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SUPPLY, DEMAND AND MARKET PRICES

I. Read and memorize the following words, word-combinations and word-groups:

market economy

price

e.g. Market economies are directed by prices.

to ration , ,

e.g. Prices ration scarce resources, and they motivate production.

to attend an auction

e.g. Did you ever attend an auction?

rationing effect

e.g. What you saw at the auction was the rationing effect of prices.

items for sale

bidder

e.g. The person leading the sale (the auctioneer) offered individual items for sale to the highest bidder.

to drive out of the market

e.g. Price decreases drive producers out of the market.

the level of output

e.g. Prices encourage producers to increase or decrease their level of output.

the law of demand

quantity of goods and services

e.g. The law of demand describes the relationship between prices and the quantity of goods and services that would be purchased at each price.

elasticity ;

e.g. Elasticity describes how much a change in price affects the quantity demanded.

supply ;

e.g. Supply refers to the number of items that sellers will offer for sale at different prices at a particular time and place.

 

II. Give English equivalents of the following:

 

III. Fill in the blanks with appropriate words:

to illustrate

prices

sellers

demand

tables and graphs

consumers

market

auction

an item

1. Economists often use and explain their work.

2. Market economics are directed by ... .

3. ... is a consumer's willingness and ability to buy a product or service at a particular time and place.

4. More people can afford to buy ... at a lower price than at a higher price.

5. Buyers and sellers have full knowledge of the prices price quoted in the ... .

6. In some countries prices are set by the ... .

7. Many ... who are concerned about the environment are refusing to buy soft drinks in plastics.

8. ... will offer more of a product at a higher price and less at a lower price.

 

IV. Read and translate the text:

Market economies are directed by prices. Prices ration scarce resources, and they motivate production. As a general rule, the more scarce something is, the higher its price will be, and the fewer people will want to buy it. Economists describe this as the rationing effect of prices.

Prices encourage producers to increase or decrease their level of output. Economists refer to this as the production-motivating function of prices. Prices send out signals to buyers and sellers, keeping the economy responsive to the forces of supply and demand.

In a free market economy, prices are determined by the interaction of the forces of supply and demand. Perfectly competitive markets are those in which many buyers and sellers, with full knowledge of market conditions, buy and sell products that are identical to one another.

Demand is a consumer's willingness and ability to buy a product or service at a particular time and place. If you would love to own a new pair of athletic shoes but can't afford them, economists would describe that your feeling are desire, not demand. If, however, you had the money and were ready to spend it on shoes, you would be included in their demand calculations.

The law of demand describes the relationship between prices and the quantity of goods and services that would be purchased at each price. It says that all else being equal, more items will be sold at a lower price than at a higher price.

The degree to which price changes affect demand will depend upon the elasticity of demand for a particular item.

If total revenue increased following a price decrease, demand would be elastic. If the price decrease led to a decrease in total revenue, the demand for the item would be described as inelastic.

The demand for some goods and services will be inelastic for one or more of the following reasons:

They are necessities.

It is difficult to find substitutes.

They are relatively inexpensive.

It is difficult to delay a purchase.

Sometimes things happen that change the demand for an item at each and every price. When this occurs, we have an increase or a decrease in demand.

Supply, which is the quantity of goods or services that sellers offer for sale at all possible prices at a particular time and place, varies directly with price. In other words, at a higher price, more goods and services will be offered for sale than at a lower one, and vice versa.

The price at which goods and services actually change hands is known as the equilibrium, or market price. It is the point at which the quantity demanded exactly equals the quantity supplied. Market price can be represented graphically as the point of intersection of the supply and demand curves.

Shifts in demand or supply will affect market price. When everything else is held constant, an increase in demand will result in an increase in market price, and vice versa. Similarly, an increase in supply will result in a decrease in price, and vice versa.

The market price is the only price that can exist for any length of time under perfect competition conditions. Perfect competition exists when the following conditions prevail:

Buyers and sellers have full knowledge of the prices quoted in the market.

There are many buyers and sellers so that no individua or group can control prices.

The products are identical with one another. Therefore, it would not make sense for buyers to pay more than the market price, nor for sellers to accept less.

Buyers and sellers are free to enter or leave the market at will

 

V. Answer the following questions:

  1. What is the rationing effect of prices?
  2. What are the functions of prices?
  3. How are prices determined in a free market economy?
  4. What causes prices to rise and fall in a market economy?
  5. What is demand?
  6. What does the low of demand describe?
  7. When is demand described as elastic?
  8. Why is the demand for some goods and services inelastic?
  9. What does supply refer to?
  10. What is equilibrium or market price?

