Lesson 21 PUBLIC GOODS, INFORMATION AND UNCERTAINTY
I. Read and memorize the following words, word- combmafjons and word-groups:
public goods — суспільні товари
e.g. Goods are called public goods, not because they are
provided by the government, but because they differ from the usual goods and services that we privately enjoy, nonexclusive consumption — споживання без винятку e.g. Consumption of a public good is nonexclusive,
(positive) externalities — (позитивні) ЗОВНІШНІ ВИЯВИ, екстериалії
e.g. The production of public goods is accompanied by
positive externalities.
noncompetitive consumption — неконкурентие спожи
вання
e.g. Consumption of a public good by one individual is
noncompetitive with consumption by another individual. free riding — безоплатне користування, проїзд «зай
цем»
e.g. Free riding occurs when a person consumes a valuable
good or service without having to pay.
searching for information — пошук Інформації
e.g. Searching for information is a very important way for
individuals to gain the information necessary for individual
economic choice, reputation — репутація e,g. Company has a good reputation at the international
marfcet.
brand name — торговельна марка
e.g. Reputation becomes associated with a label or brand name.
patent — патент
e.g. For technological innovations we have patents, copyright — авторське право
e.g. For other kinds of ideas in printed or recorded form
we have copyrights, registered trademark — зареєстрована торгова марка e.g. We protect the information about quality of goods
associated with brand names by allowing for legally registered trademarks.
II. Give English equivalents of the following:
створювати проблеми для ринку безоплатне користування вимагати колективних рішень проблема нормування знижувати витрати на пошук мати зиск з купівлі споживання без винятку технологічні новини супроводжуватися позитивними втілити ідею зовнішніми ефектами
III. Fill in the blanks with appropriate words:
| ... is any good or service whose consumption by one person is not affected by the consumption of the same good or service by someone else, .,, occurs when a person consumes a valuable good or service without having to pay. is a very important way for indivi duals to gain the information necessary for individual economic choice, ,.. is important because it lowers search costs by allowing information gathered in the past to be used in the future. . For technological innovations we have .,. and for other kinds of ideas in printed or recorded form we have ... . ...is not merely a matter of costly search however. We even protect the information about quality of goods associated with brand names by allowing for legally registered . . . . | searching for information patents free riding a public good reputation uncertainty trademarks copyrights |
IV. Read and translate the text:
Goods are called public goods, not because they are provided by the government, but because they differ from the usual goods and services that we privately enjoy- Public goods pose a serious problem for a market economy: markets are organized on the basis of individual decision-making, but in a sense, public goods require collective decisions.
A public good Is any good or service whose consumption by one person is not affected by the consumption of the same good or service by someone else.
Public goods have three characteristics that create problems for markets. First, consumption of a public good by one individual is not competitive with consumption by another individual. Second, consumption is nonexclusive- Third, the production of public
goods is accompanied by positive externalities.
Consumption of a public good by a single individual does not affect the ability of others to consume the same public good. Hence a public good can be jointly consumed by two, three, or many thousands of people, consumption of a public good is noncompetitive and there is no rationing problem.
It is generally not possible to keep those who do not pay for a public good from consuming it. Consumption of a public good is nonexclusive.
Finally, if it is not possible to exclude others from consuming a public good, the purchase or provision of a public good by one person creates a positive externality since others benelit
from the purchase or provision without having to pay.
These three aspects of public goods create a special problem that makes it difficult for markets to produce them.
The problem is free riding. Free riding occurs when a person consumes a valuable good or service without having to pay. Because the consumption of public goods is nonex- haustive and noncompetitive, each of us has an incentive to free ride, that is, consume goods and services that others have purchased.
Information is enormously important in making decisions in a market economy.
Since this information is valuable, we might expect that there would be a market for it, a place where we could purchase information about automobiles, stereos, canned and frozen goods, and other commodities of, where a firm could purchase information about the quality of potential employees. However, these markets are very difficult to create because of the public-good nature of the information.
Searching for information is a very important way for individuals to gain the information necessary for individual economic choice? searching produces information, that cannot in general be purchased in some market.
Reputation is important because it lowers search costs by allowing information gathered in the past to be used in the future. Frequently, reputation becomes associated with a label or brand name.
Use of an economically valuable idea by one person does not lessen the value when the idea is used by another person.
