UNIT 1

ECONOMICS AND ITS RELATION TO BUSINESS

Economics is the study of activities that involve the production and exchange of goods. It analyses movements in the overall economy: trends in prices, output, and unemployment. Once these phenomena are understood, economics helps develop the policies by which governments can improve the performance of the economy. Economics is a social science that studies the ways a society chooses to employ its rather limited productive resources which can be used in an alternative way, in order to produce goods and services and to distribute them to different members of society for consumption. In any society, resources available are scarce or limited compared with the number of their potential uses. Resources are means of support. They are classified as physical or natural resources, and human resources. Physical resources include: soil, climate, water, minerals, forests, fisheries. Human resources include people and their various skills.

Economics helps explain why nations export some goods and import others. It also analyses the effects of placing economic barriers at national borders. Economics is the study of money, banking, capital, and wealth. A common theme can be drawn from the summary of all these definitions. Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different groups.

In their analyses, economists focus on the entire economy, where they note a variety of wants of individuals, companies and governments but a limited number of resources or factors of production. These have been grouped by economists into four categories:

1) Land is where raw materials come from - oil, gas, base metals and other minerals, i.e. natural resources. 2) Labour is the ability of individuals to work, i.e. all physical and mental effort 3) Capital is production machinery, computers, office space or retail shops 4) Enterprise brings land, labour and capital together and organizes them into units that can produce products in the pursuit of profit. The analysis of business undertaken by economists starts with the assumption that companies are in business in order to make profits for their owners. A company represents a collection of workers, managers, shareholders, consumers and individuals living within the locality of the companys operations. Each of these groups may have different interests within the company. This causes complexity within the companys organizational environment. Economists do not argue that the complex interrelationships between the various interest groups within a company are not important. However, they assume that companies would find it hard to survive financially without profit.

N.B. Companies operate within markets. They supply products which are bought by consumers. Therefore, it is important for business to understand how consumers and companies interact in markets. Companies also operate within economies. As governments seek to economize, it is important for business to comprehend how government economic policy will influence the ability of consumers to spend and the ability of companies to invest, as well as the level of international trade and competition.

GLOSSARY

economics (n) the science of production, distribution and consumption economy (n) the control and management of the money, goods and other resources of a community, society or household, the avoidance of wasting money, the strength of anything else of value, a system for the management and use of resources retail (n) the sale of goods (usually in small quantities) to the general public, not for resale consumption (n) using, consuming (food, energy, materials, etc.), the amount consumed assumption (n) something taken for granted, something supposed but not proved scarce (adj) not available in sufficient quantity, not enough to meet demand, rare, seldom shareholder (n) the owner of business shares enterprise (n) an undertaking, especially one that needs courage or that offers difficulty, the courage and willingness to engage in something, private enterprises versus government control of commerce and industry

consumer (n) a person who buys or uses goods and services on the one handon the other hand used to indicate contrasting points of view, arguments, etc.

GRAMMAR REVISION

The Present Simple Tense

1. Denotes a habitual action, expressing the regularity of occurrence of the action, which is expressed by appropriate adverbs, e.g. every day/month/year, etc., from time to time, on and off, once in a while, every now and then, repeatedly, usually, sometimes, frequently/often, rarely/seldom, ever, never. e.g. The porter locks the door (regularly, every day, etc.). John sings in the choir (from time to time).

2. It is used in general statements (irrespective of the time aspect). e.g. He speaks English very well. Some animals live in caves.

3. It is used to denote a general truth. e.g. The sun rises in the east. The moon goes round the earth.

4. It is used for an action occurring at the moment of speaking or writing, but only for those verbs which have no progressive form, such as: to feel, to see, etc. e.g. I see no mistake. How do you feel now? N.B. this is sometimes replaced with the verb can + infinitive of such verbs.

5. It is used (instead of the Past Simple Tense) to make the description of past events more vivid or real. This is called the historic or dramatic present. e.g. He jumps into the car, takes the box and flings it out.