 

VI. Define the terms:

market price

rationing effect of prices demand

perfectly competitive markets buyers

production-motivating function of prices sellers

 

VII. Translate into English:

1. ֳ . 2. ֳ . 3. 䳺 . 4. ֳ, , . 5. . 6. , . 7. .

 

VIII. Read and dramatize the following dialogue:

Maurice: Haven't seen you for a long time. What have you

been busy with? Lusy: I've been pretty busy. Do you know my friend

Susan?

M.: Yes, I do.

L.: I went into business with her.

M.: Really? How is it going on?

L.: Fine, thank you.

M.: What kind of business is it?

L.: We developed our own special recipe for homemade ice-cream, and

we decided to sell ice-cream cones to students every day after

school.

M.: How much does your ice-cream cost?

L.: It costs $1.60 per cone.

M.: How did you define the cost of your product?

L.: Oh, it was not very difficult. First of all we decided to learn the

demand of our consumers. For this purpose we conducted a survey to see if students were interested in the idea. Each student was asked the following question: Would you spend $.50 to have an ice-cream cone for and after school snack? This question was repeated using higher and higher prices up to $25 per cone. The results of the survey were assembled in a demand schedule, a table showing the quantities of a product that would be purchased at various prices at a given time.

M.: Oh, it is very interesting. I'd like to see this demand schedule for

ice-cream cones.

L.: If you wonder I can show it to you. I've got it with me. Look here!

 

 

Demand schedule for ice-cream cones
Price Per Cone Quantify Demanded
$.50
.75
1.00
1.25 .85
1.50
1.75
2.00

 

M.: The survey results illustrated the law of demand in action, didn't

they?

L.: You are right. We also made the demand curve, which illustrated

the demand for ice-cream cones. It also enabled us to estimate what the demand would be for those prices falling in between the prices we surveyed. Although the students were not questioned about how many cones they would buy if the selling price were $1.60, the curve lets us estimate the number would be about 55.

M.: Nice for you. Now you seem to know a lot about business. L.: Not

everything yet. The subject becomes quite technical. M.: I'm glad to hear it. It's time to go now. See you later. Bye!

 

IX. Make up your own dialogue using the following words, expressions and words-combinations:

quantity of goods and services market economy

rationing effect of price auctioneer

to offer items for sale elasticity

to attend an auction bidder

 

 

X. Refer the following statements to the past:

Model: Economic incentives influence our decision about

what and where to buy.

Economic incentives influenced our decision about

what and where to buy.

1. What you see at the auction is the rationing effect of prices. 2. Prices encourage producers to increase their level of output. 3. The law of demand describes the relationship between prices and the quantity of goods and services. 4. They sell these goods because they want to have a profit from such transaction. 5. Adam Smith describes the principal elements of the economic system in his book The Wealth of Nations.

 

XI. Ask questions to which the following statements are answers:

Model: This work seemed easy. Did this work seem easy? 1. The development of modern economics began in the 17th century. 2. Large corporations used economists to study the way to do business. 3. Peter received his first paycheck of $135 yesterday. 4. ! went into business last year. 5. First of all we decided to learn the demand of our consumers.

 

XII. Translate into English:

1. . 2. . 3. ֳ . 4. , . 5. .

 

XIII. Communicative situations:

1. If you owned an ice-cream shop at a seaside resort and
additional -cream shops were opening in your area because of increasing prices, how would you take advantage of the use of substitute products to compete more effectively?

How would you make use of the concept of demand elasticity in making decisions whether or not to raise your prices for your specially items such as shakes, sundaes, and banana splits?

2. When the forces of supply and demand are at work in a market economy, the equilibrium price is the only one that matters. All other prices are irrelevant (beside the point).

Explain this statement.

3. The law of demand works because consumers have the ability to substitute. The law of supply works because producers have the ability to substitute.

Explain these statements.

 

Lesson 4

THE CONSUMER IN OUR ECONOMY

I. Read and memorize the following words, word-combinations and word-groups:

to meet one's needs

e.g. Many businesses work very hard to meet your needs and wants.

wage(s) {syn. salary)

e.g. In return for working, you will receive a wage or salary.

wealth

e.g. Wealth is the value of the things you own.

to deposit money in a savings accout

e.g. We decided to deposit money in a savings account.

to earn interest

to loan ,

e.g. Wealth, in the form of money that is loaned to others or deposited in a savings account, will earn interest.

expenditures

savings

e.g. The Greens plan their expenditures and savings very carefully.

to make one's decision

e.g. When the time comes to make a major purchase, we compare products and prices before making our decision.

