POLE UNIVERSITAIRE KOLEA

ECOLE SUPERIEURE DE COMMERCE

Pedagogical Support in Business English & Economics

Master
First Year
Semester I

Designed by Dr Selougha Fayrouz

1
Contents

Preamble ……………………………………………………………………………………...2

BUSINESS ENGLISH & ECONOMICS

CHAPTER 1 REVISION

I-Definition of an Essay………………………………………………………………………15

I-1 Types of Essays…………………………………………………………………………...15

I-2 Essay Sample……………………………………………………………………………...15

I-3 Linking Words……………………………………………………………………………16

I-3-1 Function One Expressing Addition……………………………………………………..16

I-3-2 Function Two Expressing Results, Outcomes………………………………………….17

I-3-3 Function Three Expressing Conflicting Ideas…………………………………………..17

I-4 EXERCISES………………………………………………………………………………19

CHAPTER 2 MANAGEMENT

II- Definition of Management………………………………………………………………...25

II-1 Management as a Process ……………………………………………………………….26

II-2 Management and Organization………………………………………………………….28

II-2-1 Types of Organizations………………………………………………………………...28

II-3 Business Organization……………………………………………………………………29

II-3-1 Types of Business Organizations………………………………………………………30

II-4 Written Tasks ……………………………………………………………………………33

II-5 Functions of Management……………………………………………………………….34

II-5-1 Planning Function……………………………………………………………………..34

II-5-2 Organizing Function…………………………………………………………………...35

II-5-3 Staffing Function ……………………………………………………………………...35

II-5-4 Directing/Guiding/or Leading Function ………………………………………………36

II-5-5Controlling Function……………………………………………………………………37

II-6 Written Tasks…………………………………………………………………………….39

II-7 Management Styles….…………………………………………………………………...42

2
II-7-1 Autocratic Management ………………………………………………………………42

II-7-2 Paternalisitic Management ……………………………………………………………43

II-7-3Demeocratic Management ……………………………………………………………..43

II-7-4 Laissez Faire Management ……………………………………………………………43

II-7-5 Walking Around Management ………………………………………………………..43

II-8 Written Tasks ……………………………………………………………………………45

II-9 Levels of Management …………………………………………………………………..47

II-9-1 Top Level Management ……………………………………………………………….47

II-9-2 Middle Level Management ……………………………………………………………48

II-9-3 Low Level Management ………………………………………………………………48

II-10 Skills of Management ………………………………………………………………….49

II-10-1 Technical Skill ……………………………………………………………………….49

II-10-2 Human Skill ………………………………………………………………………….49

II-10-3 Communication Skill ………………………………………………………………...49

II-10-4 Leadership Skill ……………………………………………………………………...49

II-10-5Problem Solving Skill ………………………………………………………………...49

II-10-6 Decision Making Skill ………………………………………………………………50

II-11 Objectives of Management ……………………………………………………………50

II-12 Glossary ………………………………………………………………………………..51

II-13 Exercises ……………………………………………………………………………….55

CHAPTER 3 ECONOMICS
III Definition of Economics………………………………………………………………….80
III.1 Branches of Economics…………………………………………………………………80
III.2 Factors of Production……………………………………………………………………81
III-3 Written Tasks …………………………………………………………………………...83
III.4 Major Economic Concepts………………………………………………………………84
III-4-1 Scarcity..………………………………………………………………………………84
III-4-2 Needs and Wants……………………………………………………………………...84
III.4.3 Economic Efficiency…………………………………………………………………..86
III.4.4 Opportunity Cost……………………………………………………………………....87

3
III.4.5 Market Value…………………………………………………………………………..88
III-5 Written Tasks …………………………………………………………………………...89
III-6 Economic Development and Economic Underdevelopment …………………………..92
III-6-1 Characteristics of Developed Economy ……………………………………………...93
III-6-2 Characteristics of Underdeveloped Economy………………………………………...93
III-7 Written Tasks……………………………………………………………………………95
III-8 Major Sectors in the Economy ………………………………………………………...97
III-8-1 Definition of an Economic System…………………………………………………...97
III-8-1-1 Types of Economic Systems ……………………………………………………….97
III-8-1-1-1Traditional Economic System……………………………………………………100
III-8-1-1-2 Command Economy…………………………………………………………….100
III-8-1-1-3 Market Economy………………………………………………………………..100
III-8-1-1-4 Mixed Economy………………………………………………………………...100
III-9 Written Tasks…………………………………………………………………………..101
III-10 Major Theories of Economic Development and Underdevelopment ………………..102
III-10-1 Rostow’ Theory of Economic Development……………………………………….102
III-10-1-1 Traditional Society ………………………………………………………………103
III-10-1-2 Preconditions for Take Off ……………………………………………………...103
III-10-1-3 The Take Off …………………………………………………………………….103
III-10-1-4 The Drive to Maturity …………………………………………………………...103
III-10-1-5 The Age of High Mass Consumption …………………………………………...103
III-10-2 The Vicious Circle of Poverty……………………………………………………...104
III-11 Written Tasks ………………………………………………………………………..107
III-12 Glossary………………………………………………………………………………109
III-13 Exercises ……………………………………………………………………………..114
Bibliography…………………………………………………………………………………134

4
Preamble

The syllabus is designed for first year Master student, semester one. It includes three chapters.
The first chapter is a revision of some grammatical basics aiming to refresh the students’
minds about some already acquired aspects of the English language that may help them in a
better mastery of the next chapters. Each chapter consists of varied topics related to either
management or economics.

The chapters are accompanied by diverse language activities dealing with the four language
skills: listening, speaking, reading and writing in addition to a glossary including the related
terminology dealt with in the chapter.

The first semester includes an hourly volume of thirty hours (30), divided into twelve weeks
during which the students are given the opportunity to get knowledge of new business and
economic concepts while developing previous knowledge acquired in their preparatory years.

The focus of the syllabus is on the most relevant management and economic topics that are
fundamental for communicating in business English. Teaching materials are carefully selected
based on students’ language abilities and target to help them develop some specific language
areas that are of particular interest to students of “Ecole Superieure de Commerce.”

The syllabus attempts to develop Business English skills, which are vital for getting ahead in
a professional career and working effectively in an international environment, which requires
improving business English vocabulary and knowledge.

Business English courses include vocabulary and phrases used in business and profesional
setting, business writing, delivering presentations, giving opinions, negotiating, describing
graphs and charts as well as conducting and taking part in meetings. Moreover, there are
aspects of business English related to teamwork, business travel, relationships building and
preparing for a job interview.

Through this syllabus, we target enhancing specific areas related to the larger concepts of
management and economics, which may help both those students, who prefer to engage in a
professional life after the completion of their master degree, or even those who opt for further
postgraduate studies. The course may also help some students with higher English language
skills to develop their paper in English at the completion of their master degree.

Course Prerequisites

In order to achieve the greatest benefit from the course, the students need particular
prerequisites. It is necessary that they have a firm previous knowledge of general English
language on which one can build a business English course in particular economic fields
related to economics, management, finance, accounting, and marketing

Objectives of the Syllabus

The objectives of the course include, first, developing written and oral skills in a context of
business English. It also targets the improvement of the student’s reading and writing abilities.
The course also seeks to raise the student’s consciousness and awareness of cultural
differences between foreign business cultures and his native culture.

5
This course also aims to improve students’ knowledge of economics and a number of related
topics such as management, finance, accounting and marketing. Another focal point of the
course is to familiarize the student on the related terminology of each topic dealt with in the
course.

Similarly, the student should acquire the ability to read and comprehend business and
economic articles.

The course also enhances the student’s ability to deal with business English case studies and
conduct an adequate and appropriate analysis of business and economic issues.

After the completion of the course, and by the end of the semester, first year master students
should be able to:

 Discuss economic concepts included in the syllabus.

 Read and comprehend, economic and business key ideas, general ideas, and implied
ideas included in reading comprehension tasks
 Comprehend economic terminology in context
 Categorize and use formal and informal economic registers
 Provide suggestions and recommendations related to particular economic ideas
 Talk about advantages and disadvantages of related economic topics
 Express opinion, tendencies, cause and effect, and reasons concerning economic ideas
 Write descriptions, definitions of business and economic issues
 Interpret information in graphs and charts
 Make comparison between economic issues
 Use business and economic jargon
 Speculate, make predictions, and write about the future of some economic issue

6
Chapter One

7
Revision

I-Definition of an Essay

An essay is a short academic writing. The word “essay” is derived from a French word “essai”
or “essayer,” which imply “trail.” It is a non-fiction writing that discusses a specific topic.
The essay is usually shorter and less formal than a dissertation, and usually deals with its
subject from a limited and often personal point of view.

I-1 Types of Essays

The major types of essays used in business English writing include the followings:

The major types of an essay include the followings:

Essay

Descriptive Analytical
Expository

Cause & Effect Comparison & Contrast

Argumentative

Figure 1Types of essays

 Descriptive Essay provides the readers with a description of a given issue.
 Expository Essay exposes an idea in detail to make the reader understand a given
issue.
 Persuasive Essay attempts to convince the target audience concerning a given issue.
 Argumentative Essay is meant to present arguments in the favor of a given topic. It
has an additional fourth body paragraph that is meant to present opposite arguments.
 Analytical Essay analyzes an issue such from different angles.
 Comparison and Contrast Essay compares or contrasts, between two different or
similar issues.
 Cause and Effect Essay makes readers understand the cause of a situation, and its
effects.

I-2 Essay Sample

 Paragraph1: Introduction
 Thesis statement

 Paragraph2: Body paragraph. It can include different paragraphs, which give:

 Statistics
 Information on the subject

 Paragraph3: Conclusion paragraph

 Restate the thesis statement
8
  Support a given issue

I-3 Linking Words

Linking words and phrases are used to show relationships between ideas, join two or more
sentences, add ideas together, contrast them, or show the reason for a given situation.

I-3-1 Function One: Expressing Addition

The major linking words used to express addition are: and, also, and too

For example:

 Last year we acquired two companies: ABC and XYZ.

 Last year we acquired ABC. We also acquired XYZ.
 Last year we acquired the company ABC. We acquired XYZ too.

In the above examples, the linking words express the idea of a company acquiring two other
companies.

They can be replaced with the following more advanced linking words, “besides,” “in
addition to,” “as well as,” and “furthermore.”

 Besides acquiring ABC last year, we took over XYZ.

 In addition to acquiring ABC last year, we took over XYZ.
 As well as acquiring ABC last year, we took over XYZ.
 Last year we acquired ABC company. Furthermore, we took over XYZ.

(“Furthermore” implies that taking over XYZ was more important than acquiring ABC.)

I-3-2 Function Two Expressing Results, Outcomes

In the following examples, the linking words express the idea that a smaller advertising
budget will result in fewer sales.

Basic linking word examples:

 Because of our smaller advertising budget, we made fewer sales.

 We made fewer sales because of our smaller advertising budget.
 We had a smaller advertising budget, so we made fewer sales.

Advanced linking words examples:

 As a result of the smaller advertising budget, we made fewer sales.

 We had a smaller advertising budget and, as a consequence, we made fewer sales.
 We had a smaller advertising budget. Consequently, we made fewer sales.
 Due to having a smaller advertising budget, we made fewer sales.
 We had a smaller advertising budget. Therefore, we made fewer sales.

I-3-3 Function Three Expressing Conflicting Ideas

When talking about two conflicting ideas in one sentence, the basic linking word, “but” is
used. “But” can be replaced with more advanced linking words such as “although”
“however,” “in spite of (the fact that),” “despite (the fact that),” “nevertheless”, and “yet.”
9
In the following examples, the conflicting idea of selling fewer products, but making more
profit is expressed.

We sold fewer products but made more profit. (Basic linking word)

-Advanced linking words examples:

 We sold fewer products but made more profit.

 Although we sold fewer products, we made more profit.
 We sold fewer products. However, we made more profit.
 In spite of selling fewer products, we made more profit.
 In spite of the fact that we sold fewer products, we made more profit.
 Despite selling fewer products, we made more profit.
 Despite the fact that we sold fewer products, we made more profit.
 We sold fewer products. Nevertheless, we made more profit.
 We sold fewer products, yet made more profit.

The following table is an illustration of the major linking words used in English:

In my opinion/view, To my mind, To my way of thinking, I am

Expressing convinced that, It strikes me that, It is my firm belief that, I am inclined
personal to believe that, It seems to me that.
opinion As far as I am concerned, I think that the economic recession of the
previous decade was foreseeable.

One advantage of, another advantage of, one other advantage of, a
Stating further advantage of, the main advantage of, the greatest advantage of.
advantages &
disadvantages One advantage of riding a motorbike in a large metropolis is that of
not getting caught in major congestion.

Firstly, First of all, In the first place, Secondly, Thirdly, Finally.

Listing Points To start/begin with, we have to address the inadequacies within the
economic system before we can tackle the issue of unemployment.

What is more, furthermore, apart from this/that, In addition (to this),

moreover, besides (this)
Not to mention the fact that the choice of career is a fundamental
Adding points decision, which will influence the rest of one’s life.
to the same
topic Not only is the choice of career a fundamental decision, but it is also
one that will influence the rest of one’s life.
The employee’s choice of career is both a fundamental decision and
something that will influence the rest of your life.

With reference to,

Referring to
other sources According to the latest scientific research, the use of mobile phones can
be damaging to one's health in the long run.

10
Emphasizing Indeed, Naturally, Clearly, Obviously, Of course,
on a point Needless to say, the scheme was bound to fail due to insufficient funds.

For instance, For example,

Giving By providing incentives such as, like day-care centers working mothers
examples are encouraged to resume their careers.

It is popularly believed that, People often claim that, It is often alleged

stating that, Some people argue that, Many argue that, Most people feel that,
opinions Some people point out that wealth will bring happiness. Contrary to
the popular belief, wealth does not necessarily bring happiness.

Finally, Lastly, All in all, Taking everything into account/consideration,

On the whole, All things considered, In conclusion, On balance, For the
Concluding above mentioned reasons, Therefore I feel that,
To sum up, it is unlikely that there will be peace in all the countries of
the world concurrently.

In short, briefly, to put it briefly,

Summarising
In short the employee’s performance was amazing!

11
I-4 EXERCISES

1-Fill in the blanks with the appropriate linking words. Each statement is followed by
three suggested answers. Choose the most appropriate one

1- …………………, we are satisfied with your performance.

For example-in general-as well as

2. It is a small house and requires a lot of repairs. …………………, it is a long way from the
center.
Nonetheless-in particular-moreover

3. Everybody had heard of Einstein ……………. hardly anyone could understand his theory
of relativity.
and- but-of course

4. It is true that the British did some good in India. ……………………, colonialism is
basically bad.
Even so -of course-in particular

5. The car broke down on the way. ……………………., I managed to reach in time.
Certainly-therefore-in spite of this

2-Rewrite the sentences so that they have the same meaning

1-In spite of being the market leader the company went bankrupt.

………………………………………………………………………………………………

2-Although the company does not a burglar alarm it has never been burgled.

………………………………………………………………………………………………..

3-Despite the fact that I was late the boss was not angry.

………………………………………………………………………………………………….

4-In spite of being the managing director he goes to work by bike.

…………………………………………………………………………………………………

3-Complete the sentences with to, so as not to, so that, because, because of

1-The chief executive manager never talks about his private life……. avoid familiarizing with
his subordinates.

2-The company had to make a lot of workers redundant …………it could survive.

3-The security agent always locks all the windows of the office …………….there have been
burglaries near here.

4-When my superior asked me if I liked her speech, I told a white lie …………hurt her
feelings.

