VIEWS: 18 PAGES: 11 POSTED ON: 7/22/2011
1). Economic Goods and Services People begin to learn about economics when they are still very young. Even before they start school, they make two very important economic discoveries. They find that there are lots of things in the world they want. They also find that they cannot have them all. There is a big gap between what they want and what they can have. Later, young people learn another lesson. When they watch television commercials, they discover that there are thousands of things they or their parents could buy. Gradually, they settle into two major economic roles: consumer and producer. In the role of consumer, a person buys goods and services for personal use, not for resale. Consumer goods are products, that satisfy people's economic needs or wants. Some consumer goods, such as food, do not last a long time. Other goods, such as cars or VCRs, last longer. Sooner or later, though, consumer goods are used up. Bananas are a typical example of perishable goods, by "perishable" we mean goods which cannot be stored for any length of time without going bad. Most foodstuffs are in the perishable category. Services are actions , such as haircutting, cleaning or teaching. Services are used up at the time they are provided. A producer makes the goods or provides the services that consumers use. A person who shovels snow during the winter or clerks in a store is providing a service. Students working after school or during the summer earn money to buy some of the things they want - records, books, or a car. They are learning about the role of the producer. In order to produce something, however, a person must first have right resources. Resources are the materials from which goods and services are made. There are three kinds of resources: human (people), natural (raw materials), and capital resources (capital, or the money or property). If either of these resources is missing, production will stop. The economy as a whole, like an individual, can produce only products for which it has the right kind of resources. No economy can produce the things people want if it doesn't have enough of the right kinds of resources. And no economy has an unlimited supply of resources. In other words , there is a scarcity of resources. Scarcity is the situation that exists when demand for a good, service, or resource is greater than supply. In economics, you will study how people use their resources, to make the goods and to provide the services they want. Economics is also the study of how people decide who will get the goods and the services produced. Human wants tend to be unlimited, but human, natural, and capital resources are, unfortunately, limited. The basic economic questions individuals and nations face, are: 1. What goods and services will be produced? 2. How will they be produced ? Who will get them ? 3. How much will be produced for now and how much for the future? The answers to the questions depend on a country's human, natural, and capital resources, and also on its customs and values. Each country will answer three questions in a different way. 2). Opportunity costs All production invo1ves a cost. This cost is not counted simply in terms of money but also in terms of resources used. The various resources used in producing good or a service are the real costs of that product. In building a bridge, for example, the real costs of the bridge are the human, capital, and natural resources it consumes. To build a bridge requires the labour of many people, including engineers and construction workers. The capital resources these people use include a variety of tools and machines. Building a bridge also requires natural resources, such as iron ore and coal. These natural resources are used to make the steel that is used in constructing the bridge. Since resources are limited and human wants are unlimited, people and societies must make choices about what they want most. Each choice involves costs. The value of time, money, goods and services given up in making a choice is called opportunity cost. When steel is used to make a bridge instead of a hospital, the loss in hospitals is the opportunity cost of making the bridge. In fact, any resources used for the bridge are then no longer available for something else. When people make a choice between two possible uses of their resources, they are making a tradeoff between them. To make choices that best satisfy human wants, people must be aware of all the tradeoffs. Then, society will understand the true costs of making one decision rather than another, and can make the decision that best fits its values and goals. How can the concepts of opportunity costs and tradeoffs be used to help explain how the economy works? One way is to construct a simple plan of the economy called an economic model. The simple plan helps economists to analyse economic problems, seek solutions, and make comparisons between the economic model and the real world. An economic model is a little bit like a model aeroplane. It helps to explain how the real thing works, even if it doesn't fly. When models are used to help solve economic problems, their usefulness depends on the assumptions made about the world. One of the most important choices a society makes is between producing capital goods and producing consumer goods. If a nation increases its production of consumer: goods, its people will live better lives today. However, if a nation increases its production of capital goods, its people may live better in the future. Choosing between home computers and industrial robots is an example of a choice a society must make. Society must decide what it wants and what it is willing to give up to get it. The same applies to you individually. Since every economic decision requires a choice, economics is a study of tradeoffs. When you analyse each side of a tradeoff, you can make better decisions. 3). Utility and prices. 0ur basic need are simple but our additional individual wants are often very complex. Commodities of different kinds satisfy our wants in different ways. A banana, a bottle of medicine and a textbook satisfy very different wants. This characteristic of satisfying a want is known in economics as utility. Utility, however, should not be confused with usefulness. For example, a submarine may or may not be useful in time of peace, but it satisfies a want. Many nations want submarines. Economists say that utility determines the relationship between a consumer and a commodity. Utility varies between different people, and between different nations. A vegetarian does not want meet, but may rate the utility of bananas very highly, while a meat-eater may prefer steak. A mountain-republic like Switzerland has little interest in submarines, while maritime nations rate them highly. Utility varies not only in relation to individual tastes and to geography, but also in relation to time. In wartime the utility of bombs is high, and the utility of pianos is low. Utility is therefore related to our decisions about priorities in production. The production of pianos falls sharply in wartime. The utility of commodity is also related to the quantity which is available to the consumer. If paper is freely available, people will not be so much interested in buying too much of it. If there is an excess of paper, the relative demand for paper will go down. We can say that the utility of a commodity therefore decreases as the consumer's