to keep track

e.g. Most of the time, we are able to keep track of our expenditures (the money spent), so that we are able to meet our immediate needs.

to exceed

surplus

e.g. Budgets in which income exceeds expenditures will have a surplus.

rate of return

e.g. The rate of return is expressed as a percentage of the amount on deposit for a period of a year.

compound interest

e.g. Most accounts offer compound interest.

yield

e.g. If is important to distinguish between rate of return and yield, the actual amount of interest earned.

to share risk

e.g. Insurance enables people to share risk.

endowment insurance -

e.g. Endowment insurance protects the insured for a specific number of years.

consumer credit

e.g. Consumer credit provides cash, goods, or services now, while spreading repayment into the future.

finance charge

e.g. Finance charge is the total amount you pay to use credit.

passbook loan

e.g. If you have a savings account, you may to apply for a passbook loan against your balance in that account.

 

II. Give English equivalents of the following:

-


 

III. Fill in the blanks with appropriate words:

1. ... refers to earning paid on a weekly or monthly basis. 2. Interest and rent are two forms of ... that can be earned by wealth. 3. ... is a financial plan that summarizes income and expenditures over a period of time. 4. Banks and savings institutions protect your ... against fire, theft and other disasters. 5. ... depends on the rate of return and the frequency of compounding. 6. Property ... protects policyholders against the loss or damage of their property. 7. Change accounts, credit cards, installment plans, car loans and household mortgages are some of the best known forms of ... . credit yield income insurance salary a budget money

IV. Read and translate the text:

Most of the income you are likely to earn will come from work. In return for working, you will receive a wage or salary. (The term wage typically refers to the earning of workers paid by the hour or unit of production. Salary refers to earning paid on a weekly or monthly basis.) How much you earn will depend on your job, your abilities, your performance, and a number of other factors.

Wealth can be expressed as the value of the things you own. Adding the value of all your possesions by banks accounts, savings, and the like will give you the total amount of your wealth.

Used in certain ways, wealth can earn income. If you owned a motorcycle, you might be able to let others use it for a fee. In that instance economists would say that you used your wealth to earn rent. Wealth in the form of money that is loaned to others or deposited in a savings account will earn interest. Interest and rent are the two forms of income that can be earned by wealth.

The number and value of things we are able to buy depends upon the size of our income and how wisely we spend it.

To help keep track of income and expenditures, many people use personal budgets. A budget is a financial plan that summarizes income and expenditures over a period of time. When a budget has expenses that exactly equal income, it is said to be balanced. When proposed expenses are greater than expected income, the budget is said to have a deficit.

Budgets in which income exceeds expenditures will have a surplus.

Although there are as many ways to prepare a budget as there are people who use them, the process usually involves three steps: setting financial goals, estimating income, and planning expenditures.

Bank and savings institutions protect your money against fire, theft and other disasters.

One of the main reasons people save their money is to earn interest, the income from allowing someone else to use one's capital. The amount that they earn is known as the rate of return which is expressed as a percentage of the amount on deposit for a period of a year. A deposit of $100 in an account paying 5 percent, for example, would earn a total of $5 in interest over a year. The $5 is the return; the rate of return is 5 percept ($5 divided by $100).

Most accounts offer compound interest. This is interest computed on the principal and on the interest that was previously paid.

The rate of return offered by banks and savings institutions will vary with economic conditions and the length of time they hold your money. It is also important to distinguish between rate of return and yield, the actual amount of interest earned. Yield depends on the rate of return and the frequency of compounding.

Liquidity is a measure of the ease with which you can convert your savings to cash. The easier it is to withdraw your funds, the greater is the liquidity.

Theft, accident, sickness, and natural disasters are daily risks of life. Just as we do our best to avoid the physical consequences of these perils, we can also protect ourselves from their financial cost. We do this by sharing the risk of that loss with others through insurance. You can purchase insurance on your life and to pay your medical bills. You can purchase property insurance to protect your car, home, and other major possessions from damage or theft. Liability insurance protects you if you should injure others or damage their property.

One of the principal services offered by savings institutions and banks is the checking account. Some of the things that consumers need to know in using and maintaining a checking account are reviewed in the Study Guide.

Credit allows you to purchase the things you want now and pay for them over a special period of time. Credit can be useful but it does require good character, capital, and capacity to repay the loan. Credit can be expensive. Two of the most

important things to look for when shopping for a loan are the finance charge and the APR.

The purpose of advertising is to sell goods and services. While certain advertising techniques benefit consumers, others do not. Consequently, consumers ought to be familiar with the kinds of strategies that advertisers use to sell their products.

