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IX. Make up your own dialogue using the following

expressions:

to transact property rights

commodities to suggest

indirect trade to settle down

middleman beneficial

restrictions to fix the price

 

X. Combine the given two sentences into one using the Present Perfect Continuous Tense:

Model: Partners began to make the transaction on buying

this equipment 20 minutes ago. They are still making

it.

Partners have been making the transaction for 20

minutes.

1. They began to obtain gains from the realization of these goods a month ago. They are still obtaining them. 2. They began to raise taxes on some commodities two weeks ago. They are still raising them. 3. Intermediaries began to lower transaction costs a few hours ago. They are still lowering them. 4. This company began to make restrictions on buying some goods a year ago. It is still making them. 5. They began to develop indirect trade some years ago. They are still developing it.

 

 

XI. Complete the following sentences as in the model:

Model: They have been making the transaction ... .

They have been making the transaction for an hour {since the manager come,

since 8 o'clock, etc.).

1. They have been transporting commodities ... . 2. This

company has been realizing its goods through middlemen ... .

Ukrainian economy has been developing property rights ....

This firm has been lowering the costs of transaction ... .

Both partners have been making important arrangements ....

 

XII. Translate into English:

1. . 2. . 3. , 1992 . 4. . 5. ³ .

 

XIII. Communicative situations:

1. Computer software frequently comes packaged with an agreement attached to the outside that reads something like the following:

The purchaser agrees, upon opening this package, not to copy or distribute the enclosed materials to anyone else.

Why is this kind of message attached to software boxes but not to boxes of cereal?

How effective do you suppose this agreement is? What kinds of arrangement would make it more effective? 2. Middlemen or intermediaries are frequently the burnt of charges that they do nothing except contribute to high prices.

Are prices higher or lower because of middlemen? If prices were higher because of middlemen would it still make sense to trade through them rather than engaging in direct trade?

 

Lesson 19

MEASURING ECONOMIC ACTIVITY

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

measures of economic activity

e.g. Understanding how an economy works and carefully examining different perspectives on the economy frequently require quantitative measures of economic activity.

to lower ()

e.g. The stocks lowered in value.

unit of account

e.g. Money is frequently used as a unit of account.

to quote a price in terms of smth.

e.g. When prices are quoted in terms of the domestic unit of account it is easy to determine how many units of one good trade for another.

implicit ,

exchange ratio

e.g. This implicit exchange ratio of goods for goods is the relative price.

relative price

e.g. Relative prices play an important role in the decisions that individuals make.

purchase

e.g. 1 have some purchases to make.

microeconomics

e.g. The study of what determines relative prices and what happens when relative prices change is called microeconimics.

aggregate price level

e.g. It is often useful to have a measure of the general or aggregate price level in addition to measures of specific relative prices.

price index

e.g. The price level is measured using a price index.

market prices

e.g. A price index is usually created by pricing a basket of goods at market prices in a base year.

to normalize expenditures

e.g. The expenditures at each subsequent date are also normalized, using the base period expenditures.

current prices

e.g. The same basket of goods is priced at current market prices at subsequent dates.

aggregate output

e.g. Aggregate output is the way to measure the dollar value or the total production of goods and services in an economy.

to evaluate

e.g. These goods were evaluated at current market prices.

to deflate

e.g. A price index can be used to create a measure of real aggregate output, real GNP, by deflating nominal GNP.

 

II. Give English equivalents of the following:


()

 

III. Fill in the blanks with appropriate words:

Money often becomes a convenient are quoted in terms
way of ... microeconomics

When prices ... of the domestic unit measuring economic
of account it is easy to determine activity

how many units of one good trade the relative price for another.

The implicit exchange ratio of goods aggregate price le-
for goods is ... . vel

The study of what determines relative aggregate output
prices and what happens when rela- a price index
tive prices change is called .... the Gross National

It is often useful to have a measure of Product
the general or ... in addition to mea sures of specific relative prices.

... is usually created by pricing a basket of goods at market prices in
a base year.

... or national income are ways to measure the dollar value or the total
production of goods and services in an economy.

A common measure of aggregate output, domestic product, or natio
nal income is ..., which is the dollar value of output in an economy over
a one-year period evaluated at current dollar prices.

