 |
Pick out the abbreviations from the texts below and give their Russian/ Belarusian equivalents.
|
|
|
|
Text 1
Economics as an Academic Discipline
Any science starts with a definition. We must take the definition apart before it can be put together in a meaningful way. The definition will be developed into a clear description of the science of economics. Every time you come to a new text or exercise in this Part of Unit I, look back to the definition to see where and why the new material fits into the definition.
Economics is a social science that studies how society chooses to allocate its scarce resources, which have alternative uses, to provide goods and services for present and future consumption.
The definition starts "Economics is," and that is what is being defined. So the remaining words need to be understood to make sense of economics. Let us start with "goods and services".
Goods and Services
What exactly are goods and services? A good is anything that satisfies a want. That is the purpose of production — to provide goods that satisfy wants. So goods are produced, and the consumption of those goods satisfies wants. Goods can be tangible or intangible. Tangible goods are physical items such as bulldozers or pizzas. Intangible goods such as medical care or education are called services. Both goods and services satisfy wants and therefore can be called goods.
Resources
The satisfaction of wants can only be accomplished by using up resources, the inputs, the so-called factors of production or means of production. These resources can be classified as land, labor, capital, and entrepreneurship.
Land is land itself and anything that grows on it or can be taken from it — the "natural resources." Imagine producing anything from a pizza to a medical doctor without the use of land somewhere along the productive process. Labor, another resource, is human effort, both physical and mental.
The resource capital is also known as capital goods. An economist's use of capital is not a reference to money but to a resource. Capital is a man-made tool of production; it is a good that has been produced for use in the production of other goods. Goods are produced for one of two purposes. A good may be a consumer good used for the satisfaction of wants, which is the ultimate purpose of production. Or a good may be a capital good produced not for consumption but for use in producing more goods, either consumer or capital. So capital goods, such as a mechanic's wrench or a school building, are resources that have been produced and that will combine with other resources, such as land and labor, to produce more output.
Some goods may be a consumer good in one use and a capital good in another use. For example, consider a personal computer. When the computer is used to play solitaire, it is a consumer good. On the other hand, when it is used as a word processor to write a textbook, it is a capital good. To tell whether a good is a consumer good or a capital good, ask yourself a question: Is the good going to be consumed directly or will it be used to produce more goods? If it is to be consumed directly and purchased by consumers, it is a consumer good; if it is to be used to produce other goods and purchased by business, it is a capital good.
|
|
|
Entrepreneurship is human effort again. Entrepreneurs are the risk takers. They are more than managers, although they use managerial ability. Entrepreneurs reap the profits or bear the losses of their undertakings. Entrepreneurship is the organizational force that combines the other factors of production — land, labor, and capital — and transforms them into the desired output. The output may be capital or consumer goods, but ultimately consumer goods are produced to satisfy wants.
Scarcity
Resources are scarce. Scarcity is a relationship between how much there is of something and how much of it is wanted. Resources are scarce compared to all of the uses we have for them. If we want to use more than there is of an item, it is scarce. Note that this meaning is different from the usual meaning of scarce, which is "rarely found in nature." How are they different? Consider this example. Is water scarce? How could anyone argue that water is scarce in the usual sense? Water covers nearly two-thirds of the earth's surface. Yet an economist would say that water is scarce. Why? The reason is that there are so many competing uses for water that more water is wanted than is available. If you find this hard to believe, ask farmers and ranchers in the West, where water rights are jealously guarded. As soon as someone is willing to pay for a good, or a resource, it is scarce by the economist's definition.
Consider scarcity from another point of view. What if scarcity did not exist? Then all goods would be free goods. Free goods would mean that you could have all you want of everything without having to give up something else you also want. Can you think of goods that are not scarce? There may be some. Take air, for example. Isn't it free? What do you have to give up to get air? In some locations, it probably is free. But, in other locations, it is not, especially if air means clean air. You could make a fortune if you could find a way to provide clean air on a smoggy day in Los Angeles. People pay to avoid the smog: they don't go out when the smog is bad, they car pool, and so on. So even air may not be free. In fact, it is hard to think of goods or resources that arefree.
The production of goods to satisfy a want will reduce the amount of the available resources. Resources are limited. There is only so much land, labor, capital, and entrepreneurship in existence at any point in time. Resources are therefore scarce because there is not enough of them to go around to produce all the things that we would like to produce to satisfy all our wants. Hence goods are scarce, too. Scarce resources yield scarce goods.
On the one hand, resources are limited, but on the other hand, human wants are unlimited. Wants are unlimited or nearly so. How can that be? Everyone has wants, and if the truth were known, each individual has nearly unlimited wants. Examine my wish list. It certainly includes more goods and services than I have right now. I would like to live in some exciting places. Paris would be acceptable, but not all the time. I would also like a home in Hawaii or on the Monterey peninsula. And of course a place in the Alps for skiing. And because these places are far away from each other, and I do not want to depend on commercial airlines — a private jet would be nice. And probably a Rolls-Royce or a Mercedes for the family and a Ferrari or Porsche for me. Too, I would not want to spend all my time cleaning house or cooking, so each home would need a complete staff. The list is fairly long already, and I haven't gotten to my special passion — hats! You can easily see that if each member of society made up a wish list, the wants of all people added up would be enormous. Nearly unlimited. The point is that wants exceed what can be produced from our limited resources.
|
|
|
Unlimited wants alone are not a problem, but certainly a problem exists when unlimited wants are combined with a limited means of satisfying those wants. The production of any good on our wish list uses up resources. Then scarcity sets in. We can never satisfy all of society's unlimited wants with limited resources and the consequently limited goods.
