Income statement - баланс, балансовый отчет

Proceed - продолжать

Flow of money - денежный поток

Trading operations - коммерческие операции

Balance sheet - баланс, балансовый отчет

To list - перечислять

Assets - активы

Liabilities - пассивы, обязательства

To go through - тщательно разобрать

On the left -слева

Cash - наличность

To owe - быть должным

Customer - клиент

Accounts receivable - счета дебиторов, дебиторская задолженность

Inventories - товарные запасы

Warehouse - склад

Originally - первоначально

To be worth - стоить

To add up - складывать

On the right - справа

Accounts payable - счета кредиторов, кредиторская задолженность

Salary - заработная плата

Mortgage - закладная

To negotiate - совершать сделку

Insurance company - страховая компания

Bank loan - банковская ссуда

Shorter-term - краткосрочный

Cash needs - потребность в наличных деньгах

Debt - долг

Net worth - собственный капитал (предприятия)

Excess - избыток

To wonder - интересоваться

Shareholder - акционер

Take-over bid - предложение о покупке контрольного пакета акций компании

Prospects - перспективы

Growth - рост

Proven record - проверенная репутация

To bid - предлагать цену

Going concern - функционирующее предприятие

Customer loyalty - приверженность клиентуры

Intangibles - нематериальные активы

Goodwill - “цена” нематериальных активов фирмы, репутация фирмы

9.Прослушайте и постарайтесь понять текст В.

10.Напишите краткое изложение текста на русском языке.

11.Прочтите утверждения и выберите те, которые соответствуют содержанию текста Вх):

1) The income statement shows the flow of money during a given year.

2) The balance sheet lists the assets the firm owns and its liabilities.

3) The balance sheet gives us a picture of the firm during the whole time of its existence.

4) ‘Net worth’ of the firm is the excess of its assets over its liabilities.

5) Assets are what the firm owes and liabilities are what the firm owns.

6) Making a take-over bid you are buying not only the firm’s assets but also its goodwill.

III. Vocabulary to Text A

 

account	-	счет
accountant	-	бухгалтер
actual	-	фактический
advertising	-	реклама
advertising space	-	место для рекламы
after-tax profit	-	прибыль за вычетом налогов
to assess	-	облагать налогом
bound	-	обязательный
to build up	-	накапливать
business expenses	-	расходы предпринимателей
capital goods	-	недвижимое имущество компании, товары длительного пользования
cash flow	-	приток наличности
cash inflow	-	поступление наличности
cash outflow	-	расход наличности
to come (to)	-	составлять, равняться
complication	-	осложнение, затруднение
consequence	-	следствие
corporation tax	-	налог на прибыль компании
to denote	-	обозначать
depreciation	-	износ
durable goods	-	товары длительного пользования
entirely	-	полностью
equipment	-	оборудование
existence	-	существование
expenses	-	расходы
to flow in	-	поступать (о наличности)
to hire	-	нанимать
immediately	-	немедленно
income statement	-	балансовый отчет
to incur	-	нести расходы
initial cost	-	начальная стоимость
to lease	-	сдавать или брать в аренду
lorry	-	грузовик
loss of value	-	снижение стоимости
merely	-	просто
net amount	-	сумма нетто
net income	-	чистый доход
output supply	-	предложение продукции
outstanding bills	-	неоплаченные счета
payment	-	платеж
physical assets	-	основные фонды, недвижимое имущество компании
physical capital	-	основной капитал, недвижимое имущество компании
production process	-	производственный процесс
profit-and-loss account	-	балансовый отчет
to prosper	-	процветать
purchase price	-	покупная цена
rates	-	местные налоги
receipt	-	выручка
reduction	-	снижение
to rent	-	арендовать
to rent out	-	сдавать в аренду
rental	-	арендная плата
resale	-	перепродажа
set-up costs	-	учредительские расходы
to spread	-	распространять
subsequent	-	последующий
temporary	-	временный
to undertake	-	предпринимать
value	-	стоимость
viewpoint	-	точка зрения
wear-and-tear	-	износ

IV. Test

1. Выберите из колонки справа по смыслу слова, пропущенные в предложениях.

