Economics study

 

 

Reading 1

 

Welfare economics

 

Behind the numbers, charts and formulas of economics, there are people This is sometimes easy to forget. Economies isn't only about profits, losses and utility. It's about society. Economic ideas and theories often seem to be issues that are far removed from people's everyday lives. Welfare economies, however, tries to correct this It looks at how economic policies affect society, families and the individual.

One of the big issues in welfare economics is equity. Equity means fairness, and welfare

 

 

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economists are interested in measuring how fair our economic systems are. One way they do this is to look at how income and wealth are distributed among the population. Welfare economists also investigate the effects of government policy on equity. Governments main weapon to light inequity (unfairness) is taxation. Welfare economists try to find out how taxation affects vertical equity and horivontal equity, which arc two ideas that taxation systems can be based on. The idea behind vertical equity is that people with more income will pay more than those with less income. The idea behind horizontal equity is that people with the same income will pay the same amount of tax Ideally, a tax system will have both vertical and horizontal equity,

However, some economists feel that any kind of taxation on people's earnings is unjust. They believe it is unfair to penalise entrepreneurs and hard-workers. Why should people who are less able or less hard-working be supported by others? In this view of welfare economies, inequity is a natural feature of every economic system. Trying to create equity, they say. is just a waste of time. Instead, it is better to make economic systems more efficient. A more efficient economy grows faster and everyone in society benefits.

Welfare economies isn't only about the fairness of economic systems. It's also about the impact that economic choices have on our lives. Economic transactions often affect other people who are not directly involved in those transactions. Economists call these results externalities. Externalities are sometimes good and sometimes bad for society. For example, pollution is a negative externality of the car industry. But cars give people better mobility, which is a positive externality of the same industry.

Production is not the only cause of negative externalities for society. Many arc due to our use or consumption of goods. People's litter in parks and on beaches is one example: noisy neighbours playing their CD player loudly is another. These are both examples of externalities causing pollution. However, health problems from smoking and drinking alcohol are also externalities from economic transactions. These have a cost for individuals, but also for society as a whole.

 

 В Comprehension

 

Now read the text again and answer these questions in your own words in the space provided below.

1 According to the text, what do people often forgot about economics?

2 How do governments try to make the economy fair?

3 What is the difference between horizontal and vertical equity?

4 Why do some economists think equity is not important?

5 What are externalities?

Notes:

 

Before you listen

 

Discuss the following with your partner.

When externalities are good for society, they are called positive externalities. Can you think of any economic transactions that could have positive externalities?

 

 С Listening )))

 

Now listen and tick which transactions in the list are mentioned.

1 buying a new house

2 fixing up an old home

3 buying books

4 paying for a course at a local college

5 joining a gym

6 going on holiday

 

 

 

 

 

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Before you read_

 

Discuss these questions with your partner.

What do you think your government spends money on?

Where do you imagine most of the government's money goes?

Would you say the government spends wisely?

 

 D Vocabulary

 

Complete each sentence with a word or phrase from the box.

■ benefits	■ charge	■ discourage
■ essential	■ financial	■ harmful
■ income gap	■ luxuries	■ source
■ taxation

 

   

 

 

1 If you give someone......................help, you give

them money.

2......................are money that the government

gives to people who need help.

3 If you......................someone from doing

something, you persuade them not to do it.

4......................things are not good for your health.

5 The difference between the highest salaries and the lowest is called the.......................

6 Companies......................customers for

their services.

7 For most people, the......................of their income

is paid work.

8 Governments get most of their money through

9 Water is......................to life, but it costs

very little.

10......................are expensive things that we don't

really need.

 

 

Reading 2

 

Government revenue and spending

 

In the UК, the government spends about £ 500 billion a year. Where does such a huge amount of money come from? Perhaps more importantly, what does the government spend it on? The money governments have to spend is called revenue. Revenue conies from several sources, including charging for services and borrowing. However, a government's main source of revenue is taxation. There are different kinds of taxes. For example, anyone with a regular income has to pay income tax on their earnings. This is a percentage of their income which goes to the government. Many countries operate a system called progressive income tax. Under this system, people with a higher income pay a higher percentage to the government. Another kind of tax is value added tax. This is paid when we buy goods or services which are not essential or arc regarded as luxuries.