One response to these problems is to create property rights in ideas, particularly when the ideas are embodied in piece of equipment or are written down- For technological innovations we have patents and for other kinds of ideas in printed or recorded form we have copyrights- We even protect the information about quality of goods associated with brand names by allowing for legally registered trademarks (pp. 389—412),
V- Answer the following questions:
1. What is the difference between public goods and private goods?
2. What three characteristics do public goods have?
3. How do we call a phenomenon, when a person consumes a valuable good or service without having to pay?
4. Why is information a public good?
5. Why is reputation important?
6. How does the state attempt to stimulate technological or recorded innovations?
Vl. Define the terms:
registered trademark public goods
free riding patent
positive externalities information reputation copyright
VII. Translate into English:
1. Суспільні товари відрізняються від товарів особистого вжитку. 2. Ринки організовуються шляхом прийняття індивідуальних рішень, тоді як вироблення суспільних товарів потребує колективних рішень. 3. Споживання суспільного товару однією особою не створює конкуренції для споживання його іншими особами. 4. Виробництво суспільного товару супроводжується позитивними зовнішніми виявами. 5. Споживання суспільного товару необмежене. 6. Ми спостерігаємо безоплатне користування суспільними товарами та послугами, оскільки споживання суспільних това
рів € необмеженим і неконкурентним. 7. Інформація дуже важлива для прийняття рішень в умовах ринкової економіки. 8. Репутація дуже важлива, оскільки вона заощаджує витрати на пошуки, даючи можливість використовувати в майбутньому інформацію, зібрану в минулому.
VIII. Read and dramatize the following dialogue:
MWhy if it isn't Bob! Never expected to meet you at this shop. This is a small world!
6.: Hi, Mike! I#ve got to do some shopping.
M,: So you are to buy some goods for yourself. And do you know that there are things in this world that you can't
consume alone.
B.: Really» I've never heard about this,
M>: Yes, you have, but never realized it. ГІІ try to explain this to you in some words. &.: That's rather interesting.
M.: So, some goods can be consumed by one person and still be available for consumption by others. For example,
you can enjoy the light, colour» noise and excitement associated with fireworks without affecting the ability of your neighbour to also enjoy the fireworks. Orr you can capture the signal from a television station and use it without affecting anyone else's ability to capture and use the same signal.
B.: And can we take as an example of such a case a ship at sea. It can use the services of a lighthouse that warns of a danger without affecting the use of the lighthouse service by other ships in the area,
M.: And police services make a city safer for all of its citizens — I «consume» safety, but this does not affect your ability to «consume» safety. National defense provides security (or one citizen at the same time as it provides the same service for another citizen.
В.: I see. Each of these goods or services is different from an apple, a loaf of bread, a seat at a rock concert, or the medical services provided by a doctor.
M.: Yes, you are quite right. If you consume an apple, no one else can consume the same apple. It's gone. Similarly
with a loaf of bread — your consumption precludes someone else's consumption. When you occupy a seat at
a rock concert, no one else can occupy the same seat. If you spend one hour with your doctor, the doctor cannot
provide the same hour's service to another patient-
S.: Oh! I've never thought about this. And what do economists call such goods.
M.: They call them public goods, as they differ from the usual goods and services that we privately enjoy.
B>: Thank you for the information. That was really new to me.
M.: If you want to know more about public goods you may read a book on economics,
8.: Thank you. Bye. M<: Bye.
IX. Make up your own dialogue using the following expressions:
consumption of public goods to obtain benefits
and services registered trademark
use of an economically valuable idea technological innovations
to create property rights in ideas to gain the information to protect the information brand name to have a good reputation individual economic choice searching for information
X. Answer the following questions as in the models:
M o d e I s : a) Suppose you want to lower search costs > What
would you do? I should allow information gathered in the past to be used in the future,
b) Suppose you wanted to lower search costs. What would you have done? I should have allowed information gathered in the past be used in
the future.
1. Suppose you want to stimulate innovation. Suppose you wanted to stimulate innovation. 2. Suppose you want to create property rights in ideas. Suppose you wanted to create property rights in ideas. 3. Suppose you want to gain the information necessary for individual economic choice. Suppose you wanted to gain the information necessary for individual economic choice. 4. Suppose you want to get reputation. Suppose you wanted to get reputation. 5. Suppose you want to have copyrights. Suppose you wanted to have copyrights.
