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
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
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
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
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
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
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
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
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
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
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
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
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
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?
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.
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
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
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
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
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
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
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.