THREE ECONOMIC ISSUES

Economics is the study of how people choose to allocate scarce resources to satisfy their unlimited wants. The main problem in economics is the question of allocating scare resources between competing uses. In this article three economic issues are discussed to show how society allocates its scarce resources between competing uses. In this connection the question what, how and for whom to produce is of great significance.

Oil is an important commodity in modern economies. Oil and its derivatives provide fuel for heating, transport, and machinery and are basic inputs for the manufacture of industrial petrochemicals and many household products. From the beginning of this century until 1973 the use of oil fell in comparison with the pieces of other products.

In 1973-74 there was an abrupt change. The main oil-producing nations, mostly located in the Middle East but including also Venezuela and Nigeria, belong to OPEC - the Organisation of Petroleum Exporting Countries. Recognizing that together they produced most of the world’s oil, OPEC decided in 1973 to raise the price at which this oil was sold. Although higher prices encourage consumers of oil to try to economize on its use, OPEC countries correctly forecast that cutbacks in the quantity demanded would be small since most other nations were very dependent on oil and had few commodities available as potential substitutes for oil.

Thus OPEC countries correctly anticipated that a substantial price increase would lead to only a small reduction in sales. It would be very profitable for OPEC members.

People usually respond to prices in this or that way. When the price of some commodity increases, consumers will try to use less of it but producers will want to sell more of it. These responses guided by prices are part of the process by which most western societies determine what, how and for whom to produce.

Consider first how the economy produces goods and services. When as in 1970s, the price of oil increases six-fold, every firm will try to reduce its use of oil-based products. Chemical firms will develop artificial substitutes for petroleum inputs to their production processes; airlines will look for more fuel efficient aircraft; electricity will be produced from more coal-fired generators. In general, higher oil prices make the economy produce in a way that uses less oil.

How does the oil price increase affect what is being produced?

Firms and households reduce their use of oil-intensive products which are now more expensive. Households switch to gas-fired central heating and buy smaller cars. Commuters form car-pools or move closer to the city. High prices not only choke off the demand for oil-related commodities; they also encourage consumers to purchase substitute commodities. Higher demand for these commodities bid up their price and encourages their production. Designers produce smaller cars, and research laboratories develop alternatives to petroleum in chemical production. Throughout the economy what is being produced reflects a shift away from expensive oil-using products towards lees oil-intensive substitutes.

The for whom question in this example has a clear answer.

OPEC revenues from oil sales increased from $35 billion in 1973 to nearly $300 billion in 1980. Much of these increased revenues was spent on goods produced in the industrialized Western nations. In contrast, oil-importing nations had to give up more of their own production in exchange for the oil imports that they required. In terms of goods as a whole the rise in oil prices raised the buying power of OPEC and reduce the buying power of oil-importing countries such as Germany and Japan.

The world economy was producing more for OPEC and less for Germany and Japan. Although it is the most important single answer to the “for whom” question, the economy is an intricate, interconnected system and a disturbance anywhere ripples throughout the entire economy.

In answering the “what” and “how” questions we have seen that some activities expanded and others contracted following the oil price shocks. Expanding industries may have to pay higher wages to attract the extra labour that they require.

A scarce resource in one for which the demand at a zero price would exceed the available supply. We can think of oil as having become more scarce in economic terms when its price rose.

NOTES:

to allocate resources - распределять ресурсы;

scarce resources - ограниченные, скудные ресурсы;

scarcity – дефицит;

to satisfy unlimited wants - удовлетворять неограниченные потребности;

competing uses - конкурирующие сферы использования;

to be of great significance - иметь большое значение;

commodity - товар, предмет широкого потребления;

oil and its derivatives - нефть и нефтепроизводные;

to provide fuel for heating and transport - обеспечивать топливом системы теплоснабжения;

basic inputs - основные составляющие;

to increase steadily - постоянно увеличиваться;

increase – увеличение;

in comparison with = as compared with - по сравнению с;

an abrupt change - резкое изменение;

oil-producing nations - страны, производящие нефть;

to be located = to be situated - располагаться в;

to belong to - принадлежать;

OPEC (the organization of petroleum exporting countries) – ОПЕК (организация стран

экспортеров нефти).

to encourage consumers - побуждать, поощрять потребителей;

to economize its use - экономить на использовании;

to forecast correctly - правильно прогнозировать;

cutbacks in quantity demanded - сокращения требуемого количества;

to be dependent on oil - быть зависимым от нефти;

to be available = to be in stock - иметься в наличии;

potential substitutes - потенциальные (возможные) заменители;

to anticipate - предсказывать, предвидеть, прогнозировать;

substantial price increase – существенное (значительное) повышение цен;

to lead (led) – привести к;

to cause -/-/

to entail -/-/

to result in -/-/

reduction in sales – сокращение продаж;

to be profitable for - быть прибыльным, выгодным;

to respond to prices - реагировать на цены;

to determine what, how and for whom produce – определять что и как и для кого производить

to increase six-fold - возрастать в шесть раз;

artificial substitutes for petroleum - искусственные заменители бензина;

fuel-efficient aircraft – самолет с экономичным расходом топлива;

oil-intensive products - продукты с высоким содержанием нефти;

switch to - переключиться на;

commuters - жители пригорода, регулярно приезжающие в город на учебу или работу;

car-pools - группы людей, договорившихся по очереди обслуживать друг друга

автомашиной;

to choke off the demand – задушить спрос;

substitute commodities – товары-заменители;

to bid up the price - наращивать цену;

to encourage production - стимулировать производство;

to reflect a shift away from … towards … - отражать переход (смену, замену) от … к …;

