Summary ECONOMICS

ECONOMICS COURSE NOTES

BY. DR.TEVIN MARKBELL

UNIVERSITY OF NAIROBI

Course Outline

1. Introduction to Economics
 Definition and scope of economics
 Microeconomics vs. Macroeconomics
 Basic economic problems: What to produce? How to produce?
For whom to produce?
2. Supply and Demand
 Law of Demand: Inverse relationship between price and quantity
demanded
 Law of Supply: Direct relationship between price and quantity
supplied
 Market equilibrium and shifts in supply and demand
 Elasticity: Price, income, and cross elasticity of demand
3. Consumer Behavior
 Utility and preferences
 Budget constraint and consumer choice
 Indifference curves and marginal rate of substitution
 Income and substitution effects
4. Production and Cost
 Production functions: Short-run and long-run
 Cost concepts: Fixed costs, variable costs, and total costs
 Economies and diseconomies of scale
 Profit maximization: MR=MC rule
5. Market Structures
 Perfect competition: Characteristics and equilibrium
 Monopoly: Characteristics, pricing, and efficiency
 Monopolistic competition and oligopoly
 Game theory and strategic behavior
6. Macroeconomic Indicators
 Gross Domestic Product (GDP): Calculation and components
 Unemployment rate: Types and measurement
 Inflation: Causes, measurement, and effects
 Business cycles and economic growth
7. Aggregate Demand and Supply
 Components of aggregate demand: C + I + G + (X-M)
 Short-run and long-run aggregate supply
 Equilibrium in the AD-AS model

,  Fiscal and monetary policy tools
8. Money and Banking
 Functions of money
 Types of financial institutions
 Money creation process
 Central banking and monetary policy
9. International Trade and Finance
 Comparative advantage and gains from trade
 Balance of payments: Current and capital accounts
 Exchange rates and their determination
 Trade policies: Tariffs, quotas, and trade agreements
10. Development Economics
 Measurement of development: GDP per capita, HDI, etc.
 Theories of economic development
 Strategies for economic growth and development
 Challenges of poverty, inequality, and sustainability




1. Introduction to Economics
Meaning and Scope of Economics

,Definition of Economics

Economics is a social science that studies how individuals, firms, governments, and societies
make choices to allocate limited resources to satisfy unlimited wants. In essence, economics
deals with the production, distribution, and consumption of goods and services to address the
fundamental economic problem of scarcity.




Key Concepts in Economics

1. Scarcity and Choice:
 Scarcity: The fundamental economic problem of having seemingly unlimited
human wants and needs in a world of limited resources.
 Choice: The process of making decisions among available alternatives to allocate
scarce resources efficiently.
2. Opportunity Cost:
 Refers to the value of the next best alternative forgone when making a decision.
Every choice involves trade-offs, and the opportunity cost reflects the benefits
you could have received from the next best alternative.
3. Production Possibility Frontier (PPF):
 A graphical representation that shows the maximum feasible amounts of two
goods or services that an economy can produce given its resources and
technology.
Microeconomics vs. Macroeconomics

 Microeconomics:
 Focuses on individual units within the economy, such as households, firms, and
markets.
 Topics include consumer behavior, production, supply and demand, market
structures, and resource allocation.
 Macroeconomics:
 Examines the economy as a whole, including aggregate levels of output,
employment, inflation, and economic growth.
 Topics include national income accounting, fiscal and monetary policy, business
cycles, and international trade and finance.
Basic Economic Questions

1. What to Produce?:

,  Refers to the choice of goods and services to produce based on consumer demand,
resource availability, and profitability.
2. How to Produce?:
 Concerns the methods and techniques used in production, considering factors like
technology, labor, and capital.
3. For Whom to Produce?:
 Addresses the distribution of goods and services among different individuals and
groups in society, considering factors like income, wealth, and needs.
Economic Systems

1. Market Economy:
 An economic system where decisions regarding production, investment, and
distribution are driven by individual choices in free markets without government
intervention.
2. Command Economy:
 An economic system where production, investment, and distribution are centrally
controlled by the government.
3. Mixed Economy:
 An economic system that combines elements of both market and command
economies, where some decisions are made by individuals and firms, while others
are made by the government.
Economic Theories and Models

1. Classical Economics:
 Focuses on the long-run equilibrium of the economy, emphasizing the role of
supply and the self-regulating nature of free markets.
2. Keynesian Economics:
 Advocates for active government intervention in the economy, especially during
economic downturns, to stabilize output and employment.
3. Neoclassical Economics:
 Integrates classical and Keynesian approaches, emphasizing rational decision-
making by individuals and firms, and the role of supply and demand in
determining prices and output.
4. Behavioral Economics:
 Explores how psychological factors and cognitive biases influence economic
decision-making by individuals and firms, challenging the assumptions of
rationality in traditional economic models.
Economic Policy Goals

1. Economic Efficiency:
 Refers to the optimal allocation of resources to maximize total surplus in the
economy.
2. Economic Equity:
 Concerns the fair distribution of income, wealth, and opportunities among
individuals and groups in society.