English Lesson 'What Is Economy?'

1. Read and translate.

We hear about the economy all the time, but what exactly is an economy? In this lesson, you'll learn about what an economy is and different types of economic systems.

What Is Economy?

An economy is a system of organizations and institutions that either facilitate or play a role in the production and distribution of goods and services in a society. Economies determine how resources are distributed among members of a society; they determine the value of goods or services; and they even determine what sorts of things can be traded or bartered for those services and goods.

How a society structures its economic system is largely a political and social issue. The political and legal structure of a society will govern how wealth can be accumulated, how wealth and resources are distributed, and the manner of competition permitted between different participants in the economy.

Market Systems and Command Systems

Economic systems fall into one of two categories: market systems and command systems.

In a market system, individual people own the factors of production (land, capital and labor), and they can do whatever they want to do with what they own, subject to minimum legal constraints. This might sound familiar if you live in the United States, because the U.S. is a market economy. You are able to bargain your labor for wages, and use your property as you see fit (so long as it's not illegal).

In a market system, the law of supply and demand governs the economy. If there is a high demand for a product, resource or skill and a low supply of it, it will demand a high price to purchase it. Alternatively, if there is a low demand and a high supply, the price will be low. In other words, the market sets the price of goods, services, and labor. Demand will also determine how much of a product will be produced, or even if it will be produced at all. In a market system, you can engage in any type of lawful economic activity that you want, so long as you can pay for it.

A command system is an economic system where economic decision-making is centralized and usually in the hands of the state. The government controls the factors of production and makes the decisions about what to produce, how much to produce, and to whom the products ultimately go. In theory, the idea is that all production and distribution is directed towards socially-desirable goals. Classic examples of command systems include the economy of the old Soviet Union and the current Chinese economy.

Economists say economics is the study of scarcity. That’s because resources, such as workers, land and raw materials, are limited - while the demand for them is infinite. Basically, we always want more.

So the textbook answer is an economy is a system for distributing scarce resources. And when we talk about ‘the’ economy, we usually mean the UK’s economy.

In some countries, the government chooses what to produce, how much and for whom. In others, it’s determined by what people want to buy, and how much businesses can provide – supply and demand.

What’s your role in the economy?

The economy can seem hard to pin down, but we all shape it through our choices. You’re contributing to it every time you buy something or go to work. And it also has an impact if you choose to spend or work less. What everyone does with their money can determine how the economy is doing.

How can you tell if the economy is doing well or badly?

People use many expressions to describe the economy. They say it’s healthy, thriving or in a good place. In bad times, it’s weak, struggling and depressed. Perhaps it can feel hungover too?

Four things give you an idea of how the economy is doing:

GDP - or economic growth. This is a measure of all the goods and services produced in a country over a period of time, for example, a year. An increase means the economy is growing.

Inflation - the pace at which prices in shops rise. The government considers anything above or below 2% undesirable.

Unemployment – how many people want to work but can’t find a job. The fewer, the better.

Inequality – how a country’s wealth and prosperity is distributed. Economists tend to see high inequality as a sign of an ‘unhealthy’ economy.

What’s the Bank of England’s role?

Our job is to make sure inflation is around 2%. We do this mainly by influencing interest rates (the amount you pay for a loan or how much you get on your savings account).

We also keep an eye on any threats to the economy and step in when we can. This can be anything from cyber-attacks on banks to the size of people’s mortgages. Learn more about what we do.

2. Write the answers to your questions in a notebook.

1. Which one of the following is the best explanation of an economy?

1.   Capitalism, socialism or communism.
2.   Market or command.
3.   A system consisting of the production of goods and services.
4.   A system of organizations and institutions that either help facilitate or play a role in the production and distribution of goods and services.

2.          What's the name of the economic system where the labor is controlled by individuals but capital and land is controlled by the government?

1. Communism

2. Socialism

3. Fascism

4. Capitalism

3.      What's the key difference between a market system and a command system?

1. Market systems only exist in democracies.

2. Command systems only exist in totalitarian regimes.

3. Individuals control most factors of production in market systems, while the state controls most factors of production in a command system.

4. Market systems are always better.