Fundamental economic notions

Economics studies how various resources are best allocated to produce the highest standard of living and quality of life. The resources that go into creation of goods and services are called the factors of production. They include natural resources, human resourcesand capital. Each factor of production has a place in the economic system and each has a particular function.

Our country is rich in natural resources that include land, water, mineral resources and climate. The price paid for the use of land is called rent. Rent becomes income to the owner of the land.

Physical and mental effortsthat people put into creation of goods and services are called labourorhuman resources. The price paid for the use of labour is called wagesorsalary. Closely associated with labour is the concept of entrepreneurship, meaning the managerial or organizational skills used by firms to produce goods and services. The reward to entrepreneurs for the risks, innovative ideas and efforts that they have put into the business are profits. Profit is whatever remains after the owners of land, labour and capital received their payments.

Capital is something created by people to produce goods and services. A factory, tools and equipment are capital resources. The term capital is often used by business people to refer to money they can use to buy factories, machinery and other productive resources. Payment for the use of someone elses money or capital is called interest.

Human wants are unlimited while resources needed to satisfy these wants are scarce or limited. Thusevery society has to address the main economic problems: What goods and services to produce? How to produce them? Whom to produce them for? The way in which a society deals with these problems is known as its economic system.

Exercise 3. Answer the following questions:

1. What does economics study?

2. With what aim are resources best allocated?

3. What do we call factors of production?

4. What do we include into natural resources?

5. What is rent?

6. What do we call labour / human resources?

7. What is the meaning of the concept of entrepreneurship?

8. What are profits?

9. In what meaning do businessmen use the term capital?

10. What is interest ?

11. What economic problems does every society have to address?

Exercise 4. Translate into English.

; , ; ; ( ); ; ; ; ; .

Exercise 5. Translate into Ukrainian.

Quality of life; the owner of the land; efforts that people put into something; the concept of entrepreneurship; whatever remains; someone elses money; to deal with the problem.

Exercise 6. Match and learn the synonyms.

A: capital, concept, each, equipment, income, particular, wages;

B: profit, salary, machinery, notion, money, definite, every.

Exercise 7. Match and learn the opposites.

A:include, innovative, various, profit, physical;

B: loss, mental, exclude, particular, outdated.

Exercise 8. Choose the proper word in brackets to complete the sentences.

1. Managerial skills are (physical/mental) efforts that firms use to produce goods and services. 2. When we calculate (profits/losses) we have to (include/exclude) the payment for land, labour and capital resources. 3. Our firm is successful thanks to (innovative/outdated) ideas proposed by the management. 4. Each factor of production has its (various/particular) function in the economy.

Exercise 9. Compose all possible word combinations with the word resourcesand translate them. Combine phrases with similar meaning.

Resources capital, economic, energy, financial, human, labour, land,

limited, mineral, natural, productive, scarce, water.

Exercise 10. Complete the sentences with the proper words from the list below:

allocation, factor of production, the standard of living, income, new equipment, innovative ideas

1. Every has its particular function in the economy. 2. Entrepreneurship is closely associated with and risks. 3. We allocated big capital to buy for our factory. 4. Rational of resources is the basis of economic growth. 5. Governments do their best to increase of their citizens. 6. Being the owner of the land he receives his in the form of rent.

Exercise 11. On the basis of the text define the following terms:

Factors of production, natural resources, rent, labour/human resources, entrepreneurship, production resources, profit, capital, interest, wages/salary.


Grammar Points:* Comparative structures.

Present Indefinite Tense: Active and Passive Forms (p. 131-134).

Types of Questions (p.116-117).

* Sometimes you can use two comparatives together to say that something is changing continuously, e.g. harder and harder, more and more interesting.

Exercise 12. Use comparative structure in the following sentences.

1. Natural resources become (scarce). 2. In consumer society people buy (much). 3. Labour resources become (expensive). 4. Risks associated with new businesses become (high). 5. As I wait for my interview I get (nervous). 6.As we learn more, we become (skilful).

Exercise 13.Use the verb in brackets in the proper form.

1. He (to say) he (to earn) high profits. 2. They often (to buy) products that they (to need) in this supermarket. 3. She (to be) a successful entrepreneur. 4. We often (to receive) letters from our friend who (to live) in Glasgow. 5. Each factor of production (to have) a particular function. 6. She (not to use) computer very often. 7. Where you (to come from)? 8. He (not to understand) the concept of entrepreneurship. 9. What time you (to start) work ?

Exercise 14. Use these sentences to make questions. Begin with the word(s) in brackets.