 

 

 

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Taxation, however, is not only a way for a government to earn revenue. Through taxation, governments also achieve a number of other things. Income tax. for example, should help to make the income gap between the rich and the poor smaller. Tax on harmful products like tobacco and alcohol should discourage people from consuming them. Finally, taxation is a way for the government to control overall supply and demand in the market. For instance, a very high tax on a product will mean few people can buy it and therefore its market will be very small.

So where does the money go? Revenue is generally spent on a combination of public services and somethint called transfer payments. Transfer payments arc benefits that are given to families and individuals in society who need financial support. In Britain, transfer payments make up almost a third of all public spending. These payments include safety net benefits such as unemployment benefit and social security benefits for families who do not have enough income to get by.

Most of the rest of the revenue goes on public goods. These can be divided into two areas: pure public goods and mixed public goods. Pure public goods are things like street lighting or national defence. These are important for everyone in a society, but they cannot be supplied by private business To understand why not. let's look at the example of street lighting. Lighting needs to be offered to everyone who uses the streets If a private business provided street lighting, they would need to charge for it. But how could they

make everyone pay? Non-payers would benefit from the lighting, too. It would be Impossible to stop them. This is why a government, and not private businesses, offers street lighting; everyone

pays for it through their taxes

Mixed public goods arc things which people ought to have because they are beneficial, such as health care and education. Why do many governments fund these things? The reason is that having a healthy, educated population is good for the economy and for society as a whole. People, especially those on low incomes, may not he able to spend money on these services. Governments fund the services so that everyone can afford

them, and this eneourages people to use them.

 

E Comprehension

 

Now read the text again and match each paragraph with the correct heading.

PARAGRAPH 1......................

PARAGRAPH 2......................

PARAGRAPH 3......................

PARAGRAPH 4......................

PARAGRAPH 5......................

The aims of taxation

Services that businesses won't provide С Providing what's good for us

Providing social support

Collecting income

 

Before you listen

 

Discuss the following with your partner.

The pie chart below shows how the UK government spends its revenue. Each segment of the pie (A to H) shows a different area of spending. The key shows what these areas are. Some labels are missing. Which of these areas do you think they are?

Defence

Education 

Environment

Health care  

Transport

 

F Listening )))

 

Now listen and complete the chart.

 

 

 

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G Speaking

 

Discuss these questions with your partner.

In your opinion, what is more important for an economic system - equity or efficiency?

Do you think the tax system in your country is fair? Why / Why not?

 

Task

 

Work in groups of four. Each of you has one of the following roles.

Finance Minister - you decide on how government revenue should be spent.

Education Minister - you want more spending on education.

Talk about:

overcrowded classrooms  lack of facilities  teacher training

Environment Minister - you want more spending on roads and public transport.

Talk about:

dangerous roads improving country roads increased underground train system free transport for retired people

Health Minister - you want more spending on

hospitals and health care.

Talk about:

cheaper medicine

waiting lists in hospitals

length of time to get a doctor's appointment  hospital facilities

Ministers: persuade the Finance Minister to give you more money. Finance Minister: ask questions to decide who needs more money.

Pronunciation guide

Issue

Consumption

Equity

Externality

Beneficial

Percentage

Revenue

 

 H Writing

 

Write the following composition: What is welfare economics and why is it important?

First read through the texts again and make notes, then use the outline plan to organise your composition.

Composition

PARAGRAPH 1

Explain what welfare economics studies.

Points to include:

economics is not just numbers, economics with a heart, government policies affect society

Useful words and phrases: everyday lives, equity, externalities

PARAGRAPH 2

Say how economic relationships affect the welfare of a society.

Mention these relationships:

Buyers and sellers - how do prices affect people's lives?

Workers and employees - how does work affect people's lives?

Factories and the environment - what is the affect of the economy on our environment?

Useful words and phrases: cost of living, wages, working conditions, damage, pollution

PARAGRAPH 3

Explain how taxation can create equity in the economy.

