WHAT IS ECONOMICS ALL ABOUT?
1. Introduction
Different dictionaries describe economics as follows: It is
•
the science that deals with the production, distribution and consumption of goods and
services or the material welfare of humankind;
•
the social science that deals with the production, distribution and consumption of goods
and services, and with the theory and management of economies or economic systems;
•
the study of how people use their limited resources in an attempt to satisfy unlimited
wants;
•
the branch of knowledge concerned with production, consumption and the transfer of
wealth;
•
it aims to study why we make these decisions and how we allocate our resources most
efficiently.
The information that below will help you form your own explanation of what economics is all
about; why it is important to understand basic economic concepts to survive and prosper and
to improve the standard of living for all members of society.
Economics is considered from two perspectives: micro-economics and macro-economics.
Micro-economics is the study of economics concerned with individual units of the economy
such as households, firms and markets. It studies the part that makes up the whole economy
and analyses aspects of human behaviour; it shows how prices and outputs are determined
in markets; how individuals, households and firms respond to prices and changes in prices;
and how the price mechanism allocates resources and distributes income.
Macro-economics looks at the economy as a whole, the total output of a nation and how it
uses resources to maximise output levels and promote growth and trade. It involves
aggregate demand, aggregate supply and monetary and fiscal policy. Micro- and macroeconomics are intertwined.
Economists gain an understanding of certain phenomena to help nations and individuals
make more informed decisions when allocating resources.
2. Scarcity
The balance between limited and unlimited is important when you think of economics.
LIMITED
UNLIMITED
RESOURCES
WANTS
Society’s economic wants by far exceed the available resources. Economic wants are
unlimited while resources are limited. The challenge remains to reach the fine balance
between the unlimited wants and the limited resources. This challenge is referred to as
scarcity and it refers to this tension between our unlimited needs and wants and the limited
resources. As individuals we satisfy our needs, wants and desires by consuming goods,
services or leisure activities. We experience scarcity in terms of a lack of resources to obtain
everything we want (it can include skills, time, goods and services). Countries experience this
scarcity by not having enough resources such as land, minerals, factories, equipment or
skilled workers to produce enough goods and services to satisfy all the needs of its
inhabitants. The limitation of resources compared to wants and needs forces individuals, as
well as countries, to make decisions on what goods and services they can have and what
they must sacrifice. This introduces the economic trio which is the basis of all economics:
SCARCITY
DECISIONS
COST
For example, if you choose to buy one expensive brand fashionable shirt as opposed to two
cheaper T-shirts from an in-store brand, you must give up owning a second shirt less
fashionable in exchange for the more fashionable brand shirt. Individuals use different
criteria to make decisions and although all sacrifice things and experience costs, the cost will
not be the same, as the value they allocate to certain goods or services differ.
Every individual and nation has different values, preferences and tastes and will therefore
make decisions based on different criteria. As we have different levels of resources, people
and nations are faced with particular scarcities and will therefore develop different values
regarding resources.
All decision involves cost. In every decision you make you have a first choice and other
choices that you gave up. The best next alternative you gave up when scare resources force
you to use resources for one use rather than another purpose is called opportunity cost,
because we gave up the alternative to use the resource for the other purpose. If you decide
to use an ingredient to make a pizza rather than a pie, the pie is the opportunity cost. It is
called opportunity cost because we gave up the alternative to use the resource for the other
purpose. Opportunity cost refers to the best alternative you gave up - your second choice if
there are more than two alternatives. An alternative is one of many choices or courses of
action that might be taken in a given situation.
Trade-off costs and benefits
A trade-off means giving up one benefit or advantage in order to gain another regarded as
more favourable. Individuals make trade-offs by sacrificing time for recreation and using that
time to work longer hours and earn a higher income. They use that higher income to
purchase more goods en services that give them satisfaction. Evaluating trade-offs means
considering the costs and benefits of the available alternatives. One person can value the
cost of having time for recreation now as more than the benefits of having extra money to
buy more goods and services later. Such a person will do a trade-off between recreation time
now and more money later to buy things with.
Society also makes trade-offs, for example between its need for a cleaner environment and
its desire for more power from a coal power-station that causes pollution.
During trade-offs people usually make a cost/benefit analysis that is a process of examining
the advantages (benefits) and disadvantages (costs) of each available alternative to arrive at
a decision. A benefit is a monetary or non-monetary gain received because of an action
taken or a decision made. Costs are an amount that must be paid or spent to buy or obtain
something, or it is the effort, loss or sacrifice necessary to achieve or obtain something else.
