Chapter 2 of 'Economics for South African Students' discusses the economic problem of scarcity, choice, and opportunity cost, focusing on the question of 'for whom to produce?' It reviews various economic systems—traditional, command, market, and mixed economies—highlighting their characteristics and the distribution of income and wealth in South Africa. The chapter also examines the influence of key economists and the current relevance of these systems amid global economic crises.

1. ECONOMICS FOR SOUTH AFRICAN
STUDENTS
CHAPTER 2:
THE ECONOMIC PROBLEM
PART 3: FOR WHOM TO PRODUCE? AND
ECONOMIC SYSTEMS
ECON-1

2. ECONOMIC
PROBLEM?
When you consider the economic problem:
•Scarcity
•Choice
•Opportunity cost
It leads to 3 important questions:
•WHAT to produce?
•HOW to produce?
•For WHOM to produce?
Economic systems determine how society will answer these
questions.

3. FOR WHOM TO
PRODUCE…
Who consumes the goods and services that are produced?
Why is this an important question in SA?
Functional distribution (factor of production) vs. personal
distribution (households and firms)
Occupation
Bottom 5%
R
Median
R
Top 5%
R
Manager 2,000 10,500 48,000
Professional 1,500 10,000 35,000
Technician 1,200 7,500 19,250
Clerk 1,000 4,500 15,000
Sales and services 600 2,420 12,000
Skilled agriculture 500 2,167 16,700
Craft and related trade 800 2,900 14,000
Plant and machine operator 840 2,817 9,550
Elementary 450 1,517 5,500
Domestic worker 300 1,000 2,400
Total 570 2,800 17,000
Breakdown of monthly earnings
a
by occupation, 2010
1993 2000 2008
African 0.54 0.60 0.62
Coloured 0.44 0.53 0.54
Indian 0.47 0.51 0.61
White 0.43 0.62 0.56
Rural 0.58 0.62 0.56
Urban 0.61 0.64 0.67
Total 0.66 0.68 0.70
Gini co- efficient
a
by race and location,
1993, 2000, and 2008

4. FOR WHOM TO
PRODUCE…
Distinguish between income and
wealth...
Distribution between private and
public sectors...
Distribution between sectors where
the production takes place:
• Primary
• Secondary
• Tertiary
Year
Public sector
R
Private sector
R
Differential (public sector
> private sector)
2000 3,819 3,400 12.3%
2001 4,316 3,659 17.9%
2002 4,762 4,021 18.4%
2003 4,889 3,940 24.1%
2004 5,336 4,206 26.9%
2005 5,695 4,015 41.8%
2006 5,860 4,210 39.2%
2007 6,240 4,900 27.4%
2008 6,823 5,188 31.5%
2009 7,592 5,763 31.7%
2010 8,938 6,224 43.6%
2000–10 134.10% 83.00% –
Average monthly earnings in formal non-
agricultural employment in the public
and private sectors, 2000–10

5. ANSWERS TO THE QUESTIONS:
ECONOMIC SYSTEMS
Traditional system:
• Tradition determines WHAT is produced and HOW it is
produced, as well as the way it is distributed.
• Usually autarky.
• E.g. medieval Europe or the island societies of the Pacific
ocean.
• Not an important system today.

6. ANSWERS TO THE QUESTIONS:
ECONOMIC SYSTEMS
Command system:
• Central government makes 5-years plans of WHAT, HOW
and FOR WHOM to produce.
• All the factors of production are owned by government.
• This is socialism and communism.
• In the 20th
century this was tried in Soviet Russia, China,
Poland, East Germany and North Korea.
• Today there is little left of these systems and markets are
used to coordinate economic activity.

7. ANSWERS TO THE QUESTIONS:
ECONOMIC SYSTEMS
Market system:
• What is meant by the market?
• Prices are signals / the invisible hand.
• Market capitalism:
• Private ownership.
• People acting in their own best interest.
• Competition is important for the system to work.
• Answers to WHAT, HOW and FOR WHOM…

8. ANSWERS TO THE QUESTIONS:
ECONOMIC SYSTEMS
Mixed economies:
• The market + a role for government.
• Factors of production are privately owned, but government
provides public goods.
• The market uses price signals, but government influences
it through taxes and subsidies.
• When there is imperfect competition the government
intervenes with competition policy.
• South Africa is an example of a mixed system.

9. FATHERS OF ECONOMICS
Adam Smith
• The wealth of nations, 1776
• Economic activity is to satisfy needs.
• Emphasises division of labour, (pin factory example), free
trade, limited role for the government.
• Markets and people working in their own interest is like an
invisible hand guiding the economy.
• Smith provides the roots for the classical and neo-classical
schools of thought.

10. FATHERS OF ECONOMICS
Karl Marx
• The Communist Manifesto, 1848; Das Kapitaal, 1867.
• Sees labour as a sources of surplus value in the
production process, that is more than the wages workers
receive.
• Capitalists keep the surplus big, unemployment high and
wages low through mechanisation.
• This will lead to social revolution and a classless system
without private ownership.
• The political influence of Marx…

11. FATHERS OF ECONOMICS
John Maynard Keynes
• Classical economists had a specific view about the economy
before the Great Depression…
• But the Great Depression changed everything.
• Keynes published The general theory of employment, interest
and money.
• Focused on aggregate demand and the role of government
spending and tax relief to get the economy out of the
depression.

12. WHY ARE SYSTEMS AND
ECONOMIC THOUGHT STILL
IMPORTANT TODAY?
There has been a world-wide crisis: “credit
crunch”, “bail outs” en $1 trillion of stimulation
plans.
The media wonders if capitalism has failed,
“Rethinking Marx”, the developmental states and
state capitalism???.
What is the road ahead? What should the role of
government be in the economy?
In SA as well:
• ANC, SAKP, COSATU looks to the left about the role of
government, inflation, monetary policy.

13. DID WE ACHIEVE THE
OUTCOMES?
Can you explain the question of distribution?
Can you describe and analyse each economic system?
Can you explain the origins of each system?
Can you discuss the benefits and problems of each system?
Chapter 2 in Mohr & Fourie
eFundi
Answer the Quiz questions
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