1) The firm’s costs are the ... incurred in producing goods or services. 2) Set up costs must be ... before revenues start to flow in. 3) The ... shows a flow of money during a given year. 4) Profitable firms have a poor ... when customers do not pay their bills immediately. 5) If the business ... revenues will eventually build up. 6) The net worth is a ... of firm to its shareholders. 7) The word ‘capital’ denotes goods not entirely ... in the production process during the period. 8) The cost during the period of using a capital good is the ... or loss of value of that good.

a) cash flow b) liability c) depreciation d) expenses e) assets f) income statement g) equipment h) incurred i) prospers j) used up

 

2. Выберите существительные, которые по смыслу могут следовать за данными глаголами:

1) to incur       a) incomes;                        b) assets;                        c) expenses.	2) to hire         a) workers;                        b) payments;                        c)goods.
3) to assess     a) bills;                        b) rates;                        c) nets.	4) to restrict    a) costs;                        b) effects;                        c) reasons.
5) to build up  a) activities;                        b) flows;                        c) revenues.

 

3.Выберите из приведенного списка термины, соответствующие данным определениям.

a) excess of revenues over costs; b) the amount a firm earns by selling goods or services in a given period; c) the expenses incurred in producing goods or services during a period; d) the net amount of money actually received during the period; e) goods not entirely used up in the production process; f) the loss in value resulting from the use of a capital good during the period; payment for hiring a good or service.

1. rental; 2. profits; 3. revenue; 4. cash flow; 5. costs; 6. physical capital; 7. depreciation.

 

Unit 10

I. Information for study.

 

Text A

Прочитайте следующую информацию и запишите на полях основные термины, связанные с тематикой текста.

 

DECISION MAKING IN BUSINESS

 

Businesses are DECISION MAKING units. The decisions that they make might include:

 

§ what to produce;

§ where to locate the premises;

§ what method of production to use;

§ what price should be charged;

§ what wages should be paid;

and many others.

 

 

Why do businesses make decisions? In each case above there are a number of choices a firm may make. For example, the choice might be to locate a new warehouse in Exeter, Plymouth or Torquay. This is an example of a strategic decisionbecause it can affect the profitability and survival of the business. Many of the day-to-day decisions taking by business are called tactical decisions. An example might be when and how much stock to order or the setting of sales targets. These short term control decisions are often repeated on a regular basis. A business may also make longer term control decisions, such as planning to employ extra workers in future to take changes in the economy into account.

Decisions made by firms often involve some risk. Strategic decisions are likely to involve the most risk. For example, the decision to sell a new product in a foreign country involves great risk as there are many factors that can affect its success.

Owners, managers and employees are involved in business activity. They will all make some decisions, although not of equal importance. Major decisions, such as the location of a new plant, will be maid by the owners. Less important decisions, such as the amount of time spent waiting for a delivery before making an enquiry, are likely to be maid by employees.

The size of the business can affect who makes decisions. In a small firm the owner will make most of the decisions because he or she is the person in control. Some decisions might be delegated if the owner trusts the employees. As a small firm expands, the owner might employ a manager to help run the business and take some responsibility for decision making. In very large businesses decisions are made at many different levels, by different people.

Decisions are often classified into three types.

Policy decisions. These are decisions about the general direction and overall policy of the business. They might be the decision to buy another company, the closure of a plant making a loss, or whether or not to launch a new product. These decisions are the responsibility of the board of the directors, who control the business on behalf of the shareholders. In small firms policy decisions are made by the owner, although such decisions are likely to be smaller, such as the opening hours of a local DIY store.

 

Management decisions. Management decisions or executive decisions determine how policy decisions are carried out. An example of such a decision might be deciding the best way to close a loss making branch. For example, should it be closed immediately, gradually, over period of time? Should the closure be negotiated or enforced? Could a management buy-out be considered? Management decisions should ensure that the policy decisions are carried out as efficiently as possible according to the general objectives of the company. Some management decisions might be taken by directors since some directors are also managers in the business.

 

Administrative decisions. Administrators are often office staff or supervisors, they act according to general company policy and under the direction of management. They will have responsibility for a number of tasks. These may require lower level decisions to be made such as the amount of time allocated to specific tasks or the choice of equipment. It is sometimes argued that the performance of employees can be improved be letting them become involved in decision making. This is said to improve motivation.

 A business makes decisions in order to achieve objectives. For example, it might decide to launch a new product in order to diversify. Decisions are made at all levels in a business and it is useful to have a flexible process which can be followed by all involved. Figure 6 shows the stages in the decision making process.

 

Figure 6 The decision making process

II. Exercises

1.Переведите текст на русский язык, используя словарь в конце урока.

2.Найдите в тексте ответы на поставленные вопросы и запишите их.

