North Holland Dairy Cooperative, Volendam, Postbus 4550NL-4452

Ms. Erena Eichelberger

Wholesale Groceries Inc.

P.O.B. 5678

A-1090 Vienna

Austria

Dear Ms. Eichelberger,

Telephone conversation 29 February 1999

This fax is to follow up our telephone call of this morning.

We are willing to supply 2,000 (two thousand) tonnes of our variety Splendide at $ 150 ( one hundred and fifty dollars) per tonne. We expect to make the delivery at the latest by 15 March.

Jan van Geelen

SPEAKING

Dwell on:

– market;

– the concept of demand and the factors which determine the quantity demanded of any good;

– the concept of supply and the factors which determine the quantity supplied of any good;

– the mechanism of interaction between the demand and supply in setting a price;

– what equilibrium price is;

– the way the market restores its equilibrium;

– types of elasticity;

– elasticity as a planning tool for managers.

VOCABULARY

complement n – дополнение / дополняющий товар

conceptn – понятие, общее представление, идея

demand ( for) n – спрос, потребность, требование

demand v – требовать, нуждаться

equate (to sth) v – равнять, считать

equation n – уравнение, равенство

elasticity n – эластичность, адаптационная способность (процент изменения величины одной переменной в результате изменения на одну единицу другой переменной)

price ~ – ценовая эластичность

unit ~ – единичная эластичность спроса

elastic adj – эластичный

equilibrium n – равновесие

extent n – 1. размер; 2. степень меры; 3. объем; 4. протяженность

inferior good– товар низкого качества; низший товар

interact (with) v – взаимодействовать

interaction (among, between; with) n – взаимодействие

infinity n – бесконечность

luxury good– предмет роскоши

necessity good –предмет первой необходимости

normal good – нормальный товар

related good –родственный товар

supply n – 1. снабжение, поставка; подача, поступление; 2. предложение (например, товара)

supplementn – добавление, приложение

supplier n – поставщик

transaction n – сделка, соглашение

GLOSSARY

· The law of demand states there is an inverse relationship between the price and the quantity demanded, ceteris paribus.

· Quantity demandedis the amount of a good that buyers are willing and able to purchase.

· A change in quantity demanded is a movement along a stationary demand curve caused by a change in price. When any of the nonprice determinants of demand changes, the demand curve responds by shifting.

· Nonprice determinants of demandare as follows:

a. The number of buyers;

b. Tastes and preferences;

c. Income (normal and inferior goods);

d. Expectations of future price and income changes;

e. Prices of related goods (substitutes and complements).

· The law of supply states there is a direct relationship between the price and the quantity supplied, ceteris paribus. The market supply curve is the horizontal summation of individual supply curves.

· A change in quantity supplied is a movement along a stationary supply curve caused by a change in price. When any of the nonprice determinants of supply changes, the supply curve responds by shifting.

· A surplus or shortage exists at any price where the quantity demanded and the quantity supplied are not equal. When the price of a good is greater than the equilibrium price, there is an excess quantity supplied, or surplus. When the price is less than the equilibrium price, there is an excess quantity demanded, or shortage.

· Normal good is a good for which, other things equal, an increase in income leads to an increase in demand.

· Inferior good is a good for which, other things equal, an increase in income leads to a decrease in demand.

· Substitutesare two goods for which an increase in the price of one leads to an increase in the demand of the other

· Complementsare two goods for which an increase in the price of one leads to a decrease in the demand of the other.

· Quantity suppliedis the amount of a good that sellers are willing and able to sell.

· Nonprice determinants of supplyare as follows:

a. The number of sellers;

b. Technology;

c. Resource prices;

d. Taxes and subsidies;

e. Expectations of future price changes;

f. Prices of other goods.

· Law of supply and demandis the claim that the price of any good adjusts to bring the supply and demand for that good into balance.

· Equilibrium is the unique price and quantity established at the intersection of the supply and demand curves. Only at equilibrium does quantity demanded equal quantity supplied.

