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Trade and the economic problem

Module by: Siyavula Uploaders. E-mail the author

ECONOMIC AND MANAGEMENT SCIENCES

Grade 8

THE ECONOMIC CYCLE

Module 2

TRADE AND THE ECONOMIC PROBLEM

ASSESSMENT STANDARD 1.2:

TRADE AND THE ECONOMIC PROBLEM

When you have completed this MODULE, YOU WILL BE ABLE TO INDICATE HOW TRADE (IMPORTS AND EXPORTS) ADDRESSES THE ECONOMIC PROBLEM (OF CHOICE AND OPPORTUNITY COST), AS WELL AS THE ROLE OF BANKS IN ENCOURAGING INVESTMENT IN THE ECONOMY.

THE CENTRAL PROBLEM OF THE ECONOMY:

The most basic feature of human existence is the MULTIPLICITY OF HUMAN NEEDS and the contrasting SHORTAGE OF MEANS to satisfy these needs. In spite of enormous technological and scientific progress over a number of decades, which has led to considerable increases in production, the NEEDS of people remain GREATER than the MEANS to satisfy those needs. As there will always be needs that remain unsatisfied, people will always have to EXERCISE CHOICES with regard to the needs that have to be satisfied and those that will have to remain unsatisfied. Compare your own situation regarding pocket money: your pocket money definitely does not allow you to buy everything that you want. Therefore you continually have to CHOOSE between satisfying your needs or your desires (wants).

In the same way, the businessman, government and every private individual have to exercise a multiplicity of choices every day to ensure that THE GREATEST DEGREE OF SATISFACTION is achieved.

Activity 1

NEEDS

SELF:

Compile a list of things that you experience as a need at present and that you will also experience as such in the future:

Activity 2

CLASSIFICATION OF NEEDS

GROUP:

Compare the lists of needs of the different learners in the group and classify them under the following headings:

Natural

Essential

Luxury

Protection

Cultural

Spiritual

GROUP:

Identify the FOUR/FIVE most basic needs of people from the above – i.e. things without which people would not be able to exist (provide examples of each):

It is evident from the above that people / enterprises are unable to satisfy all their needs. If one need is satisfied, it means that another need might have to remain unsatisfied or be sacrificed. The SACRIFICE THAT IS MADE illustrates the principle of OPPORTUNITY COST. It reflects the sacrifice that you had to make to satisfy your greatest need; the usefulness in comparison with the satisfaction that you would have had if you had chosen to satisfy the other need. In economic terms, the satisfaction of need/usefulness that is derived from a product, is know as the utility that is derived from the particular product that was selected. The utility (or cost) of the satisfaction of your need is therefore equal to the utility (or cost) of the product that you have sacrificed. This is known as OPPORTUNITY COST.

Activity 3

OPPORTUNITY COST

SELF:

Indicate which of the products listed below you as a learner would choose if you were given a single opportunity to select one of them in each instance. (This means that you have to

decide which of the products you would choose and which you would manage without at this particular time in your life with your current needs.)

  1. A cell phone or a walkman?
  2. A bicycle or a set of TV games?
  3. A holiday at the seaside or a 4 x 4 tour?
  4. Nike shoes or a pair of Levi jeans?

SELF:

Provide a reason or reasons for the choices that you have made in each instance:

A previous paragraph has explained that the self-provident stage of economic development is followed by the phase of SPECIALISATION, SURPLUSES AND EXCHANGE. As communities developed their needs increased, both with regard to range and degree of sophistication. Nowadays the need for meat, for example, is not satisfied by meat in its simplest processed form any longer. There is a wide range of meat products from which to make a selection – frankfurters, polonies, sliced ham and many more national and international specialty products. The extension of the needs of people has created greater opportunity for specialty products, which, in turn, has created opportunities for exchange and trade over a wide spectrum.

With the improvement of transport and communication, it has become possible to distribute products to where a need arises. Communication between producers and traders lead to the conclusion of trade transactions both locally and abroad. Speedy transport by road, rail, air and sea make it possible to deliver products without unnecessary delays, so that they arrive at end users in good time and in good condition. Compare the marketing of fresh products, and also of other specialty products.

