Paper 9

PRINCIPLES OF ECONOMICS

This unit covers the competencies required to apply economics concepts to solve business problems. Competencies include: Apply foundational economic concepts to manage limited resources, determine the pricing of commodities using the forces of demand and supply, apply the theory of consumer behaviour in determining consumer satisfaction, apply the theory of production to determine appropriate mix of factors of production, apply the theory of costs to determine the cost of production, use mathematical approach to determine profit maximisation in various market structures and evaluate the impact of macro-economic factors on an organisation

On completion, a candidate should be able to

Apply foundational economic concepts to manage limited resources
Determine the pricing of commodities using the forces of demand and supply
Apply the theory of consumer behaviour in determining consumer satisfaction
Apply the theory of production to determine appropriate mix of factors of production
Apply the theory of costs to determine the cost of production
Use mathematical approach to determine profit maximisation in various market structures
Evaluate the impact of macro-economic factors on an organisation

Content

1
Apply foundational economic concepts to manage limited resources
1. 1.1
  Introduction to economics
  1. 1.1.1
    Definition of economics
  2. 1.1.2
    Basic economic concepts: Economic resources, human wants, scarcity and choice, opportunity cost, production possibility curves/frontiers, wealth, welfare
  3. 1.1.3
    Scope of economics: Micro and macro economics
  4. 1.1.4
    Methodology of economics: Positive and normative economics, scientific methods, economics as a social science
  5. 1.1.5
    Economic systems: Planned economy, free market economy, mixed economy
  6. 1.1.6
    Consumers’ sovereignty and its limitations
2
Determine the pricing of commodities using the forces of demand and supply
1. 2.1
  Demand, supply and determination of equilibrium
  1. 2.1.1
    Demand analysis
    1. 2.1.1.1
      Definition
    2. 2.1.1.2
      Law of demand
    3. 2.1.1.3
      Exceptional demand curves
    4. 2.1.1.4
      Individual demand versus market demand
    5. 2.1.1.5
      Factors influencing demand
    6. 2.1.1.6
      Types of demand
    7. 2.1.1.7
      Movement along and shifts of demand curves
    8. 2.1.1.8
      Elasticity of demand
    9. 2.1.1.9
      Types of elasticity of demand: Price, income and cross elasticity
    10. 2.1.1.10
      Measurement of elasticity; point and arc elasticity
    11. 2.1.1.11
      Factors influencing elasticity of demand
    12. 2.1.1.12
      Applications of elasticity of demand
2. 2.2
  Supply analysis
  1. 2.2.1
    Definition
  2. 2.2.2
    Individual versus market supply
  3. 2.2.3
    Factors influencing supply
  4. 2.2.4
    Movements along and shifts of supply curves
  5. 2.2.5
    Definition of elasticity of supply
  6. 2.2.6
    Price elasticity of supply
  7. 2.2.7
    Factors influencing elasticity of supply
  8. 2.2.8
    Applications of elasticity of supply
  9. 2.2.9
    Determination of equilibrium
  10. 2.2.10
    Interaction of supply and demand, equilibrium price and quantity
  11. 2.2.11
    Mathematical approach to equilibrium analysis
  12. 2.2.12
    Stable versus unstable equilibrium
  13. 2.2.13
    Effects of shifts in demand and supply on market equilibrium
  14. 2.2.14
    Effect of taxes and subsidies on market equilibrium
  15. 2.2.15
    Price controls: Maximum and Minimum price control
  16. 2.2.16
    Price decontrols: Effect of Minimum and Maximum price decontrol
  17. 2.2.17
    Reasons for price fluctuations in agriculture and the cobweb theorem
3
Apply the theory of consumer behaviour in determining consumer satisfaction
1. 3.1
  The theory of consumer behaviour
  1. 3.1.1
    Approaches to the theory of the consumer - cardinal versus ordinal approach
  2. 3.1.2
    Utility analysis, marginal utility (MU), law of diminishing marginal utility (DMU)
  3. 3.1.3
    Limitations of cardinal approach
  4. 3.1.4
    Indifference curve analysis: Indifference curves and budget line
  5. 3.1.5
    Consumer equilibrium: Effects of changes in prices and incomes on consumer equilibrium
  6. 3.1.6
    Derivation of a demand curve
  7. 3.1.7
    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
  8. 3.1.8
    Indifference curves for perfect substitutes and perfect complements
  9. 3.1.9
    Consumer surplus/Marshallian surplus
4
Apply the theory of production to determine appropriate mix of factors of production
1. 4.1
  The theory of production
  1. 4.1.1
    Introduction to production
  2. 4.1.2
    Factors of production
  3. 4.1.3
    Mobility of factors of production
  4. 4.1.4
    Short run analysis
  5. 4.1.5
    Total product, average and marginal products
  6. 4.1.6
    Stages in production and the law of variable proportions/the law of diminishing returns
  7. 4.1.7
    Long run analysis
  8. 4.1.8