· Elasticity isa measure of how much buyers and sellers respond to changes in market conditions.

MARKET STRUCTURE

DISCOVERING CONNECTIONS

Think of some durable consumer goods that your family possesses – perhaps a car, a television, a stereo, a camera, a personal computer, a cooker, a fridge, a hair dryer, and so on. Think of your casual clothes, especially jeans and sports shoes. Think of toys you had as a child. Think of the brands of food and drink you habitually consume, including breakfast cereals, chocolate, tea and instant coffee. Think of the products you use to wash yourself and your clothes.

In each case, do you know whether the company that makes them is one of the following?

– the market leader (with the biggest market share);

– the market challenger (the second-biggest company in the industry);

– one of many smaller market followers.

If you buy or have bought products that are notproduced by the market leader or a well-known market challenger, what is the reason?

– chance;

– price;

– because the product has a unique selling proposition that appeals to you;

– because you need something special.

READING

Text 1

Before reading, take a few minutes to preview the text. Briefly answer the following questions.

How many parts are there in the reading?

Identify the headings. What do they tell you about the topic of this reading?

3. What do you already know about the topic?

Market Structures

Market structure is determined primarily by (1) the number of firms selling in the market; (2) the extent to which the products of different firms in the market are the same or different; (3) the ease with which firms can enter into or exit from the market. Based on these three criteria, economists usually group market structures into four basic categories: (1) pure competition; (2) monopoly; (3) oligopoly; and (4) monopolistic competition. Let us examine each of these market structures.

Pure Competition

The main characteristics of the pure competition are:

1. Many sellers: There are many sellers, and each firm is so small relative to the entire market that its actions will have no effect on the price of its product. Instead, it must accept the going market price, established by the forces of supply and demand.

2. Standardized product: The products of the various firms in the market are so nearly identical that buyers do not prefer the product of any one firm over that of any other firm.

3. Easy entry and exit: There are no significant financial, legal, technological, or other barriers to prevent new firms from entering the market or to prevent existing firms from leaving the market. Firms are free to enter and leave the market at will.

4. No artificial restrictions: There are no wage and price controls, minimum wage laws, labour unions, or other artificial restrictions on the free movement of prices and wages up and down.

Pure competition has its limitations. Although it works well in an industry such as agriculture, it is not practical for all markets and all industries. Nevertheless, since competition is the controlling mechanism of a market economy, a high degree of competition is usually desirable in most markets.

Monopoly

Monopoly is the extreme opposite of pure competition and has the following characteristics: (1) the market consists of a single seller; (2) the seller sells a product for which there are no close substitutes; (3) there are barriers to entry that prevent competitors from entering the market; and (4) the seller can control the price of his or her product.

Monopoly disadvantages include the following: (1) a monopolist charges a higher price and produces less output than a perfectly competitive firm, (2) resource allocation is inefficient because the monopolist produces less than if competition existed, (3) monopoly produces higher long-run profits than if competition existed, and (4) monopoly transfers income from consumers to producers to a greater degree than under competition.

Oligopoly

Although few industries are controlled by a single firm, main industries in the United States are dominated by a few giant firms. Such a market structure is known as oligopoly, and it is the market structure under which most large corporations operate. Oligopoly has the following characteristics: (1) a few sellers; (2) substantial barriers to entry; (3) standardized or differentiated products; and (4) substantial nonprice competition.

Nonprice competition includes advertising, packaging, product development, better quality, and better service. Under imperfect competition, firms may compete using nonprice competition, rather than price competition.

Monopolistic Competition

Monopolistic competition is a market structure that is characterized by (1) many sellers; (2) differentiated products; (3) nonprice competition; (4) relatively easy entry and exit. It has similarities to both pure competition and oligopoly.