Points to include:

What is equity?

How can taxation help to create equity? How can a tax system have vertical and horizontal equity?

Useful words and phrases: fairness, unfairness, income, distribute, wealth

PARAGRAPH 4

Sum up by saying why you think welfare economics is important.

Points to include:

Importance of understanding how economics effects our lives.

Can economic policies make our lives better?

Useful words and phrases: to sum up. in my

view, helps us appreciate, impact, improve

Write 200-250 words

 

 

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Before you read

 

Discuss these questions with your partner.

What do you think it means to be wealthy? Why are some people wealthier than others?

 

 A Vocabulary

 

Match the words and phrases with the definitions.

1 valuable

2 invest

3 pension scheme

4 static

5 belongings

6 flow

7 distribution

8 interest

9 Savings

10 inequality

11 extent

12 stocks and shares

13 store

 

A to lend money to a company or bank in order to earn more money

B how large or important something is

C the way in which a supply of something, like money, is shared among people

D money put somewhere for later use. for example in the bank

E immobile, not moving

F unfairness

G a way of saving money for when you got old and stop working

H things someone owns, but usually things that car, be moved

I if you save money in a bank, you get this extra money for keeping it there

J movement like a river

K important or worth money

L a collection or supply of things kept for later use

M part of the value of a company - people buy and sell these

 

 

 

 

Reading 1

 

Wealth, income and inequality

 

What does it mean to be wealthy? The answer to this question varies from culture to culture. In the modernised, industrial world that we live in. wealth generally means all the collected Store of valuable things that belong to a person (or family, company or country). Wealth can include money saved in bank accounts, or invested in pension schemes. It can include land, houses or other property and valuable belongings such as works of art or precious jewels Many people also own stocks and shares in companies. The various things that make up a person's wealth are often called assets.

 

 

 

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So wealth is a statie thing. The term income, on the other hand, suggests a flow of money. Income is the amount of money that a person (or family or company) receives over a period of time. For most people, this means the salary they get for the work they do. However, there are other sources of income. One source is government benefits. such as unemployment benefit or family support. Another source is rent from property and another is interest from savings.

Huge inequalities in wealth owned by individuals exist in many countries. Take the United Kingdom for example. A fifth of all the marketable wealth is owned by just one per cent of the UK's population That one per cent own over S 355 billion of assets. Figure 1 on page 56 shows how the rest of the United Kingdom's wealth is distributed. As you can see, the richest 50 per cent of the population own over 93 per cent of the wealth. In other words, half the population own nearly all the wealth and the other half own only a tiny percentage. The chart also shows that the richest one per cent of the population own over a fifth of all the country's wealth.

Large inequalities also exist in the distribution of income. The extent of these Inequalities can be shown with something called the Lorenz curce. You can see an example in figure 2 below. The straight blue line shows perfectly equal distribution of income For example, the bottom 20 per cent earn 20 per cent of the total income. The bottom 40 per cent earn 40 per cent and so on. This is the ideal situation. The red curve, however, shows the real situation for the United Kingdom. You can see immediately how far from perfect the distribution is. Half of the population, for example, earn just under a third of the total income. Move horizontally along the population line and you can see that 90 per cent of the population take only 70 per cent of the total income. This means that the top ten per cent of the population earn nearly 30 per cent of the country's total income.

 

В Comprehension

Now read the text again and match each paragraph with the correct heading. There are two extra headings that you don't need.

PARAGRAPH 1

PARAGRAPH 2

PARAGRAPH 3

PARAGRAPH 4

A How governments can create more equality

B Inequalities in income

C Inequalities in wealth

D What income is

E What wealth is

F Why there are inequalities in wealth and income

 

Before you listen__

 

Discuss the following with your partner.

Economic inequality also exists on a global scale. Below are some facts about global economic inequality. See if you can guess which figures from the box complete the notes.

The lowest earning Americans have higher

incomes than (1)......................of the

world's population.

The world's richest (2)......................per cent

earn more than the combined income of the world's poorest (3)......................per cent.

The (4)......................richest people in

the world have incomes that are more than the combined incomes of the poorest (5) ......................countries in the world.

