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The Degree of Competition within Markets





Economic competition, or rivalry among competitors, often leads to lower prices and the intro­duction of differentiated products. For example, videocassette recorders sold for more than $1,500 when they were introduced. After a few short years, the price dropped to less than 20 percent of that figure. In addition, the first videocassettes could record only two hours of pro­gramming, but today eight-hour videocassettes are available from numerous new competitors. Cellular telephones have gone the same route.

Foreign and domestic competition influences the interaction of supply and demand forces. The degree of competition varies widely from industry to industry. Some industries are extremely competitive, with numerous competing firms, while others are dominated by one or two companies with large shares of the market. The competitive market structure of an industry-that is, the number of competing firms and the size of the market each competitor holds—strongly influences business strate­gies. Pure competition, monopolistic competition, oligopoly, and monopolyare the four basic types of competitive market structure.

Pure competitionexists when there are no barriers to competition. Many small competing firms offer almost identical products, and there are many buyers. This means there is a steady supply of and demand for the product, and therefore the price is controlled by neither the buyers nor the sellers; rather, the forces of supply and demand determine prices. An indi­vidual producer can make more money by producing and selling more.

The principal characteristic of monopolistic competitionis product dif­ferentiation—a large number of sellers, for example, selling similar products differentiated (dis­tinguished) by only minor changes in product design, style, or technology. Firms engaged in monopolistic competition have enough influence on the marketplace to exert some control over their own prices.

Oligopoly,the third type of market structure, is an industry controlled by a few large firms. The distinguishing characteristic of an oligopoly, however, is not the size of the company as measured by assets or sales volume but its control over the marketplace as measured by its share of the market. Each company in an oligopoly has a strong influence on product offering, price, and market structure within the industry.



Industries with only one producer firm are called monopolies. In a monopoly,no substitute products are available and the monopolist may charge any price. The monopolist will set the price to maximize its profits.

Look through the text once again and characterize each type of competitive market structure. Give your own examples.

Text 6

Read and translate the following terms: peak, boom, recession, capacity utilization rate, expansion, unemployment rate, downturn, depression, trough, upturn. Read the text and be ready to explain what each of them means.

Business Cycles

Business cycles have varying durations and intensities. Why are businesses so interested in the state of the economy? They want to be able to predict whether it's going into a contraction or an expansion. Making the right prediction can determine whether the business will be profitable or not. That's why a large amount of economists' activity goes into trying to predict the future course of the economy.

The top of a cycle is called the peak. A very high peak, representing a big jump in output, is called a boom.Eventually an expansion peaks. When the economy starts to fall from that peak, there's a downturnin business activity. If that downturn persists for more than two consecutive quarters of the year, that downturn becomes a recession.In a recession the economy isn't doing so great; many people are unemployed and a number of people are depressed.

A large recession is called a depression.There is no formal line indicating when a recession becomes a depression. In general, a depression is much longer and more severe than a recession. This ambiguity allows some economists to joke, "When your neighbor is unemployed, it's a recession; when you're unemployed, it's a depression." It is generally accepted that if unem­ployment exceeds 12 percent for more than a year, the economy is in a depres­sion.



The bottom of a recession or depression is called the trough. When the economy comes out of the trough, economists say it's in an upturn.If an upturn lasts two consecutive quarters of the year, it's called an expansion,which leads us back up to the peak. And so it goes.

Two measures that economists use to determine where the economy is on the business cycle are the unemployment rate(the percentage of people in the labor force who can't find a job) and the capacity utilization rate(the rate at which factories and machines are operating compared to the rate at which they could be used). Generally economists say that 5-6 percent unemployment and 80-85 per­cent capacity utilization are about as much as we should expect from the econ­omy. Therefore, they use them as targets. Thus the target rate of unemploymentis defined as the lowest sustainable rate of unemployment economists believe is possible under existing conditions.

