Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
1 Chapter 1 1.1. Scarcity, Choice, Opportunity Cost Definition of Economics: Resources versus Wants Wants: more and better → unlimited Versus Needs: essential → limited Versus Demand: ability to pay + want Resources: Natural/ Human/ Man – Made → limited Scarcity: Because resources are scares, has to choose. Example: Time Opportunity Cost: Forgone opportunity Production possibility Curve: levels of output + given limited resources + given fixed production techniques (figure 1.1) Illustrate: choice, scarcity and opportunity cost (trade – off) 1.2. Economics as a science As a social science: behavior of human beings in changing environment versus Natural science controlled environment, example chemistry Ceteris paribus: “all other remain the same” to explain unpredictable outcomes. Also Empirical science: measured economic performance Microeconomics: individual parts of Economy, example: consumers, households. Box 1.2 Macroeconomics: Economy as a whole, example: Total production, income and expenditure. Box 1.2 Mesoeconomics: “In between” Positive statement: Facts Normative statement: Debated 1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3 Economics1A ECS101-6 2 Chapter 2 2.1 What should be produced? Goods versus Services: Tangible versus Non Tangible Consumer versus Capital Goods: Individuals versus Production Non- versus Semi-versus Durable: Times used Final versus Intermediate Goods: When used Private versus Public goods: Who used Economic versus Free Goods: Cost + Price Homogeneous (exactly the same) versus Heterogeneous Goods (different varieties) Production possibilities Curve: Figure 2.1 Shifts in the production possibility curves: Figure 2.2-4 2.2 How should it be produced? Factors of production: (5) Primary versus secondary versus tertiary, Box 2.2 Human versus non-Human resources 1. Natural Resources: non-renewable 2. Labour: Specialisation\ Division of labour (split in subunits) Box 2.1 3. Capital: Depreciation 4. Entrepreneurship 5. Technology Capital- intensive versus Labour- intensive 2.3 For Whom should it be produced? Income for factors of production 2.4 Solutions to the central Questions: Economic systems What, How, For Whom Traditional\ Command\ Market\ Mixed 1. Property Rights 2. Coordinating mechanism, Box 2.3 Economics1A ECS101-6 3 Chapter 3 3.1 Production, Income and Spending Production generates → Income (for various factors of production) → use for Spending on Production (fig.3.1) Stock versus Flow variable → Time dimension difference Once versus Continues (box 3.1) 3.2 The interdependence between Households and Firms Figure 3.2(goods and services) + Figure 3.3(income and spending) Households: people who make economic decisions and sells factors of production on the factor market Firms: employs factors of production and produce goods and services for the goods market Economics1A ECS101-6 4 Study unit 4 Demand and Supply and prices 4.1 Intro Prices are determined by the interaction of demand and supply Remember that: o Households demand o Firms supply o Price and quantity exchanged is established by a combination of these two 4.2 Demand (the quantity of goods and services that the potential buyers are willing and able to buy) This is the outcome of decision about which wants to satisfy, give available means Means you intend to buy and you have the PP (purchasing power) Demand is a flow It relates to plans (may differ from what is actually bought) Individual demand (e.g. for tomatoes) Determinants: o Price o Price of related products (complements and substitutes) o Income of the consumer o Customer preferences o Size of household Demand is not affected by: availability or supply (it is independent of supply situation – availability only affects actual outcome) Can state demand as a verbal statement, with symbols or equations, with a demand schedule and with a demand curve Market demand This is all the individual demand schedules added together, and can then do a market demand curve Economics1A ECS101-6 5 Movement along a demand curve: (This occurs when there is a change in price) This indicates a change in quantity demanded Relates to the slope of the curve A shift in the demand curve (This occurs when there is a change in any of the determinants other than price) Indicates