HBC 2104/ HBT 2104 INTRODUCTION TO MICROECONOMICS – CLASS NOTES

Introduction

Economics is a social science that has been in existence for about two centuries. Various economists
have tried to define it differently. Three types of definition can be identified.

a) Wealth definition
b) Welfare definition
c) Scarcity definition
a) Wealth definition
Adam smith and his discipline J.B. Say, Walker, J.S. Mill defined economics as an inquiry into the
nature and courses of wealth of nations. Such a definition has been criticized as follows.

(i) The definition is very selfish: it restricts economics to the study of wealth alone. The
definition does not state clearly how man comes into the study.
(ii) Since economics is defined in terms of material commodity, it doesn’t consider
service e.g. services offered by doctors, teachers, etc.
b) Material welfare definition of economics
Alfred Marshall and his discipline, Pigou and Cannon defined economics as the study of man’s
activities in the ordinary business of life. It tries to study how man acquires and uses his
resources aimed at improving the welfare of mankind. In this definition, it can be noted that on
the one hand, economics is the study of wealth and on the other hand, and more important, a
study of man.

Criticism of the definition

(i) The definition excludes the study of services, that is, it only takes human material
welfare.
(ii) Speaks of study of man’s activities during ordinary business of life. The question
remains, how about during extra ordinary business life?

c) Scarcity definition of economics

Leonel Robbin (1933) improved upon the above definition and explained economics as the
study of human behavior (as a relationship between scarce resources which have
alternative uses)

The definition has characteristics that are currently addressed in economics namely

 Limited/scarce resources
 Alternative uses
 Unlimited wants
Scarcity: when we say that a resource is scarce, it means that it is there but cannot meet the
demand. The scarce productive resource would include, land, labor, capital, entrepreneurship, and
by extension technology used in the production process.

Alternative uses: some resources may be having more than one use. For example milk can make
butter, cheese, chocolate etc.
DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 1
Unlimited wants: human needs are unlimited and they are recurrent in that when you satisfy a
need today, the same need has to be satisfied tomorrow. They are also competitive in that they
compete for the limited resources.

Based on the above definition, economists today agree on a general working definition of the
discipline. They conclusively define economics as the study of how man can use his scarce
resources to satisfy his needs.

Thus, we study economics in order to solve economic problem, which is that of allocating scarce
resources among competing and unlimited wants in such a manner that greatest satisfaction is
derived. To do this, the society will have to make a choice on what combination of goods and
services to produce and what therefore to sacrifice. The quality that one foregoes /sacrifice in order
to consume more of another is what is known as opportunity cost.

The production possibility frontier and opportunity cost.

The economic problem can be illustrated by means of production possibility frontier and the
concept of opportunity cost.

- A production possibility frontier joins together different combinations of goods and services
that a country can produce using all the available resources and most efficient techniques of
production.

Assume for simplicity that a country produces only 2 goods, food and cloth.

Food(tones)

(Tones

To ® Q

® P (Tones

(Ton To
es

To
0
B cloths (meters)
)000O
OOoo( (Tones
The figure shows the different combination of the 2 commodities which can be produced.
tones To
The vertical
To axis measures the quantity of food in tones and the horizontal axis measures the
quantity of cloth in meters. The straight line AB is the production possibility frontier. It shows that
when all resources are efficiently employed in the production of food, OA tones can be produced
and when all the resources are employed in the production of cloth, OB meters can be produced. All

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 2

points on the production possibility frontier represent combination of food and cloth which a
country can just produce when all the resources are employed.

All the points inside this line such as P represents combinations which can be produced using less
than the available resources or by using the available resources with less than the maximum
efficiency.

- Points outside the line, such as Q, represent combinations which are unattainable.

- If a country is producing at point A ,i.e. all resources are being used in the production of food .If it
now decide to produce cloth, it is obvious from the downward slope of the production possibility
frontier that some food production must be given up. The quantity of food which has to be forgone
is called the opportunity cost of producing cloth.

