Economic Considerations
Lesson 2:The aim of the lesson is to make you feel more confident while talking about economic issues and matters of the kind. We are gradually moving towards learning to act as interpreters whose job it is to understand and interpret for various purposes.
1. Match the terms to their definitions:
| Economic indicators | Purchases of goods and services by people and businesses. | |
| Economic services | An ‘increase in the price of goods and services. | |
| Scarcity | The price of a “market basket” of the necessary goods and services. | |
| Inflation | An inadequate supply of goods that doesn’t meet the demand for them. | |
| Standard of living | Activities of people that have a market value. | |
| Consumption | Total market value of all goods and services produced in one year. | |
| Consumer price index | The level of people’s well-being, showing what they can and cannot afford. | |
| Gross national product | Price indexes, production and employment figures and other statistics showing the status of economy. |
2. Read the text and explain the difference between two notions – “income” and “the cost of living”.
We often speak of our earnings as an indicator of the standard of living. We compare our wages and salaries with others, or the wages we earn today and those we earned ten years ago. But our income does not indicate very accurately how our standard of living is progressing. The cost of living is much more important than income. You may receive a rise in salary, but you may be poorer than before because of inflation. This means that the cost of living rises at a greater rate than income. On the other hand, a small rise in one’s income may be very important if prices go down or, at least, remain the same.
3. It is often said that the value of the dollar has decreased, or that it is worth only 75 or 50 cents compared to a dollar of 10 or twenty years ago. It means that the dollar can only buy what 50 cents could buy years ago. The cost of living has risen. Besides, the cost of living depends on geographic factors. For example, central heating or vegetables cost much more in the northern regions. The cost of living depends on the weather, too. Floods, droughts, or frosts cause food shortages, and prices go up. Good weather produces a lot of fruit and vegetables, and prices go down. Do you feel that the value of our national currency is increasing or decreasing? How does the climate tell on the cost of living in our region?
4. The consumer price index (CPI) is calculated periodically. The products and services that consumers buy determine the general cost of living. These things are divided into categories: housing, transportation, and others. For example, the CPI on a “market basket” of typical food purchases is published regularly. What kinds of food must a hypothetical market basket include? What other categories of consumer goods must go into the market basket, besides food?
5.Back translation (Work in pairs).
| I have been given a rise. But what’s the use? It is wiped out by inflation. Prices have gone up again! I can hardly make both ends meet. | Мне повысили зарплату. А что толку? Инфляция сводит её на нет (букв., «стирает »). Цены опять поднялись! Я не могу свести концы с концами. |
| They must have their house repaired. I hope they can afford it. They’ll have to give up (= do without) some little extras. Let them save money. | Им надо отремонтировать дом. Надеюсь, они могут это себе позволить. Придется им отказаться от некоторых удовольствий. Пусть экономят. |
| I don’t think you should go on strike. You have been offered a 10 per cent rise. We cannot do any better. | Не думаю, что вам следует бастовать. Вам предложили 10%-ную надбавку. Это всё, что мы можем для вас сделать. |
| If you reject this offer, you will regret it. You may not find a better-paid job. | Если вы отвергнете наше предложение, вы еще пожалеете. Более высокооплачиваемая работа может и не подвернуться. |
6. Read the text below. Does it remind you of the situation we had in the early 90s? Explain in a few sentences, using the text.
Inflation at Its Worst (after “World English”, Book 3. Orlando, 1981, p. 88).
There is a story of a country where the rate of inflation is so high that people pay for a taxi ride before the trip instead of after. They save money that way. That story may or may not be true. But inflation was almost that bad in Germany, from July 1920 until December 1923. Prices went up so fast that by the end of 1923 they were 50 billion per cent higher – a raise of almost 2,500% a month.
There was so much paper money, and it had so little value that people carried bags full of cash around to pay for things. Often the bags were worth more than the money inside them. One woman tells the story of standing outside a butcher’s shop with a basket full of 500,000 mark notes. She wanted to buy just one piece of veal, and she hoped she had enough money. But when she wasn’t looking, a thief robbed her. He didn’t take her money – he threw it out and stole the basket instead.
At first workers demanded to be paid every day. But as the situation became worse, they had to be paid twice every day. But they had to run out and spend the money right away, or it would lose its value. People bought anything that was for sale, but food was almost impossible to find. Farm workers refused to take cash. They wanted to be paid in potatoes instead.
New policies (= political strategies) ended the inflation in 1923, when the government introduced a new currency and kept it stable. But about half of the German people lost everything they had in those three and a half years.
7. Make a short lecture on the cost of living in our country. Use the plan given below.
Russia is an industrial (agricultural) country. We make (produce, grow, sell) … We have to buy ….from other countries. The standard of living is … (high, low, getting higher, getting lower and lower). Wages go up by … per cent a year. Prices go up by … % a year. There are (no) food shortages. The supply (meets, is greater than, is smaller than…) the demand. Our economy is (developing quickly, developing slowly, falling to pieces).