6. It is used to denote a fixed future action that does not depend on the doer of the action in any way. e.g. The ship sales tonight. Mary leaves tomorrow and Peter comes back next Friday. The Present Simple Tense is formed by adding the suffix (e)s to the verb infinitive in the 3rd person singular, which is pronounced /s, z, iz/ depending on whether the verb ends in a voiceless consonant /s/ or in a voiced consonant and a vowel /z/. If the verb ends in /s, z, sh, zz, ch, dz/, the suffix is pronounced /iz/.

e.g. He speaks a few foreign languages. She goes to school every day. Peter lives in the red-brick house across the street. She washes the dishes as soon as they finish dinner. He usually misjudges people.

speak + s = speaks /s/ go + es = goes /z/ live + s = lives /z/ wash + es = washes /iz/ misjudge + s = misjudges /iz/

For verbs ending in y preceded by a consonant, the y changes into -i before the suffix es, which is pronounced /z/, e.g. I try /trai/ I cry /krai/ He tries /traiz/ He cries /kraiz/

If y is preceded by a vowel, there is no change and only the suffix s is added, pronounced /z/, e.g. I play /plei/ I say /sei/ He plays /pleiz/ He says /sez/

The negative and interrogative forms are formed with the aid of the Present Simple Tense of the auxiliary verb to do and the infinitive of the required verb without the preposition to, and the negation not (negative form).

The Present Progressive Tense

It expresses: 1. an action which takes place when we speak (where the adverbs of time now, at the moment may be expressed or implied). The Present Progressive Tense corresponds to the true present in Serbian. e.g. We are learning English (now).

2. a durative action, an action going on, a process. e.g. She is growing older.

3. a future action which has already been agreed and has become a part of someones present schedule. e.g. We are going to the cinema tonight. He is dining with his uncles family tomorrow.

The Present Progressive Tense is formed by using the Present Simple Tense of the auxiliary verb to be and the Present Participle (-ing form) of the required verb. The negative and interrogative forms are formed by using the respective forms of the Present Simple Tense of the auxiliary verb to be and the Present Participle of the required verb and the negation not (negative form). EXERCISES

Answer the following questions:

1. 2. 3. 4.

What is economics? What does economics analyze? What are productive resources? Explain the task of an enterprise.

II

Confused words

ECONOMICS the science of the production, distribution and consumption of goods ECONOMY the control and management of the money, goods, and other resources of a community, society or household III Fill in the blanks with the appropriate word economy / economics.

1. 2. 3.

The prospects for the worlds _____________ are bad at the moment. ______________ has been called the dismal science for more than a century. ______________ is the study or the use of scarce resources in the production and marketing of goods and services.

4.

The government says it is trying to improve the _____________ of the country.

5.

There is an article this week on recent changes in the British _____________.

IV

Give the noun form of the following verbs.

VERB

NOUN

VERB

NOUN

to produce to employ to distribute to decide to consume

to analyze to choose

to improve

UNIT 2

LEVELS OF COMPETITION AND MARKETS

A market exists when buyers and sellers come into contact. It is a place where a company will sell its products and generate revenue. The level of competition varies across markets. Some markets are highly competitive, others are less competitive. In a highly competitive business environment, prices will fall, while in a less competitive business environment, price competition will be less severe.

Markets are sometimes classified according to the level of competition that applies in the particular business environment.

1. Perfect markets would consist of companies producing identical products, with companies each controlling only a very small section of the market, with many buyers and sellers. Consumers would have perfect knowledge of the market and of the prices charged by each company. However, such a market exists only in theory.

2. Imperfect markets lie between the extremes of monopoly and perfect competition. In many imperfect business environments, it is possible for companies to make more than the required minimum of profit, at least in the short term. In the long term, new companies will be attracted to enter the market and excess profits will be competed away.

3. The extreme case of imperfect competition would be that of a single producer or supplier of a product who has complete control over an industry. Such a company is called a monopoly. Monopolies tend to exist because of barriers to entry which restrict the ability of potential rivals to enter the market.

Due to the absence of competition, the monopolist will be in a position to choose what price to sell at. In the real world, pure monopolies (or exclusive monopolies) are very rare. This is due to the fact that most products can nowadays be either copied or produced in an alternative manner. Only in the case of utility markets (water, gas, local telephone, and electricity) is there really a single seller or supplier of a service with no close substitute. This is so because the infrastructure required for business operation in these markets was so large that it restricted entry. However, even these isolated examples must reckon with competition from other industries. Thus, no company is completely safe from attack by competition in the long run. Being the only supplier in the market, the monopoly faces a downward sloping market demand curve. Therefore, if it sells more output, the price must fall.

