The document is a summary of the most important concepts that need to be mastered to pass the first year microeconomics module. The summary has been kept as compact as possible. The summary can be used by any students who are making use of the textbook called Economics for South African Students ...
Macroeconomics 1st year [University] Notes [ECO10B]
ECS1501 Assignment 04 semester 01 2023 Exam (elaborations) ECS1501 - Economics IA Economics for South African Students, ISBN: 9780627033421
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Compact Summary
Chapter 1: What economics is all about
Key Points:
• Definition: Economics is the study of the use of scarce resources to satisfy unlimited
human wants.
• Microeconomics – study of individual participants and single markets
• Macroeconomics - study of the economy as a whole, e.g. inflation, economic growth
• Definition: Opportunity cost – The opportunity cost of a choice is the value to the
decision maker of the best alternative that could have been chosen but was not
chosen.
• Factors of production: Natural resources (land), labour, capital, entrepreneurship
Illustrating scarcity, choice and opportunity cost: The Production Possibilities Curve (PPC)
• The PPC indicates the combinations of
two goods or services that are attainable
when the community’s resources are
fully and efficiently employed.
• Attainable combinations: All points on
or inside the PPC
• Unattainable combinations: All points
beyond the PPC, e.g. point G
• Efficient combinations: All points on the
PPC
• Inefficient combinations (or
unemployment): All points inside the
PPC, e.g. point H
• Increase potential: outward shift of the
PPC
• Opportunity cost: What is given up of
one product to gain more of the other,
e.g: Move from point C to D, gain 1
extra fish, but opportunity cost is giving
up 15 kg potatoes (85-70)
Based on: Mohr, P. & associates. 2015. Economics for South African Students. 5th Edition. Pretoria: Van Schaik
Summary compiled by Craig Fortuin (e-mail: fortuin48@gmail.com)
Page 1 of 16
,Exam practice questions (online) with immediate feedback: http://sites.google.com/view/passeconomicsnow/home
Compact Summary
Chapter 2: Economic systems
Key Points:
• Three central questions for any society: What must be produced, How must it be
produced, For whom will the goods be produced.
• Economic systems to answer the 3 questions: Traditional system, Command system,
Market system, Mixed System.
• Definition: A market is any contact or communication between potential buyers and
potential sellers of a good or service.
• Conditions for existence of a market:
o must be at least one potential buyer & at least one potential seller
o the seller must have something to sell
o the buyer must have the means with which to purchase it
o an exchange ratio (price) must be determined
o the agreement must be guaranteed by law or by tradition
• In a market system, prices serve two important functions:
o rationing function: goods will go to those who place the most value on them
o allocative function: prices direct factors of production between different uses
• South Africa has a mixed economy, in which elements of tradition, market forces and
government intervention exist.
Based on: Mohr, P. & associates. 2015. Economics for South African Students. 5th Edition. Pretoria: Van Schaik
Summary compiled by Craig Fortuin (e-mail: fortuin48@gmail.com)
Page 2 of 16
, Exam practice questions (online) with immediate feedback: http://sites.google.com/view/passeconomicsnow/home
Compact Summary
Chapter 3: Production, income and spending in the mixed economy
Key Points:
• The 3 major flows in the economy: Production, Income, Spending
• Stocks and flows: A stock has no time dimension and can only be measured at a
specific moment, e.g. wealth, capital, assets, liabilities. A flow has a time dimension
and can only be measured over a period, e.g. income, profit, investment
• Factors of production & rewards: natural resources/land (rent); labour (wages &
salaries); capital (interest); entrepreneur (profit)
• Capital comprises all manufactured resources, such as buildings, machinery, tools,
equipment used in production of other goods & services.
• Four sources of spending in the economy:
o Households – own the factors of production; are the basic decision-making
entities in the economy. Decide what will be produced.
o Firms – the productive units in the economy. Employ factors of production to
produce goods and services. Decide how things will be produced.
o Government – a.k.a the public sector or the state. Government activity involves
three flows: (1) government expenditure on goods & services, (2) taxes levied
on households and businesses, (3) transfer payments (e.g. pensions)
o Foreign sector – trade with the rest of the world through exports and imports of
goods and services
• Spending on the GDP = C + I + G + X – Z
• Leakages from the circular flow: savings, taxes, payment for imports
• Injections into the circular flow: investment, government spending, payment for exports
Flows in a closed economy Major elements in the circular flow of income &
spending
Based on: Mohr, P. & associates. 2015. Economics for South African Students. 5th Edition. Pretoria: Van Schaik
Summary compiled by Craig Fortuin (e-mail: fortuin48@gmail.com)
Page 3 of 16
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