Activity 4

COMMUNICATION

GROUP:

Compile a list of organisations and/or institutions that are responsible for communication networks, both locally and abroad:

Activity 5

TRANSPORT

SELF:

Provide the names of organisations and/or institutions that are responsible for the distribution of goods, both locally and abroad. Complete and compare your list with those of other learners.

By road

By rail

By air

By sea

When a country like South Africa sells its products to other countries, we call it EXPORT, and when South Africa buys goods from other countries, we call it IMPORTS. SOUTH AFRICAN EXPORTS comprise mainly primary products such as products from mining (gold, diamonds, platinum, manganese, chromium, coal, iron ore and asbestos), and agricultural products such as wool, sugar, hides and fruit. SOUTH AFRICA’S IMPORTS comprise mainly capital goods such as machinery, computers and electronic products. The money that is earned through exports is used to pay for imported products and in this way the numerous needs of South Africans are satisfied.

Activity 6

IMPORT AND EXPORT

GROUP:

Compile a list of products that are exported and imported by South Africa. Indicate the destinations of exports and the origin of imports.

It is evident from the above that exchange transactions or trade agreements cannot be initiated if production is inadequate. Goods must be manufactured by factories or industries before they can be distributed, whether locally or abroad. Industries require large amounts of money or capital before production can commence and in most cases an industrialist or entrepreneur is unable to generate enough capital to start such an enterprise on his / her own. The entrepreneur can submit an application for a loan from a bank to make it possible to start production. The bank will have to use funds that other investors have deposited in the bank in order to make such a loan available. They make the money available to the entrepreneur at a fixed interest rate for an agreed period of time. In economic terms we speak of funds that are used or applied in such a manner as an INVESTMENT, i.e. money made available to facilitate further production. What we have to remember is that such funds/capital can be made available only when there are other investors who are willing to deposit their SAVINGS in the bank. The bank therefore is the middle person who facilitates the investment.

Activity 7

SAVINGS

SELF

Consult a bank or other financial institution to find out what facilities they offer to encourage the public to entrust their savings to them.

[LO 1.2]

Assessment

Learning Outcomes (LOs)

LO 1

the economic cycle

The learner will be able to demonstrate knowledge and understanding of the economic cycle within the context of ‘the economic problem’.

Assessement Standards(ASs)

This is evident when the learner:

describes the historical development of money and its role in societies and their economies;

discusses how trade (import and export) addresses the economic problem (choice and opportunity cost), as well as the role of banks in investing in the economy;

explains how different economic systems address the economic problem (e.g. planned, market and mixed economies);

discusses the role, rights and responsibilities of trade unions;

discusses the role, rights and responsibilities of trade unions;

Overview

ACTIVITY 1: Needs

SELF:

Evaluate each one’s list of needs.

ACTIVITY 2: Classification of needs

Table 1
Natural Natural Luxury Protection Cultural Cultural
Food Food Second car Plundering Music Religion
Love Clothing Pets Natural disasters Theatre Worship
Recreation Housing Expensive clothing Terrorism Concerts  
Sympathy Medical services Servants Pollution Concerts  

GROUP:

FOUR / FIVE most basic needs of people:

Food, clothing, housing, protection, recreation.

ACTIVITY 3: Opportunity cost

SELF:

Let learners make a selection and then let them use the above list to determine the category in which they would place each product, e.g. would a cellular phone be rated as a necessity or a luxury, etc?

ACTIVITY 4: Communications

GROUP:

Communication service providers: Telkom, Cell C, Vodacom, MTN, etc.

ACTIVITY 5: Transport

SELF:

By road: Pickfords, Stuttafords, etc.

By rail: Spoornet

By air: SAA, Nationwide, etc.

ACTIVITY 6: Import and export

GROUP:

IMPORT: Cars (Japan), Computers (USA), Watches (Switzerland)

EXPORTS: Iron ore (Japan), Mealies (Zimbabwe), Wine (England)

ACTIVITY 7: Savings

SELF:

Evaluate the learner’s research with regard to savings facilities offered by various financial institutions.

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