 

С Listening )))

 

Now listen and check your answers.

 

 

 

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Before you read_

 

Discuss these questions with your partner.

What docs poverty mean? Is there a way to define it?

How many people in the world do you think live in poverty?

Do you believe people in industrialised countries live in poverty

 

D Vocabulary

 

Complete each sentence with a word or phrase from the box.

■absolute	■associate	■ average
■ cycle	■corruption	■ define
■generation	■ natural	■disasters
■shelter	■ trap

 

        

1 We......................high crime rates with poverty

and unemployment.

2 Having a.......................a roof over your head, is

a basic need of humankind.

3 How does the dictionary......................this word?

4 Floods, droughts, hurricanes and other

......................are happening more frequently.

5 Giving money secretly to judges or politicians so that they help you is an example of.....................

6 Hunters will sometimes set a......................

instead of using a gun.

7 Lets hope the next......................finally put an

end to hunger and poverty.

8 The world's water supply is a......................which

involves the sea. rainfall and rivers.

9 If somebody lives in......................poverty, that

means they are completely without money to buy basic necessities.

10 The......................salary at that company is

very high.

 

 Reading 2

Poverty

Without a doubt poverty is a huge problem in the world today. Figures suggest that three billion people or half the world's population live in

poverty. However, although we associate poverty

with developing countries, poverty of some kind also exists in industrialised nations. For example, it is now thought that quite possibly one in every ten Americans lives in poverty. However, poverty means different things to different people. How do

economists define poverty?

One has measure of poverty is absolute poverty.

People live in absolute poverty when they live on or below the poverty line. This is a level of income that is so low that people cannot afford the basic necessities to live, such as food, clothing and shelter. According to the World Bank, these are people who are living on two dollars a day.

 

 

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However, there are one billion people in the world who live on less than one dollar a day. The World Bank defines this as extreme poverty.

Few people in industrialised countries live in absolute poverty, but many live in relative poverty. This measure of poverty takes into account the differences that exist in a population between the rich and the poor. For example, some economists say that people who earn less than half the average income live in relative poverty. In Britain, this means 14 million people.

Why does poverty still exist? There is no single answer to this question. In developing countries, causes of absolute poverty include natural disasters like droughts and floods, political corruption and war. However, in many cases people  and whole populations - are caught in a trap the poverty trap

People on a low income spend everything they have on daily necessities. They save almost nothing. In order to raise themselves out of poverty, they need education. This costs money. Even when governments provide free schooling, the poor may not send their children because they need them to work. These families cannot afford the cost of sending a child to school. Without education, the children cannot find better paid work. In this way, generations of the same family remain poor,

The same cycle that traps individuals can trap a whole population. Economic growth depends on investment. Investment money comes from savings. Л nation that has almost no savings cannot grow economically. This keeps wages low, so again people cannot save and the cycle continues.

 

E Comprehension

 

Now read the text again and answer the questions.

1 Poverty is ...

A only found in developing countries.

В mostly in industrialised countries.

С found in both developing and industrialised countries.

 

2 What number of people live in extreme poverty?

A three billion

B two billion

C one billion

 

3 How can relative poverty be explained?

A It takes into account that there are rich people.

B It's a kind of poverty found in industrialised countries countries.

C It's a kind of poverty only experienced in Britain.

 

4 What cause of poverty is not mentioned in the text?

A war

B lack of natural resources

C natural disasters

 

5 Why can't people escape from the poverty trap?

A Because they refuse to send then children to school.

B Because they need any income their children can earn.

C Because governments don't provide free education.

 

6 According to the text, why are countries often trapped in a poverty cycle?

A There is no money for investment

B The are no schools

C The land is not good for growing crops

 

Before you listen_

 

Discuss these questions with your partner.

What do you think are the possible results of living in poverty?

In what ways does poverty affect people's lives?

 

 Listening )))

 

Now listen and complete the notes. Health

Poor people (1)......................younger.

Life expectancy is (2)......................years

shorter.

(3)......................is more common.

Family

Teenage girls are more likely to (4)

(5)......................are more common.