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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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INFLATION
Definition and types of inflation Causes of inflation: cost push and demand pull Effects of inflation Measures to control inflation
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UNEMPLOYMENT
Definition of unemployment Types and causes of unemployment Control measures of unemployment Relationship between unemployment and inflation: the Phillips curve
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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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CPA 004: Economics
About Lesson

Economic Resources

  • Economic Resources are fundamental inputs to production of goods and services in order to satisfy human wants.
  • Economic resources are the resources used for carrying out economic activities. The main classes of economic resources are land, labour, capital, and entrepreneurship and the rest of the resources derive from these classes.
  • These factors represent the scarce economic resources such as natural resources, human resources, and capital resources needed to produce economic output.

Characteristics of economic resources 

  1. They are scarce in supply in relation to their uses.
  2. They have monetary value.
  3. They have utility 
  4. They have alternative uses
  5. They are unevenly distributed
  6. They are transferrable
  7. They can be combined to produce goods and services

Economic goals and problems 

  • The main economic goals of any government are:-
  1. Control of inflation
  2. Reduction of unemployment
  3. Promotion of economic growth
  4. Attainment of a favorable balance of payments.
  5. Redistribution of income.

Types of Economic Resources 

1. Natural Resources (Land)

  • These are resources drawn form the nature
  • They are also called gifts of nature.
  • They are fixed such that they are held in trust by the government for the citizens.
  • They include forests, rivers, lakes 

2. Human resources (Labour)

  • Is the set of people who make up the workforce of the economy
  • They are mental or physical efforts offered by people to the production sector
  • The knowledge and skills cannot be separated from the people, they are only hired.  
  • They include; health services, teaching, engineering, carpentry.

3. Artificial resources (Capital)

  • These are resource created by people through production activities
  • They include; roads, machinery, bridges, electricity.

4. Entrepreneurship

  • Entrepreneurship as a factor of production is a combination of the other three factors.
  • Entrepreneurs use land, labor, and capital in order to produce a good or service for consumers.
  • Entrepreneurship is involved with establishing innovative ideas and putting that into action by planning and organizing production.
  • Entrepreneurs are important because they are the ones taking the risk of the business and identifying potential opportunities.
  • The income that entrepreneurs earn is called profit.

Human Needs and Wants

  • Human needs are the basis that human beings must have to function normally.
  • Food, water, clothing, and shelter are all needs. If a human body does not have those things, the body cannot function and will die
  • Human wants are the desires.
  • Wants are things that a person would like to have but are not needed for survival. A want may include a toy, expensive shoes, or the most recent electronics.

Characteristics of Basic Needs

  1. They cannot be postponed
  2. One cannot do without them
  3. They are satisfied before human wants
  4. They are felt needs

Characteristics of Human Wants

  1. They are habitual
  2. Some human wants are repetitive
  3. Human wants are competitive
  4. Human wants are complimentary i.e. they can be used together
  5. Human wants are numerous and unlimited
  6. They continually change with time and other factors 
  7. Human wants are universal

Types of human wants 

  1. Basic human needs: They are  things that one cannot do without them for example food and shelter
  2. Secondary human wants: They are requirements for comfortable and luxuriant life. They include; cars, education, Medicare.

Difficulties satisfying human wants 

  • The resources available to satisfy them are limited
  • They are repetitive and therefore people will always strive for more resources 
  • Human wants are too many and new ones keep cropping up day by day
  • Since resources are scarce it becomes difficult to decide  which want to satisfy first with the scarce resources
  • Some human wants are habitual, without them life becomes unbearable
  • Human wants continually change with factors like age and gender as well as time 

