STAVROPOL STATE MEDICAL ACADEMY

Home History, Economy, Management

And Marketing Department

L.A. Limanskaya, L.E. Toporischeva, S.V. Znamenskaya

ECONOMICS FOR MEDICAL STU-

DENTSTextbook for students of General Medicine

And Dentistry in the English-speaking Medium

Stavropol 2006

Федеральное Агентство по здравоохранению и социальному развитиюСтавропольская государственная медицинская академия

Кафедра Отечественной истории, экономики, менеджмента и маркетинга

The Federal Agency in Health Protection and Social DevelopmentThe Stavropol State Medical Academy

Home History, Economy, Management and Marketing Department

Л.А. Лиманская, Л.Е. Топорищева, С.В. ЗнаменскаяL.A. Limanskaya, L.E. Toporischeva, S.V. Znamenskaya

ЭКОНОМИКА ДЛЯ СТУДЕНТОВ-МЕДИКОВУчебное пособие для студентов лечебного и

стоматологического факультетов англоязычного отделения

ECONOMICS FOR MEDICAL STUDENTSTextbook for students of General Medicine and Dentistry

In the English-speaking Medium

Ставрополь 2006

Stavropol 2006

2

УДК 330+61ББК 65:53/57Л 58

Экономика для студентов-медиков. Учебное пособие для студентов лечебного и стоматологического факультетов англоязычного отделения (на английском языке) Ставрополь: Изд-во СтГМА. – 2006. – 135 с.

Economics for Medical Students. Textbook for students of General Medicine and Dentistry in the English-speaking Medium. – Stavropol: StGMA. – 2006. –135 p.ISBN 5-89822-086-0

Учебное пособие включает в себя краткое содержание основных тем курса «Экономика» для студентов неэкономического вуза. Оно включает задания для экономического тренинга и материалы, учитывающие медицинский образовательный профиль.

The textbook includes a short content of the basic topics of the course «Econom-ics» for the students of noneconomic educational institutions. It consists of tasks for economy training and materials concerning medical students. The textbook is for stu-dents of General Medicine and Dentistry of the English-speaking Medium.

АВТОРЫ:Лиманская Любовь Алексеевна,

кандидат экономических наук, доцент, зав. кафедрой Отечественной истории, экономики, менеджмента и маркетинга Ставропольской государственной медицинской академии.

Топорищева Лариса Егоровна,доцент кафедры иностранных языков института им. В.Д.Чурсина.

Знаменская Стояна Васильевна,кандидат педагогических наук, доцент кафедры иностранных языков с курсом латинского языка Ставропольской государственной медицинской академии.

РЕЦЕНЗЕНТЫ:Кусакина Ольга Николаевна,

доктор экономических наук, профессор, зав. кафедрой экономической теории и прикладной экономики Ставропольского государственного аграрного университета.

Шибкова Оксана Сергеевна, кандидат психологических наук, доцент, зав. кафедрой иностранных языков естественнонаучных и экономических специальностей Ставропольского государственного университета.

УДК 330+61ББК 65:53/57Л 58

Рекомендовано к изданию Цикловой методической комиссией Ставропольской государственной медицинской академии по англоязычному обучению иностранных студентов.

3

ISBN 5-89822-086-0 © Ставропольская государственная медицинская академия, 2006

UNIT 1

SOCIETY AND ECONOMY. THE SUBJECT AND METHODS

OF ECONOMICS

Text 1. Economics

Economics is a social science studying economy. Like the natural sciences and

other social sciences, economics attempts to find laws or principles.

Economics tries to find laws or principles by building models. The predictions of

the models form the basis of economic theories. Then the predictions of the models

are compared with the facts of the real world.

Economics as a science consists of two disciplines that are of microeconomics

and macroeconomics.

Microeconomics is the branch of economics that studies individual producers,

consumers, or markets. Microeconomics also studies how government activities such

as regulations and taxes affect individual markets. Besides microeconomics, tries to

understand what factors affect the prices, wages and earnings.

Macroeconomics is the branch of economics that studies the economy as a

whole. It tries to understand the picture as whole rather than small parts of it. In par-

ticular, it studies the overall values of output, of unemployment and of inflation.

Tasks for Students

1. Read the text and write its annotation.

2. Say what microeconomics means.

3. Say about macroeconomics.

4. Re-tell the text.

4

Text 2. What is Economics?

Similarly, a notable economist of the last century Alfred Marshall called eco-

nomics «a study of mankind in the ordinary business of life». Another notable Lionel

Robbins, in the 1930s, described economics as «the science of choice among scarce

means to accomplish unlimited ends». (This «definition» has considerable currency

still, though no one seems to know just what choices, if any, it might exclude from

consideration!)

During much of modern history, especially in the nineteenth century, economics

was called simply «the science of wealth». Less seriously, George Bernard Shaw was

credited in the early 1900s with the witticism that «economics is the science whose

practitioners, even if all were laid end to end, would not reach agreement».

We may make better progress by comparing economics with other subjects. Like

every other discipline that attempts to explain observed facts (e.g., physics, astron-

omy, meteorology), economics comprises a vast collection of descriptive material or-

ganized around a central core of theoretical principles. The manner in which theoreti-

cal principles are formulated and used in applications varies greatly from one science

to another. Like psychology, economics draws much of its theoretical core from intu-

ition, casual observation, and «common knowledge about human nature. Like astron-

omy, economics is largely nonexperimental. Like meteorology (also largely nonex-

perimental), economics is relatively inexact, as is weather forecasting. Like particle

physics and molecular biology, economics deals with an extraordinary array of

closely interrelated phenomena (as do sociology and social psychology). Like such

disciplines as art, fantasy writing, mathematics, metaphysics, cosmology, and the

like, economics attracts different people for different reasons: «One person's meat is

another person's poison». Though all disciplines differ, all are remarkably similar in

one respect: all are meant to convey an interesting, persuasive (possibly entertaining),

and intellectually satisfying story about selected aspects of experience. As Einstein

5

once put it: «Science [one might add art] is the attempt to make the chaotic diversity

of our sense-experience correspond to a logically uniform system of thought».

The scope of economics is indicated by the facts with which it deals. These con-

sist mainly of data on output, income, employment, expenditure, interest rates, prices

and related magnitudes associated with individual activities of production, consump-

tion, transportation, and trade. Economics deals directly with only a tiny fraction of

the whole spectrum of human behavior, and so the range of problems considered by

economists is relatively narrow. Contrary to popular opinion, economics does not

normally include such things as personal finance, ways to start a small business, etc.;

in relation to everyday life, the economist is more like an astronomer than a weather

forecaster, more like a physical chemist than a pharmacist, more like a professor of

hydrodynamics than a plumber is.

In principle, of course, almost any conceivable problem, from marriage, suicide,

capital punishment, and religious observance to tooth brushing, drug abuse, extramar-

ital affairs, and mall shopping, might serve (and, in the case of each of these exam-

ples has served) as an object for some economist's attention. There is, after all, no

clear division between "economic" and "noneconomic" phenomena. In practice, how-

ever, economists have generally found it expedient to leave the physical and life sci-

ences to those groups that first claimed them, though not always. In recent years,

economists have invaded territory once claimed exclusively by political scientists and

sociologists, not to mention territories claimed by physical anthropologists, experi-

mental psychologists, and paleontologists.

Economics as a Social Science

Normative and positive statements

It may be useful to begin this section on the scientific approach by distinguishing

between positive and normative statements. An understanding of the difference be-

tween these two types of statement will help us to appreciate the scope and limita-

tions of economics.

6

Positive statements are those, which deal only with facts. 'Britain is an island',

'British Coal employs x thousand workers', 'Jane Smith obtained a grade A in

Economies', are all positive statements. If a disagreement arises, over a positive state-

ment it can be settled by looking to the facts and seeing whether they support the

statement. Positive statements must be either true or false, where the word "true" is

taken to mean "consistent with the facts".

Normative statements usually include or imply the words "ought" or "should".

They reflect people’s moral attitudes and are expressions of what some individual or

groupthinks ought to be dome. "Britain should leave the Common Market", "We

ought to give more aid to underdeveloped countries", "Income should be distributed

more equally", are all normative statements. These statements are based on value

judgments and express views of what is "good" or "bad", "right" and "wrong". Unlike

positive statements, normative statements cannot be verified by looking at the facts.

Disagreements about such statements are usually settled by voting on them.

Scientific Method

Scientific enquiry, as the term is generally understood, is confined to positive

questions. It deals with those questions, which can be verified or falsified by actual

observations of the real world (i.e. by checking the facts).

One major objective of science is to develop theories. These are general state-

ments or unifying principles, which describe and explain the relationships between

things we observe in the world around us. Theories are developed in an attempt to an-

swer the question "Why? " Tides rise and fall at regular intervals of time, a city is af-

flicted by smog at certain times of the year, the price of strawberries falls sharply dur-

ing the summer months. When some definite regular pattern is observed in the rela-

tionships between two or more things, and someone asks why this should be so, the

search for a theory has begun.

7

In trying to produce an explanation of observed phenomena, scientific enquiry

makes use of procedures, which are common to all sciences. These procedures are

called scientific method.

1. The first step is to define the concepts to be used in such a way that they

can be measured. This is necessary if we are to test the theory against facts. If the task

is to discover a relationship between "income" and "consumption", these terms must

be defined in a clearly understood manner.

2. The next step is to formulate a hypothesis. This is a tentative untested

statement, which attempts to explain how one thing is related to another. For exam-

ple, an economist asked to say why prices vary over time, might offer the hypothesis

that changes in prices are caused by changes in the quantity of money. Hypotheses

will be based on observation and upon certain assumptions about the way the world

behaves. These assumptions may themselves be based upon existing theories, which

have proved to have a high degree of reliability. In economics, for example, many

theories are based upon the assumption that people will behave in such a manner as to

maximize their material welfare. Using observed facts and making use of certain as-

sumptions, a process of logical reasoning leads to the formulation of a hypothesis.

This must be framed in a manner, which enables scientists to test its validity.

3. It is now necessary to think out what would happen if the hypothesis is

correct. In other words, the hypothesis is used to make predictions (or the hypothesis

itself may be framed as a prediction). If the hypothesis is correct, then if certain

things are done, certain other things will happen. If the general level of prices is

causally related to the supply of money, we might deduce that an expansion of bank

deposits would be followed by an increase in prices.

4. The hypothesis must now be tested – are the predictions of the hypothe-

sis supported by the facts? In the natural sciences, the testing of hypotheses can be

carried out by controlled experiments in the laboratory, but this, as explained later, is

not possible for the social scientist. If the factual evidence supports the hypothesis,

we have a successful theory, which may be formulated in the form of a scientific

'law'. It must be noted, however, that, since the number of tests which can be carried

8

out is limited, and we can never say that a theory is true for all times and in all places.

A successful theory is one, which up to now has not been proved false. If, at some fu-

ture time facts emerge which confound the theory and its predictions become unreli-

able, it will be discarded and a search for a better theory will begin. A successful the-

ory is extremely useful because it helps us to predict with a high degree of probability

the outcome of certain events.

Is Economics a Science?

Economic analysis is based upon the procedures described above, and, to the ex-

tent that the economist makes use of scientific method, economics may be described

as a science. The subject matter of economics, however, is human behavior and this is

much more difficult to predict than the reactions of inanimate matter. Economists,

like other social scientists, cannot achieve the precision of the natural scientists and

they are denied the use of many of their techniques. Many people argue that these dif-

ferences are so fundamental that economics cannot be regarded as a 'true' science.

Others would say that the differences are not fundamental but merely differences in

the degree of accuracy attainable.

The most obvious limitation experienced by the social scientist is that he cannot

test his hypotheses by laboratory experiment. His laboratory is human society; he

cannot put a group of human beings into a controlled situation and then see what hap-

pens. The predictions of economic theory must be tested against developments in the

real world. Economic activities must be observed and recorded and the mass of re-

sulting data subjected to statistical analysis. Modern statistical techniques help the

economist determine the probability that certain events had certain causes. He can as-

sess from recorded data, for example, the probability that some given increase in con-

sumption was caused by an increase in income.

The fact that "all people are different" is not such a handicap to the social scien-

tist as might appear at first sight. The economist is interested in group behavior. He is

concerned with the total demand for butter rather than the amount purchased by any

9

one individual. While the behavior of any one person may be unpredictable, this is

not necessarily true of the large group. When Arsenal score goals at High bury we

can predict with a high degree of certainty that there will be a roar from the crowd,

although we cannot forecast how, this or that individual will react. The economist is

able to make generalizations about economic group (consumers, workers, sharehold-

ers) which are quite dependable guides to their expected behavior.

Another problem facing economists is the complexity of the world they are

studying – so many things are changing simultaneously. Natural scientists in their

laboratories can 'hold other things constant' while they study the effects that changes

in X have on Y. Economists cannot do this. They cannot vary the quantity of money

in the economy, hold everything else constant, and then see what happens. What they

have to do is to assume that other things remain constant. Many propositions in eco-

nomics begin with the phrase "If other things remain equal" (or the Latin equivalent

ceteris paribus).

From the vast array of facts observed, economists (and other scientists) must iso-

late those things, which are important and study them in isolation. They have to ab-

stract from reality in order to build a simplified model of a small part of the real

world, which will help them to see how things are related one to another. In fact, the

influences surrounding real-life situations are so many and so varied that we cannot

consider all. All that economists can do is to try to get close to the real world by ex-

tending their model to include more and more "other influences" – but no one can

construct or understand a model, which includes everything.

What we are saying is that economic theories as such do not describe the real

world as we see it. They attempt to show, one by one, the forces that operate within

that real world. We proceed gradually from very simple models of economic reality

to more and more sophisticated ones, introducing at each stage more and more of the

facts, which we can observe and experience.

Why Economists Disagree

10

It is often said that economics cannot be a science because no two economists

agree on any economic problem. This is an exaggeration, but it is certainly true that

economists disagree. Disputes among economists often arise from problems of defini-

tion and from the inadequacy of statistical data. For example, the statement "The un-

employment rate in the USA is much higher than that in the UK" may be based upon

the official figures issued by the authorities in these countries, but that does not mean

that the statement cannot be disputed.

The numbers unemployed may refer to those people who actually register them-

selves as available for work, or it may represent all those who would take a job if one

became available. This latter group would include a large number of people (e.g.

married women) who do not normally register themselves as unemployed. In fact, the

figures for the UK and the USA are collected on these very different bases so that of-

ficial unemployment rates are not strictly comparable and the real differences be-

tween them may be disputed.

Although statistical information on economic affairs is now available largely

than ever before, there are still many deficiencies. Such information often takes a

long time to become available in processed form, and often it is too late to be used in

current analysis. It may often be presented in a form, which is not very convenient for

analysis, as the example above demonstrates. These deficiencies therefore leave room

for disagreement among economists.

Economics is a very young science, and although economic analysis has made

great strides in recent years, there is still a great deal about the workings of the eco-

nomic system, which is imperfectly understood. There are many implications of ex-

isting theories, which have not yet been tested, either because insufficient time has

elapsed to provide adequate data, or because no one has found a satisfactory way of

testing them. Technical and economic changes also bring about changes in economic

behavior so that assumptions about human behavior, which served as useful bases for

predictions at one period, may become increasingly unreliable as the social and eco-

nomic environment changes. Economists, then, will be in dispute over the adequacy

11

of certain existing theories – but it is these very disputes, which lead to improvements

in existing theories and the development of new ones.

The main area of disagreement among economists is on matters of economic

policy. This is exactly what one would expect because policy statements are norma-

tive statements. They are value judgments. The determination of policies lies in the

province of politics; it is the politician's function to decide policy matters. The econo-

mist’s role in policymaking is to act as an adviser, using specialist knowledge to pro-

vide policy makers with an analysis of the likely economic effects of the policy pro-

posals. The economist, as such, has no more right to decide policies than the lorry

driver, the shop assistant, or the artist. We must recognize, however, that economists,

like everyone else, will have their own personal viewpoints on what is "best" and we

must, therefore, expect them to disagree on policy questions such as the desirability

of Britain's membership of the Common Market, or the likely effectiveness of an in-

comes policy. What we have to recognize, however, is that when economists pro-

nounce on the desirability of any economic policy they have moved out of the field of

economic analysis they are making a value judgment.

Tasks for Independent Work

1. Read the text.

2. Give a shot summery of the text.

3. Answer the questions:

a) Is Economics a science?

b) What does Economics study?

c) What is the subject of Economics?

d) What sciences are related to Economics?

e) What are the methods of Economics?

f) What does normative statement mean?

i) What does positive statement mean?

12

j) According to the text, can such problems marriage and extramarital affairs be

the subject of economists' attention? Is there a division between "economic" and

"noneconomic" problems?

Text 3. Adam Smith

Adam Smith was a great scientist who made extraordinary contributions in eco-

nomics. He was born in 1723 in Kirkcaldy, a small fishing town near Edinburgh,

Scotland. His father was a customs officer. He died before his son was born.

At the age of 28, Adam Smith became a Professor of Logics at the University of

Glasgow. It was his first academic appointment. Some time later, he became a tutor

to a wealthy Scottish duke. Then he received a grant of £300 a year. It was a very big

sum, 10 times the average income at that time.

With the financial security of his grant, Smith devoted 10 years to writing his

work, which founded economic science. Its full title was An Inquiry into the Nature

and Causes of the Wealth of Nations. It was published with great success in 1776.

Adam Smith made economics a science. This Scottish economist is often re-

garded as the founder of political economy too.

Tasks for Independent Work

1. Read the text.

2. Answer the questions:

a) Who is the "father" of Economics?

b) How is the main Smith’s work called?

c) When was it published?

Text 4. The Development of Economics: Adam Smith

13

Economics, like every other intellectual discipline, has its roots in early Greece

and Rome; but economics was first considered as a branch of domestic science (home

economics) dealing with such matters as the management of slaves and the allocation

of manure among alternative agricultural uses. In the revival of learning that followed

the Middle Ages, economics emerged as a branch of moral philosophy concerned

with such issues as the ethics of loan interest and the "justness" of market-determined

wages and prices.

By the beginning of the eighteenth century, the subject had lost most of its theo-

logical overtones and had taken shape as an academic discipline, largely as a branch

of political theory dealing with problems of government intervention in economic af-

fairs.

Then in 1776, the Scottish moral philosopher Adam Smith published the first

edition of his monumental Inquiry into the Nature and Causes of the Wealth of Na-

tions, and economics soon became an independent science.

The Vision of Adam Smith

Smith lived in an age when the right of rulers to impose arbitrary and oppressive

restrictions on the political and economic liberties of their subjects was coming under

strong attack throughout the civilized world. As other men of that time were arguing

that democracy could and should replace autocracy in the sphere of politics, so Adam

Smith argued that laissez-faire could and should replace government direction and

regulation in economics. The "should" was so mixed with the "could" portion of

Smith's analysis that much of his book seemed almost as much a political tract as a

work of science. What gave the book lasting significance were the Smith's strong ar-

guments that the economic activities of individuals would be more effectively coordi-

nated through the indirect and impersonal action of natural forces of self-interest and

competition than through the direct and frequently ill-conceived actions of govern-

ment authorities. Smith opened minds to the existence of a "grand design" in eco-

nomic affairs similar to that which Newton had earlier shown to exist in the realm of

14

physical phenomena. The impact of Smith's ideas upon his contemporaries was wide-

spread and immediate. As one modern scientist observed: "Before Adam Smith there

had been much economic discussion, with him we reach the stage of discussing eco-

nomics".

That Smith's vision of the economy should ever have been considered original

might seem strange to modern minds, but that would be because we now see eco-

nomic phenomena in the light of his conception. As two leading scholars recently re-

marked, «The immediate "common sense" answer to the question, "What will an

economy motivated by greed and controlled by a large number of different agents

look like? " is probably: There will be chaos». Certainly, that answer would have

been given by most of Smith's contemporaries – before they read his book. The great-

ness of Smith's accomplishment lies precisely in the fact that he, unlike his predeces-

sors, was able to think away extraneous complications and so perceive an order in

economic affairs that common sense did not reveal.

It is one thing, of course, to say that Smith's conception of economic phenomena

is original; another to suggest that it corresponds to contemporary experience. Ac-

cording to Smith, society in its economic aspect is a vast concourse of people held to-

gether by the desire of each to exchange goods and services with others. Each person

is concerned directly only to further his own self-interest, but in pursuing that aim

each «is led by an invisible hand» to promote the interests of others. Forbidden by

law and social custom to acquire the property of other people by force, fraud, or

stealth, each person attempts to maximize his own gains from trade by specializing in

the production of goods and services for which he has a comparative advantage, trad-

ing part of his produce for the produce of others on the best terms he can obtain. Con-

sequently, the «natural forces» of market competition – the result of each person at-

tempting to «buy cheap and sell dear» – come into play to establish equality between

demand and supply for each commodity at rates of exchange (prices).

The economic system (so Smith and later writers argued) is an essentially self-

regulating mechanism that, like the human body, tends naturally toward a state of

equilibrium (homeostasis) if left to itself.

15

There are two types of commercial banks. The federal government charters a na-

tional bank. About one third of all commercial banks are national. A state bank,

which is smaller than a national bank, is chartered by an individual state.

Tasks for the Students

1. Answer the questions:

a) When and where was Adam Smith born?

b) Who was his father?

c) What was Adam Smith's first academic appointment?

d) Did he become a tutor then?

e) How big was the grant he received some time later?

f) What work did Adam Smith do with the support of the grant?

2. Repeat what the text said about Adam Smith.

3. Say what you know about other economists. Write half a page about one of

them.

4. How do you understand Adam Smith's concept of:

a) laissez-faire;

b) «natural forces of self-interest and competition»;

c) «grand design»

d) society;

e) rate of exchange (prices).

5. Do you agree or disagree with the following opinions? Why?

a) «Before Adam Smith there had been much economic discussion; with him we

reach the stage of discussing economics».

b) «The immediate "common sense" answer to the question, "What will an

economy motivated by greed and controlled by a large number of different

agents look like? " is: There will be chaos».