1) Why do businesses make decisions?

2) What is the difference between strategic and tactical decisions?

3) Who makes major decisions in business?

4) What kind of decisions are usually made by employees?

5) What kind of decisions are called policy decisions?

6) Give an example of a management decision. By whom is it taken?

7) Who may take administrative decisions?

8) Enumerate the stages of the decision making process.

3.К выделенным жирным шрифтом словам в тексте подберите слова, противоположные по значению, из следующего списка:

profitable, rigid, failure, to agree, long term, to neglect, to dismiss, strategic, minor, specific, employee

4.Найдите в тексте предложения, соответствующие по смыслу данным ниже, и запишите их.

1) Решение продавать новую продукцию в зарубежные страны связано с большим риском.

2) Стратегические решения влияют на рентабельность предприятия.

3) В маленькой компании большинство решений обычно принимает владелец.

4) При расширении фирмы владелец иногда нанимает управляющего, который принимает на себя ответственность за принятие решений.

5) Политические решения принимает совет директоров, который руководит предприятием от имени акционеров.

6) Управленческие решения должны обеспечивать как можно более эффективное выполнение политических решений в соответствии с общими целями компании.

7) Иногда говорят, что служащие будут лучше работать, если дать им возможность участвовать в принятии решений.

8) Решения принимаются на всех уровнях компании.

9) Повседневные решения, которые принимаются на предприятии, называются тактическими решениями.

10) Самые важные решения, например, решение о размещении нового завода, принимаются владельцем.

5.Образуйте существительные от данных глаголов. Переведите их.

to produce, to locate, to survive, to employ, to direct, to close, to execute, to motivate, to supervise, to own

6.Образуйте наречия от данных прилагательных. Переведите их.

immediate, gradual, efficient, equal, general, large, short, local

7.Изложите краткое содержание текста А на английском языке в письменном виде.

III. Vocabulary to text A

 

to argue	оспаривать, возражать
board of directors	совет директоров
branch	филиал
buy- out	выкуп доли в предприятии
to carry out	выполнять
closure	закрытие
day- to- day	повседневный
decision making	принятие решений
to delegate	поручить, передать полномочия
delivery	доставка
to diversify	разнообразить
to employ	принять на работу, нанять
employee	служащий
to enforce	принудить, заставить
enquiry	запрос
executive	руководитель
to expand	расширяться
extra	дополнительный
flexible	гибкий
gradually	постепенно
to launch	запустить в производство
level	уровень
likely	вероятный
to locate	разместить
location	местоположение, размещение
long term	долгосрочный
loss	убыток
management	управление, руководство
to negotiate	вести переговоры
objective	цель
official staff	конторский персонал
performance	работа, производительность труда
policy	политика
premises	производственные помещения
profitability	рентабельность
responsibility	ответственность
shareholder	акционер
stage	стадия, этап
stock	запас
supervisor	контролер
survival	выживание
to take into account	принимать в рассчет
to trust	доверять

 

IV. Test

 

1.Выберите из колонки справа по смыслу слова, пропущенные в предложениях.

1) The choice might be to … a new warehouse in Exeter, Plymouth or Torquay. 2) It might decide to … a new product in order to diversify. 3) The size of the business can affect who makes … . 4) An example of such s decision might be deciding the best way to close a … making branch. 5) A strategic decision can affect the profitability and … of the business. 6) As a small firm …, the owner might employ a manager. 7) The board of directors controls the business on … of the shareholders. 8) In small firms … decisions are made by the owner. 9) Some … decisions might be taken by directors are also managers in the business. The … of employees can be improved by letting them become involved in decision making.

a) behalf b) decisions c) launch d) locate e) profit f) performance g) policy h) management i) survival j) loss k) expands

2. Выберите существительные, которые по смыслу могут следовать за данными глаголами.

1) to employ   a) owners                          2) to locate a) products

                       b) workers                                                 b) profits

                       c) shareholders                                          c) premises

 

3) to carry out a) decision                         4) to launch a) a product

                       b) discussion                                             b) a process

                       c) depreciation                                           c) a price

 

5) to improve a) preference

                       b) performance

                       c) consequence

3.Выберите из приведенного списка термины, соответствующие данным определениям.

1) waste resulting from losing; 2) a decision between alternative goods; 3) a course of action adopted by government, party, etc; 4) a person employed for wages; 5) body of persons carrying on work under manager; 6) to confer with view to compromise or agreement; 7) to demand a price for a good or a service; 8) to keep a person in one's service; 9) to pay a person to give up his or her property.