a change in demand Relates to its position or intercept Can be caused by a change in: o Price of related products (complements and substitutes) o Income of the consumer o Customer preferences o Size of household (changes in population) o Other influences on demand (expected changes in price, distribution of income) NOTE: many students get confused here. Understand now that: a movement along = change in price, and is called a change in quantity demanded a shift = a change in any other determinant other than price, and is called a change in demand In the exam and in assignments they may just ask a question like: “indicate a change in quantity demanded” or “indicate a change in demand”. You need to know the terminology of this NOW so you don’t get confused (please draw in the demand curve here when you print your notes) Economics1A ECS101-6 6 4.3 Supply Individual supply The quantity of good or service that produces plan to sell at each possible price during a certain period it is a flow can also be expressed in words, symbols, schedules and curves Determinants: o Price o Price of alternative products o Price of factors of production o Expected future prices o State of technology Market supply This is the horizontal addition of all individual supplies Need to take number of firms supplying into account Other factors (determinants) Government policy Natural disasters Joint products and by-products Productivity Movement along a supply curve If there is a change in price If price of product increases, supply increases Is referred to as a change in quantity supplied A shift in the supply curve A change in any factor other than price Referred to as change in supply Shift to the left (up) = decrease in supply Shift to the right (down) = increase in supply Economics1A ECS101-6 7 (please draw in the supply curve here when you print your notes) 4.4 Market equilibrium Equilibrium is when quantity demanded (Qd) = quantity supplied (Qs) At any other price have market disequilibrium Excess demand (market shortage) When Qd is greater than Qs, at that price Causes an upward pressure on prices Excess supply (market surplus) When Qs is greater than Qd, at that price Downward pressure on prices (please draw in the demand, supply and equilibrium curve here when you print your notes) Economics1A ECS101-6 8 NOTE: equilibrium is NOT where demand = supply. It is where Qd = Qs. The function of prices in a market economy Causes adjustments in Qd and Qs of each good Serves 2 functions: o Rationing function (prices serve to ration scare supplies of goods and services to those who really want them o Allocative function (shows factors of production where to allocate resources) Note: people who lack PP or command over factors of production are not able to signal their wants or plans via the market (only money counts) Note: theory: Explains how different elements are related in complex real economic world Predicts what will happen if something changes Is basis for formulation and analysis of decisions on economic policy Economics1A ECS101-6 9 Study unit 5 Demand and supply in action 5.1 Changes in demand An increase in demand Results in an increase in price of the product and in an increase in the quantity exchanged, cet par Sources include: o Increased price of a substitute o Decreased price of complementary o Increased consumer salary o Consumer preference increases o Expected rise in price of product A decrease in demand Results in a decrease in price and quantity exchanged, cet par Sources include: o Fall in price of substitute o Increase price of complimentary o Fall in consumer income o Reduced preferences o Expected future fall in price of product 5.2 Changes in supply An increase in supply Will result in a fall in the price of the product and in increase in the quantity exchanged, cet par It means either: More goods are supplied at each price OR Quantity supplied at lower price than before Factors that could cause this: Fall in price of alternative product or rise in price of joint product A reduction in price of any of the factors of production Improvement in productivity of factors of production The demand remains the same but the quantity demanded increases Economics1A ECS101-6 10 A decrease in supply Will result in an increase in the price of the product and