ECONOMICS AS AN ACADEMIC DISCIPLINEEconomics is as old as the human race: it is probably the first art which man acquired. When some cavemen went out to hunt and others remained to defend the fire; or when skins were traded for flint axes - we had economics. But economics as an academic discipline is relatively new: the first major book on economics Adam Smith's «The Wealth of Nations» was published in 1776. Since that time the subject has developed rapidly and there are now many branches of the subjects such as microeconomics, international economics and econometrics as well as many competing schools of thought.There is an economic aspect to almost any topic we care to mention of education. Economics is a comprehensive theory of how society works. But as such it is difficult to define. The great classical economist Alfred Marshall defined economics as «the study of I man in the everyday business of life».This is rather too vague a definition. Any definition should take account of the guiding idea in economics which is scarcity. Virtually everything is scarce; not just diamonds or oil but also bread and water. How can we say this? The answer is that one only has to look around the world to realize that there are not enough resources to give people all they want. It is not only the very poor who feel deprived; even the relatively well-off seem to want more. Thus when we use the word 'scarcity' we mean that: All resources are scarce in the sense that there are not enough to fill everyone's wants to the point of satiety.We therefore have limited resources both in rich countries and poor countries. The economist's job is to evaluate the choices that exist for the use of these resources. Thus we have another characteristic of economics: it is concerned with choice.Another aspect of the problem is people themselves; they do not just want more food or clothing, but specific items of clothing and so on.We have now assembled the three vital ingredients in our definition, people, scarcity and choice. Thus we could define economics as: The human science which studies the relationship between scarce resources and the various uses which compete for these resources.The great American economist Paul said that every economic society has to answer three fundamental questions, What, How, and For whom?What? What goods are to be produced with the scarce resource: clothes, food, cars, submarines, television sets?How? Given that we have basic resources of labor, land, how should we combine them to produce the goods and services which we want?For whom? Once we have produced goods and services we then have to decide how to distribute them among the people in the economy.One alternative definition of economics is that it is the study of wealth. By wealth the economist means all the real physical assets which make up our standard of living: clothes, houses, food, roads, schools, hospitals, cars, oil tankers, etc. One of the primary concerns of economics is to increase the wealth of a society, i.e. to increase the stock of economic goods. However, in addition to wealth we must also consider welfare. The concept of welfare is concerned with the whole state of well-

being. Thus it is not only concerned with more economic goods but also with public health, hours of work, with law and order, and soon.Modern economics has tried to take account not only of the output of economic goods but also of economic such as pollution. The wealth welfare connotation is thus a complex aspect of the subject.Задания к тексту.1. Прочитайте текст и ответьте на вопросы.

1) What are the early examples of economic activity?2) Why is economics difficult to define?3) What is the main problem of economics?4) How should we understand the term “scarcity”?5) What are the three questions of economics?6) Why is the definition of economics complicated?7) How can you define economics?

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PROLOGUE TO ECONOMICSThere is almost universal agreement that economies are becoming more complex every year and that an understanding of how an economy works is more important than ever before. For someone who is just beginning to study economics, the task indeed appears to be a difficult one. Economics is the study of the way in which mankind organizes itself to solve the basic problem of scarcity. All societies have more wants than resources, so that a system must be devised to allocate these resources between competing ends. In a very real sense, the complexity of the economy makes it difficult to decide exactly where to start. Simultaneously, production is taking place, goods and services are being allocated, and a great number of market participants are being motivated by a diverse set of goals. In addition, there is the complex financial system in which individuals, firms, and governments borrow and lend funds.Economics is divided into two major branches: macroeconomics and

microeconomics. Macroeconomics is the study of behavior of the economy as a whole with emphasis on the factors that determine growth and fluctuations in output, employment, and the level of prices. Macroeconomics studies broad economic events that are largely beyond the control of individual decision makers and vet affect nearly all firms, households, and other institutions in the economy. Specialists in macroeconomics are particularly interested in understanding those factors that determine inflation, unemployment, and growth in the production of goods and services. Such an understanding is necessary in order to develop

policies that encourage production and employment while controlling inf la t ion. The other major branch of economics is microeconomics. Microeconomics is the study of behavior of individual units within the economy. The divis ion of economics has resulted from the growing complexity and sophistication of economic research.These two approaches and the topics they include are in fact interdependent. Individuals and firms make their decisions in the context of the economic environment, which has an impact on the constraints the decision makers face as well as their expectations about the future. At the same time, when taken as a whole, their decisions determine the condition of the overall economy. A good understanding of economic events and an ability to forecast them require knowledge of both individual decision making and the way in which individuals react to chances in the economic environment.Задания к тексту.1. Прочитайте текст и ответьте на вопросы.