Monopolistic competition is similar to pure competition in the sense that there are many sellers and no strong barriers to entry. Firms can enter and leave markets on a regular basis and, indeed, do so. The amount of money required to go into business is relatively small, and there are few government regulations restricting those wishing to enter a market. In addition, each seller controls such a small share of the market that each believes that his or her actions will bring no reactions from competitors.

Unlike pure competition, however, monopolistic competition is characterized by product differentiation and nonprice competition. The latter involves efforts to persuade consumers to buy a particular product for reasons other than price. In fact, product differentiation and nonprice competition are the most important characteristics that distinguish monopolistic competition from pure competition. Firms operating in markets characterized by monopolistic competition do extensive advertising in an effort to convince consumers that their products are better than those of their competitors. Often there is little or no actual difference in the products, but advertising campaigns lead at least some consumers to believe otherwise.

Most retail stores in medium-to-large-sized cities fall into the category of monopolistic competition. They advertise heavily and try to convince consumers that their products and services are superior to those of their competitors. A store may emphasize such things as convenient location, ample parking space, courteous service, and a large selection of merchandise.

Vocabulary Focus

Ex. 1. Read the international words and guess their meaning.

Criteria, monopoly, oligopoly, limitation, economy, substitute, permanent, service.

Ex. 2. Memorize the following singular and plural forms:

Ex. 3.From two columns choose the words with similar meaning and arrange them in pairs.

Ex. 4. From two columns choose the words with opposite meaning and arrange them in pairs.

Ex. 5.Complete the table by inserting the missing forms.

Ex. 6. Match English and Russian equivalents.

Comprehension

Ex. 1. Match the words with their definitions.

Ex. 2. Fill in the missing words from the text.

1. Although few ….. are controlled by a single firm, main ….. in the United States are dominated by a few giant firms.

2. Such a ….. is known as oligopoly, and it is …… under which most large corporations operate.

3. ……usually define oligopoly as few enough firms so that there is mutual interdependence among the firms.

4. Nonprice ……involves efforts to persuade consumers to buy a particular product for reasons other than price.

5. Monopolistic competition is similar to pure competition in the sense that there are … and no strong barriers to entry.

6. Unlike …, however, monopolistic competition is characterized by product differentiation and nonprice competition.

Ex. 3. Expand the sentences.

1. Market structure is determined primarily by… .

2. Economists usually group market structures into four basic categories: … .

3. The main characteristics of the pure competition are … .

4. Monopoly is the extreme opposite of pure competition and has the following characteristics: .… .

5. Oligopoly has the following characteristics: …. .

6. Monopolistic competition is a market structure that is characterized by … .

Ex. 4. Answer the following questions, using the text.

1. What are the four characteristics of pure competition? Does pure competition exist?

2. What problems would exist in a purely competitive economy?

3. Describe four characteristics of monopoly.

4. Identify four characteristics of oligopoly. What is meant by “mutual interdependence”? Describe nonprice competition.

5. What are the four characteristics of monopolistic competition? In what ways is monopolistic competition similar to oligopoly? In what ways is it similar to pure competition?

Text 2

Scan the text and find definitions of the following terms: cost-plus pricing, competitive pricing, value pricing. Give their Russian equivalents.

Three Pricing Strategies

There are three basic pricing strategies: cost-plus pricing, competitive pricing, and value pricing.

In cost-plus pricing, you look at the cost of what you sell-that is, the total marginal cost–then add on the profit you need to make. That’s your price. Cost-plus means “cost plus profit.”

This method of pricing is straightforward and ensures that you will make money on what you sell. Unfortunately, it does not ensure that you will sell it. The success of this pricing strategy depends on targeting a “reasonable” profit and controlling your costs. It also depends on not being under-priced by a competitor.

A competitive pricing strategy aims to price the product at the lowest price among all recognized competitors. Low prices are one way to compete effectively, and sometimes competitive pricing is essential. For instance, in an industry selling a commodity, the outfit with the lowest price will usually succeed. That’s because when the products themselves are not differentiated, price becomes the differentiating factor.

