EKN 110
, Chapter 1 The Why and Who of economics
Economics: Is the study of how individuals, businesses and institutions make social choices, to optimize
their level of satisfaction under conditions of scarcity.
Economic perspective: -
5 Marginal analysis: benefits and costs
I
Scarcity and choice ↑
• Marginal =extra/additional/a change in
• Limited goods, services and time • Decision to obtain the marginal benefit associated with
some specific option always includes the marginal cost of
• Scarcity restricts options and demands
forgoing something else
choices it Opportunity costs presents
2
Opportunity cost Theories, principles and models:
• The opportunity cost of an activity is the value Scientific method and principles
of the next best alternative that must be Economics relies on a scientific method
foregone in order to undertake one activity. Economic principles are highly useful in analyzing economic
behavior and understanding how the economy operates
3
Rational behavior
Tools for ascertaining cause and effect
• Rational self-interest as an assumption of
economics Generalizations: tendencies of typical or average consumers,
• Decisions not free from mistakes or unaffected by emotions workers or business firms
• Desire to maximize level of satisfaction (utility) Other-things-equal assumption: (ceteris paribus) strong assumption
• Rational consumers have greatest possible u with unlimited for a particular analysis ~ price quantity demanded example
wants /needs and certain budget constraints.
Graphical expression
• Rational producers seek to maximize profiles with cost Macro economics: Examines either the economy as a whole or its
constraints and certain production techniques basic subdivisions or aggregates (government, households and business sectors)
I
Concepts of utility Micro economics: It is concerned with individual units such as a
person, a household, a firm or an industry
• Utility is the pleasure, happiness or satisfaction obtained
from consuming a good or service Positive economics: It focuses on facts and cause-and-effect
relationships. Description, theory development and theory testing
• Cardinal (measureable on scale) vs ordinal (comparative/
rank on preference ) Negative economics: It incorporates value judgements about what
/
the economy should be like. Expressions of support for particular policies
• Choose between options to maximize U
• Allocation of time, energy and money
-
, Chapter 2 Economic Systems
Efficiency, incentives, freedom (The invisible Hand)
What goods will be produced?
-
I
• Goods and services produced at a
continuing profit will be produced 2
.
contrary to those at continuing loss
– Profit = Total revenue (TR) - Total cost
(TC) ↓ 3
– Consumer sovereignty
– “Rand votes”
2 How will the goods be produced?
• In combinations and ways that minimize the cost per unit of output
• Right mix of labour and capital
• Most efficient production technique depends on
– Availability of technology
– prices of the needed resources
Who will get the output?
• Ability and willingness to pay its market price
• Market price depended on resource prices
1 How will the system accommodate?
• Market systems are dynamic
• Through changes in prices and profits à appropriate response
S How will the system promote progress?
• Technological advancement
– New and improved methods that reduce
production costs
– Concept of “Creative destruction”
• Capital accumulation
– Entrepreneurs and business firms
, Chapter 1 The Why and Who of economics
Economics: Is the study of how individuals, businesses and institutions make social choices, to optimize
their level of satisfaction under conditions of scarcity.
Economic perspective: -
5 Marginal analysis: benefits and costs
I
Scarcity and choice ↑
• Marginal =extra/additional/a change in
• Limited goods, services and time • Decision to obtain the marginal benefit associated with
some specific option always includes the marginal cost of
• Scarcity restricts options and demands
forgoing something else
choices it Opportunity costs presents
2
Opportunity cost Theories, principles and models:
• The opportunity cost of an activity is the value Scientific method and principles
of the next best alternative that must be Economics relies on a scientific method
foregone in order to undertake one activity. Economic principles are highly useful in analyzing economic
behavior and understanding how the economy operates
3
Rational behavior
Tools for ascertaining cause and effect
• Rational self-interest as an assumption of
economics Generalizations: tendencies of typical or average consumers,
• Decisions not free from mistakes or unaffected by emotions workers or business firms
• Desire to maximize level of satisfaction (utility) Other-things-equal assumption: (ceteris paribus) strong assumption
• Rational consumers have greatest possible u with unlimited for a particular analysis ~ price quantity demanded example
wants /needs and certain budget constraints.
Graphical expression
• Rational producers seek to maximize profiles with cost Macro economics: Examines either the economy as a whole or its
constraints and certain production techniques basic subdivisions or aggregates (government, households and business sectors)
I
Concepts of utility Micro economics: It is concerned with individual units such as a
person, a household, a firm or an industry
• Utility is the pleasure, happiness or satisfaction obtained
from consuming a good or service Positive economics: It focuses on facts and cause-and-effect
relationships. Description, theory development and theory testing
• Cardinal (measureable on scale) vs ordinal (comparative/
rank on preference ) Negative economics: It incorporates value judgements about what
/
the economy should be like. Expressions of support for particular policies
• Choose between options to maximize U
• Allocation of time, energy and money
-
, Chapter 2 Economic Systems
Efficiency, incentives, freedom (The invisible Hand)
What goods will be produced?
-
I
• Goods and services produced at a
continuing profit will be produced 2
.
contrary to those at continuing loss
– Profit = Total revenue (TR) - Total cost
(TC) ↓ 3
– Consumer sovereignty
– “Rand votes”
2 How will the goods be produced?
• In combinations and ways that minimize the cost per unit of output
• Right mix of labour and capital
• Most efficient production technique depends on
– Availability of technology
– prices of the needed resources
Who will get the output?
• Ability and willingness to pay its market price
• Market price depended on resource prices
1 How will the system accommodate?
• Market systems are dynamic
• Through changes in prices and profits à appropriate response
S How will the system promote progress?
• Technological advancement
– New and improved methods that reduce
production costs
– Concept of “Creative destruction”
• Capital accumulation
– Entrepreneurs and business firms