1) Why is it difficult nowadays to understand how an economy works?2) Do you think that definition of economics given in this text is better/ worse

compared to the others from the previous text? Why?3) What makes macroeconomics different from microeconomics?4) What led to the division of economics?5) What do you think about the relations between the two branches of

economics and their role for a deep insight into economic events?2. Передайте содержание каждого абзаца 1-3 предложениями.3. Cоставьте план, расположив его пункты в логической

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THE ECONOMIC ENVIRONMENT The economy comprises millions of people and thousands of firms as well as the government and local authorities, all taking decisions about prices and wages, what to buy, sell, produce, export, import and many other matters. All these organizations and the decisions they take play a prominent part in shaping the business environment in which firms exist and operate.The economy is complicated and difficult to control and predict, but it is certainly important to all businesses. You should be aware that there are times when businesses and individuals have plenty of funds to spend and there are times when they have to cut back on their spending. This can have enormous implications for business as a whole.When the economy is enjoying a boom, firms experience high sales and general prosperity. At such times, unemployment is low and many firms will be investing funds to enable them to produce more. They do this because consumers have plenty of

money to spend and firms expect high sales. It naturally follows that the state of the economy is a major factor in the success of firms.However, during periods when people have less to spend many firms face hard times as their sales fall. Thus, the economic environment alters as the economy moves into a recession. At that time, total spending declines as income falls and unemployment rises. Consumers will purchase cheaper items and cut expenditure on luxury items such as televisions and cars.Changes in the state of the economy affect all types of business, though the extent to which they are affected varies. In the recession of the early 1990s the high street banks suffered badly. Profits declined and, in some cases, losses were incurred. This was because fewer people borrowed money from banks, thus denying them the opportunity to earn interest on loans, and a rising proportion of those who did borrow defaulted on repayment. These so-called "bad debts" cut profit margins substantially. Various forecasters reckoned that the National Westminster Bank's losses in the case of Robert Maxwell's collapsing business empire amounted to over £100 million.No individual firm has the ability to control this aspect of its environment. Rather, it is the outcome of the actions of all the groups who make up society as well as being influenced by the actions of foreigners with whom the nation has dealings. Задания к тексту.1. Прочитайте текст и ответьте на вопросы.

1) What elements does an economy consist of?2) What influences the business environment?3) Why is the economy difficult to control?4) What are the signs of economic booms and recessions?5) How is the state of the economy connected with the businesses within the

economy?6) What can influence business environment?

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WHY FINANCEOne of the primary considerations when going into business is money. Without sufficient funds a company cannot begin operations. The money needed to start and continue operating a business is known as capital. A new business needs capital not only for ongoing expenses but also for purchasing necessary assets. These assets — inventories, equipment, buildings, and property — represent an investment of capital in the new business.How this new company obtains and uses money will, in large measure, determine its success. The process of managing this acquired capital is known as financial

management. In general, finance is securing and utilizing capital to start up, operate, and expand a company.To start up or begin business, a company needs funds to purchase essential assets, support research and development, and buy materials for production. Capital is also needed for salaries, credit extension to customers, advertising, insurance, and many other day-to-day operations. In addition, financing is essential for growth and expansion of a company. Because of competition in the market, capital needs to be invested in developing new product lines and production techniques and in acquiring assets for future expansion.In financing business operations and expansion, a business uses both short-term and long-term capital. A company, much like an individual, utilizes short-term capital to pay for items that last a relatively short period of time. An individual uses credit cards or charge accounts for items such as clothing or food, while a company seeks short-term financing for salaries and office expenses. On the other hand, an individual uses long-term capital such as a bank loan to pay for a home or car — goods that will last a long time. Similarly, a company seeks long-term financing to pay for new assets that are expected to last many years.When a company obtains capital from external sources, the financing can be either on a short-term or a long-term arrangement. Generally, short-term financing must be repaid in less than one year, while long-term financing can be repaid over a longer period of time.Finance involves the securing of funds for all phases of business operations. In obtaining and using this capital, the decisions made by managers affect the overall financial success of a company.Задания к тексту.1. Прочитайте текст и ответьте на вопросы.

1) What is necessary to have to start up a business?2) What can be referred to assets?3) What determines a new company success and why?4) Why do companies invest in developing new products and techniques? 5) What is the difference between short- and long-term capital?6) What role does financial management play in the general success of a

company?2. Передайте содержание каждого абзаца 1-3 предложениями.3. Cоставьте план, расположив его пункты в логической

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MACROENVIRONMENTMacro environment is the network of systems composed of culture, political and economic forces, technology, skill mixes, and consumer groups; a source of opportunities and constraints for the organization. Once the organization has built

