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NAME______________________ Period ______________DUE __________Economic Systems in AfricaEconomics is the social science discipline concerned with making decisions about how to allocate limited resources to acquire the unlimited goods and services that people want. The fundamental problem in economics is scarcity, the idea that human wants are unlimited, but a society has limited resources with which to fulfill these wants. Because of scarcity, societies must make choices about how to answer three fundamental questions: (1) what specific goods and services will we produce in our society?; (2) how will these goods and services be produced (who controls the factors of production including natural resources, human resources, capital tools, and ease/difficulty that entrepreneurs encounter)?; and (3) who will consume the goods and services produced by the society?GUIDED QUESTIONS:1) What is the definition of economics?2) What is scarcity?3) What are the three fundamental economic questions that all societies must answer?In a traditional economy, the three questions are answered in a way that is consistent with the way they have always been answered across time in that society. The answers are therefore answered based on habit and custom. The goal is to maintain the status quo. Although there are elements of traditional economic systems in every country on Earth, no country today operates primarily on a traditional system of answering the three economic questions.GUIDED QUESTIONS:4) How does a traditional economy answer the three economic questions?5) What is the goal of a traditional economy?In a command economy, the three questions are answered by the authorities in control of the government. The motivating factor in a command economy is to set and meet goals. The government sets the goals. Everyone works for the government. The government consumes the bulk of the goods and services produced. Because the government decides what the society will produce, the government controls the factors of production, and is the primary consumer of the goods and services produced in the society. Due to a lack of positive incentives to motivate workers to be productive, a lack of understanding of government officials to correctly recognize individual and societal wants, and few goods and services available to citizens, command economies are inefficient.GUIDED QUESTIONS:6) How are economic questions answered in a command economy?7) Why are command economies inefficient?In a market economy, the three questions are answered through the interaction between producers and consumers. The goal becomes the ability of producers to use their limited resources to produce a good or service that people want. The producer must be able to produce the good or services at a price low enough that they can then sell it to consumers at a higher price that consumers are able and willing to pay. The difference between the production cost and the selling price is profit, and profit becomes the motivating factor in a market economy.GUIDED QUESTIONS:8) How does a market economy answer the three economic questions?9) What is profit?SS7E1 Analyze different economic systems.b. Explain that countries have a mixed economic system located on a continuum between pure market and pure command.There are no pure market or pure command economies in the world. All countries exist on a continuum between pure command and pure market with some being closer to command and some being closer to market. (Therefore, all economies are mixed economies.) The determination as to where a specific country falls along this continuum is subjective. Various non-profit organizations (with specific political philosophies) rank the countries of the world on various criteria. One such organization, the conservative Heritage Foundation, bases their evaluations and rankings on twelve specific criteria that cluster into four areas: the rule of law, size of government, regulatory efficiency, and open markets. Every nation is rated on these criteria and then ranked on a scale from zero to 100 with zero being pure command and 100 being pure market.GUIDED QUESTIONS:10) What is a mixed economy?11) What is the economic continuum?SS7E1 Analyze different economic systems.c. Compare and contrast the economic systems in South Africa, Nigeria and Kenya.The economy of South Africa is considered “moderately free” on the Heritage Foundation scale of economic freedom making it a “mixed” economic system. The rule of law is a strength in supporting economic freedom in South Africa despite pervasive government corruption. The role of government in the economic is relatively non-intrusive as a percentage of GDP. About government regulations, the government has abolished most price controls allowing for free markets to flourish, but there are still state-owned enterprises which need to be reformed. Trade is significant for South Africa’s economy, with the combined value of exports and imports consisting of about 60 percent of the nation’s GDP.GUIDED QUESTIONS:12) Why is the economy of South Africa considered moderately free on the Heritage Foundation scale of economic freedom?13) What activity makes up 60% of South Africa’s GDP?The economy of Nigeria is considered “mostly unfree” on the Heritage Foundation scale of economic freedom making it a “mixed, leans command” economic system. The rule of law is hindered by rampant corruption, an underfunded court system, and political interference. Taxes are low in Nigeria, as is government spending, which means that people keep most of what they earn. However, wages are low and government services are 1with oil exports, but the political graft, lack of government openness to foreign investment in the country, and non-tariff barriers impede trade.GUIDED QUESTIONS:14) Describe the economy of Nigeria in a complete sentence.15) What impedes trade in Nigeria?The economy of Kenya is considered “mostly unfree” on the Heritage Foundation scale of economic freedom making it a “mixed, leans command” economic system. The rule of law allows the government to confiscate land that it determines has not been used productively; the courts are weak, and corruption is pervasive and entrenched. The government keeps taxes and government spending low, but the fiscal health of Kenya is weak. Government regulations and subsidies keep prices artificially low, illegal child labor is a problem, and government (not businesses) is the largest employer. Trade is moderately important to Kenya’s economy and it is like that of Nigeria.GUIDED QUESTIONS:16) Describe the economic system of Kenya in a complete sentence.17) What is the largest employer in Kenya?SS7E2 Explain how voluntary trade benefits buyers and sellers in Africa.a. Explain how specialization encourages trade between countries.Trade between nations is only viable when it is voluntary (i.e., not coerced through military threats or economic sanctions) and non-fraudulent (mutually beneficial). Both parties involved in a trade will be better off after the trade than they were before the trade or they wouldn’t have engaged in the trade (again, assuming the trade was voluntary and non-fraudulent). When nations look for trading partners, they are looking for other countries who can produce specific goods/services which their own country cannot produce as efficiently.Although some nations are rich in natural resources and highly developed in terms of technologies, infrastructure, etc., it is not always in a country’s best interest to produce everything it could for itself. Nations instead choose to focus on only those products/services which they are capable of providing fastest, cheapest, and in great abundance. This phenomenon is known as economic specialization.GUIDED QUESTIONS:18) What do countries look for in a trading partner?19)What is economic specialization?SS7E2 Explain how voluntary trade benefits buyers and sellers in Africa.b. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargos.Even though voluntary trade is always beneficial to the parties engaging in it, sometimes countries create trade barriers to pursue the country’s interests. This could be to punish another country or to protect an industry within the country creating the trade barrier. These trade barriers always hurt both parties that would otherwise be trading.Tariff is a tax placed on goods coming into a country. The goal of a tariff is to increase the price of an import, so that people in that country will buy the cheaper domestically produced good.Quota is a limit on the amount of a foreign good that can be imported. As with a tariff, the goal of a quota is to encourage people to buy domestically made goods.Embargo is a cessation of trade between two countries. Unlike the previous two trade barriers, the goal is not to protect domestic industry, but to punish another nation by suspending trade.SS7E2 Explain how voluntary trade benefits buyers and sellers in Africa.c. Explain why international trade requires a system for exchanging currencies between nationsFor countries to trade, a system of currency exchange must exist. Without a method to convert monetary values between currencies, international trade would be impossible. People want to be paid in their own nation’s currency when they sell goods and services to businesses in other nations. Exchange rates are used to determine how much one nation’s currency is worth in terms of another’s. (e.g., 1.00 U.S. dollar = 0.96 Euros)GUIDED QUESTIONS:20) What is an exchange rate?21) Why are exchange rates necessary?SS7E3 Describe factors that influence economic growth and examine their presence or absence in Nigeria, South Africa, and Kenya.a. Evaluate how literacy rates affect the standard of living.Literacy rate is the percentage of people over the age of 15 in a country who can read or write. The more educated a work force is the more literate it is. As people in a workforce receive more education, then they can perform jobs that create more valuable goods and services. Investment in human capital allows workers to produce more goods and services and increases a nation’s standard of living.GUIDED QUESTIONS:22) What is literacy rate?23) What is the relationship between literacy rate and standard of living?SS7E3 Describe factors that influence economic growth and examine their presence or absence in Nigeria, South Africa, and Kenya.b. Explain the relationship between investment in human capital (education and training) and gross domestic product (GDP per capita).Human capital is the training and skills a worker has to produce a good or service. A better educated and trained workforce can work more efficiently and create more valuable, skill-intensive goods and services. Investments in human capital raise the per capita GDP by allowing each worker to produce more goods and services.The following data can be used in conjunction with literacy rates to come to conclusions regarding the relationship between investment in human capital, literacy rates, and standard of living. In 2017, South Africa, spent 5.9% of their GDP on education expenditures and the country has a literacy rate of 94.4% (95.4 for men and 93.4 for women). Kenya spent 5.3% on education expenditures and has a literacy rate of 78% (81.1% for men and 74.9% for women). Nigeria data on the percentage of the GDP spending on education is not available. The literacy rate in Nigeria is 59.6% (69.2% for men and 49.7% for women). The 2017 GDP per capita in South Africa was $13,500; in Kenya it was $3,500, and in Nigeria it was $5,900.GUIDED QUESTION:25) What is human capital?26) How does investment in human capital affect gross domestic product per capita?SS7E3 Describe factors that influence economic growth and examine their presence or absence in Nigeria, South Africa, and Kenya.c. Explain the relationship between investment in capital goods (factories, machinery, and technology) and gross domestic product (GDP per capita).Capital goods are durable goods used in the production of goods. This can include factories, machines, and tools. A country that has invested in newer, more efficient tools will be able to produce more than one that has not. Investments in capital goods raise the per capita GDP by allowing each worker to produce more.GUIDED QUESTIONS:27) Why is an investment in capital goods (factories, machines, and tools) important?SS7E3 Describe factors that influence economic growth and examine their presence or absence in Nigeria, South Africa, and Kenya.d. Explain how the distribution of natural resources affects the economic development of Africa.Natural resources are not distributed evenly across the globe. Landforms, lakes, rivers, minerals, vegetation and animals vary from region to region, and country by country. The three focus countries in Africa all have potential wealth in the form of natural resources. In South Africa gold, diamonds, platinum, other metals and minerals are found in abundance. Many jobs are therefore found in the mining industry as these natural resources are extracted and exported to other countries. In Nigeria, petroleum and petroleum products make up 95% of the nation’s exports. Cocoa and rubber are the other natural resources that are extracted from the Earth and exported. In Kenya tea is the primary natural resource that is grown in abundance and exported. Horticultural products, coffee, petroleum products, fish, cement are also found. The country also exports textiles in the form of apparel to other countries.GUIDED QUESTIONS:28 – 30) Complete the following table.South AfricaNigeriaKenyaResources and ExportsSS7E3 Describe factors that influence economic growth and examine their presence or absence in Nigeria, South Africa, and Kenya.e. Describe the role of entrepreneurship.Entrepreneurship is one of the four factors of production. Entrepreneurs are people who are willing to risk with their own productive resources (human, natural and capital tools) to produce a new or better good or service. Entrepreneurs allow the market to innovate, creating new goods or services that better satisfy people’s wants or allowing the market to become more efficient. Countries with entrepreneurial cultures are more able to satisfy the wants of its people. For example, in 2016 Kenya simplified the process for starting a business, but then also made it more expensive. In Nigeria, only about one-quarter of all Nigerians work in the formal sector. With the process of starting a business difficult for entrepreneurs, the economy does not grow.GUIDED QUESTIONS:31) Describe an entrepreneur.32) Explain why entrepreneurs are important to an economy.What Students Should KnowIn summary, how do the three focus countries in the GSE fare with regard to addressing and implementing the factors of economic growth? South Africa is a middle-income emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; and a stock exchange that is Africa’s largest and among the top 20 in the world. Economic growth has decelerated in recent years. Unemployment, poverty, and inequality - among the highest in the world - remain a challenge. Official unemployment is roughly 27% of the workforce, and runs significantly higher among black youth. Even though the country's modern infrastructure supports a relatively efficient distribution of goods to major urban centers throughout the region, unstable electricity supplies retard growth. Eskom, the state-run power company, is building three new power stations and is installing new power demand management programs to improve power grid reliability but has been plagued with accusations of mismanagement and corruption and faces an increasingly high debt burden. South Africa's economic policy has focused on controlling inflation while empowering a broader economic base; however, the country faces structural constraints that also limit economic growth, such as shortages of skilled workers, declining global competitiveness, and frequent work stoppages due to strike action. The government faces growing pressure to improve the delivery of basic services to low-income areas, to increase job growth, and to provide university level-education at affordable prices. Political infighting among South Africa’s ruling party and the volatility of their currency, the rand, risks stalling economic growth. International investors are concerned about the country’s long-term economic stability; in late 2016, most major international credit ratings agencies downgraded South Africa’s international debt to junk bond status. Nigeria is Sub Saharan Africa’s largest economy and relies heavily on oil as its main source of business earnings and government revenues. Following the 2008-09 global financial crises, Nigeria’s economic growth has been driven by growth in agriculture, telecommunications, and services. Economic diversification and strong growth have not translated into a significant decline in poverty levels; over 62% of Nigeria's over 180 million people still live in extreme poverty. Despite its strong fundamentals, oil-rich Nigeria has been hobbled by inadequate power supply, lack of infrastructure, delays in the passage of legislative reforms, an inefficient property registration system, restrictive trade policies, an inconsistent regulatory environment, a slow and ineffective judicial system, unreliable dispute resolution mechanisms, insecurity, and pervasive corruption. Regulatory constraints and security risks have limited new investment in oil and natural gas, and Nigeria's oil production had been contracting every year since 2012. Kenya is the economic, financial, and transport hub of East Africa. Kenya’s real GDP growth has averaged over 5% for the last decade. Since 2014, Kenya has been ranked as a lower middle income country because of its per capita GDP. While Kenya has a growing entrepreneurial middle class and steady growth, its economic development has been impaired by weak governance and corruption. Although reliable numbers are hard to find, unemployment and under-employment are extremely high, and could be near 40% of the population. Agriculture remains the backbone of the Kenyan economy, contributing one-third of GDP. About 75% of Kenya’s population works at least part-time in the agricultural sector, including livestock and pastoral activities. Over 75% of agricultural output is from small-scale, rain-fed farming or livestock production. Tourism also holds a significant place in Kenya’s economy. In spite of political turmoil throughout the second half of 2017, tourism was up 20%, showcasing the strength of this sector. Kenya has long been a target of terrorist activity and has struggled with instability along its northeastern borders. Some high visibility terrorist attacks during 2013-2015 (e.g., at Nairobi’s Westgate Mall and Garissa University) affected the tourism industry severely, but the sector rebounded strongly and appears poised to continue growing. Inadequate infrastructure continues to hamper Kenya’s efforts to improve its annual growth so that it can meaningfully address poverty and unemployment. International financial institutions and donors remain important to Kenya's growth and development. The first phase of a Chinese-financed and constructed standard gauge railway connecting Mombasa and Nairobi opened in May 2017. ................
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