Human
beings need a number of things in order to survive: food, clothing,
housing. Economics is a science devoted to the study of everything
in relation to these necessary goods. The words economy
and Economics
come from the Ancient Greek οἶκος
(house) and νομός (norm, government).
Thinking
about money, work, how to get a place to live, how to make ends meet,
are often a source of anxiety for most people. Ethics,
as a discipline involved in human beings’ happiness and dignity,
must address these problems affecting so many people in such a deep
way.
As
Economics is a science devoted to the administration of necessary
goods, it is only of those goods that are scarce and need to be paid
for. If there were an endless supply of these goods then Economics
would be unnecessary. On the other hand, there are goods, like love
or talent, which are not economic goods, as they cannot be sold or
bought. We cannot sell or buy human beings either. Setting the
limits of economic and non-economic goods is one of the tasks of
Ethics.
Fundamentals
of Economics that all citizens should know
Economy
issues –money, work, savings, debts, businesses and mortgages- are
very important in our lives. It is therefore necessary that all
citizens have clear notions about how the economy works. Lots of
political debates both on TV and the press deal with these issues
and, if we do not understand them, then we cannot act as responsible
citizens.
What
is money?
It can be anything people want it to be –literally. It is easy to
think of money as pound notes or euro coins, but money is anything
that a majority of people can agree on as a means of exchange. If
enough people in one town are willing to accept doughnuts as money,
then doughnuts are money -at least for the people in that town. They
might run into trouble when they try to spend those doughnuts in
other towns, however.
Before
coins or paper money, people exchanged (traded) fish for stone tools
or leather goods for wood. This method of exchanging one thing for
something else is called barter.
It is still in use today: Sue might agree to fix David’s electrical
wiring if David agrees to figure Sue's income tax. They've exchanged
services, not goods, but they've still bartered.
The
difference between barter and money is the situation. Money can be
used in most situations; in the case of barter, each individual must
have something to exchange that the other individual needs or wants.
Sue and David can agree to swap electrical work for accounting, but
Harold, another accountant, might insist on being paid in dollars and
cents. Harold may not need any electrical work done, and he can spend
dollars anywhere.
Supply
and Demand
Two
of the most basic concepts in Economics are supply
and demand.
These are really two separate things, but they are almost always
talked about together.
Supply
is how much of something is available. For example, if you’ve got
9 CDs, then your supply
of CDs is 9. If you’ve got 6 apples, then your supply
of apples is 6.
Demand
is how much of something people want. It sounds a little bit harder
to measure, but it really isn’t. To measure demand
we can use a very simple numbering system, just like the supply
one. If 8 people want CDs, then we can say that the demand
for CDs is 8. If 6 people want apples, then we can say that the
demand
for apples is 6.
Did
you notice that the CDs supply
was one more than the CDs demand?
Did you also notice that the apples supply
was equal than the apples demand?
We’ll get to that in a minute.
Let’s
see how supply and demand in a market interact to determine how much
of something is sold and bought, and what the price is.
The
crucial ideas are that supply and demand are determined separately.
The sellers determine the supply. The buyers determine the demand. In
a free competitive market, the price of whatever it is moves up or
down until the amount supplied equals the amount demanded. When the
price stops moving, you have what is called equilibrium.
Excess
demand is the amount demanded minus the amount supplied. If excess
demand is negative, the amount supplied is bigger than the amount
demanded, and you have excess supply.
Excess
demand and excess supply are important because they encourage
competition that tends to make the price change. Excess demand tends
to induce competition among the buyers that forces prices up. Excess
supply tends to induce competition among the sellers that forces
prices down. Equilibrium is reached when there is no tendency for the
price to move either way. At equilibrium there is no excess demand or
excess supply.
Higher
demand makes both the price and the quantity sold go up. Lower demand
makes both the price and the quantity fall. Also, when price falls,
demand increases.
This
continues to happen until, the quantity supplied equals demand. This
method generally works for most commodities, because the suppliers
could store the commodity for future use. Also the general assumption
is that at a price of 0 (dollars, euros or pounds), the demand is
infinite.
COMPREHENSION
ACTIVITIES
What
is Economics?
Where
do the words economy
and Economics
come from?
Explain
the relationship between Ethics and the economy.
What
is the task of Ethics in the field of Economics?
What
was the economic method before the invention of money? How does this
method work? Do people still use this method nowadays? Give an
example.
Explain
the concepts of supply
and demand
in your own words and give examples.
Explain
the concept of equilibrium.
Give
an example of how at
the price of 0, the demand is infinite.
State
capitalism vs. free market
A
free market is a market structure in which the distribution and costs
of goods and services, wage rates, interest rates are coordinated by
supply and demand with no external regulation or control by
government or monopolies. A free market contrasts with a controlled
market or regulated market, in which government policy intervenes in
the setting of prices. An economy composed entirely of free markets
is referred to as a free-market economy. It can also be called
liberal economy or free capitalism.
For
much of the past 40 years, the long-running, 20th-century contest
between state and market had appeared settled. The strong,
post-Reagan economic performance of the U.S. based on deregulation
and free market appeared to confirm the virtues of liberal economic
policies, while the collapse of the Soviet Union and the capitalist
revolution in China proclaimed the death of state-dominated systems.