its product or defined its service, it must distribute it to consumer client groups who have wants and needs that they attempt to satisfy through the consumption of such products and services.Every organization exists within an extensive and complex environmental network. Organizational environment refers to all groups, norms, and conditions with which an organization must deal. It includes such things as the political, cultural, economic, religious, educational, and like systems that affect an organization and which in turn are affected by it. Culture, composed of values, norms, artifacts, and accepted behavior patterns, affects the way the organization is formed and how it operates once in existence. Indeed, one must recognize that all of the decisions made in an organization are culture bound; i.e., they are a reflection of all these components of culture. Societal norms are those standards that mold behavior, attitudes, and values of those members who constitute a society. They come from laws, customs, religious teachings, and common practice. They are standards because members take them into account in their decisions and behavior. Dress, speech, what is considered to be in good taste, and the general understanding of what is right and wrong are all affected by societal norms. At the same time, almost every institution in a society is capable of transfusing some of its values, norms, and behavior patterns into its environment. Organizations can hardly afford to ignore such a vital ingredient in its macro environment.Political forces are classified as the form and role of government in a society. The source of law and other regulations that restrict or at least affect the organization, the political system also is the source of a rich variety of services for the organization. These services range from fire and police protection to the provision of recreational areas. When one thinks of the governmental sector, one might be likely to think of its negative connotation and red tape. Although there is an element of restriction originating from the political sector, it is by no means dominant. Even though the presence of the political system has served to complicate management’s job, it has also made it easier at the same time. By knowing that all similar organizations must observe the same rules and regulations, managers can experience an element of certainty in their activity. They know that they have a source of protection and redress when violations do occur.The political system is coupled with the economic system. The type of economy a society has can range from private enterprise to planned economy. Whatever its form, the economic system is concerned with the allocation of scarce resources and the provision of some form of distribution. It is, in practice, quite difficult to separate the political and economic systems from each other.The macro environment is also the source of technology—the machines, techniques, and methods required for production and distribution. To be able to compete successfully, organizations must have access to modern technology. It is simply not feasible for an organization to compete unless an adequate level of technology is available to it. It can be safely stated that organization success is measured by the ability of the organization to adjust to and to employ technological innovations. Among their responsibilities, managers today must

count the obligation to maintain a spirit of creativity and ingenuity among members so that continued progress on the technological front can be made. The ever-growing shortages of resources of all types are but one indication of the seriousness of this obligation.Skill mix in the labor force is likewise an important facet of an organization’s macro environment. All organizations depend to some extent on a supply of labor that possesses the skill and ability to perform the work necessary to attain objectives. Consequently, labor market conditions and skill mixes are crucial to success.The consumers are the ultimate arbiters of the organization’s success, for it is they who make the critical choices to consume or not to consume an organization’s output. Without the income (in whatever form) that results from this consumption, the organization is doomed to a relatively short life. This means that managers must be more aware of and sensitive to the total environmental complex of their organization in order to develop and implement plans for successfully coping with it. Otherwise, there is little chance for success, for no longer will yesterday’s methods based on a placid environment serve in today’s turbulent outside world.Задания к тексту.1. Прочитайте текст и ответьте на вопросы.

1) What are the elements of macro environment?2) What tasks does an organization offering a product or service face?3) What is an organizational environment?4) What is culture according to the text?5) How can political forces be classified?6) What is the essence of the economic system?7) Why is technology so important for the success of an organization?8) How can skill mix influence a company’s success?9) What part do consumers play in the success or failure of a business?

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Используя информацию всех предыдущих текстов, составьте сообщение о том, что такое экономика.

MACROECONOMICSOn September 29, 2008, the United States experienced one of the largest economic shocks in its history; the stock market plunged by over 777 points, wiping out over $1 trillion in stock value. The market continued to plummet over the following week, setting off a deep recession. Home prices fell, foreclosures rose, and unemployment soared. Toxic financial products flooded the international

marketplace, pushing many of the world’s largest financial companies to the brink of bankruptcy.Almost immediately, political leaders took action to limit the severity of the recession. They provided government funds to save large banks and connected institutions from default. They created a program to buy up the toxic assets that were dragging down the market. The Federal Reserve expanded the nation’s money supply to cover public debts and loosen credit markets. The president enacted a stimulus plan to get money to consumers in hopes of revitalizing the economy by increasing demand for goods and services. Today, with the economy functioning but sluggish, U.S. politicians battle over the next course of action. Would another stimulus plan get consumers buying again? Should Congress pass a jobs bill to reduce unemployment? Would printing more money for debts help, or cause out-of-control inflation? Could new trade agreements provide an answer to the nation’s economic woes? Whatever the solution, all of these measures, both implemented and debated, involve macroeconomics. The prefix “macro-,” meaning “big,” in the word “macroeconomics” refers to how economists in this field analyze the structure and function of large-scale economies as a whole, whether regional, national or global. Macroeconomics examines the complex interplay between factors such as national income and savings, gross domestic product, gross national product, consumer and producer price indexes, consumption, unemployment, foreign trade, inflation, investment and international finance. Economists in this field seek to understand fluctuations in business cycles and the elements that contribute to long-term economic growth, which are vital to the creation of sound economic policies by governments and businesses. The underpinnings of macroeconomic theory emerged in the early 1800s with the work of Swiss writer Jean Charles Léonard de Sismondi. Sismondi proposed that markets experienced natural economic fluctuations apart from those caused by external events, such as war. It was a radical theory at the time, but a major peacetime recession in 1825 proved it valid. Later, in 1860, French economist Clement Juglar took Sismondi’s idea further by identifying specific cycles occurring with fixed investments. These 7-to-11-year cycles became known as Juglar Cycles. Soon other cycles were observed, such as the lag in feedback on business production (Kitchin Cycle), increased infrastructural investment resulting from demographic expansion (Kuznets wave) and prolonged periods of technological growth (Kondratiev wave). Around 1930, Austrian-American economist Joseph Schumpeter described the four stages of a business cycle: expansion, crisis, recession and recovery. The concept of business cycles became the basis of macroeconomic theory established by British economist John Maynard Keynes in 1936. Keynes found that classical economics failed to explain prolonged unemployment and recessions, so he proposed examining the economy as a whole to find the answer. What he discovered was that businesses and individuals hoard cash during tough times,

