Vocabulary list. Topic: factors of production: land market and capital market

UNIT X

Topic: Factors of production: land market and capital market. Entrepreneurship

Grammar: Reported Speech

Communication Skills: Out and About

SECTION A

	1.	interest — процент
	2.	income — доход rental income — рентный доход to earn income — получать доход to distribute income — распределять доход
	3.	economy — народное хозяйство, национальная экономика
	4.	factor markets —рынки факторов производства
	5.	natural resources— природные ресурсы renewable natural resources — возобновляемые природные ресурсы non-renewable natural resources — не возобновляемые природные ресурсы
	6.	means of production — средства производства
	7.	human capital — человеческий капитал
	8.	differential — различие, разница; разница в оплате труда wage differential — различия в заработной плате
	9.	to raise capital — привлекать средства fixed capital — основной капитал working capital — оборотный капитал
	10.	finished goods — завершенное производство, готовая продукция semi-finished goods — незавершенное производство, полуфабрикаты
	11.	raw material (s) — сырье
	12.	liquid assets — ликвидные активы
	13.	investment(s) — капиталовложения, инвестиции to invest in smth — вкладывать капитал, инвестировать во что-либо
	14.	to earn value — создавать стоимость syn. to create value
	15.	entrepreneur — предприниматель entrepreneurship — предпринимательство
	16.	innovator — носитель предпринимательской функции, новатор innovation — инновация, новшество, нововведение, новаторство innovative — вводящий новое, технически прогрессивный
	17.	to satisfy the desires — удовлетворять пожелания to meet the needs — удовлетворять потребности
	18.	costly — дорогостоящий
	19.	to make decisions — принимать решения
	20.	to take a risk — рисковать
	21.	personality — личность person — лицо
	22.	to make efficient use of smth — эффективно использовать что-либо

NOTES:

1. to be classified into — подразделяться на, относиться к определенной категории

syn. to be grouped into

2. to refer to smth — относиться к чему-либо; ссылаться на что-либо

3. it is common practice — зд. общепринято

4. to have smth in common — иметь что-либо общее

5. to distinguish smth from — выделять что-либо из

6. to be willing to do smth — иметь желание что-либо делать

7. to view smth as — рассматривать что-либо в качестве чего-либо

8. to be limited to smth — быть ограниченным чем-либо

9. to be dependent on smth — зависеть от чего-либо

10. to seek to do smth — стремиться (хотеть) сделать что-либо

■ Ex. 1. Read the text and say which of the following terms were not mentioned.

Rent, landowner, to distribute income, market value, labor market, factor market, inputs of production, inflow of capital, dividends, physical capital, to pay dearly, supply and demand, allocation of resources, the value of the marginal product, neoclassical theory, the factor of production, diminishing marginal product, consumer choice, production process, production cycle, to make a profit, the use of outputs, marketplace.

■ Ex. 2. Read the text and find the terms to match the following definitions.

A) the price a person pays for the use of a factor of production for a limited period of time.

B) the inputs into the production of goods and services that are provided by nature, such as land, rivers and mineral deposits

C) spending on capital equipment, inventories and structures in order to produce goods or services and make a profit

D) a group of buyers and sellers of a particular good or service

E) the accumulation of investment in people, such as education and on-the-job training

F) the inputs used to produce goods and services

G) the equipment and structures used to produce goods and services

H) money paid as income on investment

I) the price paid for the use of land

J) a person who directs a company and takes commercial risk

Factors of production: land, capital. Entrepreneurship

People earn income in various ways. Workers earn it in the form of wages and fringe benefits and as income from self-employment. The land owners and the owners of capital get rent, profit and interest. How is the income of a large industrialized economy distributed among these groups? What determines how much goes to workers? To landowners? To the owners of capital? Why do some workers earn higher wages than others, some land owners higher rental income than others, some capital owners greater profit or interest than others? The answer to these questions, like most in economics, hinge on supply and demand. The basic theory of factor markets takes a large step towards explaining how the income is distributed. Labor, land and capital are the three important factors of production. When a computer firm produces a new software program, it uses programmer’s time (labor), the physical space on which its offices sit (land), and an office building and computer equipment (capital).The analysis of the labor market shows how firms decide how much labor to hire and how these decisions determine workers’ wages. At the same time the firms are also deciding about other inputs of production: land and capital.

Land or natural resources are what nature provides to create goods and services. They include soil and minerals, wildlife and timber, as well as the air we breathe. The payment for land is rent. Natural resources are mostly classified into renewable which can restock (renew) and non-renewable which will sooner or later be used up.

Economists use the term “capital” referring to human-made goods (or means of production) which are used in the production of other goods. These include machinery, tools and buildings. Capital has many meanings including the financial capital raised to operate a business. Speaking about businesses it is common practice to group capital into fixed capital which includes machinery, equipment, land and buildings and working capital which includes the stocks of the finished and semi-finished goods, raw material and liquid assets needed for immediate expenses linked to the production process. In the general sense, the payment for capital may take the form of interest or dividends.

