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Occurrence and development of economic idea.
2. The subject and the methods of the economic theory.
Structure and functions of economic theory
Hence, the relation of the greatest possible income to minimally necessary charges, - the universal logic of actions of each participant of market economy is those.
Problem of efficiency — the basic problem of the economic theory which investigates ways of the best use or applications of rare resources to reach the greatest or greatest possible satisfaction of boundless requirements of a society (the purpose of manufacture).
Thus, the economic science is a science about efficiency, about an effective utilization of rare resources.
Economic efficiency characterizes connection between quantity of units of rare resources which are applied during manufacture, and quantity of any product received as a result of this process. A lot of the product received from the given volume of expenses, means increase of efficiency. The smaller volume of a product from the given quantity of expenses specifies decrease in efficiency.
Each economic agent aspires to use rare resources effectively. They try to receive a maximum quantity of the useful goods and the services made of limited resources. To achieve this purpose, the society should, completely use (completely to occupy) the resources and thus to ensure the most probable volume of manufacture.
For this purpose should be used only suitable resources. The legislation or customs can define age borders of application of work of youth and aged. For preservation of fertility of the grounds of them it is necessary to deduce periodically from a revolution (to leave under the ferry).
Resource-technological and other restrictions including ecological, regard as of paramount importance a problem of manufacture optimum in the economic plan of quantity of the goods and services.
The basic economic problems facing to a society:
The main economic task is the choice of the most effective variant of distribution of factors of manufacture with a view of the decision of a problem of limitation of opportunities which is caused by boundless requirements of a society and limitation of resources. Any society should find answers to the following three questions:
- What among the goods and services should be made and, in what quantity?
- How these goods and services should be made?
- Who will receive and can consume (to use) these goods and services?
What to produce? The person can receive any goods various ways: to make them it is independent, to exchange for other things, to receive them as a gift. The society as a whole cannot receive all and immediately. By virtue of it should be defined, that would like to have immediately, with reception of that it is possible to wait, and what — in general to refuse.
The developed countries, for example, apply many efforts to improvement of manufacture of the limited circle of the goods for achievement of the certain success in competitive struggle against other countries. It can be automobiles, the COMPUTER or other goods.
How the goods and, service should be made? There are various variants of manufacture of all set of the blessings, and also each blessing separately. Whom, from what resources, with the help of what technology they should be
made? By means of what organization of a national facilities?
It is possible to construct industrial and a residential building under different projects, it is possible to let out automobiles, to use a site of the ground under different projects. The building can be both multi-storey, and one- storied the automobile it is possible to collect on the conveyor or manually, the site of the ground can be sowed corn or wheat.
For whom the product is made? As the quantity of the created goods and services is limited, there is a problem of their distribution. Who should use these products and services, to take utility? Whether all members of a society should receive an identical share, or should be poor and rich what share of those and others should be? To that the priority — to intelligence or physical strength should be given? The decision of the given problem defines the purposes of a society, stimulus of its development.
Theme 3:
Market system: essence and tendency of development.
Bases of a market economy.
What that public mechanism which forces the worker performs the work necessary for satisfaction of public requirements, and with high quality and efficiency?
It is a problem can be solved only by two essentially different ways.
The first (administrative) assumes a management of economy from the uniform center. Behavior of the worker to have to management with the help of direct commands from the given center which points the worker what to do, in what quantities where and on what price to deliver.
Historical practice has shown, that creation of such simple and rationally arranged mechanism, meets uncertain difficulties. The way of the second (Market) is based on system of economic stimulus which proceed not from supervising body, and from the consumer.
Thus, as means of coordination of work in this system a commodity monetary relations and a competition act.
The centralized economy has proved the ability to give positive results in extreme conditions. Extensive development of administrative economy allowed to provide what that time full employment, the stable prices, confidence of the ordinary person of tomorrow's day.
The administrative economy is unable to solve the problems connected with effective utilization of technical progress.
The situation in market economy looks completely different. This system is based on a principle: to reach the maximal result at the minimal expenses. To this pushes conditions of competition, aspiration to bypass the contender, having offered on the market more high quality goods and under lower price. The market system was formed during several thousand years as a result of gradual decomposition of a subsistence economy.