XI. Change the following sentences using the Present Subjunctive II and the Conditional Mood:
M o d e l : If he wants to protect the information about quality of goods, he will apply for a patent.
If he wanted to protect the information about quality of goods, he would apply for a patent,
1. If he has the necessary information he will minimize search time, 2. If the company uses an economically valuable
idea it will not lessen its value for another company, 3. If a firm creates property rights in ideas it will get a patent. 4. If a company has a reputation it will lower search costs, 5. If the state attempts to stimulate innovation it will use its police po
wers to stop use of the idea by those who do not compensate the inventor or innovator.
XII. Translate into English using the Conditional Mood:
1. Компанія випускала б цю продукцію, але вона не має патенту. 2. Фірма одержувала б прибутки ще минулого року, якби в неї було достатньо інформації про процес виробництва. 3. Якби не існувало ринку інформації, ми не дізналися б про наших потенційних споживачів. 4. Якби не конкуруюча компанія, ми швидше реалізували б свій товар.
5. Компанія захистила б своє право на технологічну інновацію, але вчасно не потурбувалася про оформлення патенту.
XIII. Communicative situations:
1. A movie theatre shows a film to a large number of people at the same time. Is this a public good?
2. Mail-order catalogues often offer clothing and other goods at lower prices than local stores.
Why doesn't everyone purchase these goods by mail?
Lesson 22 MARKETS
I. Read and memorize the following words, word- combinations and word-qroups:
market — ринок
e.g. We went to the market to buy food for the family,
tangible — відчутний на дотик; матеріальний
e.g. A good is something tangible that is produced and
consumed.
to satisfy desires — задовольнити потреби
e.g. Markets exist to satisfy individual desires.
intangible — невідчутний на дотик; невловимий, неясний e.g. Some things are intangible but are also important in
satisfying individual interests, goods — товар
e.g. Product markets are divided into two classes: goods
and services.
service — послуга
e.g. A service is something intangible that is produced and consumed, also frequently having been purchased in a market.
to adjust — відрегулювати
e. g. When you have someone adjust a carburettor you are
purchasing a service.
demander — споживач
e.g. Some people come to a market because they want to
buy. They are called demanders. supplier — постачальник
e.g. Some people come to a market because they want to sell. They are called suppliers.
market allocation — місце на ринку
e.g. The interaction of demanders and suppliers determines
a market price and a market allocation of a particular commodity, to affect the market — впливати на ринок
e.g. This interaction creates a set of incentives for sub
sequent decisions by both suppliers and demanders that may
affect many markets.
excess supply — перевищення пропозиції
e.g. Excess supply occurs when, at a particular market
price, the quantify that suppliers want to provide to the market exceeds the quantity that demanders want to purchase.
to decline — знижуватися, зменшуватися
e.g, Excess supply will be eliminated if the relative price i$
free to decline, equilibrium — рівновага
e.g. The importance of equilibrium is that the equilibrium
relative price is the only price at which the interests of de-
manders coincide with the interests of suppliers, to eliminate — ліквідувати, знищувати
e.g. Excess demand will be eliminated if the relative price
i$ free to increase.
II. Give English equivalents of the following:
| взаємодія споживачів і постачальників надмірна(ий) пропозиція/попит виробляти товари та надавати послуги розміщення ринку набір угод | набір стимулів перерозміщувати товари задовольняти потреби значення рівноваги купувати товар поділятися на класи впливати на ринок |
III. Fill in the blanks with appropriate words:
1. Frequently product markets ... two classes: goods and services.
2. When you have someone adjust a carburettor, however, you are .
3. ... determines a market price and a market allocation of a particular commodity.
4. This interaction also creates .., for subsequent decisions by both suppliers and demanders that may affect many markets,
5.... occurs when, at a particular market price, the quantity that suppliers want to provide to the market exceeds the quantity that demanders want to purchase,
6. .., occurs when, at a particular market price, the quantity that suppliers want to provide to the market is less than the quantity that demanders want to purchase.
a set of incentives excess demand are divided into purchasing a service increases the importance of equilibrium
the interaction of de
manders and suppliers
excess supply decreases
7. When there is excess demand, the relative price ... and when there is excess supply the relative price ... .
8. ... is that the equilibrium relative price is the only price at which the interests of demanders happen to coincide precisely with the interests of the suppliers.
