The Grade 12 Economics Paper 2 : Microeconomics Note Set is an essential study aid for students preparing for their microeconomics exam. These notes are specifically designed for quick review and easy understanding, making them ideal for last-minute plugging sessions. As a grade 12 paper 2 resource...
, BASIC ECONOMIC CONCEPTS & PRINCIPLES
WHAT IS ECONOMICS? ECONOMIC PROBLEM
social science that examines how individuals, households, and firms SCARCITY PROBLEM
satisfy their unlimited needs and wants with limited and scarce
resources to satisfy the unlimited wants and needs of society with the use of
limited resources
→ People only have a limited amount of money BUT many needs and
desires to satisfy
→ The government also has a limited amount of money and cannot
NEEDS WANTS satisfy all its desires
= goods and services ESSENTIAL for = human desires for goods and services
basic survival ECONOMIC SYSTEM [3 CENTRAL QUESTIONS]
Z fancy technology
Z Housing & Safety Z trendy clothes/attire 1. OUTPUT QUESTION
Z Food Z Treats (food and gifts)
Z Water → WHAT GOODS AND SERVICES WILL BE PRODUCED
AND IN WHAT QUANTITIES?
OPPORTUNITY COST
DEMAND 2. INPUT/INPUT QUESTION
= the loss of other alternatives when one
= occurs when consumers are able and alternative is chosen → HOW will each of the goods and services be
willing to buy a product at a certain price = loss of value/benefit that would have been
produced?
caused by participating in a certain activity → HOW MANY of the scarce resources will be used in
= desires become real demand
relative to an alternative activity that
the production of each good
provides a higher return in value or benefit
GOODS SERVICES
. MICROECONOMICS MACROECONOMICS → tangible objects [food, → intangibles [medical
clothing, houses] services, legal services,
→ individual decisions → functioning of the
financial services]
[consumers, producers, economy as a whole
importers, government, [unemployment, inflation,
exporters, companies] growth, and monetary and FREE GOODS ECONOMIC GOODS
fiscal policy] W not rare = no price [air, sunshine] W goods produced at a cost from
W freely available in unlimited scarce resources (scarce goods)
quantities W limited quantity available
W use value BUT NOT EXCHANGE W requires a price
VALUE W uses & exchange value
W offer out of control of people W offer is controllable
ECONOMIC PROBLEM W Wealth / prosperity = multipliable
in quantity
SCARCITY PROBLEM
FINAL GOODS INTERMEDIATE GOODS
to satisfy the unlimited wants and needs of society with the use of W goods used/consumed [bread] W goods purchased to be used as
limited resources inputs in the production of other
goods
ABSOLUTE SCARCITY
→ when we have enough resources to buy goods but it’s just not PRIVATE GOODS PUBLIC GOODS
W goods consumed by individuals & W use by community in general and
available
consumption by others are consumption by others not
excluded excluded
RELATIVE SCARCITY
CAPITAL GOODS CONSUMER GOODS
→ when there are enough goods to satisfy a population's needs but W goods not consumed, but used in W goods used for consumption by
most of the population is too poor to buy them [developing countries] the production of other goods individuals/households
HOMOGENEOUS GOODS HETEROGENEOUS GOODS
W goods exactly the same W differentiated goods available in
different varieties
, MARKETS where buyers and sellers can meet to
facilitate the exchange or transaction of goods
and services [any contact/communication
between buyers and sellers]
[UTILITY]
RATIO OF PRICE, VALUE & UTILITY
ability of a product or service to satisfy the needs & desires of → The more satisfaction a product offers, the more utility it has.
consumers [it has value] → If a product has utility and is scarce, people will pay money for it. So,
the product has a price.
↑ UTILITY = ↑ DEMAND → The price of a product is its exchange value [usually exchange goods
and services for money]
→ VALUE = ability that goods or services must charge other goods
Properties [Utility] (including money) or services in return
→ Differ from consumer to consumer
→ Usefulness of a product/service may be more nimble MAXIMISING CONSUMER SATISFACTION [UTILITY]
→ UTILITY IS NOT THE SAME AS USABILITY!
𝑷𝑭
→ Marginal utility: the extra satisfaction a consumer gets when he/she
buys another unit of a product.
MRS =
→ Decreasing MARGINAL UTILITY [DIMINISHING UTILITY VALUE] > more
𝑷𝑪
and more use of a product decreases its additional utility [SATISFACTION IS MAXIMISED WHEN THE MARGINAL RATE OF
→ Utility that consumers get from consuming a product or service REPLACEMENT EQUALS THE RATIO OF THE PRICES]
DETERMINES WHAT THEY ARE WILLING TO PAY FOR THE ** If MRS is less / greater than the price ratio, consumer satisfaction is not
PRODUCT/SERVICE [CONSUMER SATISFACTION /CONSUMER maximised
SATISFACTION]
→ TOTAL UTILITY : total satisfaction a consumer experiences when he or
she consumes a particular amount of products
LAW OF DIMINISHING MARGINAL UTILITY
As more of a product/service is consumed, consuming additional quantities
will produce smaller additions to utility
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