Productive resources
Resources are used to produce the required goods and services that enable us to survive and
prosper. These resources are called productive resources or factors of production and can be
divided into three categories: natural resources, human resources and capital resources or
capital goods.
Natural resources are referred to as gifts of nature - things we use but cannot produce
ourselves, such as land, water, sun, minerals and trees. Raw materials used in production
come from natural resources, e.g. wood used to make furniture is a raw material that comes
from trees, a natural resource.
Human resources are the workers, also refer to as labour, that includes the special skills,
experience, knowledge, and the physical and mental ability of people to participate in the
production of goods and services. People invest in themselves and in others to improve their
human capital. It is an investment of time, effort and resources in education and training to
increase their own skills, knowledge, health and experience to be better workers producing
higher quality goods and services. An entrepreneur is a person who assumes the risk of
organising productive resources to produce goods and services.
Capital resources are tools and equipment that are human-made and used to produce other
goods and services. This includes things like buildings, tools, machines, factories and
productive equipment. Capital goods differ from consumer goods, as consumer goods satisfy
economic want directly; capital goods do it indirectly as capital goods are used to produce
final consumer goods. Although money is invested to obtain and improve these capital
resources it must not be confused with financial capital or money capital. Capital resources in
economics to not refer to money. Money is simply a means for purchasing real capital. The
study of economics therefore includes an explanation of how productive resources are used
to produce goods and services to satisfy human economics wants.
Because of scarcity, people and economies must make decisions on how to allocate their
resources. Resources could be allocated by using different methods such as bidding or
selling. To sell a product, a price must be allocated in the market place.
People sometimes confuse price allocation as the only indication of scarcity. The prices of
goods only indicate how scarce the goods are relative to other goods. A product with a high
price can be scarcer than a product with a low price, but it is also possible that something
with a low or no price allocation can be rendered as scarce. It is hard to think of anything not
being scarce. One could argue that the salt in sea water, the air we are breathing at the
moment or oil in Russia is not scarce, but for a scuba diver air is limited, desirable and
therefore scarce. Although there are vast amounts of oil available in Russia, oil is still scare
as the use of crude oil remains desirable; it is limited across the world and can be sold to
other countries that do not have this natural resource; and it could be used for more than
one valuable use. Scarcity is a relative condition, not absolute. Things are not scarce only
when they are limited in quantity – they must also be desirable and have more than one
valuable use.
Although price could indicate relative scarcity, it could also indicate a shortage in this specific
product or service. A shortage of petrol can be eliminated by an increase in price, but the
natural resource from which petrol is produced, namely crude oil, is always scarce because it
is limited, desirable and has many valuable uses. Garbage will not be regarded as scare
because it is not desirable. Many people think water is not scarce because 71,11% of the
earth consists of water. In fact, water is a scarce resource as only 3% of the water sources
are fresh and fresh water is desirable, limited and has many uses (in the agricultural and
industrial sector as well as in households for drinking, cooking, bathing and gardening). The
fact that scarcity is relative can best be illustrated by the following example: if 15 learners
share one pizza they will experience a scarcity of pizza. If the same learners have to share
150 pizzas there will still be scarcity as the resources that were used to make the pizzas
could be used to produce something else.
The allocation of resources could take place in one of the following ways:
•
willingness and ability to pay, by amount of cash, goods or services willing to be
sacrificed
• voting, majority rule
• personal characteristics, by age, by weight or by alphabetical names
• performance based, by test scores, quantity of sales, number of push-ups
• first come first served, by who is first in line
• fate, teacher's favourite or dictator's choice
A combination of any of the above, such as willing and able to pay for a final popular soccer
match and being first in line.
3. The Economic Problem
It is clear that both individuals and societies are faced with THE ECONOMIC PROBLEM:
How to make choices because economic wants are unlimited, but the means (income, time,
resources) for satisfying those wants, are limited. Individual budget constraints or budget
line best depict the cost of certain choices during the decision-making process. The following
example best illustrates this idea.
