Economic systems – how economic resources are allocated

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Chapter 3

Economic systems – how economic resources are allocated.


Pronounce and give Ukrainian equivalents for the following words and word combinations.

         To satisfy people’s wants, resource allocation, to be distributed to, to be devoted to, skilled labour, mass-production methods, to be non-replaceable,to restrict the use,to be adopted,to deal with,traditional economics,to share out,subsistense economies,market economies,to do  business,to have the right to,to maximize profites,to maintain law,the means of  production,the public ownersship,personal possessions, to be privately owned, local markets,a plot of land,a national plan,a shareholder,merit goods and services.                                            

Before you read the text,discuss these questions|:

1) Should skilled workers reseive more money than unskilled workers and why?

2) What goods and services should we produce and in what quantities?

3) What economic systems do you know?


3.1.The meaning of resourse allocation.

All communities have to deal with the same basic economic problem-they have limited amounts of land, labour and capital which cannot produce cnough goods and services to satisfy all the people’s wants, and theyhave to decide how these limited resources and to be use.Economists describe this as a problem of resourse allocation, because decisions have to be made on the way in which the resources are to be distributed (i.e. allocated) to different industrics and occupations.The following questions illustrate the kind of problems to which solutions have to be found.

1.Should more resources be devoted to agriculture and fewer to manufacturing?

2.Should more resources be devoted to modernizing railways and fewerto building motorways?

3.Should more of the factors of production be used to make consumer goods and fewer of them be used to make capital goods?

4.Should more resources be allocated to the nuclead power industry and to the coal industry?

3.2.The questions every society must answer

All societies, from the most remote indian village to the large industrialized country, must find ways of answering the followingquestions.

1.What goods and services should be producted, and in what quantities?

A country can only produce some of the goods and services its people want.It must, therefore, find some method of choosing which particular goods and services to produse.If the aim is to produse those things which best satisfy the people’s want’s, then it has to find a way of discovering what people really want.

2.How should the goods and services be produces?

Many commodities can be produces by using different methods of productions. Some manufactured goods can be produced either by small firms using a lot of skilled labour or by mass-production method, in which a lot of capital equipment is used.The fhotografhs in Box 2(page13) show two very different methods of producing cereal crops.All economies have to make choices between different methods of producing cereal crops.

3.For whom should the goods and services be produced?

Questions 1 and 2 are problems of production.But ewen if the problems of productions are solved, there is still the problem of distribution- how should the things which have been produced be shared out among the members of the community?In a modern economy, goods and services have money prices.This means that people wish larger incomes can claim larger of the national output of goods and services; they will have higher real incomes (see page 22).The basic problem is to decide how the total real income should be shared out.Once again, we can pose some questions to illustrate the difficulties in finding satisfactory solutions to this problem:

1.Should there be equal shares for all?

2.Should those who produce more have larger shares than those who produce less?

3.Should skilled workers reseive more than unskilled workers?

4.Should each person’s  share be based  on his or her needs? (And who should deside what a person needs?)

        There are other impotant questions that affect the way in which a society uses its economic resources.

The present versus in future.

    We hawe that seen the production of capital goods makes possible a greater future output f consumer goods. But the production of capital goods also is less than the present output  of consumer goods is less than it might have been.

    To what extent are people prepared to go without same consumer goods today so that they can have an incrcased supply of consumer goods in the future?The answer to this question will decide how resources should be allocated between the production of capital goods.

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