Lesson 18 COSTLY TRANSACTIONS

I. Read and memorize the following words, word- combinations and word-groups:

transaction — угода, операція

e.g. They made transaction on buying this equipment»

commodity — то вар, предмет (широкого) вжитку

e.g. From the publications we observe that you are handling

the export of a number of commodities, consumption — споживання, витрати

e.g. The consumption of beer didn't go down when the

tax was raised.

pervasive — що поширюється, проникає скрізь e.g. Transaction costs are pervasive.

gains — дохід, прибуток; виграш; вигода, зиск

e.g. They obtained gains from exchange of goods.

to evolve — розвиватися), розгортати(ся); створювати

e.g. He has evolved a new plan. indirect trade — непряма торгівля

e.g. When transactions are costly, indirect trade rather

than direct trade will lower transaction costs, intermediary — посередник

e.g. The important social arrangements that set up indirect

trade are the use of money and the use of intermediaries, household — сім'я, домашнє господарство

e.g. Firms and households also lower certain kinds of

transaction costs by organizing economic activity in particular

ways.

to undermine — підривати, руйнувати

e.g. The President's enemies are spreading rumours to

undermine his authority, uncertainty — невизначеність

e.g. Uncertainty about what can and cannot be done

undermines the gains from exchange or specialization, to exclude — виключати

e.g. We can exclude the possibility that the money won't

arrive.

restriction — обмеження

e.g. Are there restrictions in the consumption of alcohol in

your country?

appropriate — належний, відповідний

e.g. Every economy whether capitalist, socialist, communist,

or traditional, has to decide how it will create the appropriate sort of expectations about future use. property rights — права власності

e.g. Every economy has to develop something like property

rights.

II. Give English equivalents of the following:

обмежені ресурси пряма торгівля люди, що діють у власних інтересах непряма торгівля

перевозити товари	знижувати витрати
продуктивні ресурси	створювати правила
зменшувати виграш витрати, пов'язані з угодою	права власності

III. Fill in the blanks with appropriate words:

Resources used ... from one location to another cannot be used to produce commodities that individuals might consume, , ... are the opportunity costs of using productive resources in making trades rather than in producing goods and services for consumption or an intermediary other services, , The two important ... that set up in- direct trade are the use of money and the use of intermediaries. . ... is a person or organization that specializes in trading rather than pro­ ducing goods. The gains from exchange and specialization can only be fully realized if have future interests or expecta­ tions. These kinds of expectations are referred to as ... . . Firms and households also by or. ganizing economic activity in particular ways.

social arrangements self-interested individuals to transport commodities an intermediary transaction costs property rights lower transaction costs

IV. Read and translate the text:

Transacting often takes more time? scarce resources that might have been used to produce goods service.are frequently used in transacting. For instance, resources used to transport commodities from one location to another cannot be used to produce commodities that individuals might consume. In this case, exchange will have an opportunity cost in terms of the other uses to which these resources could have been put.

Transaction costs are the opportunity costs of using productive resources (including time and effort) in making trades rather than in producing goods and services for consumption or other purposes.

Transaction costs are so pervasive and the gains from exchange and specialization so great, however, that social arrangements have evolved in order to lower transaction costs for everyone. In general, when transctions are costly, indirect trade rather than direct trade will lower transaction costs. The two important social arrangements that set up indirect trade are the use of money and the use of intermediaries. Money is the thing that is commonly used in virtually all transactions consequently, it is frequently referred to as the medium of exchange- An intermediary is a person or organization that specializes in trading rather than producing goods, thereby lowering the costs of transactions for any non-specialists who use the services of the intermediary. Frequently intermediaries are called middlemen. Firms and households also lower certain kinds of transaction costs by organizing economic activity in particular ways. Finally, when uncertainty about what can and cannot be done undermines the gains from exchange or specialization a society may evolve rules in an effort to lower the costs associated with uncertainty.

The gains from exchange and specialization can only be fully realized if self-interested individuals have future interests or expectations. These expectations are of three sorts: expectations about the right to exclude;

expectations about the right to consume with minimal

restrictions; expectations about the right to transfer.

These kinds of expectations are referred to as property rights. Every economy, whether capitalist, socialist, communist, or traditional, has to decide how it will create the appropriate sort of expectations about future use.

In this sense every economy has to develop something like property rights (pp. 53—70)..

^#B уроках 18—20 подамо посилання на видання: Contemporary Economics/ Ed. by James R. Kearl-Clenvien, Illinois, Boston, London.

Scott, Foresman and Co., 1989.