Contemporary analysis distinguishes capital goods (often physical capital) from other forms of capital such as human capital. Human capital is the accumulation of investments in people. The most important type of it is education. Not surprisingly, workers with more human capital on average earn more than those with less human capital. It is easy to see why education raises wages from the perspective of supply and demand. Firms — the demanders of labor — are willing to pay more for the highly educated workers because they have higher marginal products. Workers — the suppliers of labor — are willing to pay the cost of becoming educated only if there is a reward for doing so. In essence, the difference in wages between the first and the second groups may be considered as a compensating differential for the cost of becoming educated. Sometimes the concept of human capital is viewed as the characteristic of labor.

Although in many ways factor markets resemble goods markets they are different in one important way: the demand for a factor of production is a derived demand. That is a firm’s demand for a factor of production is derived from its decision to supply a good in another market.

The theory of factor demand that is used for the labor market can be applied to the markets for land and capital. Much of what is known about wage determination applies also to the rental prices of land and capital. Both the rental price of land and the rental price of capital are determined by supply and demand. Moreover, the demand for land and capital is determined just like the demand for labor. For both land and capital, a firm increases the quantity hired until the value of the factor’s marginal product equals the factor’s price. Thus, the demand curve for each factor reflects the marginal productivity of that factor. Now we can explain how much income goes to labor, how much goes to owners of land and how much goes to the owners of capital. As long as the firms using the factors of production are competitive and profit-maximizing, each factor’s rental price must equal the value of the marginal product for that factor: labor, land and capital each earn the value of their marginal contribution to the production process.

The marginal product of any factor, in turn, depends on the quantity of that factor that is available. Because of diminishing marginal product, a factor in abundant supply has a low marginal product and that a low price, and a factor in scarce supply has a high marginal product and a high price. As a result, when the supply of a factor falls, its equilibrium factor price rises.

When the supply of any factor changes, however, the effects are not limited to the market for that factor. In most situations, factors of production are used together in a way that makes the productivity of each factor dependent on the quantities of the other factors available to be used in the production process. As a result, a change in the supply of any one factor alters the earning of all the factors.

In a market economy, considered as a separate factor, entrepreneurs combine the other factors of production (land, labor and capital) in an innovative way to make a profit. Entrepreneurship is a talent to develop products and processes and to organize production to make goods and services available. Entrepreneurs are innovators and risk-takers. In business they seek to earn profits by satisfying the desires of consumers and developing better and less costly ways of satisfying those desires. They undertake tasks necessary to get the process of production started and make many of the decisions relating to the use of outputs.

Many people have studied the successful entrepreneurs to find out just what type of personality they have. The truth is that they come in all shapes, sizes, and personalities. This is what makes them interesting. Still, they have much in common. They enter business knowing that success is not granted and if plans fail, they could lose money. Very often entrepreneurs are regarded as lucky people with bright ideas. While they certainly have good ideas, their success is seldom based on luck. Unlike other people, they see opportunities where others don’t: in the need for new products and processes or in the need for their improvements, in the changing markets, in the usefulness of substitute products, in the changes in the age and location of population and so on. All these require creative and energetic business people. But the key for success as an entrepreneur is the careful study of the marketplace to identify opportunities for products or services that meet consumers’ needs and make more efficient use of available resources.

■ Ex. 3. Read the text and answer the following comprehensions questions.

1. What theory underlies the distribution of income?

2. How are natural resources classified?

3. What is capital?

4. Are people always willing to pay for their education?

5. How is the demand for land and capital determined?

6. Up to what point do competitive profit-maximizing firms hire each factor of production?

7. Why does a change in the supply of any factor alter the equilibrium earnings of all the factors?

8. Why is entrepreneurship considered a difficult undertaking?

9. What do entrepreneurs have in common?

10. What is the key to entrepreneurial success?

■ Ex. 4. Say whether the following statements are TRUE or FALSE according to the text.

1. The economy’s income is distributed in the markets for the factors of production.

2. The three most important factors of production are labor, natural resources and human capital.

3. The demand for factors comes from firms that use factors to produce goods and services.

4. The factor demand reflects the value of the marginal product of that factor.

5. If the supply of a factor rises its equilibrium rental price also rises.

6. In equilibrium each factor of production earns value of its marginal contribution to the production of goods and services.

7. The marginal product of any one factor is unrelated to the quantities of all other factors that are available.

8. Unlike physical capital, human capital is a produced factor of production.

9. Forests, oil, wheat, soil and water are the examples of renewable natural resources.

10. Entrepreneurship is the practice of starting new businesses in response to identified opportunities.

■ Ex. 5. Arrange the passages according to the order of the following titles.

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