COLLEGE OF BUSINESS PEACE LEADERSHIP AND GOVERNANCE

NMEC101 ECONOMIC PRINCIPLES 1

Tuesday -1000-1100 hrs
Thursday -1000-1200 hrs
Semester One

Lecturer Details: Mr. Thomas Masese

Office Location: Office 89, 1st Floor IPLG Building
Office Hours/Consultation Times: Tuesday 2-5pm
Phone number (Office): 1024 Cell: +263 716661814/ 783 725322
Email: maseset@africau.edu/maseset@gmail.com

1.0 Course Description

This course is aimed at providing business students in the 4 year programme with the essential
economic knowledge and understanding which will enable them to be able to place business
related issues and problems in the wider economic context, as well as being able to recognise the
contributions that economics can make in analysing and resolving business issues and problems.
This introductory course offers the student broad knowledge in understanding principles that lie in
formation of microeconomic theory. At the end of the course the student is expected to be confident
and ready to take the introductory microeconomics part, which is more concerned of the theory
and application of microeconomics.

2.0: Prerequisites

No pre-requisites are required for this course

3. 0 Course Intended Learning Outcomes or Learning goals

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 After successfully completing the course, students will be able to:

Knowledge &  Demonstrate an understanding of the role and function of economics in the
Understanding specific context of business related issues and problems.
 Identify and analyse the economic dimensions of the impact of business in
terms of resolving the basic economic problem of scarcity and its constituent
problems of allocation, production and distribution.
 Apply economic concepts to enhance understanding of business behaviour,
strategy and corporate performance.
 Demonstrate an understanding of the shifting debates about the relative roles
of the market and state in enabling business to deliver economic efficiency.
 Identify and explain how the macroeconomic objectives of economic policy
and the key policy debates at both the national and global levels shape and are
shaped by the business environment.
Transferable  Gather evidence and assimilate structure, analyse and evaluate qualitative and
Skills quantitative data.
 Communicate results concisely to a generalist business audience.
 Apply mathematical and statistical analysis methods to this data.
 Extract relevant information, drawing conclusions and making logical
recommendations.
 Complete specific tasks within designated timeframes.
Intellectual  Abstract and simplify in order to identify and model the essence of economic
Skills and business-related problems.
 Analyze and reason both deductively and inductively.
 Think critically about the limits of analysis in a broader political and socio-
economic context.
 Recognize and frame the relevance and changing nature of constraints in
terms of analyzing problems and possible policy solutions
Practical Skills  Consider the ever-present existence of trade-offs when making business
decisions.
 Recognise the wider economic context in which business strategy is
developed.
 Recognise that business and economic decisions are always contested.

4.0 Methods and Strategies of Teaching and Learning

The course will be delivered through 3 hours of face-to-face and online contact time per week. It
is expected that these hours will be for lectures and the students can interact with the instructor
through tutorials, Moodle-based discussion forums and seminars.

5.0 Assessment

Assessment of students will be through coursework and examinations

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Assessment Examination Coursework (40%)

Description End of Assignments Test Presentations/Field Attendance/class Independent

Semester Exam (100.0) (100.0) Work / Practical participation Study
(100%) (100.0) (100.0) (100.0)
Weightage 60% 25% 35% 20% 10% 10%

5.1 Coursework Assessment

The assessment will be based on an individual assignment in the form of a business case study,
which will enable students to apply relevant economic concepts and theories to business strategy
and behaviour. Students should complete a report of between 1250 and 1500 words. This case
study will be based on all topics covered in the course. The coursework provides the opportunity
for students to demonstrate their transferable and practical skills. Students will also do group
assignments which will presented in class. An in-class test will also be written at the end of the
semester. Class participation and attendance as well as recognition of independent study
undertaken during preparation for assignments and examinations will be considered as part of the
coursework.