The principal responsibility for consumer protection lies with government agencies at the federal state and local levels. There are, however, a number of organizations, sponsored by the private sector, whose purpose is to protect consumers. These include such well-known institutions as the Better Business Bureau and local Chambers of Commerce.

Because consumers make up the largest economic sector (business and government are the other two), the level of consumer spending has a direct impact on the economy as a whole (pp. 3548).

 

V. Answer the following questions:

  1. What is the difference between wage and salary?
  2. How can wealth be expressed?
  3. How can you use your wealth to get income? Give your examples.
  4. What is a budget?
  5. When is a budget said to have a deficit and when a surplus?
  6. What three steps are involved to prepare a budget?
  7. What makes up your personal budget?
  8. What is the rate of return?
  9. What is liquidity?
  10. What does credit allow you?
  11. What is the purpose of advertising?

 

VI. Define the terms:

wage budget

liquidity the rate of return

salary wealth

surplus compound interest

 

VII. Translate into English:

1. , . 2. . 3. Գ , , . 4. - . 5. . 6. ϳ , , , . 7. ʳ , , , . 8. , .

 

VIII. Read and dramatize the following dialogue:

A.: Sorry, I will be very obliged to you if you will answer some of my

questions.

B.: O.K. I'm at your disposal.

A.: I know that most of the nation's personal savings are held by the

commercial banks, different types of savings institutions, and credit unions. The deposits held by these institutions are insured by agencies of the federal government. But I wonder what kinds of accounts can be offered by savings institutions?

.: Well, savings institutions offer the following kinds of accounts:

passbook and statement saving accounts, NOW (Negotiable Order of Withdrawal) accounts, money-market accounts, certificates of deposit, credit-union accounts. U.S. savings bonds and money-market bonds.

A.: O.K. It's very interesting. Can you tell me some more about

passbook and statement accounts?

B.: Oh, yes, of course. I can. The safety of your money and high

liquidity are the most important advantages of these accounts. Minimum balance requirements are usually quite low, and your savings can be withdrawn at any time.

A.: Is there any disadvantage to this kind of account?

B.: The disadvantage of them is that they pay relatively low interest

rates.

A,: I see. And what about NOW and money-market accounts? Please,

some words about them.

B.: Well, NOW accounts pay interest and allow the depositor to write

checks. NOW accounts generally offer a slighty lower rate of return than savings accounts. Money-market accounts allow you to write a limited number of checks while participating in the money-market where banks and other businesses buy and sell short-term credit instruments and notes that come due in a year or less. The rate of return for money market accounts is usually higher

than for passbook savings accounts. Would you like me to tell you about certificates of deposit and credit-union accounts?

A.: Oh, no, thank you very much. But it seems to me I know everything

about them. Certificates of deposit, or CD's, pay the highest rates of interest offered by banks and savings institutions. They require the money to be left on deposit for a specified period of time that can run from a few weeks to five of more years. The money can be withdrawn early, if necessary, but not without a penalty. Credit unions often serve people who have the same employer, work in the same industry, or belong to a particular church, labor union, or club. The rate of return offered by credit unions is higher than that of the other institutions. But what do you know about U.S. savings bonds and money-market funds?

B.: U.S. savings bonds can be purchased at most savings institutions.

Guaranteed by the United States government, they are one of the safest investments one can make. After five years bonds earn a variable rate adjusted every six months. And money-market funds use the resources of their investors to buy money-market certificates. Money-market funds generally pay a higher rate of return than savings and NOW accounts. Unlike other accounts at savings institutions, money-market fund accounts are not insured nor do they provide check-writing privileges.

A.: I'm more than grateful to you for such important information. Thank

you ever so much.

B.: Don't mention it.

 

IX. Make up your own dialogue using the following words, expressions and word-combinations:

to deposit money in a savings account wage

to make one's decision wealth

to earn interest to loan

finance charge rate of return

X. Express the following in the Passive Voice:

Model: The health maintenance organization or HMO provided its

members with complete medical coverage.

The members of the health maintenance organization were provided with complete medical coverage.

1. Partners brought additional funds to a proprietorship. 2. You received a wage in return for working. 3. The Greens planned their expenditure and savings very carefully. 4. We compared products and prices before making a decision. 5. Consumer credit provided cash, goods and services. 6. In 1990, consumers purchased over 60 percent of the GNP more than $3 trillion in goods and services.

 

XI. Ask questions to the following sentences:

Model: Almost everyone was covered by some form ofinsurance.