Scarcity and Choice

  • Scarcity is when the resources available are insufficient for production of goods and services that satisfy all the wants  
  • Choice is the act of selecting one option among several available alternatives. It refers to people’s decisions about sharing and using those Scarce resources. Choices have to be made since resources are limited. 
  • The choice to satisfy one want implies other wants are forgone.
  • The problem of scarcity and choice lies at the very heart of economics, which is the study of how individuals and society choose to allocate scarce resources. 
  • Therefore people have to make choices with their limited income and and unlimited wants, they have to chose how they spend the income

Importance of Scarcity

  1. Encourages people to work hard 
  2. Ensures maximum utilization of available resources 
  3. Scarcity enables businesses to ensure continued profitability
  4. Scarcity helps you navigate the job market

Opportunity cost

  • Refers to the value of the benefit expected from the next best alternative forgone.
  • Opportunity cost is the forgone benefit that would have been derived from an option not chosen.
  • It is based on the fact that scarce resources have competing alternative uses. The concept is useful simply as a reminder to examine all reasonable alternatives before making a decision. 
  • The choice of satisfying one alternative means that another one is forgone.
  • To properly evaluate opportunity costs, the costs and benefits of every option available must be considered and weighed against the others.

Production Possibility Frontier/Capacity (PPF/PPC)

  • Provides a graphical representation of basic economic problem of scarcity and choice.
  • It shows what an economy  produces with the existing factors of production
  • A country has a variety of options of  goods and services it can produce with limited supply of the economic resources.
  • Assume an economy where a country produces agricultural and manufactured goods , the two extreme possibilities are
    1. The country commits all its resources to production of agricultural goods and none to manufacturing
    2. All resources are put to manufacturing 
  • These two cases are unlikely, most likely a country will choose to produce both commodities
  • The opportunity of cost of producing either of them is increasing 
  • For instance the table below highlights the many production options for agricultural good (Wheat) and and manufactured (Cloth). It is estimated that 15 million quintals of wheat will be produced if all of the available resources are used to cultivate wheat. If all resources are devoted to the manufacturing of clothes, however, 5 million meters of clothes will be produced. However, they are the two most extreme manufacturing scenarios. In addition, there will be numerous other productions between these two, such as B, C, D, and E.

Production Possibility Schedule

  • With production possibility B, the economy can produce 14 million quintals of wheat and 1 million meters of cloth. With C, the economy can have 12 million and 2 million, and so on.
  • As we move from A towards F, We draw away some resources from the production of wheat and devote them to cloth production. In other words, we give up some units of wheat to have some more units of cloth.
  • As we move on from alternative A to B, we sacrifice one thousand meters of cloth. Again our movement from alternative B to C involves the sacrifice of two million quintals of wheat for the sake of one million more meters of cloths. As we progress from C to E in the table, our wheat sacrifice continues to rise.
  • Only by reducing the production of another item can more of one good be gained in a fully employed economy.
  • Due to a scarcity of total resources capable of creating various goods, society is forced to select between relatively scarce commodities.
  • The curve’s concave (towards the origin) shape is based on the premise that resources are not perfectly occupationally movable.
  • Points beyond the P.P. frontier (to the northeast) are inaccessible with current technology.
  • Points inside it would be inefficient because resources aren’t being used to their maximum potential, resources aren’t being used appropriately, or outmoded manufacturing practices are being applied.
  • If production is on the cutting edge, resources are being used to their maximum potential.
  • The greatest feasible output of the two commodities is represented by points on the production possibility curve such as B, C, D, and E.

Production Possibility Curve/Frontier

Uses of the possibility frontier

  • The production-possibility Frontier represented as a single curve can help introduce many of the most basic concepts of Economics.

The central economic problem

  • So many economic problems exist, which include poverty, inflation, unemployment, etc.
  • The term Economic Problem refers to the overall problem of the scarcity of resources.
  • Each society has to make the best use of scarce resources.
  • Three fundamental questions have to be answered:-
  1. What commodities shall be produced and in what quantities?
  2. How shall goods be produced? How should the factors of production be combined to produce goods and services?
  3. For whom shall goods be produced? 
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