restricting the supply of cash available to satisfy demand through consumption. This causes a surplus of goods and labor and slows economic recovery. Before, economists assumed that markets naturally tended toward satisfying demand, eventually resolving product surpluses and unemployment. Keynes not only challenged such beliefs, he suggested that government intervention could be used to counteract disruptive economic fluctuations through deficit spending, reduced taxes, expansion of the money supply, lower interest rates and other monetary policies. Unemployment is a major concern of macroeconomists, as it is detrimental to a country’s productivity and prosperity. While classical economists in Keynes’s day blamed unemployment on high labor costs, Keynes argued that chronic unemployment results from underconsumption–meaning that individuals and businesses are not spending enough to fuel demand for labor. Keynes proposed that money moves in cycles: the payment for a product goes to pay the wages of an employee. In an economy burdened by underconsumption, businesses simply reduce production instead of lowering prices, giving consumers no incentive to buy, increasing unemployment further and causing recession through decreased national output. If prices remain high during recession, then workers have little incentive to settle for reduced wages since they would still lack the purchasing power needed to jump-start demand. Keynes believed the government could counteract underconsumption, prevent recession and encourage rapid economic growth by getting more money into the hands of consumers when markets failed to adequately redistribute wealth. Keynes’s theory was revolutionary not just because it offered a more valid explanation of why recessions and unemployment occur, but also because it suggested that such events could be controlled through strategic monetary policy. Economists who supported traditional laissez-faire capitalism found Keynes’s notion of policy-driven economic growth distasteful, to say the least. Nevertheless, Keynesian macroeconomics rose to become the dominant economic theory among capitalist nations for nearly 40 years, especially in the U.S. It was most famously used during World War II to keep unemployment at historically low levels. Macroeconomics also led to the creation of the International Monetary Fund and the World Bank in the 1940s. In 1956, U.S. economist Milton Friedman modified macroeconomic theory to include an equilibrium approach to regulating the money supply, citing Keynes’s disregard for inflation caused by printing too much money. Then, in the 1970s, Keynesian macroeconomics was largely abandoned when it failed to prevent stagflation. It was replaced by supply-side macroeconomics, which seeks to augment demand by cutting taxes, reducing regulations on businesses and lowering prices through increased production. With the recent global economic crisis, however, Keynesian macroeconomics is experiencing resurgence in popularity. Modern macroeconomic theory has enjoyed some success in the past, though exactly how much remains the subject of much debate. Critics of macroeconomic policies say that government intervention in markets exacerbates, rather than corrects, economic fluctuations through unforeseen consequences. Some point out

that Keynesian macroeconomics assumes irrational behavior from economic actors, putting itself in direct conflict with microeconomic theory. Others claim that macroeconomic policies have little effect on market performance. Of course, macroeconomics is not just employed at the federal level. Banks, industries and local governments look to macroeconomists for data to guide their economic activities. For instance, central bankers, who are responsible for controlling inflation, rely heavily on macroeconomic analyses to determine whether to release more currency into the marketplace or remove some of it. Industries or businesses struggling to find skilled employees likewise turn to macroeconomists to solve the problem. Macroeconomists perform analyses by constructing models to simulate or predict market behavior. Such models are usually mathematical in nature, but they can also be logical or computational. Generally, models show the relationship between various economic components, such as a country’s exchange rate, interest rate and output, or inflation and unemployment. Economists may draw diagrams based on models to illustrate market dynamics or the flow of money in an economy. Such aids can be useful for those who create and modify monetary policies. However, macroeconomic models are far from infallible. Models that only examine a few aspects of an economy when testing the potential effects of a new monetary policy may be excluding dozens of mitigating factors. Random, irrational behavior that seems insignificant at the microeconomic stage may be highly magnified at the national or global scene. Though macroeconomics is largely an extension of microeconomic activity, the aggregation of microeconomic forces creates an ‘other-worldly’ level of complexity that’s tough for even brilliant economists to untangle. Inventing a macroeconomic model that takes all economic factors into account would be impossible. Where macroeconomics fails at predicting future economic outcomes, though, it often does quite well at describing past and current market situations. It has, for example, been particularly useful in helping U.S. leaders and historians understand the factors that contributed to the start and severity of the Great Depression in the 1930s. It has also been used to create strategies to deal with chronic unemployment and increase GDP. Despite the controversy surrounding macroeconomic policies, they likely won’t be abandoned anytime soon.

