(EOA) African Economics Systems Lesson
African Economics Systems
Africa is a diverse continent with a variety of economies. The three prominent are traditional, command, and market economies. When a country has a developing economy, they need to be able to ask themselves three questions:
- What to produce?
- How to produce it?
- For whom to produce it?
While answering these questions, the nation will also have to decide whether to have a true command economy, a pure market economy, or an economy that falls somewhere along the spectrum between these types. Throughout this module, we will look at these questions and how they affect the countries of South Africa, Nigeria, and Kenya today.
The National Council on Economic Education has created a list of principles to guide students as they study economics. They call this list "The Guide to Economic Reasoning." We are going to use their list to guide us through our study of African economies.
The principles on this list are pretty straightforward and can be applied to lots of things, not just economics. To understand what these principles mean before we apply them to economics and Sub-Saharan Africa, let's apply them to you right now.
Let's look at some of the items on the list again, but this time, instead of applying the principles on a personal note, let's apply them to the different economic systems in the world.
People Choose
- People choose between Traditional, Market, Command, and Mixed Economies.
People's Choices Involve Costs
People Respond to Incentives in Predictable Ways
People Create Economic Systems that Influence Individual Choices and Incentives
Economics – the choices we make about how to use limited resources to produce goods & services that meet our unlimited wants & needs.
Scarcity (limited resources with unlimited demands) causes countries to answer the Three Basic Questions of Economic Systems.
- What goods and services will be produced?
- How will the goods and services be produced?
- For Whom are the goods and services produced?
Traditional |
Command |
Market |
|
|---|---|---|---|
Who answers:
|
People follow their customs and make only what is needed to take care of oneself |
The government makes all economic decisions |
Whatever the market demands that will produce a profit |
Who answers:
|
People grow & make things the same way that their ancestors did |
The government decides how to make goods/services |
Private producers (businesses) |
Who answers:
|
Self and trading purposes (people in the village who need them) |
Whoever the government decides to give them to |
Consumers who demand the product and are willing to pay |
Strengths |
Economic decisions are based on customs and beliefs, people do not have to worry about employment |
People do not have to worry about employment, housing, education, and healthcare |
People can start their own businesses, more choice |
Weaknesses |
People will make what they always made & will do the same work their parents did |
Consumers own nothing, no choices/freedom, limited innovation by individuals |
The desire for money may lead to poor quality of goods and services, business owners have to risk losing money |
Mixed Economy
Market + Command = Mixed
- There are no pure command or market economies. To some degree, all modern economies show characteristics of both systems and are often referred to as mixed economies.
- Most economies are closer to one type of economic system than another
- For example, businesses own resources and determine what and how to produce, but the Government regulates certain industries
- Most democratic countries fall in this category (there are no truly pure Market or Command economies).
- Examples: U.S., Brazil, Mexico, Canada, UK, etc.
Economic Comparison
Culture Challenge
Take Away
Economic systems are a vital part of a functioning successful country. South Africa, Nigeria, and Kenya are all changing and progressing through the acceptance of a mixed economy. The continent is rich in natural resources, which helps it focus on economic growth. Many of the countries benefit from international trade. In order to spark economic growth, they diversified their economies, investing in physical infrastructures, and improved their human capital
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