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Sectors of the economy
allocate – decide officially that a particular amount of money, time, etc. should
be used for a particular purpose
asset – something belonging to an individual or a business that has value or
the power to earn money
bankruptcy – when someone is judged to be unable to pay their debts by a court
of law, and their assets are shared out among the people and businesses
that they owe money to
break even – make neither a profit nor a loss
free economy – an economy in which companies are not controlled by the gov-
ernment but decide for themselves what to produce and sell, based on what
they believe they can make a profit from
industry – the production of raw materials and of goods; the people and or-
ganizations that work in industry; businesses that produce a particular type
of thing or provide a particular service
labour – all the people who work for a company or in a country
mixed economy – an economy in which some industries are controlled by
the government and some by private companies
means – the money and resources that a person or organization has available
resources – something such as money, property, skill, labour, etc. that a com-
pany has available
There are three basic types of national economy: free economy, controlled
economy and mixed economy. Ownership and allocation of resources are
the key determinants here; if resources are owned and allocated by individu-
als (whose decisions are based on the market forces of supply and demand),
the economic system is classified as a market economy or a free economy. At
the other extreme, all resources are owned and allocated by the state. This type
of economy is called a centrally planned economy, controlled economy or com-
mand economy. In a state controlled economy it is the government who owns
the means of production and people work for the government rather than for
the company. They do not have the freedom of choice, for instance they can-
not invest their money in a business because all businesses belong to the state.
In fact, most countries have mixed economies which means that there are two
sectors: a private sector and a public sector. Business organizations controlled
by individuals constitute the private sector, while those owned and controlled
by the state form the public sector. Investors can invest as they wish and they
have the right to keep the profits they generate (although some of the profits
are paid to the state in the form of taxes). State-owned companies are expected
to break even, while any profits they generate go to the government. Some-
times, however, they make losses and – in extreme cases – they may even go
bankrupt. The same holds true for private businesses. The size of the public
sector in proportion to the private sector varies from country to country, with
the public sector in most democratic countries being reduced over time.
Resources can be grouped into four main categories, which are: land (land
for the buildings of factories, offices or shops, but also raw materials, grains,
animals reared for meat and fish), labour (efforts and skills of people who
change natural resources into products and services), capital (anything owned
by a company – buildings, machines and equipment) and enterprise (entrepre-
neurs who know how to start a company and who allocate the other resources).
Manufacturing can be divided into traditional industries like, e.g.: light industry,
heavy industry, the food industry, chemical industry, pharmaceutical industry
or textile industry, to name just a few.
A national economy can also be divided into main industry sectors:
– materials (e.g. metals or paper),
– industrials (capital goods like machinery, electrical equipment or building
– consumer goods (durable and non-durable),
– financials (banks, insurance companies),
– IT and telecommunication services,
– trade and commercial services (e.g. transport, advertising),
– health care,
– science and education,
Unit 1. Sectors of the economy
1. Answer the questions.
1. How can you characterize a mixed economy?
2. What industries do you know?
3. How can resources be classified?
4. Do all companies break even?
2. Decide if the sentences are true or false.
1. Land and labour are, to a certain extent, renewable factors of production.
2. Movement of goods is an indispensable aid to trade, both domestic and
3. Good entrepreneurs are not always the most effective people to run a bu-
siness in the long run.
4. A public company is a company owned by people or other companies, rather
than by the government, or a company whose shares are openly traded.
5. A private company is a company owned by people or other companies,
rather than by the government, or a company whose shares are not openly
traded and can only pass to another person with the agreement of other
6. At present, many experts believe that human resources contribute signifi-
cantly more to business success than the other resources.
7. When a company does not have enough money to pay its debts, it can be
put under the control of a receiver – a person chosen by the court of law
to be in charge of a bankrupt company.
3. Classify the following from the customer’s point of view
as advantages or disadvantages of a free economy. Try to explain why.
1. Consumers determine what is produced.
2. Competition increases.
3. Big and powerful companies may buy up smaller ones.
4. Everybody who has resources is free to run a business.
5. It is not easy to control air and water pollution.
6. Producers keep costs down.
7. Producers try to be innovative.
8. There may be considerable fluctuations in prices.
4. Classify the following from the customer’s point of view
as advantages or disadvantages of a command economy.
1. Large firms cannot control the market.
2. Large firms cannot put up prices.
3. Lack of competition reduces efficiency.
4. Individuals are not free to set up a business.
5. Freedom of choice is lost.
6. Prices tend to be stable.
7. Consumer needs are not responded to quickly.
8. Companies do not invest much in research.
1. Use the words from the pool to complete the sentences.
consumer discretionary • essential goods • consumer durables
raw materials • utilities
1. ___________ are public services used by everybody, e.g. gas supply or water
2. ___________ or staples are those that are basic to our lives like bread or
3. The ___________ sector includes goods that are not basic to our lives, e.g.
cars, entertainment or electronics.
4. ___________ are extracted from the earth.
5. ___________ are goods that can be used for a longer period of time, e.g. TV
sets or cars.