9) to buy out 10) to charge 11) to employ 12) choice 13) loss 14) policy 15) staff 16) to negotiate 17) employee

Tapescripts

(тексты, записанные на кассете)

Unit 1

Text B

This morning we're going to start looking at the second of the three economic issues I mentioned last week. The first you have already read something about, so let's turn to the second. That is the question of income. By that I mean income distribution, the way in which income - that's what people earn - is distributed or shared around.

Let's look at income more closely. You, and your family, have an income. You have an annual income, that is what you earn in a year. This income allows you to enjoy various goods and services. It means you have a certain standard of living. Your standard of living, of course, includes what you think of as necessary to your life, things like food, water, somewhere to live, health and education. But your income doesn't just cover the necessities of life. It also includes recreation, whether that's sport or TV, or a holiday. Now, as you know, your income will be less than that of some of your neighbours, but it wiil be more than that of some of your other neighbours. By your neighbours, I mean not just people living in your own country, but also people living in other countries.

Now, just as you and your family have an income, so nations, different countries, also have an income - the national income, it's often called. Now a national income is not the money the government gets. The national income is the sum total of the incomes of all the people living in that country, in other words, everyone's income added together. In the same way we can think of world income as the total of all the incomes earned by all the people in the world.

I want now to look at the distribution of world income, and of national income. Then we can ask the questions: who, in the world, gets what share of these incomes? The distribution of income, either in the world or in a country, tells us how income is divided between different groups or individuals. Let's look at this table. I want you to note down the figures I give you at this point, and later we can discuss what they mean. You can see there are three headings down the left-hand side of the table: income per head, percentage of world population and percentage of world income. Let's look at poor countries first. In poor countries, like India, China and the Sudan, the income per head is only one hundred and fifty-five pounds per year. But at the same time, they have fifty point seven percent of the world's population. These poor countries only have five percent of the world's income. Have you got those figures? Good.

Now let's complete the table. In the middle-income countries the income per head is eight hundred and forty pounds, that's in countries like Thailand and Brazil. In the major oil countries, like Kuwait and Saudi Arabia, it's seven thousand, six hundred and seventy. In industrial countries it's six thousand, two hundred and seventy. And finally, in Soviet bloc, it's two thousand eight hundred. OK?

Turning to middle-income countries again, they have twenty five point one percent of world population, with fourteen point two percent of world income. The major oil countries have point four percent of population, the industrial countries fifteen point six and the Soviet bloc eight point two. The oil countries have one point five percent of world income, the industrial countries sixty-four point eight and the Soviet bloc fourteen point five.

 

Let's come back now to our three questions, the three you read about. The first is for whom does the world economy produce? Well, as you can see, it produces essentially for the people living in the rich industrial countries. They get sixty percent of the world's income, although they only have sixteen percent of its population. This suggests an answer to the second question, that of what is produced. The answer is that most of world production will be directed towards the goods and services that these same rich, industrialised countries want.

 

Our third question was how goods are produced. In poor countries, workers produce much less than workers in rich countries. And poverty is very difficult to escape. It continues on and on. And this goes some way towards accounting for the differences in national incomes. It accounts for an unequal distribution of income, not just between countries but also between members of the same country, although there individual governments can help through taxation, for example. In other words, governments can act to help distribute income throughout their population.

 

Unit 2

Text B

This morning we’re going to continue to look at the role markets and prices play. What we’ve said so far, if you remember, is that markets are arrangements through which prices influence how we allocate resources, scarce resources. To show how important this role is, ask yourselves this question: how would resources be allocated if markets did not exist? If there were no markets? Well, let’s have a quick look at three kinds of economy to help us answer the question.

Let’s look first at what we call the command economy. The command economy. Now, this kind of economy is a society where the government takes all the decisions. The government decides production and consumption. In practice, that means that a government office, a planning office, decides our three original questions. It decides what will be produced, how it will be produced and also for whom it will be produced. The same planning office then tells households, firms or companies and workers what it has decided.

Planning of this kind is obviously very difficult, very complicated to do. And the result is that there is no society which is completely a command economy. But in many countries, such as the Soviet Union, there is a large amount of central planning and direction. The state owns factories, for example, and it also owns land. The state makes the most important decisions about what people should consume. It also decides how goods should be produced, and how much people should work.