stock of that commodity increases. In most economic systems, the prices of the majority of goods and services do not change over short periods of time. In some systems it is of course possible for an individual to bargain over prices, because they are not fixed in advance. In general terms, however, the individual cannot change the prices of the commodities he wants. When planning his expenditures, he must therefore accept these fixed prices. He must also pay this same fixed price ho matter how many units he buys. A consumer will go on buying bananas for as long as he continues to be satisfied. If he buys more, he shows that his satisfaction is still greater than his dislike of loosing money. With each, successive purchase, however, his satisfaction compensates less for the loss of money. A point in time comes when the financial sacrifice is greater than the satisfaction of eating bananas. The consumer will therefore stop buying bananas at the current price. The bananas are unchanged: they are no better or worse than before. Their marginal utility to the consumer has, however, changed. If the price had been higher, he might have bought fewer bananas; if the price had been lower, he might have bought more. It is clear from this argument that the nature of a commodity remains the same, but its utility changes. This change indicates that a special relationship exists between goods and services on the one hand, and a consumer and his money on the other hand. The consumer's desire for a commodity tends to diminish as he buys more unites of it. Economists call this tendency the Law of Diminishing Marginal Utility. The interaction of buyers arid sellers determines the price for goods and services. If the price is too low a shortage will develop, thereby driving up the price. If the price is too high, a surplus will develop and move the item's price down. A society may interfere in market prices by means of price controls and ration stamps. Price controls are often used in times of severe shortages to make sure that the prices for important items, such as food and gasoline, do not go too high. The price of rental housing is controlled I by law in some American cities today. During World War II, people were issued ration stamps for meat, butter, sugar, canned goods, shoes and gasoline. Such person was thus able to get the minimum amount of these goods needed to survive. Price controls and ration stamps were also discussed in recent years as a way of dealing with temporary shortages in gasoline and heating oil. In a market economy, prices are the result of the needs of both buyers and sellers. The sellers will supply more goods at higher prices than at lower ones. The buyers will buy more goods at lower prices than at higher ones. Some price is satisfactory to both buyers and sellers. At that price the supply - quantity offered for sale - equals the demand - quantity people are willing to buy. Since no surplus or shortage exists, there is no pressure on price to change. This point is called an equilibrium price. At the equilibrium price, the amount producers will supply and the amount consumers will buy are the same. 4). Markets and monopolies. Whenever people who are willing to sell a commodity contact people willing to buy it, a market for that commodity is created. Buyers and sellers meet in person, or they may communicate by letter, by phone or through their agents. In a perfect market, communications are easy, buyers and sellers are numerous and competition is completely free. In a perfect market there can be only one price for a given commodity: the lowest price, which sellers will accept, and the highest which consumers will pay. There are, however, no really perfect markets, and each commodity market is subject to special conditions. Competition influences the prices prevailing in the market. Prices inevitably fluctuate), and such fluctuations are also affected by current supply and demand. Although in a perfect market competition is unrestricted and sellers are numerous, free competition and large numbers of sellers are not always available in the real world. In some markets there may only be one seller or a very limited number of sellers. Such a situation is called a "monopoly", and may arise from a variety of different causes. It is possible to distinguish in practice four kinds of monopoly. State planning and central control of the economy often mean that a state government has the monopoly of important goods and services, e.g. most national authorities monopolize the postal services within their borders. A different kind of monopoly arises when a country, through geographical or geological circumstances, has control over major natural resources or important services, e.g. Canadian nickel and the Egyptian ownership of the Suez Canal. Such monopolies can be called natural monopolies. Legal monopolies occur when the law of a country permits certain producers, authors and inventors a full monopoly over the sale of their own products. These types of monopoly are distinct from the sole trading opportunities when certain companies obtain complete control over particular commodities. This action is often called "cornering the market" and is illegal in many countries. In the USA anti-trust laws operate to restrict such activities, while in Britain the Monopolies Commission examines all special arrangements and mergers which might lead to undesirable monopolies. In the market systems, competition answers the basic questions of what, how, for whom, and how much. Competition among producers is for the highest profits. Competition among consumers is for the best goods and services at the lowest prices. Obtaining the highest profits arid the best goods at the lowest price are the only moti- ves the market system considers. In a market economy three basic resources - land, labour and capital - are bought and sold for the best price. Market for labour is constantly changing. Producers are in competition with one another to hire the best workers for the lower wages. Workers compete with one another to get the best jobs at the highest wages. Producers’ needs for workers change constantly. Young people train for a career, then, need to consider what types of workers will be needed in the future. Planning a career requires careful study of statistics showing which jobs are growing. Further, career planning must include the ability to change with the economy. Workers need to be able to learn new skills to remain competitive in the market. 