Unlimited wants reflect human nature. The limitation of resources is imposed upon us by nature. Therefore, unlimited wants competing for limited resources creates the basic economic problem of scarcity. This is a difficulty that cannot be overcome by cleverness or good fortune. Scarcity, the interaction of unlimited wants with limited resources, has been called the economic problem.
In fact, you are starting the study of economics, which would not exist except for scarcity. If that makes you think that scarcity might be the cause of many of your problems, you are right. Scarcity is the economic problem. Therefore, choices must be made.
Choices
We must choose how to use our scarce resources. Scarcity forces choice. And economics, which deals with scarcity, is often called the study of choosing. We cannot have all we want of everything we want. Scarcity. Scarcity is imposed by limited factors of production yielding limited output of goods relative to unlimited wants. Choices must be made.
Now you see that since we do not have enough capital goods to assist in the production of all those consumer goods to satisfy our unlimited wants, capital is a scarce resource. And we must choose how to use capital. For similar reasons, we must choose how to use land, labor, and entrepreneurship. The fact that choices must be made in turn reflects the fact that scarcity does exist.
Alternative Uses
So far we see that society is faced with the problem of not having enough resources to provide for all wants. And thus choices must be made about how those resources will be used or allocated. Allocate means distribute. Society must make choices among the alternatives. Society must decide which goods will be produced, how to allocate resources to produce goods, and how to allocate the goods among the population. The method used to decide how these allocations will be made depends on the kind of economic system the society has chosen.
Since resources have alternative uses and are scarce, it is necessary to choose among the alternatives. Land, labor, capital, and entrepreneurship may be used in one combination to produce pianos and in another to produce computers or psychiatric care. Yet we cannot have all the pianos, computers, and psychiatric care as well as all of everything else we might want. There are many alternative ways to use the resources, and choices must be made.
It makes no difference whether the problem is how government will use its resources or how individuals or business use theirs. In every case, resources are scarce, and choices must be made. So government chooses to use resources for medical research or expeditions to the Antarctic. Individuals choose how to spend their time and income. Entrepreneurs decide how to use land, labor, and capital. In each case, there are many alternative ways in which those choices could be made.
|
|
|
Sometimes, at first glance, there appears to be no alternative. But there are always alternatives. For example, what if there is a shortage of teachers in science and mathematics? Some might conclude that the only alternative is to train more teachers. There may be no other choice as attractive as that, but there are alternatives. We could require less math and science in our schools. We could employ teachers trained in other countries or in political science. The schools could be closed. Students could teach other students. Classes could be larger, or teachers could be drafted out of retirement. There are alternative ways that this problem of "scarce teachers" could be solved. We must choose among alternatives.
Scarcity imposes a limitation on the amount of output that society can produce. Because there are always alternative uses of the resources and because scarcity exists, society cannot produce all that it wants. It must therefore choose among the alternatives. Hence cost is imposed on society; economists call this cost opportunity cost. What is opportunity cost?
Opportunity Cost
Opportunity cost is a concept you did not see in the definition of economics. But not seeing it doesn't mean that it isn't there. There is yet more to say about the definition, but this is the logical place to introduce a related concept.
Opportunity costs are everywhere, due to scarcity and the necessity of choosing. Opportunity cost is not what you choose when you make a choice — it is what you did not choose in making a choice. Opportunity cost is the value of the forgone alternative — what you gave up when you got something.
Your brain is wrestling with the idea of opportunity cost now. You have temporarily given up the opportunity to think of food. But what about your stomach? If it is full, it has temporarily given up the opportunity to be empty. Or vice versa. You open your mouth to protest the existence of opportunity cost. You could have laughed or yawned or sung the Star Spangled Banner at full volume instead. All are opportunity costs. You buy the blue shirt rather than the green, or 1,700 pieces of bubble gum, or leave the dollars in your checking account. Opportunity cost. Your state uses its limited budget to build more roads rather than schools. Opportunity cost. Your government chooses more defense spending and sacrifices human services. You guessed it.
Look back at the scarcity discussion. It was concluded there that the concept of free goods is not a realistic concept. Economists are fond of saying that there is no such thing as a free lunch. Even if your friend buys your lunch, you give up something — namely, time. That time could have been used for some other purpose, so there is an opportunity cost associated with lunch, no matter who buys. From the point of view of society, resources are used up to provide the lunch. These resources are limited. Resources applied to this production cannot be applied to that production. Consequently, the production of a good to satisfy a want imposes an opportunity cost. So opportunity cost is why goods are not free, but scarce.
Well, we got a little carried away and introduced an unannounced concept — opportunity cost. But you can see how it happened. Scarcity results in choice; choice results in opportunity cost. For your dedication in this chapter so far, take the concept of opportunity cost as a free bonus. Or was it free?
|
|
|