 

Let’s turn now to our second kind of economy. This is what we call a free market. Markets in which governments do not intervene are called free markets. Now, in a free market individual people, such as yourselves, are free to pursue their own interests. They can become millionaires, for example. The basic idea behind the free market is this: if you, for example, want to become a millionaire, what do you do? Well, let’s say you invent a new kind of car. You want to make money out of it, in your own interests. But when you have that car produced, you are in fact moving the production possibility frontier outwards. You actually make society better off, by creating new jobs and opportunities, even though you become a millionaire in the process. And you do it without any government help or intervention. Hong Kong is an example of a free market.

 

The third kind of economy we’ll look at is what we call the mixed economy. And this means very much what it says. At one extreme we have the command economy, which doesn’t allow individuals to make economic decisions – this is done centrally by the government. At the other extreme we have the free market, where individuals can pursue their own interests without any government restrictions. Between these two extremes lies the mixed economy. In a mixed economy, the government and the private sector interact in solving economic problems. On the one side, the government controls a share of the output. It does this through taxation, transfer payments and providing services such as the police. But at the same time, though with restrictions, individuals are free to pursue their own interests. Most countries are mixed economies, though of course some are nearer to command economies than others. Others are closer to free market economies.

Unit 5

Text В

This afternoon we’re going to finish looking at macroeconomics. Well, not exactly finish, of course, but finish our short introduction to this branch of economics at any rate. Macroeconomics is probably better known to you, actually, than microeconomics. This is simply because macroeconomic concepts refer to the economy as a whole, and this in turn leads to their getting more coverage in the media - that is, on television, in the newspapers and so on. Microeconomic concepts, on the other hand, because they are of interest only to the particular group they deal with, are of less public interest.

I want you now to note down three key terms. These terms are three of the most important building blocks of macroeconomics. They are three basic concepts which we use, and you may have already heard them in the media. The first of these is what we call Gross National Product. I’ll say that again: Gross National Product. Have you got that? Good. Gross National Product is often just called G-N-P. Note that down too. Now, GNP is the value of all goods and services produced in the economy. All goods and services produced in the economy over a given period, such as a year, that is.

The second basic concept is the Aggregate Price Level. The Aggregate Price Level. Got that? Right, I’ll pause for a moment ... The Aggregate Price Level is a measure. It’s a measure of the average level of prices of goods and services in the economy. The average level of prices of goods and services in the economy. Of course, this average level of prices is relative to the prices of the same goods and services at some fixed date in the past. OK? Good. Now, there is actually no reason why the prices of different goods should always move in line with one another. As you must have noticed, some goods go up in price more sharply than others. Others may hardly move. So the Aggregate Price Level tells us what is happening to prices on average. When the price level is rising, we say that the economy is going through a period of inflation.

The third concept I want you to understand, and of course note down, is what we call the Unemployment Rate. The Unemployment Rate. OK? Good. The Unemployment Rate is the percentage of the labour force, or workforce, which is out of work, hasn’t got a job. It’s important to understand what we mean by the labour force. By the labour force we mean the people, both men and women, who are of working age - so we don’t include children or those who have retired, stopped working. We also mean those people who in principle would like to work if they could get a job. So we don’t mean people who, although they are of working age, don’t have to work - people who, for example, have inherited from their parents enough money so they don’t have to work at all.

Unit 7

Text B

 It’s equilibrium we’re going to talk about today. Specifically, the market and the equilibrium price. I’ll say that again. The market and the equilibrium price.

 

Look at Table 2 again, would you? You’ve seen this table before. It describes the demand for and supply of chocolate bars. Let’s say we now want to combine the behaviour of buyers and sellers described in this table. We want to do this in order to model how the market for chocolate bars would actually work. If you look at the table carefully, you will see that at low prices the demand for chocolate bars exceeds, is greater than, the quantity supplied. For example, if the price is ten pence, 160 million bars is the demand – but the number of bars supplied is zero. Notice also that the opposite is true if the price is high. If the price is 70 pence, the demand is zero and the supply is 240 million bars. Do you see what I mean? Good.

 

Now this is the important point. At some intermediate price... intermediate? It means in the middle. OK? At some intermediate price the quantity demanded just equals the quantity supplied. This we call the equilibrium price. The equilibrium price. If you look at the table again, you’ll see that the equilibrium price for chocolate bars is thirty pence. At a price ofthirty pence, demand is for 80 million bars, and that’s the same quantity as sellers want to supply.