 

IV. Read and translate the text:

Understanding how an economy works and carefully examining different perspectives on the economy frequently require quantitative measures of economic activity.

Money is important to an economy because it lowers transaction costs, thereby increasing the gains to individuals from exchange and specialization. Once money has developed in an economy, however, it serves other very useful roles. One of the most important of these roles is that money often becomes a convenient way of measuring economic activity. That is, money is frequently used as a unit of account.

When prices are quoted in terms of the domestic unit of account it is easy to determine how many units of one good trade for another. This implicit exchange ratio of goods for goods is the relative price.

The study of what determines relative prices and what happens when relative prices change is called microeconomics (or, sometimes, price theory). While relative prices are of great importance, in an economy that produces tens of thousands of goods, it is useful to have some idea of what is happening to the prices of all goods taken together, particularly when comparing changes in prices through time. That is, it is often useful to have a measure of the general or aggregate price level in addition to measures of specific relative prices.

The price level is measured using a price index. A price index is usually created by pricing a basket of goods at market prices in a base year and normalizing the expenditures on those goods to 100. The same basket of goods is priced at current market prices at subsequent dates. The difference in the expenditures on the basket from those made in the base year indicates the changes that have occurred in the price level. The expenditures at each subsequent date are also normalized, using the base period expenditures so that the price index begins at 100 and then moves upward or downward depending upon whether there is inflation or deflation.

Aggregate output, domestic product, or national income are ways to measure the dollar value of the total production of goods and services in an economy. A common measure of aggregate output, domestic product, or national income is the Gross National Product (GNP), which is the dollar value of output in an economy over a one-year period evaluated at current dollar prices. A price index can be used to create a measure of real aggregate output, real GNP, by deflating nominal GNP. If an economy imports goods and services, the individuals within the economy have more goods and services to consume than those produced within the economy, while if an economy exports goods and services, the individuals within the economy have fewer goods and services to consume. Therefore, whether more or fewer goods and services are available than those produced within the economy will depend upon whether exports exceed imports or imports exceed exports (pp. 89103)*.

 

V. Answer the following questions:

Why can money be used to measure economic activity?

What is the relative price?

What do relative prices measure?

What is called microeconomics?

Why is it useful to have a measure of the aggregate price level?

What is price index usually created by? What is the Gross
National Product? What can a price index be used for?

 

VI. Define the terms:

commodity aggregate output

microeconomics relative prices

price index imports

market prices exports

 

 

VII. Translate into English:

1. ֳ, , , . 2. , . 3. ' . 4. ? 5. . 6. . 7. . 8. ³ .

 

VIII. Read and dramatize the following dialogue:

A.: You know that the radical reform of our national economy may be realized on the basis of a new price formation system, setting up a single market.

S.; Yes, I know it perfectly. What's beyond me is why we should try to invent the bicycle when it was already done ages ago. Why can't we study the experience of the common market thoroughly and apply it to our reality with corresponding alterations. Surely it may be much easier and help avoid possible mistakes and miscalculations.

A.: I agree with you. They have a wide experience in this field. And it took them over 40 years at that. Since the EEC was created in 1957 they have had several stages in developing their collective currency unit.

B.: One thing's absolutely clear. We can't do it in a day. It may take quite a long time.

A.: Again I agree with you there.

6.: And we must have a really common currency unit for our trading community instead of the existing currency.

A.: Naturally our existing currency should be covered by the amount of goods produced, i. e. we should check, fight down so to say, the inflationary process first of all.

6..' How serious is it in our country?

A.: Some say 2%, others up to 6%. No one knows exactly.

B.: There're many terms in our economic literature concerning currency. Let's see which is which. First, what is hard currency and soft currency?

A.: Hard currency is defined as one that is reliable and stable, which is why it is readily accepted by foreign countries in payment for goods or of debt. Soft currency is defined as one that is not convertible to gold or into certain other currencies which are more in demand as it is likely to fall in value usually because of an adverse trade balance.

.: What foreign exchange belongs to hard currency?

A.; Currencies of almost all advanced industrialized countries and even of some developing or as they are now called newly-industrialized countries like Singapore or South Korea. I can't enumerate them all, but one thing's quite clear, that the US dollar, the Japanese yen and the Deutsche mark are most popular and more or less reliable at that.

