Capitalism
History: - Average income was low
- From 18th Century, income increased
- Long Term growth
Income inequality – Difference in income between the rich and poor of a nation
= Riots, Protest, Revolts
Gini Co-Efficient:
=1 (Extreme inequality)
=2 (Equality)
90/10 RATIO
Gross domestic product: Value of all final goods and services produced by a country in a given time
period (SA 2020 = R5 Trillion)
Disposable income = Total income – Taxes + Government transfers
DISADVANTAGES OF GDP per/capita
, - Doesn’t include intangibles i.e. Health, Free time etc
- Doesn’t account for income inequality
DISADVANTAGES OF GDP
- Measures accumulation of materialistic goods
- Includes cigarettes, nuclear weapons, alcohol etc (demerit goods)
- Doesn’t include “health, education”
NOMINAL GDP REAL GDP
@Current prices @Constant prices
Weigh output at that time with prices at that Weigh changing output using prices of multiple
time time period (year before)
Year 2 – Year 1
Growth Rate: Year 1 x 100
1
Year 1 + n n
Annual Growth rate over multiple years: Year 1 x 100
Linear Scale – Set intervals on y-axis over time (200, 400, 600, 800)
Ratio Scale (Log Scale) – Growth rate on y-axis (200, 400, 800, 1600, 3200)
,Capitalism – Private ownership, markets and firms
Private Property:
Owner has ownership, he can:
Enjoy possession how and when he wants
Exclude other
Dispose of the possession
Sell it
No ownership on things like air
Markets:
A way for people to exchange products and services when and where they want
Reciprocated transfers
Voluntary
Mutually beneficial
Firms:
Business structure uses inputs (labour) to sell outputs to make profits
Not firms: Family business, Non-profits, Parastatals
Firms can be born, expanded, contracted and die quickly
PRIVATE PROPERTY, MARKETS AND FIRMS are NOT unique to capitalism
, Economic Conditions for poor Capitalist outcomes:
- Private Property is not secure (expropriation)
- Markets are not competitive
- Privileged birth or government connections
Result = Lobbying, Criminal activity (fraud)
What should government do?
- Create well operating legal systems
- Regulate monopolies
- Provide goods and services for infrastructure
Political Systems:
- Democracy, dictatorship, fascism
- Government shape the future of the economy
- Strong redistributive functions
-
Specialisation Gains
Specialisation – Increase productivity of labour because we become better at producing with
individual focus on activities
Learning by doing
Take advantage of natural differences in skill
Economies of scale
People can only specialize if they have access to supply, in capitalism it is done through Markets
ABSOLUTE AND COMPARATIVE ADVANTAGE
History: - Average income was low
- From 18th Century, income increased
- Long Term growth
Income inequality – Difference in income between the rich and poor of a nation
= Riots, Protest, Revolts
Gini Co-Efficient:
=1 (Extreme inequality)
=2 (Equality)
90/10 RATIO
Gross domestic product: Value of all final goods and services produced by a country in a given time
period (SA 2020 = R5 Trillion)
Disposable income = Total income – Taxes + Government transfers
DISADVANTAGES OF GDP per/capita
, - Doesn’t include intangibles i.e. Health, Free time etc
- Doesn’t account for income inequality
DISADVANTAGES OF GDP
- Measures accumulation of materialistic goods
- Includes cigarettes, nuclear weapons, alcohol etc (demerit goods)
- Doesn’t include “health, education”
NOMINAL GDP REAL GDP
@Current prices @Constant prices
Weigh output at that time with prices at that Weigh changing output using prices of multiple
time time period (year before)
Year 2 – Year 1
Growth Rate: Year 1 x 100
1
Year 1 + n n
Annual Growth rate over multiple years: Year 1 x 100
Linear Scale – Set intervals on y-axis over time (200, 400, 600, 800)
Ratio Scale (Log Scale) – Growth rate on y-axis (200, 400, 800, 1600, 3200)
,Capitalism – Private ownership, markets and firms
Private Property:
Owner has ownership, he can:
Enjoy possession how and when he wants
Exclude other
Dispose of the possession
Sell it
No ownership on things like air
Markets:
A way for people to exchange products and services when and where they want
Reciprocated transfers
Voluntary
Mutually beneficial
Firms:
Business structure uses inputs (labour) to sell outputs to make profits
Not firms: Family business, Non-profits, Parastatals
Firms can be born, expanded, contracted and die quickly
PRIVATE PROPERTY, MARKETS AND FIRMS are NOT unique to capitalism
, Economic Conditions for poor Capitalist outcomes:
- Private Property is not secure (expropriation)
- Markets are not competitive
- Privileged birth or government connections
Result = Lobbying, Criminal activity (fraud)
What should government do?
- Create well operating legal systems
- Regulate monopolies
- Provide goods and services for infrastructure
Political Systems:
- Democracy, dictatorship, fascism
- Government shape the future of the economy
- Strong redistributive functions
-
Specialisation Gains
Specialisation – Increase productivity of labour because we become better at producing with
individual focus on activities
Learning by doing
Take advantage of natural differences in skill
Economies of scale
People can only specialize if they have access to supply, in capitalism it is done through Markets
ABSOLUTE AND COMPARATIVE ADVANTAGE