2. Complete the sentences.
1. A free market economy is a system in which ______________________.
2. Capital includes not only money but also ______________________.
3. Resources include ______________________.
4. Raw materials are those that ______________________.
5. A command economy may be criticized because ______________________.
6. Some state-owned companies experience difficulties and are unable
to pay their debts; a court of law can even declare they are in the state
Unit 1. Sectors of the economy
3. Match the words to form business collocations.
4. Complete the sentences using the correct words from the pool.
Some of the words will not be used, while some may be used more
state • decisions • services • managers • allocate • materials
profit • allocation • government • resources • taxes • companies
business • machines
1. Most ___________ are limited, that’s why we try not to be wasteful when
2. In a free economy all citizens are free to run a business for ___________ .
3. Communist states make ___________ on the use of ___________ collectively,
usually by the government.
4. Most countries have mixed economies which means that ___________ are
both private and ___________-owned.
5. Complete the sentences.
1. Manufacturing can refer to capital goods, non-durable goods and ___________
2. State-___________ enterprises are frequently abbreviated to SOEs.
3. The term SMEs stands for small and ___________-sized enterprises.
4. An entrepreneur is a person who knows how to start a ___________ by
bringing together all ___________ and who is not ___________ of ___________
the related risk.
5. A laissez-faire approach means that the government does not ___________
in business; it lets the ___________ mechanisms work freely, without any
___________ on the one hand and without any privileges on the ___________.
6. A ___________ economy means no government ___________ in the business
6. Put the words in the correct order.
1. by individuals / in/ owned and allocated / a market economy / are / resources
2. keep the profits / in a free / they generate / investors / economy / have
the right to / market
3. are / state-owned / generate / to / companies / expected / profits
4. the / the / and other / includes / providing / banking system / financial sector /
financial organizations / financial services / various
5. for instance / capital /deposits / buildings and machines / is anything/as well
as / owned by a company / on bank accounts
7. Explain the meaning of the collocations in English.
1. allocation of resources
2. means of production
3. private sector
4. public sector
5. light industry
8. Word search
Find words hidden in the grid and make collocations related
to the topic of this unit.
L U I
I G S U R
R A W O
E C O N O M Y B U L B I
E A E R N A D P Y
E M B S T A T
K A G E N E R A T
E D H I U E
A T O C E N T G O D A U E N B S
L O P E C O N E K S A S L S
I N O M I O D U L
I D O M U R T R C N
P A Y H A N T
O A H U M E N S
E N C O M P A N Y K C E A
A S T
T A N R O W N E D C A R E
E O L
C E S S E C T O R Y
E S E R V
E O G O O D S
D E V E N E
F R E
I A L U L A R
A M C O M M E R C
P R O F
E S E
E O M
O P R
T S D U R A B L
C E S E S T A B L
T M R E S O U R C E S N E
Unit 1. Sectors of the economy
1. Discuss the following points.
1. The difference between a free market economy and a mixed economy.
2. The role of an entrepreneur.
3. Classification of resources.
4. Why is freedom of choice important in business?
2. Give a short presentation on the model of economy in your
country. Give some suggestions on what, in your opinion,
should be changed or modified.
1. Write a list of advantages and disadvantages of a free market
economy and command economy from the point of view of:
– the government
2. Write an essay.
Choose one of the following topics and present your point of view in 250-300
1. Your views on the types of economy in different countries (e.g. the US,
2. The type of economy that is likely to prevail in the future.
3. The importance of non-renewable raw materials. How to use them? How
to substitute them?
4. Should all schools and hospitals be privatised? Can strategic industries be
Setting up a business
articles of association – one of the legal documents needed to set up a limited
company, giving details about the structure and running of the company,
e.g. powers of directors
authorised – given official permission for something to happen
certificate of incorporation – a formal document showing that a company has
entrepreneur – someone who uses money/resources to set up a business and
make business deals
establish – set up, found
legal – referring to law
liability – legal/financial responsibility for something
memorandum of association – one of the legal documents needed to set up
a limited company, giving details about its activities, capital, etc.
partnership – a business where two or more people share the risks and profits
partnership agreement – a document setting up partnership, giving the details
of the business
private limited company – a company whose shares are not traded on the stock
public limited company – a company whose shares are traded on the stock
raise capital – collect money for a particular purpose
registered office – the head office of the company as registered in the register
Registrar of Companies – the appointed official in charge of all matters relat-
ing to company registration and subsequent company filing amendments
Register of Companies – an official list of companies showing their directors
and registered addresses
sole trader – a person who sets up and runs a business by themselves
state-owned – the ownership belongs to the state
Unit 2. Setting up a business
Reasons for self-employment
‘Business’ is a word used widely in many languages. But what exactly does it
mean? There are many definitions of the word. Most of them define it as work
relating to the production, buying and selling of goods or services for a profit
or economic surplus. Profit is the money that remains after all the expenses
are paid. There are many types of business units in the commercial world. Free
market economies are usually divided into private and public sectors.