16

Text 5. John Maynard Keynes

Smith's version of the economic system as a naturally self-organizing and self-

adjusting "social mechanism" – known latterly as classical or neoclassical economic

doctrine (or sometimes, more shortly and perhaps satirically, as orthodox or conven-

tional wisdom) – was never confirmed by factual evidence, as Newton's laws of mo-

tion were; all the same, classical doctrine dominated economic thinking and national

economic policy in all advanced economies for the next 150 years, and it plays a

prominent role in many countries to this day.

Whether right or wrong, classical theory was first seriously challenged by the

great English statesman and economist Lord John Maynard Keynes, who claimed to

see in the Great Depression of the 1930s evidence that the economic system was not

self-adjusting, and whose followers argued that without continued government inter-

vention the economic system would typically operate at levels of activity substan-

tially lower than required to achieve full employment of labor and other resources.

Exactly what Keynes said, or what he meant, or what he really meant, has been hotly

disputed among economists for more than 50 years, conveying to many

noneconomists the notion that economists as a group are uniquely quarrelsome and

doubtfully competent. There is no merit in this notion. What is true, as the great Eng-

lish economist Joan Robinson once observed, is that «in a subject where there is no

agreed procedure for knocking out error, doctrine has long life».

Perhaps time and further study will some day reveal whether the classical or the

Keynesian conception of economic life accords more closely with experience.

Meanwhile, the great worry is that, in the absence of professional competence to

make valid diagnoses, we will treat cases of economic toothache as cases of lockjaw

and kill our patient: or, no less seriously, we will leave apparently minor economic

lumps untreated and so, through inaction, fail to cure problems that turn out to be ter-

minal. On a brighter note, we may recall Lord Keynes's wistful observation: «If econ-

omists could someday manage to get themselves thought of as humble, competent

people, on a level with dentists, that would he splendid! » Perhaps that time will one

17

day come. If it does, and if economists are then able accurately to diagnose and pre-

scribe cures for economic ills, they will have little reason to feel humble».

Tasks for Independent Work

1. Answer the questions in written form:

a) Who first challenged the classical economics? When was that? Under what

circumstances?

b) What were Keynes' and his followers, arguments against the self-adjusting

market doctrine?

c) How had the noneconomists' opinion changed toward the economist? How

does the author comment that common opinion?

2. Questions for discussion:

a) Was the Great Depression the only reason for Keynes' criticism? Do we have

to wait until the next crisis to come up with the new theory or it could be proved ex-

perimentally?

b) Why did it take 150 years for economist to realize that Smith's theory was not

correct?

c) Do you agree with the author that the «great worry» is that there is a lack of

professional competence to make valid diagnoses? Is it a problem of economics as a

science?

UNIT 2

ECONOMY: INDUSTRIES, RESOURCES, FACTORS

OF INDUSTRY

Text 1. The Economy

18

The words the economies are words we hear or read almost every day. For ex-

ample, we may be told that the world economy is "in the doldrums", or "the European

economy is making little progress out of recession", or "the UK economy is begin-

ning to recover", or "the Scottish economy has held up relatively well during the re-

cent recession".

However, what is meant by the economy? What is an economy? How does an

economy work?

The economy is a social mechanism, which answers these three questions. The

economy means a system for the management, use and control of the money, goods

and other resources of a country, community or household.

Tasks for the Students

1. Answer these questions:

a) What is meant by the economy?

b) What is an economy?

d) What happens in an economy?

e) How does an economy work?

2. Complete the sentences by using the words from the text:

The economy is a social..., which answers these three questions.

The economy means a system for the ... of the money, goods and other resources

of...

3. Repeat the definition of the term "the economy" given at the end of the

text.

Text 2. Macroeconomics

19

The word macroeconomics means economics in the large. The macroe-

conomist’s concerns are with such global questions as total production, total employ-

ment, the rate of change of overall prices, the rate of economic growth, and so on.

The questions asked by the macroeconomist are in terms of broad aggregates – what

determines the spending of all consumers as opposed to the microeconomic question

of how the spending decisions of individual households are made; what determines

the capital spending of all firms combined as opposed to the decision to build a new

factory by a single firm; what determines total unemployment in the economy as op-

posed to why there have been layoffs in a specific industry.

Macroeconomists measure overall economic activity; analyze the determinants

of such activity by the use of macroeconomic theory: forecast future economic activ-

ity; and attempt to formulate policy responses designed to reconcile forecasts with

target values of production, employment, and prices.

An important task of macroeconomics is to develop ways of aggregating the val-

ues of the economic activities of individuals and firms into meaningful totals. To this

end such concepts as gross domestic product (GDP), national income, personal in-

come, and personal disposable income have been developed.

Macroeconomic analysis attempts to explain how the magnitudes of the princi-

pal macroeconomic variables are determined and how they interact. Moreover,

through the development of theories of the business cycle and economic growth,

macroeconomics helps to explain the dynamics of how these aggregates move over

time.

Macroeconomics is concerned with such major policy issues as the attainment

and maintenance of full employment and price stability. Considerable effort must

first be expended to determine what goals could be achieved. Experience teaches that

it would not be possible to eliminate inflation entirely without inducing a major re-

cession combined with high unemployment. Similarly, an overambitious employment

target would produce labor shortages and wage inflation.

Tasks for Independent Work

20

1. General understanding:

a) What does the word macroeconomics mean?

b) What are the concerns of the macroeconomist?

c) What is the difference between the questions asked by macroeconomists and

microeconomics?

d) What is, according to the text, the important task of macroeconomist?

e) What does macroeconomic analysis attempt to explain?

f) What are the concepts of macroeconomics?

g) What are the most important theories of macroeconomics?

h) What is it said about the correlation between the inflation and unemploy-

ment?

2. Questions for discussion:

a) Was there such a difference between macroeconomics and microeconomics

in the Soviet economics? In 18th century? In 19th century?

b) What is more important for economy in general – microeconomics or macro-

economics?

c) Is there a difference in analyzing macroeconomic and microeconomic prob-

lems?

Text 3. Microeconomics

The word "micro" means small, and microeconomics means economics in the

small. The optimizing behavior of individual units such as households and firms pro-

vides the foundation for microeconomics.

Microeconomists may investigate individual markets or even the economy as a

whole, but their analyses are derived from the aggregation of the behavior of individ-

ual units. Microeconomic theory is used extensively in many areas of applied eco-

nomics. For example, it is used in industrial organization, labor economics, interna-

21

tional trade, cost-benefit analysis, and many other economic subfields. The tools and

analyses of microeconomics provide a common ground, and even a language, for

economists interested in a wide range of problems.

At one time, there was a sharp distinction in both methodology and subject mat-

ter between microeconomics and macroeconomics.

The methodological distinction became somewhat blurred during the 1970s as

more and more macroeconomic analyses were built upon microeconomic founda-

tions. Nonetheless, major distinctions remain between the two major branches of eco-

nomics. For example, the microeconomist is interested in the determination of indi-

vidual prices and relative prices (i.e., exchange ratios between goods), whereas the

macroeconomist is interested more in the general price level and its change over time.

Optimization plays a key role in microeconomics. The consumer is assumed to

maximize utility or satisfaction subject to the constraints imposed by income or in-

come earning power. The producer is assumed to maximize profit or minimize cost

subject to the technological constraints under which the firm operates. Optimization

of social welfare sometimes is the criterion for the determination of public policy.

Opportunity cost is an important concept in microeconomics. Many courses of

action are valued in terms of what is sacrificed so that they might be undertaken. For

example, the opportunity cost of a public project is the value of the additional goods

that the private sector would have produced with the resources used for the public

project.

Theory of the Consumer

The individual consumer or household is assumed to possess a utility function,

which specifies the satisfaction, which is gained from the consumption of alternative

bundles of goods. The consumer's income or income-earning power determines

which bundles are available to the consumer. The consumer then selects a bundle that

gives the highest possible level of utility. With few exceptions, the consumer is

treated as a price taker – that is, the consumer is free to choose whatever quantities

22

income allows but has no influence over prevailing market prices. In order to maxi-

mize utility the consumer purchases goods so that the subjective rate of substitution

for each pair of goods as indicated by the consumer's utility function equals the ob-

jective rate of substitution given by the ratio of their market prices. This basic utility-

maximization analysis has been modified and expanded in many different ways.

Theory of the Producer

The individual producer or firm is assumed to possess a production function,

which specifies the quantity of-output produced as a function of the quantities of the

inputs used in production. The producer's revenue equals the quantity of output pro-

duced and sold times its price, and the cost to the producer equals the sum of the

quantities of inputs purchased and used times their prices. Profit is the difference be-

tween revenue and cost. The producer is assumed to maximize profits subject to the

technology given by the production function. Profit maximization requires that the

producer use each factor to a point at which its marginal contribution to revenue

equals its marginal contribution to cost.

Under pure competition, the producer is a price taker who may sell at the going

market price whatever has been produced. Under monopoly (one seller) the producer

recognizes that price declines as sales are expanded, and under monopsony (one

buyer) the producer recognizes that the price paid for an input increases as purchases

are increased.

A producer's cost function gives production cost as a function of output level on

the assumption that the producer combines inputs to minimize production cost. Profit

maximization using revenue and cost functions requires that the producer equate the

decrement in revenue from producing one less unit (called marginal revenue) to the

corresponding decrement in cost (called marginal cost). Under pure competition,

23

marginal revenue equals price. Consequently, the producer equates marginal cost of

production to the going market price.

Tasks for the Students

1. General understanding:

a) What is, according to the text, microeconomics?

b) What is meant by "economics in the small"?

c) Where is microeconomic theory used?

d) What is "optimization"?

e) What is the concept of the theory of consumer?

2. Questions for discussion:

a) What areas of applied economics are of the most importance?

b) What distinction in methodology between macro- and microeconomics is the

most distinctive?

c) Does the author's concept of theories of consumer and producer comply with

your own?

Text 4. Factors of Production: Capital and Labour

Factors of production are resources used by firms as inputs for a good or service

to be produced. Factors of production are as follows: capital, labour, and natural re-

sources.

In economic theory, the term "capital" refers to goods and money used to pro-

duce more goods and money. Classifications of capital vary with the purpose of the

classification. The most general distinction is the one made between physical, finan-

cial, and human capital.

24

Physical capital is land, buildings, equipment, raw materials; bonds, stocks,

available bank balances are included in the financial capital. They both make a great

contribution to production.

To group capital into fixed capital and circulating capital is common practice.

The former refers to means of production such as land, buildings, machinery and var-

ious equipments. They are durable, that is, they participate in the production process

over several years. Circulating capital includes both non-renewable goods, such as

raw materials and fuel, and the funds required to pay wages and other claims against

the enterprise. Non-renewable goods are used up in one production cycle and their

value is fully transferred to the final product.

Human capital is knowledge that contributes "know-how" to production. It is in-

creased by research and disseminated through education. Investment in human capital

results in new, technically improved, products and production processes, which im-

prove economic efficiency. Like physical capital, human capital is important enough

to be an indicator of economic development of a nation.

It is common, in economics, to understand labour as an effort needed to satisfy

human needs. It is one of the three leading elements of production. Labour has a vari-

ety of functions: production of raw materials, manufacturing of final products, trans-

ferring things from one place to another, management of production, and services like

the ones rendered by physicians and teachers.

One can classify labour into productive and unproductive. The former produces

physical objects having utility. The latter is useful but does not produce material

wealth. Labour of the musician is an example.

Unlike other factors of production, for example capital, once workers are em-

ployed, their efficiency can vary greatly with organization of work and their motiva-

tion.

Demand for labour is influenced by the demand for goods produced by workers,

the proportion of wages in total production costs, etc. The supply of labour depends

upon the size of population, geographic mobility, skills, education level (human capi-

tal), etc. Workers supply labour either individually or through trade unions. If de-

25

mand for and supply of labour are not in equilibrium, there is unemployment. The

rate of unemployment is a percentage of the total labour force without a job. It is de-

sirable for an economy to have the lowest possible unemployment rate and to achieve

higher employment as neither full use of resources nor maximum level of output can

be achieved in an economy having unemployment.

Factors of production are combined together in different proportions in order to

produce output. It is assumed in economics that one should choose the combination

of factors, which minimizes the cost of production and increases profits.

The third factor of production, natural resources, poses too many economic

problems to be discussed here. We will analyze them in the following unit.

Tasks for Independent Work

1. Read the text.

2. Give a shot summery of the text.

3. Answer the questions:

a) What kinds of the factors of production and resources do you know?

b) Give the characteristics of each factor of production.

c) What does the classification of capital vary?

d) What does human capital mean?

Text 5. Factors of Production: Natural Resources and Land

Economists consider natural resources to be the third factor of production. They

are a contribution to productive activity made by land (for example, a factory site or

farm location), raw materials such as iron ore, timber, oil, water for crops and power

production, forests and animals.

Some natural resources, wheat, for example, are renewable; others such as iron

ore are non-renewable and will eventually be used up. Economists know reduced sup-

plies of non-renewable resources to result in their higher prices, which provide an in-

26

centive to look for natural or synthetic substitutes for them. The supply of land, an es-

sential natural resource, is limited and it cannot be easily increased to meet an in-

crease in demand except in certain cases. For example, the Dutch have been able to

reclaim from the sea some areas of low-lying land.

Another essential characteristic of land is that it is durable, that is, land is not

used up in the production process, although it may be depleted by use.

Land is, in some respects', close to physical capital, though the former is sup-

plied by nature and man produces the latter. Nevertheless, applying labour to kill

weeds or fertilizer to improve the soil, farmers can "produce" better land and raise its

price.

Price of or income from land, as well as from other natural resources, is called

rent. Land itself has no cost of production, so rent depends on the degree of scarcity

and on the demand for it.

The purposes for which land is used are due to its characteristics. Land can be

used for housing or offices, for mining, or for building roads. Besides, it contributes

to the production of crops, providing an environment that supplies water, air, and nu-

trients for plant growth.

Land as a unique agricultural resource poses management problems for the

farmer. In the first place, the farmer has to make a choice between buying and leasing

it. The advantages and disadvantages depend on the farmer's financial position, on the

availability of land for lease and purchase and some other factors.

Because purchasing land usually requires a larger capital, farmers with limited

capital lease land and use their capital for machinery and other resources.

Economists consider a satisfactory lease to be the one that is profitable both for

the landowner and for the tenant. A fair lease compensates both parties in proportion

to their contributions to the farm business.

Other management problems may arise due to differences in land profitability in

various farming branches and other industries. Economists know different crops and

classes of animals to vary in profitability. The farmer has to study thoroughly the

conditions on his farm to make a correct choice between alternative uses.

27

Although the total supply of land is limited, its allocation between industries is

not. If a government wants to stimulate, for example, either housing or afforestation,

it offers a subsidy raising the rent received by owners of housing land or forests. This

may create incentives for farmers to transfer land from farming to other industries.

Tasks for the Students

1. Read the text.

2. Say what you know about natural resources and land.

UNIT 3

CHARACTERISTICS OF MARKET ECONOMY

Text 1. Economic Systems

Economic systems are usually defined as capitalist, socialist or mixed. However,

it is possible to classify economic systems according to the method of resource allo-

cation and control (market economy or command economy) and to the type of prop-

erty ownership (private ownership or public ownership).

The ownership of factors of production can be viewed as a continuum from com-

plete private ownership at one end to complete public ownership at the other. In real-

ity, no country belongs wholly at one end or the other. For example, the United States

of America is considered the prime example of private enterprise, yet the government

owns some factors of production and actively produces in such sectors of the econ-

omy as education, the military, the postal service and certain utilities.

Market Economy

In market economy, two societal units are very important: the individual and the

firm. Individuals own resources and consume products, while firms use resources and

28

produce products. The market mechanism involves an interaction of price, quantity,

supply, and demand of resources and products.

The key factors that make the market economy work are consumer sovereignty

and the freedom of the enterprise.

Mixed Economies

By definition, no economy is purely market determined or centrally planned.

The United States and the former Soviet Union represent different ends of the spec-

trum of mixed economies. In practice, however, mixed economies generally have a

higher degree of government intervention than is found in the United States and a

greater degree of reliance on market forces than is found in the former Soviet Union.

Government intervention can be regarded in two ways: actual government ownership

of means of production and government influence in economic decision-making.

Tasks for the Students

1. Answer the questions:

a) What kind of economic systems do you know?

b) Give the description of the Market Economy.

c) What does Mixed Economy mean?

Text 2. Mixed Economy

There are three types of management in economies. An economy may be almost

totally planned, as it was in the Soviet Union. An economy may be almost totally un-

planned, as it is in the USA. On the other hand, an economy may be a combination of

planning and freedom of operation. Examples of the latter are Japan and South Korea.

29

In a planned economy, the government decides what goods are to be produced

and how they are to be marketed. Governments set all the priorities, and the produc-

ers are to follow the directions given to them.

In a partially planned economy such as Japan's, the government often encour-

ages industry and helps it with subsidies. Government also makes investments and

regulates trade.

The United States in an example of an unplanned economy. Nevertheless, it has

a lot of government intervention in economic activity. As the economy of the United

States grew, and as government and its importance increased, the government policy

at every level acquired greater importance for the economy.

However, the economy of the United States may be called unplanned because

the government does not regulate what will be produced and how it will be marketed.

These decisions are left to the producers. Even the great amount of government regu-

lation that has emerged since the Great Depression has not turned the economy of the

United States into a planned economy

The name of the American economic system is capitalism. Another name for it

is the free market economy.

Tasks for Independent Work

1. Read the text.

2. Give a shot summery of the text.

Text 3. Market Schema

Market structure – conduct – performance schema is an analytical framework to

investigate the operation of market processes.

30

Markets are ultimately judged in terms of their economic performance, that is,

how well they have contributed to the achievement of optimal economic efficiency.

Market performance is determined fundamentally by the interaction of market struc-

ture and market conduct. The schema attempts to identify those structural and con-

duct parameters, which have a strategic influence on market performance.

The schema is useful to public-policy makers to improve market performance.

Such measures can operate on market structure, for example, to prohibit mergers,

which increase market concentration, or to encourage mergers in industries suffering

excess capacity. Alternatively, such measures may operate on market conduct, for ex-

ample, to eliminate excess profits if price-fixing agreements between firms are pro-

hibited. Additionally, the authorities may operate directly on market performance and

regulate the prices charged by monopolistic suppliers.

Tasks for the Students

1. Read the text.

2. Describe the market's schema.

31

Text 4. Allocation of Products and Resources

The pure market economy, without any government control whatsoever, allo-

cates products and resources in the way, which, in the most simplified manner, can be

shown by the figure below.

As to the command economy, practically speaking, it allows the government to

act as a dictator.

Fortunately, a community or a country does not have to make a complete choice

between the two extremes: the market economy and the command economy. Instead,

it can compromise and have a mixed economy.

In a mixed economy three quarters of production is carried out by I he private

sector through the market, though subject to varying degrees of government control.

For the other quarter, the government is directly responsible through the public sec-

tor. Thus, the government influences the allocation of the goods and services pro-

duced.

Even in the USA, a stronghold of free enterprise, it has been found necessary to

control or regulate national income conditions.

32

As to Britain, today it has a mixed economy. In the public sector of British eco-

nomic life are the nationalized industries like coal and steel, British Rail and BOAC.

In the private sector are the majority of the nation's industries, both large and small,

from giants like ICI and BP to small family businesses.

Tasks for Independent Work

1. Mark the right statements:

– The item starts with describing the market economy.

– The market economy allocates products and resources through the market

without any government control.

– Then the picture relating to the mixed economy is given.

– The command economy is not mentioned at all.

– A mixed economy is a compromise between the two extremes.

– In a mixed economy one-half of the production is carried through the market

with a certain government control. For the other half the government itself is re-

sponsible through the public sector.

2. Fill in the gaps with the words from the text:

Thus, the government ... the allocation of the goods and services produced.

Even in the USA, a ... of free enterprise, controls or ... national income condi-

tions.

As to Britain, today it has a ... economy.

In the public sector of Britain are the nationalized industries like...

In the private sector of Britain are the ... of the industries.

In the private sector of Britain are both large and small enterprises, from giants

like ... to small...

3. Answer these questions:

a) How does the market economy work, judging by the figure?

b) What are the features of a mixed economy?

33

1) How are the USA and Britain characterized in terms of the economy?

c) What countries, if any, have a command economy now?

Text 5. The Sources of Economic Health

In 1776, new technologies were being invented and applied to the manufacture

of cotton and wool, iron, transportation and agriculture in what came to be called the

"Industrial Revolution".

Adam Smith was keenly interested in these events. He wanted to understand the

sources of economic wealth, and he brought his acute powers of observation and ab-

straction to bear on this question.

His answer was:

– The division of labour.

– Free domestic and international markets.

Smith identified the division of labour as the source of "the greatest improve-

ment in the productive powers of labour". The division of labour became even more

productive when applied to creating new technologies.

Scientists and engineers, trained in extremely narrow fields, became specialists

at inventing. Their powerful skills speeded the advance of technology. Machines

started performing repetitive operations faster, and more accurately than people did.

Nevertheless, said Smith, the fruits of the division of labour are limited by the

extent of the market. To make the market as large as possible, there must be no im-

pediments to free trade both within a country and among countries.

Smith argued that when each person makes the best possible economic choice

based on self-interest that choice leads as if by an invisible hand to the best outcome

for society as a whole.

Tasks for Independent Work

34

1. Read the text.

2. Agree or disagree:

a) It is very easy to define most economic terms.

b) There are many specialized dictionaries on economics available.

c) The same term is interpreted in every dictionary in the same way.

Text 6. Glimpses of History of Money

At different periods of time and in different parts of the world, many commodi-

ties have served as money.

These commodities were cattle, sheep, furs, leather, fish, tobacco, tea, salt, shells

etc. The illustration shows shell money used in North America. The shells were

threaded into strings or belts called wampum. The experts underline that to serve ef-

fectively as money; a commodity should be fairly durable, easily divisible, and porta-

ble. None of the above-mentioned commodities possessed all these qualities, and in

time, precious metals superseded them. First, they were superseded by silver and later

by gold.

When a payment was made the metal was first weighed out. The next stage was

the cutting of the metal into pieces of definite weight and so coins came into use.

Paper money first came into use in the form of receipts given by goldsmiths in

exchange for deposits of silver and gold coins. After goldsmiths became bankers,

their receipts became banknotes. That is how the first banknotes came into existence.