5). Supply and demand. In a market economy, the actions of buyers and sellers set the prices of goods and services. The prices, in turn, determine what is produced, how it is produced, who will buy it, and what will be the mix of consumer and capital goods. Supply, the quantity of a product that suppliers will provide, is the seller's side of a market transaction. Suppliers usually want the price that allows them, to make the most money. Demand, the quantity of a product consumers want, is the buyer's side of a market transaction. Buyers want the price that gives them the most value for the least cost. One place to see how demand works is an auction, a market where goods are sold to the highest bidders. Because the items are sold one at a time, buyers must quickly decide what prices they are willing to pay. If not, they risk seeing the item go to some else who is willing to pay more. Imagine now that you are at the auction with about 100 other people. The auctioneer brings out a used electric popcorn maker, and you decide you would like to own it. In order to get it you will have to outbid all the others who want it. How do you decide how high to bid? Since you know you will have to pay for the popcorn maker right away, you look into your wallet. Only a $5 bill is there. You know that you have another $15 bill in your desk at home, and that your companion will lend you that amount if you return it tomorrow. You know that a brand-new popcorn maker sells for $14. A used one is not worth quite that much to you. You decide you are willing to go as high as $10 but not higher. Besides, if you spend all your money, you will not have anything left to buy popcorn, oil, salt and butter. What factors far have influenced you? Your decision is the result of your tastes (for popcorn), your available cash income (the $5 you carry), your wealth (the $15 at home), and your credit (the loan your friend, will make). You have also had to think of the price of a substitute (a new popcorn maker) and the price of related items (e.g. popcorn and salt). The bidding starts at $1 and five people take part in the bidding. When the price goes up to $6, one person drops put. That person wants to spend $5 for the item. A second person drops out at $8, and two mote drop out when the bids reach $9. That leaves only one - you. The popcorn maker is yours for $9. Consumers are more sensitive to some price changes than to others. You may not want to buy a car if its price goes up 10 percent . But if the price of salt goes up 10% , chances are you will pay extra amount rather than go without salt. The degree to which changes in price cause changes in quantity demanded is called elasticity of demand. The number of cars demanded changes greatly as car prices change; so the demand for cars is highly elastic. The demand for salt is more inelastic: people buy nearly the same amount even though the price of salt changes. There are two basic reasons for elasticity of demand. The first concerns the relationship between income and the cost of the product. A car, for example, may easily cost 50% of your annual income. Salt probably costs less than 50% of your annual income. The smaller the proportion of your income that a product costs, the more inelastic is its demand. The second reason why demand is elastic concerns whether or not substitute product is available. 6). Economic growth. If you spent all the money you have now, you might be able to buy many of the things you want. However, you probably would choose not to spend all of your money right now. You realise that by saving some now, you will save more for the future. Societies also must save some of what they produce today in order to have more for tomorrow. Every society must produce capital goods as well as consumer goods to meet future economic needs. Long-range economic growth depends on the continued production of capital goods. Everyone who works contributes to the growth of capital resources. Suppose you earn $72 a week, working evenings in an auto repair shop. How do you contribute to the growth of capital resources? If your manager paid you exactly what the customer paid the company, what would happen to the company? What would happen to the business if no money were saved to replace old tools and equipment? Your labour must be valuable enough to earn more than just the money to cover your wages. When your manager bills customers for the work you did, the amount will be large enough not only to cover the company's costs but also to invest in capital resources. Your labour may earn your company $100 a week. Since you are paid $72, you are helping the company to collect $28 a week. Some, or all, of this money can be used for capital resources. When your company uses this money to buy new equipment, it expects future returns from the equipment to justify the purchases. The manager may decide to replace the old tools, hire more help, or expand the shop, for example. The manager makes decisions based on how the company will earn the most profits. In recent years, many people have argued that economic growth is a mixed blessing. The advantages of growth are fairly clear. As people produce more goods and services, the average standard of living goes up. Growth also keeps people employed and earning income. It provides people with more leisure time, since they can decrease their working hours without decreasing their income. Growth provides the government with additional tax revenues, which enable it to spend more on programs for education, water and air purification, medical care, highway construction, and national defense. What are the disadvantages, then? Four of them are: (1) use of natural resources that cannot be replaced, (2) generation of waste products, (3) destruction of natural environments, (4) uneven growth among different groups in society. In the past, growth has allowed poor people to improve their economic conditions. During periods of growth, people have felt optimistic about their future. Nevertheless, continuing economic growth at the pace of today may permanently damage our world, polluting air, land, and waters, and using up natural resource. In considering the benefits and problems of growth, it is necessary to recall that to survive, every economy needs people, capital and natural resources, that depend on one another. If these resources are overused to promote economic growth now, future growth may be much slower. Growth, however, sometimes provides solution to the problems. 7). The nation's economy. GNP. Economic indicators Economists study different sides of the economy in different ways, they may show how one product market operates, or the way one group of the consumers decides how to spend money. Microeconomics is the part of economics that analyses specific data affecting an economy. Macroeconomics is the branch of economics that analyses interrelationships among sectors of the economy. Macroeconomists use various methods to measure the performance of the economy. Statistics measure gross national product, or GNP, which is the value of all goods and services produced for sale during one year. All the goods and services produced must be counted, and their value determined. If a farmer produces 1,000 bushels of apples worth $10 per bushel, that farmer would add $ 10,000 to the year's GNP. In the United Slates the Department of Commerce computes GNP. Information is collected for every good or service produced in the nation during a year, but not everything is counted. Three factors limit the types of products counted. First, only goods and services produced during a specific year are counted. Second, not every good or service produced or sold during the year can be counted. For example, if both the flour the baker used and the bread produced were counted, the flour would be added in twice and so exaggerate the gross national product. To avoid this problem, economists count a product or a service only in its final form. They count the baker's flour in its final product form - as a loaf of bread or cake. Products in their final form are called final goods and services. Third, GNP includes only goods sold for the first time. When goods are resold or transferred, no wealth is created. One way in which economists measure GNP is the flow-of-product approach. Using this method, they count all the money spent on goods and services to determine total value. Each time a new