1. She often visits the nearest supermarket (How often?) 2. Jane teaches economics (Where?) 3. People make mistakes (Why?) 4. She comes from Scotland (Where?) 5. He watches programmes on economy (When?) 6. He gets up in the morning (What time/usually?) 7. I write to my parents (How often?) 8. Entrepreneurs receive rewards for their efforts (Who?)

Exercise 15.Read the text and mark sentences with passive forms. In what cases is the doer of the action mentioned/omitted?

Exercise 16. Make passive transformations according to the model.

Model: Suppliers provide products. - Products are provided by suppliers.

1. The government allocates resources. 2. People create capital. 3. Prices motivate production. 4. The interaction of demand and supply determines prices. 5. Workers receive wages twice a month. 6. They sell product at low price. 7. Business people often use the term capital. 8. Every society addresses the main economic problems. 9. The owner of the land receives rent. 10. Economics studies demand, supply and interrelations between them.

Exercise 17. Choose the proper form of the verb in brackets.

1. We often (divide/are divided) markets into two groups: goods and services. 2. Goods and services that (buy/are bought) in the market (call/are called) products. 3. Capital (uses/is used) to buy productive resources. 4. Natural resources (include/are included) land, water, mineral resources and climate.

Exercise 18. Make up questions to the words underlined.

1. Change in price is represented graphically. 2. Markets are usually classified into two categories. 3. Entrepreneurs risks are not always rewarded.

Discussion of the text.

Speak about the main factors of production and their components.


Exercise 1. Read and learn the following words and word combinations:

to distinguish (between) ();

planned /command economy / ;

market economy ;

mixed economy ;

ownership ; private ownership ;

to involve , ;

central planning and direction


means of production ;

to vary , ;

enterprise ;

to manage ; management ;

to accept the risk ( ) ;

to succeed ; success ;

to fail ; failure ;

to make losses ;

innovation , ;

engine ;

long-term growth ;

to compete ; competitor ; competition

; competitive ;

to interact ;

taxation ;

to intervene ;

wide range of goods and services


Exercise 2. Read and translate the following text

Economic systems

An economic system is the way in which a society uses its available scarce resources (natural resources, labour resources and capital resources) to satisfy the demands of its citizens for goods and services. The more goods and services are produced from the countrys limited resources the higher the standard of living of its citizens. Economists distinguish between three main economic systems: planned, market and mixed.

Planned economy is sometimes called command economy because the state (government) commands the use of resources that go into the production of goods and services as it owns factories, land and natural resources. Planned economy involves central planning and direction, when the government takes all decisions concerning production and consumption. There is no state which is completely a command economy; the actual system variesfrom state to state.

Market economy is the system based on private enterprise with private ownership of the means of production and private supplies of capital. The government plays no role in the management of the economy. There exist no examples of pure market economy as it necessarily contains some businesses owned and run by the state. In a market economy it is the consumers who decide what is to be produced. A cornerstone of the market economy is quick response to changing demands. Private entrepreneurs accept the risks of introducing new products and new production processes. If they succeed, they hope to earn large profits, if they fail, they expect to make losses. Thus innovationis the engine of long-term growth of living standards. Since all businesses are privately owned they try to be highly competitive and make largest profits.

In practice most countries have what is called a mixed economic system a combination of free markets plus government allocation of resources. Mixed economy contains elements of both market and planned economies. In a mixed economy the government and the private sector interact in solving economic problems. The state controls the output through taxation and intervenes to supply essential goods and services such as health, education and defense, while private businesses provide consumers with a wide range of different products and services.

Exercise 3.Answer the following questions:

1. What is defined as an economic system?

2. What are the three main economic systems?

3. Why is planned economy sometimes called command?

4. What is the role of the government in command economies?

5. What is market economy based on?

6. How does the government act in a market economy?

7. Who decides what is to be produced in market economy?

8. What is a cornerstone of market economy?

9. What risks are involved in the introduction of innovations?

10. Who accepts these risks?

11. What is called a mixed economy?

12. How do the government and private businesses interact in a mixed economy?

13. Are there examples of pure command/market economies in real life?

Exercise 4. Translate into English.

; , ; , ; ; ; , ; .

Exercise 5.Translate into Ukrainian.

Resources that go into the production; the actual system varies; private supplies of capital; pure market economy; it necessarily contains; it is the consumers who decide; new production processes; the long-term growth; to be highly competitive; bothand; essential goods and services.

Exercise 6. Match and learn the synonyms.

A: actual, to vary, to run smth, to contain, to control, to hope, to intervene, response, different;

B: to operate, to manage, to expect, to interfere, to differ, real, various, answer, to include.

Exercise 7. Match and learn the opposites.

A:private, quick, long-term, different, wide, response, profit, succeed;

B: similar, short-term, narrow, fail, question, slow, state, loss.