As the market economy has arisen not at once, in an economic history of a society it is possible to allocate three steps of development: "manufacture", "economy", "market economy".
* manufacture. This empire of "subsistence economy" - closed social unit in which manufacture directly developed into consumption. (family, country, communal)
* economy. Transition from "manufacture" to "economy" is marked transformation of redistribution into an exchange. An exchange equivalent in exchanging products of work between economically detached manufacturers connected by divisions of labor.
Only such exchange transforms products of work into "goods", and an exchange in "market".
* market economy means a quantum leap in an economic history of mankind. The manufacturer (seller) is not yet the market. Those who becomes only with the advent of a free choice of the consumer benefit of the buyer having an opportunity.
The market economy is not an ideology but a set of time- tested practices and institutions about how individuals and societies can live and prosper economically. Market economies are, by their very nature, decentralized, flexible, practical and changeable. The central fact about market economies is that there is no center. One of founding metaphors for the private marketplace is that of the “invisible hand”.
Market economies may be practical, but they also rest upon fundamental principle of individual freedom: Freedom as a consumer to choose among competing products and services; freedom as a producer to start or expand a business and share its risks and rewards; freedom as a worker to choose a job or career, join a labor union. It is this assertion of freedom, of risk and opportunity, which joins together modern market economies and political democracy.
The market economy has proved that it does not have alternative at the decision of the main economic problems.
At first, the market has provided interrelation of manufacture and consumption.
In the second guarantees a public estimation of results of work of the detached manufacturers. The aspiration as can be sold more favorably forces manufacturers (sellers) and consumers constantly to support « the market form ».
In the third market creates conditions for high production efficiency. This is promoted by (universality) of a competition. Wins the one who has better guessed changes of a consumer demand, has faster applied new technologies and the equipment, has lowered production costs.
Studying of market system is logical for beginning with it as « ideal model ». Such model has received in the western economic science the name « the perfect competition ».
First of them will be, that employment by enterprise activity should be open for any interested person. Each person has the right to become the businessman in this or that form.
The second condition consists in absolute mobility, mobility of all kinds of resources (material, financial, labor).
The third condition functioning of the free market will consist in free pricing. Free prices are "heart" of market system.
The fourth condition of the free market is made with absence of any kinds of monopolies and full freedom of a competition. In the market of each kind of the goods the limited quantity of manufacturers of sellers operates with nothing, is equal as buyers.
Market of conditions and market infrastructure.
Parameters of a condition of economy are so-called market conditions, a time situation describing conditions of manufacture and consumption during the certain period of time.
A conjuncture allows judging the following parameters:
- Dynamics (Changes) of manufacture and construction,
- Size of commodity stocks,
- Change of the prices, percent (interest), a rate of securities,
- Changes in a profit level, salaries and production costs,
- A parity between number occupied and the unemployed.
The economic conjuncture reflects influence of set of factors: cyclic, not cyclic, casual.
Cyclic factors, which force in regular intervals occurs within the limits of concrete period (cycle); Necessity periodically to update a fixed capital (the industrial equipment) in mass scales;
Non- cyclic factors rendering constant influence on economy (to them concern first of all scientifically technical progress).
Casual time, quickly passing factors (a drought, illnesses, and a fashion).
Improvements of an economic conjuncture usually achieve in several ways:
А) Regulation of scales of the investment;
В) Change of conditions and scales of investments;
С) Revision of a level tax and interest rates;
D) Regulation of size of monetary savings of the population.
The economic conjuncture always drew attention of participants of market economy as directly affected results of their commercial activity.
Today practically there are no such enterprises or the local market which would not study with the purpose of the forecast of changes of market conditions.
The scientific analysis of an economic conjuncture is capable to prevent many negative tendencies and forms an obligatory element of the mechanism of regulation of market economy.
Aggregations of thru institutes make an infra-structure of market economy. Classification o market infrastructure:
Elements of the given infrastructure possess very important ability quickly to react to the signals going from demand. It enables the market to cope operatively with arising disproportions and deficiencies in economy so to support in its necessary balance.
Credit market and valuable documents (securities)
credit market is a market o loan capital; its functioning is provided by means of banks, the insurance companies, the various funds, capable to mobilize free money resources and to transform them into credits.
