Microeconomics II
Only Study Guide for ECS2601
First and second semesters
Department of Economics
University of South Africa
Pretoria
, ii
© 2012 University of South Africa
All rights reserved
Printed and distributed by the
University of South Africa
Muckleneuk, Pretoria
Compiled by the Department of Economics
ECS2601/1/12012-2014
,iii ECS2601/1/2012-14
Contents Page
Introduction x
Aims of the module..........................................................................................................ix
Prescribed tutorial matter ................................................................................................ x
Suggested method of study.............................................................................................xi
Study unit 1: Assumptions of prior learning in microeconomics .............. 1
Study Unit 2:
The basics of supply and demand ....................................................................... 2
2.4 Elasticity of supply and demand (including 2.5: Short-run versus long-run
elasticity)............................................................................................................. 3
Activities 2.4 (and 2.5) ..................................................................................................... 5
2.7 Effects of government intervention ± prLFHFRQWUROV««««««««««««
$FWLYLWLHV«««««««««««««««««««««««««««
Further reading ............................................................................................................. 10
Answers to some of the questions ................................................................................ 10
Study unit 3: Consumer behavior....................................................................... 11
Economics in action ...................................................................................................... 11
Contents and learning outcomes ................................................................................... 11
3.1 Consumer preferences ..................................................................................... 12
Activity 3.1 .................................................................................................................... 14
3.2 Budget constraints ............................................................................................ 15
Activity 3.2 ..................................................................................................................... 16
3.3 Consumer choice ............................................................................................. 18
Activity 3.3 ..................................................................................................................... 19
3.4 Revealed preference ........................................................................................ 21
$FWLYLW\«««««««««««««««««««««««««««««««««
3.5 Marginal utility and consumer choice ............................................................... 22
Activity 3.5 .................................................................................................................... 23
3.6 Cost-of-living indices ........................................................................................ 23
, iv ECS2601/1/2012-14
Economics in action revisited ........................................................................................ 24
Further reading ............................................................................................................. 24
Answers to some of the questions ................................................................................ 24
Study unit 4: Individual and market demand ................................................. 26
Economics in action ..................................................................................................... 26
Contents and learning outcomes ................................................................................... 27
4.1 Individual demand ............................................................................................ 27
Activity 4.1 ..................................................................................................................... 29
4.2 Income and substitution effects ........................................................................ 31
Activity 4.2 ..................................................................................................................... 32
4.3 Market demand................................................................................................. 34
Activity 4.3 ..................................................................................................................... 35
4.4 Consumer surplus ........................................................................................... 37
Activity 4.4 ................................................................................................................. 37
4.5 Network externalities ........................................................................................ 39
Activity 4.5 ..................................................................................................................... 40
4.6 Empirical estimation of demand........................................................................ 40
Economics in action revisited ........................................................................................ 41
Further reading .............................................................................................................. 41
Answers to some of the questions ................................................................................ 41
Study unit 5: Uncertainty and consumer behaviour .................................... 43
(Not included)
Study unit 6: Production ....................................................................................... 44
Economics in action ...................................................................................................... 45
Contents and learning outcomes ................................................................................... 45
6.1 The technology of production ........................................................................... 46
Activity 6.1 ..................................................................................................................... 47
6.2 Production with one variable input (labour)...................................................... 47
Activity 6.2 ..................................................................................................................... 48
6.3 Production with two variable inputs (labour and capital) ................................... 50
Activity 6.3 ..................................................................................................................... 52
6.4 Returns to scale................................................................................................ 54
Activity 6.4 ..................................................................................................................... 55
Economics in action revisited ........................................................................................ 56
Further reading .............................................................................................................. 56
Answers to some of the questions ................................................................................ 56
Only Study Guide for ECS2601
First and second semesters
Department of Economics
University of South Africa
Pretoria
, ii
© 2012 University of South Africa
All rights reserved
Printed and distributed by the
University of South Africa
Muckleneuk, Pretoria
Compiled by the Department of Economics
ECS2601/1/12012-2014
,iii ECS2601/1/2012-14
Contents Page
Introduction x
Aims of the module..........................................................................................................ix
Prescribed tutorial matter ................................................................................................ x
Suggested method of study.............................................................................................xi
Study unit 1: Assumptions of prior learning in microeconomics .............. 1
Study Unit 2:
The basics of supply and demand ....................................................................... 2
2.4 Elasticity of supply and demand (including 2.5: Short-run versus long-run
elasticity)............................................................................................................. 3
Activities 2.4 (and 2.5) ..................................................................................................... 5
2.7 Effects of government intervention ± prLFHFRQWUROV««««««««««««
$FWLYLWLHV«««««««««««««««««««««««««««
Further reading ............................................................................................................. 10
Answers to some of the questions ................................................................................ 10
Study unit 3: Consumer behavior....................................................................... 11
Economics in action ...................................................................................................... 11
Contents and learning outcomes ................................................................................... 11
3.1 Consumer preferences ..................................................................................... 12
Activity 3.1 .................................................................................................................... 14
3.2 Budget constraints ............................................................................................ 15
Activity 3.2 ..................................................................................................................... 16
3.3 Consumer choice ............................................................................................. 18
Activity 3.3 ..................................................................................................................... 19
3.4 Revealed preference ........................................................................................ 21
$FWLYLW\«««««««««««««««««««««««««««««««««
3.5 Marginal utility and consumer choice ............................................................... 22
Activity 3.5 .................................................................................................................... 23
3.6 Cost-of-living indices ........................................................................................ 23
, iv ECS2601/1/2012-14
Economics in action revisited ........................................................................................ 24
Further reading ............................................................................................................. 24
Answers to some of the questions ................................................................................ 24
Study unit 4: Individual and market demand ................................................. 26
Economics in action ..................................................................................................... 26
Contents and learning outcomes ................................................................................... 27
4.1 Individual demand ............................................................................................ 27
Activity 4.1 ..................................................................................................................... 29
4.2 Income and substitution effects ........................................................................ 31
Activity 4.2 ..................................................................................................................... 32
4.3 Market demand................................................................................................. 34
Activity 4.3 ..................................................................................................................... 35
4.4 Consumer surplus ........................................................................................... 37
Activity 4.4 ................................................................................................................. 37
4.5 Network externalities ........................................................................................ 39
Activity 4.5 ..................................................................................................................... 40
4.6 Empirical estimation of demand........................................................................ 40
Economics in action revisited ........................................................................................ 41
Further reading .............................................................................................................. 41
Answers to some of the questions ................................................................................ 41
Study unit 5: Uncertainty and consumer behaviour .................................... 43
(Not included)
Study unit 6: Production ....................................................................................... 44
Economics in action ...................................................................................................... 45
Contents and learning outcomes ................................................................................... 45
6.1 The technology of production ........................................................................... 46
Activity 6.1 ..................................................................................................................... 47
6.2 Production with one variable input (labour)...................................................... 47
Activity 6.2 ..................................................................................................................... 48
6.3 Production with two variable inputs (labour and capital) ................................... 50
Activity 6.3 ..................................................................................................................... 52
6.4 Returns to scale................................................................................................ 54
Activity 6.4 ..................................................................................................................... 55
Economics in action revisited ........................................................................................ 56
Further reading .............................................................................................................. 56
Answers to some of the questions ................................................................................ 56