4. An oligopoly is one type of imperfect market. It is a market dominated by a small number of organizations, which should all agree to cooperate and act as one monopolist as this generates the highest level of profit. This is known as a cartel.

GLOSSARY

market (n) a public place where people meet to buy and sell goods monopoly (n) (the possession of the) sole right to supply, the supply of service thus controlled to generate (v) to cause to exist or occur, to produce revenue (n) income, especially the total annual income of a country (from taxes, etc.), the department collecting this to purchase (v) to buy (more common) purchase (n) something bought severe (adj) making great demands on skill, ability, patience and other qualities; strict,stern, intense, rigorous, violent supplier (n) a person or company supplying/providing goods competition (n) - competing, a contest, an activity in which people compete competitive (adj) that compares favourably with those of other companies (e.g. of prices) excess (adj) extra, additional (e.g. profit) in the short/long term = in the short/long run - referring to a short/long period of time to restrict (v) to limit, to keep within limits cartel (n) a combination of traders, manufacturers, etc. controlling output, marketing, prices of goods, etc. utility (n) usefulness, a useful thing, a public service such as the supply of water, electricity, gas, or a bus or railway service

GRAMMAR REVISION

IV

Expressing future

1.Pure future (shall/will express a future action, the fulfilment of which does not depend on the doer of the action) e.g. I think it will snow tomorrow. I shall be 15 this Sunday. Shall we do something about it? Peter will not (wont) come tomorrow.

2.to be going to (involves intention/strong probability) e.g. John says he is going to buy a new house next year. (intention) I am afraid this is going to be too heavy for you to carry by yourself. (strong probability) 3.The Present Simple Tense is used to express a future action, the fulfilment of which does not depend on the doer of the action. e.g. School begins on 1st September.

4.The Present Progressive Tense is used to express a future action which has already been agreed and has become a part of someones present schedule. e.g. We are going to the cinema tonight. He is leaving for Canada this month.

EXERCISES

I 1. 2. 3. 4. 5. 6.

Answer the following questions: What is the extreme case of imperfect competition? What kind of a company is called a monopoly? Do exclusive monopolies exist nowadays? What must monopolists reckon with? What is an oligopoly? Explain the meaning of a cartel.

II

Make words of opposite meaning by adding one of the following prefixes: in-, im-, un-, in-, il-, ir-

perfect secure responsible complete

regular suitable legal

fair visible complete

usual pure

III ACTION compete contribute organize produce supply buy purchase

Fill in the table: RESULT OF THE ACTION competition DOER OF THE ACTION competitor

IV

Put the verbs in brackets into the Present Simple or the Present Progressive

Tense. 1. 2. We never (get) 100% efficiency, but this month we (aim) for 98%. Although we generally (achieve) good results, we (experiment) with a new loading system. 3. Our experts (measure) currently the efficiency of the machine we most often (rely) on. 4. At present, the sales department (prepare) a list of priorities for the jobs we (perform) regularly. 5. Because we constantly (suffer) from stoppages, we (adopt) a completely new system. 6. 7. 8. 9. 10. The machine rarely (malfunction), but the welding machine (malfunction) today. The meat (smell) bad. Why you (smell) the meat? Is it so bad? I (feel) fine now. I (feel) we shouldnt do it.

UNIT 3

DEMAND AND SUPPLY

The quantity of a product that people will buy at one time depends on its price. The higher the price charged for a product, the less people will be willing to buy. Other things remaining constant, the lower the market price, the more units of a product will be in demand. Thus, at any given time a definite relationship exists between the market price of a product and the quantity demanded. When the price of a product is raised while other things remain constant, buyers tend to buy less of the product. Similarly, when the price is reduced, the quantity demanded increases.

For example: when the price of computers was sky-high, only the richest could afford to buy them. Even today in poor countries only the richest companies own personal computers. As the price of personal computers began to drop, more and more people found them worthwhile: for work, for school or for fun. Hence, one reason for downward sloping demand comes from the fact that lower prices attract new buyers.

