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Text 4. About Economic Systems

For thousands of years human societies had very simple economies. There were no shops, markets or traders. There were no employers, paid workers or salaries. Today, this kind of economy is known as traditional and there are some remote corners of the world where this system is still alive. Like any other economic system, the traditional economy has its benefits and drawbacks. The biggest benefit is that these are peaceful societies.

Walking through a busy street market, it is hard to imagine that behind this noisy confusion lies a very logical economic theory - the market economy. The market economy or free market is not controlled in any way by the government. Ina free market, the only reason why things are bought and sold, is because there is a demand for them. The role of the company in the market economy is to supply customers with what they want. However, companies need an incentive to grow and develop, and there are only two ways of how to make a profit. The first way is to rise prices, while the second one is to reduce production costs which bring companies to competition and technology. Competition exists in a free market economy because theoretically anyone can be a producer. It means that companies have to compete with each other for a share of the market. As for technology, it is vital because producers need ways to reduce costs. Technology helps companies to produce more goods in less time and with less effort.

As for the planned economy, in many ways it is the direct opposite of the market economy. In the planned economy very step is decided by the government. One of the drawbacks of the planned economy is problems with supply. It is very difficult for governments to know exactly how much to provide to meet demand which leads to shortages. When shortages happen, governments. can do two things- ration goods or raise prices. In this situation people start hoarding things and the situation gets even worse. For this reason, countries with planned economy such as China are rapidly moving toward another system - the mixed economy.

In mixed economies privately owned businesses exist alongside state run industries. The economy is divided between the private the and state sector which includes industries that the government thinks are important and need protection from the risks of the free market. These could include public transport, hospitals, schools and large industries such as oil, steel or agriculture. They are sometimes called primary industries as they provide basic materials for manufacturers. State industries use money collected in taxes by the government. They do not need to compete with other companies and may turn into large monopolies and dictate there will to business. That is why many counties have started the process of deregulation which means freeing up the economy and to allow private businesses to compete with state-owned industries. Deregulation of such services as telecommunications, transport and banking is generally accepted by people. However, the public does not approve deregulation in education and health services, feeling that profit motivation will harm them rather than improve. Another way is to put limits on free enterprises and to ban trade of certain goods if they are dangerous. Governments may also regulate methods of production. They do this to guarantee that products are safe for consumers or to protect the environment.

Answer the questions:

1.What are the main features of the traditional economy?

2. What is the main principle of the market economy?

3.Why is completion vital for the market economy?

4. Why do companies have to develop technology?

5. What happens in countries with the planned economy?

6. What is the main drawbacks of the planned economy?

7. How do business and state industries function in countries with mixed economies?

8. What does the process of deregulation mean?

9.What type of deregulation is not accepted by public?

10. What other ways of state regulation can you name?


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