MICROECONOMICSMeet Employees A, B and C. A year ago, they were hired at the same wage to work for XYZ Electronics. They typically work about 50 hours a week, and all are due for a raise. Employee A receives a 5 percent wage increase and immediately feels energized by the boost in pay. He decides to commit an additional 10 hours a week to the company to increase his income even further. Employee B receives the same raise, but decides her original 50-hour workweek suits her just fine. She’ll make more money for the same work. For Employee C, however, the pay raise means he won’t have to work as many hours to make his starting income, which is adequate to pay his bills. Therefore, he opts to work only 45 hours a week.

How will the decisions of Employees A, B and C affect the company? Cost-wise, who is the most desirable employee for the company? Do the cost savings offered by Employee C’s reduced hours outweigh the potential profit generated by Employee A’s additional work, or vice-versa? Why is Employee A motivated to work more hours, but Employee C motivated to work fewer? How will this affect their purchasing power as consumers? Microeconomics seeks to answer questions such as these. The prefix “micro-,” meaning “small,” in the word “microeconomics” refers to the basic, small-scale economic behaviors and decisions that economists in this field study. Microeconomics examines the impact that economic choices made by individuals, businesses and industries have on resource allocation and the supply and demand of goods and services in market economies. Because supply and demand determine the price of goods and services, microeconomics also studies how prices factor into economic decisions, and how those decisions, in turn, affect prices. Microeconomics emerged as a branch of study when economists began analyzing consumer decision-making processes and their economic outcomes in the early 18th century. The first in-depth explanation of consumer thought came from a Swiss mathematician named Nicholas Bernoulli, who laid the groundwork for microeconomic theory by suggesting that consumer choices are always rational. However, it wasn’t until the late 19th century, when London economist Alfred Marshall proposed examining individual markets and firms as a way to understand the broader economy, that microeconomics became formally established as a field of study. In the mid 20th century, other economists rose up to modify the theories proposed by Bernoulli and Marshall. Although Marshall first described the concept of utility, or the satisfaction a consumer receives from a purchased product or service, economists John von Neumann and Oskar Morgenstern are credited with introducing modern utility theory, based on Marshall’s work, in 1944. It’s the concept of market failure, however, that really defined microeconomics in the mid 20th century. Market failure, a term coined in 1958, refers to when markets operate in ways that prevent resources from being allocated in the most efficient manner. Today, micro economists are primarily concerned with analyzing market failure and suggesting ways to correct or prevent it, often through public policy or government intervention. Monopoly power is one such market failure. Monopolies can form in several ways. A natural monopoly occurs when one business produces a good at a far cheaper cost than its competitors, causing them to go out of business. In an oligopoly, a few businesses that dominate a particular industry may get together and set prices and competition rules for that industry. A strong business may monopolize by buying up industry resources or controlling means of production and shut competitors out of the market by denying them access. Some governments may simply grant monopoly rights to certain businesses. Micro economists see monopolies and other market failures as undesirable and highly inefficient ways to allocate resources in an economy. For instance, a monopoly can choose to charge a higher-than-market-value price for its product

because no competition exists that can force it to do otherwise. Consumers who are charged an unfair price are unable to maximize their utility and satisfy demand, either because the product is too expensive for most to afford, or consumers must forgo purchasing other products. If the monopoly’s product is a necessary one, like water or gasoline, consumers may be forced to negatively alter their spending habits to buy it, putting strain on other areas of the economy. Furthermore, a business that has a monopoly on a limited resource may misuse or deplete the resource, damaging both the environment and the economy. Other kinds of market failure include information asymmetry, missing markets and externalities. Micro economists believe supply and demand can only be balanced through perfect competition, where no one individual or entity possesses the power to influence the price of a particular good or service. In a perfectly competitive economy, the complete cost of a product is factored into its price, and the product is sold for maximum profit based on its demand. In theory, perfect competition maximizes both consumer utility and company profits while ensuring resources are used in the most efficient manner. Since micro economists generally aren’t concerned with promoting any sort of political philosophy, they tend to recommend whatever they think will most likely achieve perfect competition. Suggestions may range from anti-trust and right-to-know laws to government-created markets and social welfare expansion. Unfortunately, such recommendations are rarely foolproof. Because economics involves many complex interactions between various market forces, accurately predicting the outcome of an economic policy is tricky at best, impossible at worst. For example, expanding social welfare may create a safety net that protects workers from economic hard times and promotes upward mobility. The result is a wealthier population that will drive economic growth. However, the same welfare expansion may give some workers an incentive to stop working, which will reduce the government’s income tax revenue and slow economic growth. Of course, the outcome may not be simply either/or. When offered welfare benefits, some people find incentive to work harder, while others find incentive to work less. The micro economist’s task is to propose solutions to market failures that will result in the best possible outcomes despite unintended consequences. To determine the best policies, micro economists attempt to predict how people will respond to the incentives, or disincentives, such policies will create. For example, an economist sees that a paper company has been clear-cutting too many trees in one area to make paper. For the company, cutting a large number of trees makes sense because it can produce its product quickly at a cheap price that consumers love. However, the economist estimates that if the unrestrained cutting continues, the trees will disappear and the company will go out of business within five years, leaving hundreds of workers unemployed. Construction prices in the area will also skyrocket due to lumber scarcity, and tourism will decline from the destruction of the land’s natural beauty. To prevent these outcomes, the economist suggests the local government should regulate the number of trees that can be harvested at one time.