Free capitalism had emerged a clear winner.
Or
so it seemed. After the 2008 financial crisis, the debate over the
proper role of the state in a modern economy has been reopened. In
the U.S., President Barack Obama promotes more active government
policy to create jobs. In Europe, politicians are grappling with how
to regain competitiveness through liberalisation while still
maintaining the extensive social protection of their welfare states.
There
appears now to be a crisis of capitalism because our economic model
cannot produce sustainable growth, adequate income or employment
creation.
Emerging
markets like China, however, have generally maintained their growth
despite the devastating global downturn. So as the market economies
of the West fail, some have asked if “state capitalism,” that mix
of market forces and state control, can produce better economic
results.
Mixed
economy is an economic system in which both the state and private
sector direct the economy, reflecting characteristics of both market
economies and planned economies.
Unlike
in a free-market economy, the government would have considerable
indirect influence over the economy through fiscal and monetary
policies designed to counteract economic downturns and capitalism's
tendency toward financial crises and unemployment, along with playing
a role in interventions that promote social welfare.
In
Spain there is a mixed economy and it is recognised as such in our
Constitution.
Businesses
and Ethics: Social Responsibility
Over
the past few decades, social responsibility has become an
increasingly important topic of discussion in all aspects of life in
the United States. Although nearly everyone has an intuitive idea of
what it means to be socially responsible, there is no hard and fast
definition of this term. Normally, people try to be socially
responsible by doing what they think is the most beneficial to others
in a given situation. For an average individual, practicing social
responsibility could mean recycling, picking up after your dog,
driving a fuel efficient car or taking public transportation whenever
possible, or being honest with others.
Social
responsibility extends beyond individuals to larger entities like
businesses. Social responsibility is becoming more and more important
in the business world these days, both because socially responsible
actions are the right action and because businesspeople are finding
that social responsibility is profitable. In many cases, consumers
and investors alike are more likely to support companies who have a
reputation for being socially responsible. Thus, large companies who
pursue socially responsible courses of action could end up on top in
competitive markets.
Investors
and consumers alike are interested in making sure that the companies
they support are doing the right thing for the environment and for
society.
Some
organisations like Greenpeace keep watch over businesses who do not
comply with environmental regulations. Greenpeace campaigns are very
strong and can make big corporations rectify.
The
World’s Greatest Problems
In
a survey carried out by Eurobarometer EU citizens were asked to rank
which problem they thought constituted the biggest threat to the
world. The survey was conducted in June 2011 and it shows the top 10
biggest problems in the world for Europeans. Here is what they were
most concerned about:
Number
10- Not a Clue
Two
percent of the people surveyed said they're still thinking about what
the world's biggest problem is. They answered that they simply didn't
know.
Number
9 - Proliferation Of Nuclear Weapons.
Three
percent of the EU considered the proliferation of nuclear weapons the
one thing that is going to bring the world to destruction. The
numbers seemed to be higher in South-East Europe, with Cyprus,
Bulgaria and Greece among the most concerned.
Tied
Number 7 - Armed Conflict
Four
percent of the EU believe that war is the biggest problem. The fear
is highest in the Balkans, with Bulgaria the most concerned nation.
Latvians and Estonians are also fearful.
Tied
Number 7 - Spread Of Infectious Disease
Four
percent are terrified that a global epidemic will wipe out mankind.
The Czech Republic and neighbouring Slovakia are the countries most
concerned.
Number
6 - The Increasing Global Population
Five
percent of the EU believe there is not enough room in this world for
everyone. Scandinavia is particularly concerned about population
growth with Sweden being the most afraid nation.
Number
5 - Availability Of Energy
Seven
percent of Europe fears a global blackout. The concern about the
availability of energy was expressed most vigorously in Germany and
Italy. It is no coincidence that they are two nations that make some
of the world's finest automobiles.
Number
4 - International Terrorism
Eleven
percent are most fearful of an international terrorist threat.
Bulgarians seem the most concerned about an attack, while Denmark,
Czech Republic and Slovakia are also very afraid.
Number
3 - The Economic Situation
It
is surprising that this is not at the top of the list. Only 16
percent of Europe believes that the globe's economy is its single
biggest problem today. Less surprising is that Greece is the most
concerned European nation when it comes to economic matters.
Number
2 - Climate Change
Twenty
percent of Europe think that climate change is the world's biggest
problem. Sweden and Luxembourg were the most concerned nations, but
the Portuguese have other problems; only seven percent of Portugal
thought climate change was a global issue.
And
Number 1 - Poverty, Hunger And Lack Of Drinking Water
Twenty-eight
percent of the EU said that poverty, hunger and lack of drinking
water represented the biggest problem for the world.
ACTIVITIES
Explain
the difference between free market and state market.
What
type of economy is the Spanish one? Give details.
State
three things you can do to act as a responsible citizen.
Write
a composition about the problems in the world that worry you the
most (100 words).
CHECK
YOUR NEW VOCABULARY
Form
full sentences using the words below:
Economics,
supply, demand, savings, debts, mortgage, barter, commodities,
free-market, mixed economy, state-dominated system, sustainable
growth, welfare states, income, unemployment, social responsibility,
recycling, fuel efficient, profitable, consumers, investors, nuclear
weapons, climate change, global issues.