Competitive pricing is not just for commodities. In retail, for example, portable CD players are not a commodity, but once a customer has decided she wants to buy one, price will play a big role in which type she buys. So competitive pricing is common in retailing. In fact, some retailers offer to beat any other advertised price.

In general, the success of a competitive pricing strategy depends on achieving high volume and low cost – preferably the lowest in the industry – so you can maintain the lowest price and still make a profit. Success also depends on avoiding a destructive price war.

A value pricing strategy is the alternative to basing your prices on your costs or your competitors’ prices. Instead, you base your prices on the value you deliver to customers. In this strategy, you deliver as much value as possible to your customers – and charge them for it. With this strategy, you charge a high price and justify it by delivering high value.

Value pricing is common in high technology and luxury items, such as clothing, restaurants, and automobiles.

In practice, a business considers all three pricing strategies. You have to consider you costs, or your profits will suffer. You have to consider your competitor’s prices, even if you’re not competing on price. You must consider the value you deliver because no matter what you sell, customers want value for their money.

Ex. 1.According to the text

1. A cost plus profit pricing is

a. a straightforward method;

b. a method that ensures that you will make money on what you sell;

c. a method that includes total marginal cost and profit you need to make;

d. all of the above.

2. A competitive pricing strategy aims

a. to beat any other advertised price;

b. to price the product at the lowest price among all recognized competitors;

c. to compete effectively;

d. all of the above.

3. A value pricing stratage suggests that you should base your prices on

a. your costs and expenses;

b. your competitor’s prices;

c. the value you deliver to customers.

Ex. 2. Speak on the following issues:

1. Advantages and disadvantages of cost-plus, competitive and value pricing.

2. You own a business. What type of pricing would you prefer? Why?

Text 3

As you read the text, write a short heading for each paragraph.

Market Leaders, Challengers and Followers

In most markets there is a definite market leader: the firm with the largest market share. This is often the first company to have entered the field, or at least the first to have succeeded in it. The market leader is frequently able to lead other firms in the introduction of new products, in price changes, in the level or intensity of promotions, and so on.

Market leaders usually want to increase their market share even further, or at least to protect their current market share. One way to do this is to try to find ways to increase the size of the entire market. Contrary to a common belief, wholly dominating a market, or having a monopoly, is seldom an advantage: competitors expand markets and find new uses and users for products, which enriches everyone in the field, but the market leader more than its competitors. A market can also be expanded by stimulating more usage: for example, many households no longer have only one radio or cassette player, but perhaps one in each room, one in the car, plus a Walkman or two.

In many markets, there is often also a distinct market challenger, with the second-largest market share. In the car hire business, the challenger actually advertises this fact: for many years Avis used the slogan “We're number two. We try harder.” Market challengers can either attempt to attack the leader, or to increase their market share by attacking various market followers.

The majority of companies in any industry are merely market followers which present no threat to the leader. Many market followers concentrate on market segmentation: finding a profitable niche in the market that is not satisfied by other goods or services, and that offers growth potential or gives the company a differential advantage because of its specific competencies.

A market follower which does not establish its own niche is in a vulnerable position: if its product does not have a “unique selling proposition” there is no reason for anyone to buy it. In fact, in most established industries, there is only room for two or three major companies: think of soft drinks, soap and washing powders, jeans, sports shoes, and so on. Although small companies are generally flexible, and can quickly respond to market conditions, their narrow range of customers causes problematic fluctuations in turnover and profit. Furthermore, they are vulnerable in a recession when, largely for psychological reasons, distributors, retailers and customers all prefer to buy from big, well-known suppliers.

Ex. 1. Find words in the text which mean the following.