product is sold, GNP increases. For example, when an individual, a business or a government buys a chair for $ 50, that purchase causes GNP to increase by $50. Spending for products falls into four categories. The first, and the largest, consumer spending, includes all expenditures of individuals for final goods and services. Called personal consumption expenditures, this category accounts for about 65 per cent of GNP. The second category includes all spending of businesses for new capital goods. Since these purchases are investments, this category is called gross private domestic investment. It accounts for about 13 % of GNP. The third category includes spending of all levels of government. Government purchases of goods and services account for about 21 per cent of GNP. The fourth category is net exports of goods and services, about l% of GNP. Another way of determining GNP is the earnings-and-cost approach. This method accounts for all the money received for the production of goods and services, it measures receipts. Figuring gross national product by counting what people receive requires calculating what the entire country earns for the goods it makes and the services it performs. Included in earnings are such things as business profits, wages and salaries, and taxes the government receives for its services. Also counted are interest on deposits, money received as rent, and any other forms of income. Business and government planners, investors, and consumers make decisions based on their expectations of future economic performance. To help predict expansion or contraction of the economy, government economists identified a number of indicators. They fall into three categories: leading, coincident, and lagging. Leading economic indicators rise or fall just before a major change in economic activity. Coincident economic indicators change at about the same time that shifts occur in general economic activity. Lagging economic indicators rise or fall after a change in economic activity. Following and interpreting all economic indicators is time-consuming. The US Commerce Department, therefore, lists a composite index, or single number, for each of the three sets of indicators. These composite indexes are an average of all the indicators in each category. 8). Income and Spending People's incomes determine how many of the economy's goods and services they can purchase. Income is the money a person receives in exchange for work or property. There are five basic types of income. 1. Employee compensation is the income earned by working for others. It includes wages and fringe benefits such as health and accident insurance. 2. Proprietor compensation is the income that self-employed people earn. 3. Corporation profit is the income corporations have left after paying all the expenses. 4. Interest is the money received by people and corporations for depositing their money in savings account or lending it to others. 5. Rent is income from allowing others to use one's property temporarily. The total income is the sum of employee and proprietor compensation, corporation profit, interest and rent. In each category, people receive this income in return for providing goods or services. One other type of income is a transfer payment - money one person or group gives to another, though the receiver has not provided a specific good or service. Gifts, inheritances, and aid to the poor are three examples of transfer payments. During this century, the percentage of people who work for themselves has generally declined. Increasingly, people are employees and not self-employed. By the type of work people do workers fall into one of four broad categories. 1. White collar workers are people who do jobs in offices, such as secretaries, teachers, and insurance agents. 2. Blue collar workers are people who do jobs in factories or outdoors. Artisans, such as carpenters and plumbers, are blue collar workers. 3. Service workers provide services to other individuals or businesses. Janitors, barbers, and police are service workers. 4. Farmworkers are people who work on their own farms or those of others. In the market system a person's income is determined by how the market values that person's resources and skills. Individuals, such as doctors, whose skills society values, receive high incomes. People who own valuable resources, such as capital to invest or land to develop, also receive high incomes. Income is not the same as wealth. Wealth is any resource that can be used to produce income. An individual's possessions, such as a house, a car, or a stereo, are part of that person's wealth. Each of these could be sold to produce income. Savings accounts and, corporation stocks are types of wealth that usually produce income. Labour skills are not counted because they are difficult to measure. In addition, an individual's debts are subtracted from personal wealth. A person with many valuable possessions but many debts may have no more wealth than a person with a few possessions but no debts. People with similar incomes may have very different amounts of wealth. Consider two women who receive an income of $25,000 a year. One earns all of her income working at a bank. The other receives her $25,000 income from dividends on stock worth $250,000. Aside from the stock the second woman owns, the possessions and debts of the two are similar. The difference in stock ownership, though, is large. The second woman is much wealthier than the first woman. When individuals receive any income, whether as allowance, paycheque, or gift, most of that income is spent. Spending becomes income for someone else. The money each individual spends multiplies throughout the economy as others receive and spend parts of it. In addition, the choice you and others make can lead to investment spending. More things are made and more places are built. Thus spending results in changes throughout the economy. 9). Making personal budget. The quantity and the value of things, which we could buy for our own money, depend on the amount of income and the way we use it. In this situation making our personal budget could help us. As consumers, we are limited in expenses by our financial abilities. In general, we could follow our expenses, that’s why we have money for daily needs. But sometimes people are not able to buy goods and services they want, because they have not enough money. That’s why we should use income as affectively as possible. To calculate all income and spending people make personal budget. Budget – is a financial plan, which sum all income and spending for a definite period of time. When the budget shows, that income is the same as spending, it is called balanced budget. If spending is grater than income, it is deficit budget. When income is grater than spending, the budget will have surplus. Though there are a lot of methods to make personal budget, this process always includes three phases. 1. First, to put up financial purposes. That means, that you should plan the most expensive purchases, which you want to buy in future. To buy a car, to study at the University or to start own business you will need more money, than you can pay at the moment. That’s why people make savings to reach these purposes in near future. 2. Second, to evaluate the income. The next step in making personal budget will be preparing a list of all your sources of income. It includes wages, salary, cash, and interest on savings. 