At first coins were worth their face value as metal. But later token coins of lim-

ited value as legal tender were issued. Now smaller denomination coins are made

from bronze and are often referred to as coppers. Bigger denomination coins are

made from cupronickel and are usually called silver.

Tasks for the Students

35

1. Read the text.

2. Answer the questions:

a) What are the requirements of a commodity to serve as money?

b) Why did precious metals start to serve as money?

c) What precious metal was used first to serve as money?

d) How did coins come into existence?

e) How did paper banknotes come into existence?

Text 7. Money and its Functions

Money has four functions: a medium of exchange or means of payment, a store

of value, a unit of account and a standard of deferred payment.

When used as a medium of exchange, money is considered distinguished from

other assets.

Money as the medium of exchange is believed to be used in one-half of almost

all exchange. Workers exchange labour for money, people buy or sell goods in ex-

change for money as well.

People do not accept money to consume it directly but because it can subse-

quently be used to buy things, they wish to consume. To see the advantages of a

medium of exchange, imagine a barter economy, that is, an economy having no

medium of exchange. Goods are traded directly or swapped for other goods. The

seller and the buyer each must want something the other has to offer. Trading is very

expensive. People spend a lot of time and effort finding others with whom they can

make swaps. Nowadays, there exist actually no purely barter economies, but

economies nearer to or farther from the barter type. The closer is the economy to the

barter type, the more wasteful it is.

Serving as a medium of exchange is presumed to have been for centuries an es-

sential function of money.

Money is a store of value, for it can be used to make purchases in future. For

money to be accepted in exchange, it has to be a store of value. Unless suitable for

36

buying goods with tomorrow, money will not be accepted as payments for the goods

supplied today. However, money is neither the only nor necessarily the best store of

value.

Tasks for Independent Work

1. Read the text.

2. Answer the questions.

a) What are the main functions of money?

b) How important is the function of money as a medium of exchange?

c) Why do people accept money as a medium of exchange?

d) What is barter economy?

e) Why are barter economies wasteful?

UNIT 4

THEORY OF DEMAND AND SUPPLY

Text 1. The discoverers of the laws of Demand and Supply

The law of demand was discovered by A.A.Cournot (1801-1877), a professor of

mathematics at the University of Lyon, France, and he was who drew the first de-

mand curve in the 1830s.

The first practical application of demand theory, by Jules Dupuit (1804-1866), a

French engineer and economist, was the calculation of the benefits from building a

bridge and, given that, a bridge had been built of the correct toll to charge for its use.

Dionysius Lardner (1793-1859), an Irish professor of philosophy at the Univer-

sity of London, first worked out the laws of demand and supply and the connection

between the costs of production and supply.

37

Dionysius Lardner showed railway companies how they could increase their

profits by cutting rates on long-distance business, where competition was fiercest. In

addition, how they could raise rates on short-haul business, where they had less to

fear from other suppliers.

Economists working for the major airline companies today to work out the

freight rates and passenger fares that will give the airline the largest possible profit

now use the principles first worked out by Lardner in the 1850s. Moreover, the rates

that result have a lot in common with those of the nineteenth century in principle.

Tasks for Independent Work

1. Read the text.

2. Sum up what the text said about:a) A. A. Cournot;

b) J. Dupuit;

c) D. Lardner;

d) An example of the application of the principles at present.

3. Agree or disagree:

a) It is very easy to calculate such rates knowing the law of demand and supply.

b) This principle of calculation is also applied to hotel charges for accommoda-

tion.

c) This principle is applied in very many cases.

Text 2. Demand and Supply Curves

Demand is the total quantity of a good or service which buyers are prepared to

purchase at a given price. Demand is always taken to be effective demand, backed by

the ability to pay, and not just based on want or need.

Demand curve is a line showing the relationship between the price of a product

or factor of production and the quantity demanded per period, as in the figure be low.

38

The typical market demand curve slopes downwards from left to right, indicat-

ing that as the price falls more is demanded (that is, a movement along the existing

demand curve). Thus, if price falls from OP1 to PP2 the quantity demanded will in-

crease from OQ1 to OQ2.

The demand curve interacts with the supply curve to determine the equilibrium

market price. Supply curve is a line showing the relationship between the price of a

product or factor of production and the quantity supplied per time period. "Supply"

means the total quantity of a product or factor that firms or factor owners are pre-

pared to sell at a given price.

The above typical market supply curve for a product slopes upwards from left to

right, indicating that as the price rises more is supplied (that is, a movement along the

39

existing supply curve). Thus, if the price rises from OP1 to OP2 in the above figure,

the quantity supplied will increase from OQ1 to OQ2.

The figure shows the supply curve for the market as a whole. This curve is de-

rived by aggregating the individual supply curves of all of the producers of the goods,

which in turn are derived from the producers’ cost curves.

Tasks for the Students

1. Read the text.

2. Write out the definition of the terms:

demand;

demand curve;

supply;

supply curve;

3. Imagine you at a seminar. Describe the two figures given in the text.

4. Find the terms in the text:

...? – a line which shows the cost of production at different levels of output. The

curve might relate to average cost and marginal cost, or total cost.

...? – the inputs of resources used in production.

...? – the price at which the quantity demanded of a good is exactly equal to the

quantity supplied.

Text 3. Demand and Supply

Demand is the quantity of a good that buyers wish to buy at each price. Other

things equal, at low prices the demanded quantity is higher.

Supply is the quantity of a good that sellers wish to sell at each price. Other

things equal, when prices are high, the supplied quantity is high as well.

40

The market is in equilibrium when the price regulates the quantity supplied by

producers and the quantity demanded by consumers. When prices are not as high as

the equilibrium price, there is excess demand (shortage) raising the price. At prices

above the equilibrium price, there is excess supply (surplus) reducing the price.

There are some factors influencing demand for a good, such as the prices of

other goods, consumer incomes and some others.

An increase in the price of a substitute good (or a decrease in the price of a com-

plement good) will raise at the same time the demanded quantity.

As consumer income is increased, demand for a normal good will also increase

but demand for an inferior good will decrease. A normal good is a good for which de-

mand increases when incomes rise. An inferior good is a good for which demand falls

when incomes rise.

As to supply, some factors are assumed as constant. Among them are technol-

ogy, the input price, as well as degree of government regulation. An improvement in

technology is as important for increasing the supplied quantity of a good as a reduc-

tion in input prices.

Government regulates demand and supply, imposing ceiling prices (maximum

prices) and floor prices (minimum prices) and adding its own demand to the demand

of the private sector.

Tasks for the Students

1. Read the text.

2. Answer the questions in written form:

a) What is demand?

b) What is supply?

c) How are prices and the supplied and demanded quantities regulated by the

market?

d) Which factors influence demand?

41

e) How do they work?

f) How can governments regulate demand and supply?

Text 4. The Law of Demand

Demand is a key concept in both macroeconomics and microeconomics. In the

former, consumption is mainly a function of income; whereas in the latter, consump-

tion or demand is primarily, but not exclusively, a function of price. This analysis of

demand relates to microeconomic theory.

The theory of demand was mostly implicit in the writings of classical econo-

mists before the late nineteenth century. Current theory rests on the foundations laid

by Marshall (1890), Edgeworth (1881), and Pareto (1896). Marshall viewed demand

in a cardinal context, in which utility could be quantified. Most contemporary econo-

mists hold the approach taken by Edgeworth and Pareto, in which demand has only

ordinal characteristics and in which indifference or preferences become central to the

analysis.

Much economic analysis focuses on the relation between prices and quantities

demanded, the other variables being provisionally held constant. At the various prices

that could prevail in a market during some period of time, different quantities of a

good or service would be bought. Demand, then, is considered as a list of prices and

quantities, with one quantity for each possible price. With price on the vertical axis

and quantity on the horizontal axis, the demand curve slopes downward from left to

right, signifying that smaller quantities are bought at higher prices and larger quanti-

ties are bought at lower prices. The inverse relation between price and quantity is

usually called the law of demand. The law rests on two foundations. One is the theory

of the consumer, the logic of which shows that the consumer responds to lower prices

by buying more. The other foundation is empirical, with innumerable studies of de-

mand in actual markets having demonstrated the existence of downward-sloping de-

mand curves.

42

Exceptions to the law of demand are the curiosa of theorists. The best-known ex-

ception is the Giffen effect – a consumer buys more, not less, of a commodity at

higher prices when a negative income effect dominates over the substitution effect.

Another is the Vehien effect – some commodities are theoretically wanted solely

for their higher prices. The higher these prices are, the more the use of such com-

modities fulfills the requirements of conspicuous consumption, and thus the stronger

the demand for them.

Tasks for Independent Work

1. Read the text.

2. Which is not true about the law of demand:

a) Consumption is the key concept of microeconomics.

b) Classical economists contributed a lot to the development of the theory of de-

mand.

3. Questions for discussion:

a) Do you agree that "conspicuous consumption" plays the great role in the econ-

omy?

b) Do you think it is logical that "consumer responds to lower prices by buying

more"? Think of an example when consumer believes that prices would go even

lower and does not react immediately in the expected way.

Text 5. Law of Supply

Supply is a fundamental concept in both macro-and microeconomic analysis. In

macroeconomic theory, aggregate supply is mainly a function of expected sales to

consumers, businesses, and governments. In microanalysis, supply is mainly a func-

tion of prices and costs of production. A more complex view of the supply curve for a

commodity is its relation between quantities forthcoming and the possible current

43

prices of that commodity, its expected future prices, the prices of alternative goods

and services, the costs of the producer, and time.

Opportunity Costs

Incorporated in the supply curve of goods and services are opportunity costs.

Economists differ from accountants and from the Internal Revenue Service by includ-

ing both explicit and implicit costs, and opportunity costs. Implicit costs are mainly

business costs for wages, rents, and interest, whereas opportunity costs are the alter-

native costs of doing something else. A sole proprietor or the owners of businesses

should calculate what they forgo in wages, rents, and interest by not working for

someone else, or by renting the property they use to others, or by the possibility of

converting plant and equipment to alternative investment projects.

The Shape and Position of Supply Curves

In competitive markets the shape, or elasticity of supply, reflects time in the pro-

duction process, such as the immediate or market period, the short run, and the long

run. Elasticity of supply is the relative change in price that induces a relative change

in quantity supplied. The supply curve is a line on a diagram where the vertical axis

measures price and the horizontal axis is quantity. Usually the coefficient of elasticity

is positive, meaning that a rise in price induces an increase in the quantity supplied.

In the immediate or market period, a given moment, time is defined as too short to al-

low for a change in output. The supply curve is vertical, and the coefficient of elastic-

ity is zero.

The short run is defined as a period sufficiently long to permit the producer to

increase variable inputs, usually labor and materials, but not long enough to permit

changes in plant and equipment. The supply curve in the short run is less inelastic or

more elastic than in the immediate period. The long run permits sufficient time for

44

the-producer to increase plant and equipment. The longer the time, the greater the

elasticity of supply.

Changes in supply are shifts in the position of supply curves. An increase in sup-

ply is a rightward movement of a supply curve, with more of the commodity being

offered for sale at each possible price. Conversely, a decrease in supply shifts the

supply to the left. An increase in supply can occur because sellers expect lower prices

in the future, or, as in the agricultural sector, because of bountiful crops. The reverse

is true of a decrease in supply. Over periods long enough for production processes to

change, improvements in technology and changes in input prices and productivities

are the main causes of changes in supply.

Tasks for Independent Work

1. Answer the questions:

a) What is the difference of the concept of supply in macro- and microeconomics?

b) What are opportunity costs?

c) What are implicit costs?

d) What, according to the text, a sole proprietor or the owners should do?

e) What does the elasticity of supply show?

f) What is the difference between the short-time and long-time supply?

g) Why do changes in the supply affect the position of the supply curve?

2. Which of the following is not true?

a) Supply is a concept of macroeconomics.

b) Economists differ from bookkeepers and tax-gatherers because they include

also opportunity costs.

c) The shape of the supply curve provides specialist with the information on

elasticity of supply and the reflection of the shareholder.

d) The supply curve is a line on a diagram where the vertical axis measures price

and the horizontal axis is quantity.

45

e) Bountiful crops are a cause of increase in supply.

f) Improvements in technology and changes in input prices and productivities are

the main causes of the changes in elastic demand.

Text 6. Price Elasticity of Demand and Supply

There is a relationship between demand and price. How much demand for a

commodity is affected by a change in prince is called elasticity of demand. If a small

change of price results in a large change in demand, the demand is called elastic, if

the demand changes only a little, it is called inelastic. The price elasticity of demand

coefficient is negative as demand usually falls with a rise in price.

The price elasticity of supply shows the percentage change in the quantity sup-

plied resulting from a one-percent change in price.

As an increase in the quantity supplied is normally a result of a rise in price, the

coefficient is usually positive. We have a "0" (zero) elasticity when a price change re-

sults in no quantity supplied change. This is called a perfectly inelastic supply. Pro-

vided the elasticity varies between zero and one, the supply is called inelastic. With

coefficients greater than one, the supply is called elastic. The percentage change in

quantity is larger than the corresponding percentage change in price.

Agricultural supply is mostly inelastic because of the high proportion of such in-

puts as land, buildings, and machinery. The elasticity of agricultural commodities

(potatoes, wheat, fruits, eggs and milk) varies greatly. Because of increasing special-

ization of production, of farm animal products, in particular, elasticity for such com-

modities as pigs or broilers have decreased in recent years.

Tasks for the Students

1. Read the text.

2. Answer the questions:

46

a) Which demand is called elastic?

b) In what units is elasticity of supply shown?

c) Why is the price elasticity of demand coefficient negative and the corre-

sponding coefficient for supply positive?

d) What supply is called inelastic?

e) What is the difference between the inelastic and the perfectly inelastic supply?

f) Why is agricultural supply usually inelastic?

g) What is the tendency of agricultural supply development?

Text 7. Labour Market

Labour market is a factor market that provides for an exchange of work for

wages. Individual workers or trade unions bargaining on a collective basis represent

the supply side of the market. Firms who are requiring labour as a factor input in the

production process represent the demand side of the market.

The determination of wage rates in labour markets depends upon the supply of,

and demands for, labour. The supply of labour depends upon the size of the popula-

tion, school leaving and retirement ages, geographic mobility, skills, training and ex-

perience, entry barriers to professions and jobs and many other things.

The demand for labour is influenced by, for example, the size and strength of de-

mand-for the goods and services produced by workers, the proportion of total produc-

tion costs accounted for by wages, and the degree of substitutability of capital for

labour in the production process.

47

Because of these factors, the labour market cannot be regarded as a single homo-

geneous market but must be seen as a number of separate labour markets each with

its own particular characteristics. For example, as the above figure shows, a group of

workers such as surgeons, whose skills are in limited supply and the demand for

whose services is high, will receive a high wage rate; by contrast, office cleaners,

who require little or no training or skill, are usually in plentiful supply in relation to

the demand for their services, so their wage rates are comparatively low. The wage

differential between these two groups is Ws-Wo.

Tasks for Independent Work

1. Read the sentences paying attention to the verb "to provide":

Labour market provides for an exchange of work for wages.

These workers have large families to provide for.

They provide their children with food and clothes.

They provide food and clothes for them.

The company must provide for their visitors.

The contract provided cooperation for a few years.

A clause in the agreement provides that the tenant shall bear the cost of all re-

pairs.

48

2. Complete the sentences in your own way:

As a consequence ... It cannot be regarded as ...

As a result ... They require it as ...

As the figure shows ... It must be seen as ...

As the graph shows ... Such professions as ...

As the practice shows... As the labour market shows ...

As to me I ... Such jobs as ...

UNIT 5

MACROECONOMICS PROBLEMS

Text 1. GDP and GNP

Gross Domestic Product (GDP) is the total money value of all final goods and

services produced in an economy over a one-year period. Gross domestic product can

be measured in three ways:

(a) the sum of the value added by each industry in producing the year's out-

put (the output method);

(b) the sum of factor incomes received from producing the year's output

(the income method);

(c) the sum of expenditures on the year's domestic output of goods and services

(the expenditure method).

Gross National Product (GNP) is the total money value of all final goods and

services produced in an economy over a one-year period plus net property income

from abroad (interest, rent, dividends and profits). GNP is an important measure of a

country's general economic prosperity. Here is a comparison of countries' general

economic well-being for one of the recent years:

Developed countries GNP (in US$ millions)

49

UK 975,200

Germany 1,488,200

Japan 2,942,900

USA 5,392,300

Developed countries

Somalia 890

Mozambique 1,300

Nepal 2,900

India 254,500

Tasks for the Students

1. Answer the following questions:

a) Which country had the highest GNP that year?

b) Which of them ran the lowest GNP then?

c) What was the year, to your mind?

d) Is the GNP of a country always higher than the GDP?

e) What makes the difference?

f) Which of the three methods is the most often applied to measure GDP,

as far as you know?

2. Write a short summary of the text (three or four sentences).

Text 2. Government's Role in the Economy

While consumers and producers obviously make most decisions that mould the

economy, government's activities have at least four powerful effects on the US econ-

omy.

Direct services

50

Each level of government provides direct services. The postal system, for exam-

ple, is a federal system serving the nation, as is the large military establishment. By

contrast, state, county or city governments primarily pay for the public education sys-

tems.

Regulation and control

The government regulates and controls private enterprise in many ways in order

to ensure that business serves the best interests of the people as a whole. Regulation

is usually considered necessary in areas where private enterprise has been granted a

monopoly, such as in electric or local telephone service, or in any other areas where

there is limited competition, as with the railroads. Public policy permits such compa-

nies to make reasonable profits, but limits their ability to raise prices "unfairly", be-

cause the public depends on their services.

Stabilization and growth

Branches of government, including Congress and such entities as the Federal

Reserve System attempt to control the extremes of boom and bust, and of inflation

and depression, by adjusting tax rates, the money supply and the use of credit. They

can also affect the economy by changing the amount of public spending by the gov-

ernment itself. Normally, the aim is a balanced federal budget.

Direct assistance

The government provides many kinds of help to businesses and individuals. For

example, tariffs permit certain products to remain relatively free from foreign compe-

tition; imports are sometimes taxed or limited by volume so that American products

can better compete with foreign goods. Government also provides aid to farmers by

subsidizing prices they receive for their crops.

51

In quite a different area, government supports individuals who cannot adequately

care for themselves by making grants to low-income parents with dependent children,

by providing medical care for the aged and indigent, and through social insurance

programs that assist the unemployed and retirees. Government also supplies relief for

the poor and help for the disabled.

Tasks for the Students

1. What is the government’s role in Economy?

2. Describe the main government's activities in Economy.

3. What does stabilization mean?

4. Say about government's direct assistance.

Text 3. Monetary System and Monetary Policies

Today every country has a Central Bank. It acts as a lender to commercial banks

and its acts as a banker to the government. It takes responsibility for the funding of

the government’s budget deficit and the control of the money supply, which includes

currency outside the banking system Thus, money supply is partly a liability of the

Central Bank (currency in private circulation) and partly a liability of commercial

banks (chequing accounts of the general public).

The Central Bank controls the quantity of currency in private circulation and the

one held by the banks through purchases and sales of government securities. In addi-

tion, the Central Bank can impose reserve requirements on commercial banks, that is,

it can impose the minimum ratio of cash reserves to deposits that banks must hold.

The demand for money is a demand for real money, that is, nominal money deflation

by the price level to undertake a given quantity of transactions. Hence, when the price

level doubles, other things equal, we expect the demand for nominal balances to dou-

52

ble, leaving the demand for real money balances unaltered. People want money be-

cause of its purchasing power in terms of the goods it will buy.

The quantity of real balances demanded falls as the interest rate rises. On the

other hand, when interest-bearing assets are risky, people prefer to hold some of the

safe asset, money. When there is no immediate need to make transactions, this leads

to a demand for holding interest-bearing time deposits rather than non-interest-bear-

ing sight deposits. The demand for time deposits will be larger with an increase in the

total wealth to be invested.

Interest rates are a tool to regulate the market for bonds. Being sold and pur-

chased by the Central Bank, bonds depend on the latter for their supply and price.

Interest rates affect household wealth and consumption. Consumption is be-

lieved to depend both on interest rates and on taxes. Higher interest rates reduce con-

sumer demand.

There also exists a close relationship between interest rates and incomes. With a

given money supply, higher income must be accompanied by higher interest rates to

keep money demand unchanged.

A given income level can be maintained by an easy monetary policy and a tight

fiscal policy or by the converse.

Tasks for the Students1. Read the text.

2. Answer the questions:

a) How does the ratio between the amounts of money holdings and interesting

deposits vary?

b) What are the responsibilities of the Central Bank?

c) How can the Central Bank regulate money supply and money market?

d) What is monetary policy?

e) In what way does consumption depend on interest rates and taxes?

f) Of what is money supply made up?

53

Text 4. Inflation

Inflation is a steady rise in the average price and wage level. The rise in wages

being high enough to raise costs of production, prices grow further resulting in a

higher rate of inflation and, finally, in an inflationary spiral. Periods when inflation

rates are very large are referred to as hyperinflation.

The causes of inflation are rather complicated, and there is a number of theories

explaining them. Monetarists, such as Milton Friedman, say that inflation is caused

by too rapid increase in money supply and the corresponding excess demand for

goods.

Therefore, monetarists consider due government control of money supply to be

able to restrict inflation rates. They also believe the high rate of unemployment to be

likely to restrain claims for higher wages. People having jobs accept the wages they

are being paid, the inflationary spiral being kept under control. This situation also ac-

counts for rather slow increase in aggregate demand.

On the other hand, Keynesians, that is, economists following the theory of John

M. Keynes, suppose inflation to be due to processes occurring in money circulation.

They say that low inflation and unemployment rates can be ensured by adopting a

tight incomes policy.

Incomes policies, though, monetarists argue, may temporarily speedup the tran-

sition to a lower inflation rate but they are unlikely to succeed in the end.

The costs of inflation depend on whether it was anticipated and on the extent to

which the economy's institutions allow complete inflation adjustment.