Suppose you and your five friends are going to watch the soccer match between Orlando
Pirates and Bloemfontein Celtic. Your parents give you R25 to spend on refreshments for
your friends. The money you do not spend you must hand back to your parents. A box of
popcorn costs R2,50 and a bottle of fruit juice costs R5,00. The table below shows all the
possible combination that you can buy:
Number of
boxes of
popcorn
10
8
6
4
2
0
Number of
juices
Popcorn cost
Juice cost
Total cost
0
1
2
3
4
5
25
20
15
10
5
0
0
5
10
15
20
25
25
25
25
25
25
25
Quantity of popcorn
Unattainable
Quantity of bottles of juice
The budget line illustrates various important issues:
•
•
•
•
Possible combinations: All possible combinations of popcorn and juice are on or
inside the budget line. One can buy 7 boxes of popcorn at R17,50 and 1 bottle of juice
and still be within the budget. Although you can afford to buy 7 boxes of popcorn and
3 juices, you would rather spend the total R25. You cannot buy 2 boxes of popcorn for
each of your friends because that is unattainable – the R25 limit simply does not allow
you to do that.
Trade-offs and opportunity cost: The budget line also illustrates the trade-offs. If
you want to buy 3 bottles of juice for your friends to share, you have to give up 6
boxes of popcorn. The opportunity cost for 1 extra bottle of juice is two boxes of
popcorn and that remains the same for each bottle of juice.
Choice: Limited income, human capital or resources force people to choose what to
buy and what to give up.
Income changes: If you dad have given you only R10, your choices would be
different. To increase your possible choices you need to change your income. That
explains the fact that people want more income. But even if you have much more
income, you still face trade-offs and choices and that involves opportunity costs.
Just as individuals need to make decisions to solve their problem of limited income, time and
resources, society needs to answer the following three basic questions:
•
•
•
What goods and services to produce?
How to produce these goods and services?
Who will consume the goods and services?
4. Decision-making Processes
Decision making is defined as reaching a conclusion after considering alternatives and their
results. People normally use an informal decision-making process. During this informal
process people calculate the costs and benefits of certain options to make a final choice. The
use of a formal decision-making grid normally helps people to evaluate their alternatives and
make their final choice. A decision-making grid is a graph-like chart into which people can
enter notations about the costs and benefits of various alternatives. The rows in the grid
represent the alternatives or different options (including doing nothing) and the columns
represent the different criteria.
Criteria
Weights:
Alternatives 1
Alternatives 2
Alternatives 3
Alternatives 4
1
2
3
4
5
6
Total
A musician is about to replace his car. He needs one that can not only carry all his
instruments, including a set of drums and a tuba, but will also be good for business travel.
He has always loved sports cars. No car he can find is good for all three things.
His options are:
• A 4x4, double-cab vehicle
• A comfortable 'family sedan
• A 2-door small city car
• A convertible sports car
The important issues he must consider are:
• Cost
• Ability and space to carry a musical instrument
• Comfort over long distances
• Able to be used during business trips and promote business image
• Fun!
• Nice look and quality built car.
He must first draw up the table shown in Figure 1 and score each option by how well it
satisfies each factor:
Figure 1: Example Grid Analysis Showing Unweighted Assessment of How
Each Type of Car Satisfies Each Factor
Cost
Space
Comfort
Business
trips
Fun
Looks
Total
Sports Car
1
0
0
1
3
3
8
Double cab
1
3
2
2
1
1
10
Family Car
2
2
1
3
0
0
8
2-door small
city car
2
1
1
2
0
1
7
Factors
Weights
Next he determines the relative weights for each of the factors. He multiplies them by the
scores already entered and totals them. This is shown in Figure 2:
Figure 2: Example Grid Analysis Showing Weighted Assessment of How
Each Type of Car Satisfies Each Factor
Factors:
Cost
Space
Comfort
Business
trips
Fun
Looks
Weights:
4
5
1
2
3
3
Sports Car
4
0
1
2
12
12
31
Double cab
4
20
0
4
3
3
34
Family Car
8
10
1
6
0
0
25
2-door small
city car
8
5
1
4
0
3
21
Total
This gives an interesting result: Despite its lack of fun, a station wagon may be the best
choice. If the musician still feels unhappy with the decision, perhaps he has underestimated
the importance of one of the factors. Perhaps he should give 'fun' a weight of 7 and buy an
old station wagon to carry his load!
The PACED decision-making model supports people in using the economic way of thinking by
applying criteria when considering the cost and benefits of every alternative. This way of
thinking prepares individuals for their roles as citizens and voters.
