ECS101 – DEC 2009
MICROECONOMICS AND MACROECONOMICS –
MICROECONOMICS MACROECONOMICS
The price of a single product The consumer price index
Changes in the price of a single product Inflation
The production of a product The total output of all goods n services
The decisions of individual consumers The combined outcome of the decisions of all consumers in
the country
The decisions of individual firms or The combined decisions of all firms in S.A
businesses
Microeconomics – the focus is on individual parts of the economy. Decisions or functioning of
decision makers such as individuals, households, firms or other orgs. Are considered are
considered in isolation from the rest of the economy.
Macroeconomics – is concerned with the economy as a whole. An overall view of the economy
and aggregate economic behavior is studied. Emphasis on topic such as total production, income
and expenditure, economic growth, aggregate unemployment, inflation etc is studied.
The problem of economizing is essentially one of deciding how to make the best use of limited
resources to satisfy unlimited want
Opportunity cost is best defined as the value of the best alternative sacrificed when a choice is
made
An unskilled labourer would be viewed by economists as a factor of production.
A technological improvement in the production of a good or service will cause a
rightward/outward shift of the PPC
Interest is income from capital
A capital intensive production system is dominated by capital goods
Capital, wealth and natural resources are stock variables, whereas investment, profit and losses are
flows.
Firms are the purchasers of capital goods in a simple circular flow
The bars above symbols in formula for law of demand implies that the ceteris paribus rule applies
Under perfect competition the maximum loss a firm will make in the short run is equal to the total
fixed cost.
Under perfect competition information is complete and collusion is impossible
Monopoly – the ability to influence the market price and the market output
Oligopoly – the market is dominated by few large firms with market power ,the strategy can be to
join forces and it is called cartel forming
A change in the price of the other factors of production will shift labour demand curve
A trade union that bargains only for an increase in wages will cause unemployment
Minimum wages are propagated as a way to avoid exploitation of workers.
An important similarity between the monopolistic competitor and oligopolist is that both have
incomplete information about market condition
Monopoly – has thorough knowledge of market conditions
Law of demand implies that as prices fall quantity demanded increases
Demand curve will shift right if there is an increase in the price of the substitute product
Supply curve will shift left when there is an increase in the price of inputs
An increase in supply and a decrease in demand will always cause a decrease in the equilibrium
price.
An increase in both demand and supply will increase an equilibrium price
Under perfect competition market the participants(firms is a price taker
If a firm under in a perfectly competitive market raises its price above the market price sales will
drop to zero
, Demand curve under PC – the demand curve is indicated by a horizontal line at the given market
price
A firm can expand production in the short run by employing more units of the variable factor of
production.
Price elasticity measure the responsiveness or sensitivity of consumers to price changes
Producers are interested in the price elasticity of demand for their product because it indicates
what will happen to their total revenue when the price of the product changes
The price elasticity of demand is different at each point along a linear demand curve
Marginal utility is the extra or additional utility that a consumer derives from the consumption of
one additional unit of good
Marginal utility will decline if identical units of a good are consumed one after the other
Nominal wage is the amount of money actually received by a worker per hour, week, day, month,
or year
A real wage is the quantity of goods n services that can be purchased with the nominal wage
Equilibrium condition for the individual firms demand for labour - MRP=W or MPP x P=W
Labour is a derived demand because labour is not demanded for its own sake, but rather for the
value of the goods n services that can be produced when labour is combined with other factors of
production.
Excess supply – when the quantity supplied is greater than the quantity demanded
When there is a market shortage the quantity produced will increase
The price of a product will decrease when there is a market surplus
Equilibrium in the market – Qd=Qs
Consumer to be in equilibrium – the weighted marginal utilities of the condition of goods are
equal of equal utility from the last rand spent on each product
Primary sector – raw materials are produced
Secondary sector – manufacturing part of the economy
When all firms earn normal profit = industry in equilibrium in the long run
The economic problem arises from the coexistence of unlimited wants and limited resources
Normative statement – factual , unemployment is the most important economic problem
worldwide
Factor of production – a national road, labour of households, arable land used for sowing
Economic systems are based on any or a combination of 3 coordinating systems, tradition,
command and market
Market capitalism most of the factors of production are privately owned with limited government
intervention.
The demand for labour is a flow variable
Capital is s stock variable
A decrease in demand together with an increase in supply = fall in equilibrium price
Fixing a minimum price above the equilibrium price will result in an excess supply
If producers are faced with a unit elastic demand curve , they cannot raise their total revenue by
increasing or decreasing the price of product
When the percentage change in quantity demanded is relatively small compared to the percentage
change in price it can it can be said that the demand is relatively inelastic
If the income elasticity of demand is negative the product is an inferior good
The larger the number of substitutes and the closer the substitutes are and in the case of luxury
goods and services the more elastic the price elasticity is
In the analysis of consumer behaviour the aim of the consumer is to obtain the highest attainable
level of total utility
Perfect competition exists if all the buyers and sellers have perfect knowledge of market
conditions and all the factors of production must be perfectly mobile
Monopoly – have the ability to control market output and the firm is a price taker
Demand refers to quantity of a product that potential buyers are willing and able to buy
Demand is a flow variable
A fall in the price of a product will not shift the demand curve for a product
A market supply curve is a horizontal summation of the individual supply curves
An increase in the price of the a substitute product will increase the demand for a product
MICROECONOMICS AND MACROECONOMICS –
MICROECONOMICS MACROECONOMICS
The price of a single product The consumer price index
Changes in the price of a single product Inflation
The production of a product The total output of all goods n services
The decisions of individual consumers The combined outcome of the decisions of all consumers in
the country
The decisions of individual firms or The combined decisions of all firms in S.A
businesses
Microeconomics – the focus is on individual parts of the economy. Decisions or functioning of
decision makers such as individuals, households, firms or other orgs. Are considered are
considered in isolation from the rest of the economy.