The private sector is the part of the economy operated by privately owned
firms, ranging from small sole traders to multinational conglomerates. By
producing and selling their goods or services, they attempt to make profits for
their owners. The public sector forms the second important part of the eco-
nomy. It includes all those activities that are state-owned and/or financed by
the government (either central or local), e.g. government-owned corporations
in nationalized industries, national public services, local government services
such as leisure centres, swimming pools, libraries. The emphasis is not on ma-
king a profit but providing a service to the community. These facilities are
funded by the state and municipal budgets, as well as by customers.
In Britain most businesses are small private companies. Why do so many
people turn their backs on traditional employment in favour of self-employment
or other forms of employment? What makes them do that? People may have
many reasons for wanting to set up a business. Some may be tired of the con-
stant struggle with unemployment and job insecurity. Every day workers are
laid off, even by well established companies. Even if people are not dismissed,
they have no guarantee that their well paid jobs and fringe benefits offered by
the company will not disappear overnight. So instead of waiting around to be
made redundant, they decide to take their future into their own hands and use
their skills and knowledge to set up their own business. They want to be self-
reliant instead of dependent on their employer. People do not want to make
others rich, they want to get rich themselves. As an employee your salary is
often fixed, sometimes rising with inflation. When you run your own business,
the more effort you put into it, the more likely you are to get something back.
Success is dependent on the application of your skills. A little more effort can
bring big rewards.
Another big attraction is the independence and freedom. You are your
own boss, you make the decisions instead of being told what to do, controlled,
assessed and, frequently, reprimanded by your superior. Employees are usually
expected to work set hours. When working for yourself, you choose your hours
of work. The same is true of days off and holidays. For some people establishing
a business may even be a natural progression from a hobby or interest.
Starting a business is both exciting and rewarding, but it is also full of chal-
lenges. Approximately 40 of all new businesses fail within the first two years.
Setting up a business requires full commitment, which particularly in the early
stages means a lot of hard work and long hours. A start-up does not offer
the advantage of the usual benefits associated with permanent jobs, such as
pension rights, sick pay and other perks. Establishing your own company requ-
ires considerable investment of time, funds and energy. Therefore, there are
a lot of factors to be considered before going into business.
One of the basic questions to be asked is: ‘Have I got what it takes to run
my own business?’
There is no golden rule on how to be successful. There are forces beyond
your control which can have a bigger impact on the condition of your company
than your attitude and skills. Having said that, there are certain qualities found
amongst successful business people.
A typical entrepreneur will have the following key qualities:
– being a self-starter
– good judgement
Although some characteristics are a valuable asset if you have them, it is essen-
tial that you believe in your ability to run the chosen business. Running a business
on your own can be a lonely occupation. For some people this is a good reason
to go into business with someone else in a partnership or a limited company.
Recent years have witnessed an increase in the number of small firms, or small
and medium-sized enterprises (SMEs). In the UK over 90 of companies are
classified as ‘small’. Their owners want them to survive in a very competitive
world as the number is still growing. Most firms in the private sector are either
sole traders, partnerships or limited companies.
Types of business units
1. A sole trader
A typical sole trader is the simplest business unit. It may be just an individual
who owns the business, e.g. a window cleaner, local shopkeeper, or hairdresser.
Usually the sole trader provides the capital, bears all the risks and makes
the decisions. Perhaps unsurprisingly, sole traders are the most common form
of business unit in the UK.
Unit 2. Setting up a business
2. A partnership
A partnership is a legal form of business organization where two or more
people trade together ‘carrying on business with a view to profit’. Some-
times there is a limitation on the number of partners in a company (the
exceptions may be in professions such as law and accountancy). Partners
still have unlimited liability which means that each partner is liable for
the debts of the other partners. The amount of capital provided by each
partner is stated in the Partnership Agreement. This document also states
the rights and responsibilities of the partners, the sharing of profits and
losses, the voting rights and arrangements in case of enlargement and dis-
solving the firm.
3. Limited companies
We distinguish two types of limited companies: public limited companies (PLC)
and private limited companies (Ltd). Public limited companies can be quoted
on a stock exchange. That means that the shares of the company are publicly
available, in contrast to a private limited company which is not allowed to ad-
vertise its shares to the general public. Both forms of company must indicate
their status in their name. This is usually done by including the abbreviations
at the end of the company’s name, e.g. The Royal Bank of Scotland Plc. Both
types can be formed by a minimum of two people but there are a lot of specific
administrative procedures to be followed. First of all, the business must become
registered with the Registrar of Companies. To do this a lot of documents must
be submitted. The key documents to be drawn up are the Articles of Associa-
tion and the Memorandum of Association.
• The Articles of Association define:
– the number of directors, their rights and duties,
– the types of shareholders and their rights,
– the relationships between the shareholders and the directors.
• The Memorandum of Association states:
– the name of the company,
– the purpose for which the company was formed,
– the company’s registered office,
– the amount of capital the company is registered with,
– the authorised share capital – the maximum share capital allowed.
When all the necessary formalities have been met the founders will
receive a certificate of incorporation. From that moment on, the company
is a separate legal entity which means that it has a separate legal existence
from its owners.
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