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Economy and Management (Экономика и управление)

III. Different Economic Systems

An economic system is a way of making economic choices and decisions. There are three basic economic systems: traditional, command and market.

An economic system of a country depends on who owns and controls basic resources and who makes the basic economic decisions. Developed countries have a mixed economic system.

Traditional economic system means that things are done the way they have always been done. The son does what his father did. Tools, land and equipment are owned by families or tribes. The basic decisions were made in the past. Goods and services are produced according to customs.

Traditional economy is stable; but there is no or little economic growth. Today traditional economies are common only among agricultural societies in Africa, Asia and Latin America.

In the command economydecisions are made by the central authority. Land and capital goods are owned and controlled by the central authority that is a king, a dictator or a single powerful political party. The basic economic decisions are made by central planners.

Power is in the hands of a few people who often abuse the power for their own benefits; individuals are not encouraged to develop new ideas and to work hard. The economies of the Soviet Union, Cuba and Northern Korea are examples of the command economy.

The Market Economy is the result of millions of buying and selling actions and decisions made by individuals (buyers and sellers). No one runs the Market Economy. A market is made up of people and actions. Buyers exchange money for a product or service.

Land and capital goods are privately owned.

The Market Economy started 200 years ago during the Industrial Revolution in England.

The Market Economy is made up of two markets: a resource market and a

product market.

In the resource market,the resources (labour, land, capital goods) are exchanged for money.

In the product market, products and services are exchanged for money.

The market economy is flexible and meets people’s needs. Individuals are free to work for their own interests. There is a wide variety of goods and services.

But the market economy is subject to ups and downs called business cycles.

Today most modern-day economies are Market Economies.

The mixed economic system is the combination of market and command economies. The mixed economic system has the basic features of the market economy. Most industry is privately owned but part of the economy (railroads, airlines) is publicly owned and operated by the government.

The government controls some parts of the economy to protect welfare of all its citizens. Almost every developed country has the mixed economic system.

make decisions – принимать решения

own – владеть

goods – товары

produce – производить

central authority – центральная власть

capital goods – основные средства

run – управлять, руководить

be privately owned – быть в частной собственности

be publicly owned – быть в общественной собственности

a resource market – сырьевой рынок

a product market – товарный рынок

welfare – благосостояние

IV. Forms of Business

There are three forms of owning business: sole proprietorship, partnership and corporation (company). Each has its advantages and disadvantages.

Sole proprietorships are owned and run by one person. It is easy to form sole proprietorship. An owner provides the capital, has complete control of the business, keeps all the profit or bears the loss. The owner is responsible for all debts. So if the business fails he or she has unlimited liability and can loose his or her personal assets. Sole proprietor­ships are usually small businesses (small shops, laundries, repair shops, beauty shops, etc.).

When a proprietor wants to expand a business, he can form a partnership. A partnershipis an association of two or more people to carry on a business for profit. People who run a business together and share the profits are partners.

There are two types of partnerships: unlimited partnerships and limited partnerships. Partnerships are easy to form and often get tax benefits from the government. Partners should not invest the same amount of capital, they can combine their resources. Partners may disagree with each other.

Partnership is a common form of owning business in professional fields such as accounting, insurance, real estate, stockbrokerage.

A corporation is an institution established for making profit. A corporation can own property, buy and sell, and manufacture products. A business corporation can issue and sell stock in exchange of investment capital. People owning stock certificates are called stockholders or shareholders. Stockholders have limited liability. If the corporation fails they can loose only their investments, but not the personal assets.

The corporation attracts a large amount of capital, and can invest it in plants, equipment and research. Business corporations may be public limited companies and private limited companies. A Public limited company offers its shares for sale to large number of people on the Stock Exchange. A Private limited company has a limited number of owners.

sole proprietorship – индивидуальное частное предпринимательство

owner – собственник, владелец

profit – прибыль

bear the loss – нести убытки

debt – долг

fail – потерпеть неудачу

have unlimited liability – нести неограниченную юридическую ответственность

personal assets – личное имущество

a proprietor – предприниматель

to carry on a business – заниматься бизнесом

get tax benefits – получать льготы по налогообложению

accounting – бухгалтерский учет

insurance – страхование

real estate – недвижимость

issue and sell stock – выпускать и продавать акции

stockholder (shareholder) – акционер

a public limited company – открытая акционерная компания     

a private limited company – закрытая акционерная компания

Stock Exchange – фондовая биржа