1) a company's sales expressed as a percentage of the total market;

2) short-term tactics designed to stimulate stronger sales of a product;

3) the situation in which there is only one seller of a product;

4) companies offering similar goods or services to the same set of customers;

5) a short and easily memorized phrase used in advertising;

6) the division of a market into submarkets according to the needs or buying habits of different groups of potential customers;

7) a small and specific market segment;

8) a factor which makes you superior to competitors in a certain respect;

9) a business's total sales revenue;

10) a period during which an economy is working below its potential.

Ex. 2. Which of the following three paragraphs most accurately summarizes the text, and what is wrong with the others?

First summary:

In most markets there is a definite market leader, with the largest market share, which frequently helps other firms to introduce new products. In many cases, there is also a market challenger, which wants to replace the leader, and various market followers, which seek out particular niches that do not interest the leader. Other followers merely imitate the products of larger companies, but this is a dangerous strategy during recessions.

Second summary:

In most markets there is a leader that strongly influences other firms in the introduction of new products, price changes, promotions, and so on. There is frequently also a market challenger, with the second-largest market share, which can attempt to increase its market share by attacking either the leader or some market followers. Market followers concentrate on profitable niche products that are in some way differentiated from the products of larger companies.

Third summary:

The first company in a particular market nearly always becomes the market leader, a position it will try to keep by regularly attacking distinct market challengers and followers. Most followers can either concentrate on small market segments or niches, or follow the safer strategy of imitating the leader’s products.

WRITING

Rearrange the following sentences and part-sentences to make up a short text about market concentration in writing. Follow the following guidelines:

– Begin with a paragraph containing arguments both against and in favour of monopoly.

– Continue with a paragraph defending or justifying market concentration.

– End with a paragraph arguing that monopolies are always short-lived, and so not a problem.

A. According to this position, the government only needs to ensure that there is no monopoly over important inputs, because there will never be a monopoly of scientific or artistic genius or business ideas.

В. According to this view, market concentration arises naturally from a few successful firms growing larger as a result of increased efficiency, innovation, and economies of scale in production, distribution, R&D, capital financing, and so on.

С. A counter argument is that erecting barriers – for example, by process innovation, product differentiation, persuasive advertising, or pricing policy – in order to be successful and to make competitors less successful, is a normal part of rivalry and competition.

D. Although some people argue that any barrier to competition will inevitably lead to inefficiency.

E. An example here would be telecommunications.

F. and businesses facing no competition have no incentive to find ways to reduce costs.

G. Even the profits made by a natural monopoly will be temporary, because they are an incentive for entrepreneurs to discover and implement new low-cost technologies.

H. For example, although entrepreneurs introduce new products and techniques and open up new markets, their profits are soon competed away by rivals.

I. it is right that inventors should be granted a temporary monopoly as a reward for innovation or discovery.

J. monopolists are always able to make excessive profits.

К Some people even argue that monopolies are always temporary and consequently not a problem.

L. The arguments against market concentration, or at least against monopoly, are obvious…

M. The only common argument in favour of monopoly concerns patents…

TRANSLATION

A. Translate from English into Russian.

Market

No matter how independent we may be in spirit, virtually none of us is self-sufficient. Our mutual interdependence for goods and services is a fact of life. We rely on others to satisfy our most basic needs. There is an incredibly complex division of labour and specialization in economic activities. Specialized firms and agencies make particular goods and services available to: consumers, investors and governments. Workers specialize in particular trades and occupations and this makes economic interdependence inevitable. The most common way we obtain goods and services is to buy them from others who specialize in producing them. To make such purchases, buyers seek out sellers in markets.

A market is an arrangement through which buyers and sellers meet or communicate for the purpose of trading goods or services. Markets are a way in which buyers and sellers can conduct transactions resulting in mutual net gains that otherwise wouldn't be possible. Many market transactions are conducted without buyers and sellers actually meeting at a particular location. For example, you can browse through catalogues or magazine advertisements to see what various sellers are offering. If you find something you like, you can order it by mail or telephone, without face-to-face contact with the seller. You can also hire an intermediary to carry out a transaction for you.