Macroeconomics – is concerned with the economy as a whole. An overall view of the economy
and aggregate economic behavior is studied. Emphasis on topic such as total production, income
and expenditure, economic growth, aggregate unemployment, inflation etc is studied.
The problem of economizing is essentially one of deciding how to make the best use of limited
resources to satisfy unlimited want
Opportunity cost is best defined as the value of the best alternative sacrificed when a choice is
made
An unskilled labourer would be viewed by economists as a factor of production.
A technological improvement in the production of a good or service will cause a
rightward/outward shift of the PPC
Interest is income from capital
A capital intensive production system is dominated by capital goods
Capital, wealth and natural resources are stock variables, whereas investment, profit and losses are
flows.
Firms are the purchasers of capital goods in a simple circular flow
The bars above symbols in formula for law of demand implies that the ceteris paribus rule applies
Under perfect competition the maximum loss a firm will make in the short run is equal to the total
fixed cost.
Under perfect competition information is complete and collusion is impossible
Monopoly – the ability to influence the market price and the market output
Oligopoly – the market is dominated by few large firms with market power ,the strategy can be to
join forces and it is called cartel forming
A change in the price of the other factors of production will shift labour demand curve
A trade union that bargains only for an increase in wages will cause unemployment
Minimum wages are propagated as a way to avoid exploitation of workers.
An important similarity between the monopolistic competitor and oligopolist is that both have
incomplete information about market condition
Monopoly – has thorough knowledge of market conditions
Law of demand implies that as prices fall quantity demanded increases
Demand curve will shift right if there is an increase in the price of the substitute product
Supply curve will shift left when there is an increase in the price of inputs
An increase in supply and a decrease in demand will always cause a decrease in the equilibrium
price.
An increase in both demand and supply will increase an equilibrium price
Under perfect competition market the participants(firms is a price taker
If a firm under in a perfectly competitive market raises its price above the market price sales will
drop to zero
, Demand curve under PC – the demand curve is indicated by a horizontal line at the given market
price
A firm can expand production in the short run by employing more units of the variable factor of
production.
Price elasticity measure the responsiveness or sensitivity of consumers to price changes
Producers are interested in the price elasticity of demand for their product because it indicates
what will happen to their total revenue when the price of the product changes
The price elasticity of demand is different at each point along a linear demand curve
Marginal utility is the extra or additional utility that a consumer derives from the consumption of
one additional unit of good
Marginal utility will decline if identical units of a good are consumed one after the other
Nominal wage is the amount of money actually received by a worker per hour, week, day, month,
or year
A real wage is the quantity of goods n services that can be purchased with the nominal wage
Equilibrium condition for the individual firms demand for labour - MRP=W or MPP x P=W
Labour is a derived demand because labour is not demanded for its own sake, but rather for the
value of the goods n services that can be produced when labour is combined with other factors of
production.
Excess supply – when the quantity supplied is greater than the quantity demanded
When there is a market shortage the quantity produced will increase
The price of a product will decrease when there is a market surplus
Equilibrium in the market – Qd=Qs
Consumer to be in equilibrium – the weighted marginal utilities of the condition of goods are
equal of equal utility from the last rand spent on each product
Primary sector – raw materials are produced
Secondary sector – manufacturing part of the economy
When all firms earn normal profit = industry in equilibrium in the long run
The economic problem arises from the coexistence of unlimited wants and limited resources
Normative statement – factual , unemployment is the most important economic problem
worldwide
Factor of production – a national road, labour of households, arable land used for sowing
Economic systems are based on any or a combination of 3 coordinating systems, tradition,
command and market
Market capitalism most of the factors of production are privately owned with limited government
intervention.
The demand for labour is a flow variable
Capital is s stock variable
A decrease in demand together with an increase in supply = fall in equilibrium price
Fixing a minimum price above the equilibrium price will result in an excess supply
If producers are faced with a unit elastic demand curve , they cannot raise their total revenue by
increasing or decreasing the price of product
When the percentage change in quantity demanded is relatively small compared to the percentage
change in price it can it can be said that the demand is relatively inelastic
If the income elasticity of demand is negative the product is an inferior good
The larger the number of substitutes and the closer the substitutes are and in the case of luxury
goods and services the more elastic the price elasticity is
In the analysis of consumer behaviour the aim of the consumer is to obtain the highest attainable
level of total utility
Perfect competition exists if all the buyers and sellers have perfect knowledge of market
conditions and all the factors of production must be perfectly mobile
Monopoly – have the ability to control market output and the firm is a price taker
Demand refers to quantity of a product that potential buyers are willing and able to buy
Demand is a flow variable
A fall in the price of a product will not shift the demand curve for a product
A market supply curve is a horizontal summation of the individual supply curves
An increase in the price of the a substitute product will increase the demand for a product
