Africa EconomicsAfrica Economics

Types of Economic SystemsTypes of Economic Systems► Traditional: An economy in which customs and habits from the Traditional: An economy in which customs and habits from the

past are used to resolve most economic issues of production past are used to resolve most economic issues of production and distribution and distribution

► Command: An economy in which most economic issues of Command: An economy in which most economic issues of production and distribution are resolved through central production and distribution are resolved through central planning and control (typically a government) planning and control (typically a government)

► Market: An economy that relies on a system of interdependent Market: An economy that relies on a system of interdependent market prices to allocate goods, services, and resources market prices to allocate goods, services, and resources

► Most countries have a MIXED economy located on a Most countries have a MIXED economy located on a continuum between pure market and pure command.continuum between pure market and pure command.

► 3 Economic Questions:3 Economic Questions: What to produce?What to produce? How to produce?How to produce? For whom to produce?For whom to produce?

Economy of NigeriaEconomy of Nigeria

►Mixed economyMixed economy►Spends .9% of GDP on educationSpends .9% of GDP on education►Heavily dependent on oil (37% of GDP Heavily dependent on oil (37% of GDP

in 2006)in 2006)►18% agriculture18% agriculture►50.9% industry50.9% industry►31.1% services31.1% services►Poor infrastructurePoor infrastructure

Economy of South AfricaEconomy of South Africa

► Mixed economyMixed economy► Spends 5.4% of GDP on educationSpends 5.4% of GDP on education► 21.7% unemployment (high)21.7% unemployment (high)► 9% agriculture9% agriculture► 26% industry26% industry► 65% services65% services► 2 economies:2 economies:

1 that is very similar to those of developed 1 that is very similar to those of developed countriescountries

1 with a very poor infrastructure1 with a very poor infrastructure

Voluntary Trade Benefits Buyers Voluntary Trade Benefits Buyers and Sellers (Review)and Sellers (Review)

►Specialization encourages trade Specialization encourages trade between countriesbetween countries EX: Nigeria specializes in oil production, EX: Nigeria specializes in oil production,

while its neighbor specializes in while its neighbor specializes in agriculture. Can these two benefit from agriculture. Can these two benefit from trading with each other?trading with each other?

►Trade barriers:Trade barriers: TariffsTariffs EmbargosEmbargos QuotasQuotas

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

Factors That Influence Economic Factors That Influence Economic Growth: Nigeria and South Growth: Nigeria and South

AfricaAfrica► 4 factors: land, labor, 4 factors: land, labor,

capital, entrepreneurshipcapital, entrepreneurship► Human capital can influence Human capital can influence

GDP positively and GDP positively and negativelynegatively

► Low education/training = Low education/training = low GDPlow GDP

► High education/training = High education/training = high GDPhigh GDP

► Investment in capital can Investment in capital can influence GDP positively and influence GDP positively and negativelynegatively

► Low investment in capital = Low investment in capital = low GDPlow GDP

► High investment in capital = High investment in capital = high GDPhigh GDP

South South AfricaAfrica

NigeriaNigeria

LandLand YesYes YesYes

LaborLabor YesYes YesYes

CapitalCapital YesYes NoNo

EntrepreneEntrepreneurshipurship

YesYes NoNo

% of GDP % of GDP spent on spent on educationeducation

5.4%5.4% 0.9%0.9%

GDP per GDP per capitacapita

$10,400$10,400 $2,200$2,200

► The distribution of diamonds, gold, uranium, and The distribution of diamonds, gold, uranium, and oil affects the economic development of Africaoil affects the economic development of Africa

► When a country has natural resources and When a country has natural resources and mines them efficiently, they will have a higher mines them efficiently, they will have a higher GDPGDP

► Entrepreneurship: A characteristic of people who Entrepreneurship: A characteristic of people who assume the risk of organizing productive assume the risk of organizing productive resources to produce goods and services resources to produce goods and services

Vocabulary to know:Vocabulary to know:► Standard of Living: The level of subsistence of a nation, social class Standard of Living: The level of subsistence of a nation, social class

or individual with reference to the adequacy of necessities and or individual with reference to the adequacy of necessities and comforts of daily life comforts of daily life