 

In this example, and I want you to note down this term, it’s important you understand it, we call 80 million bars the equilibrium quantity. The equilibrium quantity. At a price below thirty pence, the quantity demanded exceeds the quantity supplied. In other words, people can’t get enough chocolate bars. So we have a shortage. This shortage we call excess demand. Note that down too. Got it? OK, I’ll go on. From our previous discussions, you will, of course, realize that when we economists say there is excess demand we really mean the quantity demanded exceeds the quantity supplied at this price. And I emphasize that.

 

Now let’s turn to excess supply. Another term you should note. Excess supply. Excess supply happens when, in our example, the price is higher than thirty pence per bar of chocolate. At this price, the quantity supplied exceeds the quantity demanded. This means sellers will be left with stock they can’t sell. Again, of course, economists use the term excess supply to mean excess in the quantity supplied at this price.

 

Now let’s ask ourselves the question ‘Will the market for chocolate bars automatically be in equilibrium?’ And, if so, ‘What mechanism brings this about?’ Let’s say for the moment that the price for chocolate bars is fifty pence. That is higher than the equilibrium price, of course. At this price, sellers want to sell 160 million bars – but, as you can see from the table, nobody wants to buy chocolate bars at this price. They’re too expensive. So what happens? Well, producers must get their money back, the money they’ve spent on producing these 160 million chocolate bars. So what do they do? They cut, reduce, their prices, naturally, to clear their stock. Say they reduce their price to forty pence. What is the effect? As you can see, this move has two effects. First, it increases the quantity demanded to 40 million bars per year. And second, it reduces the quantity producers want to sell at this price to 120 million bars per year. This price – cutting process will continue until the equilibrium price of thirty pence is reached.

 

The same process actually works in reverse. What I mean by that is that if the initial price is below the equilibrium price, say twenty pence, the quantity demanded is 120 million bars. But at this price only 40 million bars are produced. This means, of course, that sellers will quickly run out of stock. They will realise they could have charged higher prices. This gives them a reason to raise prices, so that scarce stocks are rationed. And prices will continue to rise until the equilibrium price is reached. At that point the market clears. At this point, are you all clear...

Unit 8

Text B

Good morning, everyone. Today we’re going to look at shifts in the demand curve. Shifts? S-H-I-F-T-S. The word basically means changes, but we economists prefer the word shift. So, shifts in the demand curve. You may remember from Table 3 we drew the demand for chocolate bars. We drew it for a given level of three underlying factors: the price of related goods, incomes and tastes. Changes in any of these three underlying factors will change the demand for chocolate.

Let’s look at these shifts more closely. Take a look at Table 3 here. Can you all see it? Good. Now, this table illustrates the effect of a rise in the price of a substitute for chocolate. I’ve taken ice cream, as you can see in the table. Ice cream could well be a substitute for chocolate. Notice that at each chocolate price there is a larger quantity of chocolate demanded when ice cream prices are high. This is because people substitute chocolate for ice cream.

Now look at Figure 4. Here I’ve shown the same change in ice cream prices leading to a shift in the demand curve. A shift from the line DD which you can see running from a price of fifty pence to 200 million bars per year, to a new demand curve running from seventy pence to 280 million bars per year. As you can see the entire demand curve has shifted to the right, and this is because a higher quantity is demanded at each price.

OK so far? Good. Notice also that this shift to the right has changed the equilibrium price. It was thirty pence, and is shown by the letter E. Now it’s forty pence. And the new equilibrium quantity is 120 million bars of chocolate per year.

Once we’ve reached this point, we can even sketch how the chocolate market makes this transition from the old equilibrium at E to the new equilibrium. Think about it. Think about the moment the price of ice cream rises. What happens? Well, the demand curve shifts from DD, as you can see. Until the price of thirty pence changes, we now have excess                             demand at this price. You can see this excess demand EH in the figure. At a price of thirty pence, 160 million bars a year are demanded, but only 80 million bars are supplied.

What effect does this excess demand have? Well, it puts upward pressure on prices. The price of chocolate bars rises until it reaches the new equilibrium price, which as you can see is forty pence. But, notice this, this higher price reduces the quantity demanded. It reduces it from 160 million bars to 120 million bars.

What lessons can we learn from this? Well, I suggest the first lesson is this. It is that the quantity of chocolate demanded depends on four things. In addition to the three factors I mentioned at the start of this lecture, prices of related goods, incomes and tastes, demand also depends on its own price. The price of chocolate that is. And this is why, when we draw demand curves, we always choose to single out the price of the commodity itself, in this example the price of chocolate bars. We put the price in the diagram together with the quantity demanded. The other three factors become what we’ve called ‘other things equal’, and any changes of these will shift the position of our demand curves. Now before I go on...

