Rights lower transaction costs

1.Resources used _______ from one location to another cannot be used to produce commodities that individuals might consume.

2. _______are the opportunity costs of using productive resources in making trades rather than in producing goods and services for consumption or an intermediary other services.

3. The two important _______ that set up indirect trade are the use of money and the use of intermediaries.

4. _______ is a person or organization that specializes in trading rather than producing goods.

5. The gains from exchange and specialization can only be fully realized if

6. _______ have future interests or expectations

6. These kinds of expectations are referred to as _______.

7. Firms and households also _______ by organizing economic activity in particular ways.

IV. Read and translate the text:

Transacting often takes more time; scarce resources that might have been used to produce goods services are frequently used in transacting. For instance, resources used to transport commodities from one location to another cannot be used to produce commodities that individuals might consume. In this case, exchange will have an opportunity cost in terms of the other uses to which these resources could have been put.

Transaction costs are the opportunity costs of using productive resources (including time and effort) in making trades rather than in producing goods and services for consumption or other purposes.

Transaction costs are so pervasive and the gains from exchange and specialization so great, however, that social arrangements have evolved in order to lower transaction costs for everyone. In general, when transactions are costly, indirect trade rather than direct trade will lower transaction costs. The two important social arrangements that set up indirect trade arethe use of money and the use of intermediaries. Money is the thing that is commonly used in virtually all transactions consequently, it is frequently referred to as the medium of exchange. An intermediary is a person or organization that specializes in trading rather than producing goods, thereby lowering the costs of transactions for any non-specialists who use the services of the intermediary. Frequently intermediaries are called middlemen. Firms and households also lower certain kinds of transaction costs by organizing economic activity in particular ways. Finally, when uncertainty about what can and cannot be done undermines the gains from exchange or specialization a society may evolve rules in an effort to lower the costs associated with uncertainty.

The gains from exchange and specialization can only be fully realized if self-interested individuals have future interests or expectations. These expectations are of three sorts:

- expectations about the right to exclude;

- expectations about the right to consume with minimal restrictions;

- expectations about the right to transfer.

These kinds of expectations are referred to as property rights. Every economy, whether capitalist, socialist, communist, or traditional, has to decide how it will create the appropriate sort of expectations about future use.

In this sense every economy has to develop something like property rights.

V. Answer the following questions:

1. What are transaction costs?

2. Why have social arrangements evolved?

3. What are the important social arrangements that set up indirect trade?

4. What is money?

5. What is an intermediary?

6. What may a society evolve in an effort to lower the costs?

7. What other social arrangements lower transaction costs?

8. What kinds of expectations are referred to property rights?

VI. Define the terms:

direct trade

commodity

property rights

consumption

intermediary

firm

indirect trade

VII. Translate into English:

1. Гроші – це те, що використовується практично в усіх угодах. 2. Посередник одержав 10 відсотків від продажу цього товару. 3. Фірми та домашні господарства також знижують певні види витрат шляхом особливої організації економічної діяльності. 4. Двома важливими чинниками, що забезпечують непряму торгівлю, є гроші і посередники. 5. Угоду про купівлю обладнання британської фірми буде підписано наприкінці тижня. 6. Загалом, коли ціна угоди є великою, непряма торгівля, більш, ніж пряма торгівля, знижуватиме витрати, пов'язані з угодою. 7. Будь-яка економіка має вирішити, як виправдати сподівання на майбутнє. 8. Ця фірма укладає угоди прямо, без посередників.

VIII. Read and dramatize the following dialogue:

Mr. Brown: Good morning, Mr. Pearson.

Mr. Pearson: Good morning, Mr. Brown. The weather is fine today, isn't it? I couldn't help enjoying a bit of fresh air walking to the office. Do you always have this kind weather in February?

Mr. B.: Yes, as a matter of fact we do.

Mr. P.: You're lucky to have so much warmth. I hear it's 15°C of frost in our country these days.

Mr. B.: Oh, is it? Then let's make use of all this warmth to the benefit of our two companies. By the way we discussed our transaction yesterday afternoon but didn't clear up some points. Do you find our prices competitive?

Mr. P.: Not quite, I'm afraid. First of all let's start from the very beginning. There is no objection to the price being fixed and payment being effected in dollars.

Mr. B.: Of course not.

Mr. P.: Secondly, all prices should be firm and we're going to pay cash. That's very beneficial to you, isn't it?

Mr. B.: Yes, quite so. But can we revert to the matter later?

Mr. P.: Tomorrow?

Mr. B.: May be tomorrow or this afternoon.

Mr. P.: O.K.

Mr. B.: What about the down payment?

Mr. P.: I think there's nothing to discuss; it stands as is given in the draft contract: 5% against the documents specified in the contract.

Mr. B.: I agree.

Mr. P.: And the last but not the least point. I'll be frank with you, Mr. Brown. I was going to ask for an 8% discount off the price. Bearing in mind the above however, and if you agree to all the prices remaining firm, I'm prepared to have only a 5% discount, that is to cut it almost by half. See?

Mr. B.: Well, Mr. Pearson, I must admit you've taken me somewhat by surprise, but I see your point and I can say if you give us time to study your draft contract and all your suggestions, I hope we could settle all the outstanding problems concerning the price and the terms of payment satisfactory to both parties.

Mr. P.: Agreed. There's nothing left for us to do but go on, is there?

Mr. B.: I'm of the same opinion, Mr. Pearson.

Mr. P.: Our next meeting will be tomorrow at 10 as usual. Good-bye.

Mr. B.: Good-bye.

IX. Make up your own dialogue using the following expressions:

to transact property rights

commodities to suggest

indirect trade to settle down

middleman beneficial

restrictions to fix the price