ECS2601 -
Exam Revision
,ECS2601 – Microeconomics
May/June 2022 Exams Revision
Revision – ECS1501
ECS2601 – Learning Unit 1 (study guide)
1. POSITIVE OR NORMATIVE STATEMENTS OR ECONOMICS
a) positive statements or economics
a positive statement is an objective statement of fact.
Positive economics describes and explains various economic phenomena.
An example: “an increase in tax rates ultimately results in a decrease in total tax revenue”.
a positive or objective economic observation would be, "Based on past data, big tax cuts would
help many people, but government budget constraints make that option unfeasible."
b) normative statements or economics
a normative statement involves an opinion or value judgement
normative economics focuses on the value of economic fairness or what the economy should
be
an example of normative economics is, “unemployment harms an economy more than inflation”.
Or An example of normative economics would be, "We should cut taxes in half to increase
disposable income levels."
2. LEVELS AND RATES OF EXCHANGE
a) Levels of change
A level change is the difference in the level amount from one period to the next. For example,
analysts are interested in the level change when the job count is released each month.
How much a variable change by
The value of a certain variable at a given point in time.
To calculate the level of change, we simply calculate how much the prices of the products have
changed by:
Pizza: �30−�20=�10
Chocolate: �15−�5=�10
The level of change is thus the same for both products
b) Rates of change
A percentage change calculation that tells how fast an economic variable is rising or falling over
a certain time period.
Rate of change is used to mathematically describe the percentage change in value over a
defined period of time, and it represents the momentum of a variable. The calculation for ROC
is simple in that it takes the current value of a stock or index and divides it by the value from an
earlier period.
The speed at which a variable change over time
ROC = current value
-1 ∗100
previous value
Rate of Change and Its Relationship with Price
The rate of change is most often used to measure the change in a security's price over time.
This is also known as the price rate of change (ROC). The price rate of change can be derived
by taking the price of a security at time B minus the price of the same security at time A and
dividing that result by the price at time A.
Price ROC=B− A X 100
, A
where:
B=price at current time
A=price at previous time
To calculate the rate of change, we have to determine how much the price of the product has
changed by, divide it by the original price and multiply it by 100.
Pizza: The price of pizza has changed by R10 (�30−�20=�10)
The original price of pizza is R20
Hence, the rate of change will be:
(30 – 20)/20 X 100
�10/�20×100=50%
We do the same for chocolate:
(�15−�5)/�5×100=200%
Thus chocolate has increased at a faster rate than pizza, chocolate is increased at 200% while
pizza has increased at a rate of 50%
3. PRODUCTION QUESTION - THREE BASIC (CENTRAL ECONOMIC) QUESTIONS MUST BE
ANSWERED:
1. WHAT goods and services must be produced and in what quantities? These are output
questions
Consumer goods – are goods that are used or consumed by individuals or households (i.e.,
Consumers) to satisfy wants. Examples include food, wine, clothing, shoes, furniture, household
appliances and motor cars. There are different categories of consumer goods
a) Durable goods – are goods which normally last for a number of years examples include
furniture, refrigerators, washing machines, dishwashers and cards
b) Semi-durable goods – are goods that can be used more than once and which usually last
for a limited period examples include clothing, shoes, sheets and blankets and motor car
tyres
c) Non-durable goods – are goods that are used once only examples include food, wine,
tobacco, petrol, and medicine
Durable (strong, sturdy, robust)
Capital goods – are goods that are not consumed in this way but are used in the production of
other goods. Examples include all types of machinery, plant and equipment used in
manufacturing and construction, school buildings, roads, dams, and bridges. Capital goods do
not themselves yield a direct consumer satisfaction, but they permit more production and
satisfaction in the future.
Final goods – are goods that are used or consumed by individuals, households and firms’
examples include a loaf of bread
Intermediate goods – are goods that are purchased to be used as inputs in producing other
goods.
Private goods – is a good that is consumed by individuals or households. All typical consumer
goods (like food, clothes, furniture, and motor cars) are private goods – a distinguishing feature
of private goods is that consumption by others can be excluded.
, Public good – is a good that is used by the community or society at large example the traffic
light, defence, weather forecasts etc.
Economic good – is a good that is produced at a cost from scarce resources. Economic goods
are therefore also called scarce goods. Naturally most goods are economic goods
Free goods – is a good that is not scarce and therefore has no price such as air, sunshine and
seawater at the coast are usually regarded as free goods.
Homogeneous goods – are goods that are all exactly alike. There are few examples such as
goods in the real world – a fine ounce of gold is exactly the same as another
Heterogeneous goods – are goods that have different varieties, qualities, or brands – most
goods are heterogeneous goods – even something like bread comes in different shapes, sizes
and quantities.
Productive resources (natural, human, capital resources used to make goods and services)
2. HOW will these goods and services be produced? How much of the scare resources will be
used in the production of each of these goods? These are input questions
1) Natural resources and Labour – called primary factors of production
2) Capital and entrepreneurship – called secondary factors of production
3) Labour and entrepreneurship – called human resources
4) Natural and Capital – called non-human resources
1) Natural Resources
Consist of all the gifts of nature
Includes land, water, vegetation, minerals, marine resources animal life and many more
Availability cannot be increased
Minerals: Non-renewable or exhaustible assets (of minerals, forests, and other exhaustible
assets has led to demands for regulation of their exploitation)
Supply of natural resources are fixed
Both quantity and quality of natural resources are important
2) Labour
The exercise of human mental and physical effort in the production of goods and services
Includes all human effort exerted with a view to obtaining reward in the form of income
Quantity of labour depends on the size of the population and the proportion of the
population that is willing and able to work (labour force)
The quality of labour is usually referred to as human capital, it includes skill, knowledge and
health of workers
3) Capital
Comprises of all manufactured resources such as machines, tools and buildings which are
used in the production of other goods
Capital goods are produced to be used in the production of other goods
Capital goods do not have an unlimited life, they are subject to wear and tear
Provision for depreciation is made for the replacement of existing capital goods
In the national accounts it is referred to as consumption of fixed capital
4) Entrepreneurship
Entrepreneurs are the people who combine the factors of production and who take risks by
producing goods
They are the driving force behind production
They are innovators and introduce new products and new techniques on a commercial basis
5) Technology
Sometimes defined as a 5th factor of production