6.0 Course Content

The following content will be covered in this course:

Week Topic
1 Business and Economics:
 The nature of the Business Environment, the structure of industry and the
determinants of Business performance
 The basic economic problem – scarcity
 The microeconomic and macroeconomic environment and problems
 Economic systems
 Types of Business Organization - aims, legal forms and internal organization
2-3 Business and Markets in Action
 The price mechanism, demand, supply and market equilibrium
 Price elasticity of demand and relevance for business price and output
decisions
 Price elasticity of supply, income and cross price elasticity of demand
 Interventions in markets- indirect tax and subsidies, maximum and minimum
prices
 Risk and uncertainty
4 Supply Decisions: Costs of Production
 SRAC – the impact of diminishing returns on a firm’s short-run average costs
(with examples)
 LRAC – the impact of economics and diseconomies of scale on a firm’s long
run average costs (with examples)
 Relationship between SRAC and LRAC – shown diagrammatically
 Average and marginal revenue curves

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  Profit maximization
4-6 Market Structures and Implications for Business Behavior
 Revenue, output and profit maximization
 Perfect competition and equilibrium in the short and long run
 Monopoly equilibrium price and output and price discrimination
 Comparison of competition and monopoly and implications for policy
 Monopolistic Competition and Oligopoly
7 Alternative Theories of Business Behavior and Strategy
 Alternative theories of the firm
 Growth strategies
 The small firm sector
 Pricing strategy
8 Business and Resource Markets
 Labor markets and wage determination,
 Labor market power and industrial relations
 Low pay and discrimination
 Investment and the employment of capital
 Role of the financial sector
9 Revision
10 Examination Week

7. Specific Learning Outcomes

On completion of this module, students should be able to:

A. Business and Economics

 Explain the nature of the business environment in relation to PEST or STEEPLE analysis.
 Appreciate that the subject matter of economics is split into microeconomics and
macroeconomics and be clear as to the distinction between the two.
 Explain the problem of scarcity and outline the microeconomic decisions that need to be
made.
 Explain the role of opportunity cost, rationality and marginal costs and benefits when
analysing microeconomic choices.
 Compare and contrast the main features of different economic systems.
 Identify the different aims of businesses.
 Analyse the relative advantages and disadvantages of different legal forms of business.
 Examine the relative merits of different types of the internal organisation of businesses.

b. Business and Markets in Action

 Explain the importance of the price mechanism to the operation of a market economy and
the key role consumer demand plays in the price mechanism.
 Describe the inverse relationship between demand and price.

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  Differentiate between movements along a demand curve and shifts in that demand curve.
 Understand the relationship between goods supplied and price and differentiate between
movements along and shifts in supply curves.
 Recognise that equilibrium price in any given market will be at the value where the
supply and demand curves intersect.
 Draw supply and demand curves from given information and redraw to show shifts in
supply/demand and new equilibrium price.
 Understand the concept of price elasticity as a measure of responsiveness of
demand/supply to changing price and explain the underlying factors that influence price
elasticity of demand/supply.
 Explain the importance of price elasticity of demand for business decision making.
 Calculate price elasticity of demand/supply from given information and interpret
elasticity figures so measured.
 Interpret demand/supply curves in terms of elasticity and understand how markets adjust
in the longer run to changes in demand and supply.
 Measure income elasticity of demand and cross elasticity of demand and interpret the
measurements.
 Apply the concepts of supply, demand and elasticity to the incidence of taxation and
draw this diagrammatically.

c. Supply Decisions: Costs of Production

 Understand the economist’s concept of cost and profit.

 Explain how costs vary in the short-run with levels of output.
 Explain the impact of diminishing returns on short-run costs and explain the changes in
short-run costs in terms of a ‘U’ shaped average cost curve.
 Describe the arithmetic relationship between average and marginal cost.
 Illustrate average cost, marginal cost, average variable cost and average fixed cost
diagrammatically.
 Describe the relationship between short-run average costs and the long-run average cost
curve.
 Explain the various factors that are likely to cause economies of scale and relate this to
the long-run average cost curve.
 Understand the concept of diseconomies of scale and describe possible examples
 Describe and draw total, average and marginal revenue curves.

d. Market Structures and Implications for Business Behaviour

 Explain the principle of profit maximization that underpins the analysis of business
behaviour.
 Differentiate between the short and long run and between normal and abnormal profit.
 Define perfect competition, explain, and illustrate diagrammatically the short-run
equilibrium price and output.
 Explain and illustrate diagrammatically the long-run equilibrium of the perfectly
competitive business