The purpose of a market is to make information available on the goods and services sellers are willing to sell and buyers want to purchase. This exchange of information is the basis for determining prices which in turn influence the actual amount of goods and services exchanged. Prices are a major determinant of the choices we make as both buyers and sellers. Market prices play a vital role in coping with the problem of scarcity because they ration available amounts of goods and services.

To analyze the way markets operate, we first must understand the concept of supply and demand. Supply and demand analysis explains how prices are established in markets through competition among buyers and sellers and how those prices affect quantities traded.

B. Translate from Russian into English.

1. Японские товары имеют репутацию высококачественных.

2. Главная забота отечественных производителей – повышение качества изделий.

3. Производитель гарантирует доставку товара в любую часть страны.

4. Внешний вид изделия имеет большое значение для его конкурентоспособности.

5. Изучение рынка очень важно для успеха в бизнесе.

6. Начиная новое дело, необходимо провести тщательное изучение рынка сбыта товаров и услуг.

7. Многие покупатели оценивают качество товара по его надежности и долговечности.

LISTENING

Listen to Kate Barker, an economist, talking about the causes of the business cycle.

Ex. 1. Answer the following questions.

1. When Kate Barker talks about the level of companies' investments, does she mean:

a) their financial reserves (deposited in a bank, or invested in treasury bonds, shares in other companies, and so on) or

b) the money they spend on their plant (i.e. factories, and the machines and equipment inside them)?

2. When she talks about the level of companies' stocks, does she mean:

a) their inventories of unsold goods, or

b) the current price of their shares at the stock exchange?

3. According to Kate Barker, what do companies tend to do:

a) when demand is very strong, and

b) when demand weakens a little?

4. According to the standard theory, when will companies begin to invest again after a downturn, and why?

5. What was the external or exogenous shock that caused the downturns in both the early 1970s and the early 1980s?

6. What were the two factors which led many European business people to invest too much in the late 1980s?

7. What was the exogenous shock that caused the downturn in the early 1990s?

SPEAKING

A. Dwell on the following issues:

1. What are the four basic categories of market structure?

2. What are examples of each basic category of market structure in the American economy?

3. What is monopoly characterized by?

4. What are characteristics of oligopoly?

5. What is monopolistic competition characterized by?

6. Speak about market leaders, challengers and followers.

B. Discussion Points:

1. Which firm is likely to be a price maker, a monopolist or a firm in perfect competition? Why?

2. How might firms in monopolistic competition compete with each other?

3. Why might oligopolists use promotion rather than price changes as the main form of competition?

4. Apart from those mentioned in the text, can you think of two more examples of:

(a) monopolistically competitive industries;

(b) oligopolistic industries?

VOCABULARY

acquisition n – приобретение

challenger n – претендент

competition n – конкуренция, соревнование

monopolistic ~ – монополистическая конкуренция

nonprice ~ – неценовая конкуренция

pure ~ – чистая конкуренция

facilities n – средства, оборудование

followern – последователь, сторонник

growth n – рост, увеличение

household n – дом, домашнее хозяйство

increase v – увеличивать, расти

limited adj – ограниченный

market n – рынок, сбыт

monopoly n – монополия

oligopoly n – олигополия

price n – цена

premium ~ – дополнительная цена

pricing n – ценообразование

competitive ~ – конкурентное ценообразование

cost-plus ~ – ценообразование по принципу «издержки плюс прибыль»

value ~ –

produce v – производить

product n – продукт

differentiated ~ – дифференцированный продукт

standardized ~ – стандартный продукт

production n – производство

reduce v – уменьшать, снижать

reduction n – спад

restriction n – ограничение

artificial ~ – искусственное ограничение

standardized adj – стандартный

stipulate v – обусловливать

substantial adj – значительный, существенный

~ barrier – существенный барьер

substitute n – заменитель

close ~ – близкий заменитель

sufficient adj – достаточный

GLOSSARY

· Monopoly is a single seller facing the entire industry demand curve. The monopolist sells a unique product, and extremely high barriers to entry protect it from competition.