B.; I'm not an expert in financial matters, but I think that the real exchange rate is necessary not only in respect of hard currencies but in respect of clearing currencies as well.

A.: What does a real exchange rate imply?

B.: Perhaps I won't be able to answer your question properly but I know that monetary exchange is impossible without the real exchange rate; and there must be several stages; but first is the convertibility of our currency inside this country.

A.: What does that mean?

6.: That means that our enterprises must have a chance to buy foreign currency for our currency to pay for their machinery imports to modernize their factories.

A.; How can that be achieved?

B.: A domestic monetary market should be created or a currency exchange should be allowed.

A.: That's a good prospect but it seems far away to me.

B.: I don't think it'll take much time.

 

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

measures of economic activity price index

to consume relative prices

market prices to export

to be measured expenditures

opportunity costs to normalize

unit of account to exceed

useful prices

to import current

 

X. Complete the following sentences as in the model using the Past Perfect Continuous Tense:

Model: He had been studying microeconomics for 2 years ... . He had been studying

microeconomics for 2 years before he passed the exam (by that time, etc.).

1. They had been quoting prices on these goods for an hour ... . 2. This company had been lowering stocks in value for 2 hours ... . 3. They had been discussing current prices for 20 minutes ... . 4. We had been talking about the aggregate output for half on hour ... . 5. They had been establishing price index for an hour ....

 

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

Model: They had been discussing market prices for half an hour before he came.

How long had they been discussing market prices?

1. He had been calculating expenditures for 20 minutes before the manager came. 2. We had been discussing current prices on this equipment for an hour by that time. 3. They had been talking about the contract on different commodities for 15 minutes before the chief came. 4. I had been making purchases for half an hour before he came. 5. They had been talking about different measures of economic activity for 15 minutes before I came back.

 

XII. Translate into English:

1. 20 , . 2. . 3. ³ , . 4. . 5. ³ , .

 

XIII. Communicative situation:

If the price index increases from $50 to 180 in a single year, are the individuals living within the economy worse off or better off?

 

Lesson 20

EXCHANGE AND SPECIALIZATION

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

gain , ,

e.g. An economy exists because there are gains from exchange and specialization.

exchange

e.g. We would like to continue this trend of an educational exchange among teachers of our 2 countries.

specialization

e.g. Generally specialization leads to an increase in the production of goods and services.

to value

e.g. He valued the house for me at 20,000 pounds.

well-being

e.g. Exchange and specialization between individuals increase the well-being of individuals within an economy.

to interact

e.g. Individuals sometimes interact in cooperative ways with other individuals.

explicit ,

e.g. He was quite explicit about the matter.

to facilitate , ,

e.g. Modern inventions have facilitated housework.

measurable

e.g. We came within measurable distance of success.

subjective '

e.g. Gains from exchange are not merely subjective.

to provide an incentive ,

e.g. It provides an incentive for individuals to facilitate the exchanges among other individuals.

preference ;

e.g. I should choose this in preference to any other.

to enhance , ,

e.g. That someone's well-being is enhanced by exchange does not imply that another person's well-being is undermined.

to induce ,

e.g. What induced you to do such a thing.

to take advantage of smth.

e.g. We shall take advantage of the situation.

comparative advantage e.g. An individual will be relatively better or have a comparative advantage. share ,

e.g. We shall all have a share in the profits.

benefit / e.g. The new railway will benefit the district.

to imply , ; e.g. Silence sometimes implies consent.

 

II. Give English equivalents of the following:

-


 

III. Fill in the blanks with appropriate words:

Exchanges or trades of this sort interact in apparently coo-
increase ... perative ways

If individuals can freely ..., they to facilitate the exchanges
can specialize in particular pro- individual well-being
ducfion activities. implies dependence

Individuals sometimes ... with exchange resources and
other individuals even though goods

there is no explicit intention to take a dvantage of the
to cooperate. gains

It provides an incentive for indi- benefit all trading partners viduals ... among other indivi
duals.

It is impossible ... from speciali zation without being willing to exchange.

Trade between nations will also ... and will depend upon com parative advantage.

