THE ECONOMY

TRANSCRIPT
Fanny: Hey, Brian, you know, recently I heard that the Canadian dollar is very strong.
Brian: It is. It's been amazingly strong in the last few months.
Fanny: What happened? I mean, how come?
Brian: It went up. The reasons behind why the Canadian dollar is strong...
Fanny: Yeah.
Brian: Very good question. Without getting too complicated, my understanding is
the Canadian dollar is linked to a lot of primary industries, so things like, say like,
oil or mining or timber from like forests and right now I think there's a high demand
for those kind of products, so because of that it's pushed the Canadian dollar up. But
also I think many other currencies have gone down a bit, like the American dollar has
dropped a lot.
Fanny: Really? OK.
Brian: I don't follow the currency markets too closely.
Fanny: OK, I see.
Brian: But I think because the American dollar has gone down as well, that means
that, you know, it doesn't take as much Canadian money to equal the American money
now, so I think those are probably two of the reasons why it's been strong.
Fanny: I see. I know that Canada is a country which is really rich in the natural
resources, but are there still a lot of natural resources left now?
Brian: That's another good question. I think that there are still quite a lot of resources.
Fanny: Oh, nice.
Brian: Which is, you know, is good but some of them are decreasing quite a bit.
Fanny: I think so, because of consumption.
Brian: It's too...
Fanny: Too big.
Brian: Right.
Fanny: Yeah.

Brian: And we export a lot of our resources too, so, you know, the Unites States is
always taking a lot of our resources so that's like a huge market right there, but I think
there's still lots of oil but maybe the... some of the trees, you know, they cut them
down pretty fast and they take a long time to grow back, so you have to watch out
there.
Fanny: OK, I think that's a very reason for the strong Canadian dollar.
Brian: It could be but you probably should ask an economist. Maybe they can tell you
a bit more informed insight on it than I can.
READING COMPREHENSION
Laissez-Faire CapitalismLaissez-faire capitalism
Laissez-Faire CapitalismLaissez-faire capitalism stems from the theories of
Adam Smith, a Scot. In 1776,in his book The Wealth of Nations, Smith argued that a
society's interests are bestserved when the individuals within that society are allowed
to pursue their own self-interest.
Every individual endeavors to employ his capital so that its produce may be of
greatest valueAnd he is in this led by an INVISIBLE HAND to promote an end
which was no part of his intention. By pursuing his own interest he frequently
promotes that of Society more effectually than when he really intends to promote it.
In other words, Smith believed that each person should be allowed to work
towardhis or her own economic gain, without interference from government. In doing
so, eachperson would unintentionally be working for the good of society as a whole.
And societywould benefit most when there was the least interference with this pursuit
of economicself-interest. Government should therefore leave the economy to its
citizens. The Frenchterm laissez faire implies that there shall be no interference in the
economy; looselytranslated, it means "let them do" (as they see fit).
The features of laissez-faire capitalism are:
Private Ownership of Property Smith argued that the creation of wealth
(includingproducts) is properly the concern of private individuals, not of government.
Hence theresources that are used to create wealth must be owned by private
individuals.Economists recognize three categories of resources: land, labor, and
capital, also knownas the factors of production. Land includes the land and the natural
resources on andin the land.Labour is the work performed by people. Capital includes
financial re-sources, buildings, machinery, tools, and equipment that are used in an
organization'soperations. We have referred to these resources as material, human, and
financialresources, and we shall continue to do so. Today, business people use the
term capital to mean both capital goods and the money needed to purchase them. The
privateownership and use of both kinds of capital give us the names capitalism and
privateenterprise for our economic system.
Smith argued further that the owners of the factors of production should be
free todetermine how these resources are used. They should also be free to enjoy the