IV. Read and translate the text:
A market is a set of transactions in which a particular kind of commodity is exchanged, and in which the transactions for this commodity among different individuals and firms are related.
There are markets for hundreds of thousands of things.
Some of these things are tangible and satisfy individual desires, while others are intangible but also important in satisfying individual interests. These things are frequently referred to as products. Frequently, product markets are divided into two classes: goods and services. For example, a hamburger is a good, while a doctor's examination is a service. When you buy an automobile, you are purchasing a good» When you have someone adjust a carburettor, however, you are purchasing a service.
A good is something tangible that is produced, and consumed, often having been purchased in a market, A service is something intangible that is produced and consumed, also frequently having been purchased in a market.
Resources are things used to produce goods, services and capital. Some people come to a market because they want to buy (demanders), others come because they want to sell (suppliers). The interaction of demanders and suppliers determines a market price and a market allocation of a particular commodity. This interaction also creates a set of incentives for subsequent decisions by both suppliers and demanders that may affect many markets. To understand these incentives, as well as how market prices and allocations are determined, we need to understand how suppliers and demanders respond to different relative price and the quantity of a particular commodity that individuals or firms (suppliers) would be willing to provide to the market.
Demand is all combinations of relative price and the quantity of a particular commodity that individuals or firms (demanders) would be willing to purchase in a market.
A market is created when those who willingly supply a good, service, or resource exchange with those who desire to use, control, or consume a good, service, or resource.
Markets reallocate commodities from suppliers to demanders. What if suppliers want to provide more than demanders want to purchase? Or, what if demanders want more than suppliers are willing to provide?
Excess supply occurs when, at a particular market price, the quantity that suppliers want to provide to the market exceeds the quantity that demanders want to purchase.
Excess demand occurs when, at a particular market price, the quantity that suppliers want to provide to the market is less than the quantity that demanders want to purchase.
In an open or free market, the relative price for a commodity will generally decrease when there is excess supply; the relative price will generally increase when there is excess demand.
Excess demand will be eliminated if the relative price is free to increase.
Markets adjust in predictable ways if, when there is excess demand, the relative price increases and if, when there is excess supply, the relative price decreases. These changes in relative
prices tend to eliminate the excess supply or excess demand.
A market is equilibrium when the quantity that suppliers are willing to provide to the market at a specific market price is exactly equal to the quantity that demanders desire to purchase
in the market at the same market price.
The importance of equilibrium is that the equilibrium relative price is the only price at which the interests of demanders happen to coincide precisely with the interests of the suppliers. At any other relative price, the interests of suppliers and demanders do not coincide (pp. 106—125)..
V. Answer the following questions:
1. What is a market?
2. What is a good?
3. What is a service?
A. Whom do we call demanders and suppliers?
5. What is supply?
6. What is demand?
7. What is excess supply?
8. What is excess demand?
9. When will excess demand and excess supply be eliminated?
10. What is an equilibrium of a market?
11. Why is market equilibrium important?
VI. Define the terms:
| a good a market a supplier allocation excess demand a transaction | a service a demander market excess supply equilibrium resources |
VII. Translate into English:
1. Розрізняють ринки товарів і ринки поспуг. 2. Товар — це щось відчутне на дотик, що виробляється та споживається, часто те, що ми можемо придбати на ринку.
3. Послуга — це щось не відчутне на дотик, що виробляється та споживається, що ми також можемо придбати на ринку. 4. Ресурси — це те, що використовується для виготовлення товару та надання послуг. 5. Взаємодія споживачів і постачальників визначає ринкову ціну та розміщення ринку, 6. Пропозиція — це поєднання відносної ціни та кількості якогось товару, що його фірми або окремі особи бажають постачати на ринок. 7. Споживання — це поєднання відносної ціни та кількості якогось товару, що його фірми або окремі особи бажали б придбати на ринку.
8. Надмірна пропозиція складається тоді, коли кількість товару, яку постачальник хоче поставити на ринок з ринковою ціною, перевищує кількість, яку споживачі бажають придбати. 9. В умовах вільного ринку відносна ціна на товар буде падати при зростанні пропозиції та підніматися при зростанні попиту.
VIII. Read and dramatize the following dialogue:
AI say, Fredr you promised to tell me everything about markets.