· Barriers to entry that prevent new firms from entering an industry are (1) ownership of an essential resource, (2) legal barriers, and (3) economies of scale. Government franchises, licenses, patents, and copyrights are the most obvious legal barriers to entry.

· Monopolistic competition is a market structure characterized by (1) many small sellers, (2) a differentiated product, and (3) easy market entry and exit. Given these characteristics, firms in monopolistic competition have a negligible effect on the market price.

· Oligopoly is a market structure characterized by (1) few sellers, (2) a homogeneous or a differentiated product, and (3) difficult market entry.

· Oligopolies are mutually interdependent because an action by one firm may cause a reaction from other firms.

THE GLOBAL ECONOMY

INTERNATIONAL TRADE

DISCOVERING CONNECTIONS

Consider the clothes and shoes you are wearing, and those you wore last weekend. Where were they made? Try to recall the meals you’ve eaten in the last 24 hours. How much of the food came from abroad? If you have them, where do your car, television, stereo, camera, watch, and so on come from? Where was the last DVD or CD you bought manufactured?

Can you even imagine living in a country that did not import anything, where only locally produced food and textiles and products were available?

READING

Text 1

As you read the text, focus on the difference between absolute and comparative advantages and pay attention to trade restrictions.

International Trade

Since ancient times people have strived to expand their trading as far as technology allowed.

Today, container ships laden with cars and machines and Boeing 747s shuttled with fresh fruit, fresh New Zealand lamb, and French cheeses ply the sea and air routes, carrying billions of dollars worth of goods and services. Trade in goods such as food, raw materials, and manufactured goods is known as visible exports and visible imports. Trade in services such as banking, insurance, and tourism is known as invisible exports or invisible imports. So why do people go to great lengths to trade with those in other nations?

International trade is a form of specialization.Sri Lanka specializes in tea because it has an appropriate climate and soil, and skilled growers and packers. The principle is just the same as individual specialization: Jill specializes in math teaching because she is good at math and at dealing with people, Jack specializes in dentistry because he understands the biology and is deft with his hands. Of course, it is important for both that there is demand for what they are offering.

Economic theory distinguishes between absolute advantageand comparative advantage.

Absolute advantage is the ability of a country to produce a good using fewer resources than another country.

Comparative advantageis a bit harder to understand, but more important fortrade.The principle of comparative advantageis a central concept in international trade theory which holds that a country or a region should specialize in the production and export of those goods and services that it can produce relatively more efficiently than other goods and services, and import those goods and services in which it has a comparative disadvantage.

Comparative advantage is the ability of a country to produce a good at a lower opportunity cost than another country.Comparative advantage refers to the relative opportunity costs between countries of producing the same goods. World output and consumption are maximised when each country specialises in producing and trading goods for which it has a comparative advantage.

The majority of economists believe that international trade should be based on comparative advantage and free trade. Free trade is a system which allows certain countries to buy and sell goods from each other without any financial restrictions. In practice, despite the advice of economists, every nation protects its own domestic producers to some degree from foreign competition. Behind these barriers to trade are people whose jobs and income are threatened, so they clamour to the government for protectionism. Protectionism is the government’s use of embargoes, tariffs, quotas, and other restrictions to protect domestic producers from foreign competition.

Embargoes are the strongest limit on trade. An embargo is a law that bars trade with another country. For example, the United States and other nations in the world imposed an arms embargo on Iraq in response to Iraq’s invasion of Kuwait in 1990.

Tariffs are the most popular and visible measures used to discourage trade. A tariff is a tax on an import. Tariffs are also called customs duties. Historically, these provided revenue to governments when taxes were not easily collected from other sources. Modern tariffs are usually imposed for a different reason: to shut out (or add to the price of) certain imports in order to protect home producers from foreign competition. An obvious example is the protectionist policy used by European Union for many agricultural products. The current US tariff code specifies tariffs on nearly 70 percent of U.S. imports. A tariff can be based on weight, volume, or number of units.