decrease in the quantity exchanged, cet par 5.3 Simultaneous changes in supply and demand Change in demand Increase Increase Decrease Decrease Change in supply Increase Decrease Increase Decrease Change in price Uncertain Increase Decrease Uncertain Change in quantity Increase Uncertain Uncertain Decrease You must know these graphs!!! Figure 8-5 A simultaneous increase in demand and decrease in supply (Please draw in the graphs when you print your notes) Economics1A ECS101-6 11 5.4 Interaction between related markets Substitutes E.g. fish and meat When the pope lifted the ban on meant on Fridays = increase in demand for meat (rightward shift of meat curve) = decrease in demand for fish (leftward shift of fish curve) Complimentary products E.g. motorcars and tires If cost of producing motorcars increases = leftward shift in supply = left movement up the demand curve = equilibrium price rises Therefore demand for new tires drops as less people are buying cars = shift in demand curve (to the left) in tires A cost saving technology in cars = opposite effect on tires Government intervention (you NEED to KNOW this!!) Usually market forces determine prices, but sometimes pressure is put on government to intervene. Interventions include: Price ceilings Price floors Subsidies for certain products or activities Taxing certain products or activities Maximum prices – price ceilings, price control Are set: To keep prices of basic foodstuffs low to assist poor Avoid exploitation of consumers To combat inflation To limit certain goods and services in wartime If set above the equilibrium price will have no affect If set below the equilibrium price you will have a market shortage and excess demand as lower prices mean more people want it, but suppliers don’t want to supply o Shortfall will be Q2-Q1 Economics1A ECS101-6 12 o How to solve problem of allocation? (i.e. who gets the goods that are in such short supply) “first come first served” (with queues and waiting lists) Informal rationing system (e.g. limited number sold to each customer or selling to regular customers only) Government could put official rationing, with tickets or coupons o Problems: Queues and informal rationing all = additional private costs to both suppliers and consumers Official rationing = additional government intervention and stimulates corruption Black markets develop Black markets occur in any situation where market forces of supply and demand cannot eliminate excess demand In the case of maximum price fixing black markets are illegal ALL cases of price fixing create black markets!! Therefore we can see that fixing prices below equilibrium price: Creates excess demand Prevents market mechanism from allocating available quantity among consumers Stimulates black markets as people can obtain the good and resell it at a higher price to people willing to pay a higher price for it Price controls create more problems than good! 5.6 Agricultural prices Economics1A ECS101-6 13 Chapter 7 7.1 Demand and Supply: an introductory overview Functioning of a specific market with household (intended demand) and firms (intended supply). Figure 7.1 7.2 Demand Definition: Quantities of a good or service that the potential buyers are willing and able to buy. (flow) Quantity demand (Qd) depends on: price of the good (Px), the price of related goods (Pg), income of the individual (Y), taste (T), number of people (N) → Qd = f (Px, Pg, Y, T, N) Qd = f (Px) ceteris paribus for (Pq, Y, T, N) Example: Table 7.1 → Figure 7.2 (also words, schedules, equations) Law of demand: higher prices, lower quantity demand → negative, inverse relationship Market Demand: adding individual demand curves horizontally (Figure 7.3) Movement Along a demand curve(fig7.4) → ⌂ (change) P versus Shift of the demand curve → ⌂ P of related good (Substitutes(fig 7.5)/Complements(fig 7.6)) Pg / ⌂ consumer tastes or preferences, T / ⌂ population, N / ⌂ expected future price / ⌂ Income / Etc. Demand: a summary, Table 7.3 7.3 Supply Definition: q of a good or service that the producers plan to sell at each possible price Quantity supply (Qs) depends on: price of the good (Px), price of alternative products (Pg), price of factors of production and other inputs (Pf), expected future price (Pe), state of technology (Ty) → Qs = f (Px, Pg, Pf, Pe, Ty) Qs = f (Px) ceteris paribus for (Pg, Pf, Pe, Ty) Example: Table 7.4 → figure 7.8(also words, schedules, equations) Law of supply: higher prices, higher quantity supplied → positive, direct relationship Market Supply: adding individual supply curves Movement along a supply curve ⌂ P→ versus Shift of the supply curve → Pg, Pf, Pe, Ty, etc. Supply: a summary: Table 7.5 and Figure 7.10 + 7.9 7.3 Market Equilibrium Table 7.6 → Figure 7.11 Excess Demand: Qd > Qs, Excess Supply: Qd < Qs, Equilibrium: Qd = Qs Function of prices in a market economy: 1. Rationing goods + services to who can afford them 2. Allocating factors of production where it is needed (cost) the most. Economics1A ECS101-6 14 Chapter 8 8.1 Changes in Demand Increase in demand (any determinants except price) equilibrium ↑P ↑Q → figure 8.1(a) and Decrease in demand ↓P↓Q →figure 8.1(b) 8.2 Changes in Supply figure 8.3 & 8.4 8.3 Simultaneous change in Demand and Supply Precise outcome cannot be predicted; change may work in opposite direction. Example: Increase in Demand + Decrease in supply = 3 different Q → figure 8.5 8.4 Interaction between related markets Substitutes figure 8.6 Complements figure 8.7 8.5 Government Intervention Maximum prices (price ceiling) → figure 8.9 Consequences: shortage (excess demand)/ prevent market mechanism from allocating/ black market activity Example rent control 8.6 Agricultural prices Minimum prices (price floor) Figure 8.12 Consequences: surplus (excess supply)/ artificially high prices/ farms owned by big companies benefit/ inefficient producers are protected/ disposal of surplus – further cost. Economics1A ECS101-6 15 Chapter 9 Introduction A general definition of elasticity: Responsiveness of dependent variable (Q) to change in independent (p) 9.1 Price elasticity of demand (ep) Definition: 1%⌂P →? %⌂Q Meaning of ep 1.5 = 1%⌂P → 1.5%⌂Q ep along a linear demand curve various → figure 9.1 ep versus TR → figure 9.3 and box 9.2 Five categories of ep Table 9.2 and Figure 9.4 Determinants of ep: substitutes >; complements <; Types of wants satisfied ⌂; Time >; proportion of income >. 9.2 Other demand elasticities Income elasticity (ey): %⌂Y →%⌂Q + ey = normal goods / - ey = inferior goods / ey >1 = luxury goods / 1> ey >0 = essential goods Example Table 9.3 Cross elasticity Economics1A ECS101-6 16 Chapter 10 10.1 Utility Definition: satisfaction/consumer/consumption/goods + services 10.2 Marginal utility and total utility Marginal Utility: extra utility by consumption of a additional unit (increase in total utility) Total Utility: sum of all the marginal utilities. Example: Table 10.1 Average Utility: Total utility /quantity = utility per unit. (Box 10.1→average mark or score and different relationships between total, marginal and average) Law of diminishing Marginal Utility: Marginal Utility (MU) eventually declines as more is consumed. 10.3 Consumer Equilibrium Assumptions: 1. every consumer maximize his wants by consuming goods and services (until max TU) Table 10.1 2. is in a position to arrange his wants in order of importance (table 10.2) (ordinal utility) Equilibrium Conditions: 1. combination has to be affordable – Table 10.3 (to many) 2. Weighted MU must be equal – MUa /Pa = MUb/Pb – Table 10.2 (value of 30) - utility derived from the last unit of money spend on the product is the same 10.4 Derivation of an individual demand curve for a product Marginal utility approach can be used to derived a demand curve Table 10.4 chocolate R2.00 and budget R10.00 →quantity of 2 Table 10.5 chocolate R1.00 and budget R10.00 →quantity of 4 Figure 10.1 Economics1A ECS101-6 17 Chapter 11 11.1 Introduction Types of firms(individual proprietorships, partnerships, companies, close corporations, cooperative, trusts, public corporations) The goal of the firm (maximize profit but principal-agent problem) Profit, revenue and cost (profit is surplus of revenue over cost, TR=PxQ, AR=TR/Q, MR=⌂TR/⌂Q : Box 11.2) short run (fixed capital equipment, variable labor) and the long run (variable labor and capital) in production and cost theory 11.2 Basic cost and profit concepts TC=cost of production, AC = TC/Q, MC = ⌂TC/⌂Q Opportunity Cost = Alternative sacrificed Explicit cost = monetary payment versus Implicit cost = opportunity cost not reflected in monetary payment Economic