Exercise 8. Complete the sentences using the words from ex.7 (the first letter is given).

1. Mixed economy is characterized by p and s forms of ownership. 2. He gave no r to my q 3. Everybody wants to s, not to f 4. The aim of any business is to make p 5. Risky business involves the possibility of p or l 6. Manufacturers supply a w range of d goods to the market. 7. Competitors are producers who provide s products. 8. In command economies the s develops l-t plans for industries.

Exercise 9.Complete the sentences with the proper words from the list below:

in response to, through the system of taxation, innovations, planned economy, owned, varies

1. In the government usually plans five years ahead. 2. The actual system of economy from state to state. 3. In mixed economies some resources are controlled by the government while others are used by private businesses consumers demands. 4. The government controls the output 5. In real life market economies always contain businesses by the state. 6. Introduction of can lead to unemployment.


Grammar points:* Emphatic structures. *Comparative structures.

Numeral (p.128-130)

The Past Indefinite Tense: Active and Passive Forms (p.135)

*The structure It is/was that/whocan be used to emphasize almost any part of the sentence (except for the predicate). Compare:

He proposed an alternative plan at the meeting yesterday.

1. It was he who proposed an alternative plan at the meeting yesterday.

2. It was an alternative plan that he proposed at the meeting yesterday.

3. It was at the meeting yesterday that he proposed an alternative plan.

4. It was yesterday at the meetingthat he proposed an alternative plan.

Exercise 10. Emphasize the subject in the following sentences.

1. The government and private businesses interact in a mixed economy. 2. Producers supplied different goods to the market. 3. Consumers made their choice concerning our products.

* The structure Thethe(with two comparatives) is used to say that one thing depends on the other.

Exercise 11.Combine the following sentences into one using the model: The more you have, the more you want.

The more you practice English the better the service.

The more skilful you are the higher the quality of life.

The more goods you produce the higher you reward is.

The better resources are allocated the faster youll learn it.

The more expensive the hotel the more profit youll make.

Exercise 12. Translate into English.

1. , . 2. , . 3. , . 4. , 쒿. 5. , .

Exercise 13.Read the following.

Numbers: ½; ⅔; 1 ¼; 0.739; 2.25; 3,247,068; 20%; 6+28=34; 25∙4=100; 33:11=3; 85 29 =56; 5ⁿ; dates: 07.01.1999; 20. 12.1765; 09.05.2005; time: 7.30; 12.50; 17.15; 12.00; 23.45.

Exercise 14. Translate into English.

; ; ; ; ; ; ; ; ; ; .

Exercise 15.Read a sentence about Anns daily routine and write a corresponding sentence in the past as is shown below:

Usually Ann gets up rather early. Yesterday Ann got up later than usual.

1. Ann usually gets to her work by bus.-Yesterday

2. Ann is never late for work. Yesterday

3. Ann works from 10 to 19. Yesterday

4. Ann has a break for lunch at 14. Yesterday

5. In the evening Ann usually meets her friends and goes out with them. -

Exercise 16. Insert one of the following verbs in the past form in each sentence:

be, buy, cost, make, sell, spend, teach

1. Ann a lot of money yesterday. She a dress which $50. 2. I badly needed some money so I my car. 3. He me how to drive when I 18. 4. Last year the company a big profit.

Exercise 17.Give two passive variants of the following sentences as in the model: This company sold us some new equipment. - 1. We were sold some new equipment by this company. 2. Some new equipment was sold to us by this company.

1. He told us an interesting episode from his life. 2. She gave them the most complete information. 3. He presented our plan to the management. 4. Businesses provided consumers with a wide range of goods and services. 5. We supplied our customers with high quality products.

Exercise 18.Choose the proper form of the verb to complete the sentence.

1. His decision (based/was based) on a carefully calculated plan. 2. We (expected/were expected) a letter from our friend. 3. Our business (managed/was managed) quite successfully. 4. All risks (accepted/were accepted) by our partners. 5. They (made/were made) their products highly competitive. 6. Their products (made/were made) of high quality components. 7. The company (owned/was owned) a few factories in this part of the country. 8. The company (owned/was owned) by a successful entrepreneur. 9. She (accepted/was accepted) the changes in our plan. 10. The process (controlled/was controlled) at each step.

Exercise 19. Add question-tags to the following statements:

1.They have partners in all European countries, ? 2. You are here for the first time, ? 3. He didnt earn much for this project, ? 4. Their tools were the best in the world market, ? 5. Private ownership is a cornerstone of a market economy,? 6. They were elected to the Parliament, ? 7. These products are not imported from Europe,?

Discussion of the text.

Characterize the three main types of economic system.

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