However, the new regulation means the company won’t be able to produce paper as quickly or cheaply as before, causing its product price to rise. The rise in price means some consumers may not be able to afford the product, or they may choose to buy from another supplier, shrinking the company’s profits. If the company finds the regulation too punitive, it may choose to relocate to another state, resulting in the local unemployment the economist was trying to avoid. The economist can prevent such an outcome by recommending the government provide the company with an incentive to support the regulation, like a tax break. Of course, such an incentive may not even be necessary. Consumers may happily pay the higher prices and even increase their patronage because they see the company treating the environment responsibly. The company may discover that sticking to cutting quotas protects it from fluctuations in resource availability, leading to greater price stability and steadier profits over time. These outcomes may not become obvious until after the regulation is implemented. Micro economists also examine opportunity cost when evaluating consumer and corporate behavior. Opportunity cost refers to the next best alternative a consumer or company passes up to purchase or produces a product. In other words, buying or producing one thing is done at the expense of buying or producing something else. A consumer who chooses to rent an apartment over buying a house, for instance, misses out on building equity and taking advantage of the homeowners’ tax credit provided by the government. Likewise, a homeowner must provide maintenance for his property’s upkeep, while a renter usually does not. Examining opportunity costs reveals much about what people value, which guides micro economists in making policy recommendations. The tricky part comes when such costs involve items whose monetary value is unclear. For instance, some people value preserving the integrity of an Alaskan wildlife refuge over drilling for oil that could be used to lower gasoline prices. Economists must work to establish the refuge’s value so it can be accurately compared to the cost benefit of drilling for oil. Cost-benefit analyses play a major role in microeconomics. For micro economists, however, economic behavior always comes back to one concept: utility. Consumers purchase products to increase their satisfaction, and businesses produce to maximize their profits. It’s utility that drives demand and keeps prices reasonable through market competition. Utility can be used to explain why a consumer chooses to take a tropical vacation over enrolling in college, or why a business chooses to make children’s toys instead of rifle ammunition. The benefit of such a theory is that it’s simple to understand and apply. Indeed, microeconomics provides the foundation for nearly all economic theory and has applications in the fields of health, law, psychology, history, urban development, politics and sociology.

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ENVIRONMENTAL ECONOMICSFor centuries, traditional economics has been used to explain how people can create wealth and improve their lives through the supply and demand of goods and services. Starting in the 1960s, however, people began to realize that traditional economics failed to take into account other factors that greatly influenced quality of life, such as social welfare and the environment. Thus, environmental economics was born. Environmental economics seeks to measure the external environmental effects, or costs, of economic decisions and propose solutions to mitigate or eliminate those costs to better manage natural resources and promote social well-being. Unlike traditional economics, which focuses on private ownership of property, environmental economics primarily concerns itself with the management of common or public property, such as lakes, rivers, game and parks.Environmental economics functions on the theory of “market failure.” Simply stated, market failure occurs when markets fail to efficiently allocate limited resources in a way that benefits society most. For example, assume that a town has a large, freshwater lake. A parts manufacturing facility, responding to a market demand for car parts, moves into the town and begins using the lake water to process the parts. Without pollution controls in place, the water is soon contaminated, becoming unsafe to drink and killing all the fish. Since the lake was the town’s main source of food, recreation and drinking water, its citizens are forced to move away to find a new water source–leaving the manufacturing facility without a ready labor pool or a nearby consumer base. As a result, the company’s labor and shipping costs increase dramatically. Though the company simply responded to market forces by using the lake, its actions resulted in massive inefficiency caused by environmental degradation. Environmental economists seek to remedy such inefficiency by establishing environmental regulations, pollution quotas and property rights so that market suppliers can become wealthy without negatively impacting others. Types of market failure include externality, non-exclusion and non-rivalry. Externality refers to the effect of an economic choice that is not factored into a product’s price. Non-exclusion exists when restricting someone’s access to a resource would be too costly. Non-rivalry means that a benefit provided to one individual, business or country can be enjoyed by others, reducing the incentive for economic actors to contribute to the public good. Some aspects of all of these can be seen in the example above. Because the lake was common property, the manufacturing facility was able to use it freely (non-exclusion). With unlimited use of the resource and no pollution controls in place, the facility could cheaply produce many parts to meet demand (externality). The townspeople had up until then kept the lake clean and properly managed, from which the company benefited without ever contributing to it (non-rivalry).

