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DEPARTMENT OF FINANCE & ACCOUNTING -CONTENTS ........................................................................................................................ ii Course Outline ................................................................................................................... iv LESSON ONE: INTRODUCTION TO ECONOMICS ..................................................... 1 1.1 Introduction to Economics ...................................................................................... 1 1.2 Scope of Economics ................................................................................................ 3 1.3 Why Study Economics? .......................................................................................... 4 1.4 The Methodology of Economics ............................................................................. 5 1.5 Economic Systems .................................................................................................. 7 1.6 Why Intervene in the Economy ............................................................................ 11 1.7 Specialization ........................................................................................................ 11 1.8 Review Questions ................................................................................................. 12 1.9 References ............................................................................................................. 12 LESSON TWO: DEMAND AND SUPPLY .................................................................... 13 2.1 Definition of Demand ........................................................................................... 13 2.2 The Determinants of Demand ............................................................................... 16 2.3 Movement Along and Shift in Demand Curve ..................................................... 21 2.4 Definition of Supply ............................................................................................. 23 2.5 Movement Along and Shift in Supply Curve ....................................................... 28 2.6 The Concept of Equilibrium in Economics .......................................................... 29 2.7 Price Control ......................................................................................................... 36 2.8 Elasticity of Demand............................................................................................. 39 2.9 Elasticity of Supply ............................................................................................... 51 2.10 Review Questions ................................................................................................. 53 2.11 References ............................................................................................................. 54 LESSON THREE: THEORY OF CONSUMER ............................................................. 55 3.1 Introduction ........................................................................................................... 55 3.2 Cardinalist Marginal Utility Approach ................................................................. 55 3.3 Consumer Equilibrium .......................................................................................... 58 3.4 Ordinalist / Indifference Curve Approach ............................................................ 60 3.5 Consumer Equilibrium .......................................................................................... 62 3.6 Income Consumption Curve ................................................................................. 63 3.7 Review Questions ................................................................................................ 66 3.8 References ............................................................................................................ 66 LESSON FOUR: THE THEORY OF PRODUCTION .................................................... 67 4.1 Definition .............................................................................................................. 67 4.2 Factors of Production ............................................................................................ 68 4.3 Specialization ....................................................................................................... 69 4.4 Production Function .............................................................................................. 72 4.5 Long Run Changes in Production ......................................................................... 75 4.6 The Theory of Cost ............................................................................................... 78 4.7 Revenue Function ................................................................................................ 85 4.8 Optimum Seize of a Firm ...................................................................................... 86 4.9 Economies of Scale ............................................................................................... 90 4.10 Mergers and Acquisitions ..................................................................................... 93 4.11 Review Questions ................................................................................................. 94 iii 4.12 References ............................................................................................................. 95 LESSON FIVE: MARKET STRUCTURES .................................................................. 96 5.1 Perfect Markets ..................................................................................................... 96 5.2 Monopoly .............................................................................................................. 99 5.3 Monopolistic Competition .................................................................................. 102 5.4 Oligopoly ............................................................................................................ 104 5.5 Review Questions ............................................................................................... 106 5.6 References ........................................................................................................... 106 Sample Paper 1 ............................................................................................................... 107 Sample Paper 2 ............................................................................................................... 109