3. Third, to plan expenses. At this phase, you enumerate all things you need to buy or to pay for at a period of time. It will help to consider your needs once more, and to except the things you needn’t. In planning expenses you must include savings for the future. There are three kinds of expenses: fixed (that must be paid regularly), flexible (they are necessary but change with circumstances), and optional (they vary and not always necessary). If you have overspending, your budget should be readjusted or followed more carefully. Expenses should not be higher than income. 10). The value of a college education. Now days an understanding of opportunity costs and tradeoffs is important personally to high school students, as well as everyone else. Sooner or later high school students must make choices about what to do after graduation. Every year millions of students graduate from high school. The decisions they make will affect the rest of their lives. Some will choose to go to college; some will want to get full-time jobs; others will decide to obtain technical job training. Young people have one sharp question. How valuable is post-college schooling? They must make a decision, to go working and to have their own money now or to go to college and to get more in future. In this situation there is one good argument. For example, in the US the wage of a high-educated worker is 163% higher than of a person with middle education. Developing of science gave us microcomputers, optic-fibre connection, and industrial robots, which need high-quality personal. That is why the demand of well-educated people is very high now. I mean highly developed and developing countries. But as we could see, in Russia technical specialties become popular in the last five years. Which is connected with oil industry. Developing of financial system in our country also requires specialists in banking, insurance, and tax sphere. Some people could say tat the opportunity costs of going to college involve a loss of income and a loss of practical job experience while attending college. But I think, that these people live for today not for future. College education includes using time and money to gain greater advantages in future. All these arguments show, why college education is so popular in our time. In every case, economic reasoning will help students make better choices. 11). Pricing policies. Companies' pricing decisions depend on one or more of three basic factors: production and distribution costs, the level of demand, and the prices (or probable prices) of current and potential competitors. Companies also consider their total objectives and their consequent profit or sales goals, such as obtaining maximum income, or maximum market share, etc. Pricing strategy must also consider market positioning: quality products generally require "prestige pricing" and will probably not sell if their price is thought to be too low. Obviously, firms with excess production capacity, a large stock, or a falling market share, tend to cut prices. Firms experiencing cost inflation, or in urgent need of cash, tend to raise prices. A company faced with demand that exceeds its possibility to supply is also likely to raise its prices. When sales respond directly to price variations, demand is said to be elastic. If sales remain stable after a change in price, demand is inelastic. Although it is an elementary law of economics that the lower the price, the greater the sales, there are numerous exceptions. For example, price cuts can have unpredictable psychological effects: buyers may believe that the product is faulty or of lower quality, or will soon be replaced, or that the firm is going bankrupt, etc. Similarly, price rises convince some customers that the product must be of high quality, or will soon become very hard to get hold of, etc. A psychological effect that many sellers count on is that a potential customer seeing a price of $499 will register the $400 price range rather than the $500. This technique is known as "odd pricing". Obviously most customers consider elements other than price when buying something: the "total cost" of a product can include operating and servicing costs, and so on. Since price is only one element of the marketing mix, a company can respond to a competitor's price cut by modifying other elements: improving its product, service, communications, etc. Reciprocal price cuts may only lead to a price war, good for customers but disastrous for producers who merely end up losing money. Whatever pricing strategies a marketing department selects, a products selling price generally represents its total cost (unit per cost plus overheads) plus profit or "risk reward". Overheads are the various expenses of operating a plant that cannot be charged to any one product, process or department, which have to be added to prime cost or direct cost, which covers material and labour. Cost accountants have to decide how to allocate or assign fixed and variable costs to individual products, processes or departments. Microeconomists argue that in a fully competitive industry, price equals minimum average cost equals break-even point. 12). The rights of a consumer and responsibility of a supplier. Complaining about faulty goods or bad services is never easy. Most people dislike making a fuss. However, when you are shopping, it is important to know your rights. For example, these are major rights of a consumer in the US, which President Kennedy included in a bill of ―Consumer rights‖ in 1962. 1. The right of safety. Consumers have rights to be protected from danger goods. The Government created Product Safety Commission in 1972. This organization protects consumers from risk of faulty goods. 2. The right to be informed. The consumers must know: a). What are they buying. b). What are the rules of selling and guaranties. c). The risk that accompanies using the product. This right is under control of Federal Trade Commission since 1973. 3. The right to choose. The competition on market is a basis of free business. That is why the government realizes antimonopoly and antitrust policy. 4. The right to be heard. Most large companies have departments, which receive complaints and suggestions from consumers. The consumer must observe these rights and law rules. From its side, the government regularly holds discussing on these problems. The federal government and state governments finance other organizations: Office of Consumer Affairs, Food and Drug Administration, Government Printing Office, Department of Agriculture. 13). Labour problems, cost of growth. By economic growth we understand the increasing of factors of production, the quantity and the quality of goods and services. There are two types of economic growth: 1. Extensive economic growth has place, when people use more resources to increase production. It also includes new labour resources. 2. Intensive means, that we use our resources more effectively, and new technologies. Now days, in highly developed countries 20-30% - are extensive factors of production, and 70-80% - intensive. What are the advantages and disadvantages of economic growth? Advantages: 1. Modernizing of agriculture and other branches of production. Using new methods and technologies. 2. Developing of infrastructure (transport, electricity, connection). 3. The population of the country gets new goods and services, which they need to raise their standard of living. Developing of production needs labour resources, and goods for export. This export allows the country to take part in foreign trade, and to buy goods and services, which it can’t produce by itself. 4. The standards of education rise. People, who are working at new factories, need high level of education. And the other part obtains technical job training. 5. Economic growth helps the country to increase its capital resources. So it can start new branches of production and help poor countries. Disadvantages: 1. For developing countries economic growth needs capital resources. But this requires some savings, and that means new privations to the people. 2. Sometimes developing countries take credits. And the creditors use it to exploit the country. 3. Ecological problems, such as: polluting air, land, and waters, using up natural resources. What about labour problems. It is a well-known fact in economy now days. Many famous economists studied it, and they came to a mind, that it was a common process. They called it structure unemployment (one of three branches of unemployment). It means, that people loose their jobs because of technological changes in economy. Old productions and specialties miss and new come, because people use new methods of production goods and services. That fact was shown in the US in 1982, when economic growth in automobile production was a cause of mass unemployment in that sphere. That’s why governments in many countries help unemployed workers by retraining programs and so on. 14). An annual report of a company. Corporations issue annual reports summarising the progress made in the past year. Stockholders and potential investors use the annual report to evaluate the performance of the corporation. The ability to read an annual report is a basic skill for understanding how a business operates. The annual report is a message to the stockholders - the owners of a corporation from the corporate management. The report tells the stockholders the company's financial status at the end of the fiscal year and what the management sees for the future. Also, the annual report fulfils a legal requirement. The Securities and Exenange Commission (SEC), a federal agency in the USA, requires corporations to publish financial information about their firm. With such information, investors can make educated decisions. Libraries stock annual reports of major corporations. Annual reports generally are divided into two sections. The first section contains a letter to the stockholders from the chief executive officer (CEO) of the corporation. Accompanying this letter summarising the corporation's performance is a chart of financial highlights. Also frequently included in the first section is an overview of the corporation's organization. The second section includes statistics on the company's performance. Most of the information appears in charts and graphs. The balance sheet is a chart that includes the assets (items of value the company owns) and its liabilities (debts or claims against the assets of the company). The balance sheet represents the financial picture of the firm at one instant in time. The income statement shows the profit or loss of the company for the year. This chart reports the income the company received from sales, interest, and other sources. The operating costs - salaries, advertising, maintenance - deducted from the income total the profit or loss. The statement of stockholders ’ investment, or equity, includes information on the company's stock, such as number of shares outstanding and issued. Various parts of the annual report can be used to determine whether a corporation is profitable. In addition to reporting on this current year, most corporations include in their annual reports comparisons of the current year and the prior year's financial information. 15). Money. History. Functions and forms. There is one subject over which everybody has complete mastery, that is money. But what is money? To answer that question, we go back in time. Today we exchange our money for goods which others sell to us, and for the services which others provide for us. In a primitive community people obtain goods and services by barter. Trade by barter is the earliest form of trade, when people offer goods in exchange for what they want. However barter involves many difficulties. There is the problem of "double coincidence of wants". Then there is the problem of the "rate of exchange". As primitive communities develop into more advanced societies people realize they need some commodity they can use in exchange for anything, some commodity that does not decay and remains valuable, some commodity with the help of which people can measure the value of one thing against the value of another thing. Such commodity is money. It does not depreciate, people accept money in exchange for anything, they measure all goods in terms of money. Thus money is a necessary part of any civilized society. It serves as: 1. a medium of exchange 2. a store of wealth 3. a measure of value Money means coins, banknotes and cash in the bank account. We use it to make payments. Now days we know that the units of money must have certain qualities to be successful. They must be: 1. Standard. They must all be of the same kind, look the same, weigh the same, all be of the same type, shape, size and quality. 2. Durable. They must be strong and long-lasting, so that they are a store of value and do not wear out easily. 3. Scarce. They must be difficult to come by to keep their value. 4. Acceptable. They must be accepted as a medium of exchange in a society or country for buying and selling, that is they must be legal tender. 5. Portable. They must be easy to carry. 6. Divisible. It must be possible to divide the units of money of large value into smaller values. In the past many things were used as the medium of exchange — corn, furs, rice, tobacco, salt tea, rum — there is no end to them. In time people realized that metals were superior to the commodities previously mentioned because coins made from metal are homogeneous, portable and easily divisible by weight. The Ancient Britons and Greek used iron, the Romans used copper but gradually silver and gold replaced them, because they provide a greater value in a smaller bulk. Another advantage is that all gold and silver of a certain weight and fineness is the same. The advent of coinage is a step forward because coins are free from most of the disadvantages of earlier forms of money. The first coins are credited to China around about 1.000. B.C. After coins came notes. The hardest problem for anyone with money then was to find somewhere safe to keep it. It seemed sensible to look around for someone who had vaults and safes for their own business, and then to ask them to look after the money. Gold and silversmiths had such safes, because their trade was traffic in coin and bullion, and they needed somewhere secure to keep their stocks. So it came about in the seventeenth century that goldsmiths took these deposits for safe keeping. They issued a receipt which acknowledged the deposit of the money and incorporated a promise to return it on demand. More and more people came to hold these receipts and they began to circulate for value among merchants. Gradually it became the practice to issue these deposit receipts in standard amounts, e.g. 10, 50, 100. These receipts were very convenient, as they could be passed on, if one person owed money to another, and change hands many times, and still be good for payment. They came to be trusted and became usual in payment, as easier, lighter and quicker to handle than a lot of coin. The receipts were now expressed to be payable to bearer. People stopped calling them receipts, and began to describe them as goldsmiths notes. So the goldsmiths began to exercise some of the functions of a banker. They kept money and valuables on safe deposit, and they issued notes. Some of his receipts were always out, circulating in the hands of the merchants. So the goldsmith always had some cash in hand, and he started to lend this out, charging interest. This was the beginning of banks. 