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  Define the key features of a monopoly market
 Explain and illustrate diagrammatically the equilibrium for a business operating as a
monopoly.
 Evaluate the relative advantages and disadvantages between competition and monopoly.
 Assess the theory of contestable markets.
 Define the key features of a business in monopolistic competition and illustrate
diagrammatically the long-run equilibrium.
 Compare and contrast the business in monopolistic competition to that of perfect
competition and monopoly.
 Define the key features of an oligopolistic market.
 Explain the reasons for the competing features of competition and collusion in an
oligopolistic market.
 Illustrate the equilibrium of the industry under collusive oligopoly.
 Explain the difference between formal collusion – cartel and tacit collusion.
 Understand and evaluate different models used to explain non-collusive oligopoly
including game theory (prisoners’ dilemma) and the kinked demand curve.

e. Alternative Theories of Business Behaviour and Strategy

 Explain the criticisms of traditional theories of the firm.

 Outline and explain the main alternative maximising theories (long-run profit, managerial
utility, sales revenue, and growth).
 Assess the behaviour of businesses facing multiple objectives.
 Explain the relationship between growth and profitability and identify the main
constraints on the growth of a business.
 Compare and contrast the alternative strategies of internal and external expansion and
assess their relative advantages and disadvantages.
 Identify the circumstances in which strategic alliances might form.
 Assess the advantages and disadvantages of small businesses and identify the stages of
growth for them.
 Explain the role of government assistance for small businesses.
 Explain the determinants of the power that businesses have to set prices and examine the
key pricing strategies in practice of limit pricing, cost-based pricing, multiple product
pricing and product life cycle pricing.
 Explain, assess and illustrate diagrammatically the different forms of price
discrimination.

f. Business and Resource Markets

 Explain and illustrate diagrammatically the market determination of wage rates and
employment.
 Outline the determinants of the demand and supply for labour.
 Examine the relative power, and ways this is exerted, of workers and employers.
 Identify the main causes of low pay and discrimination and examine the possible impact
of minimum wage legislation.

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  Explain the meaning and the significance of flexible labour markets.
 Explain the determinants of the amount capital a firm will employ.
 Identify the main techniques of investment appraisal.
 Examine the sources of finance for business and assess the problem of “short termism” in
capital markets.
 Explain and evaluate the role of the stock market in raising financing for business.

8.0 Academic Integrity

Students are expected to abide by the University regulations on Academic Integrity

9.0 Examination

The total mark for the examination paper is 60%. Section A is compulsory and is worth 30 marks.
This consists of 20 multiple-choice questions worth 1 mark each and a data response question
worth 15 marks. Section B is worth 30 marks, students are required to answer two 20-mark essay
questions from a choice of three. The examination could test the knowledge and understanding of
all the specific learning outcomes but in reality not all will be covered in any one individual paper.
In terms of the general learning outcomes, the multiple-choice questions and data-response
question test core knowledge and understanding and intellectual skills as well as the transferable
skills especially in terms of application and evaluation of data and manipulation of simple of
models. The essay questions test both knowledge and understanding but allow students to
demonstrate their ability to evaluate and apply theories.

10. Reading Lists

10.1 Core Texts

Sloman, J., Garratt, D., Guest J. and Jones E. (2016). Economics for Business. 7th
Edition. Harlow: Pearson Education Ltd. ISBN: 9781292082103

Sloman, J and Jones, E (2017) Essential Economics For Business, 5th Edition. Harlow: Pearson
Education Ltd. ISBN: 978-1-292-15129-8

10.2 Further Reading and Reference

Mulhearn C and Vane H.R (2016). Economics for Business. 3rd Edition. Palgrave.
ISBN: 9781137429223

Ison S and Wall S. Economics. 4th Edition, Pearson Education Limited, ISBN-13: 978-0-273-
68107-6

McConnell C.R, Brue SL and Flynn, SM (2009), Economics: Principles, Problems, and Policies.
18th Edition. McGraw-Hill/Irwin, ISBN-13: 978-0-07-337569-4

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Mankiw G.N, Microeconomics, 2nd Edition

Case K. E and Fair R. C; Principles of Microeconomics. Prentice Hall 1989