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ECS1501
ECS1501 - Summary, Notes and Basics
Economics (University of South Africa)
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ECS1501
ECS1501 - Summary 1
MICROECONOMICS AND MACROECONOMICS –
MICROECONOMICS MACROECONOMICS
The price of a single product The consumer price index
Changes in the price of a single Inflation
product
The production of a product The total output of all goods n services
The decisions of individual The combined outcome of the decisions of all
consumers consumers in the country
The decisions of individual firms The combined decisions of all firms in S.A
or 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 behaviour 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
Downloaded by Chanel Lubbe ()
, lOMoARcPSD|3969752
• 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
Downloaded by Chanel Lubbe ()
, lOMoARcPSD|3969752
• 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
• A decrease in the price of flour used to make bread is most likely to increase the supply of bread
• When the quantity demanded is greater than the quantity supplied the price will rise to the
equilibrium price
• A change in the price of a product will not shift the supply curve ceteris paribus
• A decrease in demand together with an increase in supply will definitely result in an increase in
equilibrium price
• Equilibrium occurs when quantity demanded equals quantity supplied
• When there is excess supply in the market the price will decrease
• Fixing the minimum price below the equilibrium price will not disturb the market
• Simultaneous increase in supply and demand will lead to a uncertain change in equilibrium price
and equilibrium quantity will increase
• Price elasticity of demand is a proportionate change in quantity demanded divided by a
proportionate change in price
• Demand is inelastic when the proportionate change in quantity demanded is less than a
proportionate change in price
• If the price elasticity of demand coefficient is greater than one then an increase in price will cause a
decrease in total revenue
• Total utility decreases when marginal utility is negative
• The aim of rational consumers is to maximize their utility given the available means and
alternatives at their disposal
• A consumer is in equilibrium if the combination of goods are affordable
• According to the law of diminishing returns total product is reaching a maximum when MP=0
• The U shape of the marginal cost curve reflects the law of diminishing returns
• Marginal product reaches a maximum when a corresponding marginal cost is at a minimum
Downloaded by Chanel Lubbe ()
ECS1501
ECS1501 - Summary, Notes and Basics
Economics (University of South Africa)
StuDocu is not sponsored or endorsed by any college or university
Downloaded by Chanel Lubbe ()
, lOMoARcPSD|3969752
ECS1501
ECS1501 - Summary 1
MICROECONOMICS AND MACROECONOMICS –
MICROECONOMICS MACROECONOMICS
The price of a single product The consumer price index
Changes in the price of a single Inflation
product
The production of a product The total output of all goods n services
The decisions of individual The combined outcome of the decisions of all
consumers consumers in the country
The decisions of individual firms The combined decisions of all firms in S.A
or 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 behaviour 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
Downloaded by Chanel Lubbe ()
, lOMoARcPSD|3969752
• 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
Downloaded by Chanel Lubbe ()
, lOMoARcPSD|3969752
• 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
• A decrease in the price of flour used to make bread is most likely to increase the supply of bread
• When the quantity demanded is greater than the quantity supplied the price will rise to the
equilibrium price
• A change in the price of a product will not shift the supply curve ceteris paribus
• A decrease in demand together with an increase in supply will definitely result in an increase in
equilibrium price
• Equilibrium occurs when quantity demanded equals quantity supplied
• When there is excess supply in the market the price will decrease
• Fixing the minimum price below the equilibrium price will not disturb the market
• Simultaneous increase in supply and demand will lead to a uncertain change in equilibrium price
and equilibrium quantity will increase
• Price elasticity of demand is a proportionate change in quantity demanded divided by a
proportionate change in price
• Demand is inelastic when the proportionate change in quantity demanded is less than a
proportionate change in price
• If the price elasticity of demand coefficient is greater than one then an increase in price will cause a
decrease in total revenue
• Total utility decreases when marginal utility is negative
• The aim of rational consumers is to maximize their utility given the available means and
alternatives at their disposal
• A consumer is in equilibrium if the combination of goods are affordable
• According to the law of diminishing returns total product is reaching a maximum when MP=0
• The U shape of the marginal cost curve reflects the law of diminishing returns
• Marginal product reaches a maximum when a corresponding marginal cost is at a minimum
Downloaded by Chanel Lubbe ()