 

Who was covered by some form of insurance? 1. A direct relationship between the kinds of goods and services bought and the income of the purchaser was shown by a Prussian statistician by the name of Ernst Engel, back in the 19th century. 2. As consumers, all of us were limited by what we can spend. 3. Most of the nations' personal savings were held by the commercial banks, different types of savings institutions, and credit unions. 4. Consumers were tempted to spend money for products they did not really need. 5. Group policies were offered by employers, professional associations, unions, and other organizations to their employees or members. 6. At the end of the specific number of years the full amount was paid to the poli-cyholders.

 

XII. Translate into English:

1. . 2. ʳ , , . 3. , . 4. 䳿 . 5. .

 

. Communicative situations:

1. As total consumption in the United States has gone up, the percent spent on different types of goods has changed. Spending for some goods has increased while that for others has decreased. Explain the trends for each of the following goods:

a) Spending as a percent of total consumption has decreased for good, clothing, household operation.

b) Spending as a percent of total consumption has increased for housing, medical care, transportation and travel.

Two hundred families live in the village of Middieville. Every year, for as long as anyone can remember, there has been one burglary. The average loss from the thefts has been $5,000.

a) How could the people of Middieville insure themselves against the financial costs of a burglary?

b) Why is insurance often described as a method of sharing risk?

Most states require drivers to have liability insurance. Why? You can choose whether you want collision insurance for a car. Why would someone choose not to buy collision insurance? Under what circumstances might you want to buy collusion insurance?

 

Lesson 5

LAUNCHING A BUSINESS

1. Read and memorize the following words, word-combinations and word-groups:

to start a business (syn. to launch a business) ()

e.g. Those thinking of starting a business should keep informed about the kinds of opportunities that exist, the personal qualities needed for success and the kinds of training available to prepare for the world of business.

to operate a business ()

e.g. Many colleges now offer programs thai teach students how to start and operate a business.

to face a problem

e.g. Small businesses face many problems.

to risk (syn. to run the risk)

e.g. Corporate leaders may risk their own jobs when they make major decisions that affect the future of corporation negatively.

sole proprietorship

e.g. A sole proprietorship is a business owned by one person,

to pay taxes

e.g. Sole proprietors have minimal legal restrictions and do not have to pay the special taxes placed on corporations.

to assume the debts

e.g. If a business fails, the owner must personally assume the debts.

stockholder ,

e.g. Ownership of a corporation is represented by shares of stock, and for that reason corporate owners are known as stockholders.

partnership ,

e.g. A partnership is a business organization that is owned by two or more persons.

II. Give English equivalents of the following:

 

 

III. Fill in the blanks with appropriate words:

About 50 percent of entrepreneurs start their ... in industries in which they have some .... People who come from families whose members were in business themselves are more likely to start their own .... In a large business the tasks of organizing and operating are done by many hired ... . ... is a business owned by one person.

All debts and all problems associated with the business belong to the ... . ... is a business organization that is owned by two or more persons. If the business were to fail, its ... would have the right to recover their money from any, or all, of the partners. Ownership of a corporation is represented by shares of stock, and for that reason corporate owners are known as ... .

experience creditors stockholders managers business companies a sole proprietorship

a partnership owner

 

IV. Read and translate the text:

There are numerous reasons that make people think about owning a business of their own. Personal independence, unlimited profit potential, the opportunity to work at something that they really love and at hours they choose are some of the reasons people have given for trying entrepreneurship. Many business leaders begin their careers as entrepreneurs after four years of undergraduate college training and even additional graduate school training. Others become successful entrepreneurs without special training.

Many colleges now offer programs that teach students how to start and operate a business. Basic information is combined with hands-on experience and the advice of successful business consultants. These programs help potential entrepreneurs decide whether their own ideas are good and how to follow through with them. With the high rate of business failure, this approach can prevent personal financial losses.

A common way to learn about a business, and the opportunities for starting one similar to it, is to learn while working for someone else. It provides a source of steady income to people while they are planning to start their own businesses. About 50 percent of entrepreneurs start their businesses in industries in which they have some experience.

Evidence shows that people who come from families whose members were in business themselves are more likely to start their own companies. Unfortunately, the record shows that two out of three new businesses fail within their first four years.

Small businesses face many problems. Bad economic times affect small business more than they do big business. In addition, small business profits tend to fail faster, and small businesses are more likely to fail.

What are the problems that face small business now? In January, 1985 the National Federation of Independent Business reported that the four top problems facing small business at that time were taxes, slow sales, the high cost of borrowing money and competition from other businesses.

In a large business the tasks of organizing and operating are done by many hired managers.