B.: Yes, I do remember I promised to tell you.
A.: I am all ears.
B.: To begin with markets are as old as recorded civilization.
A.: If lJve got you right, they existed in earlier times.
B.: That's right. In earlier times, they were primarily a physical location where people would gather periodically to exchange goods and services.
A.: So, going to market was an important economic and social activity.
B.: indeed, it was so important that permanent market locations frequently developed into the towns and cities that now dot much of the landscape.
A.: Sore. And today we think less about markets as specific physical locations where exchanges occur than we do as institutional arrangements that tie exchanges together in some way.
B.: I think that any particular transaction occurs in a specific place, of course, but tens of thousands of such transactions scattered across a community or even a nation may constitute a market for a particular thing.
A.: Yes. And if there is a market, a person can expect that the nature of the transaction will be similar in different locations. B.: What do you mean by this?
A.: For example, we speak of the housing market in a city or the rental market in a city, even though there is no central location where houses are bought and sold or where apartments are offered for rent and rented. While there
may be local peculiarities, buying a home in one part of a city is quite similar to buying a home in another part of a city.
В.: In this sense there is a market for housing in a city, or
even across an economy. And, similarly, we may speak of the market for cereal, or soft drinks or shirts or jeans or computer software, even though cereal is sold in thousands of different locations throughout an economy.
A.: Thus, a market need not have a single physical location as long as transactions for a specific good or service or resource in one place are related in some way to the transactions for the good or service or resource in some other place.
B.: That's great. And in an important sense, however, a market is an idea. That is, a market is a way of thinking about the consequences of the many transactions that occur for specific
goods, services, or resources.
IX. Make up your own dialogue using the following expressions:
| exchange of goods and services to satisfy individual interests to determine a market price to provide to the market service or resource | transactions for commodity to purchase in a market a market allocation to consume a good |
X. Paraphrase the sentences as in the model:
M o d e l : I am afraid that this firm will provide less quantity of the commodity to the market.
I am afraid lest this firm provide less quantity of the commodity to the market.
1. I worry, because the relative price for a commodity will decrease. 2. The retailer is afraid that his goods will satisfy individual desires of only one group of consumers, 3. The producers are afraid that the retailers will provide inconvenient market location, 4. The producers are afraid that their market research is of no value to predict what the people will want. 5. The producers are afraid that marketing operations will be very expensive.
XI. Paraphrase the sentences as in the model:
M o d e l : The manager demanded: «The wholesalers must simplify the process of distribution.»
The manager demanded that the wholesalers simplify the process of distribution.
1. The wholesaler demanded: «We must determine a market price of a particular commodity.» 2. The manager ordered: «The interaction of demanders and suppliers must determine a market allocation of a particular commodity.» 3. The manager demanded: «The wholesalers must provide new channels of distribution which help to bring goods to the market.» 4. The middleman suggested: «Suppliers and demanders must respond to different relative prices to determine market allocations and prices.» S. The producer suggested: «Markets must adjust in predictable ways.» 6. The producer suggests: «Changes in relative price must tend to efiminate the excess supply or excess demand.»
XII. Translate into English using Subjunctive I:
1. Виробники побоювалися, щоб ціни на цей вид товару не знизилися. 2. Необхідно, щоб ринкова ціна визначалася взаємодією суб'єктів попиту та пропозиції. 3. Важливо, щоб встановилася ринкова рівновага. 4. Виробники запропонували, щоб оптові торговці спростили процес збуту. 5. Необхідно, щоб виробники були готові постачати на ринок таку кількість товару, яку споживачі готові придбати. 6. Важливо, щоб інтереси споживачів збігалися з інтересами постачальників.
XIII. Communicative situations:
1. Why does a market adjust toward an equilibrium?
If markets did not adjust toward an equilibrium, what behavior would you observe?
2. Do you suppose that a market ever reaches equilibrium?If not, is the concept of equilibrium useful?
3. If a firm found that its market demand was inelastic and cutits production, would its revenues from supplying goods to the market increase or decrease?