Valuable documents (securities) there are two kinds of securities: shares and bonds. The share represents the certificate on a share of participation in the property of the company. It gives its owner the right on reception of a part there arrived the enterprises, named "dividend", and as on participation in its management. Bonds represent the credit document which is not allowing the owner to participate in operation of business, but the bringing firm pays before payment of dividends.
Essence and functions of money. The law of cost and its function.
Before primitive tribes there was rather uneasy task. As — in what exchange parities— one tribe occupied, animal industries, can correctly exchange the surpluses of meat formed at it for the grain which has been brought up by farmers. Originally there was no equivalent conventional by all (the equal goods at cost) with which help it is possible to measure cost of all other goods. Therefore the simple exchange of one useful thing for another was casual and disposable.
Later the goods began to be produced in the big variety. The owner of any goods could exchange it for some other useful products, each of which served him as an equivalent. However and in this case one thing tried directly exchange on other thing that not always arranged sellers and buyers. If, suppose, the owner of a fabric wanted to buy fur, and the dealer fur required meat the exchange became either impossible, or too inconvenient.
When manufacture and an exchange of the goods became regular in each country and in large economic regions the common equivalents — the most running products for which could exchange others utility have appeared in the local markets. For example, at Greeks and Arabs it was cattle, at Slavs — furs.
However international trade could not take into consideration various local equivalents, in result one was allocated — recognized with all peoples — a universal equivalent; money. For performance of a role of money more all suited gold — the precious metal possessing the big safety.
So, money — the special goods which is a unique universal equivalent. As gold became the conventional embodiment of cost, it began to act some kind of the standard — as a measuring instrument of cost of all goods.
With the advent of money the simple barter made under the formula
G1 — G2 (G1 and G2 — the different exchanged goods), have been replaced with the reference. The last has formula G1-ä-G2 (M — money). Money has turned to the irreplaceable and influential intermediary in an exchange of one blessing for another. With increase of the purchasing force of money could determine destiny not only commodity bodies, but also participants of commercial transaction.
Depending on character and orientations of public relations between people of money turn to surprising force.
The economic role of money is shown in their functions.
In conditions of the gold standard of money carry out the following functions:
* A measure of cost
* Means of the reference
* Means of accumulation
* Means of payment
* World money
Money, first of all, carries out function of a measure of cost — measure cost of all goods. The cost of a thing expressed in money, —its price. For definition of the price of products money are not required, as the seller of the goods establishes its price mentally (ideally expresses cost in money).
In function of means of the reference money resources represent itself as the intermediary in circulation which is made under the formula: G (goods) — M (money) —T (goods). In this case money are not late for a long time in hands of buyers and sellers and pass from hands in hands, carrying out examined function fleetingly. This circumstance has led finally to replacement of high-grade money defective.
If the seller has received for the goods of money, but did not begin to spend them for purchase of the things necessary to him process of the reference interrupts at once. Then money start to carry out function of means of formation of treasures: they collect as the representative of riches in general. Function of treasure carry out not only gold coins, but also ingots, products from gold — a monetary material in all its kinds.
At sale of the goods on credit (in a duty with a delay of payment) money carries out function of payment means. With them pay off for earlier got goods when there comes term of repayment of debts. In such role money resources are used and outside of sphere of the commodity reference in cases if the wages are paid, carried out any sort of financial obligations (under loans, under taxes, for rent of the ground or a premise, etc.).
In international trade function of world money is carried out: the last began to act in a role of a universal equivalent, in economic mutual relations of all countries. In the world market money resources dumped all « national uniforms » (monetary, paper and credit money of the separate states) and acted in the natural form, as ingots of gold. Gold was a measure of cost and was used in the world market as general means of payment. In commercial transactions between the countries the goods were realized by large wholesale sets and calculations were made mainly by offset of liabilities through banks.
Moving of money from one country in another occurs and when businessmen translate the money resources for their storage abroad. In this case money acts as public materialization of riches.
Theme №4:
Economical basis of Demand and Supply theory.
4. Elasticity of a supply and demand. Kinds of elasticity.
Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.
The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible. How? Let us take a closer look at the law of demand and the law of supply.
The Law of Demand
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.
A, В and С are points on the demand curve. Each point on the curve reflects a direct correlation between quantities demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C).