A corporation is one kind of business organization. Other kinds of business organizations are sole proprietorships and partnerships. Sole proprietorships are the most numerous kind of business organization, but most are very small. The reason for their popularity is that they are the easiest and least costly to organize.

Sole proprietors own all the profits of their enterprises, and they are their own bosses, free to make whatever changes they please. They have minimal legal restrictions and do not have to pay the special taxes placed on corporations. Sole proprietors also have opportunity to achieve success and recognition through their individual efforts.

There are also disadvantages. A very serious one is the unlimited liability that each proprietor faces. All debts and all problems associated with the business belong to the owner. A second disadvantage of the sole proprietorship is that it has limited capital. The money that a proprietor can raise is limited by the amount of his or her savings and ability to borrow. Also, when the owner dies, the business dies. Other disadvantages may include lack of opportunities for employees, limitations of size and lack of management resources.

A partnership is a business organization that is owned by two or more persons. Partnerships offer certain advantages over sole proprietorships:

Partners bring additional funds to a proprietorship.

Partners can bring fresh ideas and talents to business organizations.

Like the sole proprietorship, partnerships are relatively easy to form and are not subject to special taxation. Partnerships have the following disadvantages:

In many cases, each of the partners is subject to unlimited liability. Partners are individually responsible for all the debts of the business. In other words, if the business were to fail, its creditors would have the right to recover their money from any, or all, of the partners.

A corporation is a business organization created under a government charter. Ownership of a corporation is represented by shares of stock, and for that reason corporate owners are known as stockholders. One feature of the corporation is that the courts treat it as a legal person. It can, for example, sue or be sued and enter into contracts, and it must pay taxes.

There are some other types of business organizations. They are: the corporation for small business, not-for-profit corporation, government-owned corporations, cooperatives and franchises (pp.49-61).

 

V. Answer the following questions:

What makes people think about owning a business of their own?

How do many business leaders begin their careers as entrepreneurs?

What helps potential entrepreneurs to start and operate a business?

What problems do small businesses face?

Who does the tasks of organizing and operating in a large business?

What kinds of business organizations you know?

What are the advantages and disadvantages of sole proprietorship, partnership and corporation?

What other special types of business organizations do you know?

 

VI. Define the terms:

sole proprietorships partnerships

corporations creditors

stockholders dividends taxes

 

VII. Translate into English:

1. ϳ , , . 2. , , . 3. 50 () , . 4. , ' , . 5.  -. 6. , . 7. , .

 

VIII. Read and dramatize the following dialogue:

Nick: Hello, Peter. It's so nice to see you. How are you geting on?

Pete: Quite all right, thank you. And what about you? Haven't seen you

for a long time. What have you been busy with?

N.: I've been pretty busy. In fact I want to talk to you about my

business.

P.: Oh, I'll be glad to do something for you.

N.: I'm glad you are not in a hurry and we have time to talk today.

P.: Sure.

N.: Well, Pete. I need some legal advice. John and I are thinking of

incorporating. We are going to expand.

P.; Really? It sounds interesting. It means that your partnership has

been doing very well.

N.; Oh, yes, we have a success. Now some businessmen are interested

in investing with us.

P.; Let me get this straight. You want to issue and sell stock in

exchange for investment capital, don't you?

N.; Exactly. By the way, does a corporation have limited liability?

P.; It does. Unlike the owners of sole proprietorships and partnerships

who can be held personally liable for the debts of their firms the

most that corporate shareholders can lose (i.e. their liability) is

limited to whatever they paid for their shares of stock. Corporations

are so important because of the advantages they offer over sole

proprietorships and partnerships.

N.: Tell me a litte about these advantages.

P.: Well. Stockholders can enter or leave a corporation at will simply

by buying or selling shares of stock in that corporation. When the

corporate stockholders die, their shares of stock are passed on to

their heirs. Meanwhile, the corporation is free to conduct business as

usual. In certain instances individuals can reduce their tax liability

by incorporating.

N.: With all these advantages I wonder why there are so many more

unincorporated business than incorporated ones?

P.: The answer has to do with the disadvantages of the corporation.

N.: Disadvantages? What can you fell me about them?

P.: It's difficult and expensive to organize a corporation. The process of

obtaining a charter usually requires the services of a lawyer. Most

small firms prefer to avoid these by forming proprietorships and

partnerships. Corporations are subject to special taxes. The federal

government, along with many state and local governments, taxes

corporate income in addition to the taxes paid by shareholders on

their dividends.

N,: What does dividends mean?

P.; Dividends are the portion of a corporation's profit that are

distributed to the stockholders.

N.; Thank you. What other things should know?