Lesson 23
INTERNATIONAL MARKETS
FOR COMMODITIES AND CURRENCIES
I. Read and memorize the following words, word. combinations and word-groups:
transportation costs — транспортні витрати e.g. Transportation costs are low,
domestic market — внутрішній ринок
e.g. Domestic markets for goods and services are often
affected by either foreign supply or by foreign demand, international market — міжнародний ринок
e.g. For many commodities there are international rather
than domestic markets.
import — ввезення, імпорт
e.g. What are the chief imports of your country?
export — вивезення, експорт
e.g. Last year exports exceeded imports in value.
barter — міняти, обмінювати
e.g. According to the contract, they should barter wheat
for machinery.
coincident wants — потреби, що збігаються
e.g. Money solves the problem of coincident wants,
reciprocal wants — взаємні потреби
e.g. What phenomenon solves the problem of reciprocal
wants?
international transaction — міжнародна угода
e.g. Money can be used in international transactions,
conversely — навпаки
e.g. Conversely, domestic firms want to be paid with money
useful in the domestic economy.
foreign currency — іноземна валюта
e.g. The person receiving payment in the foreign currency
will want to exchange it for a domestic currency, domestic currency — національна валюта
e.g. The person making payment in a foreign currency will
have to exchange the domestic currency for the foreign currency in order to make the payment.
foreign exchange market — ринок іноземної валюти e.g. A foreign exchange market is a market where one
kind of money is traded for a different kind of money, rate — курс, коефіцієнт
e.g. Whai is the rate of exchange for one American dollar?
exchange rate — валютний курс
e.g. Exchange rate has recently raised-
foreign trade balance — баланс міжнародної торгівлі e.g. The difference between the value of imports and
exports is the foreign trade balance.
II. Give English equivalents of the following:
| втручатися в угоди міжнародний вплив на внутрішній ринок стимул імпортувати та експортувати імпортувати та експортувати товари баланс міжнародної торгівлі ринок іноземної валюти | транспортні витрати потреби, що збігаються взаємні потреби змінювати валютний курс |
111. Fill in the blanks with appropriate words:
1. Domestic markets for goods and services are often affected by either
... or by ... .
2. If the world price of a commodity is below the domestic price, there
will be ... the commodity.
3. Most international trade does not occur through ... .
4. Money once again solves the problem of .
5. As long as money can be used in ... exporters and importers do not need to be the same individuals.
6. is a market where one kind of money is traded for a different kind of money.
7. Changes in ... in these markets change the rate at which one
currency will be exchanged for another currency.
8. The difference between the value of exports and imports is ... .
9. If the value of imports exceeds the value of exports then trade balance is ... ,
an incentive to import direct barter a foreign exchange market
coincident or recipro
cal wants
foreign supply international transactions
foreign demand deficit the foreign trade balance supply and demand
IV. Read and translate the text:
When transportation costs are low and governments do not interfere much in transactions that cross national boundaries,
firms and individuals frequently look across those boundaries for opportunities to buy or sell. Indeed, for many commodities there are international rather than domestic markets, and for most commodities there are international effects on markets.
Commodities that are produced in a foreign economy/ but which are consumed by individuals within a domestic economy, are imports, while commodities which are produced within a domestic economy, but which are consumed by individuals in a foreign economy/ are exports.
If the world price of commodity is below the domestic price, there will be an incentive to import the commodity,
purchasing it from foreign producers.
Money once again solves the problem of coincident or reciprocal wants: individuals or firms who want to import a commodity can make the exchange using money, while those individuals or firms who want to export do so in exchange for money. As long as money can be used in international transactions (as well as within an economy), exporters and importers do not need to be the same individuals. The complexity arises because foreign firms usually want to be
paid in money useful in their own economy. Conversely, domestic firms who want to export usually want to be paid with money useful in the domestic economy, while foreigners to whom they must sell if they are to export usually want to pay for the commodities using money from their own
economy.
When the money used in the international exchange is different from that used in the domestic economy, the person receiving payment in the foreign currency will want to exchange
it (or a domestic currency.
Hence, international trade creates markets for different kinds of money. Such markets are called foreign exchange or foreign currency markets.
A foreign exchange market is a market where one kind of money is traded for a different kind of money.
Changes in supply and demand in these markets change the rate at which one currency will be exchanged for another currency. As a consequence, the price of goods that are traded wili change either because of a change in the price in the economy where they are produced or because of a change in the exchange rate.