In order to address these market failures, environmental economists must first assess the value of environmental resources and assets. This can be quite tricky, since environmental resources are often viewed as having value beyond their economic use. People may want to preserve resources for undiscovered future use, to bequeath to future generations, or to simply enjoy their existence. Economists can calculate a resource’s non-use value by researching nearby land values, surveying the public, or examining what people are willing to pay to access or protect the resource. Once the value of the environmental asset is determined, economists can then establish policies that will preserve the long-term viability of the resource while still allowing it to be used for economic gain. Thus, environmental economics plays an important role in managing and allocating scarce natural resources.Задания к тексту.1. Передайте содержание каждого абзаца 1-3 предложениями.2. Cоставьте план, расположив его пункты в логической

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BEHAVIORAL ECONOMICSMeet Consumer A. Consumer A needs a new computer so she can work from home. The computer must be reliable and have a large processor since Consumer A will be using it daily to do several complex tasks. However, Consumer A only has a limited amount of money to spend, so she must ensure that she gets the best computer possible for her money. Before going to the store, Consumer A carefully researches her options, comparing prices and reading consumer reviews of different computers. Finally, being fully informed, she selects one that will best meet her needs. In this way, Consumer A is a textbook example of the “economic man” in neoclassical economic theory: the always rational and informed consumer who drives all economic activity. Now, meet Consumer B. Consumer B just had a bad day at work. He’s depressed, bored and craving some excitement. He goes to the mall to do some browsing and sees a stylish new fishing pole on display. Consumer B hasn’t been fishing in six months and already owns two other fishing poles, but this particular fishing pole arrests his attention. Consumer B starts thinking about how much he would like to own this fishing pole and how exciting it would be to buy it. Like Consumer A, Consumer B has a limited amount of money to spend, and the fishing pole is very expensive. However, Consumer B quickly rationalizes his purchase by arguing that it will make him happy. Without even knowing how well the fishing pole will work or when he will use it, Consumer B purchases it on the spot—with his credit card. This type of economic behavior is commonly referred to as “retail therapy”: shopping to improve one’s mood. The concept of retail therapy, however, is surprisingly absent from neoclassical economics, despite being prevalent enough to warrant a phrase in the modern vernacular. For centuries, economists have assumed that people’s economic choices are always rational since they are motivated by need and limited by

scarcity. But as retail therapy proves, that is not always the case. So where is the theory that takes into account irrational economic behavior like retail therapy? That theory is called behavioral economics. Behavioral economics seeks to unite the basic principles of neoclassical economics with the realities posed by human psychology. The theory grew out of neoclassical economics in the early 20th century when neoclassical theory fell short of explaining the anomalies that occur within market economies. Although behavioral economics arose from the writings of several notable economists, one of the theory’s leading principles came from economist Herbert Simon in the 1950s. Simon postulated that man could not always act logically because he possessed a “bounded rationality.” In other words, human minds are finite; they do not have unlimited information to solve problems, nor do they have all the time in the world to think about them. Humans also struggle to analyze problems objectively when the outcomes directly affect themselves, especially when viewing problems through a “frame” of personal experience warped by social or cultural bias. To cope with these realities, humans apply their own rules of thumb, or “heuristics,” when making quick decisions. While it is inherently rational to do so, the rules themselves and the behavior they lead to may not be. In fact, heuristics, as described by leading behavioral economist Daniel Kahneman, are inherently irrational. For example, in a common heuristic known as gambler’s fallacy, consumers take risks on what appears to be a future outcome in an instance of random chance, like a coin toss. Their logic is based on seeing the same outcome occur several times in a row and assuming a different outcome is due. The logic is, of course, faulty, since the odds for either outcome remain the same in every instance. From Simon’s concept of bounded rationality sprang the idea that other aspects of humanity may be bounded as well, such as the self-interest that motivates the neoclassical “economic man.” Behavioral economists accept that other factors may drive consumers’ economic choices, like altruism or self-control. Of course, an economic theory that allows for such variance in consumer logic and behavior poses a problem: how can economists rely on it to accurately predict economic outcomes? After all, pure neoclassical theory is much tidier by comparison, basing its mathematical models on a few basic, if convenient, assumptions. Obviously, behavioral economists cannot rely as heavily on mathematical models to predict outcomes. Instead, they collect real world data on past consumer behavior and conduct experiments involving real transactions to gauge how consumers might behave in future situations. The goal in collecting such data is to eliminate unlikely outcomes so that likely ones come into focus. Although not as exact of a science compared to using mathematical equations, behavioral economists often manage to make startlingly accurate economic predictions. Economists have found that making realistic assumptions about human nature generally leads to a more precise result.

However, some economists still find reason to reject behavioral economics. Those who cling to pure neoclassical theory insist that the economic man is more rational than the natural man because market competition forces consumers to make rational choices. They claim that behavioral models based on data gleaned from experiments, mostly illustrates one-time choices, not complex economic behavior exhibited over time. Also, economists who prefer the stark, impartial rigidity of neoclassical mathematical models view behavioral economics’ experimental approach with distrust. They say experiments and surveys can be skewed by participants’ biases. They see little application for behavioral models in real markets. Nevertheless, behavioral economics has succeeded in explaining market anomalies where neoclassical economics could not. For instance, it has been used to examine the roles played by human greed and fear in the 2008 financial crisis. The promise of windfall profits lead financial companies to create and sell highly complex credit default swaps without fully understanding their risk. When the stock market crashed, fear drove usually adventurous hedge fund investors to withdraw their money from the market, even when they could have bought good stocks at record-low prices. Behavioral economics can explain other phenomena as well, such as why some prices or wages refuse to change with market forces (price stickiness), why stock markets perform worse on Mondays (calendar effect) and why some investors choose to hold onto poorly performing stocks while selling high-performing ones (disposition effect).Задания к тексту.1. Передайте содержание каждого абзаца 1-3 предложениями.2. Cоставьте план, расположив его пункты в логической