OPEC revenues - доходы стран-членов ОПЕК;

nearly $300 billion – почти 300 миллиардов долларов;

to give up the production – отказаться (прекратить) от производства;

in exchange for - в обмен на;

to require - требовать;

buying power – покупательная способность;

purchasing /-/-

spending /-/-

an intricate interconnected system – сложная взаимосвязанная система;

a disturbance - нарушение равновесия, отклонение, срыв;

to ripple throughout the entire economy – прокатиться волной через всю экономику;

some activities expanded (contracted) - некоторые виды деятельности расширились

(сократились);

to pay higher wages to attract the extra labour – платить более высокую зарплату для

привлечения дополнительной рабочей силы;

to renew - восстанавливать, возобновлять;

demand for - спрос на;

to secure wage increases – добиваться повышения зарплаты;

to exceed – превышать;

the available supply - имеющееся предложение;

to become more scarce in economic terms – стать более скудным, не достаточным в

экономическом смысле.

COMPREHENSION QUESTIONS:

1. What are the three main questions of the economy?

2. What do you need in order to understand economics?

3. What happened to the price of oil from 1900 to 1973?

4. What did OPEC decide in 1973?

5. Why was there only a small reduction in oil sales?

6. How do people respond to a higher price for a commodity?

7. What effect do higher oil prices have on the economy?

8. What happens throughout the economy when there are high oil prices?

9. What two effects did high prices have on oil-importing countries?

10. What is a scarce resource?

VOCABULARY EXERCISES:

Exercise 1. Suggest the Russian equivalents:

To increase steadily; try to economise on the use of …; to choke off the demand; to encourage consumers; to purchase smth …; to encourage the production of;

Exercise 2. Replace the underlined words by synonyms:

Three economic questions; to give a share of resources; to have scarce supplies of raw materials; a sudden change; realising that; potential replacements; to encourage people who use oil; price increases sixties; try to cut down on the use of oil.

Exercise 3. Find in the text English equivalents for the following:

Распределять ресурсы; ограниченные ресурсы; значительное повышение цен повлечет за собой несущественное снижение объема продаж; цена возросла в три раза; резкий подъем; резкий взлет цен; возросшие доходы; повысить (понизить) покупательную способность; повышать заработную плату для привлечения дополнительной рабочей силы.

Exercise 4. Fill in the gaps with the words and expressions from the text:

1. Economics is the study of how people choose ___ scarce resources to satisfy their ___.

2. In 1973-74 there was an ___ change in oil prices.

3. ___ countries correctly forecast that ___ in the quantity demanded would be small.

4. Most nations are very dependent on oil and have few commodities avail able as___ for oil.

5. These responses, ___ prices, are part of the process by which most Western societies ___ what, how and for whom to produce.

6. Chemical firms will develop ___ for petroleum inputs to their production process; airlines will look for more ___ aircraft.

7. Firms and ___ reduce their use of ___ products.

8. Commuters form ___ or move closer to the city.

9. High prices not only ___ for oil-related commodities; they also encourage consumers to purchase.

10. OPEC ___ from oil sales increased from $35 billion in 1973 to nearly $300 billion in 1980.

11. The rise in oil prices raised ___ of OPEC.

12. The economy is an ___, interconnected system and a ___ anywhere ripples throughout the entire economy.

13. ___ industries may have to pay higher wages to attract the ___ labour that they require.

14. A scarce resource is one for which the demand at a sew price would ___ the available supply.

Exercise 5. Translate the sentences using all the active possible:

1) Решение вопроса о распределении ограниченных ресурсов в экономике (обществе) зависит от того, что именно, каким способом и для кого данное общество намерено производить.

2) Цены на нефть стабильно растут и отсюда, естественно, следует, что потребители нефти пытаются более экономно ее использовать.

3) Резкое снижение спроса на нефть способствовало росту производства заменителей нефти.

4) Расширяющиеся отрасли производства для привлечения дополнительной рабочей силы вынуждены повышать уровень заработной платы.

5) Возросшие доходы поднимают покупательную способность общества.

Exercise 6. Divide the text into logical parts and make up a plan of your own.

Exercise 7. Make up a summary of the text using the following expressions:

1. The text I’m going to retell is headlined... / entitled...

The headline of the article is...

The main idea of the article is...

The article I’m going to speak about deals with...

The article opens with...

The article begins with...

2. At the beginning of the article the author describes...

depicts...

explains...

introduces...

points out...

mentions...

underlines...

criticizes...

makes a few critical remarks...

reveals...

gives a summary of...

The article / the author begins with the description of...

the analysis of...

a review of...

his opinion of...

the generalisation of...

3. After that the author passes on to...

then goes on to say...

next gives a detailed analysis of...

further on enumerates...

4. In conclusion the author...

The author concludes with...

The article ends with...

At the end of the article sums it all up by saying...

5. I found the article interesting because...

important

informative

dull

of no value

urgent

It should be noted that...

The problem raised in the article...

To sum it up I’d like to give my view on...

Exercise 8. Make up bits of conversation using the following formulas expressing checking English.

1.Could you say that again, please? – Повторите, пожалуйста, что вы сказали?

2.What does this mean, please?- Скажите, пожалуйста, что это означает?

3.I don’t understand this … - Я не понимаю этого (не понял).

4.How do you spell …? - Как пишется …?

5.How do you pronounce this, please? – Скажите, пожалуйста, как это произнести?

6.Is this correct, please? – Скажите, пожалуйста, так правильно?

Text B

Exercise 1. Read the text without using a dictionary and answer the following questions:

1. What was the dominant problem of the 1930s?
2. What were the central problems of the late 1970s and early 1980s?

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