P.; Well. Corporations whose stock shares are sold to the public give up

their right to privacy. The law requires that

 

these large, open (or public) corporations disclose information about their finances and operations to anyone interested in reading about them. The purpose of this legislation is to give people information that helps investors and may also be of value to the competition. For that reason some corporations have chosen to remain closed (or private) corporations rather than disclose information they would prefer to keep secret. Now you seem to know a lot about business.

N.: Not everything yet, and the subject becomes quite technical.

P.: I'm glad to hear it. It's time to go now. See you later!

N.: Thank you very much for the information. Bye!

 

IX. Make up your own dialogue using the following expressions:

to distribute profits and losses to make a right choice

to attract customers to go into business

an ammount of money to get along with

to run a risk to be liable

 

X. Inform the group about the future activites or states:

Model: I have the right to expect uniform product quality.

I shall have the right to expect uniform product quality.

1. Many colleges offer programs that teach students how to start and operate a business. 2. I know a lot about this business. 3. This program helps potential entrepreneurs decide whether their own ideas are good and how to follow through with them. 4. About 50 percent of entrepreneurs start their own business in industries in which they have some experience. 5. Evidence shows that people who come from families whose members were in business themselves are more likely to start their companies. 6. Many business leaders begin their careers as entrepreneurs after four years of undergraduate college training (and even additional graduate school training).

 

XI. Ask for confirmations of the truth of the following statements:

Model: You will call on us tomorrow.

You will call on us tomorrow, won't you? The manager will

not answer my questions on Saturday. The manager won't

answer my questions, will he?

1. A consumer will have the right to expect uniform product quality. 2. Voting won't take place at a corporation's annual meeting. 3. Small businesses will face many problems.

4. Large and small businesses will organize in different ways to meet their objectives. 5. Sole proprietors won't have to pay the special taxes placed on corporations. 6. I shan't know a lot about this business.

 

XII. Translate into English:

1. , , . 2. , , . 3. , , ' . 4. , .

5. .

 

II. Communicative situations:

1. Would you like to own your business? Why yes or why not? If so, would you prefer to buy an existing business or start from scratch? Explain.

What product or service would you provide?

What talents, interests, skills and abilities do you have, or likely will have, which would make you successful in this business?

Where would you want to locate the business and for what reasons?

What type of business organization would you prefer? (sole proprietorship, partnership, corporation)? Explain your choice.

2. Do you have the personal characteristics that might help you become a successful entrepreneur? Read each question on the Rating Scale. Place a check mark on the line above at the point where you believe successful entrepreneurs would rate themselves. Repeat the exercise for yourself by placing an X closest to the answer that best describes you. The check mark need not be placed directly over one of the suggested answers if your rating lies somewhere between two answers. Be honest with yourself.

Are you a self-starter?

a) I do things my own way. Nobody needs to tell me to get going.

If someone gets me started, I keep going all right.

Easy does it. ! don't put myself out until 1 have to. How do you fee! about other people?

I like people, can get along with just about anybody.

I have enough friends and I don't need anybody else.

Most people bug me.

Can you take responsibility?

I like to take charge and see things through.

I'll fake over if have to, but I'd rather let someone else be responsible.

There's always some eager beaver around waiting to show off. say, let him.

How good an organizer are you?

I like to have a plan before I start. I'm usually the one who lines things up.

I do all right unless things get too complicated. Then I lose interest.

c) ! just take things as they come. How good a worker are you?

I can keep going as long-as necessary. ! don't mind working hard.

I'll work hard for a time, but when I've had enough, that's it.

c} I can't see that hard work gets you anywhere. Can you make decisions?

! can make up my mind in a hurry if necessary, and my decision is usually O.K.

I can if 1 have plenty of time. If I have to make up my mind fast, I usually regret it.

I don't like to be the one decides things. I'd probably blow it.

Can you stick with it?

If I make up my mind to do something, 1 don't let anything stop me.

I usually finish what I start.

If a job doesn't go right, I turn off. Why beat my brains out?

Can you keep records?

Since they are needed I'll keep records even though I don't want to.

I can, but it's more important to get the work out than to shuffie numbers.

I would rather hire someone to keep records for me.

