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MODULE 1. BASICS AND PATTERNS OF FUNCTIONING OF THEECONOMY
1. Nucleation and the basic stages of development of economic sciences.
Key words skills – умения, квалификация equipment – оборудование productivity - производительность definition – определение formulate – формулировать scarce resources – редкие (ограниченные) ресурсы commodity – товар distribute – распределять behaviour – поведение level – уровень methodology – методология generalization – обобщение quantitative – количественный household – условная семья economic model – экономическая модель deduction and induction – дедукция и индукция positive and normative statements – позитивные и нормативные утверждения simplify – упрощать purchase – покупать, покупка income – доход unit of a good – единица товара Nucleation and the basic stages of development of economic sciences.
The subjects of economic theory are relations and ties that appear between people while production, distribution, exchange and consumption of goods and services. The word economy comes from the Greek word oikonomos, which means “one who manages a household.” During centuries people were trying to understand economic processes (Aristotle (384-322 BC), Plato, Xenofont etc). Though, the first economic teachings appeared only in XVI AD, and the term “political economy” was firstly used only in XVII AD (A. Montchretien “Treatise on political economy”, 1615). Further history of the science development is a deep research of different sides and laws of economy which is understood as the totality of branches of economy, providing society with necessary goods and services. Historical differentiation of economic concepts. In the history of mankind the following teachings can mentioned: a) Mercantilism (from Italian “merchant”) – XVI-XVII; representatives: W. Stafford, T. Men, A. Montchretien etc. They believed money in the form of gold and silver to be the major wealth of nation and a state and proposed different methods of its attraction to the country. b) Physiocratism (from Greek “physis” – nature, “cratos”- power. Its founder is F. Canae, XVIII. The research of the question about the origin of a surplus was drawn from the sphere of circulation to the production sphere, agriculture mainly, which was considered to be a producing one; industry was defined as processing a product only, manufactured in agriculture. c) Classical school of political economy was founded by W. Petty, A. Smith, D. Ricardo (the second half of XVIII – the beginning of XIX). It was based on the theory of labour cost; employees’ labour was defined as the source of income. They researched the mechanism of social capital increase, proved the inadmissibility of a state interference in economy, the necessity of free trade. d) Marxism (the middle of XIX) was founded by K. Marx and F. Engels. The deepest analysis of capitalism, its main categories (capital, income, salary etc), laws and market mechanisms was done by the representatives of the school. e) Marginalism (from French “borderline”) – the representatives were: D. Clarc, A. Marshall, E. Bem-Baverk. They stood on position of the refusal of the discussion of social aspects of capitalist economy, so instead of the term “political economy” they started to use more neutral term “economics” (economic theory). It has many trends, but the main idea is capitalism capable of self-control and balance achievement in economy. f) Keynicians (1930s), its founder was J.M. Keyns. The main idea is the explanation of the necessity of state regulation of economy and the elaboration of its definite forms because a spontaneous market mechanism is not able to solve the problem of cyclic fluctuations and unemployment. 3) Modern economic theories are: a) Neoclassicism grounds a statement that the most favorable conditions for economic units domination are the conditions of pure competition (A. Marshall, A. Pigue); b) Neoliberalism grounds the necessity of joining the principles of free competition with a state regulation of economy (L. Mises, F. Hayek, A. Muller-Armak etc); c) Monetarism is one of the directions of neoclassic economic thought that appeared in the mid 50s in XX, the USA. It was founded by the head of Chicago school of political economy M. Fridmen. According to the theory, the main element of market economy is money and that’s why its regulation is to be based on the regulation of money in circulation. d) Institutionalism is one of the directions of Western economic thought that appeared in the end of XIX – at the beginning of XX; it concentrates mainly on the analysis of the role of institutions in decision-making and in economic activity, their purposes and effectiveness (T. Weblen, D. Commons, W. Hamilton etc). Competition, labour unions, taxes, state monopolies, juridical norms and others are considered to be institutions; economy is considered as a system of relations between subjects of economy, that is formed under the influence of economic and non-economic factors (technologies are one of them).
Subject of economic theory. Economic categories and laws. In every science has its own subject, that is, its main research topic. The focus of economic theory - economic, industrial life of society, economic linkages and relationships between people in the creation, distribution, exchange and consumption of goods. There are many definitions of economics. One of them was formulated by Paul Samuelson, a prominent American economist and the author of textbooks on economics which have been used by economics students all over the world for decades: Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people. Economics serves as the general theoretical and methodological basis for all economic sciences, since of develops basic concepts, definitions, terms as well as general directions and methods of scientific research. Sections of the economy: - Microeconomics - is taken as a basis for analyzing the smallest economic unit - the firm, association, etc. - Mezoekonomika studies the laws and the behavior of specific subsystems of the national economy (agriculture, military-industrial complex, regional economics, etc.) - Macroeconomics examines the economy as a whole, the objects of analysis are the income of society, unemployment, inflation, etc. - Megaekonomika studies the laws and behavior of the world economy as a whole. All sciences are careful to distinguish between two types of statements: statements about what is or was or will be – positive statements; and statements about what ought to be – normative statements. Thus, positive economics investigates the ways in which economic agents seek to achieve their goals. It deals with facts and is free from subjective opinions. For example, ‘ The unemployment rate is 7%’. Normative economics makes suggestions about the waysin which society’s goals might be more efficiently realized. For example, ‘The unemployment should be lowered’. Economic categories - the basic concepts of an economic science: work, the price, the goods, money, etc. The aim of economic theory is to define laws and essence of economic phenomena. Nature and essence of economic laws. a) Nature of economic laws. Economic phenomena and processes are subordinated to the objective laws, which are commonly called economic ones. They are of the objective character, i.e. they don’t depend on human will and consciousness, but at the same time they are not historically eternal, they change with the change of conditions of economic life. b) Essence of economic laws. Economic laws express the essence of phenomena and the level of their cognition by a person. They reflect stable, causal relationship between these phenomena or processes. They are typical and variable, that’s why they form a definite system of economic laws that correspond to this or that way of production. c) Classification of economic laws: - general – the laws, typical of all ways of production of all epochs; - special – the ones, typical of the ways of production of the same type; - specific – the laws, typical of definite ways of production with definite economic conditions. d) Functions of economic laws. The objective nature of economic laws presupposes not only the necessity, but also the possibility of taking into account their demands in economic practice. It allows to elaborate a scientific mechanism of regulation of social production and to use the knowledge of economic laws while decision-making. Thus, the functions of economic laws are: - to reflect the objective state of economy; - to anticipate the necessity and possibility to use them in economic practice; - to promote the elaboration of a scientific mechanism of social production management; - to use the knowledge of economic laws while decision-making.
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