The longer inflation continues, the more the economy learns to live with it. In-

dexation is a means to reduce the costs of some inflation effects. Indexed wages or

loans mean that the amount to be paid or repaid will rise with the price level. Indexa-

tion has already been introduced in countries that had to live with inflation rates of 30

or 40 percent foe years. Moreover, the more countries adjust their economies to cope

with inflation, the closer they come to hyperinflation. Indexation means that high

rates of inflation are much more likely to continue and even to increase.

54

Tasks for Independent Work

1. Read the text.

2. Give a shot summery of the text.

3. Answer the questions:

a) What situation is described as an inflationary spiral? By what means can it be

kept under control?

b) Which two schools of thought are mentioned in the text? What is the differ-

ence between them?

c) What do monetarists think to be effective in restraining inflation rates?

d) Why is aggregate demand low?

e) Do Keynesians consider incomes policies to be in good means of coping with

inflation in the end?

f) What do the costs of inflation depend on?

g) By what means can the costs of inflation be reduced?

h) Does indexation help to cope with inflation?

Text 5. Fiscal Policy

Fiscal policy in an instrument of demand management, which is used to influ-

ence the level of economic activity in an economy through the control of taxation and

government expenditure.

The government can use a number of taxation measures to control aggregate de-

mand or spending: direct taxes on individuals (income tax) and companies (corpora-

tion tax) can be increased if spending has to be reduced, for example, to control infla-

tion. Spending can also be reduced by increasing indirect taxes: an increase in the

55

VAT on all products or excise duties on particular products such as petrol and ciga-

rettes will result in lower purchasing power.

The government can change its own expenditure to affect spending levels as

well: a cut in purchases of products or capital investment by the government can re-

duce total spending in the economy.

If the government is to increase spending, it creates a budget deficit, reducing

taxation and increasing its expenditure.

A decrease in government spending and an increase in taxes (a withdrawal from

the circular flow of national income) reduce aggregate demand to avoid (избегать)

inflation. By contrast, an increase in government spending and/or decrease in taxes –

an injection (денежное вливание) into the circular flow of national income stimu-

lates aggregate demand and creates additional jobs to avoid unemployment.

In practice, however, a number of problems can reduce the effectiveness of fiscal

policy. Taxation rate changes, particularly changes in income tax, take time to make;

considerable proportion of government expenditure on, for example schools, roads,

hospitals and defense cannot easily be changed without lengthy political lobbying.

Tasks for the Students

1. Read the text.

2. Answer the questions:

a) What is the effect of reduced aggregate demand in an economy?

b) How can aggregate demand be reduced?

c) What is the effect of higher aggregate demand?

d) How can aggregate demand be increased?

e) What can decrease the effectiveness of fiscal policy?

3. Give a shot summery of the text.

Text 6. Taxes and Public Spending

56

In most economies, government revenues come mainly from direct taxes on per-

sonal incomes and company profits as well as indirect taxes levied on purchase of

goods and services such as value added tax (VAT) and sales tax. Since state provision

of retirement pensions is included in government expenditure, pension contributions

to state-run social security funds are included in revenue, too. Some small component

of government spending is financed through government borrowing.

Government spending comprises spending on goods und services and transfer

payments.

A transfer is a payment, usually by the government for which no corresponding

service is provided in return. Examples are social security, retirement pensions, and

unemployment benefits and, in some countries, food stamps.

In most countries, there are campaigns for cutting government spending. The

reason for it is that high levels of government spending are believed to exhaust re-

sources that can used productively in the private sector Lower incentives to work are

also believed to result from social security payments and unemployment benefits

Whereas spending on goods and services directly exhausts resources that can be

used elsewhere, transfer payments do not reduce society’s resources. They transfer

purchasing power from one group of consumers, those paying taxes, to another group

of consumers, those receiving transfer payments and subsidies.

Another reason for reducing government spending is to make room for tax cuts.

Government intervention manifests itself in tax policy, which is different in dif-

ferent countries. In the United Kingdom, the government takes nearly 40 percent of

national income taxes. Some governments take a larger share, others a smaller share.

The most widely used progressive tax structure is the one in which the average

tax rate rises with a person's income level. Because of progressive tax and transfer

system most is taken from the rich and most is given to the poor.

Rising tax rates initially increase tax revenue but eventually result in such large

falls in the equilibrium quantity of the taxed commodity or activity that revenue starts

to fall again. High tax rates are said to reduce the incentive to work. If half of all we

57

earn goes to the government, we may prefer to work fewer hours a week and spend

more time in the garden or watching television.

Cuts in tax rates will usually reduce the deadweight tax burden and reduce the

amount of taxes raised but might increase eventual revenue.

If governments wish to reduce the deadweight tax burden and balance spending

and revenue, they are supposed to reduce government spending in order to cut taxes.

Tasks for the Students

1. Read the text.

2. Answer the questions:

a) How is government spending financed?

b) What do governments pay for?

c) What are the three reasons for cutting government spending?

d) Which share of national income comes from taxes?

e) What are the characteristics of the progressive tax structure?

f) What may be the result of very high tax rates?

3. Give a shot summery of the text.

UNIT 6

MICROECONOMICS. THE BASIC OF ENTERPRISE

Text 1. Types of Businesses in the UK and the USA

A business may be privately owned in three different forms. These forms are the

sole proprietorship, the partnership and the corporation. The sole proprietorship is the

most common in many western countries. For example, more than 80 per cent of all

businesses in the United States are sole proprietorships.

58

However, it is evident that sole proprietorships do not do the greatest volume of

business. They account for only 16 percent of all business receipts, for example, in

America. What kind of business is likely to be a sole proprietorship? First, service in-

dustries such as beauty shops, different repair shops, restaurants.

Most businesses in the United Kingdom operate in one of the following ways:

– Sole trader;

– Partnership;

– Limited Liability Company;

– Branch of a foreign company.

The sole trader is the oldest form of business. There are many one-man owners,

for example: a farmer, doctor, solicitor, estate agent, garage man, jobber, builder,

hairdresser etc.

The partnership is a firm where there are a few partners. They are firms of solic-

itors, architects, auditors, management consultants etc. The names of all the partners

of the firm are printed on the stationery of a partnership.

The most common type of company in the United Kingdom is the Limited liabil-

ity Company. At the end of the name of such a company, the word Ltd. is used. For

example, Wilson and Son Ltd.

Many of such companies are joint-stock companies owned by shareholders.

Limited liability companies are divided into public and private ones. Only public

companies may offer shares to the public at the stock exchange. The names of such

companies end p. l. c., which stands for public limited company. For instance, John

and Michael p. l. c.

Private limited companies may not offer shares to the public. The names of such

companies end simply in Ltd.

A branch of a foreign company is a part of a company incorporated outside

Great Britain but acting under the law of the U.K. Usually these companies act in the

U.K. under their normal foreign names.

Businesses in the U.S.A. may be organized in one of the following forms:

– Individual business;

59

– General partnership;

– Limited partnership;

– Corporation;

– Alien Corporation.

One person owns an individual business.

A general partnership has several owners. They all are liable for debts and they

share in the profits.

A limited partnership has at least one general owner and one or more other own-

ers. They have only a limited investment and a limited liability.

Persons, called stockholders, own a corporation. The stockholders usually have

certificates showing the number of shares which they own. The stockholders elect a

director or directors to operate the corporation. Most corporations are closed corpora-

tions, with only a few stockholders. Many stockholders who buy and sell their shares

at will own other corporations. Usually they have little interest in management of the

corporations.

Alien corporations are corporations of foreign countries.

All the corporations are to receive their charters from the state authorities. The

charters state all the powers of the corporation. Many corporations try to receive their

charters from the authorities of the State of Delaware, though they operate in other

shares. They prefer the State of Delaware because the laws are liberal there and the

taxation is rather low. Such corporations, which receive their charters from an out-

side, are called foreign corporations.

All the corporations require a certificate to do business in the state where they

prefer to operate.

Tasks for Independent Work

1. Answer the following questions:

a) What is the most common type of company in the USA?

60

b) Are all limited liability companies joint-stock ones?

c) What can you say about the types of the following companies: Fine Furniture

Ltd. General Foods p. l. e.

2. Compare types of business in the UK and USA and their incorporation re-

quirements:

Sole traders Individual businesses

Partnerships General and limited partnerships

Limited liability companies (Public and

private)

Corporations (closed and ordinary)

Branches of foreign companies Alien corporations

Charter, statutes, memorandum, deliv-

ered

Charter and certificate by the company

and certificate of issued by the state in

corporation, issued by the Registrar au-

thorities

3. Give a shot summery of the text.

Text 2. Partnership

A partnership is an association of two or more persons to carry on a business for

profit. When the owners of the partnership have unlimited liability they are called

general partners. If partners have limited liability, they are "limited partners". There

may be a silent partner as well – a person who is known to the public as a member of

the firm but without authority in management. The reverse of the silent partner is the

secret partner – a person who takes part in management but who is not known to the

public.

Any business may have the form of the partnership, for example, in such profes-

sional fields as medicine, law, accounting, insurance and stock-brokerage. Limited

61

partnerships are a common form of ownership in real estate, oil prospecting, quarry-

ing industries, etc.

Partnerships have more advantages than sole proprietorships if one-needs a big

capital or diversified management. Like sole proprietorship, they are easy to form and

often get tax benefits from the government.

Partnerships have certain disadvantages too. One is unlimited liability. It means

that each partner is responsible for all debts and is legally responsible for the whole

business. Another disadvantage is that partners may disagree with each other.

Tasks for the Students

1. Answer the questions:

a) What is the difference between a general partnership and a limited partner-

ship?

b) Is there any difference between a silent partner and a secret partner?

c) In what professional fields are the partnerships found?

d) In what businesses is the partnership a common form?

e) What are the advantages of a partnership?

f) Discuss the disadvantages of a partnership. Would you prefer partnership or

sole proprietorship for business? Give your reasons.

2. Select the necessary word and put it in the sentence.

1 .Partnership very often receives... from the government. 1 secret partner

2. Limited partnerships is a common form of ownership in ... 2 unlimited liability

3. Partnerships have many... one is that they receive tax

benefits from the government.

3 real estate

4. ... are the partners with unlimited liability. 4 general partner

5. ... has the authority in management but he is not known 5 advantage

62

to public.

6. A secret partner takes part in … 6 profit

7. General partners have ... 7 capital

8. One advantage of a partnership is that it offers a multiple

source of...

8 management

9. A partnership can bring much ... to the partners. 9 tax benefits

Text 3. Corporations

A business corporation is an institution established for the purpose making

profit. Individuals operate it. Their shares of ownership represented by stick certifi-

cates. A person who owns a stock certificate r, called a stockholder.

There are several advantages of the corporate form of ownership. The first is the

ability to attract financial resources. The next advantage is 11 corporation attracts a

large amount of capital it can invest it in plants, equipment and research. And the

third advantage is that a corporation can oil u higher salaries and thus attract talented

managers and specialists.

The privately owned business corporation is one type of corporal ion. There are

some other types too. Educational, religious, charitable institute can also incorporate.

In some western countries, cities, states, federal government and special agencies can

establish governmental corporations. Governmental corporations are state universi-

ties, state hospitals. Governmental corporations are non-profit as a rule usually they

do not issue stock certificates.

Tasks for the Students

1. Answer the questions:

a) Who can own a corporation?

63

b) Is a corporation necessarily larger than a sole proprietorship?

c) What are the advantages of the corporate form of ownership?

d) What can you say about the disadvantages of the corporate form of owner-

ship?

e) Do the corporations issue stock to stockholder?

f) What kind of corporations usually does not issue the stock?

g) What world-known corporations do you know?

h) What types of business usually take the corporate form of ownership?

2. Choose the necessary word and put it in the sentence:

1. What kind of ... is better: buying stock or buying real

estate?

1 charitable

2. To attract greater financial ... the company issues the

stock.

2 stock

3. A university can be ... corporation. 3 resources

4. The partners did not put the same . . . into business. 4 institution

5. The group of people from different countries are going

to ... a corporation.

5 investment

6. The Red Cross is an international... organization. 6 nonprofit

7. I want to buy some ... in IBM and General Motors. 7 amount of capital

8. An educational ... usually reinvests all its money.

Text 4. Accounting

Accounting shows a financial picture of the firm. An accounting department

records and measures the activity of a business. It reports on the effects of the trans-

actions on the firms’ financial condition. Accounting records give a very important

data. Management, stockholders, creditors, independent analysts, banks and govern-

ment use it.

64

Most businesses prepare regularly the two types of records. That is the income

statement and balance sheet. These statements show how money was received and

spent by the company.

One major tool for the analysis of accounting records is ratio analysis. A ratio

analysis is the relationship of two figures. In finance, we operate with three main cat-

egories of ratios. One ratio deals with profitability, for example, the Return on Invest-

ment Ratio. It is used as a measure of a firms operating efficiency.

The second set of ratios deals with assets and liabilities. It helps a company to

evaluate its current financial position. The third set of ratios deals with the overall fi-

nancial structure of the company. It analyses the value of ownership of the firm.

Tasks for Independent Work

1. Answer the questions:

a) What is the purpose of accounting?

b) Who uses the data provided by accounting firms?

c) What are the two types of records, which most businesses prepare?

d) What can you know analyzing the income statement and balance sheet of a

company?

e) What is the purpose of the ratio analysis?

f) What categories of ratios in finance do you know?

2. Choose the necessary word and put it in the sentence:

1. An accounting helps ... the activity of a business. 1 to profit

2. Do you know the effect of your last ... on financial condi-

tion of the firm?

2 profit

3. Accounting records provide ... for stockholders, inde-

pendent analysts.

3 efficiency

4. The second type of ratio helps the company ... its current

financial position.

4 ownership

65

5. ... is one the two main records which most of the busi-

nesses prepare regularly.

5 to evaluate

6. The ... of the company includes real estate in California. 6 transaction

7. I am sure of the ... of this transaction. 7 data

8. Our company's current ... is very high. 8 income statement

9. They ... from the association with that corporation. 9 to measure

Text 5. The Balance Sheet

Financial statements are the final product of the accounting process. They pro-

vide information on the financial condition of a company. The balance sheet, one

type of financial statement, provides a summary of what a company owns and what it

owes on one particular day.

Assets represent everything of value that is owned by a business, such as prop-

erty, equipment, and accounts receivable. On the other hand, liabilities are the debts

owed by a company – for example, to suppliers and banks. If liabilities are subtracted

from assets (assets-liabilities), the amount remaining is the owners' share of a busi-

ness. This is known as owners' or stockholders' equity.

One key to understanding the accounting transactions of a business is to under-

stand the relationship of its assets, liabilities, and owners' equity. This is often repre-

sented by the fundamental accounting equation: assets equal liabilities plus owners'

equity.

ASSETS = LIABILITIES + OWNERS’ EQUITY

These three factors are expressed in monetary terms and therefore are limited to

items that can be given a monetary value. The accounting equation always remains in

balance; in other words, one side must equal the other.

The balance sheet expands the accounting equation by providing more informa-

tion about the assets, liabilities, and owners equity of a company at a specific time

66

(for example, on December 31, 1996). It is made up of two parts. The fist part lists

the company assets, and the second part details liabilities and owners' equity. Assets

are divided into current and fixed assets. Cash, accounts receivable, and inventories

are all current assets. Property, buildings, and equipment make up the fixed assets of

a company. The liabilities section of the balance sheet is often divided into current li-

abilities (such as accounts payable and income taxes payable) and long-term liabili-

ties (such as bonds and long-term notes).

The balance sheet provides a financial picture of a company on a particular date,

and for this reason, it is useful in two important areas. Internally, the balance sheet

provides managers with financial information for company decision-making. Exter-

nally, it gives potential investors data for evaluation of the company’s financial posi-

tion.

Tasks for the Students

1. Read the text.

2. Give a shot summery of the text.

Text 6. Classification of Costs

Costs as we all know are usually measured in monetary terms and include such

items as wages, rent, rates, interest, and the amounts paid for raw materials, fuel,

power, transport and so on.

Just as some inputs are fixed and others variable, so some costs are fixed and

others variable.

Fixed Costs

These are costs, which do not vary as output varies. They are obviously the costs

associated with the fixed factors of production, and include such items as rent, rates,

insurance, interest on loans, and depreciation.

67

A major item in fixed costs, especially in capital – intensive industries, is the

item known as depreciation. It may seem rather illogical to classify depreciation

charges, as a fixed cost for many people will think that the rate of depreciation of a

capital asset is directly related to the extent to which it is used (i.e. output). In fact,

the life of capital assets tends to be measured in economic rather than technical terms.

Machinery depreciates even when even not in use and, even more important, it be-

comes obsolete. It is normal practice, therefore, to fix an annual depreciation charge,

which will write off the cost of equipment over some estimated working lifetime.

There are many ways of doing this, but the simplest is to make an annual charge

equal to a fixed proportion of the total value. If a machine costs 20 000 pounds and

has an expected life of 5 years, then 4 000 pounds per annum will be added to costs

and placed in a depreciation fund to cover the expenses of renewal.

Fixed costs (sometimes described as overhead or indirect costs) are not influ-

enced by changes in output. Whether a firm is working at full capacity or half capac-

ity the items of costs mentioned above will be unaffected. Thus, when a super-tanker

is lying empty in port, a Jumbo-jet is standing in the hanger, or your new car is

locked away in the garage, costs are still being incurred.

Variable Costs

These are the costs, which are related directly to output. The most obvious items

of variable costs are the wages of labour, the costs of raw materials, and fuel and

power. Variable costs are often described as direct or prime costs.

Total Costs

Total costs represent the sum of fixed and variable costs. When output is zero,

total costs will be equal to fixed costs since variable costs will be zero. When produc-

tion commences, total costs will begin rise as production increases, because there

must be some increase in variable costs as output expands. What is important, how-

68

ever, is the rate at which total costs increase; if they are rising at a slower rate than

output, average costs must be falling.

Average Cost

Average cost (or cost per unit) is equal to total Costs/Output. When output is

small, average cost will be spread over a small number of units of output. As output

increases, average cost will tend to fall as each unit is 'carrying' a smaller element of

fixed cost. Average cost will also fall because, for a time, there will be increasing re-

turns to the variable factors as more of them are employed and more specialized

methods adopted. There will come a point, however, when diminishing returns are

encountered and average cost begins to rise.

Marginal Cost

The economist is interested in marginal quantities because most economic deci-

sions involve changes in some existing situation. Marginal cost tells us what happens

to total costs when we vary output by some small amount. More precisely, marginal

cost is the extent to which total costs change when one unit changes output.

Marginal cost — Total cost of N units — Total cost of (N — 1) units.

Since marginal cost is a measurement of changes in total cost it is obviously in-

fluenced by variable costs but not by fixed costs.

Summary

1. Total cost = Fixed costs + Variable cost

2. Average cost = Total costs / Total output

3. Marginal cost = Change in total cost when output is varied by one unit.

69

Tasks for the Students

1. Read the text.

2. Give a shot summery of the text.

UNIT 7

MARKETING

Text 1. Marketing Research and Channels of Marketing

Philip Kotler defines marketing as «asocial and managerial process by which in-

dividuals and groups obtain what they need and want through creating and exchang-

ing products and values with others». Marketing research is used to assess the mar-

ket's response to the firm's marketing inputs, which include promotional activities

such as price discounting, placement of in-store displays, multimedia advertising, ex-

panding distribution; and product development and enhancement. The goal of mar-

keting research is to assist the firm in determining the most effective, i.e. most prof-

itable, mix of marketing inputs given knowledge of the marketplace.

As a formal scientific discipline, marketing research began in the early twentieth

century with most analyses being based on survey data. In the 1930s, the A. C.

Nielsen Company began collecting in-store data using manual audits. Today, with the

advent of scanning technology, the amount of timely ill data available from stores

and household panels has grown exponentially. Coincident with this data explosion,

the data delivery systems and the techniques used to analyze the data have become

increasingly sophisticated. Marketing research is an integral part of organizations in

both the consumer durable and nondurable goods sectors, and in recent years the use

of marketing principles has become increasing prevalent among nonprofit and gov-

ernment sectors.

70

Marketing research is interdisciplinary requiring the knowledge of economists,

operations researchers, psychologists, and statisticians. For the economist, the eco-

nomic theory of consumer behavior and the theory of the firm provide basic building

blocks. Marketing research can be viewed as an operational or tactical activity and as

a strategic activity. Although both activities require knowledge of the workings of the

marketplace at both the macroeconomic and microeconomic levels, tactical analyses

focus on monitoring a product's performance and testing the effectiveness of market-

ing programs relative to competitors. Strategic research involves selecting and opti-

mizing marketing opportunities.

In order to understand the marketplace, the researcher must define the market in

terms of both the geographic unit and the product class and collect data. Data on con-

sumer purchases permit an analyst to determine what was sold and how particular

brands performed relative to each other. In addition to sales and price information,

causal data assist the analyst in understanding the reason that sales took place. Exam-

ples of causal data are newspaper advertising, which indicates the extent of retailer

advertising support, display activity, and coupon ads. Another important source of in-

formation for understanding the source of sales is television advertising. Measuring

the effects of television advertising is relatively difficult owing to the dynamic effects

such advertising has on consumer behavior, however.

Once the data are collected, the analyst may choose to evaluate the information

by simply looking at the raw series together over time or compute straightforward

measures such as market share in order to arrive at a qualitative assessment of market

activity. Statistical models might be estimated in order to address issues such as tem-

porary price reduction effectiveness, the extent of cannibalization due to promotional

activity, i.e. the extent to which sales of one specific product decline as a result of

promoting another similar product produced by the same manufacturer, the competi-

tive effects of promotions, differences between markets, competitive pricing points,

and long-term price elasticities.

Forecasting is an activity likely to be undertaken by a business economist work-

ing in a marketing research department. Conventionally, business economists have

71

been responsible for producing forecasts for the macroeconomic environment or for

activity within industry groups. More recently, forecasting movements in mature

product categories, in segments within categories, and in brands has increased in im-

portance.

Forecasting the success or failure of new product introductions is also important.

New product introductions require a considerable amount of a firm’s resources and

failure to read the marketplace correctly and early in the development process can

lead to costly errors. The development of a new brand begins with the identification

of new market opportunities. Consumer survey research directed at identifying the

market response to the brand concept and elements of the marketing mix, e.g., pric-

ing, is typically conducted. Based on the survey a firm may decide to continue with

the development plans for the brand, revise current plans in response to the survey re-

sults and retest, or cancel development plans completely. Comparisons may also be

made between attitudes toward the new concepts and existing products.

