CPA 004: Economics

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About Course

If You’re Struggling With Your KASNEB EXAMS or You Want to Improve Your Grades, Here is an Opportunity for you to make a HUGE difference by Increasing your Chances of acing your Upcoming Examinations so ENROLL NOW!

GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills, and attitudes that will enable him/her to apply the fundamental principles of economics in decision-making.

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What Will You Learn?

  • Mathematical and graphical techniques for economic relationships analysis
  • Application of economics in decision making
  • Economic problems analysis and solution provision
  • Application of international trade and finance knowledge
  • Application of economic principles

Course Content

INTRODUCTION TO ECONOMICS
Definition of economics Basic economic concepts: economic resources, human wants, scarcity and choice, opportunity cost, production possibility curves/frontiers Scope of economics: Micro and macro economics Methodology of economics: positive and normative economics, scientific methods, economics as a social science. Economic systems: free market economy, mixed economy.

DEMAND ANALYSIS
Definition Individual demand versus market demand Factors influencing demand Exceptional demand curves Types of demand Movement along and shifts of demand curves Elasticity of demand Types of elasticity: price, income and cross elasticity Measurement of elasticity; point and arc elasticity Factors influencing elasticity of demand Application of elasticity of demand in management and economic policy decision making

SUPPLY ANALYSIS
Definition Individual versus market supply Factors influencing supply Movements along and shifts of supply curves Definition of elasticity of supply Price elasticity of supply Factors influencing elasticity of supply Application of elasticity of supply in management and economic policy decision making

DETERMINATION OF EQUILLIBRIUM
Interaction of supply and demand, equilibrium price and quantity Mathematical approach to equilibrium analysis Stable versus unstable equilibrium Effects of shifts in demand and supply on market equilibrium Price controls Reasons for price fluctuations in agriculture

THE THEORY OF CONSUMER BEHAVIOUR
Approaches to the theory of the consumer - cardinal versus ordinal approach Utility analysis, marginal utility (MU), law of diminishing marginal utility (DMU) Limitations of cardinal approach Indifference curve analysis; Indifference curve and budget line Consumer equilibrium; effects of changes in prices and incomes on consumer equilibrium Derivation of a demand curve Applications of indifference curve analysis: substitution effect and income effect for a normal good, inferior good and a giffen good; derivation of the Engels curve Consumer surplus /Marshallian surplus

THE THEORY OF FIRM
Factors of production Mobility of factors of production Short run analysis Total product, average and marginal products Stages in production and the law of variable proportions/the law of diminishing returns Long run analysis Isoquant and isocost lines The concept of producer equilibrium and firm’s expansion curve Law of returns to scale Demand and supply of factors of production Wage determination theories Trade unions: functions and challenges Producer surplus/economic rent/Marshallian surplus

THE THEORY OF COSTS
Short run costs analysis and size of the firm’s total cost, fixed cost, average cost, variable costs and marginal cost Long run costs analysis Optimal size of a firm Economies and diseconomies of scale

MARKET STRUCTURES
Definition of a market Necessary and sufficient conditions for profit maximization Mathematical approach to profit maximization Output, prices and efficiency of: perfect competition, monopoly, monopolistic competition, oligopolistic competition

NATIONAL INCOME
Definition of national income Circular flow of income Methods/approaches to measuring national income Concepts of national income: gross domestic product (GDP), gross national product (GNP) and net national product (NNP), net national income (NNI) at market price and factor cost, disposable income Difficulties in measuring national income Uses of income statistics Analysis of consumption, saving and investment and their interaction in a simple economic model Determination of equilibrium national income Inflationary and deflationary gaps - The multiplier and accelerator concepts - Business cycles/cyclical fluctuations

ECONOMIC GROWTH, DEVELOPMENT AND PLANNING
The differences between economic growth and economic development Actual and potential growth The benefits and costs of economic growth Determinants of economic development Common characteristics of developing countries Role of agriculture and industry in economic development Obstacles to economic development The need for development planning Short term, medium term and long term planning tools Challenges to economic planning in developing countries

MONEY
The nature and functions of money Demand and supply of money Theories of demand for money: The quantity theory, the Keynesian liquidity preference theory

THE BANKING SYSTEM
Definition of commercial banks The role of commercial banks and non-banking financial institutions in the economy Credit creation Definition of central bank The role of the central bank; traditional and changing role in a liberalised economy, such as financial sector reform, exchange rate reform Monetary policy, definition, objectives, instruments and limitations Determination of interest rates and their effects on the level of investment, output, inflation and employment Harmonisation of fiscal and monetary policies Simple IS–LM Model Partial equilibrium and general equilibrium

INFLATION
Definition and types of inflation Causes of inflation: cost push and demand pull Effects of inflation Measures to control inflation

UNEMPLOYMENT
Definition of unemployment Types and causes of unemployment Control measures of unemployment Relationship between unemployment and inflation: the Phillips curve

AGRICULTURE AND INDUSTRY

INTERNATIONAL TRADE AND FINANCE
Definition of International trade Theory of absolute advantage and comparative advantage World trade organization (WTO) and concerns of developing countries Protection in international trade Regional integration organizations, commodity agreements and the relevance to less developed countries (LDCs) Terms of trade, balance of trade, balance of payments (causes and methods of correcting deficits in balance of payments), exchange rates, types of foreign exchange regimes, factors influencing exchange rates, foreign exchange reserves International financial institutions: International Monetary Fund (IMF) and World Bank National debt management: causes and interventions Structural Adjustment Programmes (SAPs) and their impacts on the LDCs

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