Economists translate the target unemployment rate and target capacity uti­lization rate into the level of output with which those rates will be associated. That level of output is called potential output(or potential income,because output creates income). Potential output is the output that would materialize at the target rate of unemployment and the target level of capacity utilization. Potential output grows at the secular (long-term) trend rate of 3.5 per­cent per year. When the economy is in a downturn or recession, actual output is below potential output. When the economy is in a boom, actual output is above potential output.

 

Text 7

Read the text. Divide it into logical parts. Give the title to the text. Make a list of the economic terms used in the text. Be ready to explain what they mean.

A firm generally measures how busy it is by how much it produces. To talk about, how well the aggregate economy is doing, national income accounting uses a corresponding concept, aggregate output, which goes under the name gross do­mesticproduct (GDP).GDP is the total market value of all final goods and services produced in an economy in a one-year period. It's probably the single most-used economic measure. When economists, journalists, and other analysts talk about the econ­omy, they continually discuss GDP: how much it has increased or decreased, and what it's likely to do. In every country the production of goods and services provides the food, clothing, and shelter that allow its people to survive and prosper. Some countries produce an abundance of raw materials such as coal and timber while others produce manufactured goods like steel and automobiles. Some countries may concentrate on producing food­stuffs like rice and butter while others produce services—movies, insur­ance, or banking. Whatever is not consumed in the country itself can be sold to other countries as exports. The size of a country's economy is determined by the total amount of goods and services that country produces. As more and more goods and services are produced, the economy grows—and the best way to measure this growth is to put a monetary value on everything bought or sold. Although money is not the only measure of an economy's size, it is the easiest way to sum up the value of all the apples and oranges, automobiles and computers, football games and college classes that a country produces in the course of a given year. The monetary value of all these goods and services can then be added up and compared with that of other countries. Since almost every country uses a different currency, the totals from each country have to be translated—by using currency exchange rates—to compare the size of one country's economy to another. For example, the yen value of the Japanese economy can be converted into U.S. dollars to compare it to the American economy. The measure of economic activity that includes all the goods and services bought or sold in a country over the course of a year is called gross domestic product (GDP). GDP measures a country's economic activity. A healthy economy grows steadily, over a period of months or years. When the international activities of a country's residents are added to GDP, a wider more global measure of a country's total economic activity is created: gross national product or GNP. Both measures tell more or less the same story—GDP concentrates on the purely "domestic" production of goods and services covering only the economic activity which takes place within the country's borders, while GNP includes net international trade and investment, which includes everything from exports of movies and compact disks to foreign earn­ings and travel abroad. GDP and GNP try to measure every legal good and service that an economy produces. A farmer selling fresh vegetables, an automobile dealer selling used cars, a poet selling a new book, a hairdresser, prize fighter, or lifeguard selling his goods and services all contribute to economic activity, as measured by GDP and GNP. At each stage of production, every time that monetary value is added, a country's GDP and GNP are increased. Government policymakers and businesspeople use GNP to forecast trends and to analyze the economy’s performance. Although the measure is well entrenched, many economists complain that it is sometimes misleading. The value of all shadow economy, for example, is not reflected in GNP figures. Revenues from illegal transactions are not included because they are not reported. Besides, the value of bartering goods and services cannot easily be measured because money is not used in the transactions.



Look through the text once again and answer the following questions:

1. How does a firm generally measure its activity?

2. What concept is used to measure how well the aggregate economy is doing?

3. In what does aggregate output differ from GDP?

4. What does a country do with the goods not consumed in the country itself?

5. How is the size of a country’s economy determined?

6. What is the best way to measure the growth of the economy?

7. The totals from each country have to be translated by using currency exchange rates. What for?

8. What does GNP measure?

9. What is GNP used to forecast?

10. Why do many economists complain that GNP is sometimes misleading?

 

Language

1.Practise reading the following words correctly. If necessary, use a dictionary.

insights, issue, endure, exceed, scarcity, prosperous, privileged, luxurious, entrepreneurship, impoverish, emerge, occur, volatile, satisfy, legitimate, expound, quest, determine, purchase, relative, equilibrium, curve, increase (v, n), decrease (v, n), entrepreneur

2. Read the following international words. Which are translator’s “false friends”? Give their Russian equivalents.

e.g. generate—генерировать -- порождать

Dominance, accurate, total, complementary, furniture, design, collaborator, stress, specifications, basis, package, ratio, rational, actual, determine, figure.

