A. Economic Systems of Africa

    Tariff is a tax on imports. It’s made to make foreign goods have a higher price than goods made in the taxing country. Example: The U.S. put a tariff on imports from Europe, which makes people buy more U.S. goods than European goods because U.S. items are cheaper. A quota is when you set a limit on the imports from a certain country. So then, you don’t have a lot of foreign goods. When foreign goods run out, people have to buy goods made in their own country. An embargo is when you completely stop trade with a country. They can no longer trade with that country, usually for political reasons. That means nothing gets exported to that country and nothing gets imported from that country. 
    Most of the time people get confused with quota and embargo and think they're the same. Well, they aren’t. A quota only limits the amount, where an embargo cuts off trade completely. Tariff and quota often get confused, too. A tariff is only putting a tax on imports, so the importing country gets more of the money. Quota is the opposite, that importing country gets less goods and no money and the country that is exporting goods gets less money.


In the picture above it represents economic growth.                                                                                                                                                                
     The four main economic systems, market, command, traditional, and mixed all decide what is produce, how it is produced, and for whom is it produced for (the three economic questions). In a market economy the people and small businesses decide the three economic questions.  In a command economy the government decides the three economic questions. A traditional economy uses the same methods that their ancestors did to answer the three economic questions.  Last, in a mixed economy the people and the government decide the three economic questions. All economic systems are mixed between market and command. You can’t mix traditional with market or command so it is separate. Those are the four main economic systems.

             Countries use their limited resources to make products to engage in trade with other countries.  Sometimes, one country can’t make a particular product because they either don’t have the natural resources, or they are better at making another product.  They then mass produce a small range of quality products instead of a broad selection of mediocre products.  This is called Specialization.

              Specialization is a good way for a country to improve its international trade and its economy.  Not only do countries produce higher quality goods, but when they trade with a country that also does specialization, they trade more often for the products that one can only get from the other.  If a country traded with another nation that produced the same things, they wouldn’t get anywhere.  Specialization also reduces international competition. Citizens will by more from companies in their own nation because they are the only ones who make it well, if not the only ones who make it at all.  Then they buy what they can’t get from the other country.

Let’s use Pizza Hut as an example.   There are several jobs involved in making your pizza.  You want to order a pizza from a chef, because the chef has the experience and the tools to make the pizza. Unfortunately, the chef doesn’t have the resources to make pizza by himself, so the men that bring supplies to the restaurant get the resources for him from farms, ranches, etc.  Without the natural resources, the chef wouldn’t be able to make pizza, and without the chef’s tools and expertise, the supplies from the other places would go to waste.  This is an example of specialization encouraging trade.

International trade, however, is far more complicated than it seems.  Most countries have different forms of currency, which can make trade difficult.  Our country, the United States, uses the U.S. dollar, and Russia uses rubles. Countries that don’t have the same currency (Most European countries have adopted the EU's Euro) can’t trade with each other.  That’s why there are exchange rates.  Exchange rates are the rates at which one country’s currency trades for another.  These rates are affected by the worth of one country’s currency compared to another.  Right now, the dollar is currently worth less than 1% more than Russia’s rubles.  These exchange rates are important to international trade.  They allow other countries to exchange goods and services without getting ripped off.

       Nigeria and South Africa have very different economies.  Nigeria has an economic freedom score of 55, which means 55% market economy and 45% command economy.  South Africa is a lot more market with an economic freedom score of 63.  Per capita GDP is the average value of the items each person in a country makes each year.  Nigeria has a per capita GDP of $1,611.  South Africa has a per capita GDP of $9,087.  As you can see, South Africa has a much more functional economy than Nigeria.

       Nigeria’s economy depends on oil and natural gas, but most of Nigeria’s workforce is in agriculture.  South Africa also is very strong in agriculture.  There is widespread poverty and governmental corruption in both countries.  Both countries are close to being 50% market, 50% command.  The government in South Africa isn’t as corrupt as Nigeria’s government, though, and is working to end poverty.  In both countries, the corrupt government has made trade expensive, even though there is only a low tariff on imports.

Quick Summary:
  • There are four different economic systems, traditional, market, command, and mixed. 
  • There are three different types of trade barriers, they are a tariff, a quota, and an embargo.
  • Exchange rates are necessary for trade.
  • Most countries have a mixed economy.

Written by
Team Platinum

Christian Gerdes,
Mar 16, 2011, 3:20 PM