Tasks for independent work

1. Answer the questions:

a) How does Philip Kotler define marketing?

b) What is marketing research used for?

c) What is the goal of marketing research?

d) When did marketing research begin as a «formal scientific discipline»?

e) What knowledge does marketing research require?

f) What are basic steps of marketing research?

g) According to the text, how can marketing research be viewed?

h) What are the sources of information of marketing researcher?

72

2. What is not true about marketing research?

a) Marketing as a formal scientific discipline has its roots in Greece and Rome.

b) Philip Kotler, a prominent economist, defined marketing research as «a social

and managerial process».

c) Marketing research began in the early twentieth century.

d) Marketing research requires the knowledge of economists, operation re-

searchers, psychologists and statisticians.

e) The research must understand the location and product class of a certain mar-

ket in order to understand it.

f) A person working in a marketing research department is a good forecaster.

3. Questions for discussion:

a) Is it reasonable to use independent marketing research in small business?

b) What skills are of the most use for specialist in marketing?

c) How could marketing research be made less expensive?

4 . Give a shot summery of the text.

Text 2. What You Know About Marketing

Marketing includes all the business activities connected with the movement of

goods and services from producers to consumers. Sometimes it is called distribution.

On the one hand, marketing is made up of such activities as transporting, storing and

selling goods and, on the other hand, a series of decisions you make during the

process of moving goods from producer to user. Marketing operations include prod-

uct planning, buying, storage, pricing, promotion, selling, credit, traffic and market-

ing research.

The ability to recognize early trends is very important. Producers must know

why, where, for what purpose the consumers buy. Market research helps the producer

to predict what the people will want. And through advertising he attempts to influ-

ence the customer to buy. Marketing operations arc very expensive. They take up

73

more than half of the consumer's dollar. The trend in the USA has been to high mass

consumption. The construction of good shopping centers has made goods available to

consumers. It provided a wide range of merchandise and plenty of parking facilities.

Tasks for the Students

1. Read the text.

2. Answer the questions:

a) What does marketing mean?

b) What activities does marketing consist of?

c) What do marketing operations include?

d) Why is it so important for the producer to predict the trends?

e) How was mass consumption possible in the USA?

3. Give a shot summery of the text.

Text 3. Channels of Marketing

Individual consumers and corporate/organizational buyers are aware that thou-

sands of goods and services are available through a very large number of diverse

channel outlets.

Usually, combinations of institutions specializing in manufacturing, wholesal-

ing, retailing, and many other areas join forces in marketing channel arrangements to

make possible the delivery of goods to industrial users or customers and to final con-

sumers. The same is true for the marketing of services. For example, in the case of

health care delivery, hospitals, ambulance services, physicians, laboratories, insur-

ance companies, and drugstores combine efforts in an organized channel arrangement

to ensure the delivery of a critical service. All these institutions depend on each other

to cater effectively to consumer demands.

74

Therefore, marketing channels can be viewed as sets of interdependent organiza-

tions involved in the process of making a product or service available for use or con-

sumption. From the outset, it should be recognized that not only do marketing chan-

nels satisfy demand by supplying goods and services at the right place, quantity, qual-

ity, and price, but they also stimulate demand through the promotional activities of

the units (e.g., retailers, manufacturers' representatives, sales offices, and whole-

salers) comprising them. Therefore, the channel should be viewed as an orchestrated

network that creates value for the user or consumer through the generation of form,

possession, time, and place utilities.

A major focus of marketing channel management is on delivery. It is only

through distribution that public and private goods can be made available for con-

sumption. Producers of such goods (including manufacturers of industrial and con-

sumer goods, legislators framing laws, educational administrators conceiving new

means for achieving quality education, and insurance companies developing unique

health insurance coverage) are individually capable of generating only form or struc-

tural utility for their «products». They can organize their production capabilities in

such a way that the products they have developed can be seen, analyzed, debated,

and. by a select few perhaps, digested. But the actual large-scale delivery of the prod-

ucts to the consuming public demands different types of efforts which create time,

place, and possession utilities. In other words, consumers cannot obtain a finished

product unless the product is transported to where they can gain access to it, stored

until they are ready for it, and digested, exchanged for money or other goods or ser-

vices so that they can gain possession of it. In fact, the four types of utility (form,

time, place, and possession) are inseparable: there can be no «complete» product

without incorporating all four into any given object, idea, or service.

Tasks for the Students

1. Answer the questions:

75

a) What are individual consumers and corporate buyers aware of?

b) What combinations of institutions specializing in manufacturing, wholesal-

ing, and retailing usually do to maximize their profits?

c) What is an example of health care delivery used for?

d) What is the major focus of marketing channel management concentrated on?

e) What the verb «to digest» is used for in the text?

2. Which of the following is false?

a) Channel structure could be very complex.

b) Many partners coordinate their efforts to make possible the delivery of goods.

c) Channels of marketing are of the most importance and effectiveness in health

care delivery.

d) Marketing channels stimulate demand through the promotional activities of

the units.

e) Public and private goods could be available for consumption only through

distribution.

f) According to the author, legislators also use the channels of marketing to dis-

tribute their products - laws.

g) The only way to use marketing channel is to digest them.

3. Questions for discussion:

a) Does channel structure for individual consumers differ from that of organiza-

tion? In what way?

b) Do you agree that laws of marketing could be applied to the sphere of poli-

tics? Why? Give an example.

c) Do you agree that theory of marketing could be used in the field of medicine?

Does it come into contradiction with ethics or morals?

Text 4. Retailing

76

Retailing is selling goods and services to the ultimate consumer. Thus, the re-

tailer is the most expensive link in the chain of distribution. Being intermediaries,

they make their profit by charging the customer 25 to 100 per cent more than the

price they paid for the item.

The retailers operate through stores, mail-order houses, vending machine opera-

tors. There are different types of retail stores: department stores, discount houses, co-

operatives, single line retailers. The major part (over 95 per cent) of retail establish-

ments concentrate on a single line of merchandise for example, food, hardware, etc.

But nowadays there is a trend for many single line stores to take on a greater variety

of supplies.

The retailer performs many necessary functions. First, he may provide a conve-

nient location. Second, he often guarantees and services the merchandise he sells.

Third, the retailer helps to promote the product through displays, advertising or sales

people. Fourth, the retailer can finance the customer by extending credit. In addition,

the retailer stores the goods in his outlet by having goods available.

Tasks for the Students

1. Comprehension questions:

a) What is retailing?

b) What are four different types of retail stores?

c) What are at least two types of retailing that do not include the use of a store?

d) In what way does a retailer serve a customer?

e) In what way does a retailer serve a manufacturer?

f) Which percent of the price of the good sold goes to the retailer?

g) What is the trend with a single line retailer now?

2. Put the necessary word in the sentence:

77

1 . ... is one function a retailer may perform. 1 mail-order

2. You can buy newspaper, cigarettes, cookies from a ... 2 discount

3. ... is the most expensive link in the chain between a pro-

ducer and a consumer.

3 vending-machine

4. The firm ... good quality of the product. 4 guarantees

5. She doesn’t like to go shopping, she prefers to do it by ... 5 retailer

6. The department store is having a sale and there is a 20 per

cent ... on all light dresses.

6 extending credit

7. Wholesaler is an important ... between a producer and a

consumer.

7 link

Text 5. Pricing

All products and all services have prices. The price depends on different things

such as credit terms, delivery, and trade in allowance, guarantees, quality and other

forms of service, which price can produce the biggest profit during a long period of

time. It is hardly possible to determine such a price. The price may be too high to pro-

duce a large volume or too low, to cover costs. No other area of marketing operations

has been a subject to bad practice. Many businesses pursue unsound price policies for

long periods of time and are not aware about it.

Prices can be determined in different ways. For example, the prices of meat, cot-

ton and other agricultural prices can be decided in large central market where forces

of supply and demand exist. This is pure price competition. Large companies usually

decide the prices on industrial products (iron, steel, etc.) As a rule the amount and

price of goods sold to large number of buyers is controlled by a few competitive sell-

ers. The government, usually for different public services -railroads, electricity, man-

ufactured gas, bus services, etc, also can set prices.

If demand increases, prices rise, profits expand and new investment is attracted.

But other factors may be involved as well. Prices are related to each other in different

78

ways. Ultimately, everything is related in price, since the consumer can buy and must

pay for everything out of a particular, limited amount of money.

Tasks for the Students

1. Comprehension questions:

a) Why is it difficult to determine the right price?

b) Why is the seller interested in the price that produces the highest volume of

sales at the lowest unit cost?

c) Why do many businesses follow unsound pricing policies?

d) In what way are agricultural prices decided?

e) How are usually industrial products priced?

f) Why does the government usually set the prices for public utility services?

g) Why is it so important to know the levels of supply and demand when dealing

with pricing?

h) Why is everything related by price?

2. Put the necessary word in the sentence:

1. It is very difficult ... without sound price policy. 1 supply and demand

2. Of course we are interested in producing the . . . with

the lowest unit costs.

2 volume of sales

3. I decided to buy a new car at this company because

they offered the best ... on my old model.

3 trade-in allowance

4. The ... of this store are very beneficial for a customer. 4 compete

5. Their business will fail if they pursue unsound ... 5 price policies

6. The government usually... for public utility services. 6 credit terms

7. In pure competition the forces of ... operate. 7 to set prices

79

UNIT 8

MANAGEMENT

Text 1. The Main Functions of Managers

The main functions are planning, organizing, staffing, leading and controlling.

Planning involves selecting objectives and the actions to achieve them, it re-

quires decision-making.

Decision-making is choosing future courses of action from among alternatives.

No real plan exists until a decision has been made. Before a decision is made, all we

have is a planning study, an analysis, or a proposal, but not a real plan.

Planning bridges a gap from where we are to where we want to be in a desired

future. It strongly implies not only the introduction of new things but also sensible

and workable implementation.

Organizing. People working together in groups to achieve some goals must have

roles to play, much like the parts actors film in a drama.

Organizing is that part of managing that involves establishing an intentional

structure of roles for people to fill in an organization. It is intentional in the sense of

making sure that all the tasks necessary to accomplish goals are assigned to people

who can do those best. The purpose of an organization structure is to help in creating

an environment for human performance. It is a management tool and not an end in

and of itself.

To design an effective organization structure is not an easy managerial task.

Many problems are involved in making structures fit situations, including both

defining the kind of jobs that must be done and finding the people to do them.

Tasks for Independent Work

1. Answer the questions:

80

a) What are the main functions of management?

b) What does planning involve?

c) What is required in planning?

d) What is decision making?

e) What is it necessary to do before a real plan is made?

f) What does real planning imply?

g) What is the basic element in establishing an environment for performance?

h) How can managers enable people to perform their tasks effectively?

i) What must people know to make their group effort effective?

j) What does the concert of a role imply?

k) What enables people to accomplish their tasks?

l) What does organizing involve?

m) How is intentional structure understood?

n) What is the purpose of an organization structure?

o) How should the roles be designed?

p) Why is an effective organization structure not an easy managerial task?

2. Complete the sentences with an appropriate word:

1. It is important to objectives and the actions to achieve

them.

designed

2. Planning twill the introduction of new thing and their establishing

3. It is necessary to people to know their purposes and

objectives.

select

4. Task should be to people who can do those best. choose

5. Managers should give the to be followed if they want the

tasks to be performed officially.

involves assigned

6. People should have the necessary tools, and information to

accomplish the task.

authority define

7. The of an organization structure is lo help in creating

for human performance.

organization structure

8. The structure must the tasks lo be assigned. involves enable

81

9. To design an effective is not an easy managerial task implementation

Text 2. Effective Managers

Staffing involves filling and keeping filled the positions in the organization

structure.

This is done by defining work-force requirements, inventorying the people avail-

able, recruiting, selecting, placing, promoting, planning the career, compensating and

training or otherwise developing both candidates and current job holders to accom-

plish their task effectively and efficiently.

Leading is influencing people so that they will contribute to organization and

group goals; it has to do with the interpersonal aspect of managing.

All managers would agree that their most important problems arise from people

– their desires and attitudes, their behavior as individuals and in groups.

Effective managers also need to be effective leaders.

Since leadership implies follower ship and people tend to follow, those who of-

fer a means of satisfying their own needs, wishes and desires, it is understandable that

leading involves motivation, leadership styles and approaches, and communication.

Controlling is the measuring and correcting of activities of subordinates to en-

sure that events conform to plans.

It measures performance against goals and plans, shows where negative devia-

tions exist and by correcting deviations helps ensure accomplishment of plans.

Although planning must precede controlling, plans are not self-achieving. The

plan guides managers in the use of resources to accomplish specific goals.

Then activities are checked to determine whether they conform to plans.

Control activities generally relate to the measurement of achievement. Each

means of controlling shows plans are working out.

Nothing can be done unless one knows who is responsible for these functions.

Making events to conform to plans means locating the persons who are responsible

82

for results that differ from planned action and then taking the necessary steps to im-

prove performance. Thus, outcomes are controlled by controlling what people do.

Tasks for the Students

1. Answer the questions:

a) What is staffing?

b) What is to be done to perform staffing effectively?

c) Why should developing apply both to candidates and to current jobholders?

d) How should leading influence people?

e) What aspect of managing is it?

f) What do the most important problems of managing arise from?

g) What does leadership imply?

h) What does leading involve?

i) What is controlling?

j) Why is it important?

k) Why is it necessary to check the activities of subordinates?

l) What does each means of controlling show?

m) How can deviations be corrected?

n) What does it mean to make events to conform to plans?

o) How are outcomes controlled?

2. Complete the sentences with an appropriate word:

1. Before recruiting new candidates, the manager should ...

work-force requirements.

deviations ensure

2. Staffing involves... both candidates and a current jobhold-

ers.

guides

3. Recruiting, selecting, placing, promoting, planning the subordinates measuring

83

career, compensating are all important in the process of ...

4. It is necessary to ... people so that they will contribute to

organization goals.

define

5. Most important problems from people, their desires

and ....

follower ship motivation

6. Leadership implies ...because people tend to follow those

who can satisfy their needs.

arise

7. Leading involves ..., leadership styles and approaches. developing

8. Controlling is the ... and correcting of activities of .... influence

9. Controlling is necessary to that events conform to ...plans. staffing

10. The plan ... managers in the use of resources. attitudes

11. ...should be corrected.

3. Give a shot summery of the text.

Text 3. Leadership

Although some people treat the terms "managership" and "leadership" as syn-

onyms, they should be distinguished.

Actually, there can be leaders of unorganized groups, but there can be managers

only where organized structures create roles.

Leadership is an important issue of managership: the ability to lead effectively is

one of the keys to being an effective manager.

Doing the entire managerial job demands that a manager is an effective leader.

Managers must exercise all the functions of their role in order to combine human

and material resources to achieve objectives. The key to doing this is a degree of au-

thority to support managers' actions.

The essence of leadership is followership. In other words, it is the willingness of

people to follow that makes a person a leader.

84

Moreover, people tend to follow those whom they see as providing a means of

achieving their own desires, wants and needs.

Leadership and motivation are closely interconnected. By understanding motiva-

tion, we can appreciate better what people want and why they act as they do.

Leadership may not only respond to subordinates' motivations but also arouse or

dampen them by means of the organizational climate they develop.

Both these factors are as important to leadership as they are to managership.

We define leadership as influence; the art or process of influencing people so

that they will strive willingly and enthusiastically toward the achievement of group

goals.

Ideally, people should be encouraged to work with zeal and confidence.

Zeal is ardour, earnestness and intensity in the execution of work; confidence re-

flects experience and technical ability.

Leaders act to help a group achieve goals through the maximum application of

its capabilities.

They do not stand behind a group to push and prod; they place themselves be-

fore the group as they facilitate progress and inspire the group to accomplish organi-

zations goals.

Tasks for Independent Work

1. Answer the questions:

a) Why should the terms "managership" and "leadership" be distinguished? Do

they mean the same thing?

b) How is leadership connected with managership?

c) What does managerial work demand?

d) What is the essential part of leadership?

e) How do leaders influence the performance of their subordinates?

f) What is the definition of leadership?

85

2. Think and answer:

a) Do you agree that the terms "leadership" and "managership" should be distin-

guished? If not, give your reasons.

b) Why is followership so important?

c) What can you say about the organizational climate in your office?

d) Does your manager (or leader) respond to your motivation?

e) What is the best way to encourage people to work with zeal and confidence?

Text 4. The Basic Steps in Decision Making

Step 1. Define the Problem

Decisions do not occur in a vacuum. Many come about as part of the firm's plan-

ning process. Others are prompted by new opportunities or new problems. It is natu-

ral to ask – "What brought about the need for the decision?" "What is the decision all

about?" In all kinds of textbooks examples, the decision problem is stated and is rea-

sonably well defined. In practice, however, managerial decisions do not come so

neatly packaged; rather, they are messy and poorly defined. Thus, problem definition

is a prerequisite for problem management.

A key part of problem definition is identifying the setting or context…

Identifying the decision context and the decision maker represents a large step

toward understanding the choice process. The particular setting has a direct bearing

on both the decision maker’s objectives and the available courses of action. The next

two steps consider each of these aspects in turn.

Step 2. Determine the Objective

When it comes to economic decisions, it is a truism that «you can't always get

what you want». Nevertheless, to make any progress at all in your choice, you have

to know what you want. In most private sector decisions, the principal objective of

the firm – and barometer of its performance – is profit: the difference between the

firm's total revenues and its total costs. Thus, among alternative courses of action, the

manager will select the one that will maximize the profit of the firm. Attainment of

86

maximum profit worldwide is the natural objective of the multinational steel com-

pany, the drug company, and the management and shareholders of Disney, Canon,

Time Inc., Texaco, and Pennzoil. Sometimes the manager focuses on the narrower

goal of minimizing cost. For instance, the firm may seek to produce a given level of

output at the least cost or to obtain a targeted increase in sales with minimal expendi-

ture on advertising. In a host of settings, measures that reduce costs directly serve to

increase profits.

The objective in a public sector decision, whether it be building an airport or

regulating a utility, is broader than the private profit standard. In making its choice,

the government decision maker should weigh all benefits and costs, not solely those

that accrue as revenue or are incurred as expenses. According to this benefit-cost cri-

terion, the airport may be worth building even if it fails to generate a profit for the

government authority. The optimal means of regulating the production decisions of

the utility depend on a careful comparison of benefits (mainly in the form of energy

conservation) and costs (in material and environmental terms).

In practice, profit maximization and benefit-cost analysis are not always unam-

biguous guides to decision making. One difficulty is posed by the timing of benefits

and costs. Should a firm (the drug company, for example) make an investment (sacri-

fice profits today) for greater profits five or ten years from now? Are the future bene-

fits to air travelers worth the present capital expense of building the airport? Both pri-

vate and public investments involve trade-offs between present and future benefits

and costs. Thus, in pursuing its profit goal, the firm must establish a comparable mea-

sure of value between present and future monetary returns.

Uncertainty poses a second difficulty. In many economic decisions, it is custom-

ary to treat the outcomes of various actions as certain. For instance, a fast-food chain

may know that it can construct a new outlet in 21 days at a cost of $90 per square

foot. The cost and timing of construction are not entirely certain, but the margin of er-

ror is small enough to have no bearing on the company's decisions and thus can be

safely ignored. In contrast, the cost and date of completion of a nuclear power plant

87

are highly uncertain (due to unanticipated design changes, cost overruns, schedule de-

lays, and the like).

At best, the utilities that share ownership of the plant may be able to estimate a

range of cost outcomes and completion dates and assess probabilities for these possi-

ble outcomes. (With the benefit of hindsight, one now wishes that the utilities had

recognized the risks and safety problems of nuclear plants 10 and 20 years ago, when

construction on many plants was initiated.)

The presence of risk and uncertainty has a direct bearing on the way the decision

maker thinks about his or her objective. The drug company seeks to maximize its

profit, but there is no simple way to apply the profit criterion to determine its best

R&D choice. The company cannot use the simple rule «choose the method that will

yield the greater profit» because the ultimate profit from either method cannot be

pinned down ahead of time. In each case, there are no profit guarantees; rather, the

drug company faces a choice between two risky options. Similarly, public programs

and regulatory policies will generate future benefits and costs that cannot be pre-

dicted with certainty.

What is the decision maker's goal? What end is he or she pursuing? How should

the decision maker value outcomes with respect to this goal? What if he or she is pur-

suing multiple, conflicting objectives?

Step 3. Explore the Alternatives

After addressing the question "What do we want? ", it is natural to ask, "What

are our options? " The ideal decision maker, if such a person exists, would lay out all

the available courses of action and then choose the one that would best achieve his or

her objective. Given human limitations, decision makers cannot hope to identify and

evaluate all possible options. The cost of doing so simply would be too great. Still,

one would hope that attractive options would not be overlooked or, if discovered, not

mistakenly dismissed. No analysis can begin with all the available options in hand.

However, a sound decision framework should be able to uncover options in the

course of the analysis.

88

Most managerial decisions involve more than a once-and-for-all choice from

among a set of options. Typically, the manager faces a sequence of decisions from

among alternatives.

At the outset, management at Time Inc. had to decide whether to develop Picture

Week for market testing. The whole point of the development and testing program

was to provide information on which management could base its main decision:

whether to undertake a full-fledged, nationwide launch of the magazine. Notice that

the company could have launched the magazine without extensive market testing.

However, it rejected this riskier strategy in favor of a contingent plan of action: to un-

dertake the testing program and then launch the magazine if and only if the test re-

sults and economic forecasts were both favorable.

Sequential decision making also lies at the heart of the negotiation dilemma,

which many firms face. Each side must formulate its current negotiation stance (how

aggressive or conciliatory an offer to make) in light of current court results and the

offers (both its own and its opponent’s) made to date. Thus, a commonly acknowl-

edged fact about negotiation is that the main purpose of an opening offer is not to

have the offer accepted (if it were, the offer probably was far too generous); rather,

the offer should direct the course of the offers to follow.