P - Problem: Identify the problem
A - Alternatives: List the alternatives
C - Criteria: Identify and weight criteria
E - Evaluation of criteria
D - Decision making
5. Productivity
People satisfy their economic wants by consuming goods, tangible objects and services,
activities by other people. These people are called consumers. The ones producing the goods
and services are called producers. Producers use productive resources (also called input) to
produce goods and services (also called output). The cost of production is the amounts paid
for resources (land, labour, capital and entrepreneurship) used to produce goods and
services.
INPUT
NATURAL RESOURCES
HUMAN RESOURCES
CAPITAL REOURCES
OUTPUT
Production
GOODS
&
SERVICES
Productivity
=
An increase of productivity occurs if you produce more output for the same input or the
same output with less input. Both the quantity and the quality must be considered when
comparing productivity. The optimal use of productive resources is essential for an increase
in productivity. Cost comparisons of all input costs must be considered if the productivity
comparison studies are done. The effects of scarcity could be managed if productivity is
increased.
Productivity can be increased by the following factors:
•
•
•
•
Specialisation and division of labour: Specialisation occurs when a company produces a
narrow range of goods and services. Individuals, businesses and countries can apply
specialisation. A doctor specialises in producing medical consultation services to patients.
He does not try to do his own financial statements. He rather uses an accountant who
specialises in providing financial consulting services to do his financial statements. The
doctor and accountant can exchange services with each other to get what they want. If
the doctor only focuses on providing medical consultations, he can become more
productive than if he tried to produce both services. Specialisation in labour refers to
different people having different occupations and the special skills to do those jobs, e.g.
hairstylist, nurse, plumber and typist.
The concept of division of labour relates to specialisation. It allows workers in an
assembly line or a production line to do only a small part in the production process. All
forms of specialisation increase productivity. The benefits of specialisation are increased
productivity and increased trade. The costs are reduced self-sufficiency and increased
economic interdependence.
Technological change is improvements in a business’s ability to produce because of
improved production processes, production methods and machines. This can be done by:
o modifying products or inventing new products
o reorganising the production process, such as faxing directly to a computer and not
to a fax machine
o the introduction of improved or innovative capital goods, e.g. the use of computers
to improve production.
Investment in capital resources/goods means that savings are used to finance the
construction of new factories and machines or better tools and production equipment. If
workers have access to adequate production stock and equipment, they can be more
productive. Capital goods are normally very expensive but can last for a long time. The
investment in capital goods is very risky. If a company upgrades electronic devices, these
devices can become outdated before they have generated enough income to pay back
the investment.
Investment in human capital through education: If workers have better health, skills,
knowledge and experience, they can deliver more output and use less input so that they
become more productive. Firms and individuals who have invested time and money in
more education and training usually become more skilled, get better job opportunities,
earn more and get more job satisfaction. Investments in both human capital and capital
goods incur opportunity costs as the money and resources used to make these
investments can be used for various other uses. The costs for attending any training
course involves not only the direct cost of the course; it also includes the indirect costs of
what that person can produce in that time. It is important to note that investments in
human capital and capital goods have significant risks and opportunity costs, but also
provide the possibility to increase productivity tremendously.
Effects of increased productivity
Increased productivity allows individuals to earn more income and to increase their
satisfaction levels because they can obtain more goods and services. It also provides benefits
to society as it reduces scarcity and increases the standard of living. It is however important
to note that scarcity cannot be eliminated by increased productivity.
6.
Production Possibilities Model
Production Possibilities Curve/Production Possibility Frontier (PPF)
The PPF represents the points at which an economy is most efficiently producing its goods
and services. At these points it is allocating its resources in the most efficient way. The PPF
shows there are limits to production because of scarcity. This fact forces the economy to
make choices between possible combinations.
Imagine an economy that can produce only wine and cotton. Points A, B and C all appear on
the curve and represent efficient use of resources in the choice of combinations. Point X
represents an inefficient use of resources, while point Y represents choices that the economy
cannot make at this stage, because they do not have enough resources.
For this economy to produce more wine, it must give up some of the resources it uses to
produce cotton (point A). If it starts producing more cotton (points B and C), it would have
to divert resources from making wine and, consequently, it will produce less wine than it is
producing at point A. If more wine is in demand, the cost of increasing its output is
proportional to the cost of decreasing cotton production.
When the PPF shifts outwards, we know there is growth in an economy (more of both
products can be produced). Alternatively, when the PPF shifts inwards it indicates that the
economy is shrinking.
