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Macroeconomics Microeconomics , .




ECONOMICS AS AN ACADEMIC DISCIPLINE

Economics 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 Smiths The Wealth of Nations was published in 1776. Since that time the subject has developed rapidly and there are now many branches of the subject 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 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 everyones wants to the point of satiety.

We therefore have limited resources both in rich countries and poor countries. The economists 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 so on.

Modern economics has tried to take account not only of the output of economic goods but also of economic problems such as pollution. The wealth-welfare connotation is thus a complex aspect of the subject.

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1. .

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 ECONOMICS

There 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 yet 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 inflation. The other major branch of economics is microeconomics. Microeconomics is the study of behavior of individual units within the economy. The division 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.

( .., . 16)

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1. .

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?

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THE ECONOMIC ENVIRONMENT

 

The economy comprisesmillions of people and thousands of firms as well as the government and local authorities,all taking decisionsabout 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 environmentin 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 Banks losses in the case of Robert Maxwells 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.

( .., .4)

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1. .

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 FINANCE

One 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.

(Readings in management and economics, p.57)

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1. .

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?

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MACROENVIRONMENT

Macro 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 their 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 ofits 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 managements 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 an 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 organizations macro environment. All organizations depend to some extent on 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 organizations success, for it is them who make the critical choices to consume or not to consume an organizations 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 yesterdays methods based on a placid environment serve in todays turbulent outside world.

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1. .

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 companys success?

9) What part do consumers play in the success or failure of a business?

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Macroeconomics Microeconomics , .

Macroeconomics Microeconomics
   
   
   
   
   
   
   




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