5-The secretary was very late for the meeting ……………..the terrible traffic.
12
6-I’m going to work late on Friday night …………………have to do any work at the
weekend.

7-I will send him an e-mail …………to tell him when we are coming.

4-Choose the right alternative

1- He got the job /so / despite / however / because / but/ not having much experience.

2- I hired him /so / despite / however / because / but/ he had so much experience.

3- She was quite nervous, so / despite / however / but she didn’t do very well.

4- He seems well educated so / despite / however / because/ he is not very bright.

5- She is not only beautiful and intelligent so / despite / however / because / but kind and
thoughtful.

5-Rewrite the sentences, using a linking word, so that the two sentences have the same
meaning

a-Joseph never helped with the company work. Pat did.

Joseph never helped with the company work whereas Pat did

b-We sometimes stayed out late. We always got home before twelve.

Though we sometimes stayed out late, we always got home before twelve

c-He did not like extra hours: he did not mind staying late in the office.

He did not like extra hours however he did mind staying late in the office.

6-Write new sentences as similar as possible in meaning to the original one

1-Very little of the remaining stock was sold, despite the low prices.
…………………………………………………………………………………………………..

2- The ailing company introduced several new features on the product. Nevertheless, sales
continued to drop.

…………………………………………………………………………………………………

3-He’s intelligent but he does not study much.

…………………………………………………………………………………………………..

7-Use the appropriate linking word to express the following sentences or passages

1-Reason

1-The company website failed ……………….visitors found it too difficult to navigate.

2-The fire occurred on a weekend…………………the office was empty at the time, there
were no injuries.

3-The car was recalled ……………………a design faults in its braking system.
13
4-……………the recession, most retailers have recorded a sharp downturn in quarterly profits

2. Result

1-The government was hoping that listeners would switch from analogue to digital radio well
in advance of the deadline of 2012. ……………………………..a series of advertisements
were planned to highlight the advantages of digital transmission.

2-Sales rapidly declined and …………………………..Bailey Brothers were forced to close

their factories.

3. Contrast

-……………………….. the company has expanded, it has not yet increased its profit margin.

-Our staff is having difficulty with the new computer program...........................they have
received extensive training.

-…………………. I’m enjoying my course, it is a hard work.

I’m enjoying my course, ………………..it is a hard work.
I’m enjoying my course. It is hard work,……………...

-……………………… of the evidence presented by expert scientists, some commentators

still question the existence of global warming.

-The UK has certainly built more roads……………….., it is the train system that has a
greater need for new investment.

-…………………….. NATO was created as an alliance against Communist power, the UN

was established to keep the peace between nations.

14
CHAPTER II

15
MANAGEMENT
The general objectives of the chapter are:

 Define the concept of management

 Define the concept of organization
 Discuss the various types of organizations
 Discuss the concept of business organization
 Discuss the various types of business organizations
 Discuss orally & in a written form the various functions of management
 Discuss the various styles of management
 Discuss the various levels of management
 Discuss the various skills of management
 Discuss the objectives of Management

16
II-Definition of Management

Management is a universal concept. All organizations whether businesses, political, cultural

or social require management in order to direct the efforts of their members towards a
predetermined objective. Management creates an environment in which individuals
perform and can co-operate. It is the process of working with and through others to achieve
the organizational objective. The goals vary from one enterprise to another. E.g.: For one
enterprise it may be launching of new products through market surveys and for another it
may be profit maximization by minimizing cost.

Management is a process consisting of a set of continuing and related activities seeking the
attainment of an organizational objective through an optimum use of human and material
resources.
This is best illustrated through the following figure:

Management

Activity 1 Activity2 Activity3 Ect …..

Organizational Resources

Human Resources Material Resources

Predetermined Organizational
Objective

Figure 1 The Concept of Management

Management has been defined by various authors:
James L. Lundy defines management as:
“The task of planning, coordinating, motivating and controlling the efforts of employees
towards a specific objective”
(in Gupta 2007:5)
Peter F Drucker considers management as:

“A multi-purpose organ that manages managers and manages employees and work”
(In Ramesh B. Rudani 2013:5)

Another definition provided by J.P. Pathak states that:

17
 “Good management achieves an objective with an optimum use of human and material
resources, energy and time and with satisfaction for the participants and the public”.
(2015:4)

II-1 Management as a Process

Management has also been defined as a social, integrating, continuous and professional
process aiming the attainment of a predetermined objective.

This idea is illustrated in the following figure.

Management as a Process

Social Professional

Integrating Continuous

A Predetermined Organizational Objective

Figure 2 Management as a Process

The figure above indicates that management is a:
 Social Process that builds useful and productive relationships among employees and
with customers.

 Integrating Process that joins between human and material resources to achieve the
organizational objective. In other words, management determines the needs of
human resources in terms of material resources.

 Continuous and never-ending Process that identifies problems and brings

appropriate solutions.

 Professional process that determines the tasks of the manager. In other words, what
are the tasks of the manager and what is the appropriate behavior for each situation.
The Managerial Activities comprised in the Professional Process are illustrated in the
following figure:

18
 Professional Process

Informational Decisional Interpersonal

Activity Activity Activity

Programmed Decisions Non Programmed Decisions

Figure 3 Managerial Activities in the Professional Process

 Informational Activity refers to the communication link between a manager and

his superiors or subordinates.

 Decisional Activity refers to the managerial decisions related to the functioning of

the organization, which can be either:

Programmed decisions are routine decisions made on the basis of

predetermined decision rules.

Non- programmed decisions are unpredictable and are not subject to

predetermined decision rules. (in case of emergencies)

 Inter-personal Activity refers to managers’ interaction with sub-ordinates in order

to maintain good relations with all the organization’s members.
The definitions above imply that management is the task of organizing and coordinating
the activities of a given organization in order to achieve organizational objectives.
Management is conducted by the directors and managers of an organization. They have
the responsibility to oversee the overall organization and make decisions.
Management can be performed by a single manager in a small organization or various
managers in big organizations, such as corporations or multinationals.

Hence management fulfills the following major functions:

Formulation of objectives, plans and policies
Gathering of people, money, materials, and methods
Motivation of employees
Coordination between employees
Supervision and control of employees’ performance

II-2 Management and Organization

An organization is a social entity which is goal-oriented and linked to its external

environment. It consists of a group of people, who agree to perform specific tasks for the
accomplishment of a common objective.
The Business Dictionary defines an organization as follows:

19
 “An organization is a social unit structured and managed to pursue a collective goal. All
organizations have a management structure that determines relationships between different
activities and the members, and subdivides and assigns roles, responsibilities, and authority
to carry out different tasks. Organizations are open systems-they affect and are affected by
their environment.”
(1)
II-2-1 Types of Organizations
There are different types of organizations that allow the society to function and accomplish
its duties.
The major types of organizations existing in a society include the following:
Types of organizations Examples Objective
Educational Schools- Universities …. Delivery of knowledge

Medical Hospitals-Doctor Offices Delivery of health services

Political Governments-Ministries- Political Attainment of political power
Parties.
Religious Mosques Delivery of religious knowledge
Practice of religious obligations

Business Companies-Firms Achievement of profit

Table 1 Types of Organizations
Organizations seek to attain two major objectives:
Generation of profit sought by for profit organizations like business companies.
Delivery of a particular service to the community sought by for non- profit
organizations.
Organizations are important because of the following reasons:
 Gathering of resources for the achievement of predetermined goals.
 Production of efficient goods and services.

II-3 Business Organization

A business organization consists of a group of people, who collaborate to achieve an

economic objective. It is thus a for-profit organization that sells products or services to
generate revenue. Its success depends on the ability of its managers to realize an amount of
money that exceeds the amount that was invested to allow payment of employees, covering
of costs and expenses and the ability to conduct further investments.
The most important factors that determine an organization’s capacity are the qualifications
and experience of its managers and employees.

The policy of a business organization is defined by its board of directors led by a chief
executive officer also called CEO.

There are many types of business entities. Some are characterized with a flexible
management while others are more rigidly managed. Some types of businesses provide
owners protection from liability and some do not. Some are heavily regulated, and others are
less regulated.
Business Organizations use resources such as the ones shown in the following figure:

20
 INPUT

Organizational
Resources Information
Capital system

Employees Raw
material

Transformation
System

OUTPUT

GOODS SERVICES

Figure 4 Organizational Resources

As shown in the figure above the Input goes through a Transformation System to produce
an Output consisting of goods or services.
The relationship between an organization and management is complementary.
Management has no reason to exist without an organization and an organization cannot
function or achieve the objective for which it exists without management.
II-3-1 Types of Business Organizations

The following table identifies the major types of business organizations, which are:
Sole Proprietorship
Partnership
Corporations

It also indicates the characteristics of each business entity.

Types of BOs Characteristics

Sole Proprietorship
 Ownership: the business is owned by one person.
 All business decisions made by the proprietor.
 A manufacturing business
 Management is conducted by the proprietor, who can be the
business's unique employee.
 Possibility of employment
 Profit motive business
 An entity not separate from its proprietor.
 The owner’s liability for all the business's debts, expenses and
taxes.
21
  All possible losses sustained by the proprietor

Partnerships  Ownership by two persons or more.

 Business decisions shared by all partners
 A manufacturing business.
 Management conducted by the all the partners.
 More than one person to form a partnership.
 Profit motive business
 Distribution of profit among partners.
 Loss sustained by all partners.
 Agreement to form a partnership.
 Contribution of each partner in the capital according to the
agreement.
 No separate entity apart from the partners.
 Unlimited liability of each partner for payment of business
obligations such as debts.

Corporation  A legal and separate entity conducting business in its own name.
 Stockholders are the corporation agents.
 Business continuity
 The sale of a stock or death of a stockholder does not impact the
continuity of the corporation.
 Limited liability: stockholders’ liability limited to the amount
invested by each stockholder in the corporation.
 Corporate assets are concerned for satisfaction of business
claims.

Table 2 Characteristics of Business Organizations

The following table illustrates the advantages and disadvantages of the three basic legal
forms of business organizations:

Types of BO Advantages Disadvantages

Sole Proprietorship -Easiest and least expensive. -Limited Business assets.

-Sole and complete control. -Limited Funds.
-Non Profits sharing.
-Easy dissolution
Partnership -Important amounts of funds. -Partners liable for potential errors
-Opportunities for Recruitment -Profit-sharing.
-Varied Business Skills. -Possible disagreement or conflicts between
partners
-Limited existence
Corporation -Shareholders’ limited liability -Time and money consuming.
-Shareholders accountability only for -High taxes(business income & dividends)
their investment
-Important accumulation of Funds.

Table 3 Advantages and Disadvantages of Business Organizations

22
II-4 Written Tasks

Q1 Write a personnel definition of management

………………………………………………………………………………………………………
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
Q2 What is an organization? What are its major objectives?
………………………………………………………………………………………………………..
………………………………………………………………………………………………………..
………………………………………………………………………………………………………..
………………………………………………………………………………………………………..
………………………………………………………………………………………………………..
……………………………………………………………………………………………………….
………………………………………………………………………………………………………..
Q3 What is a business organization and what are its major objectives?
………………………………………………………………………………………………………
……………………………………………………………………………………………………….
………………………………………………………………………………………………………
………………………………………………………………………………………………………
……………………………………………………………………………………………………...
………………………………………………………………………………………………………
………………………………………………………………………………………………………

23
II-5 Functions of Management
R.D. Agarwal defined the functions of management as follows:

Management is a social process of planning, organizing, staffing, directing and controlling

for the determination and achievement of organizational objectives in a dynamic
environment.
(1982:5)

The basic management functions that make up the management process are illustrated
through the following figure:

Management

Planning Organizing Staffing

Directing Controlling

Figure 5 Functions of Management

II-5-1 Planning Function

As it is illustrated in figure 6is the basic function of management. It involves the selection of
an objective and the establishment of a strategy for its achievement.

The function of planning is better illustrated through the following figure:

Planning

Selection

Objective Strategy

Figure 6 The Planning Function

In selecting the organizational objective the manager should consider its feasibility or
practicability. An objective that does not correspond to the organizational resources is
obviously non-achievable.

Hence, Planning indicates:

What tasks must be performed to attain the organizational objective.

How tasks must be performed? (Strategy or method)
When tasks should be performed? (duration or deadline)
24
II-5-2 Organizing Function
It is the assignment of tasks developed in the planning stage, which have to be explained
and clarified. Subordinates should also be provided with the necessary equipment and
materials for the accomplishment of tasks.
According to Henry Fayol
“To organize a business is to provide it with everything useful for its functioning i.e. raw
material, tools, capital and personnel”
(Annpam Karmakar – Badish SarkarDatta 2012:11)
The function of Organizing involves:

Identification and classification of activities.

Assignment of tasks and duties.
Supply of equipment and material required in the accomplishment of tasks.

II-5-3 Staffing Function

It is the function of managing the organization’s staffing structure. Its main purpose is to
put the right employee in the right position.

According to Kootz & O’ Donell

“..the managerial function of staffing involves managing the organization’s structure

through proper and effective selection, appraisal & development of personnel to fill the
roles designed into the structure”.
(G.MURUGESAN 2012:72)

In this context, Staffing involves managing the organization’s human resources through an
efficient:
Selection, recruitment, and placement of qualified personnel in the right position
Training
Fair Remuneration (salaries and wages)
Monetary and no-monetary incentives. (bonuses or encouragements)
Performance appraisal
Promotion
Transfer

The advantages of the function of staffing are summarized through the following points: (G.
MURUGESAN 2012: 71)

High performance resulting from the work of competent and qualified personnel
and the placement of the right employee in the right position.
Job-satisfaction and motivation resulting from performance-appraisal, fair-
remuneration, feedback and incentives.
Optimum utilization of human and material resources.
Continuity and growth of the organization.

II-5-4 Directing/ Guiding / leading Function

25
They all refer to the managerial function, which ensures that the organizational objectives
and strategies set in the planning stage are efficiently carried on and implemented in the
accomplishment of tasks.
“Directing has been defined as the function of leading the employees to perform
efficiently and effectively and contribute their optimum to the achievement of
organizational objectives.
(R.D. Agarwal 1982:7)

The sub-functions involved in the function of directing are shown in the following figure:

Directing

Supervision Motivation Leadership Communication

Figure 7 Directing Sub-Functions

Supervision is the direction of work and workers.

Motivation is inspiring, stimulating and encouraging subordinates through

feedback, monetary and non-monetary incentives.

Leadership is to influence the work of employees and subordinates in a determined

direction.

Communication is to pass information, experience and opinion to employees and

subordinates.

II-5-5 Controlling Function

It is to ensure that the organizational activities are carried on in conformities with the
organizational regulations and laws.

According to Theo Haimann:

“Controlling is the measurement &correction of performance activities of subordinates

in order to make sure that the enterprise objectives and plans desired to obtain them are
being accomplished.”
(R S N Pillai 1987:546)
The functions of Controlling involve the following sub-functions:

Performance appraisal made on the basis of an evaluation scale.

Corrective action.

Based on this, one can say that the functions of management are the best means for
describing managers’ job and responsibilities. A business cannot survive and prospect
without management. It represents its fundamental basis for achieving maximum benefit
and prosperity.
26
II-6 Written Tasks

Q1-Discuss the importance of the functions of management

……………………………………………………………………………………………………
…………………………………………………………………………………………………….
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………………………………
Q 2-Explain the difference between efficiency and effectiveness.

…………………………………………………………………………………………………….
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
…………………………………………………………………………………………………….
……………………………………………………………………………………………………..
…………………………………………………………………………………………………….
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
…………………………………………………………………………………………………......
…………………………………………………………………………………………………….
…………………………………………………………………………………………………….
…………………………………………………………………………………………………….
……………………………………………………………………………………………………..