7.
Economic Systems
Economic systems are the framework of formal and informal rules that a society uses to
determine what to produce, how to produce and how to distribute goods and services.
Economic systems can be categorised according to who makes most of the decisions in an
economy.
The market economy is an economy that relies on a system of interdependent market prices
to allocate goods, services and productive resources and to coordinate the diverse plans of
consumers and producers, all of them pursuing their own self-interest. The ‘invisible hand’
determines how resources should be allocated.
The command economy is an economy in which most economic issues of production and
distribution are resolved through central planning and it relies on the government to decide
how the country's resources would best be allocated.
Traditional economy is an economy in which customs and habits from the past are used to
resolve most economic issues of production and distribution.
The systems by which nations allocate their resources can be placed on a spectrum where
the command economy is at one end and the market economy is on the other in terms of
decision-making powers. In a market economy, most of the decisions in the economy about
what to produce, how to produce it and who receives it are made by individuals and firms. At
the other end of the spectrum, in a command economy, government officials make most of
the decisions in the economy about what to produce, how to produce it and who receives it.
Most economies are mixed in that some economic decisions are made by individuals and
private firms, but some are also made by government officials, either through rules and
regulations or through government-owned firms (for example, Eskom).
Another way to classify economies is to look at ownership of key resources or private
property. A system where resources belong to government or the state will be known as a
socialist system; at the other end is a system where all resources are privately owned, called
capitalism.
8.
Markets and Prices
Scarcity forces all societies to determine how they will allocate scarce resources. The
command economy uses a centralised system to do this; the market economy relies on a
price system for this. A market is a mechanism that brings buyers and sellers together. The
market conveys the message of the decisions made by buyers and sellers of products and
resources.
A market economy is characterised by voluntary exchange and prices are signals or guides. If
the media emphasise the importance of a healthy lifestyle, consumers will purchase more
vitamin supplements. The market will respond to the higher demand for supplements and an
increase in the price of vitamins will be the result with a higher profit for the producers of
vitamin supplements. The rise in profits will encourage more producers to enter the market,
so the supply of vitamins increases and the price drops again. It is important to realise that
there is a interdependence between producers and consumers.
9.
Circular Flow
The movement of output and income from one sector of the economy to another is often
illustrated as a circular flow diagram. The diagrams show how the market works, how
money, goods and services and productive resources flow. It indicates the roles of
firms/businesses and households, as well as the functions of financial markets and
government.
PRODUCT MARKET
R/c
R/c
GOODS AND SERVICES
HOUSEHOLDS
BUSINESSESS
PRODUCTIVE RESOURCE
R/c
FACTOR MARKET
R/c
PRODUCT MARKET
R/c
R/c
GOODS AND SERVICES
BUSINESSESS
FINANCIAL
CAPITAL
MARKET
R/c
HOUSEHOLDS
Bank Securities
PRODUCTIVE RESOURCE
R/c
FACTOR MARKET
R/c
Productive Services
Productive Services
FACTOR MARKETS
R/c
RESOURCE OWNERS
GOVERNMENTS
BUSINESSESS / FIRMS
MONEY PAYMENTS (SALES OR INCOME)
Finished Goods &Services
PRODUCT MARKETS
Finished Goods &Services
10.
Supply and Demand
Demand
It is the quantity of a product or service that buyers are willing and able to buy at all possible
prices during a period of time.
When prices increase and income stays the same, people will buy less of this product. They
will even buy another similar product. An example is red meat and chicken. If the price of red
meat increases a lot, people will buy more chicken. The lower demand for red meat will in its
turn lead to lower prices for red meat.
Supply
It is the amount of a product or service that producers are willing and able to offer for sale at
every possible price during a given period of time.
When prices increase, suppliers’ profits will increase. Other people see this and start
producing this product. The increase in supply will also increase the stock of this product and
prices will decrease again.
The relationship between supply and demand
Customers are willing to buy varying amounts of a product at each price point. Producers will
supply a product in varying amounts at each price point. For example, if a doctor is working
independently, he will have a minimum charge. If he can only obtain, say, R20 for a visit to a
patient across the city, he may simply decide that this price would not cover his travelling
expenses and he will not provide the service. On the demand side, a patient would have his
doctor come over several times a day if it only cost R20 per visit. However, even though
there is a large number of home visits demanded at that price, there is no supply available
because it is just not worth it. As the patient gets sicker and more willing to pay a higher
price, the doctor may be more willing to come over until they set at a price X, where the
patient is willing and able to pay for one visit and the doctor is willing and able to visit the
patient once. That is the equilibrium.