    Isoquant and isocost lines
  9. 4.1.9
    The concept of producer equilibrium and firm’s expansion curve/path
  10. 4.1.10
    Law of decreasing returns to scale
  11. 4.1.11
    Isoquants for perfect substitutes and perfect complements
  12. 4.1.12
    Demand and supply of factors of production
  13. 4.1.13
    Wage determination: demand and supply for labour
  14. 4.1.14
    Marginal productivity Theory
  15. 4.1.15
    Wage differential
  16. 4.1.16
    Trade unions: functions, effectiveness and challenges
  17. 4.1.17
    Transfer earnings and economic rent/producers surplus
5
Apply the theory of costs to determine the cost of production
1. 5.1
  The theory of costs
  1. 5.5.1
    Short run costs analysis and size of the firm’s total cost, fixed cost, average cost, variable costs and marginal cost
  2. 5.5.2
    Long run costs analysis
  3. 5.5.3
    Optimal size of a firm
  4. 5.5.4
    Economies and diseconomies of scale
6
Use mathematical approach to determine profit maximisation in various market structures
1. 6.1
  Market Structures
  1. 6.1.1
    Definition of a market
  2. 6.1.2
    Necessary and sufficient conditions for profit maximisation
  3. 6.1.3
    Mathematical approach to profit maximisation
  4. 6.1.4
    Output, prices and efficiency of: Perfect competition, monopoly, monopolistic competition, oligopolistic competition
7
Evaluate the impact of macro-economic factors on an organisation
1. 7.1
  Introduction to macroeconomics
  1. 7.1.1
    The basic concepts and scope of macroeconomic analysis
  2. 7.1.2
    The major goals/aims of macroeconomic policy
  3. 7.1.3
    Importance of macroeconomics
  4. 7.1.4
    The limitations of macroeconomics
2. 7.2
  National income
3. 7.3
  Definition of national income
4. 7.4
  Circular flow of income
5. 7.5
  Methods/approaches to measuring national income; output, income and expenditure method
6. 7.6
  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
7. 7.7
  Difficulties in measuring national income
8. 7.8
  Uses of income statistics
9. 7.9
  Analysis of consumption, saving and investment and their interaction in a simple economic model
10. 7.10
  Mathematical approach to the determination of equilibrium national income
11. 7.11
  Inflationary and deflationary gaps
12. 7.12
  The multiplier and accelerator concepts
13. 7.13
  Business cycles/cyclical fluctuations
14. 7.14
  Economic growth, economic development and economic planning
  1. 7.14.1
    The differences between economic growth and economic development
  2. 7.14.2
    Actual and potential growth
  3. 7.14.3
    The benefits and costs of economic growth
  4. 7.14.4
    Determinants of economic development
  5. 7.14.5
    Common characteristics of developing countries
  6. 7.14.6
    Obstacles to economic development
  7. 7.14.7
    The need for development planning
  8. 7.14.8
    Short term, medium term and long term planning tools
  9. 7.14.9
    Challenges to economic planning in developing countries
15. 7.15
  Money
  1. 7.15.1
    The nature and functions of money
  2. 7.15.2
    Demand and supply of money
  3. 7.15.3
    Theories of demand for money: The quantity theory, the Keynesian liquidity preference theory
16. 7.16
  The banking system
  1. 7.16.1
    Definition of commercial banks
  2. 7.16.2
    The role of commercial banks and non-banking financial institutions in the economy
  3. 7.16.3
    Credit creation
  4. 7.16.4
    Definition of central bank
  5. 7.16.5
    The role of the central bank; traditional and changing role in a liberalised economy, such as financial sector reform, exchange rate reform
  6. 7.16.6
    Monetary policy, definition, objectives, instruments and limitations
  7. 7.16.7
    Classical theory of interest rate determination
  8. 7.16.8
    Interest rates and their effects on the level of investment, output, inflation and employment
  9. 7.16.9
    Harmonisation of fiscal and monetary policies
  10. 7.16.10
    Simple IS-LM Model
  11. 7.16.11
    Partial equilibrium and general equilibrium
17. 7.17
  Inflation 7.17..1 Definition and types of inflation
  1. 7.17.2
    Causes of inflation: cost push and demand pull
  2. 7.17.3
    Effects of inflation
  3. 7.17.4
    Measures to control inflation
18. 7.18
  Unemployment
  1. 7.18.1
    Definition of unemployment
  2. 7.18.2
    Types and causes of unemployment
  3. 7.18.3
    Control measures of unemployment
  4. 7.18.4
    Relationship between unemployment and inflation: The Phillips curve
19. 7.19
  Agriculture and Industry
  1. 7.19.1
    Role of agriculture in economic development
  2. 7.19.2
    Challenges facing agricultural sector in developing countries
  3. 7.19.3
    Policies to improve the agricultural sector
  4. 7.19.4
    Role of industry in economic development
  5. 7.19.5
    Benefits of industrialisation in developing countries
  6. 7.19.6
    Obstacles to industrial development in developing countries
  7. 7.19.7
    Policies to enhance industrial development in developing countries