3.When describing an economic situation and different trends in the economy, the following words can be used. Make your own sentences with these words. Translate them into Russian.

Crucial(ly), dramatic, vital, increase, decrease, go down, decline, soar, drop, remain stable, hold, maintain, reduce, turn down, fall, raise, rise, systematically, slow(ly), gradual(ly), slight(ly), considerably, rapid(ly), significant(ly), constant(ly)

4.Reproduce the context the following words are used in:

Economic reasoning, economic terminology (text 1); wants and desires, opportunity costs, factors of production, material resources, human resources (text 2); a doctrine of economic freedom, invisible hand, laissez-faire, economic thinking (text 3); demand curve, supply, equilibrium price (text 4); economic competition, competitive market structure, pure competition, oligopoly, monopoly, share of the market (text 5); future course of the economy, consecutive quarters of the year, recession, trough, sustainable rate of unemployment (text 6); aggregate output, most-used economic measure, monetary value of all goods and services; total market value, net international trade, illegal transactions ( text 7)

5.The following verbs are close in their meanings. Which of them are synonyms? Give your own examples to show you understand their exact meaning.

Contain, constitute, consist, compose, compile, construct, comprise, embody, include, incorporate, form, mold, build, establish, set up, embrace

6.Read and translate into Russian the following word-combinations. Pay attention to the way some words change their meaning depending on the word-combination they are used in.

a) domestic animal, domestic science, domestic market;

b) interest rate, growth rate, unemployment rate, capacity utilization rate, target rate; tax rate, birth rate, exchange rate;

c) foreign language, foreign market, foreign investments, foreign earnings;

7. Complete the following table

Verb Noun Adjective

-- -- wide

-- favour --

encourage -- --

allow -- --

-- success --

measure -- --

earn -- --

-- -- sustainable

consume -- --

-- competition --

confirm -- --

-- strength --

-- -- poor

prosper -- --

-- consideration --

 

8. Find in the texts the words that mean

(text 1) wish for possession of; point in question, important subject; (text 2) lack or shortage; resources required to produce economic goods; the workers of a country or industry, considered as a group; (text 3) something that is given for good behaviour, work; policy of non-interference; a long formal piece of writing about a particular subject; used so often that it no longer seems to have much meaning; (text 4) at one’s disposal, obtainable; (text 5) a long-term plan or policy; (text 6) objective or result aimed at; (text 7) sum total, amount assembled; plenty, more than enough; complete, comprising the whole; trading by exchanging goods and services directly rather than through a medium of money.

9. Read the following passage attentively and find the words that do not belong here.

A basic principle of liberal thought is that applicable individuals are the best and most accurate judges of their own interests and can be relied upon to pursue those interests with great small dedication and creativity. The mighty arm of the wonderful state with its beautiful web of regulations and bureaucratic agents often does more harm than good when trying to substitute administrative methods of organization of impersonal market process that spring out of self-interested individual action.

Classical liberals are not funny anarchists and at the very least recommend a minimal green state: a state that protects lives, produces, defines property rights, and limits enforces private contracts. A good many classical liberals went somewhat further anywhere and requested that the state build and maintain certain public works (bridges, canals, rooms, highways, recreational parks, and so on), maintain standing weak armies, provide basic education, promote invention and innovation, and intervene in the market on a limited scale for specific human childish purpose such as the enactment and enforcement of child labour law.

Generally, the classical liberal believes in the tiny general rule of laissez-faire and wants to preserve self-regulating market process as much as not possible. The classical liberal is confident that with the enactment of strict constitutional safeguards and the elimination of monopoly peace and material progress are within the reach of all ancient societies and all social young classes.

Look through the passage once again. What is it about? Express the main idea of it in 2-3 short sentences.

10. Fill in the gaps with the suitable words.

 








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