SUBJECT TITLE: PRINCIPLES OF ECONOMICS

CODE: 500/S02

DURATION: 180 Hours

1.0 AIM
The aim of the subject is to equip the accountant with the principles of economics as a
basis for further training in the various specified fields of economics.

2.0 OBJECTIVES
By the end of the coursethe student should be able to:
2.1 explain basic economics concepts.
2.2 analyse the various economic activities.
2.3 explain various variables of production function.
2.4 outline and explain cost and revenue concepts in production.
2.5 explain the role of supply and demand in the determination of price.
2.6 distinguish the various profit maximisation decisions in the various market
structures.
2.7 determine the pricing of the factors of production.
2.8 demonstrate an understanding of money and banking concept.
2.9 outline, explain and calculate components of national income.
2.10 outline the principles of international trade

3.0 TOPICS
 INTRODUCTION
 THE ORGANISATION OF ECONOMIC ACTIVITY
 PRODUCTION FUNCTION
 THEORY OF THE FIRMS (COSTS AND REVENUE)
 PRICE MECHANISM (THEORY OF DEMAND AND SUPPLY)
 THEORY OF THE FIRM (PROFIT)
 PRICING OF FACTORS OF PRODUCTION
  MONEY AND BANKING
 NATIONAL INCOME ACCOUNTING
 INTERNATIONAL TRADE

