Summary Micro Macro Economics
The combined decisions of all firms in S. A | • Microeconomics – the focus is on individual parts of the economy. Decisions or functioning of decision makers such as individuals, households, firms or other orgs. Are considered are considered in isolation from the rest of the economy. • Macroeconomics – is concerned with the economy as a whole. An overall view of the economy and aggregate economic behavior is studied. Emphasis on topic such as total production, income and expenditure, economic growth, aggregate unemployment, inflation etc is studied. The problem of economizing is essentially one of deciding how to make the best use of limited resources to satisfy unlimited want • Opportunity cost is best defined as the value of the best alternative sacrificed when a choice is made • An unskilled labourer would be viewed by economists as a factor of production. • A technological improvement in the production of a good or service will cause a rightward/outward shift of the PPC • Interest is income from capital • A capital intensive production system is dominated by capital goods •
Capital, wealth and natural resources are stock variables, whereas investment, profit and losses are flows.
• Firms are the purchasers of capital goods in a simple circular flow • The bars above symbols in ormula for law of demand implies that the ceteris paribus rule applies • Under perfect competition the maximum loss a firm will make in the short run is equal to the total fixed cost. • Under perfect competition information is complete and collusion is impossible • Monopoly – the ability to influence the market price and the market output • Oligopoly – the market is dominated by few large firms with market power ,the strategy can be to join forces and it is called cartel forming • A change in the price of the other factors of production will shift labour demand curve • A trade union that bargains only for an increase in wages will cause unemployment • Minimum wages are propagated as a way to avoid exploitation of workers. An important similarity between the monopolistic competitor and oligopolist is that both have incomplete information about market condition • Monopoly – has thorough knowledge of market conditions • Law of demand implies that as prices fall quantity demanded increases • Demand curve will shift right if there is an increase in the price of the substitute product • Supply curve will shift left when there is an increase in the price of inputs • An increase in supply and a decrease in demand will always cause a decrease in the equilibrium price. • An increase in both demand and supply will increase an equilibrium price • Under perfect competition market the participants(firms is a price taker •
If a firm under in a perfectly competitive market raises its price above the market price sales will drop to zero • Demand curve under PC – the demand curve is indicated by a horizontal line at the given market price • A firm can expand production in the short run by employing more units of the variable factor of production. Price elasticity measure the responsiveness or sensitivity of consumers to price changes • Producers are interested in the price elasticity of demand for their product because it indicates what will happen to their total revenue when the price of the product changes • The price elasticity of demand is different at each point along a linear demand curve • Marginal utility is the extra or additional utility that a consumer derives from the consumption of one additional unit of good • Marginal utility will decline if identical units of a good are consumed one after the other • Nominal wage is the amount of money actually received by a worker per hour, week, day, month, or year • A real wage is the quantity f goods n services that can be purchased with the nominal wage • Equilibrium condition for the individual firms demand for labour – MRP=W or MPP x P=W • Labour is a derived demand because labour is not demanded for its own sake, but rather for the value of the goods n services that can be produced when labour is combined with other factors of production. • Excess supply – when the quantity supplied is greater than the quantity demanded • When there is a market shortage the quantity produced will increase • The price of a product will decrease when there is a market surplus •
Equilibrium in the market – Qd=Qs • Consumer to be in equilibrium – the weighted marginal utilities of the condition of goods are equal of equal utility from the last rand spent on each product • Primary sector – raw materials are produced Secondary sector – manufacturing part of the economy • When all firms earn normal profit = industry in equilibrium in the long run • The economic problem arises from the coexistence of unlimited wants and limited resources • Normative statement – factual , unemployment is the most important economic problem worldwide •