8. Is it dangerous or safe to go into business nowadays? Is there any enterprise you would like to run? Is there much risk of going bankrupt? Does a businessman or businesswoman have to bribe corrupted officials or criminal gangs? Is there much competition? Does a businessman run the risk of being killed by his competitors? Is it easy to get a loan, if necessary? (=заём) Do foreign firms invest heavily in Russian enterprises today? And are foreign investments a good thing for Russian economy?
9. Read the excerpt form the documentary “Tourist Attraction” and paraphrase its main idea:
We live in a consumer-oriented society, what that means is this: we must buy everything that our factories and our businesses produce. If we don’t, the businesses and the factories will close down. Here’s the problem: how do you get people who already have everything they need to buy huge quantities of goods that they don’t need?
I mean, it sounds weird when you say it, but the people who have money have everything they need in order to keep the system going. If you don’t believe me try it at Christmas. Your biggest problem at Christmas is not, “where am I going to get money to buy presents for my friends and loved ones?” That’s not the problem, you’ll have the money. The problem is this: “what do I buy for people who have everything?” It never occurs to us to say, “nothing”. But we are people who have everything and this Christmas you’re going to wander up and down the isles of department stores, hoping that since last year somebody has invented something that you don’t need in order that you can buy it for the person who has everything.
10. a) Scan the article “ Opportunity costs ” to define the following terms: opportunity costs, money cost, production cost, foregone earnings. Compare your definitions with a partner. Then share them with the whole class.
b) Read the article carefully and complete the questions that follow below at home then in class in groups of 2 or 3 discuss these issues.
1) Having read the article carefully, look at the definition you wrote earlier for opportunity cost. If you are not completely satisfied with that definition, write another at this time.
2) What was the opportunity cost of your last major purchase? What was the opportunity cost of a decision you made to spend your time a particular way.
3) What is the opportunity cost involved in a decision to continue schooling after graduation from school? In contrast what was the opportunity cost involved in a decision to forego schooling in favour of entering the world of work immediately after graduating from school?
4) The firm referred to in the last two paragraphs of the reading estimated that it would have to invest US$ 500, 000 in order to produce microwave ovens. Production costs would add another US$ 200, 000 annually. The firm estimates that it could sell about US$ 225, 000 worth of ovens each year. Would it be wise for the firm to manufacture the microwave ovens? Explain your answer.
Opportunity Costs
(1) Economists are concerned with how we make choices in a world of scarce resources. Individuals, families, business firms and governments all must make decisions about how best to allocate the limited resources at their command.
(2) When resources are limited, choices are limited as well. This means that the decision to have one thing is at the same time, the decision not to have something else. Suppose, for example, that a government chose to pay for an increase in the size of its air force with the money it saved by building fewer schools. In that instance an increase in defense was paid for by a reduction in the number of schools.
(3) The opportunity cost of any decision is the value of the next best alternative that is given up. It is the relevant cost to use when trying to make the best (optimizing) decision. This is true whether the decision relates to consumption, production, or investment.
(4) Even though we usually think of the money cost of producing something, the opportunity cost provides a much more sensible way of measuring economic cost. If more resources (labor, plastic, steel, etc.) are used to increase the production of computers, then the production of something else that requires those same resources (such as stereos) must be cut back.
(5) If every computer requires the same resources as two stereos, then the opportunity cost of producing a computer is two stereos. It makes sense to evaluate the cost in terms of what we don't get because we’re producing computers.
(6) In fact, the concepts of money cost and opportunity cost are very closely tied together in a market economy. In general, a good that has a high opportunity cost will also have a high money cost. This is because pr ice is one
Way to allocate resources among competing uses. Let's thin k of some of the ways that opportunity costs play fundamental roles in our lives. Many high school students consider going to college for four years after graduating
from high school. What is the cost of acquiring a college education?
(7) Obviously, the cost of tuition, the cost of books and other supplies and the cost of living in a dorm represent the money cost of going to college. The other uses this money might have been put to represent it s opportunity costs. But what else is a cost of going to college? If a student did not go to college, then he or she would most likely find a job instead.
(8) The money that those who choose college might have earned during their years of study is described by economists as foregone earnings. Foregone earnings represent another very important cost of a college education. Thus the opportunity cost of going to college is the goods and services represented by the money cost of the education plus the value of the foregone earnings.
(9) Another example of this concept can be seen in the opportunity cost of capital. Let us assume that a manufacturing firm is considering the addition of microwave ovens to its product line. What will it cost to produce them?
(10) In addition to materials and labor costs, the firm must also consider the return it might receive if instead of using those funds to manufacture microwaves, it put the money into U.S. Treasury bonds or some other safe investment (its
opportunity cost). Let us assume, for example, that the firm could earn 10 percent on the money simply by investing it in government bonds. That being the case the complete cost of production would have to include both production
costs and the opportunity cost of the firm's capital.