Unit 9

Text B

The income statement shows the flow of money during the given year. But we also describe the position the firm has reached as a result of all its past trading operations. We call this document the balance sheet. The balance sheet.

Now, essentially the balance sheet lists the assets the firm owns. It also lists its liabilities. What? L-I-A-B-I-L-I-T-I-E-S. OK? Good. Now by doing this the balance sheet provides us with a picture of the firm at a particular point of time, for example at the end of a year. I’ll now go through a balance sheet with you, so take a moment to look at this. It’s the balance sheet of Snark International on 31st December, 1987.

Let’s start with assets. Assets are what the firm owns. These assets are listed on the left, as you can see. Snark, this firm, has some cash in the bank. That’s one asset. It’s also owed some money by its customers, who haven’t paid yet. This money is shown as accounts receivable. That’s another asset. Yet another asset is the large inventories it has in its warehouses. Not only that, but it also owns a factory. This factory originally cost a quarter of a million, but notice that, because of depreciation, it’s now only worth two hundred thousand. Of course, it also has other equipment - desks, perhaps, or machinery - which originally cost Snark three hundred thousand. Again because of depreciation, this equipment is now worth a hundred and eighty thousand. So we can say, after adding all these assets up, that Snark is worth five hundred and ninety thousand.

Now let’s take a look at liabilities. Liabilities are what the firm owes. These liabilities are shown on the right of the balance sheet, as you can see, starting with accounts payable. These are bills that Snark owes but has not yet paid. It also hasn’t yet paid some salaries, some fifty thousand pounds’ worth. That’s also a liability. Then, there is a mortgage on the factory of a hundred and fifty thousand which it has negotiated with an insurance company. Finally there is a bank loan. That’s for shorter-term cash needs. Adding all that up, we can see that Snark has liabilities, or debts, of three hundred and fifty thousand. So we can say that the net worth of Snark, note that term ‘net worth’, is two hundred and forty thousand. That’s the excess of its assets over its liabilities.

Some of you may be wondering why Snark’s net worth is shown as a liability rather than an asset. The reason is simply because the firm is owned by its shareholders. So the net worth is really owed to them. It is a liability of the firm to the shareholders.

Now let’s imagine you have lots of money and you want to buy Snark. To make what we call a take-over bid, in fact. How much do you think you should offer? Eh? Well, you might think of offering two hundred and forty thousand, which is, after all, the net worth of the company. But I think probably not. Why not? Well, Snark is a live company. It’s got good prospects for future growth. It’s got a proven record. You have to remember you’re not just bidding for its physical and financial assets, less of course its liabilities. You’re actually bidding for the firm as a going concern. You will also get its reputation. Its customer loyalty. And a great many other things, all intangible. All these intangibles, like reputation and customer loyalty, we economists call goodwill.

Case Study

 

Case 1

In the early 1980s there was a controversyover the “Fares Fair” policy of cutting bus and tube fares in London. Some people thought low fares would increase passengers and bring in extra revenue for London Transport, which runs the bus and tube services. Others thought that low fares would lead to disastrous losses in running London Transport. Eventually the matter was referred to the courts. Suppose you had been a consultant brought in to analyse the relationship between tube fares and revenue from running the tube: how would you have analysed the problem?

To organize our thinking, or - as economists describe it - to build a model, we require a simplified picture of reality which picks out the most important elements of the problem. We begin with the simple equation.

 

Total fare collection = fare ´ number of passengers

(1)

 

In this stark form, equation (1) emphasizes, and thus organizes our thoughts around, two factors: the fare and the number of passengers. London Transport directly controls the fare, but can influence the number of passengers only through the fare that is set. (Cleaner stations and better services might also encourage passengers, but we neglect these effects for the moment.)

It might be argued that the number of passengers is determined by habit, convenience, and tradition, and is therefore completely unresponsive to changes in fares. This is not the view or model of traveller behaviour that an economist would initially adopt. It is possible to travel by car, bus, taxi, or tube, and decisions about a mode of transport are likely to be sensitive to the relative costs of the competing alternatives. Thus in equation (1) we must not view the number of passengers as fixed but develop a ‘theory’ or ‘model’ (we use these terms interchangeably) of what determines the number of passengers. We must model the demand for tube journeys.