Step 4. Predict the Consequences

Depending on the situation, the task of predicting the consequences may be

straightforward or formidable. Sometimes elementary arithmetic suffices. For in-

stance, the simplest profit calculation requires only subtracting costs from revenues.

Or suppose the choice between two safety programs is made according to which

saves the greater number of lives per dollar expended. Here the use of arithmetic divi-

sion is the key to identifying the preferred alternative.

Step 5. Make a Choice

In the vast majority of decisions we may encounter, the objectives and outcomes

are directly quantifiable. Thus, the private firm, such as the steelmaker, can compute

the profit results of alternative price and output plans. Analogously, a government de-

cision maker may know the computed net benefits (benefits minus costs) of different

89

program options. Given enough time, the decision maker could determine a preferred

course of action by enumeration that is, testing a number of alternatives and selecting

the one that best meets the objective. This is fine for decisions involving a small

number of choices, but it is impractical for problems that are more complex.

For instance, what if the steel firm drew up a list of two dozen different pricing

and production plans, computed the profits of each, and settled on the best of the lot?

How could management be sure this choice is truly "optimal" that is, the best of all

possible plans? What if a more profitable plan, say, the twenty-fifth candidate, was

overlooked? Expanding the enumerated list could reduce this risk, but at considerable

cost.

Fortunately, the decision maker need not rely on the painstaking method of enu-

meration to solve such problems. A variety of methods can identify and cut directly

to the best or optimal decision. These methods rely to varying extents on marginal

analysis, linear programming, decision trees, and benefit-cost analysis. These ap-

proaches are important not only for computing optimal decisions but for checking

why they are optimal.

Step 6. Perform Sensitivity Analysis

In tackling and solving a decision problem, it is important to understand and be

able to explain to others the «why» of your decision. The solution, after all, did not

come out of thin air. It depended on your stated objectives, the way you structured the

problem (including the set of options you considered), and your method of predicting

outcomes. Thus, sensitivity analysis considers how an optimal decision would change

if key economic facts or conditions were altered.

Here is a simple example of the use of sensitivity analysis. Senior management

of a consumer products firm is conducting a third-year review of one of its new prod-

ucts. Two of the firm’s business economists have prepared an extensive report that

projects significant profits from the product over the next two years. These profit esti-

mates suggest a clear course of action: continue marketing the product. As a member

of senior management, would you accept this recommendation uncritically? Probably

not. You naturally would want to determine what is behind the profit projection. Af-

90

ter all, you may be well aware that the product has not yet earned a profit in its first

two years. (Although it sold reasonably well, it also had high advertising and promo-

tion costs and a low introductory price.) What is behind the new profit projection?

Larger sales and/or a higher price? A significant cost reduction? The process of track-

ing down the basic determinants of profit is one aspect of sensitivity analysis.

As one would expect, the product’s future revenues and costs may be highly un-

certain. Consequently, management should recognize that the revenue and cost pro-

jections come with a significant margin of error attached.

It is natural to investigate the profit effects if outcomes differ from the report’s

forecasts. What if sales are 12 percent lower than expected? What if projected cost re-

ductions are not realized? What if the price of a competing product is slashed? By an-

swering these "what-if" questions, management can determine the degree to which its

profit projections, and therefore its marketing decision, are sensitive to the uncertain

outcomes of key economic variables.

Sensitivity analysis is useful in:

(1) Providing insight into the key features of the problem that affect the decision.

(2) Tracing the effects of changes in variables about which the manager may

be uncertain.

(3) Generating solutions in cases of recurring decisions under slightly modi-

fied conditions.

After all analysis is done, what is the preferred course of action? For obvious

reasons, this step (along with step 4) occupies the lion’s share of the analysis and dis-

cussion. Once the decision maker has put the problem in context, formalized the ob-

jectives, and identified available alternatives, how does he or she go about finding a

preferred course of action?

What features of the problem determine the optimal choice of action? How does

the optimal decision change if conditions in the problem are altered? Is the choice

sensitive to key economic variables about which the decision maker is uncertain?

Tasks for Independent Work

91

1. Read the text.

2. Answer the questions:

a) What is the difference between the book examples and practice?

b) What role does the problem of definition play for the problem management?

c) What role does context play for problem definition?

d) What is «truism»?

e) What is the difference between the objective in a public and private sector de-

cision?

f) What are the difficulties of the decision-making?

g) What is according to the author natural logic of a manager?

h) What would an ideal decision maker do?

i) What is a sequential decision making?

j) What is a «commonly acknowledged fact about negotiation»?

k) When does elementary arithmetic suffice?

l) When must decision maker rely on models?

m) What is a model in general?

n) What types of predictive models are mentioned in the text?

3. Which of the following is not true?

a) Decisions come as a part of the planning process.

b) In practice, problems are very hard to recognize.

c) Identifying context is a key part of problem definition.

d) Profit is the aim of any firm's transaction.

e) Maximizing profits and minimizing yields is the primary problem of any

manager.

f) Ultimate profit from either method cannot be pinned down ahead of time.

4. Questions for discussion:

92

a) Under what circumstances can a private firm compute the profit results?

b) What is impractical for solving complex problems?

c) What are methods of identifying the problems?

d) What is important in understanding and explaining the problem?

e) What is sensitivity analysis?

f) How do the projections of revenue and costs come?

g) When is sensitivity analysis useful?

h) Do you agree that the method of enumeration is ineffective in solving mas-

sive problems?

i) Should a decision maker, do you think, rely on the data provided. What

sources of information could be referred to as more reliable and less reliable?

j) Could press publications be used as sources of information for making a deci-

sion? Give an example of a) international b)federal c) local press which is

d)completely reliable e) completely unreliable.

UNIT 9

INTERNATIONAL ECONOMIC THEORY

Text 1. How Nations Are Classified

Nations have been long classified into groups that indicate their economic

strengths and weaknesses as well as their stage of development.

Industrial or developed nations are those that have achieved substantial manu-

facturing and service capability in addition to advanced techniques in agriculture and

raw material extraction.

Developing nations are usually those whose production sector is dominated by

agriculture and mineral resources and are in the process of building up or moderniz-

ing industrial capacity. Typically, these sectors not only serve home markets but also

produce for exports. The objective is to try to earn funds from selling abroad in order

93

to have buying power available for future purchases of foreign goods and services.

Also, the aim can be to reduce dependence upon foreigners, i.e., to pursue import

substitution policies. To achieve a reasonable balance between international pay-

ments and revenues is a constant challenge.

Much attention in international economic and political affairs understandably fo-

cuses on the welfare gap between the developed and developing nations. Compar-

isons are frequently made among countries using such measures of economic

progress and competitive strength as cultivated land area, population, per capita in-

come and wealth, unit labor costs, prices, external debt, and monetary reserves.

For several decades the leading Western, free (noncommunist) industrial nations

have been referred to as the First World. The Second World has encompassed the so-

cialist-communist nations. But more and more, these Second World nations and states

are being included as developing countries as they adopt more market-oriented demo-

cratic principles. The Third World has covered developing countries. There is some

reference to the resource-poor nations in the Third World group as the Fourth World.

Most of the trade of the world occurs between the industrialized countries. The

remaining nations strive to strengthen their economies by trade, barter, aid, and con-

cessions from the major developed nations. The petroleum-rich countries, particularly

the Organization of Petroleum Exporting Countries (OPEC), control much of the

world's immediately available energy resources, which the industrial nations need in

order to keep their economies functioning.

The emerging countries with resources and expanding industrial capability, e.g.,

Singapore, South Korea, Hong Kong, and Taiwan, are more and more called the new

industrial countries (NICs or "Tigers"). Thailand, Malaysia, Mexico, and Chile are

moving toward the same status.

The generalization is often made that most of the richer nations are located in the

Northern Hemisphere and the poorer nations in the Southern Hemisphere. This has

given rise to the expression "North/South" in reference to many international prob-

lems, confrontations, and dialogues. "East/West" has also been used to describe simi-

94

lar problem relations among nations, but with diminishing intensity as political and

economic tensions have eased between communist and capitalist countries.

International economic theorists have developed three important theoretical con-

clusions:

1. The theory of comparative advantage states that mutually advantageous trade

will always be possible because trade patterns will be based on relative prices rather

than absolute prices. That is, no one country can have a comparative advantage in all

commodities. As initially formulated, the theory of comparative advantage is based

on labor-cost differentials. Later researchers have shown that both supply and de-

mand factors play a role in determining the relative prices of commodities that form

the basis for mutually advantageous exchange.

2. The Heckscher-Ohlin theory states that a country will tend to export the com-

modity that uses relatively more of the factor of production that is relatively most

abundant in that country. The theory assumes that countries have different quantities

of the various factors of production such as land, labor, and capital, but have identical

production functions.

3. The factor-price equalization theory states that under absolutely free interna-

tional trade, not only the prices of the traded products but also the prices of the fac-

tors of production (inputs) such as land, labor, and capital will be equalized among

countries.

Tasks for Independent Work

1. Read the text.

2. General understanding

a) What is the basis for classifying nations?

b) What are industrial countries?

c) What are developing nations?

d) What measures of prosperity are taken in to account in defining the gap be-

tween the developed and developing countries?

e) What processes are taking place in the Second World countries?

95

f) What countries are members of the OPEC organization?

g) What are the three important conclusions of the theory of the classification?

h) Explain what the following abbreviations and notions mean:

OPEC countries;

«tigers»;

«North/South»;

«East-west»;

The Heckschler-Ohlin theory.

3. Questions for discussion:

a) Have all former Second World countries moved to capitalistic direction? Do

you agree that NATO's membership is an entrance ticket to the developed coun-

tries community?

b) What is the present position of the Russian Federation in the described sys-

tem of classification?

c) Do you find Heckscher-Ohlin theory reasonable? Give examples to prove or

disapprove it.

Text 2. Foreign Trade

What is now called international trade has existed for thousands of years long

before there were nations with specific boundaries. Foreign trade means the exchange

of goods and services between nations, but speaking in strictly economic terms, inter-

national trade today is not between nations.

Goods can be defined as finished products, as intermediate goods used in pro-

ducing other goods, or as agricultural products and foodstuffs. International trade en-

ables a nation to specialize in those goods is can produce most cheaply and efficiently

and it is one of the greatest advantages of trade. On the other hand, trade also enables

a country to consume more than it can produce if it depends only on its own re-

sources. Finally, trade expands the potential market for the goods of a particular

96

economy. Trade has always been the major force behind the economic relations

among nations.

Different aspects of international trade and its role in the domestic economy are

known to have been developed by many famous economists. International trade be-

gan to assume its present form with the establishment of nation-states in the 17th and

18th centuries, new theories of economics, in particular of international trade, having

appeared during this period.

Trade based on comparative advantage still exists: France and Italy are known

for their wines, and Switzerland maintains a reputation for fine watches.

It is obvious that within each economy the importance of foreign trade varies.

Some nations export only to expand their domestic market or to aid economically de-

pressed sectors within the domestic economy. Other nations depend on trade for a

large part of their national income and it is often important for them to develop im-

port of manufactured goods in order to supply the ones for domestic consumption. In

recent years, foreign trade has also been considered as a means to promote growth

within a nation's economy. Developing countries and international organizations have

increasingly emphasized such trade.

Tasks for the Students

1. Read the text.

2. Answer the questions in written form:

a) What does foreign trade mean in economic terms?

b) What are the three main advantages of trade?

c) What examples of comparative and competitive advantages of trade can you

think of?

d) What is the role of international trade nowadays?

e) Are developing or developed nations more interested in foreign trade?

97

Text 3. Protectionism and Free Trade

Protectionism takes many forms. Tariffs or taxes are levied on imports, and non-

tariff rules, in the form of quotas, quality and labeling standards, and a myriad of

other restrictions, tend to keep foreign nations' goods and services out of domestic

markets. Subsidies to domestic firms similarly disadvantage foreign competitors al-

though foreign consumers get cheaper goods as a result.

The absence of protectionism is termed free trade, wherein goods and services

flow across international boundaries on the primary basis of comparative advantage.

Free trade is commonly under attack from protectionists.

The United States and most other countries offer in their laws certain trade pref-

erences favoring some nation's goods and services for economic, political, and social

reasons. The best-known U.S. preference is the so-called most-favored nation status.

Any nation so qualified by the U.S. Congress is permitted to pay only the lowest level

of U.S. tariffs. Nonqualifying nations face stiffer barriers against their goods when

they seek to export into the U.S. market. Some element of international prestige is as-

sociated with the most-favored nation title.

Tariff and nontariff barriers are the subject of continuing global debate and con-

frontation. National leaders have constituents who fear foreign inroads into their mar-

kets and/or demand special terms and conditions favoring their products over others.

Periodically, the principal nations join in detailed and lengthy multilateral negotia-

tions to reduce trade barriers. These are mainly under the aegis of the General Agree-

ment on Tariffs and Trade (GATT). The overriding objective is to try to keep trade as

free and open as possible to encourage greater world growth, employment, income,

and investment. History records many instances where growing protectionism has led

to international trade wars and eventually has caused political wars among belliger-

ents.

When multilateral talks falter, bilateral agreements escalate between individual

nations.

98

Moreover, when global negotiations stall, there is a strong tendency for groups

of nations with common geography and interests to form economic blocs, e.g., the

European Economic Community, North American Free Trade Agreement (U.S.,

Canada, and Mexico), Association of Southeastern Nations, etc.

The future role of the United States in global affairs is changing because this na-

tion – despite its superpower status – cannot alone police the world or dominate de-

velopments as in the past. Hence, global progress will depend more and more on al-

liances and «shared leadership».

Few nations can survive for long in economic isolation from the rest of the

world simply because political/geographical boundaries do not coincide with the nat-

ural resources, skills, and other essentials for the betterment of human welfare. More-

over, in matters of the environment, energy, and water, each nation has an impact on

its neighbors and potentially more and more of the world.

World trade and financial flows reflect sharp variances in needs and advantages

among individual countries. At any given time, some nations will show surpluses in

trade and payments balances, while others will experience corresponding deficits.

Balance of trade refers to the relationship of imports to exports of goods and ser-

vices. Balance of payments is a more comprehensive measure that is defined vari-

ously to include financial investment flows of different maturities and purposes. Offi-

cial or government-to-government payments and receipts also influence importantly

changes in economic relationships among countries.

Aggregate surpluses and deficits must balance for the world as a whole. Chronic

surpluses or deficits in any single country or region will cause economic and political

repercussions and tensions. Surpluses often must be invested outside the nation, while

deficits constitute international accounts payable, which must be paid from reserves

or financed by loans, financial aid from international bodies, or foreign government

grants.

Actual measures of economic and financial flows between nations and across the

world tend to be weak, with large annual «errors and omissions»; yet these data form

the basis for major policy decisions with far-reaching consequences for war or peace.

99

Tasks for Independent Work

1. Read the text.

2. Answer the questions.

a) What is protectionism?

b) What is free trade?

c) What is a most-favored nation status?

d) What processes are taking place under the GATT aegis?

e) What is the future role of the USA?

f) What is the balance of trade?

3. Define the following in English:

a) protectionism;

b) tariffs;

c) free trade;

d) most-favored nation status;

e) multilateral talks;

f) bilateral agreements.

4. Which of the following is not true:

a) Protectionism is a policy concerned with the regulation of international trade.

b) Free trade is a process of selling commodities free.

c) Some politicians are afraid of foreign economies.

d) Aggregate surpluses and deficits balance for the world trade.

e) International trade is weak.

Text 4. Structure of International Monetary Fund

100

As of December 1991, the IMF was composed of 156 member countries; in ad-

dition, a number of republics of the former U.S.S.R. were in the process of joining

the organization. Each member is represented by a governor on the IMF's Board of

Governors, most of whom are ministers of finance, presidents of the country's central

bank, or persons of similar rank. Virtually all day-to-day policy decisions are dele-

gated to the Executive Board, which is made up of 22 representatives of the member

countries. The Executive Board is presided over by the managing director, elected for

a 5-year term, who is also chief of staff of the IMF.

Each member has a quota, which is based on a complex formula that takes ac-

count of the country's size and its general importance in world trade and finance. The

quota determines the amount of financial resources the member has to make available

to the IMF (subscription) and its access to the Fund's facilities, its entitlement to SDR

allocations, as well as its voting power. Part of each member's subscription is paid in

reserve assets, and the remainder in the member's own currency.

Operations

IMF member countries may utilize the Fund's resources if they find themselves

in balance of payments difficulties. Drawings normally will be in the context of pol-

icy measures – an adjustment program – intended to correct the balance of payments

position and are linked to progress under that program. Technically, use of the Fund's

resources takes the form of a member using its own currency to purchase other cur-

rencies (or SDKs} held by the IMF. Drawings on the Fund's resources that do not ex-

ceed 25 percent of the member's quota normally require that the member make a rea-

sonable effort to overcome its balance of payments problem. Purchases beyond that

amount – i.e., drawings in the so-called upper credit tranches – usually are made in

the context of an adjustment program. Repayments to the IMF are normally to be

made within 3 to 5 years, but under the extended facility, the country may have up to

10 years to repay the financing provided by the Fund.

101

Tasks for the Students1. Read the text.

2. Give a shot summery of the text.

Text 5. World Bank

The World Bank is the world's foremost intergovernmental organization con-

cerned with the external financing of the economic growth of developing countries.

The official title of the institution is the International Bank for Reconstruction and

Development (IBRD).

Before recommending a Bank loan, the staff of the Bank must be reasonably sat-

isfied, that the productivity of the borrowing country will be increased and that the

prospects for repayment are good. A country must be judged creditworthy. Engineer-

ing investigations are frequently carried out to determine the probable relation of a

proposed project to benefits and costs. Increasingly, however, the Bank has shifted

somewhat away from project lending (e.g., for a dam or a highway or a port); it has

become concerned with education and other human services, the environment, and,

through structural adjustment loans, the modification of governmental policies that

are thought to have impeded long-run growth. The Bank has also paid increasing at-

tention to the evaluation of previous lending. Recently, moreover, it has acceded to

the requests of the American secretary of the treasury to help to ease the huge, out-

standing, largely commercial-bank debt.

Voting power in the Bank (as well as in the Fund) is determined by the size of

each member nation's subscription. Subscriptions, in turn, are based on a formula that

takes into account such variables as the value of each nation's foreign trade and its to-

tal output. Ultimate power, through weighted voting, rests with the Board of Gover-

nors of the Bank (and the Fund). The governors meet annually in September. Execu-

tive directors who live permanently in Washington, D.C. determine the day-to-day af-

fairs of the Bank, however. They hire a president, who, in turn, hires a staff. By tradi-

102

tion, rather than law, the president of the Bank is an American, usually a banker, pro-

posed by the President of the United States.

Because of the size of their subscriptions, five nations – the United States, Japan,

Germany, the United Kingdom, and France – are entitled to appoint executive direc-

tors; the remaining seventeen directors are elected by some combination of the votes

of the other nations. There are 156 member nations, but, with the independence of the

Baltic states and the devolution of the Soviet Union into separate republics, the mem-

bership could increase to over 170, thereby including all the independent nations in

the world.

The Soviet Union was one of the forty-four governments whose representatives

signed the original Bretton Woods agreements, but along with the other members of

the Warsaw Pact, it chose not to join the Bank or the Fund when these organizations

were formally incorporated in 1946. (Poland and Czechoslovakia joined the Bank and

the Fund initially but withdrew when the cold war began in earnest and a loan to

Poland was blocked by the United (States.)

World Bank Group

In 1954, an International Finance Corporation was established to supplement the

World Bank by participating in equity financing in member countries, and in 1960, a

third organization, the International Development Association (IDA), was created.

These three organizations constitute the World Bank Group. The IDA has the same

officers and staff as the World Bank, but its separate charter enables it to offer loans

to low-income member countries repayable at 0.75 percent interest over 50 years (in-

cluding 10 years' grace).

Soft or concessionary assistance is made possible by contributions to (replenish-

ments of) the IDA by the governments of high-income (industrial) countries. The

management of the World Bank Group is thus enabled to offer rates of interest and

loan maturities, which take into account the nature of the projects financed and the

presumed ability of borrowing governments to service their debt. The initial capital-

103

ization of IDA for the 5 years 1960 to 1964 was less than $1 billion in hard curren-

cies. By 1992, the ninth replenishment for 3 years will be over $11 billion.

Today, the World Bank Group is very different from what it was when the

World Bank began in 1946 under President Eugene Meyer – with three floors of

rented office space at 1818 H Street NW and a few dozen employees. Even in the fi-

nal days of the presidency of George Woods, in 1968, the group had fewer than 1500

employees and 4 buildings. As of August 31, 1991, however, on the eve of the acces-

sion to the presidency of Lewis Preston, former chairman of the board of J. P. Mor-

gan & Co., the World Bank Group had 3 senior vice presidents, 14 vice presidents,

and 6500 employees scattered through 18 separate buildings in

Washington, D.C.; 2 large offices in Paris and Tokyo; and 50 regional offices.

The "World Bank Group" has had a significant positive effect on the flow of capital

to the poorer countries of the world, both directly and indirectly, and knowledge of

Third World problems has increased enormously. Still, the record of growth is spotty.

In much of East Asia, per capita income is rising rapidly, but in Africa south of the

Sahara, in South Asia, and in much of Latin America, the growth of per capita in-

come has been discouragingly slow.

