2 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 distributionCommand: 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 resourcesMost 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?
3 Economy of Nigeria Mixed economy Spends .9% of GDP on education Heavily dependent on oil (37% of GDP in 2006)18% agriculture50.9% industry31.1% servicesPoor infrastructure
4 Economy of South Africa Mixed economySpends 5.4% of GDP on education21.7% unemployment (high)9% agriculture26% industry65% services2 economies:1 that is very similar to those of developed countries1 with a very poor infrastructure
5 Voluntary Trade Benefits Buyers and Sellers (Review) Specialization encourages trade between countriesEX: Nigeria specializes in oil production, while its neighbor specializes in agriculture. Can these two benefit from trading with each other?Trade barriers:TariffsEmbargosQuotas
6 International trade requires a system for exchanging currencies between nations. Why?
7 Factors That Influence Economic Growth: Nigeria and South Africa 4 factors: land, labor, capital, entrepreneurshipHuman capital can influence GDP positively and negativelyLow education/training = low GDPHigh education/training = high GDPInvestment in capital can influence GDP positively and negativelyLow investment in capital = low GDPHigh investment in capital = high GDPSouth AfricaNigeriaLandYesLaborCapitalNoEntrepreneurship% of GDP spent on education5.4%0.9%GDP per capita$10,400$2,200
8 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 GDPEntrepreneurship: A characteristic of people who assume the risk of organizing productive resources to produce goods and services
9 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 lifeQuotas: In international trade, the limit on the quantity of a product that may be imported or exported, established by government laws or regulationsEntrepreneurship: A characteristic of people who assume the risk of organizing productive resources to produce goods and servicesTariff: A tax on an imported good or serviceMarket Economy: An economy that relies on a system of interdependent market prices to allocate goods, services, and resourcesSpecialization: A situation in which people produce a narrower range of goods and services than they consumeCapital: Resources and goods made and used to produce other goods and services. EX: buildings, machinery, tools and equipmentCommand Economy: An economy in which most economic issues of production and distribution are resolved through central planning and control (typically a government)
10 Vocabulary (cont.)Traditional Economy: An economy in which customs and habits from the past are used to resolve most economic issues of production and distributionGross Domestic Product (GDP): The market value of all final goods and services produced in a country in a calendar yearHuman 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 alternativeExport 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 countriesTariff: taxes imposed on imported goodsQuota: limits placed on the quantity of an imported goodProduct 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
11 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)?
12 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?)