Q3 What is a feasible organizational objective?

…………………………………………………………………………………………………….
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
…………………………………………………………………………………………………….
…………………………………………………………………………………………………….
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..
……………………………………………………………………………………………………..

Q4 What is the difference between production and productivity?

……………………………………………………………………………………………………….
……………………………………………………………………………………………………......
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
………………………………………………………………………………………………………
………………………………………………………………………………………………………
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
………………………………………………………………………………………………………
………………………………………………………………………………………………………
……………………………………………………………………………………………………..

27
Q5-What is the difference between maximum and optimum?
……………………………………………………………………………………………………..
………………………………………………………………………………………………………
……………………………………………………………………………………………………..
………………………………………………………………………………………………………
………………………………………………………………………………………………………
……………………………………………………...........................................................................
Q6 Discuss the difference between a manager and a leader
………………………………………………………………………………………………………
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
………………………………………………………………………………………………………..
………………………………………………………………………………………………………..
……………………………………………………………………………………………………….
………………………………………………………………………………………………………..
……………………………………………………………………………………………………….
Q7 Explain the concept of feedback

……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
……………………………………………………………………………………………………….
…………………………………………………………………………………………………….
…………………………………………………………………………………………………….
…………………………………………………………………………………………………….
…………………………………………………………………………………………………....
……………………………………………………………………………………………………
…………………………………………………………………………………………………….
……………………………………………………………………………………………………

28
II-7 Management Styles
A management style is an overall method of leadership. In general, every manager has his
/her unique style of dealing with employees. These various styles of dealing with employees
and subordinates at the workplace are referred to as management styles.

The Business Dictionary defines management styles as follows:

“it refers to the method that an administrator usually employs when running a business.
Depending on business circumstances, a manager might need to employ more than one
management style in a more or less formal way to achieve the highest degree of
effectiveness.”
(1)

Managers have to perform different roles in a business organization in order to deal with
various situations, which require different styles of management.

The major management styles are illustrated in the following figure:

Management Styles
Autocratic Paternalistic

Democratic Laissez-Faire Walking Around

Figure 8 Management Styles

II-7-1 Autocratic Management

The autocratic manager does not take into consideration the ideas and suggestions of
subordinates. He has the sole responsibility for decision-making. The employees do not
have the right for any initiative. They should respect his guidelines and policies. The major
drawback of this style is lack of motivation from the part of employees and subordinates. In
other words, authority engenders lack of motivation

II-7-2 Paternalistic Management

The paternalistic manager sets policies that bring benefit for both the organization and its
workforce. Suggestions and feedback of subordinates are taken into consideration before
any decision. Hence, employees feel attached and loyal towards their manager. They also
stay motivated and enjoy their work.

II-7-3 Democratic Management

The democratic manager welcomes feedback from subordinates, who are encouraged to
discuss pros and cons of plans and policies. A democratic manager ensures effective
communication between management and subordinates.

II-7-4 Laissez-Faire Management

29
The laissez-faire manager does not have much contribution in the organization.
Subordinates and Employees make decisions and manage work. This style is characterized
by very little guidance and supervision from the part of the manager.

II-5-5 Walking Around Management

The walking around manager considers himself as a member of a team. He is a good

listener and interacts very often with his subordinates and employees to know their
concerns. He also considers their suggestions. Hence, the manager, who adopts this style is
never locked in his office, but prefers to walk around to find out what is happening around
him.

The table below summarizes the pros and cons of each managerial style.

Management styles Pros Cons

Autocratic manager -Quick decisions -One-way communication

-Strong management -Absence of feedback
-Complete control of the organization -Sole decision-making
-Clear rules -Low employee moral
-Clear-communication -Low productivity
-Absence of team work
-Imposed work methods.
-Strictly managerial structure
-Rigidity
Paternalistic manager -Employee’s loyalty. -Employee’s dependency
-Low rate of absenteeism. -Low supervision
-Communication -Low-competition.
-Managers’ involvement in employees’
lives
Democratic manager -Creativity -Apologetic management
-Team work -Time consuming
-Initiative -Uncertainty
-Indecisiveness
Laissez-Faire Style -Team work. -Low accountability
-Communication -Workers’ Passivity
- Limited managerial guidance

Walking-Around manager -Communication -Time consuming

-Motivation -Emphasis on employees’ opinions
-Workers’ loyalty
-Team work
-Organizational efficiency
Table 4 Pros and Cons of Management Styles

Management styles vary greatly. A given style can work in a certain organization but not in
another one. Each style is appropriate in a certain business context. The manager should
know the style that is best suited for his staff. Adopting the most appropriate management
style is key to a harmonious work environment. II-8 Written Tasks Essay writing
Q1 Discuss the major management styles and say which one is the best for you? Justify
your answer.
Suggested outline:
Introduction: definition of a management style
Body: explanation of each management style.
Conclusion: arguments for the best management style?

30
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….

Q2 In which cases are autocratic and democratic management styles mostly appropriate
or inappropriate?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
31
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

II-7 Levels of Management

The concept of “Levels of Management’ refers to a line of demarcation between various
managerial positions in an organization. The number of managerial levels varies with the
size of the business and work force. Hence, they increase when the business is large and
decrease in case it is small.
32
Each level of management determines a chain of command and the amount of authority
and status enjoyed by a given managerial position.

Levels of management can be classified in three broad categories:

Figure 9 Managerial Positions in different Levels of Management

II-9-1 Top Level Management

It is the first authority in the organization and it manages goals and policies. It consists of
the board of directors and a chief executive.

The major functions of Top Level Managers are:

Establishment of objectives, strategies and policies
Issue of instructions to middle level managers.(HOD)
Appointment of executives. (For example HOD)
Coordination between various departments in middle level management.

II-9-2 Middle Level Management

It consists of departmental managers, who are responsible for the functioning of their
respective departments.
The tasks of Middle Level Managers consist of:
Execution of plans and policies set by top level managers
Participation in recruitment and training
Coordination between different divisions of the departments.
Preparation of periodical reports to top level management
Performance appraisal of their employees
Motivation of employees

II-9-3 Low Level Management

It is also called supervisory or operative level. It includes supervisors, foreman, section

officers…. etc.

33
Its major responsibilities are:

Motivation of workers.
Assignment of instructions and tasks
Supervision of the quality and quantity of production
Enforcement of discipline.
Communication of workers’ problems to middle level managers.
Supply of materials, machines and tools
Preparation of periodical reports.

II-10 Skills of Managers

There are particular skills that are required to be a successful manager. The most important
ones are:

II-10-1 Technical Skill

It comprises the knowledge and abilities to perform certain technical tasks.

34
For example:
 Computer programming
 Computer languages
 Basic functions of a computer.
The technical skill helps managers to use machines and tools. Low-level managers require
more technical skill than other managers in superior levels.
II-10-2 Human Skill
It also called Interpersonal skill. It refers to the ability to work, understand, communicate,
lead, motivate and develop team spirit. The human skill is required at all levels of
management.
II-10-3 Communication Skill
It is the ability to communicate plans and policies to subordinates and employees. A
manager must listen to each member in the organization and should encourage
communication. The communication skill is also required at all levels of management.
II-10-4 Leadership Skill
It refers to the ability to influence human behavior. The leadership skill is required to
motivate employees, subordinates and workers.
II-10-5 Problem solving Skill
it refers to the manager’s ability to identify a problem. He should also possess an ability to
find the best solution for a particular problematic situation. This requires intelligence,
experience and up-to-date knowledge.
II-10-6 Decision-making skill
It refers to the manager’s ability to make quick and correct decisions and implement them
wisely. The success or failure of a manager depends upon the correctness of his decisions
II-11 Objectives of Management
The main objectives of management are recapitulated below:

 Achievement of organizational objectives

 Maximum Results
 Accumulation of profit
 Cost reduction
 Efficiency & Effectiveness (avoiding spoilage and wastage)
 Employees’ prosperity (good working conditions, a descent wage system and
incentives)
 Maximum use of scarce of resources
 Sound organizational structure
 Clear authority and responsibility relationships
 Skilful and qualified personnel
 Appropriate selection and recruitment

35
  Flexibility: (ability to survive in a changing environment & quick adaptation to
consumers’ changing demands.)
 Economic Prosperity (High incomes and investment)
 Consumers’ prosperity (Employment opportunities, useful goods and services, high
living standard)

Hence upon, one can say that management refers to that branch of knowledge that studies the
principles and practices of basic administration. It specifies the code of conduct that is to be
followed by the manager for an efficient management of resources.

Indeed, management has become a science, which is now being taught as a specialized
discipline at universities in order to complete a degree in management.

Indeed, there is no substitute for efficient and effective management. It makes human efforts
more productive. It also attempts to bring better technology, products and services to the
society. Hence upon, it is a crucial economic resource and a life giving element in business.

II- 11 Glossary Management

A
- Accomplishment- Attainment- Achievement
- Absenteeism
- Administrator
- Agreement- Approval
- Ambitious
36
 - Amount
- Appraisal- Assessment– Evaluation
- Apologetic
- Asset- Resource
- Assignment - Task
- Authority
- Autocratic
B
- Benefit
- Board of Directors
- Business
- Buisness context
C
- Capital
- Chain of Command
- Chief Executive- CEO
- Communication - Communication Link
- Compensation
- Competition
- Contribution
- Coordination
- Control
- Corporation

D
- Decision- Decision-Making- Decisional Activity- Programmed Decisions- Routine-
Decision
- Demand
- Democratic
- Dependency
- Director- Employer - Business man – Manager
- Department- Division
- Development- Growth
- Dissolution
- Dividend

E
- Efficient
- Equilibrium
- Employee- Worker- Staff- Personnel- Work force
- Employment- Recruitment
- Environment- Internal-Environment– External-Environment- Dynamic
Environnement
- Experience
F
- Feedback
- Flexible Management- Regid Management
- For profit organization/ For nonprofit organization
- Foreman
- Fund
G
- Goal-oriented
37
 - Group/ Group Work
- Guide-lines
I
- Information
- Informational Activity- Interpersonal Activity- Interactional Activity
- Initiative
- Investment
- Input – Output
- Incentive Plan
- Interaction
J
- Job-satisfaction
- Job Satisfaction
L
- Labor- labor intensive
- Laissez-faire
- Leadership
- Liability- Obligation
- Living Standard
- Loss
- Loyalty
M
- Management - Management Structure- Managerial Levels- Managerial Position-
Managerial guidance
- Management Style
- Market
- Maximum/ Minimum
- Methods
- Motivation/ Motivated
O
- Obligation- Duty
- Objective- Purpose- Goal -Aim - Target- Multi-purpose- Predetermined objective-
- Office
- Organization – Entity
- Organizational Objective- Collective Objective
P
- Partner – Partnership
- Paternalistic
- Payment
- Performance- Performance-Appraisal
- Plan
- Planning
- Policy
- Production- Productivity
- Process :Social Process- Integrating Process- Never-ending Process- Professional
Process
- Product
- Promotion
- Profit – Benefit- Prosperity-Revenue
- Proprietorship- Ownership
Q
- Qualification
38
R
- Raw material
- Recruitment- Employment
- Regulation
- Remuneration
- Report – Periodical Report
- Responsibility
- Resources- Human resources- Material resources- Organizational resources
- Rule

S
- Sale/ Purchase
- Section- Section Officer
- Selection
- Staff - Staffing
- Shareholder- Stockholder
- Share-Stock
- Service
- Social entity
- Social Unit
- Sole Proprietorship
- Subordinate
- Supervision-Supervisor
- Superior
- System- Open System
- System of Control
T
- Tax- TaskDuty – Taxliability
- Team
- Time-consuming
- Training
- Transformation system
- Transfer
-
W
- Wage- Salary
- Wage System
- Walking-Around
- Work- Job- Position- Profession
- Working conditions
- Work-force

II-12 EXERCISES
Reading Comprehension

Text 1 Importance of Management in Business

Many people underestimate the importance of management, but the latest researches have
proved its significance not only in business, but in people’s life as well.
39
A business cannot survive without management because it is its means of support for
maximum prosperity. Input such as labor, capital and raw materials can never become
production without management, which is essential wherever group efforts are required
towards the achievement of common goals.
In this technological era, management is over emphasized. It is said that anything minus
management amounts to nothing. There is no area of human activity, where management is
absent.
Management is a dynamic life element. Without it, resources are underutilized. No
economy whatever are its resources can become powerful.
Business is basically a group activity and management plays an important role in making it
more efficient and effective. In fact, it cannot attain its objectives unless and until there is
mutual cooperation and coordination among the members of the organization. Such
principles are imposed by the concept of management.
By developing a sound organizational structure, management creates teamwork and team
spirit. It brings the human and material resources together and motivates subordinates and
employees for the achievement of organizational goals.
Additionally, management allows the resources of production to be used in such a way that
all sorts of wastages and inefficiencies are reduced. If managers are not efficient and
effective, nothing worthwhile can be expected from their subordinates. Their subordinates’
motivational level is affected by managers’ attitude towards them. The interpersonal skill
creates and maintains an environment conducive to higher performance.
To sum up one can say that a business enterprise operates in a constantly changing
environment. However, even if changes can create risk, yet, they also provide opportunities
for growth constituting an encouraging business environment, which is highly indispensable
for success. This last is made possible through a thorough and vigorous managerial
structure.
Source: adapted from http://dailyojo.com/articles/what-is-the-importance-of-management-in-
business.html
Questions

1-How are labor, capital, and raw material referred to in business?

………………………………………………………………………………………………......
2-What is the major concern of management?
…………………………………………………………………………………………………..
3-In which cases is management mostly important?
…………………………………………………………………………………………………...
4-What are the consequences of the mismanagement of resources?
…………………………………………………………………………………………………..
…………………………………………………………………………………………………..
…………………………………………………………………………………………………...
5-What are the effects of mutual cooperation and coordination in a business organization?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
6-What is the importance of a thorough and vigorous management?
…………………………………………………………………………………………………..
40
Text 2 Roles of managers – British Gas

British Gas is a British-owned energy supplier. It is the UK’s leading provider of energy and
has over 16 million customers. It employs over 20,000 employees and was voted one of the
‘25 Best Big companies to Work For’ by The Sunday Times in the UK in 2011.
Within British Gas, each member operates as a member of a department led by a
departmental manager, who has a range of supervisory duties. These include monitoring
performance of department members, organizing and allocating tasks.
Their expert knowledge helps them to provide a sound advice to subordinates and other
employees opening up opportunities to grow the business. Occasionally, they have to deal
with customers’ complaints. This is why customer service and good communication skills
are of great importance to this role. They also communicate ideas to employees, to other
service managers and to operational managers as well. In addition, departmental managers
maintain good working relationships. Being able to communicate effectively and keep
focused on strong customer relations help them to manage their workload effectively.
Some of the benefits of being a departmental manager include a competitive salary,
performance related bonuses and good pension provision. Career progression may
eventually enable them to become members of the board of directors and thus, become
responsible for making strategic decisions.
When progressing from a departmental manager to a senior manager, they get the
opportunity to develop and up skill as they undertake further senior responsibilities within
the organization. For example: setting targets for improvements, managing budgets and
ensuring that the business meets its budget. At all times they must try to increase revenue
and identify areas, where costs can be reduced to improve efficiency. It is the vision of the
senior manager that keeps the business moving forward, vital in such a highly competitive
market.
Source: adapted from https://www.coursehero.com/file/22766906/Case-Study-1-POM-
British-Gas/
Questions

1-Which type of business is British Gas?

…………………………………………………………………………………………………...
2-On which basis was British Gas classified among the best big companies to work for?
…………………………………………………………………………………………………...
3-How many levels of management are mentioned in the text?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………..
4-What are the most important skills departmental managers should have in British Gas?
…………………………………………………………………………………………………..
5-What are the functions of departmental managers within British Gas?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
6-What are the privileges of a departmental manager in British Gas?
…………………………………………………………………………………………………
…………………………………………………………………………………………………

41
…………………………………………………………………………………………………
…………………………………………………………………………………………………
7-What are the roles of senior managers within British Gas?
…………………………………………………………………………………………………..
…………………………………………………………………………………………………..
…………………………………………………………………………………………………...
8- How can a company maintain its existence in the market?
…………………………………………………………………………………………………..
9-How can head of departments manage their work load effectively?
…………………………………………………………………………………………………...

-Language Practice

1-Find the term that best corresponds to each of the following definitions:

1. The reason that pushes employees work hard ……………………………………………….

2. Remuneration for work paid daily or weekly in cash………………………………………
3. Remuneration for work paid monthly, withdrawn a bank account………………………….
4. Payment related to the number of sales attained…………………………………………….
5. Proportion of a company’s profit paid to employees ………………………………………..
6. Payment above basic pay as reward for extra work …………………………………………
7. Payment related to employees’ performance…………………………………………………
8. Shares of a company’s profit…………………………………………………………………
9. Assessment of employees’ performance……………………………………………………..
10. Non-financial benefits offered to a category of employees ………………………………..
11. Enjoyment derived from a feeling of a well done job………………………………………
12. Divisions of responsibilities within a company …………………………………………….
13. Organizational structure of instructions from senior to lower management ……………….
14. Allowing subordinates to make decisions ………………………………………………….
15. Various Managerial approaches ……………………………………………………………
16.A manager giving orders and expecting complete obedience ………………………………
17. Involving employees in decision making…………………………………………………..
18. Establishing objectives and giving employees freedom of decision ……………………….
19. A group of employees joining together for protection of their interests ……………………
20. Identification of a business’ needs for particular position ………………………………….
21. A vacancy filled by someone, who is not an already existing employee……………………
22. Working less than 35 hours a week ………………………………………………………...
23. Working for more than 35 hours or more per week…………………………………………
24. Losing one’s job, but not because of unsatisfactory work ………………………………….

42
25. A legal agreement between employer and employee listing duties and responsibilities of
both………………………………………………………………………………………………

2-Fill in each of the following columns-related to the different roles of managers and
leaders in a business- with the terms provided in the box below
Guidance- objectives- placements- employees- regulations-tasks-picture- strategies-
commitment-deadlines-staff-resources-teams-confidence-work-enthusiasm- needs-
performance-energizing-incentives-subordinates-corrective

Manager / Management Leader /Leadership

Planning (1) …………………………………. Establishing (12) …………………………….
Establishing (2) ………………………………. Creating (13) ……………….........................
Setting (3) …………………………………….. Clarifying the (14)………………...................
Assigning(4) ………………………………….. Inspiring (15) ………………………………..
Allocating(5)………………………………….. Providing (16) ……………………………….
Organizing (6) ………………………………… Aligning (17) ………………………………..
Making (7) …………………………………….. Seeking (18) …………………………………
Establishing (8) ………………………………. Building (19) ………………………………..
Controlling employees’ (9) ……………………. Motivating and(20) ………………………….
Offering (10) …………………………………. Empowering (21) …………………………….
Conducting (11) ……………………..actions. Satisfying (22) ………………………………

3-List three of the advantages of the following styles of management

Authoritative Management

…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….

Democratic Management

…………………………………………………………………………………………………..
…………………………………………………………………………………………………..
…………………………………………………………………………………………………..

4-Fill in the blanks with the most appropriate terms

In any ………………… (1) the manager is the one, who ensures the ……………….. (2) of
organizational goals through ………………, (3) organizing, leading, and controlling the
organization.

43
Basically, …………….. (4) lead their companies to the achievement of desired goals using
adequate resources. This is reflected in their management ………………… (5)

Authoritative style creates a work environment characterized by tension and conflicts. These
kinds of managers strongly believe that they are born to get managerial ……………….. (6)
and that they are the most skilled for the achievement of organizational ………………….. (7).

“Laisser-faire” style lacks interest for personal evolution in the company’s ……………… (8).
Managers adopting this style are not concerned with managerial positions, but they make
………………… (9) managers. They usually treat ………………. (10) as their equals and
allow them to …………………… (11) in management. They also accept employees`
involvement in tasks’ ………………………… (12)

The democratic style reduces tensions and conflicts, and stimulates ………………. (13)
involvement. This style values ………………….. (14) The ………………… (15) of each
employee is acknowledged and honored.

Paternalistic managers favor ……………….. (16) and …………………. (17) Authority is

absent. Such managers behave like fathers. They keep ………………… (18) over their
employees, and at the same time allow them to be …………….. (19) in their
……………………… (20)

A walking around manager seeks to …………………(21) with subordinates allowing a better

understanding of ………………… (22) and concerns.

5-Transform the terms in brackets

1-The human resource ……………. has great responsibilities in the company. (office)

2-The main ……………. of the company is called Stenia. (supply)

3-A lot of advertising is used by ……………. (consult)

4-Danet is the company’s main ……………… (compete)

5-A lot of ……………… live in the USA.(custom)

6- The company has over 300 ………………. (employ)

6-Find the best alternative for each of the following sentences

1- ………………………refers to the human resources of a company

2- ……………………….. is a reduction in the number of staff.

3-Recruitment implies taking on new ……………………

4- ……………………. is the placement of an employee and his family abroad.

7-Decide which of the alternatives (A- G) each sentence describes.

A voluntary redundancy B early retirement C unemployment D training E working

conditions F chief executives

44
1- To put an end to work before the expected date is …………………………………………

2-A downsize in the number of employees working increases ………………………………..

3-It improves the skills of the workforce ………………………………………………………

4- To leave one’s job without being forced to …………………………………………………

5- Managers concerned with the company’s policies ………………………………………….

6-The environment of work is also called ……………………………………………………..

8-Find the best alternative that completes each sentence

1-The manager should build good ……………… with investors, employees and consumers.

2-The manager must focus on the customer’s ………………………………………………….

3-The manager must encourage employees to be ………………………. and try on new ideas.

4- Employees are required to……………………………………… to changing circumstances.

5- The manager should gain respect from…………………………………… and customers.

6- To enhance better employees’ behavior, a manager has to lead by ……………………….

7- A manager has to be …………………….for any mistake that may occur in the company.

8-A manager needs to treat each employee with ……………………………………………..

9- A manager should find ways to solve ………………………………………………………

10-A manager needs to ………………………………. problems out as and when they arise.

12-A manager needs to cut down unnecessary ……………………………………………….

13-The manager has to consider employees’ …………………………………………………

14-The company looks for new ………………………………………………………………...

15-The customer service department looks after customers’ …………………………………..

9-Correct the grammatical mistakes in the following sentences.

1- I have been to the finance meeting last week…………………………………………….....

2- The manager talked on the phone when I entered………………………………………….

3-When the manager arrives to the airport, the plane had already left…………………………

4-The manager had travelled to Taiwan last month…………………………………………….

5-When I went back to the office after lunch, my colleagues stay in the restaurant for half an
hour longer. ……….. …………………………………………………………………………...

45
6-He joined the company as chairman in 2002 and for the next three years profits had
increased…………………………………………………………………………………………

7-I was gaining promotion to this position while I was still studying…………………………..

8-It was only when I began to work in England last year that I use my English every day…….

10-Here is the company history of a German car manufacturer. Complete the sentences
using the verbs in the box. Use each verb twice and use either the past simple or past
passive.

establish -design -open -manufacture –export

The car company …………………..in 1956. The company was very small and the first
models …………………. in a tiny studio in Berlin. Herr Schwartz ………………the firm
when he was only 35 and he ………………….. the engines and exhaust system himself. The
company was a success and in 1963 Herr Schwartz …………………. a new factory in the
Ruhr Valley. In 1985, 65,000 cars …………………. each year in the factory. At this time,
very few cars …………………..to foreign markets. However, the company continued to grow
and at the start of 1993 another factory in southern Italy ……………………, where skilled
craftsmen………………….. over100,000 cars. In 2013 Herr Schwartz ………………. over
80,000 cars to 30 countries.

11-Based on the information provided in exercise 10 write questions for the following
answers. Use the verb in brackets

1-(establish)………………………………………………………………….? When he was 35

2-(establish) ………………………………………………………………………..? In 1956

3-(design) …………………………………………………………………………? In Berlin

4-(design) ……………………………………………………………………..? Herr Schwartz

5-(manufacture) ……………………………………………………………………….? 65,000

6-(open) …………………………………………………………………? Southern Italy

7-(open) ……………………………………………………………………..? In 1993

8-(manufacture) ……………………………………………………………? Skilled craftsmen

9-(export) ……………………………………………………………………? 80, 000

12-Cross out the word that does not make a collocation

1-car dealer- agent –manufacturer

2-insurance firm – company- manufacturer
3-cloths dealer- firm–manufacturer
4-furtniture company- agent- dealer

13-Choose the most appropriate verb to complete the conversation.

46
A-So Peter, which photocopier do you think we should buy?

B-Well, X copy …………….. (1) (produce/can) the cheapest model. It …………. (2)
(has/costs) only £599. It ……………(3) (can/has) a lot of new features and ………….(4)
(has/make) an attractive design. It …………… (5) (can/offer) do 200 copies in a minute.

A- Which Internet service provider should we use?

B-Well, Business Net is the best. It ……………. (6) (offers/costs) £39 per month, and
………………(7) (provide/ produce) broad band connection and free upgrades after a year.
The service ………… (8) (has/can) a lot of different functions, but the fastest connection will
…………… (9) (make/cost) more. They also ………….. (10) (offer/can) discounts if we use
the service in all branches. We ……………(11) (can/make) register on-line and an engineer
will come and install the modem and software the next day.

14-A feedback meeting is held between a general manager and a project manager that
has just completed a project. Although, the manager is satisfied about the project
manager’s performance, he has a few negative points to mention. Fill in the gaps in the
conversation.

M-Firstly, I would like to thank you very much for your noticeable ………………. (1) I
really ………………… (2) what you did.

PM-You are ………………. (3). It was a very interesting …………….. (4) to work on.

M-Yes, I was pleased with what you did to keep the team …………………(5), even when
things got tricky.
PM-Thank you, I am glad to hear that.

M-But there are always areas, which can be………………... (6) …………..(7)
…………….(8) could have been better.

PM-hmmmmm I don’t think I get what you mean. Could you explain that in a bit more
detail?

M-Well, some of the ……………../ ……………..(9) claimed they were given

……………..(10) beyond their ……………………………. (11)

PM-That’s a fair point. I did my best, but I was let down by the initial ……………….(10) of
the team, which if you remember, was quite small. In the future, I’ll try getting more frequent
………………..(12).

M- OK. Another, point to think about is reporting back (communicating) to

…………………… (13) We did not always know what was happening!!!!

PM-Yes, that’s true. The work was very demanding! Have you got any …………………(14)
for dealing with this issue?

M-Have you thought of using a centralized database, where you can put all the information
and that we can all access, a kind of …………………… (15)?

PM-That’s good idea. I’ll look into it.

M-Right, that’s all I have to say. Do you have anything you want to say? Etc............
47
15-Write the correct term from the box next to each group of terms

come up with- deadlines- bring-deal with- keep the team- budget- targets- employees

1-stay within/ go over ………………….

2-………………….informed/ motivated
3-achieve/set …………….
4-train/ support/motivate ………………
5- …………………… solutions/suggestions
6-set/miss/meet …………………………….
7- …………………….. problems/questions/issues
8- ……………………….. changes/improvements

16-Allocate the following tasks to the appropriate key managerial functions by writing
the corresponding tasks in the appropriate column.

List of tasks:

 motivating staff
 comparing output against input
 measuring financial performance
 monitoring production levels
 ordering materials
 formulating a vision
 assigning tasks to staff
 inspiring staff
 devising strategies
 establishing objectives
 modeling expected behavior
 allocating resources

Managerial Functions Tasks

Planning -………………………………………………………….
-………………………………………………………….
-…………………………………………………………..
Organizing - ………………………………………………………….
-………………………………………………………….
-………………………………………………………….
Leading -………………………………………………………….
-………………………………………………………….
-…………………………………………………………..
Controlling -…………………………………………………………..
-…………………………………………………………..
-…………………………………………………………..

17-Describe the activities undertaken in each of the following managerial department.

48
 Managerial Activities
Departments
Financial &Accounting -...…………………………………………………………………..
-……………………………………………………………………..
-…………………………………………………………………….
-…………………………………………………………………….
Human resources -……………………………………………………………………
-……………………………………………………………………
-…………………………………………………………………….
-………………………………………………………………………
Operational -………………………………………………………………………
-………………………………………………………………………
-………………………………………………………………………
- ……………………………………………………………………..
Marketing -……………………………………………………………………..
-……………………………………………………………………..
-……………………………………………………………………..
-……………………………………………………………………..
Research -………………………………………………………………………
& - ……………………………………………………………………..
Development -………………………………………………………………………

18-Use the terms in the box to complete the sentences

-assessment - budget -ceiling -experience -facilities -forecast - interview -mediation

-mismanagement -motivation -objective -peak -potential -predecessor -retirement
-meeting -stipulation -supervision

1-The employee reached the ………………..of his career.

2. The staff development ………………….will be held in the conference room.

3. The company offers ………………………. to its staff.

4. Older employees are planning their ……………............................................................

5. The manager made an ………………..of each employee's contribution to the company.

6. The company failed because of the chairman's ………………………. of capital assets.

7. The applicant had the right qualifications, but unfortunately he did not have any relevant …

8. The company’s …………………… is to recruit a well-qualified staff.

9. The dispute was ended through the…………………. of trade union officials.

10. Employees showing leadership …………………..will be selected for training.

11. The employer took over the job from his ………………………….. last May.

12. The employee is very experienced and can be left to work without any ………………….

13. What ………………………………. has the government put on wage increases this year?

49
14. The candidate had an …………………… for a new job next week.

15. The company needs to establish a ……………………….for salaries for the coming year.

16. The sales manager’s ……………….. for higher turnover next year is a bit optimistic.

17. The sales staff lacks ……………………... It has not been working seriously recently.

19-Change the verbs in bold in the first sentence into nouns in the second one

1-The company will compensate the worker for the burns he suffered from in the accident.

The worker will receive …………………….for the burns he suffered from in the accident.

2-The company tried to motivate its employees by promising bonuses.

The company tried to increase its employees’ ……………………..by promising bonuses.

3-How are the jobs classified in this company?

What is the job’s …………………………in this company?

4-They argued about the price.

They had an ………………………….about the price.

5-The secretary leaves next week, so the company will need someone to replace her.

The secretary leaves next week, so the company will need to find a ……………………for
her.

6-The personnel director has to sign the employment contract.

The personnel director's ……………………………has to be in the employment contract.

7-The manager has agreed on the terms of the employment contract with the new employee.

The manager has come to an ……………………….on the terms of the employment

contract with the new employee.

8-The new employee told us that he had been promoted from salesman to sales manager.

The new employee told us about his …………………..from salesman to sales manager.

9-The candidate should apply for the post as soon as possible.

The candidate should get an ……………………..for the job as soon as possible.

10-The company has authorized the business man to act on its behalf.

The company has given the business man an ……………………………to act on its behalf.

11-The chief executive congratulated him for having been appointed to the post of manager.

The chief executive congratulated him for his ………………………to the post of manager.

12-Mr. Smith was succeeded as chairman by Mrs. Jones.

50
 Mr. Smith’s ……………………………as chairman was Mrs. Jones.

13-Last year she qualified as an accountant.

Last year she received her accountancy ………………………………

14-This document permits business man to export twenty-five computer systems.

The document gives ……………………to the business man to export twenty-five

computer systems.

15-The supervisor keeps a record of whether or not staff attends meetings.

The supervisor keeps a record of staff ………………….at meetings.

16-Does the contract the company produced satisfy the clients?

Does the contract the company produced meet with clients’…………………..?

17-The negotiations failed because neither side would compromise.

The …………………………of the negotiations was due to neither side compromising.

18-The company is negotiating the new contract.

The new contract is under …………………………..

19-The company has not yet received the candidate’s letter accepting the job it offered him.

The company has not received the candidate’s letter of ………………..for the job it
offered him.

20-The company asked the union to intervene on its behalf.

The company asked for the union's …………………………..on its behalf.

21-The employees claimed that they were dismissed unfairly.

The employees claimed unfair …………………….

22-The factory consumes lot of water.

The factory is a heavy ……………………..of water.

23-The company contends that the decision of the tribunal is wrong.

It is the company’s ………………………..that the decision of the tribunal is wrong.

24-All companies should insure against losses.

All companies should have …………………………… against losses.

25-Unless the employee’s work improves, the manager will have to review his position in the
company.

Unless there is an …………………………in the employee’s work, the manager will have
to review his position in the company.
51
26-By offering higher salaries, the company might entice workers from other companies to
join it.

Offering higher salaries might be an …………………..for workers from other companies to

join us.

20-The sentences in this exercise contain mistakes. The mistakes are all in the
prepositions and there are three types:

1. A missing preposition

Example: I spoke X him about this last week = I spoke to him about this last week.

2. A wrong preposition

Example: We are meeting again in Tuesday = we’re meeting again on Tuesday.

3. An unnecessary preposition

Example: I’ll phone to you tomorrow = I’ll phone you tomorrow.

Find the mistakes and correct them.

1-Six of the management trainees have been sponsored their companies. ……………………..

2-The chairman is abroad in business. ………………………………………………………….

3-Several members of staff were made redundant under the recession. ………………………..

4-His background is electronics industry………………………………………………………..

5-The company will meet to the employee’s expenses. ………………………………………...

6-The employee wrote a letter of complaint the manager. ……………………………………...

7-The company enticed staff from other companies through offering them higher salaries……

8-Although they threatened dismiss him, the employee’s performance at work did not
improve. ………………………………………………………………………………………...

9-Membership is by the discretion of the committee. …………………………………………..

10-The employee has been granted with a compassionate leave to visit a sick relative. ……….

11-The new assistant manager has a degree on Business Studies. ……………………………..

12-Some of the company’s staff work up to ten hours every day. ……………………………...

13-The secretary is away with maternity leave. ………………………………………………..

14-The company still has to overcome on several obstacles in its negotiations with the union. .

52
15-The worker’s salary is equivalent that of far less experienced employees in other
organizations. …………………………………………………………………………………...

16-Employees have noticed on an improvement in the working environment …………………

17-The employee is under full-time employment. ……………………………………………...

18-There are no grounds of dismissal. ………………………………………………………….

19-Insider trading is not only immoral, but it is also the law …………………………………..

20-The team is meeting the sales representatives in London the day before tomorrow ………..

21-On the terms of the employee’s contract, he cannot work for another company. …………..

22-The company relies suppliers to make sure deliveries are made on time. …………………..

23-The manager would like to know who is responsible about these problems. ……………….

24-If the employee cannot work pressure; he will probably find the work very difficult. ……..

25-After three years at university, she took out a job in a small printing firm. ………………...

21-Read the following texts, and decide what it is talking about. Choose the answers
from the ones provided below

1-Action learning 2-Adventure training 3-Assertiveness training 4-Carousel training

5-Continuous personal development 6- Experiential learning 7-An induction course

8-In-tray learning -9- Off the job training 10-Online learning

11-Open learning 12-Sales training 13-Team building

14-Total quality management 15-Training needs analysis

Text 1 …………………………………………………………………………………………
The company is committed to helping its employees learn about their jobs and develop their
skills for the whole period they are working in, and not just at the beginning of their contract.
It runs regular courses and workshops in order to achieve this, both inside and outside the
company premises.

Text 2 ……………………………………………………………………………………….
This company allows its employees to deal with difficult situations. They often come in
contact with people, who can be difficult to work and do business with. Employees are trained
to have more confidence in themselves so that they can deal effectively with any problems or
difficulties they can encounter in the future.

53
Text 3 ………………………………………………………………………………………..
The company believes that the best way of learning is practice. There is no waste of time on
courses and workshops. Employees are shown their duties, given an outline of how the
company operates, and then said ‘Get on with it, and good luck’. It's a remarkably effective
method.

Text 4 …………………………………………………………………………………………
The company develops employees’ skills in leadership, problem solving, decision-making
and interpersonal communication. The best way to achieve this is to get them involved in
group games and physically demanding outdoor activities. It also seeks to build team spirit.

Text 5 …………………………………………………………………………………………..
In this company, when an employee is promoted to a managerial position, he is first given a
typical management paperwork, which he has to deal with. He is set a time limit for this, and
monitored carefully. The company then reviews his performance and shows him where he
went right or wrong. (feedback)

Text 6 …………………………………………………………………………………………
The company understands how important it is that employees work well together in order to
be effective. There are training sessions designed to instill co-operation and solidarity among
employees.

Text 7 …………………………………………………………………………………………
The company’s policy is that employees should know about all the jobs. The best way is to
move them from job to job and department to department, where they meet colleagues and
learn about each other’s jobs.

Text 8 …………………………………………………………………………………………
New employees need to learn about the company’s products, how they work, how the
distribution system operates, how to deal with both suppliers and customers and how to
handle complaints. They also study trade and retail laws, and are accompanied on their first
customer visits by a trainer.

Text 9 ………………………………………………………………………………………….
A new employee is given a tour of the factory and then he is introduced to colleagues and
given an outline of the company and its products. After that he is guided through the
company's code of practice, taken to his department and shown his duties.

54
 Text 10 ………………………………………………………………………………………..
The company can't hold training workshops in the office because it doesn’t have enough
space. Hence, it sends employees to a college in the evening to develop their skills and
knowledge.

Text 11 …………………………………………………………………………………………
The company believes that personal development and training should be more flexible. As a
result, it has developed a system of flexible training courses that a trainee or employee can
start at anytime.

Text 12 ……………………………………………………………………………………….
Once a year the company looks at the skills and abilities of its staff, and it decides if it can
help the company to operate effectively and achieve its objectives. It then develops a series
of classes and workshops to help the staff learn more about their job and how they can
improve their skills.

Text 13 ………………………………………………………………………………………….
The company has a policy that its managers should be committed to maintaining and
improving the quality of their work, and also their skills and knowledge. It runs courses,
classes and workshops on a regular basis, and ensures that they are kept up to date with all the
latest developments.

Text 14 ……………………………………………………………………………………….
The company is very forward-looking and uses the most up-to-date methods. All training is
delivered over the Internet or through the company intranet. This means that trainees and
employees can learn during their breaks, at home and even when they are on holiday.

Text 15 …………………………………………………………………………………………
The company trains its management staff by giving them a series of problem-solving
activities. The managers from the office work together with those from other departments
around the country to solve real or imaginary problems, and their findings are then applied to
the overall successful running of the company.

22-Transform the adjectives in bold into nouns. Bring the necessary changes when
necessary

1-I am responsible for the welfare of the workers in my department.

I have overall ………………………for the welfare of the workers in my department

2-The managing director is totally confident that the turnover will increase rapidly

The managing director has total …………………… in the turnover increasing rapidly.

55
3-The chairman questioned whether she was eligible to stand for re-election

They chairman questioned the …………………….to stand for reelection

4-They remarked that the sales director was incompetent

They remarked on the ………………………………..of the sales director

5-The company’s pricing policy is not flexible.

There is no ………………………in the company’s pricing policy

6-As a nonprofit making organization, we are exempt from paying taxes.

As a nonprofit organization, we can claim tax ……………………………

7-Being physically disabled is not considered a disadvantage in this company.

Physical ……………………is not considered a disadvantage in this company

8-The report criticized the sales staff as being inefficient.

The report criticized the …………………………..of the sales staff

9-In what way is a junior manager different from a managerial assistant?

What is the …………………….between a junior manager and a manager assistant?

10-Could you call us as soon as it is convenient for you?

Could you call us at your earliest ………………………?

11-The manager wasn't sympathetic to the staff, who complained of being overworked.

The manager had no……………….. for the staff, who complained of being overworked.

12-All members of the board of directors said how accurate the plans were.

All members of the board of directors commented on the …………………..of the plans

13-She’s a very capable manager.

She has very good managerial ………………………………..

14-This test will help the manager to assess how intelligent the candidates are.

The test will help the manager to assess the ……………………… of the candidates.

1.5-The aim of the advertising campaign is to keep customers loyal.

The aim of the advertising campaign is to keep customers’………………………...

56
 CHAPTER II

ECONOMICS

General Objectives of the Chapter

 Define the concept of Economics

57
  Define the branches of Economics
 Define the factors of Production
 Define some major economic concept such as scarcity, needs and wants, economic
efficiency, opportunity cost, market value
 Discuss the concept of economic development
 Discuss the characteristics of developed economy
 Discuss the characteristics of underdeveloped economy
 Distinguish between the concepts of developed and underdeveloped economies
 Discuss the major sectors in the economy
 Discuss the major types of economic systems
 Discuss the major theories of economic development and underdevelopment
 Discuss Rostow’s theory of economic development
 Discuss the theory of the Vicious Circle

III Definition of Economics

The concept of economics has been defined differently by various economists:

The First Pinguin Dictionary of Economics says:

58
 “Economics is concerned with production, distribution and consumption of wealth in the
society”.
(In Frans Doorman 2012:198)

Gary S. Becker claims that it is:

“A social science that studies the human behavior concerning ends and scarce means”
(1998:3)
Prof Marshall says:

"Economics is the study of mankind in the ordinary business of life. It examines that part
of individual and social action which is closely connected with the attainment and use of
material requisites of well being."
(In John Cunningham Wood 2002:183)

Robbins, a well-known economist perceives economics as:

"..a science of Human Behavior as relationship between ends and scarce means which
have alternative uses."
(In Roger A. Arnold 2007:2)
The definitions above suggest the followings:
Economics is a social science, which studies the consumption behavior of ordinary
people.
Economics is concerned with the economic aspect of people’s lives. How man’s
income is earned and how it is spent. Hence, its major interest is man’s material
requisites and causes of economic prosperity.
Economics conceives wealth as a means for promoting social welfare.
III-1 Branches of Economics
The science of economics includes various branches, illustrated through the following figure:

Economics

Microeconomics Macroeconomics
Econometrics

Figure 1 Branches of Economics

Microeconomics studies the implications of human decisions on utilization and

distribution of scarce resources. It also indicates why goods have different values and
how to make wise decisions concerning their consumption.

Macroeconomics deals with problems facing the economy and with its overall
performance.

59
 Econometrics is the third major branch in economics. It is concerned with the
implementation of mathematics and statistics in the estimation of quantitative
economic variables.

III-2 Factors of Production

Factors of production describe the input used in the production of output (goods &
services) used for the satisfaction of people’s needs and wants.
The idea is better illustrated through the following figure:

Factors of production

Land Labour Capital Entrepreneur

Figure 2 Factors of Production

 Land includes all natural and physical resources.

E.g. land, climate... etc
Some countries are richly gifted with natural resources making them specialize in
their extraction and production.

 Labor is human input used. It is provided by a qualified work force and is

conceived as a vital factor for any country wanting to achieve economic growth.

 Capital represents monetary resources used to acquire natural resources such as

land or assets required in the production of goods or services.

Capital comes in different forms illustrated in the following figure:

Capital

Fixed Entrepreneurship Working

60
 Capital
Goods

Figure 3 Types of Capital

 Fixed capital refers to assets with a reusable value.

 Working capital is completely consumed in production.
 Capital good is tangible and durable such as vehicles or machines.
 Entrepreneurship is labor input

Accordingly, factors of production are resources that allow the production of finished
products and services. Based on this, no product comes out of nothing and no service is
delivered without labor.

III-3Written Tasks

Q1 Write an essay in which you define the concept of economics and its major branches.

…………………………………………………………………………………………………

61
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
Q2 Illustrate the two major branches of economics. Give examples.
………………………………………………………………………………………………….
………………………………………………………………………………………………….
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
………………………………………………………………………………………………….
………………………………………………………………………………………………….
…………………………………………………………………………………………………
………………………………………………………………………………………………..
………………………………………………………………………………………………..
………………………………………………………………………………………………..
………………………………………………………………………………………………..
………………………………………………………………………………………………..

Q3 Illustrate each type of capital

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………...

III-4 Major Economic Concepts

A comprehension of major economic concepts is vital for the understanding of economics as
a whole. In the following part, the most important economic concepts will be illustrated
62
III-4-1 Scarcity
The concept of scarcity has been defined as “the condition in which a man’s want for goods
and services is greater than the available resources. In other words, people want goods and
services, but there are just not enough resources available to provide them with all the
commodities they want.” (Roger A. Arnold 2008:2)

Thence, scarcity is a basic economic problem, which refers to the gap between limited
resources and limitless needs and wants. This situation requires the economy to make
decisions concerning the allocation of resources, in order to prioritize on the satisfaction of
basic needs.
The relation between economics and scarcity is explained as follows:

“If the resources are abundant and the needs and wants are minimal, there is no need to
study economics. The subject economics came into being because there are limitless needs
and wants and scarce resources. It calls for choice to manage the wants and needs with the
scarce resources. The problem of allocation of scarce resources gave birth to a science
called economics…. all said and done the discipline of economics is the study of choice
and involves decision making in every aspect of human life and business.”
(Veṇugopal 2006:2)

Thus, the major concern of economics is man’s behavior facing the problem of scarcity.
Indeed man is permanently in a situation of uncovered new needs and wants, which
producers attempt to satisfy by producing new products and services or by innovating
previous ones. Thereupon the knowledge of economics is indispensable to know about how
best to solve the problem of scarcity through a proper utilization of resources.

III-4-2 Needs and Wants

People are confronted with innumerable needs and wants. When a need or want is satisfied,
others emerge. Yet, means are limited in relation to unlimited needs and wants. So people
are constantly striving to satisfy unlimited wants with limited means. The science of
economics has emerged to discuss how people engage in different activities to earn money in
order to satisfy unlimited needs and wants.
Hence, the science of economics distinguishes between needs and wants and the degree of
importance of each in people’s lives. For some people the satisfaction of needs is their only
objective. For others needs are already satisfied. So they seek to satisfy more and more
emerging wants.

Daniel Rosen sets a clear discrepancy between needs and wants. According to him the first
refers to what people must have to live. These represent universal needs, which are food,
cloths, and shelter. (2011:6)

Wants, on the other hand refer to what people enjoy to have. Yet, these are not a necessity for
survival, and here lies the difference between needs and wants.

Hence, needs and wants are two different economic concepts. The first refers to a necessity
for survival, while, the second represents what a person desires to enjoy more his or her life.

In this context, most economists agree that an efficient economy seeking the well being of its
citizens should prioritize the satisfaction of needs more than wants

Les Dlabay, James L. Burrow, Brad Kleindl say:

63
“Countries must decide the best ways to use their resources to produce what is needed…..
Deciding how to use resources and what to produce is never an easy decision. If a country
spends too much in one area, there may not be enough resources to meet other needs. If
most resources are used to produce consumer products, not enough attention may be paid
to a country’s infrastructure of roads, energy and water systems.”
(2017:18)

Accordingly, the basic economic problem is scarcity and choice. Due to the existence of
limited resources to produce an unlimited quantity of goods and services all economies face
the problem of having to decide:

Type of production. What goods and services should be produced? How much to
produce. What is the cost of the product? The interaction of supply and demand
determines what and how much to produce. Price is a reflection of scarce resources

Method of production. How will goods and services be produced? Or what

combination or mix of inputs should be used? An efficient economy should seek to
avoid all forms of wastages and try to maximize profit and minimize costs.

Distribution of production. Who uses the finished goods and services? This
obviously depends on consumers’ income and their ability to pay the product’s
price.
III-4-3 Economic Efficiency
Economic efficiency may refer to either the productive capacity of an economy or its ability
to reduce costs.
John Wright claims that economic efficiency involves:
1-Minimizing expenditure required to obtain an end product-the expenditure could be
money or resources such as raw material, time or energy; and
2-Maximizing the output of the desired-end product, which may be valuable products such
as food, cars, television sets or services
(2003:3)

Thus, economic efficiency refers to an economic situation in which every resource is

optimally allocated and used to serve in the best possible way. It is a maximum production
and distribution of scarce resources.
The major types of economic efficiency are illustrated in the following figure:

Economic Efficiency

Productive efficiency Dynamic efficiency

Allocative efficiency Distributive efficieny

64
 Figure 4 Types of Economic Efficiency
Productive efficiency is the optimal combination of input to produce maximum
output with minimum cost.

Dynamic efficiency is the use of sophisticated productive practices in production

Allocative Efficiency is the allocation of capital in a way that benefits the economy.
It implies funding profitable investments that contribute to economic growth.

Distributive efficiency is the optimal allocation of raw materials and capital based
on the industrial sector that mostly needs to be developed.
To sum up, one can say that an economy, where all products and services are mostly
consumed by a wealthy few with a majority that is unable to procure the basics of life is
viewed as an inefficient economy.
III-4-4 Opportunity Cost

The fundamental economic problem is scarcity, which requires the economy to make
choices. When deciding to produce a given product, an economy is implicitly deciding
against producing another product. In other words, it is giving up an opportunity.

In this context, opportunity cost is the benefit that an economy could have received, but has
given up to take another course of action. Stated differently, it represents an alternative given
up when a decision is made. In investment, opportunity cost represents the difference in
return between a chosen investment and one that is given up.
The concept of opportunity cost is fundamental in economics and since resources (land,
money, time, etc.) are scarce, every alternative should have a particular use, hence, every
decision has its associated opportunity cost.
William Baumol and Alan Blinder state that:
“Opportunity cost examines the options available to households, businesses, governments,
and entire societies, given the limited resources at their command. It studies the logic of
how people can make optimal decisions from among competing alternatives.”
(2009:41)
Opportunity cost is better illustrated in the next figure:

Figure 5 Opportunity Cost

Based on the figure above opportunity cost includes a decision between two choices that we
can better clarify through the example included in the following figure:

65
 Figure 6 Opportunity Cost and Money Cost

III-4-5 Market Value

Market value refers to the price of an asset. It represents the highest estimated price that a
buyer would pay and a seller would accept for an item in an open and competitive market.

Charles F. Floyd and Marcus T. Allen state that market value refers to the most probable
price, which an asset has under the following conditions: (2002:225)

 Motivation of both buyer for the purchase and the seller for the sale
 Price agreement
 Open and competitive market
 Method of Payment (in cash or any other financial arrangement )

66
III-5 Written Tasks

Q1 Write an essay in which you define the concept of scarcity. Support your essay with
examples and suggest how the society and citizens can cope with the problem of scarcity.

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
Q 2 Compare between the concepts of needs and wants. Support your definition with
examples.

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
67
Q 3 Define the concept of economic efficiency. Support your essay with examples.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
Q 4 Define the concept of opportunity cost. Support your essay with examples.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
Q 5 Define the concept of Market Value. Support your definition with an example.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

68
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

69
III-6 Economic Development and Economic Growth

Economic development and economic growth are often differentiated. Yet a country's
economic health is usually determined by considering both concepts.

Economic development is measured through the Human Development Index (HDI), which
is an economic model that considers the following factors:

 Level of poverty
 Housing
 Level of Literacy
 Health care
 Life expectancy
 Environmental standards
 Qualified labor force.
 Innovation
 Employment
 Life of quality

Economic development occurs when the economy provides employment to all its citizens in
addition to a life of quality on a continuing rather than a temporary basis.

On the other hand, economic growth is a process in which a country’s economy shifts from
agriculture into industry. It also refers to an increase in the capacity of an economy to
produce goods and services leading to a considerable rise in per-capita national product.

The major clues of Economic Growth are recapitulated through the following points:

 Capital accumulation
 High incomes
 High national income (GDP)
 High savings
 High investment.

The fundamental differences between economic growth and economic development are:

 Economic growth is a positive change in real output of an economy.

Economic Development involves:
-Advancement in technology
-Improvement in living standards
-High life expectancy rate
-Low infant mortality rate
-High literacy rate
-Eradication of poverty
 Economic growth is measured in a particular period as opposed to economic
development, which is a continuous process seen in the long run.

The factors that negatively affect both economic development and growth are:

 Undeveloped infrastructure
 Inward investment

70
  Corruption

III-6-1 Characteristics of Economic Economy

The following is a recapitulation of the main characteristics of a developed economy:

 Industrialized economy focusing on profit maximization, competitive market and

a modern service sector.
 High level of investment increasing the economy’s capacity to produce goods and
services
 Capital accumulation resulting from high level of savings.
 Modern Production Techniques leading to a greater exploitation of material and
human resources.
 Low Population Growth resulting from a low birth rate and death rate due to good
health conditions.
 High living standard resulting from the citizens’ dedication to the goal of economic
development and growth.

Other characteristics of a developed economy include organized production, transport and

communication facilities, modern financial institutions, literacy, recreation facilities …

III-6-2 Characteristics of Economic Growth

The following points highlight some basic characteristics of an underdeveloped economy.

 Low Income
 Low purchasing power
 Unequal income distribution.
 Mass Poverty
 large population size
 Lack of Capital Formation due to low level of income leading to a low saving rate.
 Predominance of Agriculture making the larger part of national income derived
from the agricultural sector
 Unexploited Natural Resources resulting from capital shortage, primitive
technology, weak transport infrastructure and the small size of the market.
 Unemployment
 Underemployment
 Capital shortage making the economy unable to expand industries and absorb the
entire labor force.
 Dualistic Economy resulting from the existence of two separate economic sectors
within one country, characterized by different levels of development, technology, and
different patterns of demand. Dual economies are common in undeveloped countries,
where one sector is geared to local needs and another to the global export market.

 Technical Backwardness resulting from old, outdated and primitive production

methods, poor technology and unqualified labor force

 Underdeveloped Infrastructure causing shortfalls in:

1-transportation
2-communication
3-electricity generation and distribution

71
III-7 Written Tasks

Q1- Discuss the difference between economic growth and economic development. Which
one is most important for a country?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

Q2-What is inward investment? Support your answer with examples What is the
importance of inward investment for the economy?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
Q3-What does per-capita national product refer to?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………..
Q4- What does aggregate demand refer to?
72
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….

Q5- What is dualistic economy? Provide an example

…………………………………………………………………………………………………
…………………………………………………………………………………………………
……………………………………………………………………………………………

Q6- What is the difference between unemployment and underemployment?

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

73
III-8 Major Sectors in the Economy

The three major sectors of the economy are:

 Primary Sector
 Secondary / Manufacturing Sector
 Tertiary Sector

Figure 7 Sectors in the Economy

 Primary Sector involves the extraction of raw materials from earth as illustrated in
the bottom of the triangle.

 Secondary Sector involves the transformation of raw materials into finished

goods, which results in wood transformed into furniture, steel into cars….etc as
illustrated in the middle of the triangle.

 Tertiary Sector also known as service industry sector provides services to

consumers. It includes financial institutions such as schools and hospitals as
illustrated in the top of the triangle.

As an economy becomes more developed, it shifts its focus from primary to secondary and
tertiary industries.
III-8-1 Definition of an Economic System

An economic system indicates the way used by a given society to coordinate between
production and consumption of goods and services.

Paul R. Gregory and Robert C. Stuart define an economic system as follows:

“It is a set of institutions for decision making and for the implementation of decisions
concerning production, income, and consumption within a geographic area.”
(2013:25)

74
Thus, an economic system is a pattern of human behavior concerning the allocation of
scarce resources for the satisfaction of various needs. It should provide answers to the
following questions:

What to produce? Types of goods or services the society needs to produce and how
much? What is worth producing and what is not? What must the society give up to
produce particular goods and services?
How to produce? Who will produce? What are the production resources? Which
production method is used? How can production be most efficient?
For whom to produce? How will output be shared among members of the society?

III-8-1-1 Types of Economic Systems

There are four basic types of economic systems illustrated through the following figure:

Figure 8 Economic Systems

III-8-1-1-1Traditional Economy

It relies on custom and tradition, which dictate what to produce, how to produce, and for
whom to produce. Hunting, fishing and farming were the main economic activities.

III-8-1-1-2 Command Economy

It puts all production decisions in the hands of the country’s leaders. All productive
resources are owned and allocated by the state. The only obligation of the citizen is to be
loyal to the state in return for the satisfaction of his basic needs such as food, shelter,
education and health care.

Command Economy is better illustrated through the following figure:

Figure 9 Command Economy

75
III-8-1-1-3 Market Economy

It is an economic system in which major economic decisions such as pricing of goods and
services are guided by the market. Resources are privately owned and the type of
production is determined by demand for the particular product or service. Production of
particular goods is dictated by the producers’ quest for profit. The advantage of this type of
economic system is the competition that results in lower prices. Distribution of production
depends on consumers’ incomes. Citizens with high incomes will have the largest proportion
of production. Those with low incomes have the least. Hence, the basic factors of a market
economy are profit maximization and competition.

III-8-1-1-4 Mixed Economy

It allows economic freedom. Yet, the government interferes in economic activities in order
to achieve social aims. Thus, economic decisions are driven by the state and price. The aim
of the private sector is to maximize profits while the aim of the public sector is to
maximize social welfare. The public sector produces goods and services that the private
sector is unwilling to produce.

The following table summarizes the advantages and disadvantages of the economic systems
mentioned above.

Economic Advantages Disadvantages

systems
Traditional -No risk.(a person born in a family of -No initiative.
Economy farmers becomes farmer) -Resistance to change
-No wastage of resources or production -Low productivity
surplus
Command -Maximum exploitation of resources -Bureaucratic economic system
Economy -Availability of merit goods -Lack of incentives

Market -Availability of goods and services -Disparity in wealth

Economy -Consumer’s sovereignty -Workers’ exploitation
-Price mechanism -Overproduction
-Efficient & Effective allocation of
resources
-Competitive prices
- Innovative market
- Foreign investment
Mixed -Quick economic development -wastage of resources
Economy -lesser income inequality. -Unhealthy Competition. (public &
-Economic Stability private)
-Promotion of social welfare -Unemployment
Table 1 Advantages and Disadvantages of Types of Economic Systems

76
III-9 Written Tasks

Q1 In which sector is underdeveloped economy based? Explain the shift from one sector
to another.

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
Q2 Who are the workers involved in the primary sector?

…………………………………………………………………………………………………
…………………………………………………………………………………………………..
Q3 Who are the workers involved in the secondary sector?
…………………………………………………………………………………………………
………………………………………………………………………………………………….
Q4 How does Paul R. Robert C. Stuart define an economic system?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
Q5 To which type of economy is traditional economic system appropriate?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
Q6 What are merit goods? Give examples.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

77
III-10 Major Theories of Economic Development and Underdevelopment

Two major economic theories are selected for discussion in the following part. The first aims
to shed light on the path that an economy follows to reach economic development and
growth while the second is concerned with the major causes of underdevelopment.

III-10-1 Rostow’s Theory of Development

Walt Whitman Rostow 1916-2003 is one of the key thinkers of economics in the twentieth
century. He was an American economist, who proposed a model of five stages for
development. (Richard Peet,Elaine HartwickWalt 2015:149)

Ben Fine,Jomo K.S describes Rostow’s theory of economic development as follows:

“Rostow’s focus of attention was on the process of long term economic growth and
development.”
(2006:279)

Rostow took a historical position in suggesting that developed countries have gone through
five (5) stages to reach economic development.

These stages are illustrated in the following figure:

Figure 10 V Rostow’s Theory of Development

III-10-1-1 Traditional society

It is the most economically backward stage according to Rostow. The economy is based
mainly on agriculture. Very little output is traded. The size of the capital stock is limited
resulting in very low labor productivity and surplus.

III-10-1-2 Pre-conditions for take-off

This stage represents the transition from traditional society to the take-off stage. It is
characterized by the society starting to exploit ‘the fruits of modern science translated in the
introduction of new and innovative production methods. Agriculture becomes more
mechanized as a result more output is traded. Savings and investment witness a starting
growth.
78
III-10-1-3 The Take-off

It is the third stage in Rostow’s model. Agriculture becomes less important in the society and
a dual economy starts to establish itself with high productivity and incomes in
manufacturing industries. The period of this stage ranges from 20 to 30 years during which
the economy progressively becomes more self-reliant generating more savings and
investments, which in turn helps in raising national income.

III-10-1-4 The Drive to Maturity

It is a period of long continuous and sustained growth extending over four decades in which
the society effectively applies modern technology in the exploitation of its resources. During
this period rates of saving and investment reach such a level that economic development
becomes automatic. The overall capital per head increases. New industrial sectors are
created. The working force becomes more skilled and specialized.

III-10-1-5 The Age of Mass Consumption

It refers to a period of economic comfort, wherein consumers concentrate on durable goods.

In the age of high mass consumption, a society concentrates more on human rights, security,
equality and welfare and on developing great luxuries for the upper class. Output levels grow
leading to increased consumer’s expenditure.

The advantages of Rostow’s theory of economic development

-It sheds light on the path to economic development

-It is still one of the most widely cited theories of economic development

The disadvantages of Rostow’s theory of economic development

-It is based on the western model of modernization. It is not applicable to all countries.

-It pretends that all countries follow the same route of economic development

-It does not consider economic variation.

-Rostow’s model becomes automatic by the time a country reaches the maturity stage, but this
is not always true because growth always needs a push.

III-10-2 The Vicious Circle of Poverty

According to the theory of the vicious circle the primary causes of underdevelopment are
closely interconnected that they have been said to form a vicious circle.

The theory of the vicious circle claims that less developed countries face the vicious circle of
underdevelopment because of low incomes. The markets for goods and services are small
because of low levels of demand. Firms do not produce sufficient quantities of goods and
services to reduce production costs. As a result prices are high due to low sales. There is
little incentive for firms to use efficient production methods because of high production
costs as therefore productivity is low. Firms cannot afford to pay high wages to workers
because of low profits resulting from high production costs and low levels of output of the
workforce.

79
To clarify this we consider the following figure:

Figure11 The Vicious Circle

Figure eleven (11) graphically shows that one economic situation logically leads to another
complex economic situation. Low income leads to low savings, low savings in their turn are
the reason for low investment, low investment means low productivity, and low
productivity generates low income.

Thereupon, the economy experiences the cycle of underdevelopment in two ways.

Investment requires national savings. However, the potential level of national
savings is insignificant with low incomes.
Low sources of investment lead to minimum capital formation.
Inaccessibility to innovative methods of production, which results in high
production costs leading to low profits.
An undeveloped national banking system does not encourage households to deposit
their limited savings, which does not generate development.

Based on what was developed above, one can say that economics plays a primordial role in
our everyday life. Its study enables us to understand past, future and current models, and
apply them to societies, governments, businesses and individuals.

Considered as a social science, economics uses scientific methods to understand how scarce
resources are exchanged within society by studying theories and techniques that are useful
for developing government’s policies and creating efficiency in today’s world.

Hence upon the importance of economics is recapitulated through the following points:
 It helps in decision-making. Economists provide information and predictions to
inform decisions within companies and governments
 It Influences people’s daily activities. Economic issues influence our daily lives
including issues such as taxes, inflation, interest rates and wealth, and emerging
markets, and energy….. Economics may also provide answers to a range of political
issues.

 It impacts industries. Firms of all sizes and various industries have to rely on
economics, whether for product research and development, pricing strategies,
advertisements ….

80
 It inspires business success. Understanding how consumers behave is vital for a
business to succeed. Economists use theories and models to predict behavior and
inform business strategies.

 It impacts international perspective. Economics affects the world. Understanding

domestic and international perspectives – historic and current – can provide a useful
insight into how different cultures and societies interact.

81
III-11Written Tasks

Topic 1: Discuss Rostow's theory of economic development. What is it? How did it
develop? And what are its limitations?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………..
Topic 2: What is the Vicious Circle argument? How is it criticized?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
82
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………..
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….

83
III-12 GLOSSARY ECONOMICS
A
-Allocation- to allocate
-Allocative Efficiency
-Aggregate Economic Growth- Aggregate Demand
-Agriculture- Agricultural

B
-Barter
-Birth Rate/ Death Rate
-Budget- Government Budget
-Business/ Business Cycle
-Buyer / Seller

C
-Capital- Capital Accumulation- Capital Formation- Fixed Capital- Working Capital--
Capital Perhead- Capital Investment-Capital Stock – Capital Shortage
-Command Economy
-Commodity
-Company
-Communication-Competition- Competitive Market
-Consumption- to consume
-Consumption behavior
-Consumption- to consume
-Consumer- Consumer Expenditure-Consumers Utility
-Consumers Equilibrium
-Cost
-Cost of Product

D
-Demand / Supply
-Deposit
-Developed- Developing- Underdeveloped
-Distribution- to distribute
-Distributive Pattern
-Dualism- Dualistic- Dualistic Economy
-Dynamic Efficiency

E
-Earn
-Economy- Economics- Economist
- Economic Development- Economic Growth-Economic Model- Economic Development-
Economic Activity-Economic Efficiency- Economic Sector -Economic System-Economic
level- Economic Health-Economic Resources- Economic Variation
-Econometric
-Education- Educational Standards
-Employment- Unemployment
-Entrepreneur- Entrepreneurship
-Environnemental Standards
-Extractive – Extractive Industry

F
-Factory
84
-Finance
-Financial Arrangement
-Firm- Firm Productivity
-Fiscal- Fiscal Policy

G
-Gross Domestic Product GDP
-Gross National Product GNP
-Goods- Finished Goods- Durable Goods- Consumer Goods- Capital Goods
H
-Household
-Housing
-Human Capital
-Human Development Index (HDI)
-Human Resource

I
-Income –Income Distribution
-Industrial- industrial economies/ Agricultural Economies.
-Index –Index of economic Wealth
-Inflation- Deflation
-Infrastructure
-Input-Output
-Illiteracy
-Innovation- Innovative
-Investment-Investment Rate
-Irrigation
-Inward Investment

J
-Job

L
- Labor-Labor Force Labor Productivity-Labor mobility
- Laborer
- Land
- Life expectancy rate
- Literacy rate

M
-Macro-economics
-Modernization
-Market- Competitive Market-Open Market
-Market Value
-Mathematics
-Micro-economics
-Mixed Economy
-Manufacturing- to manufacture
-Money- Money Supply
-Monetary-Monetary Policy
-Mortality Rate

N
-Nation

85
-National- National requisite- National economies- National Income- National Product
-Needs
-Nominal terms

O
-Opportunity Cost
-Over Production
-Output
P
-Payment. Cash Payment
-Percapita- Percapita Income
-Price Agreement-Price Level
-Product
-Profit –Profit Maximization
-Price- Price Agreement
-Population Growth
-Poverty
- Primitive Industry / Secondary Industry/ Tertiary Industry
-Production- to produce
-Productive Efficiency- Production Organization-Production Technique- Productive
Manufacturing
-Productivity
-Prosperity- Economic Prosperity
-Population Growth
-Power Resource
-Public Sector / Private Sector

Q
-Qualitative/ Quantitative

R
-Raw material
-Real Terms
-Real National Income
-Return
-Resource
-Revenue
-Real terms

S
-Saving
-Scale Industry
-Scarcity- Scarce- Scarce resources
-Spending- to spend
-Service –Service Sector
-Society
-Specialization
-Social- Social Science- social Welfare

T
- Take off Stage
- Technology
- Tax- Tax-base
- Trade

86
- Traditional Economy
- Transport
- Transaction

U
-Underdeveloped Economy
V
-Value
-Viscous Circle

W
-Wants
-Wealth
-Welfare- Economic welfare
-Workforce
III-13 EXERCISES

-Reading Comprehension

Read the following texts, then answer the questions below.

Text A
Brazil ‘s high rates bring recession
By Geoff Dyer in Sao Paulo

Brazil formally moved into recession at the end of last year as the high interest rate policy
aimed at preventing a currency crisis caused the economy to show its worst annual record of
economic growth since 1992.
Growth domestic product fell 1.89 per cent in the fourth quarter compared with the same
period the year before, the second consecutive quarter of negative growth.

As a result, the economy grew by just 0.15% last year, the worst result since the 0.54 per cent
decline in 1992 and down from the 3.69 per cent growth of the year before.

Interest rates were kept high throughout the fourth quarter. However the government was
forced to let the currency float in January, causing an immediate devaluation of 38% against
the dollar. With interest rates currently 39 %, monetary policy is now being kept tight to
reduce the inflationary impact of the devaluation.

Economists are predicting a fall this year of 35between 3 and 6 per cent in GDP; although
some believe the economy could start growing by the end of the year.

The government is forecasting a trade surplus of $6- $7bn, compared to a deficit of $6.4bn
last year.

FINANCIAL TIMES
World Business newspaper

Text B
UKRAINE’S EXTERNAL DEBT SERVICING Worries over IMF loan delay
Ukraine may be forced to renegotiate part of its external debt service if a loan from the
International Monetary Fund continues to be delayed past March, said Ukraine’s finance

87
minister.

He said he was confident the Ukrainian government and the IMF would agree on continued
payment of the loan next month, which has been held up since November because of
Ukraine’s failure to meet a number of conditions of the $2.2bn three-year credit granted by
the IMF last August.

But if continued payments could not be agreed on, “we will be simply forced to begin
negotiation with our external creditors,” he said.
The Ukrainian government owes $109bn in external debt service this year, together with
1.5bn hryvnia in payments on domestic treasury bills.

FINANCIAL TIMES
World Business newspaper
Text C
Thailand’s trade surplus narrowed in January, a sign that exports- a key component of the
economy- may revive in the coming months. The trade surplus in January was $816
compared with a surplus in December of $1.23bn.
Exports fell 4.8 per cent compared with an 8.5 per cent decline a month earlier. Imports were
also down 4.8 per cent year-on-year compared with a decline of 15.8 per cent in the
previous month.

Economists say the bottoming-out of the crucial import figure-this is the first single-digit
decline in a more than a year- offers hope for exports later this year as Thailand’s exportable
goods traditionally have high import content. The central bank forecasts 4 per cent growth in
exports this year. Imports must pick up and the trade deficit must narrow for that target to be
reached.

FINANCIAL TIMES
World Business newspaper

1-Match the definitions below with their corresponding terms in the table.
a-payment of interest on a debt.
b-reduction of the exchange value of a country’s currency.
c-instruments of government borrowing.
d-value of a country’s exports exceeds the value of its imports.
e-value of a country’s imports exceeds the value of its exports.

Terms Definitions
Trade surplus ……………………………………………………………………….
Trade deficit ……………………………………………………………………….
Treasury bills ……………………………………………………………………….
Debt service …………………………………………………………………………
Devaluation ………………………………………………………………………..

2-Having read the three texts answer the following questions.

Questions Answers
1-Which country has a problem paying the interest on its foreign debt? ……………..
2-In which country is the trade surplus decreasing? ……………….
3-Which country has recently devalued its currency? ……………….
88
4-Which country is trying to keep inflation down? ………………
5-Which country is hoping to increase its exports by 4%? ………………

3-Mark the statements as true based on the information in the texts. Find the part of the
text that gives the correct information

1-The Brazilian economy is in recession because of its high interest rates. ……….. ….
2-GDP in Brazil has been falling for the past six months ………. …..
3-The Brazilian economy has been in decline since 1992 ……….. …..
4- It is predicted that Brazilian exports will decrease. ……….. …..
5-The IMF has, for the present discounted payments to the Ukraine. ……….. …..
6-The Ukraine did not meet all of the terms of the IMF credit. ……….. ….
7-The Ukraine government has only foreign debts. ………. …..
8-The gap between Thailand’s imports and exports is increasing. ……… …..
9-The decline in Thailand’s imports is slowing down. ……….. ….
10-Economists are unhappy about Thailand’s imports figures ………. ….

4-Underline the best explanation for each of these phrases from the text
1-let the currency float (text A line 24)
a. Allow the currency to find its true level
b. Try to keep the currency at a specified level against another currency
2-monetary policy is being kept tight. (text A line 24)
a. The government is implementing strict controls on the economy
b. The government is controlling the economy, but not very strongly
3-be forced to (text B line 1)
a. Have to do something because there is no alternative
b. Get advantage from doing something
4-single digit decline (text C line 10)
a. A fall of less than 10 %
b. A fall of greater than 10%
5-Thailand’s exportable goods have high import content (text C line 11)
a. A high level of import means competition for Thai’s products
b. Thailand’s needs to import a lot of raw materials for manufacturing export goods
5-Replace the underlined items with words or phrases from the texts that have a similar
meaning
1-The Brazilian government has a plan of action to reduce inflation. ………………………….
2-Brazil’s economy is in a state of extreme danger. ……………………………………………
3-GDP fell over two quarters, one immediately following the other. ………………………….
4-Ukraine will have problems paying interest to the people it owes money to. ……………….
5-Exports are an important part of the economy. ………………………………………………
6-The trade surplus was $816, whereas it was $102bn last year. ………………………………

6-Discuss the following questions

1-What are the major factors that determine the strength of an economy?

89
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

2-What can a nation do to solve its economic problems?

The major measures that can be taken by the government to solve its economic problems are
as follows:
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

-Language Practice

1-Match the items 1-10 to the explanations a-j

a. fluctuation b. aggregate c. investment d. microeconomics e. tax revenue f. asset

g. macroeconomics h. national income i. interest rate j. unemployment rate

1. The income earned by a country from the goods and services it produces. ………………….
2.The property of an individual, corporation or country, which has value, and can provide
future benefit. …………………………………………………………………………………...
3. Prices, levels of interest rates go up and down. ……………………………………………...
4. Putting money into a business to buy new stock, machines, etc. …………………………….
90
5. The percentage of the population, who are unemployed……………………………………..
6. The percentage paid for borrowing money, or lending it for a period of time, usually a year
…………………………………………………………………………………………………..
7. The study of the financial and economic systems of a country or an industry. ……………...
8. The total, calculated by adding together different prices, amounts, etc. …………….............
9. The part of economics that studies individual markets and businesses, or how individuals
spend or earn money. …………………………………………………………………………...
10. The money raised by a government from taxation. …………………………………………
2-Match (a-j) with the explanations (1-10)

a. consumer price index b. cost-push inflation c. Demand d. demand-pull inflation e. Inflation

f. non-accelerating inflation rate of unemployment g. output h. purchasing power i. real
j. Supply

1. The quantity bought with one unit of currency. ……………………………………………...

2. Inflation induced by increases in production-costs …………………………………………..

3. A continuous rise in prices …………………………………………………………………..

4. Prices or rates after considering the effects of inflation …………………………………….

5. The level of unemployment in a country without influencing the rate of inflation ………….

6. Inflation caused by increases in the demand for goods ……………………………………..

7. A list of the prices of basic goods and services, showing their change in a particular period
of time, as a way of measuring inflation ………………………………………………………..

8. The amount of goods and services produced ………………………………………………..

9. The need for goods and services ……………………………………………………………..

10. The amount of goods and services available for use ……………………………………….

3-Use the terms below to complete the sentences

aggregate- assets –fluctuations- income -interest -investment -macroeconomics -national

income - rate -tax revenue

1. When ……………………..increases, a country improves its economy.

2. The ……………………………… money supply has declined by 18%.

3. The business has ……………………totaling £5.1 million.

4. The study of the economy as totals, rather than individual units, is …………………………

5. The unemployment …………………….is forecast to rise to 6.1% over the next 12 months.

6. The company has increased its …………………………. in research.

91
7. A loan with a 7% …………………..ate was attributed to the company.

8. ………………………….in the demand of goods or services cause prices to change.

9. How much of the employee’s ………………….. is paid in taxes?

10. If the government spends more than it collects in……………………, it will have a deficit.

4-Use the terms below to complete the sentences

Cost push- demand -demand-pull – index- inflation -non-accelerating -output -purchasing

power- real –supply

1. Inflation caused by an increase in prices is ………………inflation.

2. ………………………….occurs when the overall price of goods and services goes up.

3. Inflation caused by people wanting to buy more goods and services is

……………….inflation.

4. If a worker's nominal income stays the same, but his /her real income decreases, then his/
her ………………………of money will also decrease.

5. The consumer’s price ………………………was up 3.4%.

6. Any attempt to push unemployment below the ………………………. inflation rate of

unemployment using macro-economic policy would lead to higher inflation.

7. Factories’ ……………………… has risen in much of Britain over the past three months.

8. The citizen’s nominal income increased by 300 Euros. However, because inflation got
higher, his …………….. income increased less than 300 Euros.

9. 18,400 new houses will be needed by 2011 to cope with the ………………….

10.A limited oil ……………………..led to an increase in gas prices.

5-Use the terms below to complete the paragraph. Each term should be used once

aggregates -consumer price index -cost-push inflation -demand-pull inflation- inflation -

stagflation –unemployment
Macroeconomics examines the behavior of ……………….. rather than individual units of the
economy. Two of the most important of these are……………………. caused by rising prices,
and……………………., which occur when there are too many people looking for jobs. If
high levels of both of these exist together, it is called…………………….. Prices can rise
because people want to buy more goods. This is called…………………….., whereas if prices
rise because of an increase in the cost of input, it is called …………………... The rise in
prices is shown by the…………………………., which measures changes in prices.

