Four main elements make it possible for nations to produce goods and services. These elements, called productive resources, are natural resources, capital, labor force and technology. Economists define natural resources as all land and raw material, such as mineral, water and sunlight. Capital includes factories, tools, supplies and equipments. The word capital also means the money that can be used to buy these things. Labor force means all people who work or are seeking work, and their education and skills. Technology refers to scientific and business research and inventions.
In order to grow, a nation’s economy must add to its productive resources. For example, a nation must use some of its resources to build factories, heavy equipments and other capital goods. Then these capital goods can help produce more goods in the future. A nation also must locate and develop additional natural resources, create new technologies, train scientists, workers and business managers, who will direct future production. The knowledge of these people is known as human capital.
In this section we discuss how the markets and the governments deal with three economic issues (the decisions about what, how and for whom to produce) to make use of its resources to better satisfy the social demands and push up the economic growth.
The role of the market
A market is a shorthand expression for the process by which households’ decisions about consumption of alternative goods, firms’ decisions about what and how to produce, and workers’ decisions about how much and for whom to work are all reconciled by adjustment of prices. Prices of goods and resources, such as labor, machinery and land, adjust to ensure that scarce resources are used to produce those goods and services that society demands. Adjustments in prices would encourage society to reallocate resources to reflect the increased scarcity of any item.
In an economy like the United States, most economic decisions flow through markets, which are arrangements by which buyers and sellers set quantities and prices for commodities. Adam Smith proclaimed that the invisible hands of markets would lead to the optimal economic outcome as individuals pursue their own self- interest. And while markets are far from perfect, they have the virtue of solving the problem of how, what and for whom.
The market mechanism works as follows: When people demand more of a good, a competitive business can make a profit by expanding production of that good. Under perfect competition, a business must find the cheapest method of production, efficiently use labor, land and other factors; otherwise it will incur losses and be eliminated from the market.
At the same time that the what and how problems are being resolved by prices, so is the problem of for whom. The distribution of income is determined by the ownership of factors of production and by their prices – wages of each kind of labor, rents of land, royalties of books, and various returns to capital. People possessing fertile land or the ability to hit home runs will earn more money to buy consumer goods. Those without property or education and with skills, age and sex that the market does not value will receive low incomes.
The role of the government
In every society governments provide such services as national defense, police, firefighting services, building of highway network, support of science and healthcare, and administration of justice. These are the economic activities – conveying large or small benefits to the community – that can not efficiently be left to private enterprises. Private provision of these public goods will generally be insufficient because the benefits of the goods are so widely dispersed across the population that no single firm has an economic incentive to provide them.
In addition, governments make transfer payments to some members of society. Transfer payments are payments made to individuals without requiring the provision of any service in return. Examples are social security, retirement pensions, unemployment benefits, and, in some countries, food stamps. Government expenditure is chiefly financed by imposing taxes, although some (small) residual components may be financed by government borrowing.
Governments spend part of their revenue on particular goods and services such as tanks, schools and public safety. They directly affect what is produced. Governments affect for whom output is produced through their tax and transfer payments. By taxing the rich and making transfers to the poor, the government ensures that the poor are allocated more of what is produced than would otherwise be the case; and the rich get correspondingly less. The governments also affect how goods are produced, for example through the regulations it imposes. Managers of factories and mines must obey safety requirements even where these are costly to implement, firms are prevented from freely polluting the atmosphere and rivers, offices and factories are banned in attractive residential parts of the city.
The scale of government activities in the modern economy is highly controversial: some governments take a larger share, others a smaller share. Some people believe that a large government sector makes the economy inefficient, reducing the number of goods that can be produced and eventually allocated to consumers. If large-scale government activity leads to important disincentive effects, government activity will affect not only what, how and for whom goods are produced, but also how much is produced by the economy as a whole.
However, according to the modern economists’ general view, the interference by the government in the market failures, in which the invisible hands of the market guides poorly, is essential to ensure economic effectiveness, social equality and stability.
What are productive resources?
What is necessary for a nation’s economic growth?
How are households’ decisions on what to buy reconciled?
Why do prices adjust?
What problems do markets and prices solve for society?
What are the services provided by the Government?
By which way does the government affect three economic issues?
In your opinion, are there any disadvantages of the large-scale interference by the government in the economy?
Use of English
Read the text below and find the right word or phrase from the box to fill each of the gaps.
property public organizations economics norm
customs frame change right implications
The economics of institutions. What do institutions mean here? The definition of an institution is currently much debated within (1)…….. institutions can be understood to include:1.Oganizations whose behavior strongly influences economies and economic (2)……..: for instance companies, households, (3)………services organizations, and government bureaucracies; 2.Social (4)……., rules, habits, (5)……… and routines-that is stable, shared and understood patters of behavior with economic (6)……….; 3.Legal (7)…….. works and constraints, such as the laws of the (8)……… and contract, together with the pattern of property (9)……..they protect. When we think of an “institution”, (10)………. and public building tend to come to mind. In economics, as you can see from the definition, the word has developed a broader meaning.
Translate the following text into English paying special attention to standard use of terms and clarify of expression.
Thành quả kinh tế
Kết quả thực hiện của một hệ thống kinh tế được ghi nhận bằng các dữ liệu vĩ mô.Các dữ kiện này chú trọng vào các luồng chu chuyển của thu nhập và sản xuất trong nền kinh tế nói chung.
Một hệ thống kinh tế bao gốm các tổ chức điều tiết thị trường, các tổ chức điều hành tác nghiệp trên thị trường và quần chúng xã hội. Như vậy, kinh tế có nghĩa là công tác thực hiện các chính sách của chính phủ về kinh tế cũng như về chính trị và xã hội. Các chính sách này được áp dụng để kiểm soát tình hình các thị trường trong một quốc gia.
Mục đích của các chính sách quản lý vĩ mô là thực hiện được các mục tiêu sau:
- mục tiêu tăng trưởng sản lượng quốc dân, tăng thu nhập và tăng cơ hội tạo việc làm.
- mục tiêu cải thiện mức sống qua các hoạt động về an ninh xã hội.
- mục tiêu bảo đảm sự phát triển ổn định về chính trị và kinh tế.
Các mục tiêu trên quan trọng đến nỗi chúng trở thành các vấn đề chính trị gây tranh cãi sôi nổi trong nội bộ một nước và cả trong quan hệ giữa các nước với nhau.