16). The Bank of England. The Bank or England was founded as a private joint-stock company in 1694. The specific reason for its formation was to provide money for the government during the war against France (1689-97). From the start, the Bank was in competition with the goldsmiths' banking business. When it started lending its own notes against all the types of security this competition became more marked. These early banknotes were convertible on demand, that is, one could exchange them at the Bank for gold coins. In 1708 the Bank got a near-monopoly of the issue of notes in England. No other corporate body, or banking partnership of more than six persons, could issue notes payable on demand. After the Act of 1907 the goldsmiths and the private bankers in or near London deposited their cash with the Bank and used its notes instead of their own. Still at this period there were the banknotes of the Bank of England, the banknotes of the country bankers, and gold coins, all circulating together. All the notes were convertible into gold. This system of notes was called the Gold Standard. The Gold Standard was an excellent scheme but it had a short life. In 1931 Great Britain came off the Gold Standard, because the gold reserves of the country were not sufficient to meet the demands from foreign financial centers. Since 1931 the banknotes of this country have been inconvertible. They are not backed by the nation's gold reserves. The first and most important function of a central bank is to advise the government on the making of the country's financial policy and then help to carry it out which means carefully monitoring the money supply. Its business at first was to receive money on deposit, discount approved bills of exchange and lend against satisfactory security. At first this lending was nearly all to the government, and gradually the Bank came to perform other services on behalf of the government, and so to become regarded as banker to the government. As in the country areas people had general suspicion of notes of many country banks, The Bank of England was empowered to open country branches. The present day branches of the Bank are found in Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Southampton and at the Law Courts in London. From the time of its foundation the Bank had strong links with the government and these strengthened over the centuries until in 1946 it was nationalized and became publicly owned. The Bank of England is controlled by a Court of Directors, made up of the Governor, the Deputy Governor and sixteen directors. They are all appointed by the Crown. As the central bank of the United Kingdom, the Bank of England: — Implements the monetary policy of the government. It decides what percentage of bank deposits is held as cash, and what percentage may be lent. — Acts as banker to the government. It administers exchange control and keeps the nation's gold and foreign currency reserves. The Bank keeps the government's banking accounts, manages the accounts and funds of various governmental departments. — Acts as banker to the deposit banks. It keeps the accounts of other banks. — Acts as lender of last resort to the discount houses. — Has about 90 accounts for overseas central banks and for International Monetary Fund and the International Bank of Reconstruction and Development. 17). Banking in the USA. In the United States the origins of some banking services were associated with the Gold Rush. The first gold strike occurred in California in 1848. In the wake came the problems of carrying mail and gold dust over hundreds of miles. A concern called Adams and Company opened its office in San Francisco in 1849. It provided an express mail and stage-coach service to the mines. The express company received the miner's gold for the purpose of shipment. It weighed the gold, gave a receipt for it, and assumed responsibility for its safety. Thus the express company's iron safe became the local bank. About this time in Sacramento a group also opened a bank. There were three clerks, all armed with Colt revolvers and knives, and the banking hours were from six in the evening until ten at night. It was in 1852 that Wells Fargo and Company was born. In the July of that year two of its senior men arrived in California, one to be responsible for the express services, the other for the banking. The company forwarded packages, parcels and freights of all descriptions between New York and San Francisco, purchased and sold gold dust, bullion and bills of exchange. It also attended to the payment and collection of notes, bills and accounts. It was very different from the goldsmiths and their notes. And yet the basic functions of providing security, accepting deposits, paying and collecting bills, were exactly the same. All that has happened since has been only a development of these basic functions. At present the Federal Reserve System is the core of the country's financial institutions, payment processes, markets and instruments. The system has four basic functions: 1. influencing the supply of money and credit, 2. regulating and supervising financial institutions, 3. serving as a banker and fiscal agent for the government, 4. supplying payments and services to the public through depositary institutions. The system is an unusual system of public and private elements and centralized and decentralized components. At the head of its formal organization is the Board of Governors, located in Washington, D.C. The seven members of the board are appointed for 14-year terms by the President with the advice and concent of the Senate. At the next level are the regional Federal Reserve Banks. Each of the 12 Reserve Banks serves a certain region of the country. The Reserve Banks are not profit motivated. Instead their policy is based on the System's estimates of the needs of the economy. The organization of the System also includes The Federal Open Market Committee. It is the most important money policymaking body because it exercises broad control over the growth of the nation's money supply. It also has charge of the System's operations both in domestic securities market and in foreign exchange markets. Two-fifths of the 12.600 commercial banks in the US belong to the System. National banks must be members; state-charted banks may join if they meet certain requirements. Each member bank holds 3 percent of its capital as stock in its Reserve Bank. About 25.000 other depositary institutions provide American people with banking services. 