When supply is low and demand is high, prices go up.
When supply is high and demand is low, prices go down.
11.
Money
Money as we know it today has not always exited in this form. In the early days people used
to barter. Barter means to trade a product or service directly for another product or service,
without using money or credit.
Bartering has several problems, most notably the coincidence of wants problem. For
example, if a fruit farmer needs what a dairy farmer produces, a direct swap is impossible as
milk would spoil before the fruit is harvested. A solution is to trade fruit for milk indirectly
through a third, ‘intermediate item’ that does not spoil and can be kept safely until the fruit is
harvested. These intermediate items must not easily perish and they must be reliably in
demand throughout the year (e.g. gold or wine). It can then be exchanged for fruit after the
harvest.
The function of the intermediate items or commodities as a store-of-value can be
standardised into a widespread commodity, namely money, reducing the coincidence of
wants problem.
Many cultures around the world eventually developed the use of commodities that are
naturally scarce, like precious metals (e.g. gold and silver), conch shells, beads, etc., as well
as many other things that are thought of as having value. By overcoming the limitations of
simple barter, commodity money makes the market in all other commodities more liquid.
Money can be anything that is used to buy and sell goods and services.
MONEY
Has three functions:
Is only an effective medium for exchange if it
is:
• It is a medium of exchange, which
• Scarce
means that it is generally accepted as
• Durable
payment for goods and services.
• Portable
• It is a store of value; that is, it retains
• Divisible
its value at least over periods of days
and months.
• It is a unit of account, so that values
are measured in units of money.
12.
Role of Government
The circular model illustrates how resources, goods and services and money move in a
market economy. It is however impossible to rely only on the market system to deal with the
basic problem of scarcity. Depending on the type of economic system, the role of
government differs. In a command economy government takes a leading role in the control
and allocation of resources. In a market economy government has a limited role and mainly
focuses on:
•
Providing a legal system to make and enforce laws and to protect private property
rights. Without an effective legal system private property rights cannot be enforced and
the marketplace cannot be governed. Property rights refer to the legal ownership of
resources, which includes the right to own, use and sell them. Property rights are
essential to the transactions in a market economy and one of the essential roles of
government in a market-oriented economy is to protect property rights. When goods,
including everything from cars to groceries, are bought and sold, a property right is
transferred from one party to the other. Your ownership of your own labour, that is,
your property rights in your own labour, is what gives you the right to be paid for your
work. Without property rights and ownership, firms would lack any reason to build
factories, produce and innovate, because they wouldn't be able to keep what they made
or earned. Similarly, people and firms would have a greatly reduced incentive to save or
invest, because they wouldn't be confident of receiving the future value from doing so.
•
Provide public goods that individuals or private business would not provide. Public
goods are often supplied by the government. The use by one person does not reduce
the quantity of the good available for others to use. Consumption cannot be limited to
those who pay for the product. Public goods are free. A typical example is streetlights.
•
Correct market failures or controls externalities such as external costs and
benefits. Market failures include the overproduction or underproduction of some goods
and services. Certain market transactions result in negative spillovers like pollution or
positive spillovers like education. Polluters pass the effect of pollution on to other
members of society who are not causing the pollution so government attempts to rectify
the effect with regulations.
•
Maintain competition by regulating monopolies and oligopolies to allow a system in
which many buyers and sellers compete in the market place. Government must ensure
that one seller, a monopolist and only few sellers (oligopolies) do not control a specific
part of the market to the disadvantage of the consumers.
•
Redistribution of income is done by the transfer of income through government
taxation, spending and assistance programmes targeted at particular income groups
and programmes designed to provide training to workers or to encourage private
investments in education or other kinds of human capital. The goal is to use taxation to
transfer money from higher-income groups to lower-income groups. Examples of such
activities are the nutrition programme at primary schools and the social grant for
orphans, the HIV/AIDS awareness programmes and grants, no-fee schools and free
primary health care.
•
13.
Stabilise the economy by reducing unemployment and inflation and promoting
economic growth. The fiscal and monetary policies are used to stabilise the economy. In
recessions as were are currently experiencing, government will also develop additional
intervention strategies to avoid a fatal downturn or depression.
Conclusion??