Africa Economics

Types of Economic Systems Traditional: An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution Command: An economy in which most economic issues of production and distribution are resolved through central planning and control (typically a government) Market: An economy that relies on a system of interdependent market prices to allocate goods, services, and resources Most countries have a MIXED economy located on a continuum between pure market and pure command. 3 Economic Questions: What to produce? How to produce? For whom to produce?

Economy of Nigeria Mixed economy Spends .9% of GDP on education Heavily dependent on oil (37% of GDP in 2006) 18% agriculture 50.9% industry 31.1% services Poor infrastructure

Economy of South Africa Mixed economy Spends 5.4% of GDP on education 21.7% unemployment (high) 9% agriculture 26% industry 65% services 2 economies: 1 that is very similar to those of developed countries 1 with a very poor infrastructure

Voluntary Trade Benefits Buyers and Sellers (Review) Specialization encourages trade between countries EX: Nigeria specializes in oil production, while its neighbor specializes in agriculture. Can these two benefit from trading with each other? Trade barriers: Tariffs Embargos Quotas

International trade requires a system for exchanging currencies between nations. Why?

Factors That Influence Economic Growth: Nigeria and South Africa 4 factors: land, labor, capital, entrepreneurship Human capital can influence GDP positively and negatively Low education/training = low GDP High education/training = high GDP Investment in capital can influence GDP positively and negatively Low investment in capital = low GDP High investment in capital = high GDP South Africa Nigeria Land Yes Labor Capital No Entrepreneurship % of GDP spent on education 5.4% 0.9% GDP per capita $10,400 $2,200

The distribution of diamonds, gold, uranium, and oil affects the economic development of Africa When a country has natural resources and mines them efficiently, they will have a higher GDP Entrepreneurship: A characteristic of people who assume the risk of organizing productive resources to produce goods and services

Vocabulary to know: Standard of Living: The level of subsistence of a nation, social class or individual with reference to the adequacy of necessities and comforts of daily life Quotas: In international trade, the limit on the quantity of a product that may be imported or exported, established by government laws or regulations Entrepreneurship: A characteristic of people who assume the risk of organizing productive resources to produce goods and services Tariff: A tax on an imported good or service Market Economy: An economy that relies on a system of interdependent market prices to allocate goods, services, and resources Specialization: A situation in which people produce a narrower range of goods and services than they consume Capital: Resources and goods made and used to produce other goods and services. EX: buildings, machinery, tools and equipment Command Economy: An economy in which most economic issues of production and distribution are resolved through central planning and control (typically a government)

Vocabulary (cont.) Traditional Economy: An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution Gross Domestic Product (GDP): The market value of all final goods and services produced in a country in a calendar year Human Capital: The health, education, experience, training, skills, and values of people (also known as human resources) Opportunity Cost: what you must give up to obtain something else, the second best alternative Export Subsidy: government financial assistance given to a firm that allows a firm to sell its product at a reduced rate; this makes the product more competitive when exported to other countries Tariff: taxes imposed on imported goods Quota: limits placed on the quantity of an imported good Product Standards: a “hidden” barrier; most countries set their own standards for product safety, packaging, content, etc.; if a standard for a product in Country A is lower than a standard for a product in Country B, Country A will have to spend money to meet Country B’s standards if they wish to sell in that country

Can you answer these questions? What are the three types of economic systems? What are the three economic questions that must be asked when creating a new product or business? What are the similarities and differences of the economic systems in South Africa and Nigeria? How does specialization encourage trade between countries? How do tariffs, quotas, and embargos serve as barriers to trade? Why does international trade require a system for exchanging currencies between nations? What is the relationship between investment in human capital (education and training) and gross domestic product (GDP)?

Can you answer these questions? What is the relationship between investment in capital (factories, machinery, and technology) and gross domestic product (GDP)? How does the distribution of diamonds, gold, uranium, and oil shape the economies of Africa? What is the role of entrepreneurship in Africa? What is the difference between and intermediate and a final good or service? What is an example of a consumer good or service? (a government good or service? An investment good or service?)