What is the best price for a particular product? As one product becomes more expensive, consumers will begin to demand less. In some markets, consumers will be very sensitive to a change in price; in others they may not react at all. Companies will price their items relative to their cost structures. If a company wishes to make a profit, the price must be greater than costs. If the company wishes to maximize its market share, without making a loss, then the price of a product must not drop below the cost of making the product.

In order to understand consumer behaviour, economists use a simple construct known as the demand curve. It illustrates the relationship between price and the quantity demanded of a product.

Supply relates to the quantity of a product that companies willingly produce and offer for sale. The supply schedule of a commodity means the relation between its market price and the amount of the commodity that producers are willing to produce and sell.

Supply is represented as a directly proportional relation between price and quantity supplied. In other words, the higher the price, the more units of a product will be supplied as the higher price makes it profitable to increase production.

The supply and demand analysis shows how market mechanisms deal with the issues of: what, how and for whom. Factors that affect the demand relationship for a market are: average family income, population, the prices of related goods, tastes and others. When these factors change, the demand curve shifts. DO HIGHER PRICES ATTRACT GREATER DEMAND?

The negative relationship between price and quantity demanded can cause problems. For example, designer clothes and perfumes would not be purchased if they were cheap. There is a negative relationship between price and demand for luxury items, since all products have a positive demand curve. The reason for this is that even very rich people still have a budget constraint.

The sums of money that flow into a business are called revenue. When an organization sells goods, it receives sales revenues. The sums of money that are incurred in a business activity are called money costs.

GLOSSARY

to drop (v) to fall, to cause to fall constant (adj) going on all the time, firm, continuous, unchanging, not varying to increase (v) to grow, rise, make or become greater in size, number, degree profitable (adj) bringing profit, beneficial constraint (n) constraining or becoming constrained, , something that limits or restricts something constrained (adj) forced, compelled

GRAMMAR REVISION

The Past Simple Tense

It denotes an action which took place in the past (either at a definite moment or over a period of time) and has no connection with the present.

The time in the past is either expressed by an adverb of time or is implied in the context. e.g. A group of students from Serbia visited London last summer. The students visited the British Museum. (It implies that this happened when they were in London, i.e. last year.)

II

The Past Progressive Tense

a) Denotes an action that began in the past, lasted for a period of time and was not ended when another past action happened (the latter action is expressed by the Past Simple Tense, the conjunction used in the subordinate clause is when). e.g. The members of the Committee were having a meeting when the secretary entered the room.

b) It also denotes two actions going on simultaneously in the past, both being expressed by the Past Progressive Tense (theconjunction used is while). e.g. While the workers were packing their bags, the clock was striking twelve.

III The definite article THE accompanies the comparative form of adjectives when they are part of a construction denoting parallel increase or reduction of two features in the construction. e.g. The higher the price charged for an article, the less people will be willing to buy. The lower the market price, the more units of a product will be supplied.

EXERCISES I 1. 2. 3. 4. 5. 6. Answer the following questions: What is supply? What is the supply schedule of a commodity? What does the supply and demand analysis show? Which factors lie behind the demand relationship? Which factors affect supply? When does the demand curve shift?

II Translate the following sentences:

1. 2. 3. 4. 5.

to pre doete, utoliko bolje. to je trina cena nia, to je potranja vea. to je vie uio, sve je vie znao. to vie radi, vie e uspeti. to due ostane u Engleskoj, bolje e nauiti jezik.

III

Supply the necessary prepositions.

to relate ........ to deal.......... to depend ......

to complain .......... to be interested....... to succeed .............

to be suspicious .......... to consist .......... to benefit ..........

IV

Complete the table

VERB to shop

NOUN shopper/shopping competition expansion

ADJECTIVE shopping

to sell promotional financial

analysis to buy managing

Put the verbs in brackets into the Past Simple or Past Progressive Tense.

1. 2. 3. 4. 5.

When they (introduce) new equipment? While the manager (interview) an applicant for the job, the secretary (type) a letter. You (learn) business English when you were at school? The boss (arrive) unusually early and the secretary, who (read) a fashion magazine, (have) no time to hide it. While the Japanese (improve) effective quality control, the American companies (achieve) their short-term goals.