► Quotas: In international trade, the limit on the quantity of a product Quotas: In international trade, the limit on the quantity of a product that may be imported or exported, established by government laws that may be imported or exported, established by government laws or regulations or regulations

► Entrepreneurship: A characteristic of people who assume the risk of Entrepreneurship: A characteristic of people who assume the risk of organizing productive resources to produce goods and services organizing productive resources to produce goods and services

► Tariff: A tax on an imported good or service Tariff: A tax on an imported good or service ► Market Economy: An economy that relies on a system of Market Economy: An economy that relies on a system of

interdependent market prices to allocate goods, services, and interdependent market prices to allocate goods, services, and resources resources

► Specialization: A situation in which people produce a narrower range Specialization: A situation in which people produce a narrower range of goods and services than they consume of goods and services than they consume

► Capital: Resources and goods made and used to produce other goods Capital: Resources and goods made and used to produce other goods and services. EX: buildings, machinery, tools and equipment and services. EX: buildings, machinery, tools and equipment

► Command Economy: An economy in which most economic issues of Command Economy: An economy in which most economic issues of production and distribution are resolved through central planning production and distribution are resolved through central planning and control (typically a government) and control (typically a government)

Vocabulary (cont.)Vocabulary (cont.)► Traditional Economy: An economy in which customs and habits from Traditional Economy: An economy in which customs and habits from

the past are used to resolve most economic issues of production and the past are used to resolve most economic issues of production and distribution distribution

► Gross Domestic Product (GDP): The market value of all final goods Gross Domestic Product (GDP): The market value of all final goods and services produced in a country in a calendar year and services produced in a country in a calendar year

► Human Capital: The health, education, experience, training, skills, Human Capital: The health, education, experience, training, skills, and values of people (also known as human resources) and values of people (also known as human resources)

► Opportunity Cost: what you must give up to obtain something else, Opportunity Cost: what you must give up to obtain something else, the second best alternativethe second best alternative

► Export Subsidy: government financial assistance given to a firm that Export Subsidy: government financial assistance given to a firm that allows a firm to sell its product at a reduced rate; this makes the allows a firm to sell its product at a reduced rate; this makes the product more competitive when exported to other countriesproduct more competitive when exported to other countries

► Tariff: taxes imposed on imported goods Tariff: taxes imposed on imported goods ► Quota: limits placed on the quantity of an imported goodQuota: limits placed on the quantity of an imported good► Product Standards: a “hidden” barrier; most countries set their own Product Standards: a “hidden” barrier; most countries set their own

standards for product safety, packaging, content, etc.; if a standard 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 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 Country B, Country A will have to spend money to meet Country B’s standards if they wish to sell in that countrystandards if they wish to sell in that country

Can you answer these Can you answer these questions?questions?

► What are the three types of economic systems?What are the three types of economic systems?► What are the three economic questions that must What are the three economic questions that must

be asked when creating a new product or business?be asked when creating a new product or business?► What are the similarities and differences of the What are the similarities and differences of the

economic systems in South Africa and Nigeria?economic systems in South Africa and Nigeria? ► How does specialization encourage trade between How does specialization encourage trade between

countries?countries?► How do tariffs, quotas, and embargos serve as How do tariffs, quotas, and embargos serve as

barriers to trade?barriers to trade?► Why does international trade require a system for Why does international trade require a system for

exchanging currencies between nations?exchanging currencies between nations?► What is the relationship between investment in What is the relationship between investment in

human capital (education and training) and gross human capital (education and training) and gross domestic product (GDP)?domestic product (GDP)?

Can you answer these Can you answer these questions?questions?

►What is the relationship between investment in What is the relationship between investment in capital (factories, machinery, and technology) capital (factories, machinery, and technology) and gross domestic product (GDP)?and gross domestic product (GDP)?

►How does the distribution of diamonds, gold, How does the distribution of diamonds, gold, uranium, and oil shape the economies of Africa?uranium, and oil shape the economies of Africa?

►What is the role of entrepreneurship in Africa? What is the role of entrepreneurship in Africa? ►What is the difference between and What is the difference between and

intermediate and a final good or service?intermediate and a final good or service?►What is an example of a consumer good or What is an example of a consumer good or

service? (a government good or service? An service? (a government good or service? An investment good or service?)investment good or service?)