V. Answer the following questions;

1. What are transaction costs?

2. Why have social arrangements evolved?

3. What are the important social arrangements that set up indirect trade?

4. What is money?

5. What is an intermediary?

6. What may a society evolve in an effort to lower the costs?

7. What other social arrangements lower transaction costs?

8. What kinds of expectations are referred to property rights?

VI. Define the terms:

direct trade intermediary commodity firm

property rights indirect trade consumption

VII. Translate into English:

1. Гроші — це те, що використовується практично в усіх угодах, 2. Посередник одержав 10 відсотків від продажу цього товару. З, Фірми га домашні господарства також знижують певні види витрат шляхом особливої організації економічної діяльності. 4. Двома важливими чинниками, що забезпечують непряму торгівлю, є гроші і посередники. 5. Угоду про купівлю обладнання британської фірми буде підписано наприкінці тижня. 6. Загалом, коли ціна угоди є великою, непряма торгівля, більш, ніж пряма торгівля, знижуватиме витрати, пов'язані з угодою. 7. Будь- яка економіка має вирішити, як виправдати сподівання на

майбутнє. 8. Ця фірма укладає угоди прямо, без посередників.

VIII. Read and dramatize the following dialogue:

Mr. Brown; Good morning, Mr. Popovych.

Mr. Popovych: Good morning, Mr. Brown. The weather is fine today, isn't it? I couldn't help enjoying a bit of

fresh air walking to the office. Do you always have this kind weather in February?

Atr.B.: Yes, as a matter of fact we do.

Mr.P.: You're lucky to have so much warmth. I hear it's 15°C of frost in our country these days.

Mr,В,: Oh, is it? Then let's make use of all this warmth to the benefit of our two companies- By the way we discussed our transaction yesterday afternoon but didn't clear up some points. Do you find our prices competitive?

Mr.P.: Not quite, I'm afraid. First of all let's start from the very beginning. There is no objection to the price being fixed and payment being effected in dollars. Mr.BOf course not.

Mr.P.: Secondly, all prices should be firm and we're going to pay cash. That's very beneficial to you_f isn't it?

Mr.B.: Yes, quite so- But can we revert to the matter later?

Mr.P.: Tomorrow?

Mr.B.: May be tomorrow or this afternoon. Mr.P.: O.K.

Mr.B,: What about the down payment?

Mr.P.: I think there's nothing to discuss; it stands as is given in the draft contract: 5% against the documents specified in the contract,

Mr.B.: I agree,

Mr,P.: And the last but not the least point. ГІІ be frank with you, Mr. Brown, f was going to ask for an 9% discount off the price. Bearing in mind the above however, and if you agree to all the prices remaining firm, I'm prepared to have only a 5% discount, that is to cut it almost by half. See?

Mr.B.: Well, Mr. Popovych, I must admit you've taken me somewhat by surprise, but f see your point and I can say if you give us time to study your draft contract and

all your suggestions, I hope we could settle all the outstanding problems concerning the price and the terms of payment satisfactory to both parties.

Mr .P.: Agreed. There's nothing left for us to do but go on, is there?

Mr.B.: I'm of the same opinion, Mr, Popovych.

Mr.P.: Our next meeting will be tomorrow at 10 as usual. Good-bye.

Mr.B,: Good-bye.

IX. Make up your own dialogue using the following expressions:

to transact	property rights
commodities	to suggest
indirect trade	to settle down
middleman	beneficial
restrictions	to fix the price

X. Combine the given two sentences into one using the Present Perfect Continuous Tense:

M o d e l : Partners began to make the transaction on buying this equipment 20 minutes ago. They are still making it.

Partners have been making the transaction for 20 minutes.

1. They began to obtain gains from the realization of these goods a month ago. They are still obtaining them. 2. They began to raise taxes on some commodities two weeks ago. They are still raising them, 3. Intermediaries began to lower transaction costs a few.hours ago- They are stiff lowering them,

4. This company began to make restrictions on buying some goods a year ago. It is still making them, 5. They began to develop indirect trade some years ago. They are still developing it,

XI. Complete the following sentences as in the model:

M o d e l : They have been making the transaction ... .

They have been making the transaction for an hour (since the manager come, since 8 o'clock, etc,),

1. They have been transporting commodities ,,, , 2. This company has been realizing its goods through middlemen ... .

3. Ukrainian economy has been developing property rights ... ,

4. This firm has been lowering the costs of transaction >>. .

5. Both partners have been making important arrangements

XII. Translate into English:

1. Непряма торгівпя розвивається & Україні вже протягом кількох років. 2. Ця компанія отримує вигоду від купівлі

обладнання впродовж двох місяців. 3. Західні держави постачають в Україну різноманітні споживчі товари, починаючи з 1992 року. 4. З самого ранку вони обговорюють витрати на купівлю необхідних технологій. 5. Він працює посередником у цій компанії вже впродовж трьох років,

XIII. Communicative situations;

1. Computer software frequently comes packaged with an agreement attached to the outside that reads something tike the following:

«The purchaser agrees, upon opening this package, not to copy or distribute the enclosed materials to anyone else».

11.8

Why is this kind of message attached to software boxes but not to boxes of cereal?

How effective do you suppose this agreement is?

What kinds of arrangement would make it more effective?

2. Middlemen or intermediaries are frequently the burnt of charges that they do nothing except contribute to high prices»

Are prices higher or lower because of middlemen?

If prices were higher because of middlemen would it still make sense to trade through them rather than engaging in direct trade?