Another way to limit foreign competition is to impose a quota. A quota is a limit on the quantity of a good that may be imported in a given time period. For example, the United States might allow 10 million tons of sugar to be imported over a one-year period. Once this quantity is reached, no more sugar can be imported for the year. Quotas can limit imports from all foreign suppliers or from specific countries. Like all barriers to trade, quotas invite other nations to retaliate with more measures to restrict trade. With tariffs, it is impossible to know the quantity that will be imported, because prices might be elastic. With quotas, governments can set a limit to imports. Yet unlike tariffs, quotas provide no revenue for the government.

Vocabulary Focus

Ex. 1.

export: /’ekspo:t/ or /ik’spo:t/?

1. Look at these words. Where is the stress when the word is used as a noun and when it is a verb?

2. Fill the gaps with one of the words in its correct form.

a. Scotland _____ a lot of its food from other countries. Its _____ includes oil, beef, and whisky.

b. I’m very pleased with my English. I’m making a lot of _____.

c. Ministers are worried. There has been an _____ in the number of unemployed.

d. But the number of crimes has _____, so that’s good news.

e. How dare you call me a liar and a cheat! What an _____!

f. There was a demonstration yesterday. People were _____ about blood sports.

g. People usually buy CDs these days. Not many people buy _____ any more.

h. Don’t touch the video! I’m _____ a film.

i. Britain _____ about 75% of its own oil.

Ex. 2.Match the following common collocations with their Russian equivalents:

Ex. 3.Match the words in column A with their synonyms in column B.

Ex. 4. There is a logical connection among three of the four words in each of the following groups. Which is the odd one out, and why?

1) absolute advantage – barriers – comparative advantage – free trade

2) balance – deficit – dumping – surplus

3) banking – insurance – merchandise – tourism

4) comparative advantage – protectionism – quotas – tariffs

5) non-tariff barriers – norms – quotas – taxes

6) barter – import substitution – infant industries – tariff barriers

7) liberalize – protect – subsidize – substitute

Ex. 5. Match each headword on the left with a set of examples on the right.

Comprehension

Ex. 1.Based on your understanding of the text, are the following TRUE or FALSE? Explain why.

1. International trade is a form of specialization.

2. Comparative advantage is the ability of a country to produce a good using fewer resources than another country.

3. Protectionism is the government’s use of embargoes, tariffs, quotas, and other restrictions to protect domestic producers from foreign competition.

4. Tariffs are the strongest limit on trade.

5. Embargoes are the most popular and visible measures used to discourage trade.

6. Tariffs provide no revenue for the government.

Ex. 2. Find in the text the answers to the following questions.

1. What is the basis for trade between nations? Why does international trade bring gains to all countries?

2. What’s the difference between absolute advantage and comparative advantage? Which of them is more important for international trade? Why?

3. What encourages governments to impose tariffs and quotas?

4. What’s the difference between embargoes, tariffs and quotas? Which of them provides revenue for the government? In what way?

5. What are the ways of liberalizing international trade?

Ex. 3.Write questions, relating to the text, to which these could be the answers.

1. People have strived to expand their trading as far as technology allowed.

2. A form of specialization

3. The ability of a country to produce a good using fewer resources than another country.

4. The ability of a country to produce a good at a lower opportunity cost than another country.

5. Tariffs are.

6. Unlike quotas they produce revenue.

7. So-called safety norms, and the deliberate creation of customs difficulties and delays.

Ex. 4.Speak on:

1. the international trade as a form of specialization.

2. the principle of comparative advantage and its role in international trade.

3. trade restrictions.

Text 2

While reading the text state the economist’s case for free trade. Explain the existence of artificial barriers to international trade.

Не нашли, что искали? Воспользуйтесь поиском по сайту: