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PRINCIPLES OF ECONOMICS
UNIT CODE:
Relationship to Occupational Standards
This unit addresses the unit of competency: APPLY ECONOMICS CONCEPTS TO SOLVE BUSINESS PROBLEMS Duration of Unit: Unit Description
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
Summary of Learning Outcomes
- 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
Learning Outcomes, Content and Suggested Assessment Methods
Learning Outcome Content Suggested Assessment Methods
- Apply foundational economic concepts to manage limited resources
Introduction to economics Definition of economics Basic economic concepts: economic resources, human wants, scarcity and choice, opportunity cost, production possibility curves/frontiers,wealth,welfare Scope of economics: Micro and macro economics Methodology of economics: positive and normative economics, scientific methods, economics as a social science. Economic systems: planned economy, free market economy, mixed economy. Consumers’ sovereignty and its limitations.
● Practical ● Oral questioning ● Written tests
- Determine the pricing of commodities using the forces of demand and supply
Demand, supply and determination of equilibrium
● Demand analysis Definition Law of demand Exceptional demand curves Individual demand versus market demand Factors influencing demand Types of demand Movement along and shifts of demand curves Elasticity of demand Types of elasticity of demand: price, income and cross elasticity Measurement of elasticity; point and arc elasticity Factors influencing elasticity of demand Applications of elasticity of demand.
❖ Written tests ❖ Practical
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 Applications of elasticity of supply. Determination of equilibrium 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 Effect of taxes and subsidies on market equilibrium Price controls; Maximum and Minimum price control Price decontrols: effect of Minimum and Maximum price decontrol Reasons for price fluctuations in agriculture and the cobweb theorem
- Apply the theory of consumer behaviour in determining consumer satisfaction
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 curves 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
● Practical ● Oral questioning ● Short tests to assess underpinning knowledge.
Definition of a market
profit maximisation in various market structures
Necessary and sufficient conditions for profit maximisation Mathematical approach to profit maximisation Output, prices and efficiency of: perfect competition, monopoly, monopolistic competition, oligopolistic competition
● Short tests to assess underpinning knowledge.
The benefits and costs of economic growth Determinants of economic development Common characteristics of developing countries 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
Money
The nature and functions of money Demand and supply of money Theories of demand for money: The quantity theory, the Keynesian liquiditypreference theory 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 Classical theory of interest rate determination 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
Inflation Definition and types of inflation
- Laptops
- Calculators
- Internet Reference materials
- Mudida R.(2009) Modern Economics. Second Edition. Focus Publishers Ltd. Nairobi, Kenya
- Mukras. M. S (2010) Elements of Mathematical Economics. Kenya Literature Bureau. Nairobi, Kenya
- Relevant Economics syllabus content from various institutions and learning institutions.
