The purpose of this module is to provide you with thinking tools when analyzing the
relationship between consumption (the demand side) and production (the supply side)
in the economy. Ultimately we want you as a student to understand how different kinds
of markets form, how they function, how th...
Printed and distributed by the
University of South Africa
Muckleneuk, Pretoria
Compiled by the Department of Economics
ECS2601/1/12012-2014
,iii ECS2601/1/2012-14
Contents Page
Introduction x
Aims of the module..........................................................................................................ix
Prescribed tutorial matter ................................................................................................ x
Suggested method of study.............................................................................................xi
Study unit 1: Assumptions of prior learning in microeconomics .............. 1
Study Unit 2:
The basics of supply and demand ....................................................................... 2
2.4 Elasticity of supply and demand (including 2.5: Short-run versus long-run
elasticity)............................................................................................................. 3
2.7 Effects of government intervention ± prLFHFRQWUROV««««««««««««
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Further reading ............................................................................................................. 10
Answers to some of the questions ................................................................................ 10
Economics in action revisited ........................................................................................ 24
Further reading ............................................................................................................. 24
Answers to some of the questions ................................................................................ 24
Study unit 4: Individual and market demand ................................................. 26
Economics in action ..................................................................................................... 26
Contents and learning outcomes ................................................................................... 27
4.1 Individual demand ............................................................................................ 27
Activity 4.1 ..................................................................................................................... 29
4.2 Income and substitution effects ........................................................................ 31
Activity 4.2 ..................................................................................................................... 32
4.3 Market demand................................................................................................. 34
Activity 4.3 ..................................................................................................................... 35
4.4 Consumer surplus ........................................................................................... 37
Activity 4.4 ................................................................................................................. 37
4.5 Network externalities ........................................................................................ 39
Activity 4.5 ..................................................................................................................... 40
4.6 Empirical estimation of demand........................................................................ 40
Economics in action revisited ........................................................................................ 41
Further reading .............................................................................................................. 41
Answers to some of the questions ................................................................................ 41
Study unit 5: Uncertainty and consumer behaviour .................................... 43
(Not included)
Study unit 6: Production ....................................................................................... 44
Economics in action ...................................................................................................... 45
Contents and learning outcomes ................................................................................... 45
6.1 The technology of production ........................................................................... 46
Activity 6.1 ..................................................................................................................... 47
6.2 Production with one variable input (labour)...................................................... 47
Activity 6.2 ..................................................................................................................... 48
6.3 Production with two variable inputs (labour and capital) ................................... 50
Activity 6.3 ..................................................................................................................... 52
6.4 Returns to scale................................................................................................ 54
Activity 6.4 ..................................................................................................................... 55
Economics in action revisited ........................................................................................ 56
Further reading .............................................................................................................. 56
Answers to some of the questions ................................................................................ 56
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