incomeand other benefits that they might derive from the ownership of these
resources.
Economic Freedom Smith's economic freedom extends to all those involved in
theeconomy. For the owners of land and capital, this freedom includes the right to
rent, sell,or invest their resources and the right to use their resources to produce any
product andoffer it for sale at the price they choose. For workers, this economic
freedom means theright to accept or reject any job they are offered. For all
individuals, economic freedomincludes the right to purchase any good or service that
is offered for sale by producers.These rights, however, do not include a guarantee of
economic success. Nor do theyinclude the right to harm others during the pursuit of
one's own self-interest.
Competitive Markets A crucial part of Smith's theory is the competitive
marketcomposed of large numbers of buyers and sellers. Economic freedom ensures
theexistence of competitive markets, because sellers and buyers can enter markets as
theychoose. Sellers enter a market to earn profit, rent, or wages; buyers enter a market
topurchase resources and want-satisfying products. Then, in a free market,
sellerscompete for sales and buyers compete for available goods, services, and
resources.This freedom to enter or leave a market at will has given rise to the name
free-market economy for the capitalism that Smith described.
Limited Role of Government In Smith's view, the role, of government should
belimited to providing defense against foreign enemies, ensuring internal order,
andfurnishing public works and education. With regard to the economy, government
shouldact only as rule maker and umpire. As rule maker, government should provide
laws thatensure economic freedom and promote competition.
As umpire,it should act to settledisputes arising from conflicting
interpretations of its laws. Government, according toAdam Smith, should have no
major economic responsibilities beyond these.

What, How and for Whom in the Free-Market Economy

mith's laissez-faire capitalism sounds as though it should lead to chaos, not
toanswers to the three basic economic questions. How can millions of individuals
andfirms, all intent only on their own self-interest, produce an orderly economic
system? Oneresponse might be simply, They can
and they do." Most of the industrialized nations of the world exhibit some form of
modified capitalist economy, and these economies dowork. A better response,
however, is that these millions of individuals and firms actuallyprovide very concrete
and detailed answers to the three basic questions.
What to Produce?
This question is answered continually by consumers as theyspend their dollars in the
various markets for goods and services. When consumers buyspecific products, they
are casting "dollar votes" for these products. These actions tellresource owners to

produce more of this product and more of the capital goods withwhich the product is
manufactured. Conversely, when consumers refuse to buy a productat its going price,
they are voting against the product, telling producers to either reducethe price or ease
off on production. In each case, consumers are giving a very specificanswer
concerning a very specific product.
How to Produce?
The two parts of this question are answered by producers asthey enter various
markets and compete for sales and profits. Those who produce for aparticular market
answer the question "Who will produce?" simply by being in thatmarket. Their
answer, of course, is "We will.Competition within various markets determines which
resources will be used. Tocompete as effectively as possible in the product markets,
producers try to use the mostefficient (least-cost) combination of resources. When a
particular resource can be usedto produce two or more different products, then
producers must also compete with eachother in the market for that resource. And, if
the price of one needed resource becomestoo high, producers will look for substitute
resourcessay, plastics in place of metals.The resources that will be used to produce
are those that best perform their function atthe least cost.
For Whom to Produce?
In a market economy, goods are distributed to those whohave the money to
purchase them. This money is earned by individuals as wages, rents,profit, and
interestthat is, as payment for the use of economic resources. Money istherefore a
medium of exchange, an artificial device that aids in the exchange of resources for
goods and services. The distribution of goods and services ("who getswhat") therefore
depends on the
current prices
of economic resources and of the variousgoods and services. And prices, in their turn,
are determined by the balance of supplyand demand
B) Answer the following questions:
1. What economic system is there in the USA?
2. Speak about the history of Laissez-faire capitalism. What are its features?
3. What does the right of private property entitle the owner to do?
4. What is land, labour and capital?
5. What is economic freedom? What does it mean for the owners of land andcapital,
for workers and for all individuals?
6. What are competitive markets?
7. What is the role of government in this economic system?
8. What are the 3 economic questions that every society must answer in order toset up
an economic system?

9. What economy do most of the industrialized nations of the world exhibit?

10. Who answers the questions What to produce? How to produce?, and For
whom to produce??
C) Finish the sentences:
1.The 3 basic economic questions are
2.By pursuing his own interest every individual.
3.For workers economic freedom means
4.The question What to produce? is answered by
5.If the price of one needed resource becomes too high, the producer.
6.Prices are determined by
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