18). Types of banks. Banking in Great Britain started with small local banks in each town, but to increase their funds and widen their business, mergers and takeovers began to take place on a large scale. So, that now there are only a few banks, each with many branches (the Big Six — Barclays, Courts, Lloyds, Midland, National Westminster and Williams and Glyns). They are clearing banks, i.e. they have a seat in the Clearing House. This is an arrangement for a quick settlement of payments between different banks. Those banks without a seat in the Clearing House get their cheques cleared by a bank which has, acting as an agent. Clearing is the process whereby the amount of a cheque is transferred from the drawer's bank to the payee's bank. The origin of the Clearing House was somewhere in the 1770s, when the clerks of the private banks of those days met each other daily to exchange cheques on their various banks and to settle up. The clearing banks have many competitors in different sections of their business. These rival bodies want to collect and use the public's savings for different purposes. Merchant banks carry on a great variety of business, and each tends to specialize in certain activities or in transactions with particular countries. Some activities, however, are basic to all of them. These are deposit banking, underwriting, and the management of client funds. The National Giro is a nationally owned scheme for the fast transfer of payments through post offices. The National Giro was set up to modernize the remittance services of the Post Office. The Giro system is particularly appropriate for the payment of rates and bills by instalments, hire purchase and mail order remittances, and pay- ments for the renting of consumer durables. One big drawback to the service provided by the clearing banks is the restricted hours during which they are open to the public. This led to the establishment of money shops. These are operated by finance companies and some American banks. The accent is on the lending and not all money shops provide current account facilities, although some do; but attention is given to the provision of personal, home improvement and mortgage loans, life and general insurance facilities, investment advice, and savings accounts. Similar to them are money shops in chain stores, open where the store is open — the 'in-store banks'. Of these the most numerous are those of the Cooperative Bank, which set up nine 'handybanks' in the Birmingham area and hopes that within two years there will be 500 of these banking points in Cooperative stores around the country. Such a handybank gives facilities for cashing cheques, depositing money, travel cheques, and it is open all day Saturday. 19). Types of bank services. Banks are among the most important financial institutions in the economy That produce and sell financial services. In fact banks are those financial institutions that offer the widest range of financial serices of any business firm in the economy. Their success or failure depends on their ability to identify financial services the public demands, produce those services efficiently and sell them at a competitive price. Banking covers so many services that it is difficult to define it. Most banks offer a combination of wholesale and retail banking, i.e. they provide large-scale services to companies, government agencies and other banks and small-scale services to the general public respectively. Both types of banking, however, have three essential functions. They are: 1. Deposit function — receiving customers' deposits and offering interest-bearing deposits. 2. Payments function — making payments on behalf of customers for their purchases of goods and services. 3. Credit function — lending and investing money. There are some traditional services that banks offer. 1. Carrying out currency exchange. History shows that one of the first services offered by banks was currency exchange — a bank stood ready to trade one form of currency for another in return for a service fee. In today's financial marketplace trading in foreign currency is usually carried out by the largest banks due to currency risk and the expertise needed to carry out cash transactions. 2. Safekeeping of valuables. During the Middle Ages, banks began the practice of holding gold, securities, and other valuables owned by their customers in secure vaults. Customers still leave articles of value, locked boxes, wills, and many other things in bank strong rooms for safety. The customer should lock boxes and seal parcels before he hands them in to the bank. The banker will issue a receipt if so required. The banker hands them back only against a signature by his customer or a properly-appointed agent whom the bank knows. Some banks maintain a safe deposit service where the customer himself puts his documents or articles of value into his box in the strong room or takes them out. He alone has the key to his box. The bank keeps duplicate keys in case of emergency, but does not use them except in the presence of the customer or by his express authority. 3. Trust services. For many years banks have offered to manage the financial affairs and property of individuals and business firms in return for a fee. This property management function is known as trust services. Most banks offer both personal trust services to individuals and families and commercial trust services to corporations and other businesses. Banking is not static business today. Banks are undergoing sweeping changes in function and form. Among the newest services offered by banks are: 4. Financial Advising — customers have long asked for financial advice, particularly, when it comes to the use of credit and the saving and investing of funds. Many banks today offer a wide range of financial advisory services, from helping to prepare tax returns and financial planning to consulting for business managers and checking on the credit standing of firms and individuals who deal with one of the bank's business customers. 5. Cash Management — over the years banks have found that some of the services they provide for themselves are also valuable for their customers. One of the most prominent examples is cash management services, in which a bank agrees to handle cash collections and disbursements for a business firm and to invest any temporary cash surpluses in short-term interest-bearing securities and loans until the cash is needed. While banks tend to specialize mainly in business cash management services, there is a growing trend today towards offering similar services for consumers. 6. Selling Insurance Policies — most banks either offer selected insurance policies to their customers or have plans to offer insurance services in the near future. They hope to be able to offer regular life insurance policies and property-casualty policies, such as auto or home owners' insurance. 7. Offering Security Brokerage Services — in today's financial marketplace many banks are doing their best to become true "financial department stores ". This is one of the main reasons banks began to market security brokerage services in the 1980s, offering their customers the opportunity to buy stocks, bonds, and other securities without security dealers or brokers. It should be clear from the list of services described that the changes affecting the banking business today are so important that many industry analysts refer to current trends as "a banking revolution". 20). The company structure and development of the bases of H&G Ltd. Извините, но по техническим причинам придется делать самим на основе Unit 2 Language of Business. Тема несложная, думаю, сделаете без особых проблем.
Pages to are hidden for
"Economic Goods and Services.rtf"Please download to view full document