 

Lesson 6

FINANCING A BUSINESS

I. Read and memorize the following words, word-combinations and word-groups:

internal funds

external funds

e.g. Since the funds come from within the firm they are described as internal funds. The rest must come from outside, or external funds.

to meet one's expenses

e.g. As a firm sells its products or services, it receives money which it uses to meet its expenses.

depreciation ,

to wear out ,

e.g. Depreciation represents the cost of replacing assets that wear out.

to cover the cost of smith -

e.g. Businesses use internal funds to cover the cost of depreciation.

short-term loans

e.g. Shorf-term loans are used to finance the everyday costs of doing business.

long-term loans

e.g. Long-term loans mature (come due) in more than a year.

the principal

e.g. Creditors expect to receive interest and the return of the principal at the end of a specific period of time.

common stock

preferred stock

e.g. All corporations issue common stock; some, however, a!so issue preferred stock.

to have voting rights

e.g. Preferred stockholders do not have voting rights.

security exchange

e.g. Security exchange is a market where brokers meet to buy and sell stocks and bonds for their customers.

default ,

e.g. There is some risk of default on the bonds of even the strongest corporations.

mutual funds

e.g. Mutual funds are corporations that sell stock and use the proceeds to invest or speculate in the securities markets.

balance sheet

income statement

e.g. Two of the most important pieces of information contained in every prospectus and annual report are the balance sheet and the income statement.

assets ()

liabilities (), ,

e.g. For every business the things that it owns are assets, and those it owes are liabilities.

net worth ',

e.g. The difference between assets and liabilities is its net worth.

 

II. Give English equivalents of the following:

-

()

()

 

III. Fill in the blanks with appropriate words:

... is the difference between assets investors

and liabilities. capital

Similarly, firms need ... to begin ope- money

ration, to meet their day-to-day expen- net worth

ses and to expand. customers

... charge purchases to their accounts bonds

for payment at a later date. a security

... is money that will be used for a year exchange

or more. long-term

Many large corporations raise long-term financing

capital through the sale of their ....

Corporations sell stocks and bonds as a

way of raising ....

... is a market where brokers meet to buy

and sell stocks and bonds for their

customers.

Those who buy stocks to share in the

profits and growth of a corporation over

a long period of time are described as ...

 

IV. Read and translate the text:

Most of the money used by business comes from the sale of its products and services. Since these funds come from within the firm they are described as internal funds. The rest must come from outside, or external funds.

As a firm sells its products or services, it receives money, which it uses to meet its expenses. One of these expenses, depreciation, represents the cost of replacing assets (like tools, machinery, and buildings) that wear out. Typically, businesses use internal funds to cover the cost of depreciation.

Business loans are generally classified as either short-term or long-term loans. For short-term loans, the principal (the amount borrowed) must be repaid within one year. Long-term loans mature (come due) in more than a year.

Short-term loans are used to finance the everyday costs of doing business, such as payrolls, raw materials and merchandise. Long-term loans are more likely to be used to purchase equipment, buildings and other high cost items.

All corporations issue common stock; some, however, also issue preferred stock. Unlike common stockholders, preferred stockholders usually do not have voting rights.

A security exchange is a market where brokers meet to buy and sell stocks and bonds for their customers.

The largest of the securities exchanges are the New York Stock Exchange and the American Stock Exchange.

There is some risk of default (failure to pay interest or principal) on the bonds of even the strongest corporations. For this reason many people invest in mutual funds. Mutual funds are corporations that sell stock and use the proceeds to invest or speculate in the security markets.

Two of the most important pieces of information contained in every prospectus and annual report are the balance sheet and the income statement. The balance sheet summarizes a corporation's assets, what it owns; its liabilities, what it owes; and its net worth, the difference between the two sums at a given time. The income statement summarizes a firm's revenues, costs, and the difference between the two (the profit or loss) over a period of time (pp. 6170).

 

V. Answer the following questions:

Where does most of the money used by business come from?

What do we call Internal funds?

What does depreciation represent?

What remains after paying expenses?

How do you understand the term external funds?

What can the firm do to get more money?

What rights have common stockholders?

What is the difference between common and preferred stockholders?

What is the reason for investing in mutual funds?

10. How do you read a balance sheet and income statement?

 

VI. Define the terms:

internal funds preferred stock

common stock depreciation

balance sheet mutual funds

the principal to have voting rights

 

VII. Translate into English:

1. , , . 2. , . 3. . 4. (), , , . 5. , .

, 볺.

- ? 8. , . 9. , . 10. , .

 

VIII. Read and dramatize the following dialogue:

T.. Do you know anything about John Say and his works?

S.: As far as I remember, an admirer of Adam Smith, John Baptiste Say's Treatise on Political Economy (1803) helped to introduce The Wealth of Nations to his native France, in the course of explaining Smith's theories and the role of markets in satisfying human wants, his statement came to be known as Say's Law. T.;So, according to Say's Law, production creates its own demand, in other words, people produce and sell goods and services in order to buy the things they want. S.: No doubt. And

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