6-Use the terms below to complete the sentences.

consumption -GDP -GNP -investment -national -net -nominal –real

92
1-Because the ……………….. GDP includes changes in prices as well as in physical amounts
of goods and services, economists generally use ……………GDP from which price change
has been eliminated.
2. The system that measures the value of GDP is called …………… income.
3. The value of the total final output produced by a nation in a given year is its……………….
4. Increased household wealth is associated with higher personal ……………………………..
5. The company made a significant …………………………..in research.
6. …………………………………..earnings per share amounted to £0.78.
7. The figures published showed that real ………………grew by 2.3% in the final quarter of
last year.
7-Match the terms on the left with their right synonyms

Terms Right Synonym Synonyms

1. enables …………….. a) period
b) show
2. abbreviated ………………. c) measurement
3. interval ……………… d) measured
e) take away- remove
4. calculated ……………….. f) allows
5. magnitude ………………. g) shortened
6. reflect ………………..
7. eliminate …………………

8-Select a term that is closest in meaning to the terms on the left

Terms Right Meaning

Fundamental ……………. a) Previous
b) Basic
c) Hopeful
Derive …………….. a) Read
b) Obtain
c) Buy
Abundance ……………. a) Many
b) Neither
c) Increase
Conciseness ……………… a) Shortness
b) Similarity
c) Importance
5. Preciseness …………….. a) Difficulty
b) Seriousness
c) Exactness
Validity ……………… a) Seriousness
b) Correctness
c) Necessity
Fruitful ……………….. a) Rapid
b) Productive
93
 c) Unusual
Refinement ……………….. a) Belief
b) Improvement
c) Existence

9-Define the following economic terms

1-Economics
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
2- Consumer
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………...............
3. Producer
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………..
4. Supply
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
5. Demand
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
6. Price
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
7. Consumers’ Goods
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………..
8. Service
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
9. Import
…………………………………………………………………………………………………
…………………………………………………………………………………………………

94
…………………………………………………………………………………………………
…………………………………………………………………………………………………
10. Exports
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
11. Scarcity
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………..
12. Abundance
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
13. Gross Domestic Product (GDP)
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
14. European Union (EU)
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………...
15-International Monetary Fund
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………..

16. Opportunity Cost

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
17. Recession
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….
18-Trade Surplus
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
19-Import Content

95
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….

10-Complete the blanks in the table with the advantages and disadvantages of the
Command and Market economies

ES Advantages Disadvantages

M - …………………. production -Workers suffering from …………………

-Private industry monopolizes the supply
of ……………………….to increase
-…………………… regulations
prices.
-……………….. to reduce prices.

-Workers have a say in their …………

- Shared ………………..of properties

C - Permanent ……………………… Production does not meet…………’

-The nations’ energies devoted to reach
……………………………………
-The economy’s energies are directed to
reach overall ………………………….
-No disruption of ……………………..
needs.
Workers have little say in their …………
Very little ……………………..mobility.

-Efficient placement of ………………… -Goods are produced even if they are not
in ……………………..

-Major……………………………such -Inefficient distribution of ……………….

as transportation are under government’s
control

11-Below is a list of inputs used in production. For each input, indicate which of the four
factors of production is represented.
Natural Resource- Human Resource-Entrepreneurial Resource- Capital Resource-
Material Resource

1. Oil reserves are ………………………………………………………………………………

2. Water, lemons, and sugar combined to make lemonade for sale is ………………………….

3. Forests are ……………………………………………………………………………………

4. Knowledge and training required for a given job are ……………………………………….

6. Machineries and equipments are ……………………………………………………………

7. Knowledge needed to design advertising campaigns is …………………………………….

8. The land on which a factory is built …………………………………………………………

9-Raw goods are ……………………………………………………………………………….

96
10-Ability to operate machines is a ……………………………………………………………

11-Workers in factory are ………………………………………………………………………

12-Determine whether the following is Market,” “Command,” or “Mixed” economic

systems. Some items will be true of more than one type of economic system.
1. A central authority makes all decisions ……………………………………………………...
2. The vulnerable have no protection …………………………………………………………..
3. Resources are allocated at the determination of a central authority. ………………………..
4. Resources are allocated by a price system …………………………………………………..
5. Citizens are motivated by economic incentives …………………………………………….
6. Competition drives the economic system …………………………………………………..
7. All resources, goods, and services are privately owned. ……………………………………
8. Elected authority makes the decision-making ……………………………………………….
9. Competition is expected between producers …………………………………………………
10. The economic system fails when the government fails …………………………………….
11. Some markets are “free” and some are regulated ………………………………………….
12. Goods and services are voluntarily exchanged …………………………………………….
13. Government economic plan is achieved ……………………………………………………
14. Government does not intervene ……………………………………………………………

13-Determine whether each topic is micro or macro

1. The government influences consumer spending Micro/Macro ………………………………

2. A household decides which brand of laundry detergent to buy. Micro/ Macro…………….
3-A firm decides when to go out of business Micro/ Macro……………………………………
4. Debts affect the income gap among citizens Micro/ Macro………………………………….
5. A mother decides whether to work or stay home with her children Micro /Macro…………..

14-Match the letter of each term in the column with its BEST description in the table
below
a. opportunity cost b. scarcity c. economic cost d. free good e trade-off
f. individual g. aggregate

1 a decision to have a particular good ……………………..

2 the scale of the scope of microeconomics ……………………..
3 equal to the value of the best alternative not taken ……………………..
4 a measure of the net economic impact of an action …………………….
5 the scale of the focus of macroeconomics ……………………
6 available in a sufficient quantity to anyone who wants it ……………………
7 the reason we study economics ……………………..

15-Complete the following sentences with the appropriate word from the list below
97
 economies-economic- economical-economics- economist- economize-economy

1-Efficient managers are ………………………in the use of the company’s funds.

2-…………………………… persons save money and expenses wherever possible.
3-………………………… study, teach, or write about economics.
4-By applying strict……………………. he saved enough money to retire early.
5-By ………………money, he was soon able to save money for the purchase of the new car.
6- ………………………is a social science concerning individuals’ behavior in the fields of
production, consumption, and distribution.
7-In times of difficulties, it is important to ………………………….
8-It is much more ……………………….to buy in bulk.
9-Nations experience different rates of ………………………..growth.
10-The country is in the period of ……………………………….crisis.

16-Find the appropriate economical key terms for each of the following statements

Economic key terms Statements

………………………. The economic system that combines the free market with
government allocating resources.
……………………. The sector of an economy in which all organizations are owned
and controlled by the government.
……………………. Changes in prices affecting: the spending decision of consumers,
production decisions of producers, and allocation of resources.
…………………… The sector of an economy made up of private individuals and
owning firms.
……………………. Money spent on goods and services by public sector organizations.
……………………. The economic system in which the private sector producers and
consumers determine the allocation of resources.
…………………… Failure to produce goods and services needed by citizens
Production of wasteful products

17-The problem of resource allocation involves providing solutions to three key

questions. What are these questions?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
98
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………….

18-Which of the following statements about the market economic system are true or
false?
Statements T F

A wide variety of goods and services will be produced to satisfy consumers’ wants ….

Firms will allocate resources to the production of the most profitable goods and … .
services

There will always be full employment of resources ….

Firms have an incentive to keep the costs of production as low as possible . .

Consumers will only get what they want depending on their willingness and ability to . .
pay.

Firms will supply products consumers want even if they do not make a profit. . .

Firms will supply harmful goods and services if it is profitable to do so. .

People with the least ability to pay may be unable to obtain the goods and services they . .
need.

Producers are only interested in profit and may fail to take account of the potentially . .
harmful impact of their activities on other people, producers and the environment.

19-What are the main objectives of most private firms?

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

99
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

20-In a market economy, price signals guide the decisions of producers and consumers.
The following events describe what is likely to happen in a market economy following an
increase in consumer demand for flat-screen televisions. However, the events described
are in the wrong order. Place them in their most likely order by assigning each event a
number from 1 to 6
…. Stocks of flat-screen televisions held by retailers and television manufacturers are used
up
… As the profitability of flat-screen televisions continues to rise, new producers allocate
resources to their production.
…. As their price rise, the production of flat-screen televisions becomes more profitable.

…. Consumers buy more flat-screen televisions. Sales of other televisions fall.

…. Existing televisions manufacturers allocate additional resources to the production of

flat-screen televisions.
… To ratio the available supply of flat-screen televisions, producers will tend to increase
their prices.

21-The rise in demand for flat-screen televisions has been at the expense of other types
of televisions’ sales. What is likely to happen following the fall in demand for other
televisions? Once again, place the sequence of events below in their correct order.
… As the profitability falls, producers reduce their production.

100
…. Stocks of all other types of television rise as sales fall, producers reduce their prices to
sell.
…. Sales of other types of television fall as consumers demand rises for flat television

… Resources are moved to the production of flat-screen televisions and away from the
production of other types of television
… As their prices fall, the production of other television becomes less profitable.

22-Suggest actions a government could take to try to correct the following market
failures.
Market failure Possible Government Intervention
Vulnerable are unable to afford the goods and -………………………………………….
services they need. -………………………………………….
Supply of some harmful products, such as guns -………………………………………….
and dangerous drugs
Restriction of competition aiming an increase -………………………………………….
in prices
Unemployment -………………………………………….
-…………………………………………
Pollution -………………………………………….

23-Fill in the gaps with the most appropriate terms

Three main sets of decisions need to be made by the ………………… (1) system: what to
………………(2), how to produce, and how to share out ……………… (3). ………….(4)
economy is one in which answers to the three questions above are determined by
………………..(5) and ……………..(6) interacting with each other without government
…………………(7). By contrast, a ……………….(8) economy is one in which a
……………….(9) planning agency makes the major economic decisions. ………………(10)
economy includes elements of both the market and the planned …………………….(11)
Those who favor the centrally planned economy argue that the government is best placed to
meet the …………………….(12) of the citizens. Those in favor of the free market argue that
central planning wastes……………… (13) and that the market should make sure that
…………………. (14) get what they want produced, while ………………………..(15) firms
supply it at a ………………..(16). The reality is that today most ……………………..(17)
operate a form mixed economy.

101
BIBLIOGRAPHY

-Adam Kuper (2003) The Social Science Encyclopedia Second Edition ROUTLEDGE.
Taylor & Francis Group

-Annpam Karmakar – BadishSarkarDatta(2012)Principles and Practices of Management and

Business CommunicationPearson – Delhi – ChemnaiChandigraph
-Ben Fine,Jomo K.S (2006) The New Development Economics: Post Washington Consensus
Neoliberal Thinking Zed Books. London &New York

-Charles F. Floyd,Marcus T. Allen. (2002) Real Estate Principles Dearborn Real Estate
Education

-Daniel Rosen. (2011) Bridges: Economic Systems. Bencmark Education Company. Bridges
Edition

-DR C.B Gupta (2007)Business Studies for Class XIIFourthEditionTata McGraw HILL
Publishing Company Limited
-E. Wayne Nafziger (2012) Economic Development CAMBRIDGE UNIVERSITY PRESS

Fidelis Ezeala-Harrison (1996) Economic Development: Theory and Policy Applications

+PRAEAGER Wesport Conecticut London

-Frans Doorman (2012) Crisis, Economics and the Emperor's Clothes. Frans Doorman

-Gary S. Becker. (1998) The Economic Approach to Human Behavior The University of
Chicago Press. Chicago and London

-Glen Weisbrod. (2000) Current Practices for Assessing Economic Development Impacts
from Transportation Investment National Research Centre

-Gopal Ji, Suman Bakhri & Anisha Bhakr (2015) Indian Economy: Performance & Policies
(For University of Delhi) VIKAS.PUBLISHING HOUSE PVT LTD

-G.MURUGESAN (2012)Principles of Management UNIVERSITY SCIENCE PRESS

-John Cunningham Wood (2002) Alfred Marshall Critical Assessments Edited by John
Cunningham Wood. ROUTLEDGE. Taylor & Francis Group

-Jan S. Prybyla. (1969) Comparative Economic Systems APPLETON-CENTURY CROFTS

Educational Division MERIDITH CORPORATION

-John Wrigh (2003) The Ethics of Economic Rationalism. University of New South Wales
Press

-J.P. Pathak (2015) Fundamentals of Management (For B.Com, BBA, BBM and
BMS)VikasPublishing House PVT LTD

-Les Dlabay, James L. Burrow, Brad Kleindl (2017) Principles of Business SOUTH
WESTERN CENGAGE Learning

-Paolo Malanima (2009)Pre-Modern European Economy: One Thousand Years (10th-19th

Centuries) BRILL LEIDEN - BOSTON

102
-Paul R. Gregory,Robert C. Stuart (2013) The Global Economy and Its Economic Systems
SOUTH WESTERN CENGAGE Learning

5-Ramesh B. Rudani (2013) Principles of Management McGraw Hill Education

6-R.D. Agarwal (1982) Organization and ManagementTata McGraw- Hill Publishing
Company Limited
-Richard Peet,Elaine HartwickWalt (2015) Theories of Development, Third Edition:
Contentions, Arguments, Alternatives THE Guilford Press New York & London

-Roger A. Arnold. (2007) Macroeconomics, Concise Edition. THOMSON. South Western

-Roger A. Arnold. (2008) Economics THOMSON South Western

-Rostow, W.W. (1961) The Stages of Economic Growth: A non-Communist Manifesto

Cambridge: Cambridge University Press.

-R S N Pillai(1987)Modern Marketing PRINCIPLES AND PRACTICESS CHAND

-Vēṇugōpāl. (2006) Business Economics Volume – I New Delhi : New Age International (P)
Ltd., Publishers

-William Baumol,Alan Blinder (2009) Microeconomics: Principles and Policy. SOUTH

WESTERN CENGAGE Learning

http://economicsisabout.blogspot.com/2012/12/definition-of-economics-according-to.html
www.tutor2u.net/economics/reference/factors-of-production
www.economicshelp.org/microessays/costs/efficiency/
www.tutor2u.net/economics/topics/economic-efficiency
http://www.investopedia.com/terms/m/microeconomics.asp
http://www2.gsu.edu/~ecomaa/Lecture3.htm
www.tutor2u.net/economics/reference/factors-of-production
http://study.com/academy/lesson/factors-of-production-in-economics-definition-importance-
examples.html
http://keydifferences.com/difference-between-economic-growth-and-economic-
development.html
http://www.economicsdiscussion.net/underdeveloped-countries/characteristics-of-an-
underdeveloped-countries-top-14-characteristics/18971
https://www.economicshelp.org/blog/10024/development/dual-economy/
http://www.newagepublishers.com/samplechapter/000186.pdf
https://www.tutor2u.net/economics/reference/rostow-five-stages-of-economic-growth-model
https://www.englishgrammar.org/linking-words-exercise/
https://literarydevices.net/types-of-essay/
https://managementinnovations.wordpress.com/2008/12/03/define-management-its-functions/
http://managementstudyguide.com/management_functions.htm
https://i2biz.blogspot.com/2009/09/characteristics-of-partnership.html
http://www.kcsourcelink.com/learning-center/starting-a-business/register-and-license-your-
business/forms-of-business-organization
www.businessdictionary.com/definition/organization.html
http://kalyan-city.blogspot.com/2011/04/what-is-management-definitions-meaning.html
http://managementstudyguide.com/management-style.htm
www.verywell.com/what-is-autocratic-leadership-2795314
http://smallbusiness.chron.com/advantages-drawbacks-autocratic-leadership-style-16616.html
https://connectusfund.org/8-advantages-and-disadvantages-of-democratic-leadership-style
103
https://connectusfund.org/17-advantages-and-disadvantages-of-paternalistic-leadership
https://www.verywell.com/what-is-laissez-faire-leadership-2795316
http://www.who.int/hiv/pub/imai/om_10_leadership_management.pdf
https://imtuoradea.ro/auo.fmte/files-2008/MIE_files/POP%20MIRCEA%201.pdf
http://www.eajournals.org/wp-content/uploads/Management-Styles-and-Employees----
Performance-in-Small-Scale-Business-Enterprises-in-Akwa-Ibom-State-Nigeria.pdf

104