South African Economy - Circular
Flows & Limitations
Chapter 11
S.A. Land Area &
Population (%)
South African land area covers
1 219 090 km2.
▪ Northern Cape = 30% of total area
but only 2% of population.
▪ Gauteng = 1.4% of total area but
26% of population.
Population (2019): 58.8 million Inequalities
▪ African + 80% of total. Richest 10% spend 7.9 more than the
▪ White around 8% of total. Bottom 40% in 2015. (read p 123)
▪ Coloured around 9% of total. Personal distribution of income:
▪ Indian/Asian just below 3 % of manner which eco’s personal/
total. disposable income = divided among diff
▪ 51% of total = female. income classes /households/families.
Role Players in Eco Households as Spenders
1. Households How households dispose income?
The rest to personal consumption
Households as Income Receivers
expenditures:
16.2 mil. households in South Africa:
▪ 1/+ persons occupying housing unit.
▪ Ultimate suppliers of all economic
resources (production factors ect
land, labour capital & entre).
▪ Major spenders in eco.
Functional distribution of income:
▪ Indicates how households’ earned
income = apportioned among income
from work & related categories &
income from other sources such as
grants.
Types G/S
▪ Wages = paid 2 labour; rents &
Durable good: cons good w/ expected
interest 2 owners of property
life of 3/+ yrs.
resources; profits = paid 2 owners
Semi-durable goods: incl clothing,
of corporations & unincorporated
footwear ect w/ longer life span than
businesses.
non-durable goods.
Non-durable good: cons good w/
expected life of less than 3 yrs.
, 2. Business Population Private goods:
Produce g/s, & combine FOP. Persues ▪ Characteristics: rivalry &
profit. Constitutes 2nd major excludability.
component of private sector. Public goods:
Distinction btw firm, plant & industry: ▪ Characteristics: non-rivalry (1
▪ Plant = physical establishment. person’s benefit from certain good
▪ Firm = buss org that owns plants. not reduce benefit available 2
▪ Industry = group of firms. other) & non-excludability
Complex & varied structure. (inability 2 keep non-payers (free-
▪ Multiplant firm organised riders) from obtaining benefits
horizontally (several plans same from certain good).
function). ▪ Free-rider problem.
▪ Vertically integrated: plants perf Quasi-public goods, e.g. education.
diff functions in various stages of Reallocation process thro taxation.
production. Takes care of market failures:
Generally take following legal forms: 1. Produces wrong amt g/s.
1. Sole Proprietors: 2. Fails allocate resc 2 production of
unincorporated firm owned & g/s who output is eco justified.
Read p123
operated by 1 person.
2. Partnerships: unincorporated firm
4. Role of Foreign Sector
owned & operated by 2/+ persons. Include all role players (large # indiv
3. Closed Corporations. states w/own govt, cons & buss).
4. Companies (private/public): legal Open Economy – sensitive 2 changing
entity (‘person’) distinct & world events.
separate from indivs who own it. International Trade.
Advantages of Companies Circular Flow Diagram
▪ Unique Corporate instruments Flows are equal.
(effective raise money 2 expand) & Illustration showing:
equity & debt financing. ▪ flow of resources from
▪ Limited liability to owners (only households 2 firms &
risk what paid 4 stock). ▪ of prods from firms 2 households.
▪ Hiring of specialists, amongst These flows are accompanied by
other factors (expand). reverse flows of money from firms 2
▪ Lifetime not constrained 2 owners. households & from households 2 firms.
Principal-Agent Problem
Conflict of interest occurs w/e agents
(workers/managers) pursue own
objectives 2detriment of principals’
(stockholders’) goals. Read p123
3. Government’s Role
Provide Legal structure (fair comp).
Public g/s, e.g. national defence.
transfer payment: money (/g/s) by
govt 2 household/firm which payer
receives no g/s directly in return.
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