UNIT 1: SOUTH ARICAN ECONOMY Flashcards
Define Economics
: social science that involves study human choices with regard to economic matters.
: study of way in which people satisfy their (unlimited) needs with (scarce) resources available to them
Economics literacy
NB
knowledge of economy
DECISION MAKERS / PARTICIPANTS divided 3 group:
- households ( member of community-including primary school learners)
- government / authority
- business enterprises (manufacturers & providers of goods & services)
3 CO-ORDINATING MECHANISMS (RULES OF THE ECONOMIC SYSTEM) IN ECONOMIC SYSTEMS
(NB)
TRADITIONAL MECHANISM: members of community produce same products, they use the same inputs & production techniques & divide the yield amongst each other
• COMMAND MECHANISM: actions of community determined by central authority that makes the decisions about what’s produced, how its produced & how its divided
• MARKET MECHANISM: people free to own their own property, where they may trade with each other in any way they choose, where they can spend their money any way they want, and where the government does not control the price.
ELEMENTS OF A COMMAND ECONOMY IN SOUTH AFRICA:
Some enterprises were directly / indirectly owned by the state (Iscor, Telkom, SABS etc.)
• Certain prices are fixed
• The government interfered in the free movement of right production factors through influx control & job reservation
State interferences directed at:
combating production of harmful goods
• controlling monopolistic tendencies (exploitation of consumers & exhausting of natural resources)
• prescriptions regarding quality to ensure the health & safety of the community
Market economy:
NB
- countries where people have individual property rights & where the price system functions properly, known as market economy (wealthier than countries with other types of economic systems)
- prices tell people what to produce, how much to produce, skills required etc
- if you act in self interest in a market economy, you automatically also act in someone elses interest. (called the invisible hand) (asif invisible hand that directs you to act in other people interest, it if that was not your intention)
- people try make money for themselves & their families. sellers of products try to convince consumers to buy from them & not others. They compete with each other. they search for new & better ways to produce their products & to sell them more cheaply.
- competition is NB. as they discover new & better ways to satisfy needs
- price system plays very NB role in any modern society ( people not forced to buy & sell)
- society allows individual property rights. allows price system to operate feely & government does not interfere unnecessarily in the economy
Individual property rights
purchase property from any person who is willing to sell it to you at any price you & seller agree on
• sell property to anyone willing to buy from you at any prices you & purchaser agree on
• use your property for any purpose you may choose, provided that you do not endanger the lives of any other people / interfere in the equal rights of other people to enjoy the use of their property
• can be fixed property (land / house) other things (tools, furniture, clothing, vehicles etc)
• individual property rights mean you are the owner of your own body
Economic growth
NB
: determined by total production of goods & services over period of time (usually one year)
: total value of all goods & services produced in a specific year in a country is called the gross national product (GNP)
..by determining GNP adjustments can be made for price increases. the figure obtained after the GNP has been adjusted is the ‘real GNP’
GROWTH TAKES PLACE AS FOLLOWS: if GNP increases, real economic growth takes place. when no growth takes place from yr to yr, stagnation sets in . when growth decreased, country experiences an economic decline, slump / recession
** INFLATION
NB
Latin Inflatio, means blow up or pump up. (blowing up of prices)
used to indicate drop in the buying power of money as a result of a general rise in prices of goods & services.
Inflation is what makes money worth less over time. reduces buying power of money month by month, yr by yr.
Characteristics of inflation
high profits, credit easily granted, overoptimism / overconfidence
• plenty of easy obtainable money, compared to shortage of goods & services
• rising price result in demand for higher wages & salaries, even more money put into circulation. Rising costs & greater demand for goods & services drive prices up even more.
• dynamic process of continual price increases that starts to feed off itself
• process has serious monetary implications, because price increases imply a corresponding drop in the value of money
• role of expectations has become essential feature of inflation ( people expect money to rise, people quickly spend all their money & result that prices do indeed rise)
Government sector in SA
CENTRAL GOVERNMENT ( national matters: water supply, defence, & foreign affairs)
• REGIONAL (regional matters: housing, health services, education)
• LOCAL AUTHORITIES ( local matters: supply of water, electricity, roads & sewage systems)
• PUBLIC CORPORATIONS & other government businesses(Eskom, Telkom, Transnet, Rand Wat
Define tax:
is way in which government of a country gets the income it needs to provide series to the people of the country
- government uses tax laws ®ulations to encourage people to plan for their retirement
- compulsory payments to the country
2 categories of tAx
NB
1) DIRECT TAXATION: personal taxation is most NB form of direct taxation. Paid on the taxable income of a person, company, partnership & close corporations. Progressive personal tax system, means people with higher incomes have to contribute higher % of their income than people with lower income. When tax increase, % tax payable also increases
2) INDIRECT TAXATION: Value-added tax (VAT), customs & excise duties
- VAT is large source income for governm
*** FISCAL POLICY:
NB
government decides how much money to spend & what spend it on. whose needs are most NB & howits going to finance its spending. (financial activities)
-Most NB fiscal policy instrument: BUDGET (presented to parliament annually: March)
(IN SA: controlled by government)
