2. Match the terms with their definitions.

1	business	a	lack of paid employment; unused labour
2	profit motive	b	an economy in which some industries are owned by the state and others are owned by individuals and groups of people
3	stagnation	c	money that an individual or business receives in exchange for providing a good or service or through investing capital
4	unemployment	d	the approach a country uses to deal with scarcity and achieve its economic goals
5	income	e	rivalry in the marketplace between different business organizations
6	traditional economy	f	incentive that encourages people and organizations to improve their financial and material well-being
7	competition	g	anything legally owned or possessed by a person or organization
8	mixed economy	h	an economic system that allocates scarce resources according to custom
9	economic system	i	any commercial, industrial or professional activity undertaken by an individual or a group
10	property	j	a prolonged period of little or no growth in the economy

3. Choose three terms and describe their meaning in everyday life in small

groups.

4. Before you read Text a scan it and find three sentences that convey the main ideas. Text a Types of Economic Systems. Traditional and Command Economies.

All societies use an economic system—an organized way of providing the allocation of goods and services for the wants and needs of their people. The way societies organize themselves determines the type of economic system they have. Three major kinds of economic systems exist -traditional, command and market economies. In practice, however, almost all economies combine elements of all three.

In a society with a traditional economy, the use of scarce resources—and early all other economic activity—stems from ritual, habit or custom. Habit and custom also dictate most social behavior. Individuals are generally not free to make decisions based on what they want or would like to have. Instead, their roles are defined by the customs of their elders and ancestors.

The main advantage of a traditional economy is that everyone knows which

role to play. Little uncertainty exists over WHAT to produce. If you are born into a family of hunters, you hunt. If you are born into a family of farmers, you farm. Likewise, little uncertainty exists over HOW to produce, because you do things much the same way your parents did. Finally, the FOR WHOM question is determined by the customs and traditions of the society. In other words, tradition dictates how people live their lives.

The main drawback of a traditional economy is that it tends to discourage new ideas and new ways of doing things. The strict roles in a traditional society have the effect of punishing people who act differently or break the rules. The lack of progress leads to economic stagnation and a lower standard of living than in other economic systems.

Command economies rely on a central authority to make most of the economic decisions. In a command economy, a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce. A command economy can be headed by a king, a dictator, a president, or anyone else who makes the major economic decisions.

In a pure command economy, the government makes the major economic decisions. This means that the government decides if houses or apartments will be built. It also decides on the best way to build them, as well as who will receive them. Most command economies severely limit private property rights. People are not allowed to own their homes, businesses, and other productive resources, although they may have some personal items and tools. Individual freedom also is limited. For example, if the government wants engineers rather than social workers, then its universities will train more engineers. This limits individual choices because people have to live within the government’s restrictions. Finally, government officials tend to favor themselves when making economic decisions. The result is that some of the country’s money often goes to luxury goods like houses, cars, and extravagant vacations for these officials. The main strength of a command system is that it can change direction drastically. Another advantage of command economies is that many health and public services are available to everyone at little or no cost.

Pure command economies have their disadvantages. One is that they ignore the basic wants and needs of consumers. In India, for example, generations of people were forced to do without consumer goods and adequate housing. Similarly, the current North Korean government has put a strong emphasis on defence. In the meantime, the North Korean people have been suffering years of hunger. At times, the government even had to accept aid from international sources. A second disadvantage is that the system gives people the incentive to fill their quotas instead of producing a good product.

A third weakness is that a command economy requires a large decision-making bureaucracy. In the countries with command economies, an army of clerks, planners, and other administrators was needed to operate the system. This structure slowed decision making and raised the cost of production. Yet a fourth weakness is that the planning bureaucracy lacks the flexibility to deal with minor day-to-day problems. As a result, command economies tend to deal with minor day-to-day problems —or collapse completely. Finally, rewards for individual initiative are rare in a command economy. Each person is expected to perform a job in a factory or on a farm according to the decisions made by central planners.

Words and phrases to be remembered:

scarce resources – дефіцитні ресурси

custom - звичай

social behavior – соціальна поведінка

ancestor - предок

uncertainty - невизначеність

likewise - також

to dictate - диктувати

central authority - центральна влада

rely on - покладатися на

severely - жорстоко

luxury goods - предмети розкоші

to do without - обходитися без

in the meantime - тим часом

bureaucracy - бюрократія

to operate the system - керувати системою

flexibility - гнучкість