuals decide what society’s desires are.
5. Every nation can produce enough goods and services to satisfy everybody’s wants.
6. Every economic system answers three basic questions: what, how and for whom.
7. There are three basic approaches to economic decisions.
Ex. 3. Answer the following questions.
1. How can economic systems be classified?
2. What are the three invisible forces which make economic system work?
3. What are the tree basic economic questions that every nation must answer?
4. What are three basic approaches to economic decisions based on?
5. What economic systems do you know?
6. How can you characterize the economy of Belarus?
Text 2
As you read the text, think what the best title for it is and explain your choice:
– market economy vs command economy;;
– mixed economy;;
– basic types of economic systems.
Economic systems are classified into four broad categories. These are tradi-
tional, command, market, and mixed economies. Each of these systems works
well to some degree at different points in time and for different cultures, but
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some are often better for answering one of the basic economic questions,
while other systems may answer other questions more successfully.
Traditional economy is an economic system using social customs to answer
the basic economic questions.
Nowadays traditional economies are found primarily in the rural, non-
industrial areas of the world. In such areas, there is no national economy. In-
stead, there are many small segmented economies, each centred around a fam-
ily or tribal unit. Each unit produces most of its own goods and consumes
what it produces. The basis economic questions of “what”, “how”, and “for
whom” are answered directly by the people involved, and the answers are usu-
ally based on tradition.
In command economies, the basic economic questions are answered by
government officials. Government leaders decide what goods and services will
be produced, how they will be produced, and how they will be distributed. In-
dividuals have little control or influence over the way the basic economic
questions are answered. They are told what to produce, how to produce it, and
what they will receive.
Command economies are often called planned economies, because the
government engages in elaborate, detailed planning in an effort to produce and
distribute goods and services in a way that is consistent with the wishes of
government leaders. Command economies usually are also characterized by
government ownership of the economy’s natural resources and capital goods.
A market economy is the opposite of a command economy. In a command
economy, the government answers the basic economic questions. In a market
economy, basic economic questions are answered by individual households
and businesses through a system of freely operating markets. In market
economies, natural resources and capital goods are usually privately owned. In
such economies, buyers and sellers have a great deal of economic freedom,
and they send signals to one another as they interact through the system. For
example, by purchasing more of an item than usual, buyers send a signal to
producers to increase production of that item. Similarly, by reducing their pur-
chases of an item, buyers signal producers to reduce production of that item.
The American economy is predominantly a market economy. Other exam-
ples of predominantly market economies include the economies of Canada,
Japan, and many of the countries of Western Europe.
In actual practice, there are no real economies in the world that rely solely on
freely operating markets or on government decisions to answer basic economic
questions. All major economies are mixed economies in the sense that some de-
cisions are made through a system of freely operating, or free markets, by indi-
vidual households and businesses, and some are made by the government. In
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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.
Mixed economy is an economic system that relies on a mixture of markets,
government commands and tradition. This economic system is used in most
countries. The United States are an example of this type of economy. Most de-
cisions there are made by individuals and firms as they exchange goods, ser-
vices, and resources in private markets. But some decisions are made through
the political process of government.
Although several countries own most resources, especially land and large
basic enterprises like steel plants, hospitals, and electric power plants, markets
are allowed to play a role in certain economic activities, such as dining in res-
taurants, repairing shoes, selling garden produce, etc. Even China, at one time
an extreme example of a command economy, has in recent years taken steps
toward allowing some markets to operate.
In the 1990s there appeared a new term transition economy to describe the
countries of Eastern Europe and the former Soviet Union. Transition econo-
mies face the task of moving from a centrally-planned system of resource al-
location towards a more market-oriented approach.
Ex. 1. Find in the text definitions of:
– market economy;;
– command economy;;
– mixed economy.
Ex. 2. Which of the statements express the main ideas or supporting details?
1. Nowadays traditional economies are found primarily in the rural, non-
industrial areas of the world. In such areas, there is no national economy.
2. In command economies, the basic economic questions are answered by
government officials.
3. In a market economy, basic economic questions are answered by individual
households and businesses through a system of freely operating markets.
4. The American economy is predominantly a market economy.
5. Mixed economy is an economic system that relies on a mixture of markets,
government commands and tradition. This economic system is used in
most countries.
Ex. 3. Speak on the basic kinds of economic systems, their advantages and
disadvantages.
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WRITING
Write an essay to define the type of economic system of Belarus. Give your ar-
guments.
TRANSLATION
A. Translate the text from English into Russian.
Classification of Countries
Since the break-up of the Soviet block at the end of the 1980s, the so-called
transition economies have faced the task of moving from a centrally-planned
system of resource allocation towards a more market-oriented approach. This
has proved a challenging and difficult period for the countries concerned, both
those that were part of the Soviet Union and other countries in Eastern Europe
that were allies and trading partners.
To outside observes, it has sometimes been difficult to know how to clas-
sify these countries. In the days of the Cold War, there seemed to be three
groupings in the word. There was a group of industrial market economies that
had reached a high level of “development” – this was the “First World”. Then
there was the Soviet block, which comprised the countries of the Soviet Union
and Eastern Europe. There shared a history that overlapped with countries in
Western Europe, but had taken such a different path since 1917. This was the
“Second World”. And then there was the rest – the “Third World”, most of
which had remained undeveloped.