Tasks for Independent Work

1. Say what you know about World Bank and World Bank Group.

2. Read the text and write its annotation.

Text 6. Conglomerates and Multinationals

Many of today's corporations have thousands of employees and control billions

of dollars in assets and there are the large corporations that define the structure of the

nation's economy in the USA. They often dominate major industries and regional

104

economies, and make it possible to produce goods and services that require combin-

ing massive amounts of capital, technological know-how, labour resources, manage-

rial skills, and the ability to obtain and process large and diverse amounts of informa-

tion. In 1990, the combined sales of the largest 500 US industrial corporations were

estimated as $2.3 trillion, profits reached $93.4 billion and they collectively em-

ployed nearly 12.5 million workers. The combined annual revenues of the world's top

five corporations alone were nearly $450 billion and it was more than the gross na-

tional product of several countries. Business having become more competitive, new

and more complex corporate combinations appeared. They are known to be formed

by the absorption of one or more companies by another, the merger process involving

either acquiring a controlling share of a company's stock or buying the company out-

right. Many corporations have expanded by means of mergers with and acquisitions

of businesses in unrelated industries, such collections of businesses being called con-

glomerates. For instance, International Telephone and Telegraph achieved its growth

by absorbing such companies as Sheraton Hotels, Avis Car Rentals, the Hartford In-

surance Company, Continental Bakeries, and others. Antitrust laws preventing the

growth of the corporations within a single field have promoted the establishment of

conglomerates. Between 1955 and 1980, the top 500 corporations absorbed some

4,500 smaller companies. One problem caused by mergers is that the economic

growth does not necessarily result from them, and no new jobs may be created, some-

times acquisitions influencing negatively the country's economy. For example, a

small company may be acquired by a larger one, have its assets drained off, and then

be liquidated, causing the loss of jobs, goods or services, and competition. Another

path to the growth for many corporations has been expansion abroad and it gave rise

to the formation of multinational corporations. Moving production closer to markets

by establishing foreign subsidiaries, such corporations maintain extensive business

activities and large-scale production facilities throughout the world, and their rev-

enues sometimes exceed the total revenues of the countries in which they operate.

The growth of multinationals has had both benefits and drawbacks. It has linked the

world more closely together economically and has helped speeding the development

105

of poorer nations. It has also increased free-market competition by providing con-

sumers with greater choice in the goods they may buy. Among the drawbacks, espe-

cially for American firms, have been a great outflow of money for overseas invest-

ment and a net loss of jobs to foreign workers. Some firms locate plants abroad in re-

gions where labour is cheaper and ship the products back to the United States to com-

pete with more expensive domestically made goods. Multinationals are so powerful

throughout the world that they are likely to be a dominant force shaping the world

economy in future.

Tasks for Independent Work

1. Read the text

2. Give a shot summery of the text.

UNIT 10

THE SOCIAL-ECONOMIC AND MEDICAL PROBLEMS

Text 1. The Economics of Population

An optimum population

Countries are often described as underpopulated or overpopulated. From the

economist's viewpoint these terms do not refer to the population densities (i.e. the

number of persons per square mile), but to the relationship between the numbers of

people and the supplies of land, capital, and technical knowledge available to them.

That size of population that, with the existing stock of land, capital, and knowledge,

would give rise to the maximum output per head is described as the optimum popula-

tion. Thus, the terms underpopulated and overpopulated refer to sizes of population

less than or greater than the optimum. A country with more than adequate supplies of

fertile land and capital may be underpopulated with 300 persons per square mile,

106

whereas a poor country may be overpopulated with no more than 20 persons per

square mile.

The optimum population is not a static concept since the state of technology and

the stock of capital are subject to constant change. An increase in the national stock

of capital, improvements in the techniques of production, and in the fertility of the

land will all tend to increase the size of the optimum population. But measures other

than output per head may be taken into account when assessing the optimum popula-

tion. A nation might relate the preferred size of population to the problem of pollu-

tion, or the destruction of valuable amenities or the rate at which non-replaceable re-

sources are being used up.

An increasing population

Whether an increase in the size of a population brings economic advantages or

disadvantages depends very much on the size of the existing population in relation to

the other economic resources available to it; in other words, whether it is above or be-

low the optimum size. When population is growing fast and there is a large excess of

births over deaths, the proportion of people in the younger age groups will be increas-

ing. A large increase in the numbers of young dependants can be a serious barrier to

economic growth. The economic resources needed to care for the growing numbers

of children and to educate them might have been devoted to industrial development

and training.

Alternatively, the same resources could have been used to give a smaller number

of children a much better education. This is a serious problem in many parts of Africa

and Asia. By the year 2000, even if the birth rate falls rapidly, the number of children

in the 6 to 11 age group will increase by 92 per cent in Africa and 62 per cent in Asia.

An increase in the number of children now will bring about an increase in the

number of workers in the future. New workers need capital, however, even if it is

only a simple plough. Economic growth depends very much on increasing the amount

of capital per worker. Many developing countries with rapidly growing populations

find it very difficult to carry out enough investment to maintain even the present very

low ratio of capital to workers.

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When a country is heavily dependent on world trade for a major part of its re-

quirements of food and basic materials, a rapidly rising population might give raise to

serious balance of payments problems. Quite apart from the need to import more

food, creating work for the increasing numbers will require larger imports of raw ma-

terials and other capital goods. To pay for these additional imports the country will

have to achieve a substantial increase in its exports.

We must not assume, however, that a slowing down in the growth of population

will remove the causes of poverty. Some of the poorer countries would no doubt ben-

efit from a less rapid growth of population since they could then devote more re-

sources to improving their facilities rather than to extending them. In other regions,

however, population growth may not be undesirable. An expanding population will

create increased demands for goods and services and growing markets tend to stimu-

late investment and create employment. A growing population will be able to take

more advantage of specialized production and economies of scale. We have seen that

many of the more efficient modern production techniques can only be utilized eco-

nomically in large-scale production. Comprehensive road and rail networks, power

supplies, and other public utilities can only be operated at relatively low cost when

there is a relatively large population to ensure full utilization.

A country with a growing population, and hence a young age structure, will

probably be more amenable to change and better able to carry it out. The labour force

will be more mobile. With increasing numbers entering the working population, ex-

panding industries will have little trouble in recruiting labour. A more rapid rate of

technical progress is possible when the population is expanding, because new indus-

tries, new factories, and new techniques of production can come into operation along-

side the older ones. With a static or declining population, these changes might have to

wait for the redundancy of the older equipment.

The effects of an ageing population

Although the population of the world is growing fast, the populations of several

European countries are stagnating or, in some cases, actually falling. If a country's

population is to be maintained in the long run, every 100 of its women must bear 210

108

children an average of 2-1 children each. This is described as the replacement level.

In most European countries, the rate is below replacement level. In 1987, the fertility

rate in Britain was about 1-75.

The effect of a low fertility rate over two or three generations is an overall age-

ing of the population. In Britain, the number of people aged 60 or more was four

times greater in 1985 than it was in 1901. It is the over-75s – the group that is grow-

ing fastest –, which needs the most expensive care and medical attention.

An ageing population also means an ageing labour force, with more workers in

their late 40s and 50s. Since older workers tend to be less adaptable than younger

workers are, the economy may find it more difficult to cope with the adjustments re-

quired in order-to make rapid technical progress.

As the population ages, firms will have to change their outputs to satisfy increas-

ing demands for the goods and services consumed by older people. There will also be

increasingly heavy demands on the health service and other social services.

Like many other countries with low fertility rates, Britain faces the prospect of

financing a steadily increasing bill for state retirement pensions. The number of pen-

sioners was 9-3 million in 1985, and it was estimated that this would rise to about 13

million in the next 50 years. However, it was estimated that the number of contribu-

tors to national insurance would increase by only 400 000 over the same period.

Tasks for Independent Work

1. Read the text.

2. Answer the questions:

a) What does the optimum population mean?

b) How are problems of economic growth and the population connected?

c) What modern lines of birth rate are there in the countries of Africa and Asia?

d) Whether there is a problem of famine in the modern world?

e) What are consequences of the population aging?

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Text 2. Successful Medical Practice

Most physicians will not be initiated into the world of patients in such a drastic

way, but all of us can develop an understanding of what patients experience when

they interact with medical professionals. This text discusses the mindset of patients

and makes suggestions about ways to make their health care experience a positive

one.

What do patients want today?

In order to have a successful medical practice, there are several fundamental

questions you need to ask – "What do patients want today? " "And why do physicians

have to think about this, anyway? " If you know you possess high-quality medical

skills, why do you need to worry about what your patients are thinking?

When you know the answers to these vital questions, then you will have a prac-

tice where patients feel they have received value for the money they spend.

Times have changed. The level of patient loyalty we depended on in the past has

been eroded. We can no longer count on patients to return repeatedly to see the same

physician solely because of a long history of medical care. For a few dollars’, differ-

ence in the co-payment, members of managed care plans will gladly switch doctors.

Further, if you ask patients what bothers them most about appointments with health

care providers, they say waiting too long to be seen. Years ago, patients would wait

an hour or two and not complain. When I first entered practice, people signed in at

nine in the morning or one in the afternoon and were seen in whatever order they ar-

rived. When a person went to see the doctor, he or she took half a day off from work.

That was how it was and everyone accepted it.

Today patients feel that their time is just as valuable as the physician's time.

Even patients who are currently unemployed or retired still have buses to catch, ap-

pointments to keep, and errands to run. Excessive delays in the doctor’s office unbal-

110

ance the rest of their schedules – and they do not appreciate it! They are likely to ask

for their records and switch to another practice.

Our parents probably moved five or six times, but people of the current genera-

tion may move 20 or 25 times. With each move, people adjust to a new environment,

make new friends, and become more dependent on others for specialized services and

products. Because they have more exposure to professionals in different geographic

areas, they can make comparisons. People expect the same level of service from all

the professionals they see. If dentists, accountants, lawyers, and veterinarians can see

people promptly, is there any reason why physicians cannot do the same thing?

Another factor is the way our sense of time has changed in daily life. Fax ma-

chines and Federal Express make us more efficient, but they also increase moment-

by-moment demands. People find themselves trying to save a minute here and shave

a minute there. We have become a nation obsessed with time and efficiency, so a

long delay in the doctor's office or waiting by the phone for a return call is inconsis-

tent with the mindset of modern patients. They expect a physician to be able to an-

swer all their questions and/or provide educational materials about their medical

problems promptly and efficiently. They expect the medical profession to offer the

same efficiency that they find in other areas of their lives, where services and prod-

ucts are offered in a timely fashion.

Here is a story I heard recently from a pharmaceutical representative. A patient

who belongs to a managed care plan had an appointment with his primary doctor,

who was delayed in seeing him. He knocked on the window, and the nurse said the

doctor was running late. The patient opened his briefcase, went through the list of

plan physicians, and called one on his cellular phone. I have an appointment this af-

ternoon and cannot be seen. "Can you take me this afternoon?" "Can you see me right

away?"

He walked out the door, and three other patients who were members of the same

plan walked out with him. The worst part of this story is that the pharmaceutical rep

who was sitting there waiting for the doctor noticed it all but the doctor probably still

does not have a clue why four patients left his practice. The incident probably cost

111

the doctor more than $60,000, since one patient in a primary care practice is valued at

$15,000 over the lifetime of that patient.

The Era of Managed Care

We are now practicing medicine in an era of managed care. That means employ-

ers and health plans will be looking very closely at several practice issues when con-

sidering whether to contract with a physician: Is the physician cost efficient and cost

sensitive? How do the outcomes of the care provided compare with those achieved by

colleagues? Does the physician spend enough time with patients? Does the physician

try to educate patients about health and the essentials of a healthy life style? How

long do patients wait in the waiting room? How long does it take to get urgent or rou-

tine appointments? Is the phone answered promptly? Are staff members friendly? Do

they answer patient questions?

Studies of consumer attitudes toward health plans show that good service may

be the single most important factor in creating satisfied patients. The quality of ser-

vice will play just as large a role as costs and outcomes when employers and health

plans choose the providers they will collaborate with in future years.

Learning to Accept Change

Many physicians today spend a lot of time talking about the good old days. They

say medicine is not as much fun as it used to be. There are so many changes and so

much time is spent on boring paperwork.

Actually, their attitude is easy to understand: Uncertainty produces anxiety, and

uncertainty is what physicians are experiencing today. We all wish we knew what is

about to happen to the health care system. If we did know, we could relax, adjust to

the developments, and get on to the business of taking care of patients.

112

Change produces uncertainty but it also produces something else: opportunity.

Perhaps physicians would be more inclined to accept change in health care if they

recognized that it brings with it the potential for growth, development, and ultimate

success.

For example, the public today is interested in being healthy and staying well.

Any physician who embraces wellness instead of illness stands to attract hundreds of

patients to his or her practice.

When you go to an ice cream store, you see fat-free, cholesterol-free, sugar-free

ice cream. When you go to McDonald's today, you see a salad bar and chicken and

fish. Every community has at least one health and fitness center. Americans are

spending millions of dollars on home exercise equipment. Many businesses now pro-

vide fitness centers for employees to use before work, at lunch, or at the end of the

day. Others offer employees fitness center memberships instead of country club

memberships.

Americans are also smoking less and drinking less alcohol. Insurance companies

offer discounts for members who do not smoke and maintain a healthy weight.

They know that smoking and extra weight are likely to result in higher medical

expenses, and they are willing to discount premiums for employees with a healthy

life style.

By all indications, Americans today are genuinely interested in fitness and well-

ness. Physicians who recognize and embrace the trend toward wellness will be who

have successful practices.

For example, anyone planning to enter an exercise program should get a prelimi-

nary checkup from a physician. I think industry should make it possible for employ-

ees to have blood pressure exams and cholesterol screening tests at regular intervals –

at work, during the lunch hour. Cholesterol testing is very important, and the public

understands the significance of total cholesterol and high-density lipoprotein levels.

Women need to learn about breast self-examination, and men similarly need to learn

about testicular self-examination.

113

Today, any practice can easily do a series of wellness promotions. As a urolo-

gist, I urge all men over the age of 50 to get an annual rectal exam and a prostate-spe-

cific antigen (PSA) test, which is an American Cancer Association-approved screen-

ing test for prostate cancer. I encourage all men to do regular testicular self-exams,

which are just as important for men as breast exams are for women and yet receive

very little attention in the media. I have a waterproofed card on how to do a testicular

self-exam that I give to all men so they can post it in the shower. In fact, I give it to

women too, hoping they will share it with their husbands or significant others.

If I were a gynecologist, I would try to increase understanding of premenstrual

syndrome. If I were a neurologist and saw people with headaches, I would talk to

them about stress reduction. If I were an orthopedist, I would show patients how to

prevent running injuries. If I were in primary care, I would focus on ideal weight,

stress reduction, and dietary changes to decrease the risk of high blood pressure and

heart disease. In every field, there are numerous wellness promotion opportunities

ready at hand.

Wellness education is a way to attract new patients and meet the needs of current

patients. It also can give you an edge in the marketplace. However, focusing on well-

ness does not mean your practice will be limited to wellness services. You must en-

sure patients who are attracted to you because of your forward-looking wellness ser-

vices will stay with you if they do become ill and need additional services.

In addition to wellness, patients are much more interested in illness than they

used to be. Information about various diseases, current research, and possible treat-

ments is now much more widely available. The media covers treatment issues as

news. For example, an article in the New England Journal of Medicine or the Journal

of the American Medical Association is often discussed on CNN before it appears on

a physician's desk. Computer-literate patients have access to all sorts of medical in-

formation through computer bulletin boards and on-line services. I have had patients

with increased PSA levels arrive with 200 online summaries and even personal re-

sponses from the chairpersons of urology departments.

114

In the past, a patient would come to a doctor who would write out a prescription,

pat the patient on the back, and ask the patient to return in two weeks – without any

explanation of the medical problem or diagnosis. Today patients typically want to

know about possible drug interactions and alternative courses of treatment they have

read about. This desire for information represents a big change, but it also represents

an opportunity for physicians willing to respond to the demand.

Tasks for the Students

1. Read the text.

2. Answer the questions:

a) What do patients want today?

b) What does the era of controlled health services mean?

c) Whether is it necessary for the patients to know the plan of health services?

d) Whether is it necessary to prevent illness?

e) How is it possible to prevent illness?

f) How is it possible to develop cooperation of the doctor with the patient?

Text 3. The Power of Point of Service

We often hear that managed care is growing while fee-for-service care is shrink-

ing. The implied suggestion is often that in the future cost will become paramount

while quality of care will decrease in importance. This betrays a misunderstanding of

modern managed care. In the physician-directed "empowerment" model of managed

care, the goal is still to deliver high quality, cost-effective care.

In addition, there will always be some people who seek the very best care possi-

ble and consider cost to be a lesser consideration. Most health care system projections

predict that about 10 percent of the population will continue using fee-for-service

medicine for the indefinite future.

115

Under what is called the "open-ended" or "point-of-service" option, members of

managed care organizations can choose any physician they wish, including physi-

cians not under contract with the managed care plan. In exchange for the added

choice, the patient pays a higher deductible and a higher co-payment or a percentage

of the physician's fee. This option offers patients yet another way to select the highest

quality care if that is their priority.

This chapter looks at the growth in point-of-service plans and how one medical

group practice has positioned itself to serve patients who want the very best.

Point-of-Service Plans

The fastest growing segment of the managed care marketplace consists of point-

of-service plans, which offer members all the standard HMO features combined with

the ability to self-refer out of network by paying additional fees. Typically, there is

no deductible for in-network care, but when a member chooses to go outside the net-

work, he or she must pay a deductible that averages $500. If members use out-of-net-

work inpatient care, most employers require them to pay 25 or 30 percent of the

health care fee.

At present only 5.8 percent of HMO members are enrolled in a point-of-service

plan, but the percentage is growing rapidly. Employers and health plans often con-

sider the point-of-service option to be a user-friendly way to introduce members to

managed care. The 1994 Foster Higgins survey of U.S. employers found that the per-

centage of large employers offering a point-of-service plan grew from 10 percent in

1992 to 15 percent in 1993 and 25 percent in 1994. About 52 percent of very large

employers (with 20,000 or more employees) offered a point-of-service plan in 1994,

and the use of such plans is growing rapidly among employers of all sizes.

The number of HMOs offering a point-of-service option has also increased dra-

matically, from under 20 percent in 1990 to 59 percent in 1993. It is of interest that

16 to 17 percent of HMO enrollees use out-of-network benefits in any given year.

116

Consumer freedom to choose providers was the backbone of the traditional health in-

surance programs of the 1970s and 1980s. Before managed care became so wide-

spread, its inherent limitation on choice was one of the reasons more employers did

not offer HMOs to their employees. Now HMOs have brought back freedom of

choice and flexibility in the form of point-of-service plans.

Some point-of-service programs are added to managed care plans that already

exist, and employees can choose whether to sign up for the usual managed care op-

tion or the more expensive point-of-service option. In other companies, employees

are able to sign up for the point-of-service option but do not have to pay extra unless

out-of-network services are actually used. This is called a "dual option" program,

meaning that employees have two options at all times. For example, an employee can

use an HMO physician most of the time and a non-HMO physician only occasionally.

When this second option is chosen, the employee pays a higher co-payment for the

physician's services.

Today most HMOs offer some kind of point-of-service option. Even though

there are only 3.5 million HMO members currently enrolled in point-of-service plans,

about 90 percent of them never use out-of-network services. The members of the plan

just like to know this option is available if they ever need it.

What this means is that if you position yourself as the very best doctor in your

specialty in town, you can win additional patients who are willing to go outside their

networks and pay more because they want the very best care.

Sansum Medical Clinic

The Sansum Medical Clinic, founded in 1924, is a world-renowned multi-spe-

cialty group practice of about 75 physicians, including 6 primary care physicians and

69 specialists covering 35 subspecialties. The founder, Dr. William David Sansum,

was the first American to successfully isolate, produce, and administer insulin to treat

diabetics. The associated nonprofit Sansum Medical Research Foundation continues

to be active in diabetes research and other areas of medical research, including can-

cer, immunology, metabolic disease, arteriosclerosis, allergies, and arthritis. In a typi-

cal year, patients come to the Santa Barbara-based clinic from every state in the union

117

and more than 20 countries. Today, about 35 percent of the patient load consists of

traditional fee-for-service patients, although five years ago the figure was 68 percent.

Ten percent of its patients are in HMOs, and half of those are capitated. About 30

percent are Medicare patients, and the remainders are in preferred provider organiza-

tions (PPOs). Many of its patients are acutely ill and travel hundreds of miles to reach

the clinic's specialists. For example, Las Vegas, its fifth largest market, is 71/2 hours

away.

Like other institutions with an international reputation, Sansum came to man-

aged care late. Organizations that draw on a diversified population base with good

fee-for-service coverage have been somewhat slow to realize that the new focus on

cost-effectiveness applies to them, too.

Going After the Local Patient

Santa Barbara has a highly competitive health care market, with three times as many

doctors as it needs and a stable (not expanding) population base, according to Dou-

glas A. Trigg, associate administrator and director of business development. Tradi-

tionally, Sansum drew the vast majority of its patients from outside the county. Five

years ago, it began to position itself to attract more local patients.

Market research uncovered that in its local market Sansum had a reputation for pro-

viding high-quality health care but was viewed as relatively inaccessible. Local people

knew that patients came from all over the world to the Sansum Clinic and thought that

perhaps they would not be as welcome. The clinic's sterling reputation, which should

have been an asset, made it somewhat intimidating to the local community.

In response, it developed an in-depth local advertising program that emphasized

how accessible and affordable the Sansum Medical Clinic is. The program focused on

welcoming local patients. Initially Sansum directed its message toward the presidents

and human resources directors of local businesses and organizations. Today, its local

advertising is aimed at the individual patient; it ends by saying, "If you have further

questions, give us a call or call your insurance broker or human resources director."

Five years ago, people who lived within a 20-mile radius of the city of Santa Barbara

118

probably constituted 10 percent of Sansum’s patient population. Today, after a suc-

cessful marketing campaign, they constitute about 25 percent.

The real challenge for Sansum today is maintaining a two-pronged marketing

campaign, directed toward both local patients and those who are willing to travel long

distances for health care.

The first step in successful marketing, Trigg says, is to keep good records. San-

sum has a database for use in analyzing current and potential patients demo-graphi-

cally, geographically, and psychographically. The demographic analysis looks at pa-

tients in terms of age, sex, college education, and so on. The psychographic analysis

looks at patients’ life styles (categories include "old money," "young mobile family,"

and "rural agricultural" life styles).

Because of its history of serving patients who travel long distances and are often

acutely ill, Sansum specialists have developed a practice style that includes many re-

ferrals to other specialists and relatively long office visits.

In the past, Sansum developed a reputation for serving acutely ill patients who

want the very best possible care. To continue to attract these patients, Sansum sends

out a quarterly publication with articles written by its physicians to about 350,000

households nationwide, including former patients and others who have requested the

publication from their direct mail program.