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DEVELOPMENT ECONOMICSDevelopment economics is a branch of economics that focuses on how to improve the economies of developing countries. Its major concern is the development of third world economies. Development in such countries is met by improving the basic amenities to promote the welfare of its citizen and to maintain a certain set standard of living for all its citizens. The sectors that should be improved according to the development economists are Health sector, education, employment, inflation, domestic and international economic policies. This branch of economics is specially tailored to the developing country to help them transform into a prosperous nation through progressive economics.Development economics concepts might differ from one nation to the other because of the existence of unique features for different countries like political and social background. The concepts of macro and micro economics is greatly borrowed in the development economics on structures of developing economy and efficient domestic and international growth.

The economic development field looks at both the traditional measures of economics like the GDP and more modern measures of the Economy like the standard of living and equal rights opportunities. Development economics can also be seen as the only branch of economics that is concerned more on political processes. It is very keen on the economics agenda that have been passed by the political class in each economy. The most fundamental features of development economics became very clear after the world war two. Although some primitive form of this economy were still practiced by some countries, especially the major empires. The need to expand the concept of development economics came after the war-ravaged nations started the process of economic building. The world war two had left major economies especially in Europe in shambles.Development economics is surrounded by many theories. The earliest being the linear stages of growth model. The basic ideas in this theory is that economy development and steady growth is to be achieved through the pooling and holding of huge capital from domestic and international savings. The theory failed immediately after being advanced because it did not recognized the necessary preconditions for takeoff. The other development theory that was advanced by developing economy was the international dependency theory. This theory suggests most of the economics problems facing the developing economy were from external forces beyond their control. There was a huge outcry on this theory and this gave birth to the neoclassical theory of development economics. The neoclassical theory suggests that economic development can only be achieved if government removed all the controls and regulations to make the market free and allow demand and supply to play the important roles in economics equilibrium and controls. The theory has been adopted by many institutions such as the World Bank with some few differing points on the degree to which the market should be free. A market friendly approach is adopted by the World Bank and allows for some government regulation. The market free schools of thought suggest a free economy that is not influenced by external factors rather than the market forces.Задания к тексту.1. Передайте содержание каждого абзаца 1-3 предложениями.2. Cоставьте план, расположив его пункты в логической

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MANAGERIAL ECONOMICSManagerial economics is a social science discipline that combines the economics theory, concepts and known business practices in order to make the process of decision making easy. It is a very useful concept for every manager that is planning for the future. This is so because it assists the managers to make rational decisions on various obstacles facing the firm. Most of the complex management decision facing a firm can be broken down in a series of logical solutions. A key area of managerial economics is the theory of a firm that entails the best mix of the scarce

resources to maximize profits within the firm. Marginal benefits and cost analysis is also another broad area in managerial economics. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firm’s scarce resources.Managerial economics as a science is useful to managers in making decisions relating to a firm’s customer’s base, competitors and strategic future decisions. A lot of mathematical concepts especially statistics and analytical tools are required because of the probabilistic nature of future decisions that the firm wants to make. Most people might ask the questions why study managerial economics while one can make decisions based on past data. It is a genuine question but it is not possible to make a conclusion merely on the bases of prior data because of the dynamic nature of the current market. We have seen a lot of unexpected events that have happened in the past that we never expected. One is the crash of major banks in the US and the current crisis in Greece. Based on these examples it is now clear that we need an approach like managerial economics which will not only take into consideration the prior data but will allow us to include future risks in the posterior data.Managerial economics helps the manager or the group/ groups of people making the decisions to increase their problem analytics skills as well as formulation solution to probabilistic problems. The main differences between managerial economics and the other branches of economics such as macro and micro economics is that. Micro economics involves the allocation of scarce resources on household level. Macro economics involve the study of economics as a whole. While managerial economics applies the tools learnt in these branches to come up with viable business ideas. Managerial economics is very broad and is not only used in decisions making for profit making organization but also useful to non-profit making organizations in the proper utilization of their scarce resources. The concept of management economics is also very useful in price determination, long term capital budgeting, and insights into the demands of a commodity.Different schools of thought have suggested that managerial economics use the concepts of economics theory that differ from the fact that managerial economics is a combination of both economics theory and econometrics in making decisions. Econometrics is the use of statistical tools such as statistical packages and theories to experimentally measure the relationship that exist between economics variables. Its main advantage is that it uses factual data to model different scenarios.Задания к тексту.1. Передайте содержание каждого абзаца 1-3 предложениями.2. Cоставьте план, расположив его пункты в логической

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