We can study the theory of demand in detail. Applying a little common sense, we can probably work out the most important elements straight away. First, the fare itself matters. Other things equal, higher tube fares reduce the quantity of tube journeys demanded. Of course, what matters is the price of the tube relative to the price of other means of transport - cars, buses, and taxis. If their prices remain constant, lower tube fares will encourage tube passengers. Rises in the price of these other means of transport will also encourage tube passengers even though tube fares remain unaltered.

We now have a bare-bones model of the demand for tube journeys. We summarize this model in the formal statement:

 

Quantity of tube journeys demanded = f(tube fare, taxi fare, petrol price, bus fare, ...)

(2)

 

This statement reads as follows. The quantity of tube journeys ‘depends on’, or ‘is a function of’, the tube fare, the taxi fare, petrol prices, bus fares, and some other things. The notation f (1) is just a shorthand for ‘depends on all the things listed inside the brackets’. In equation (2) we have named explicitly the most important determinants of the demand for tube journeys. The row of dots reminds us that we have omitted some possible determinants of the demand for tube journeys in an effort to simplify our analysis. For example, tube demand probably depends on the temperature. It gets very uncomfortable in the underground when it is very hot. Since the purpose of our model is to study changes in the number of tube passengers, it will probably be all right to neglect the weather provided weather conditions are broadly the same every year.

To answer our original question, it is not sufficient to know the factors on which the demand for tube journeys depends. We need to know how the number of passengers varies with each of the factors we have identified in our model. Other things equal, we assume that an increase in tube fares will reduce tube passengers and that an increase in the price of any of the competing modes of transport will increase tube passengers. To make real progress, we shall somehow have to quantify each of these separate effects. Then, given predictions for bus and taxi fares and the price of petrol, we would be able to use our model to predict the number of tube passengers who would want to travel at each possible tube fare that might be set by London Transport. Multiplying the fare per journey by the predicted corresponding number of journeys demanded at this fare, we could then predict London Transport revenue given any decision about the level of tube fares.

Writing down a model is a safe way of forcing ourselves to look for all the relevant effects, to worry about which effects must be taken into account and which are minor and can probably be ignored in answering the question we have set ourselves. Without writing down a model, we might have forgotten about the influence of bus fares on tube journeys, an omission that might have led to serious errors in trying to understand and forecast revenue raised from tube fares.

 

You have read the text. Check your understanding.

1) What controversy was there in 1980 over the ‘Fares Fair’ policy of cutting bus and tube fares in London?

2) How would economists organize the solution of fares problem?

3) How can the equation one organize our thoughts?

4) What organization directly controls the fares?

5) How can London Transport influence the number of passengers?

6) Is the number of passengers responsive to the changes in fares?

7) What theory or model should an economist develop to solve the problem of the number of passengers?

8) What is the relationship between fares and demand for tube journeys?

9) What is the dependence of the quantity of tube passengers on the fares of other means of transport?

10)For what purpose can we use the model given in the text?

11)How could we predict London Transport revenue?

12)What is the importance of building the model?

 

Case 2

 

Leipzig East Germany's second largest city, has attracted attention from office developers as it changes from a planned to a market system. The city has a shortage of office space. Most of its existing space is obsolete compared with Western standards. Also, if Leipzig is to achieve the status of other German cities, it needs to develop another 2 or 3 million sq.ft of office space. Developers are receiving a number of incentives, including grants, favourable tax treatment, EC regional grants and subsidised lending rates. Another attractive feature for developers is the state of rents. Because of the shortages rents have risen sharply and Leipzig is seen as a good investment opportunity by many property speculators.

However, there have been problems as the city copes with the transition.

§ Pollution from open cast mining in the countryside has disfigured much of Leipzig's building stock.

§ Inadequate building stock has resulted in housing shortages discouraging skilled workers from moving to the city. Hotel shortages have also restricted the number of visitors to Leipzig.

§ Poor transport infrastructure.

§ Many of the young and relatively well educated members of the population have migrated from the city. This has contributed to a population decline from 713,000 to 511,000 over a 50 year period.

§ Land ownership disputes have resulted in delays and frustration as land and property is transferred from the state to the private sector.

§ There has been a flood of goods from West Germany into the city.

 

You have read the text. Answer the questions.

(a) How far are the problems facing Leipzig a result of it being formerly part of a planned economy?

(b) How might cities such as Leipzig overcome the problems of changing from a planned to a mixed economy?

 

Case 3

 

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