The difference between the value of exports and imports is the foreign trade balance. If the value of imports exceeds the value of exports then trade balance is deficit (pp,218—236),
V. Answer the following questions:
1. What are imports?
2. What are exports?
3. When will there be an incentive to import the commodity?
4. When will there be an incentive to export the commodity?
5. What role does money play in international transactions?
6. What is a foreign exchange market?
7. What is the foreign trade balance?
VI. Define the terms:
| transportation costs | import |
| reciprocal wants | rale |
| exchange rate | barter |
| coincident wants | incentive |
VII. Translate into English:
1. Імпорт — це товари, які виробляються іноземною економікою, але споживаються особами в межах національної економіки. 2. Якщо світова ціна товару нижча за внутрішню, існуватиме стимул Імпортувати його, купуючи в іноземного виробника. З. Гроші знову-таки вирішують проблему потреб, що є взаємними або збігаються. 4. Складність виникає тому,
що іноземні фірми хочуть, щоб їм сппачували гроші, які можуть використовуватися в їхній економіці. 5. Коли гроші, що використовуються під час обміну, відрізняються від гро
шей національної економіки, особа, одержавши плату в іноземній валюті, захоче обміняти її на національну. 6. Отже, міжнародна торгівля створює ринки для різних видів грошей. 7. Зміни в попиті та пропозиції на цих ринках змінюють курс обміну однієї валюти на іншу. 8. Різниця між вартістю експорту та імпорту становить баланс міжнародної торгівлі.
9. Якщо вартість імпорту перевищує вартість експорту, тоді баланс міжнародної торгівлі є дефіцитним.
VIII. Read and dramatize the following dialogue:
D.: Why do foreigners hold U.S. dollars?
M.: It is not clear why they have chosen to hold some dollars rather than exchanging all dollars for commodities produced within the U.S. or for their domestic currency. It is important
to emphasize that the choice to hold dollars is one that foreigners, not U.S. citizens or the U.S. government, make.
D.: Would you explain some reasons for it?
M.: O.K. I'll briefly note a few reasons why foreigners may want to hold dollars. First, the U.S. dollar is used as a kind of international money. For example, the Japanese producer of Hondas may require that British or French importers of Hondas pay for them in U.S, dollars instead of British pounds or French francs. To the degree that the U.S, dollar is used in these kinds of transactions, there will be a greater demand for dollars than simply the
demand necessary to purchase exports from the U.S.
D.: Of course, if the dollar is the dominant currency in world trade, with the increasing volume of trade there will be an increase in the demand for the dollar.
M.: Well, you are quite right. Second, to the degree that the U,S, economy and political system are more stable than other economies or political systems, holding U.S. dollars may provide security in a world of turmoil. Similarly,
if investments in one's own economy are highly risky (because of either economic or political instability) and the U.S. is viewed as more stable foreigners may want to invest in U,S. assets such as bank accounts, bonds, stocks or real estate.
D.: it seems to me that to make these kinds of investments, foreigners need U.S. dollars rather than their own currency and the demand for dollars will, once again, be greater than that which would occur because of exports alone. Are there any other reasons?
M.: Certainly. The third reason is that the U.S. government may pursue policies that make it more attractive for foreigners to hold U.S. dollars or assets rather than the domestic currency or assets. For example, if U.S. banks are paying 10 percent interest while a bank in a foreign economy is only paying 5 percent, under certain circumstances it will be advantageous for foreigners to have accounts in U.S. banks rather than in domestic banks.
D.: This will increase the demand for dollars in foreign exchange markets. Or the U.S. may have a lower or less erratic rate of inflation. I suppose, the fourth reason is the fact that a foreign government may consciously pursue policies that encourage exports to the U,S. but discourage imports from the U.S. Such policies will produce a U.S.
trade deficit. These kinds of policies, however, can only
lead to persistent trade deficits for the U.S. if the foreign government also pursues policies that increase the demand for U.S. dollars by foreigners (for example, the government might itself intervene in the foreign exchange market as a demander of dollars).
M.: For each of these reasons the demand for U.S. dollars (or the supply of a foreign currency) wit! be substantial and may increase even though the U.S. may be running a trade deficit,
D.: To cut a long story short, the result is: the U.S. runs a persistent trade deficit and the U.S. dollar does not depreciate at all or by enough in foreign exchange markets to bring exports into balance with imports.
IX. Make up your own dialogue using the following expressions: