Methodology

Text 3

As you read the text, focus on the following terms: 1) economic goods; 2) economic services; 3) factors of production.

Satisfying People’s Wants

Economics is the study of how individuals and society choose to use limited resources in an effort to satisfy people’s unlimited wants. Satisfying such wants involves the production of economic goods and services. We will first define the terms “economic goods” and “economic services”, and then turn our attention to the factors of production needed to produce them.

Economic goods are things of value that you can see, and show to the others. They are things like bicycles, books, stereos, and clothing. Economic goods also include such things as factories, stores, machines, and tools.

Economic services are intangible things that have value but often cannot be seen, touched, or shown to others. Suppose you go bowling on Saturday night. At the bowling alley, you pay for the rental of a pair of bowling shoes and a bowling ball and for the privilege of bowling several games. You enjoy the evening immensely and consider the outing worth the money you spent. However, in terms of tangible purchases, you have nothing to show for your money. This is an example of an economic service. Other examples of economic services are medical care, legal advice, movies and national defence.

Factors of production which are also called productive resources, are the basic resources needed for the production of economic goods and services. Economists, traditionally, have divided the factors of production into three basic categories: (1) natural resources; (2) capital goods; (3) labour. In addition, many economists add a fourth factor of production, entrepreneurship to the list.

Natural resources are things provided by nature. Land, air, water, forests, coal, iron ore, oil, and other minerals are examples of natural resources. They are the starting points of all production, and they represent the most basic limitations of the productive capacity of an economy. In other words, no matter how much skilled labour and technological knowledge an economy has, it cannot create goods if it lacks natural resources.

Capital goods are human-made resources that are used for the production of other goods and services. Factories, machines, tools, railroads, trucks, and business buildings are all examples of capital goods.

It is important to distinguish between capital goods and consumer goods.

Consumer goods which are not a factor of production - are finished products sold to consumers for their own personal use. They include such things as food, clothing, TV sets, and newspapers. In contrast capital goods are things that are used in the production of consumer goods and services. A factory that manufactures TV sets is a capital good. Some things can be either consumer goods or capital goods, depending on how they are used. For example, an automobile purchased for personal use is a consumer good. However, automobiles purchased for use as taxis or for other business purposes are capital goods.

Labour, sometimes called human resources, is any form of human effort exerted in production. It includes all kinds of work. The work of a janitor, teacher, lawyer, engineer, and the governor of your state are all examples of labour. Labour is essential to production, since natural resources and capital goods are of no value unless they can be put to use.

The three facts of production described above - natural resources, capital goods and labour must be combined and organized before production can take place. This is where entrepreneurship, the fourth factor of production, enters the picture. Entrepreneurship may be defined as the function of combining and organizing natural resources, capital goods, and labour, assuming the risks of business failure, and providing the creativity and managerial skills necessary for production to take place. An entrepreneur is a person who carries out these tasks in the hope of making financial gains from the endeavour.

Ex. 1. Find the information in the text to answer the questions:

1. What is the difference between economic goods and economic services? Give examples to illustrate them.

2. What are the basic categories of the factors of production?

3. Are consumer goods considered to be factors of production too? What is the difference between consumer and capital goods?

4. How can you prove that labour is an essential factor of production?

5. Are there any other factors that influence production in modern world?

Ex. 2. Put down words and word combinations from the text you are going to use while giving its short summary.

WRITING

Scan the text and do the following tasks:

A. Choose the headline which best expresses the main idea of each paragraph:

– Economics Theory.

– Descriptive Economics.

– Economic Policy.

B. Reduce the text to one-fifth of its original length giving the most important information in writing.

In studying any problem or segment of the economy, the economist must first gather the relevant facts. These facts must then be systematically arranged, interpreted, and generalized upon. These generalizations are useful not only in explaining economic behaviour, but also in predicting and therefore controlling future events.

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All sciences are empirical. All sciences are based upon facts, that is, upon observable and verifiable behaviour of certain data or subject matter. In the physical sciences the factual data are inorganic. As a social science, economics is concerned with the behaviour of individuals and institutions engaged in the production, exchange, and consumption of goods and services.

The first major step, then, in investigating a given problem or a specific segment of the economy is to gather the facts. This can be an infinitely complex task. The world of reality is cluttered with a myriad of interrelated facts. The economist therefore must use discretion in fact gathering. One must distinguish economic from non-economic facts and then determine which economic facts are relevant and which are irrelevant for the particular problem under consideration. But even when this sorting process has been completed, the relevant economic facts may appear diverse and unrelated.

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A conglomeration of facts is relatively useless; mere description is not enough. To be meaningful, facts must be systematically arranged, interpreted, and generalized upon. This is the task of economic theory or analysis. Principles and theories – the end result of economic analysis - bring order and meaning to a number of facts, by tying these facts together, putting them in correct relationship to one another, and generalizing upon them: "Theories without facts may be barren, but facts without theories are meaningless."

The interplay between the levels of fact and theory is rather complex. Principles and theories are meaningful statements drawn from facts but facts, in turn, serve as a constant check on the validity of principles already established. Facts - how individuals and institutions actually behave in producing, exchanging, and consuming goods and services change with time. This makes it essential that economists continuously check existing principles and theories against the changing economic environment.

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The creation of specific policies designed to achieve the broad economic goals of our society is no simple matter. A brief examination of the basic steps in policy formulation is in order.

1. The first step is to make a clear statement of goals. If we say that we have “full employment”, do we mean that everyone between, say, 16 and 65 years of age has a job? Or do we mean that everyone who wants to work has a job?

2. Next, we must state and recognize the possible effects of alternative policies designed to achieve the goal. This entails a clear-cut understanding economic impact, benefits, costs, and political feasibility of alternative programs. Thus, for example, economists currently debate the relative merits and demerits of fiscal policy (changing government spending and taxes) and monetary policy (altering the supply of money) as alternative means of achieving and maintaining full employment.

3. We are obligated to both ourselves and future generations to look back upon our experiences with chosen policies and evaluate their effectiveness; it is only through this type of evaluation that we can hope to improve policy applications. Did a given change in taxes or the supply of money alter the level of employment to the extent originally predicted? If not, why not?

TRANSLATION

A. Translate into Russian.

Economic Theory and Models

Economic theories simplify reality to allow us to understand basic economic forces and how individuals cope with the problems of scarcity. We can observe actions and their consequences. Observation and description are not sufficient for understanding and ultimately predicting actions. Theory establishes relationships between cause and effect. We use it to interpret actions and outcomes so we can explain the process by which the actions were undertaken and the outcomes achieved. The purpose of theory in all scientific analyses is to explain the causes of phenomena we observe. To conduct economic analyses we frequently need to engage in abstraction. This involves making assumptions about the economic environment and human motivation that simplify the real world enough to allow us to isolate forces of cause and effect. Any theory is a simplification of actual relationships.

An economic model is a simplified way of expressing how some sector of the economy functions. An economic model contains assumptions that establish relationships among economic variables. We use logic, graphs, or mathematics to determine the consequences of the assumptions. In this way we can use the model to make predictions about how a change in economic conditions results in changes in decisions affecting economic variables. Economists often use the term “model” as a synonym for theory.

B. Translate into English.

Экономика – это общественная наука, изучающая поведение в сферах производства, потребления, распределения и обмена. Экономисты анализируют происходящие в этих сферах процессы и исследуют их последствия для физических лиц, организаций, например фирм, и общества в целом. В экономической науке существует много конкурирующих между собой направлений, однако основным делением является деление на классическую и неоклассическую школы.

В систему экономических наук входят науки, которые изучают функциональные аспекты развития экономики (финансы и кредит, ценообразование, экономика труда, материально-техническое обеспечение, планирование экономического и социального развития и др.) или ее отраслевые особенности (экономики промышленности, сельского хозяйства, транспорта и др.).

LISTENING

Listen to the interview with Denis Mac Shane, a British Member of Parliament for the Labour Party and answer the following questions.

1. Why does MacShane think that manufacturing has a future?

2. Why does MacShane think that manufacturing has a future in the advanced countries?

3. Why, however, is this manufacturing unlikely to solve the problem of unemployment?

4. What does MacShane mean by “in theory there should be no more manufacturing in Switzerland?” (It is this theory that makes many people argue that manufacturing must move to “less-developed” countries.)

5. Why does he say it is surprising for a British company to be buying Swiss goods?

6. What is the reason he gives for the United States still being the richest nation in the world?

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