cost: Explicit + Implicit cost Profit (Figure 11.1) : Accounting profit = TR – Explicit cost Economic profit = TR - economic cost (Explicit + Implicit) Normal profit = TR equal to economic cost Economic loss = TR < economic cost 11.3 Production in the short run Definition: Physical transformation of inputs into output Fixed input: cannot be altered in the short run versus Variable input can be altered in the short run Production function: relationship between inputs and outputs Law of diminishing returns: more inputs/ production process/ point is reached/ MP↓, AP↓, TP↓ Table 11.2 → Figure 11.2 MP & AP relationships in figure 11.3 11.4 Cost Economic cost include Opportunity cost = Implied cost Fixed Cost: remains constant irrespective of Q versus Variable cost: change when total product changes AFC = TFC/TP, AVC = TVC/TP, AC = TC/TP, MC = ⌂TC/⌂TP Table 11-4 → Figure 11.5 and 11.6 Relationship between production and cost Figure 11.7 Maximum MP → Minimum MC Maximum AP → Minimum AVC Economics1A ECS101-6 18 Chapter 12 12.1 Perfect Competition Definition: No market participant → influence → price →”Price Taker” Requirements: large number of buyers and sellers/ no collusion/ identical products/ freedom of entry and exit/ perfect knowledge/ no government intervention/ mobile factors of productions Relevance: Analysis of various markets 12.2 The Demand for the product of the firm Demand Curve = Sales Curve → horizontal at market price (figure 12.1) Higher → another supplier, lower → not optimum “Price Taker” Receive same price for any number of units therefore MR = AR = P (Box 12.1 – Numerical proof) 3* 12.3 Equilibrium of the firm under perfect competition Shut down rule: (figure 12.7) TR = TVC (AR = AVC) → TR just sufficient to cover TVC, continue in order to retain employees and clients Profit maximizing rule: (figure 12.5) MR = MC → revenue earned from the last additional unit (MR) is equal to the cost of producing the last unit (MC). MR < MC → profit decreasing MR > MC → expanding production increase profit Different equilibrium positions: figure 12.6 a) AR > AC → Economic Profit b) AR = AC → Normal Profit c) AR < AC → Economic Loss (if AR = AVC → shut down point) 12.4 The supply curve of the firm and the market supply curve Figure 12.7 → various quantities at different prices. Not below (b) → close down point (does not cover variable cost) Supply curve slope = MC curve slope → because MC↑ as output(supply)↑ Market Supply = ∑ individual supply curve 12.5 Long-run equilibrium of the firm and the industry under perfect competition Study Guide Only Economics1A ECS101-6 19 (Study Guide Only) 13.1 Market Structure Perfect Competition vs. Monopoly vs. Monopolistic Competition vs. Oligopoly → Table 13.1 Number of firms/ Nature of product/ Entry/ Information/ Collusion/ Control over price/ Demand curve/ Economic Profit 13.2 Monopoly Main features: one seller/ no substitutes/ entry to market is blocked/ downward sloping demand curve Economic profit → short + long run (as entry is block) versus Perfect competition: economic profit → short run and normal → long run (no barriers). 13.3 Monopolistic Competition (mini-monopoly) Conditions: Differentiated product, downward sloping demand curve, large number of firms, no barriers to entry. Economic profit → short run and normal → long run (no barriers). 13.4 Oligopoly A few large firms dominate the market, high degree of interdependent → rival reaction to its own action is uncertain → collude e.g. OPEC Economics1A ECS101-6 20 Chapter 14 14.1 The labour market versus the goods market Box 14.1 – money (nominal) wages: amount of actual money received versus real wages: purchasing power of money received Versus goods market p.314 14.2 Perfect competitive market Requirements for perfect competition p316 Equilibrium in the labour market figure 14.1 The market supply of labour: figure 14.3 shift due to non-wages determinants p.318 The market demand of labour: figure 14.5 shift due to non-wages determinants p321 Study Guide: Employ more workers (profit) when labour (wages)MRP (MPPxP) until Wage = MRP 14.3 Imperfect labour markets Reasons for imperfect p324 Trade unions: craft versus industrial p326 figure14.8 Government intervention in the labour market: employer versus employees Minimum wages: Figure 14.10 Economics1A ECS101-6