CHAPTER 1
Economics is the study of how individuals, business, government and other organisations
choose to use scarce resources in order to address numerous needs in an effective and fair
way. i.e we have limited resources and we must make decisions on how to use those resources
- economics studies these decisions
NATURAL RESOURCES
Characteristics
- Supply is fixed (except for trees, fisheries, widlife, soil, air, water etc.) and cannot be
renewed or increased e.g minerals
- Gifts from nature (land, water, wildlife, air, climate, sun, vegetation, minerals); some
supplied by nature, others need capital to explore
- Resources have to be developed (raw materials have to be modified into usable
products)
- Resources may be depleted or destroyed
- Non-renewable: minerals, coal, fossil field | Renewable: trees, fisheries, wildlife, soil, air,
water etc. (sustainability development is necessary for the future to ensure future
generations of resources)
Importance
- Creates job opportunities
- Impacts economic development
- Enables export opportunities
- Creates ownership opportunities
- Determines quality of environment
- Production of goods and services
Remuneration
- Rent (payment made to the owners of natural resources for the use of the resources)
- Excludes rental payments for improvements to land
- Factors that influence rent: demand, quality of resource, supply, location, technology &
climate
LABOUR
Any human effort (physical/mental) that is put into the production of goods and services with the
aim of receiving a reward
Characteristics
- Need to be physically present when their services are used. Quality of work is influenced
by emotions and feelings. Leave, health, work hours are important
- Labour cannot be stored or hoarded - labour lost due to strikes or inefficiency is lost
forever
- Labour is heterogeneous and differs in quality: People have different education, training,
mental ability, attitudes etc.
- Labour is a bargaining process: firm and worker
- Labour’s occupational and geographical mobility are low
,Importance
- Largest contributor to national income: 50%
- Quantity of labour (size of labour force): EAP 16-65 (willing and able)
- Factors determining supply of labour: population growth, LFPR, migration
*statistics SA determine the unemployment figures of sa (distinguish between strict and
expanded def. of unemployment)
- Factors determining quality of labour: increased school education (only 7% of pupils
engage in tertiary education); Skills development (skills development act - SETA’s play a
major role); Health (diseases, malnutrition)
Remuneration
wages & salaries
CAPITAL
Comprises all manufactured resources such as machinery, tools, buildings, vehicles, computers
etc.
Characteristics
- Owned by government, businesses & individuals
- Used in the production of g+s. Capital must first be created.
Some are used immediately and some in the future e.g buildings (more durable than
other factors) Provision must be made for depreciation
- Supply is not fixed: requires willingness and capacity to create these goods.
Savings are necessary for capital formation; Sources: Government (if a budget surplus);
Private Businesses (if there are profits left); Individuals (if all disposable income isn’t
spent); FDI’s (foreign investment)
- Capital increases production efficiency: infrastructure, machinery enables specialisation
Importance
- Economic growth (increase in production capacity of a country andis measured by an
increase in real GDP)
- Direct relation between investment in capital formation and economic growth
- Future economic growth will depend on SA level of investment in the infrastructure of SA
Remuneration
- Interest that owner of capital receives
- Private enterprises should aim to earn a higher income than the interest they have to pay
loans - ‘leverage’ financing
- Reserve Banks use repo rate to control interest rates in the country
ENTREPRENEURSHIP
Someone who organises and assumes the risk of a business in return for profits. Risk is often
carried by shareholders and professional managers are responsible for the day to day
management.
,Characteristics
- Take initiative
- Combine FOP
- Bear all the risks of buying at certain prices and selling at uncertain prices
- Create new enterprises and open new markets
Importance
- Ensures competition (consumer gets better products at lower prices)
- Creates job opportunities (creates more jobs than large firms)
- Increases efficiency (new ideas, products, resources are optimally used)
- Create new wealth
- Increases economic growth and living standards
Remuneration
Profit (selling price of g/s - cost price of g/s)
Factors that influence profit: economic conditions, changes in demand for a product, price of
product, competitors
Economically Marginalised groups: these are people who do not fully participate it the economy
- they find it difficult to access the economy
Reasons:
- Discrimination
- Poor education
- Disabilities
- Refugees
Government often has to take responsibility - BEE policy
end of chapter 1
CHAPTER 2
-In macroeconomics, records are kept of all goods & services and their total value
-These records are known as the national accounts. They represent the production, income and
expenditure in a country
-The SARB publishes the Quarterly Bulletin according to the System of National Accounts of the
UN
-G&S recorded include intermediary vs. final goods and services
GDP: total value of final goods and services produced within borders of a country in a given
time period, usually a year.
GNI/P: total value of income/products earned/produced within borders of a country in a given
time period.
, Calculating GDP
Income method: all income of residents of a country (includes remunerations of FOP)
Production method: if a country’s production is measured by simply adding all sale of
enterprises, it will lead to the problem of double counting. Added
value overcomes this problem as it calculates the sales of each
enterprise, minus the value added by other enterprises.
Expenditure method: Measures the total expenditure of final g+s within the borders of a country.
- Final consumption expenditure by consumers
- durable goods (cars, furniture… + 1 year)
-semi durable goods (clothes, tyres)
-non durable/perishable goods (food, drinks)
-services (education, doctors, hairdressers)
- Final consumption expenditure by government
- Spending: by national, provincial & local governments includes: wages
& salaries ; buying of g+s
-Collective consumption: services delivered to all members of a
community (street lights, storm water systems etc)
Nominal GDP: less accurate calculation of GDP as includes inflation
Real GDP: more accurate calculation of GDP as excludes effect of inflation by using a base
year.
Economic Growth: the increase of production capacity of the economy. It is always measured by
an increase in real GDP. [(real GDP year 2 - real GDP year 1) / Real GDP year 1] X (100/1)
GDP per capita: real GDP / population
GDE= C+I+G*
GDP= C+I+G*+X-M
*+/- residual items
+/- change in inventory
GDP @ FACTOR COST / INCOME METHOD compensation of employees, net operating surplus, consump.of fixed capital
+ Taxes on productION
- Subsidies on productION
GDP @ BASIC PRICES (VALUE ADDED) / PRODUCTION METHOD primary, secondary, tertiary
+ Taxes on prodUCTS
- Subsidies on prodUCTS
GDP @ MARKET PRICES / EXPENDITURE METHOD C+I+G+X-M
+ Primary income FROM rest of world
- Primary income TO rest of world
GROSS NATIONAL INCOME