Specialization ... or\ others for the goods that one might have produced but for which one
trades.

 

IV. Read and translate the text:

An economy exists because there are gains from exchange and from specialization that link individuals together in extraordinarily important ways. There are two kinds of gains. First, if individuals are free to exchange goods and resources, they can give up those things they value relatively less in exchange for those things that they value relatively more. Exchanges or trades of this sort increase individual well-being. Second, if individuals can freely exchange resources and goods, they can specialize in particular production activities. Generally, specialization leads to an increase in the production of goods and services even if the resources that an economy has do not change. As a consequence, specialization will also increase individual well-being.

These two ideas, exchange and specialization, are the topics of this chapter. It is simply not possible to understand how possibly a market economy works without a clear understanding of why it is that individuals sometimes interact in apparently cooperative ways with other individuals even though there is no explicit intention to cooperate. But simply, exchange and specialization are the bases of economic activity for any society, although there may be a number of different ways that societies can choose to organize so as to facilitate exchange and specialization.

Individuals are better-off when they have opportunities to trade. While well-being is not always measurable, some of the gains from exchange can be measured; they are not merely subjective. This is important because it provides an incentive for individuals to facilitate the exchanges among other individuals. The more different individual tastes and preferences are, the greater will be the potential gains from exchange between

the individuals.

Just because someone's well-being is enhanced by exchange does not imply that another person's well-being is undermined.

Exchange induces individuals to specialize so as to minimize the costs of producing goods.

So long as individuals are different from one another, each will have a comparative advantage relative to some other person in at least one activity.

The gains from exchange and specializaton need not be equally divided among those who trade and specialize. Indeed, as relative prices change, the division of the gains will also change. Higher relative prices for the goods you are specialized in producing will increase your share of the gains, while lower relative prices for the same goods will decrease your share.

Specialization implies dependence on others for the goods that one might have produced but for which one trades. In this important sense, specialization and exchange link individuals together creating an economy (pp. 2437).

 

V.Answer the following questions:

What is exchange?

What is specialization?

Why do exchange and specialization increase individual
well-being?

Are exchange and specialization the bases of economic
activity for any society?

In what sense does exchange make an economy better-off?

What do gains from exchange and specialization depend on?

What does specialization imply?

 

VI. Define the terms:

market economy exchange

better-off specialization
explicit intention incentive

preference relative prices

 

VII. Translate into English:

1. , . 2. , . 3. , . 4. ³ , . 5. , . 6. , , . 7. ' , . 8. .

 

VIII. Read and dramatize the following dialogue:

A.: We've discussed already exchange and specialization and now let's proceed with relative prices and their role in exchange and specialization.

.: Surely. Prices are among the most visible characteristics of an economy. What is a relative price by the way?

A.: The relative price of a commodity is defined as the ratio at which one good exchanges for another good. That is, a relative price is the amount of one good an individual must give up if he chooses to consume one unit of another good.

6.; As far as I understood, the relative price of a good is the amount of some other good that must be given up to get an additional amount of the first good.

A.: Yes, sure. For example, if shirts are priced at twenty-four dollars and oranges at two dollars per pound, the relative price of a shirt is twelve pounds of oranges or, conversely, the relative price of a pound of oranges is one-twelfth of a shirt.

B.: Would the relative price be the same if a shirt, for example, costs twenty-four French francs and oranges sell for two francs per pound?

A.: Yes, it would be the same. Relative prices do not depend upon what an economy calls its money or even if it has money. Relative prices depend only upon the willingness of individuals to trade one good for another although money may facilitate these trades.

B.: Are relative prices closely related to opportunity costs?

A.: Indeed, once Crusoe finds that he is not alone on the island, his production costs may be determined by the availability of resources, effort and technology; but his opportunity costs of producing and consuming are determined by the relative price of coco-nuts and palm leaves.

6.: Oh, 1 remember this story, if I am not wrong, his opportunity costs are determined by the ratio at which palm leaves and coco-nuts exchange when he and Friday trade.

A.; You're quite right. Now I see you caught the main idea concerning relative prices.

B.: I'm very much obliged to you for your explanation.

A.: Not at all.

 

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

to trade incentive

relative prices well-being

exchange share

advantage gains

to interact to benefit
to enhance

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