4.0 CONTENT
4.1 Introduction
4.1.1 Definition of economics.
4.1.2 Problems of scarcity.
4.1.3 Necessity of a choice
4.1.4 Concept of opportunity cost
4.1.5 Production possibility curve
4.1.6 Calculating opportunity cost
4.1.7 A traditional economy
4.1.8 A free-market economy
4.1.9 A planned economy
4.1.10 The concept of a mixed economy
4.1.11 Comparing and contrasting economic systems
4.2 The Organisation of Economic Activity
4.2.1 Distinguishing goods and services
4.2.2 Primary, secondary and tertiary economic activities
4.2.3 Various forms of business ownership (sole traders, partnerships,
companies, co-operatives, parastatals, nationalized industries).
4.2.4 Comparing and contrasting the various forms of business ownership.
4.2.5 Economics of scale (financial, technical, managerial, marketing, etc)
4.2.6 The concept of integration of firms.
4.2.7 Vertical and horizontal integration of firms.
4.2.8 Take-overs and mergers.
4.2.9 Shares, debentures, and the role of the stock exchange in an economy.
4.2.10 Distinguishing firm and industry.
4.2.11 Factors influencing the location of firms.
4.3 Production Function
 4.3.1 Definition of production.
4.3.2 Factors of production.
4.3.3 Concept of production.
4.3.4 Concept of fixed factor(s) and variable factor(s).
4.3.5 Concept of returns to a factor.(increasing returns, diminishing returns,
constant returns, zero returns and negative returns – to a factor of
production, using diagrams)
4.3.7 Illustration of – marginal product, average product, total product.
4.3.8 Positive, negative and constant returns to scale.
4.3.9 Internal economies and external economics.
4.3.10 Diseconomies of scale.
4.3.11 Division of labour.
4.3.12 Advantages and disadvantages of specialisation and division of labour.
4.3.13 various levels of possible specialisation (viz: individual, firms,
industry,Region, country, trading block etc)
4.3.14 Relating division of labour and specialisation to exchange
4.4 Theory of The firms (Costs and Revenue)
4.4.1 Definition of costs of production.
4.4.2 Short – run and long run.
4.4.3 Classification of the costs of production (fixed, variable, total
marginal, average)
4.4.4 Calculating the costs of production (i.e. fixed, variable, total, marginal,
and average).
4.4.5 Illustration of production costs using diagrams (i.e. short-run/long-
run).
4.4.6 Determination of optimum output
4.4.7 Definition of revenue.
4.4.8 Types of revenue (total, average, marginal)
4.4.9 Illustration of revenue concept
4.5 Price Mechanism (Theory of demand and supply)
4.5.1Theory of Supply
 - Definition of supply
- Factors affecting supply illustrating concept of supply.
- Definition of elasticity of supply.
- Graphical illustration of the elasticity of supply.
- Supply in the context of long and short-term decisions.
- Changes in supply and changes in quantity supplied.
- Factors that determine price elasticity of supply
4.5.2 Theory of Demand
4.5.1 Definition of demand.
4.5.2 Factors affecting demand.
4.5.3 Marginal utility theory.
4.5.4 Indifference curve analysis.
4.5.5 The substitution effect and the income effect.
4.5.6 Giffen goods
4.5.7 Elasticity of demand
4.5.8 Price and income elasticity of demand
4.5.9 Factors that determine elasticity of demand
4.5.10 The equilibrium Price (Market Price)
4.5.12 Government intervention in price setting (price ceilings and floors) and
its effects on demand and supply.
4.6 Theory of the Firm (Profit)
4.6.1 Concept of profit.
4.6.2 Profit maximisation goal
4.6.3 Non-profit making goals of firms.
4.6.4 Profit maximisation in the context of revenue and costs.
4.6.5 Profit maximisation by firms under perfect competition, monopoly,
and other Forms of market imperfections.
4.6.6 The long run and short term profit maximisation decisions (output and
prices)under perfect competition.
4.6.7 Features of perfectly competitive markets.
4.6.8 Features of monopoly.
 4.6.9 Oligopoly, monopoly, duopoly, monopolistic competition compared
4.6.10 Normal and abnormal profit.
4.6.11 Undesirable aspects of monopolies.
4.6.12 factors that may rise to monopolies.
4.6.13 Methods that may be used by government to check on monopolistic
tendencies.
4.6.14 Monopolistic practices (i.e.) discriminating, cartels, etc.
4.7 Pricing of Factors of Production
4.7.1 Payments to the four factors.
4.7.2 Pricing of capital.
4.7.3 Pricing of land.
4.7.4 Pricing of labour under various market conditions.
4.7.5 Marginal Productivity Theory (demand curve derivation)
4.7.6 Effect of minimum wage legislation on employment and wage levels.
4.7.7 Impact of trade unionism on employment and wages.
4.7.8 Concept of economic rent
4.7.9 Transfer earnings and economic rent.
4.9 Money and Banking
4.8.1 Evolution of money.
4.8.2 Money and wealth
4.8.3 Functions of money.
4.8.4 Various financial institutions.
4.8.5 Economic significance of commercial banks.
4.8.6 Economic significance of the central bank.
4.8.7 Monetary policy definition.`
4.8.8 Instruments of monetary policy.
4.8.9 Liquidity preference.
4.8.10 Credit creation by commercial banks
4.8.11 Definition of inflation
4.8.12 Definition of deflation
4.8.13 Cost-push and demand-pull factors of inflation
 4.8.14 Effects of inflation on various economic areas.
4.8.15 Quantity Theory of Money
4.8.16 retail price index compilation
4.8.17 changes in the value of money
4.9 National Income Accounting
4.9.1 National Income definition
4.9.2 Approaches to measuring National Income.
4.9.3 Components of National Income.
4.9.4 Problems encountered in the measurement of National Income.
4.9.5 Uses of national Income Statistics.
4.10 International Trade
4.10.1 International trade definition.
4.10.2 Reasons for international trade.
4.10.3 Theory of comparative advantage.
4.10.4 Advantages and disadvantages of international trade.
4.10.5 Protectionism methods (Tariffs, quotas, physical)
4.10.6 Balance of payments
4.10.7 Balance of payments deficit and surplus.
4.10.8 Methods that can be used to correct the deficits and/or surpluses.
N.B illustrations should be aided with diagrams
5.0 ASSESSMENT SCHEME

SUBJECT TITLE WRITTEN CONTINUOUS WEIGHTING 100%

AND CODE EXAMINATION ASSESSMENT 60%
40%
Principles of 3 hour written A minimum of 100%
Economics examination  3 Field Work
500/15/S02 based
assignments  30%
(weighted 10%
each)
 Skills
Competency
Testing          
30%
6.0 ASSESSMENT SPECIFICATION GRID
OBJECTIVE TOPIC WEIGHTING
1 Introduction 6
2 Organisation of economic activity 5
3 Production function 5
4 Theory of the firm (Costs) 13
5 13
Theory of the firm (Profit
6 Price Mechanism (Supply) 10
Price Mechanism (Demand) 10
7 Pricing of Factors of Production 2
8 International Trade 10
9 Money and Banking 13
10 National Income Accounting 13
TOTAL 100

7 .0 SUGGESTED REFERENCES
Adams ,S. (2007) Fundamentals of Business Economics, UK
Black, A. P. (2008)Public economics, 4the Edition, South Africa
Hall ,R. & Lieberman, M. (2012)Economics Principles and Applications, USA
Lipsey, R.G. (1981) An Introduction to positive Economics, UK
Rossel, J.B. (2004) Comparative Economics in a transforming
World economy, USA
Tucker, I. (2010) Economics for Today, USA