The collapse of the Second World led to classification problems. The term
“Third world” no longer made sense.
At present the countries of the world are usually classified into three major
groups: advanced economies, developing countries and countries in the transition.
B. Translate the text from Russian into English.
Экономика стран переходного периода характеризуется рядом
закономерностей, независимо от уровня их развития. Переход к
рыночной экономике сопровождается неизбежными трудностями как для
экономики страны, так и для ее населения. Наблюдается очень резкий
спад промышленного производства, ведущий к безработице.
В этих условиях государство должно взять курс на активную
стабилизацию: проведение умеренно жесткой финансовой политики,
обуздание инфляции экономическими методами, выборочная поддержка
наиболее перспективных отраслей экономики.
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SPEAKING
A.
Study the interview with Denis MacShane, a British Member of Parliament for
the Labor Party.
Interviewer: Denis MacShane, do you agree with the people who say
that manufacturing industry will inevitably decline in
what we call the industrialized countries?
Denis Macshane: I think manufacturing will change, convert itself. There
are many new products that have to be invented to serve
new needs, and they can be made in the advanced coun-
tries because in fact the technology of production means
you need very little labour input. I'm holding in my hand a
simple pen that British Airways gives away to its passen-
gers. It is made in Switzerland, a pen, a low-tech product,
made in Switzerland, with the highest labor costs in the
entire world, and British Airways, a British company,
having to pay in low value pounds, is buying from Swit-
zerland a manufactured product. Now what's going on
here? It seems to me that the Swiss - and they also man-
age to do it with their watches, the famous Swatch - have
stumbled on a new secret, which is how to make low-tech
products, sell them profitably, but actually make them in a
country where in theory there should be no more manu-
facturing, and if you look at any of the successful econo-
mies of the 1990s, they all have a strong manufacturing
component.
Interviewer: Which countries are you thinking of?
Denis Macshane: I'm thinking of the dynamic Asian economies, all based
on manufacturing. I'm thinking indeed of the United
States which now has created for example a new com-
puter, high-tech computer industry, its car industry is
coming right back in America. America is a giant manu-
facturing economy, which is why it is still the richest na-
tion in the world, so I am extremely dubious of the theo-
rists who say that manufacturing has no future in the ad-
vanced industrialized countries.
Act out the interview of MacShane with Mr Brown, Daily News correspondent.
Use the questions of the latter for reference.
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1. Why do you think that manufacturing has a future?
2. Why do you think that manufacturing has a future in the advanced
countries?
3. Why, however, is this manufacturing unlikely to solve the problem of un-
employment?
4. What do you mean by “in theory there should be no more manufacturing in
Switzerland?” (It is this theory that makes many people argue that manu-
facturing must move to “less-developed” countries.)
5. Why do you say it is surprising for a British company to be buying Swiss
goods?
6. What is the reason you give for the United States still being the richest na-
tion in the world?
B.
Discuss the following issues
1. What kind of system is traditional economy? What areas of the world
are they primarily found nowadays? The basic economic questions
What, How and For whom in these economies are based on tradition,
aren’t they?
2. Who are the basic economic questions answered in command economies
by? Why are they called planned economies? What is the role of individu-
als in this type of economies?
3. What economy is the opposite to command economy? What is the core
idea of this type of economy? What are the examples of countries with
market economy?
4. All major economies in the world are mixed ones, aren’t they? What are
mixed economies characterized by?
5. Are there any purely capitalist or socialist states in the world?
C.
Summarize the information from the Unit and be ready to speak on Economic
Systems. Use the following prompts as a plan.
1. The definition of an economic system. Its interaction with a political system.
2. Three basic economic questions.
3. Basic kinds of economic systems.
4. The responsibilities of the state in managing the society.
5. The main task of transition economies.
6. The type of the economic systems Great Britain / the USA / Belarus be-
long to.
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VOCABULARY
collapse n – обвал, падение, крах
command economy – командная экономика
fluctuate v – колебаться, быть неустойчивым
fluctuation n – колебание, неустойчивость
household n – домохозяйство
impose v – облагать, налагать
incentive n – стимул
involvement n – вовлечение, затруднительное положение
market economy – рыночная экономика
mixed economy – смешанная экономика
overlap v – частично совпадать, частично покрывать
own v – владеть
owner n – собственник
ownership n – право собственности
restriction n – ограничение
suppress v – сдерживать, подавлять, запрещать
traditional economy – традиционная экономика
transition economy – переходная экономика
GLOSSARY
• Traditional economy is an economic system using social customs to an-
swer the basic economic questions.
• In command economies, the basic economic questions are answered by
government officials.
• In a market economy, basic economic questions are answered by individ-
ual households and businesses through a system of freely operating mar-
kets.
• In mixed economies, a distinction is usually made between the private sec-
tor, in which decisions are made primarily by individual households and
businesses, and the public sector, in which decisions are made by the gov-
ernment.
• Transition economies face the task of moving from a centrally-planned
system of resource allocation towards a more market-oriented approach.
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