It has a separate quarterly publication written by physicians for physicians, and

that goes out to about 6,000 physicians nationwide. When these doctors need to refer

a patient to a top-notch specialist, they are likely to think of Sansum. Using its exten-

sive database, Sansum has learned that the average physician-referred patient gener-

ates about $1,200 in additional revenue and has an average hospital stay 11 days

greater than the average self-referred patient has.

Contracting with Managed Care Plans

119

At the same time, that Sansum positions itself to serve patients who travel long

distances to seek the very best care; it also plans to seek out managed care contracts

for local patients. Santa Barbara County has the seventh-highest concentration of

PPOs in the nation, and Trigg observes a steady gravitation of patients from indem-

nity coverage to PPOs and from PPOs to HMOs.

"So the writing is on the wall," he says. "Those PPOs are going to become

HMOs, and we are obliged to develop a strategy of seeking and serving HMO pa-

tients."

"What HMOs are looking for is a long-term relationship," he adds. "Particularly

in California, I think we’ve gotten to the point where HMO prices are pretty similar

now and everyone knows what the market is, so we've positioned Sansum as a 'qual-

ity institution' so to speak. Our background and history help make us more attractive

to the provider groups."

When a plan does a site visit to the Sansum Medical Clinic, the clinic prepares a

package of information on the history of the organization, physician qualifications,

and its international reputation. The package includes research on the local market-

place and the clinic’s favorable reputation among potential patients and employer

groups. An HMO is going to find it easier to go sell its product when it can say that

the prestigious Sansum Medical Clinic is available through its plan.

As Sansum has increased its involvement in managed care, it has had to make

some changes to adapt to the new market environment. It has enhanced its well-ness

and patient education programs and is working closely with HMO and PPO patients

to encourage them to enroll in plan-sponsored smoking cessation programs and di-

etary programs. It also acquired two primary care practices during the past year.

Since it never offered obstetric and pediatric services, it is now contracting with other

physicians to deliver those services and is thinking about adding an obstetrical and

pediatric practice to the group. Through careful market research, it is identified what

the public wants and is making every effort to provide it.

Most importantly, it has discovered that under a capitated payment system the

typical patient visit lasts about 10 minutes whereas a fee-for-service patient who

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drives from Las Vegas to Santa Barbara to consult a world-renowned specialist ex-

pects (and receives) an hour with the doctor. However, even if Sansum specialists

wanted to see more patients in an hour, the physical setting, with one exam room per

doctor and a small reception area, is not suitable for increased patient flow. To top it

off, the physicians have become accustomed to seeing only eight patients a day.

Sansum found that the gap between the traditional work pace and the quick

turnover characteristic of managed care was too large to be bridged. Other organiza-

tions are retraining physicians to understand and practice under the new incentives of

capitation and managed care. Sansum decided it was 'more prudent to hire new pri-

mary care physicians who already have extensive experience in capitated programs,'

Trigg says.

He emphasizes that capitated programs can be lucrative and offer patients high-

quality care if they are correctly done – with an emphasis on preventive care and

practice efficiency. But Sansum's specialists, who had been practicing in a different

style for many years, were not interested in adapting to a change of this magnitude.

Today, Sansum's family practice and primary care physicians are housed in a

different location on the Sansum campus from the specialists.

Advice for Other Practices

Trigg offers advice for group practices in other parts of the country that are not

as advanced in managed care as California:

You really have to identify your target audiences. Typically, health care institu-

tions look at the patient as the target, but I think we have to extend our viewpoint be-

yond just the patient or potential patient. We looked at insurance companies and em-

ployers and human resource directors and our own employees, as well as patients, as

people who need to hear and understand our marketing message.

In addition, he advises other health care providers to take a very close look at

their information systems:

There are so many different plans designed for different employers, each with

slightly different provisions. It is essential when someone comes into your office to

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be able to identify that individual within a certain company, within a certain payer

group, and a certain plan. If a patient comes into your office with a Blue Cross card,

there may be 50 different Blue Cross plans which this individual could belong to.

You also have to determine if, in fact, he is still current on that particular plan. There-

fore, it is critical to be able to call up that information instantly and to get it right.

Tasks for Independent Work

1. Read the text.

2. Give a shot summery of the text.

Text 4. Create a Medical Practice Marketing Plan

Creating a marketing plan for a medical practice is no different from creating a

marketing plan for any other business. The purpose of a marketing plan is to serve as

a road map or blueprint for the future. Here is an analogy: if you are planning to go

on a trip, you prepare by buying maps and guidebooks. Similarly, in order to manage

the future of your practice, you need a well-designed plan that includes future goals

and a series of practical steps designed to reach those goals. A marketing plan is an

analytic process designed to change amorphous concepts into clearly defined steps

that lead to a desired result.

A marketing plan has several basic elements:

Situation review

External environment assessment – Internal environment assessment

SWOT analysis

Objectives

Target audiences

Strategies

Tactics

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Measurement

Budgeting

Situation Review

The situation review is like a diagnosis of your practice. It comprises an evalua-

tion of your current situation and an overview of your current market.

You begin by researching the internal and external environment. You will need

to identify national trends, the competitive environment in your community, potential

patients' needs, and current patients' perceptions and needs. You will use this infor-

mation to identify opportunities and create the objectives of your marketing plan.

Below are the important questions to ask and data to gather.

External Environment Assessment

Begin with the big picture. What are the national trends in insurance, particularly

managed care? Is there under- or oversaturation of physicians in your specialty?

What are the effects of changing referral pathways on your specialty or type of prac-

tice? Which new technologies are affecting your patients' care?

Some key questions in this era of managed care are – What managed care plans

are predominant in your community? How many enrollees are in each plan? How

much growth is anticipated in managed care plans? Are you a provider on the panels

of these plans? (If you are not participating in the right plans in your area, you are au-

tomatically eliminating a potential large patient base before you even begin to think

about other aspects of marketing.) You can acquire information on the number of en-

rollees in managed care plans (both HMOs and PPOs) from insurance companies or

state medical societies.

To assess your competition, find out how many physicians are in your commu-

nity (both physicians in your specialty and potential referrers). Ask two vital ques-

tions: What is the competition doing? What are they not doing? When you uncover

something they are not doing, you have identified an opportunity.

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What are the demographics of your community? What are the current numbers

and the projected growth over the next five years? Which groups are growing in num-

ber? Children, middle-aged women, the elderly? Your Chamber of Commerce proba-

bly can provide these data.

What are the current medical trends in your community? For example, is there a

trend toward preventive care, increased use of ambulatory care, shorter hospital stays,

or increased home health care?

Survey potential patients to learn whether they are interested in fitness, nutrition,

sports medicine, or preventive medicine strategies. Are their main concern hours of

operation? If so, do they require Saturday and evening hours?

Internal Environmental Assessment

How many additional patients could your practice handle currently? What is

your capacity? (Nothing would be worse than to attract so many patients that you

could not offer them quality service.)

What is your practice's market share in the community? Determine total pro-

jected number of visits based on the population (you can obtain the appropriate rate

to use from your specialty's national organization), then determine what percentage of

those visits are yours.

Is your practice computerized so that you can generate accurate demographic

data on your patients? In what ZIP codes do most of your patients live? Should you

consider placing a satellite office in one or more of these?

Can your computers provide a breakdown of patients in managed care plans and

in Medicare and fee-for-service segments? (If you do not have a system that allows

you to collect and analyze these data, be sure your next computer system does offer

this capability.)

Regularly survey your current patients to assess their perceptions and attitudes.

The tool can be as simple as a postcard with five or six questions that are easy for an

office staff member to tally on a weekly basis. For example, ask patients whether

they were seen within 15 minutes of their arrival. Ask if their calls are returned

124

promptly. Leave space for subjective opinions and suggestions for improved service.

If you are a small practice, for example, you may learn that personalized service is a

strong desire – and that is something you could provide better than a large organiza-

tion or a multispecialty group practice.

Not long ago, a group of pediatricians I know joined a large HMO. When one of

their old patients called, she reached an answering service that said, "Please leave us

your name and chart number and within one hour a doctor or nurse will call you

back." In one hour a nurse did call back – a complete stranger who did not know how

to handle the specific situation. The patient waited another two hours at home while

the nurse gave the message to the doctor. Then a different nurse called back and an-

swered the question. This patient never did get to speak to the doctor herself, and she

still feels certain uneasiness about the lack of personal attention.

That kind of story is a clue to a marketing opportunity. If I were a pediatrician in

that city, I would position myself as someone who is available. "When you call our

practice, you’ll hear a familiar voice, ready to help you, and you'll be able to speak

directly to the doctor when you need to."

A situation analysis is an opportunity to think about your strengths and capabili-

ties and then base your marketing efforts upon the strengths you have to offer.

Ask your colleagues and referral base to tell you about their perceptions about

your practice. Ask for their suggestions – and be prepared to implement them if you

do! That will demonstrate that you are concerned and that you are listening.

SWOT Analysis

Using the data acquired in your external and internal analyses, you should be

able to write a quick list of your practice’s strengths, weaknesses, opportunities, and

threats (SWOT). Using your SWOT list, you should be able to pinpoint marketing

objectives or desired outcomes for your marketing plan. Sample SWOT items are

given below.

Strengths

• We have 40 percent managed care patients compared with the community's

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average of only 25 percent.

• We are an obstetric practice delivering patients in a major tertiary hospital,

with all the benefits of high technology and capable of caring for high-risk

pregnancies.

Weaknesses

• We are a family practice with only three providers, so we are at capacity and

already have waiting lists, particularly because we act as gatekeepers in so

many managed care plans.

• Our obstetric patients are increasingly moving out to the suburbs and say

they would prefer to see a physician closer to home, even though they like

the idea of delivering at a large downtown hospital.

Opportunities

• Recruit additional physicians, nurse practitioners, or physicians’ assistants

to handle the growing patient load.

• Open satellite offices in the suburbs in which the highest percentage of our

patients live (as revealed by a ZIP code analysis).

Threats

• Younger, upscale families are moving into our community and insist

on using a pediatrician instead of a family practice physician because their perception

is that a family physician is not as well-trained to handle children.

• More and more patients are seeking both obstetricians and hospitals closer to

home.

By systematically listing all SWOT factors, you have constructed the foundation

of your marketing plan. You are basing your plans on research and analysis, not on

speculative ideas and gut feelings.

Shooting from the hip will not work in 1996 or beyond. You have to get the data

and devise a systematic, informed research plan.

Objectives

126

You need to think in terms of different types of objectives – marketing and com-

munications objectives as well as personal goals.

It is not enough to just set very general goals. Do not just say, "I want to build up

my practice." You need to set specific goals that include numerical values and usually

a deadline.

A typical marketing objective might be something like this: "We want to in-

crease revenues by 15 percent and new patients by 10 percent within the next 12

months." Or you might say, "By the end of next year we'd like our clientele to be 40

percent managed care, 30 percent Medicare, and 30 percent fee-for-service." A pri-

mary care practice might set a goal of increasing pediatric patients by 10 percent,

since pediatric patients are likely to stay with a practice for a long time.

In any case, you need to think carefully about your goals and objectives and

write them down in clear, specific language, because they provide the targets against

which you measure your success. Remember, you cannot hit a target you cannot see.

Target Audiences

First, analyze all the potential patients and customers in the community you want

to influence, including individuals and organizations.

Begin with your own employees. Are they satisfied? Do they feel good at the

end of the day? Do they feel they are valued and appreciated and have opportunities

to grow? Or are they stressed out? Do you have a high turnover rate?

Any marketing plan must start at the top, but the employees must buy into it for

it to succeed, since they will play an important role in implementing it. If the employ-

ees do not buy into it, all your effort will be wasted.

Your current patients, both active and inactive, are another vitally important tar-

get audience. You have to look at ways to continue to satisfy your active patients as

well as ways to reactivate patients who have drifted away.

127

Look at a wide range of important target audiences: new patients, potential pa-

tients, referring physicians, insurance companies and providers, and managed care

plans. In addition, think of all the target audiences that are sources of referrals: phar-

macists and pharmaceutical representatives, attorneys, social workers, clergy, civic

and community organizations. How much of an impact have you had in the media,

print and electronic?

Strategies

A strategy is a general plan or method for accomplishing a goal.

Suppose, for example, that your target audience is your employees and your

goals include ensuring that your employees experience pride and high morale, are

loyal to the practice, have low turnover, are very productive, and have opportunities

for personal growth. Your strategies might include trying to improve employer-em-

ployee communication, instituting a reward system, arranging for continuing educa-

tion, and demonstrating recognition of exemplary performance.

If your target audience consists of current active patients and your goals include

maintaining your relationship with these patients, promoting patient satisfaction and

word-of-mouth marketing, and making these patients ambassadors of your practice,

your strategies might include improving communication, service, and access to your

practice and regularly surveying attitudes and perceptions. (Table 39-1 shows possi-

ble goals, key messages, and strategies for six target audiences.)

Tactics

Tactics are the specific, detailed methods used to carry out a strategy and

achieve a goal. For example, if your goal is to provide outstanding service, you might

want to perform a patient service cycle and evaluate the way the patients are treated

from the time they enter the practice until they leave. Based on this evaluation, you

would develop a specific tactical plan for improved service.

128

Your tactics might include weekend, evening, and early morning hours if that is

what your patients want. Develop effective scheduling so there is no waiting time.

Provide patients a “no paperwork” service. Offer optional installment billing for elec-

tive surgery patients. Provide educational materials.

If your goal is to provide more services, you might want to set up a patient net-

work where patients can talk to other patients about their experiences. You might

consider offering the services of a nutritionist.

Tasks for Independent Work

1. Read the text.

2. Answer the questions:

a) What does SWOT Analyses mean?

b) What do you know about the Medical Practice Marketing Plan?

c) What can you say about Strategies and Tactics of Marketing?

d) What is the plan of medical practice necessary for?

e) What items are included in the plan of marketing?

f) How is to estimate an external situation?

g) How many new patients can your clinic accept?

h) What is it necessary to know about patients?

i) What information about competitors is necessary for you?

j) How is the budget of marketing formed?

Dear friend!

You have just finished studying the course of Economics.

We are glad, that you have come into contact with the social science studying

the bases of economic theories.

129

We hope that it will help you to master your future profession and to achieve

professional understanding on any level.

BIBLIOGRAPHY

1. Англо-русский экономический словарь. Под ред. А.В.Аникина. М.,

Русский язык, 1981.

2. Англо-Русский словарь по экономике и финансам. English-Russian Dic-

tionary of Economics and Finance. Под редакцией проф., д-ра экон. наук

А.В.Аникина. Санкт-Петербург. Экономическая школа, 1993.

3. Большой англо-русский словарь. Под руководством И.Р.Гальперина. М.,

Русский язык, 1977.

4. Коваленко П.И., Агабекян И.А. Английский для экономистов. Серия

«Учебное пособие». Ростов-на-Дону: «Феникс», 2001.

5. Клейменова В.П., Кулик Л.В. Английский язык для экономистов. English

for Senior Students of Economics. Серия «Учебники МГУ». Ростов н/Д:

«Феникс», 2003.

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6. Лопатников Л.И. Экономико-математический словарь. М., Наука, 1987.

7. Меньшикова М.А. Английские экономические термины. Справочник.

Новосибирск, Наука, 1983.

8. Муравейская М.С., Орлова Л.К. Английский язык для медиков: Учебное

пособие для студентов, аспирантов, врачей и научных сотрудников. – М.:

Флинта: Наука, 2001.

9. Португалов В.Д. Учебник по английскому языку. Economics/

Д.Португалов. – М.: ООО «Издательство АСТ», 2003.

10. Словарь понятий и терминов. Приложение к книге: К.Р.Макконнелл и

С.Л.Брю «Экономикс. Принципы, проблемы и политика». М., Республика, 1992.

11. Федоров Б.Г. Англо-русский толковый словарь валютно-кредитных

терминов. М., Финансы и статистика, 1992.

12. Шевелева С.А., В.Е.Стогов. Основы экономики и бизнеса: Учеб.

пособие по англ. языку. – М.: Культура и спорт, ЮНИТИ, 1996.

13. Шевелева С.А. English of Economics: Учеб. Пособие для вузов. – М.:

Культура и спорт, ЮНИТИ, 1998.

14. Шевелева С.А., Стогов В.Е. Основы экономики и бизнеса: Учеб.

пособие. – М.: ЮНИТИ, 2001.

15. Шевелева С.А. English of Economics: Учеб. Пособие для вузов. – М.:

ЮНИТИ-ДАНА, 2004.

16. Annual Editions. Macroeconomics. Editor. Don Cole. Drew University. 1990

by The Dushkin Publishing Group, Inc. Annual Editions.

17. Dictionary of Business Terms. Ed. by J.P.Fridman. N.Y. a.o., Barron's, 1987.

18. Downess J., Goodman J.E. Dictionary of Finance and Investment Terms.

N.Y. a.o., Barron's, 1987.

19. Economics for Dummies. By Sean Masaki Flynn, Ph.D. Copyright 2005

Wiley Publishing, Inc.

20. Macmillan Dictionary of Modern Economics. Gen. editor D.W. Pearce. L.,

Macmillan, 1985.

21. Rubin H.W. Dictionary of Insurance Terms. N.Y. a.o., Barron's, 1987.

131

22. Take Charge Of Your Medical Practice. Before Someone Else Does It For

You. – Aspen Publishers, Inc. Gaithersburg, Maryland. 1996.

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P.Newman. L., Macmillan, 1988.

CONTENTS

UNIT 1. SOCIETY AND ECONOMY. THE SUBJECT AND METHODS OF ECONOMICS……………………………………………………………...4

Text 1. Economics……………………………………………………………………4

Text 2. What is Economics?…………………………………………………………5

Text 3. Adam Smith………………………………………………………………...13

Text 4. The Development of Economics: Adam Smith…………………………..13

Text 5. John Maynard Keynes…………………………………………………….16

UNIT 2. ECONOMY: INDUSTRIES, RESOURCES, FACTORS OF INDUSTRY……………………………………………………………....18

Text 1. The Economy……………………………………………………………....18

Text 2. Macroeconomics……………………………………………………………20

Text 3. Microeconomics…………………………………………………………....21

132

Text 4. Factors of Production: Capital and Labour……………………………..24

Text 5. Factors of Production: Natural Resources and Land……………………26

UNIT 3. CHARACTERISTICS OF MARKET ECONOMY…………………...28

Text 1. Economic Systems………………………………………………………....28

Text 2. Mixed Economy…………………………………………………………….29

Text 3. Market Schema…………………………………………………………….30

Text 4. Allocation of Products and Resources…………………………………....31

Text 5. The Sources of Economic Health………………………………………....33

Text 6. Glimpses of History of Money………………………………………….....34

Text 7. Money and its Functions…………………………………………………..35

UNIT 4. THEORY OF DEMAND AND SUPPLY……………………………….37

Text 1. The Discoverers of the Laws of Demand and Supply……………………37

Text 2. Demand and Supply Curves………………………………………………38

Text 3. Demand and Supply……………………………………………………….40

Text 4. The Law of Demand……………………………………………………….41

Text 5. Law of Supply………………………………………………………………43

Text 6. Price Elasticity of Demand and Supply…………………………………..45

Text 7. Labour Market…………………………………………………………….46

UNIT 5. MACROECONOMICS PROBLEMS.....................................................48

Text 1: GDP and GNP……………………………………………………………..48

Text 2. Government's Role in the Economy………………………………………50

Text 3. Monetary System and Monetary Policies………………………………...51

Text 4. Inflation…………………………………………………………………….53

Text 5. Fiscal Policy………………………………………………………………..55

Text 6. Taxes and Public Spending.........................................................................56

UNIT 6. MICROECONOMICS. THE BASIC OF ENTERPRISE......................58

133

Text 1. Types of Businesses in the UK and the USA……………………………..58

Text 2. Partnership…………………………………………………………………61

Text 3. Corporations……………………………………………………………….63

Text 4.Accounting……………………………………………………………….....65

Text 5. The Balance Sheet………………………………………………………….66

Text 6. Classification of costs………………………………………………………67

UNIT 7. MARKETING.............................................................................................69

Text 1. Marketing Research and Channels of Marketing……………………….69

Text 2. What You Know About Marketing……………………………………….73

Text 3. Channels of Marketing………………………………………………….....74

Text 4. Retailing……………………………………………………………….........76

Text 5. Pricing……………………………………………………………………...77

UNIT 8. MANAGEMENT.......................................................................................79

Text 1. The Main Functions of Management…………………………………….79

Text 2. Effective of Managers …………………………………………………….81

Text 3. Leadership…………………………………………………………………84

Text 4. The Basic Steps in Decision Making……………………………………...85

UNIT 9. INTERNATIONAL ECONOMIC THEORY………………………….93

Text 1. How Nations Are Classified……………………………………………….93

Text 2. Foreign Trade………………………………………………………………96

Text 3. Protectionism and Free Trade………………………………………….....97

Text 4. Structure of International Monetary Fund……………………………..100

Text 5. World Bank…………………………………………………………….....101

134

Text 6. Conglomerates and Multinationals...........................................................104

UNIT 10. THE SOCIAL - ECONOMIC AND MEDICAL PROBLEMS.........106

Text 1. The Economics of Population…………………………………………....106

Text 2. Successful Medical Practice……………………………………………...109

Text 3. The Power of Point of Service……………………………………………115

Text 4. Create a Medical Practice Marketing Plan…………………………………...121

BIBLIOGRAPHY………………………………………………………………..130

ECONOMICS FOR MEDICAL STUDENTSTextbook for students of General Medicine

And Dentistry in the English-speaking Medium

ЭКОНОМИКА ДЛЯ СТУДЕНТОВ-МЕДИКОВУчебное пособие для студентов лечебного и

стоматологического факультетов англоязычного отделения

Авторы:

Лиманская Любовь Алексеевна,к. э. н., доцент, зав. кафедрой Отечественной истории, экономики, менеджмента и маркетинга Ставропольской государственной медицинской академии.

Топорищева Лариса Егоровна,доцент кафедры иностранных языков института им.Чурсина.

Знаменская Стояна Васильевна,

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к. пед. н., доцент кафедры иностранных языков с курсом латинского языка Ставропольской государственной медицинской академии.

Сдано в набор 06.04.2006г. Подписано в печать 06.04.2006 г. Формат . Бумага офсетная. Печать . Гарнитура Times New Roman/

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