The slope of the line, equal to OA/OB measures the opportunity cost in terms of cloth of producing
1 extra tone of food. This means that every additional meter of cloth produced requires that OA/OB
tons of food be forgone.

- The slope of the production possibility frontier can be interpreted as the rate at which food can be
“transformed “into a meter of cloth by shifting resources from food production into cloth
production. It is sometimes called the marginal rate of transformation in this case food for cloth.

- Where the production possibility frontier is drawn as a straight line, the opportunity cost and the
marginal rate of transformation remain unchanged no matter how much cloth is produced. This is a
case of constant opportunity cost.

- The assumption of constant opportunity cost very unrealistic. It implies that all factors of
production can be used equally efficiently in either production of food or the production of cloth.

Suppose some of the factors are more efficient in the production of cloth. Suppose also that the
hypothetical country is using all of its resources in the production of food i.e. the country is
producing at

point A1 A1

Food(tn)
C
G
D
E

0 1 2 3 4 B1 cloth (meters)

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 3

If the country now decides to produce some cloth, we might expect that the opportunity cost of the
first few meters of cloth to be relatively small as those resources that are more efficient in the
production cloth move from food production into cloth production. As more and more meters of
cloth produced however, it becomes necessary to more into cloth production those factors which
are more efficient in the production of food.

As this happens, the opportunity cost of extra meters of cloths produced will get larger and larger.
This is the case of increasing opportunity costs.

The production possibility frontier A1B1 is concave to the origin.

Starting from A1, the production of 1 meter of cloth requires that A1C tones of food be given up. The
production of a second meter of cloth requires that an additional CD tone of food be given up. A
third requires that DE be given up and so on.

-From the concavity of the production possibility frontier, it is true that EF>DE>CD>A1C. In other
words, the opportunity cost of food in terms of cloth increases as more and more food is produced.

NB

Like the case of straight line production possibility frontier ,the opportunity cost of food in terms
of food and the marginal rate of transformation of food into cloth are measured by the slope of
production possibility frontier.

-In this case, however, the slope is not constant but increases as more and more cloth is produced.

The actual slope of the production possibility frontier can be measured at any point by drawing a
tangent to the curve at the point (like GH) and measures the slope of the tangent.

The production possibility frontier thus provides as with an illustration of the problem of scarcity
and choice facing a country when deciding what goods and services to produce.

THE DISTINCTION BETWEEN MICROECONOMICS AND MACROECONOMICS

Microeconomics-broadly speaking is concerned with the behavior of the individual firms, industries
and consumers (or households) and deals with the effects of the individual taxes and specific public
spending programs. A study of the determination of the level of output and the employment in the
Kenya textile industry for example would belong to the microeconomics.
Macroeconomics on the other hand concerns itself with large aggregates particularly to the
economy as a whole. It deals with factors which determine the national output and employment,
the general price level, total spending and saving in the economy, total and supply of money and
other financial assets.

NB These aggregates are the sum of the individual variables-total national output for example is the
sum of output of the individual business units; total consumption is the sum of all the consumption
spending of all the individuals.

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 4

Economic methodology

The term methodology refers to the way the economists go about the study of their subject matter.
They have followed two main lines of approach

1) Positive economics - concerned with the investigation in the way in which different economic
agents in the society seek to achieve their goals e.g. how a firm behaves in trying to make as much
profit as it can or how a household is trying to reach the highest attainable level of consumption.
Positive sentiments are concerned with what is ,was or will be.

2) Normative economics - Is concerned with making suggestions about the way in which society’s
goals might be more efficiently realized. The approach involves the economist in ethical questions
of what should or ought to be done .They take u strong moral positions on the propriety of goals
themselves e.g. The present high level of unemployment in Kenya ought to be reduced etc

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 5

ECONOMIC SYSTEMS

A system means a certain coordinated means of doing things we require. An economic system is an
institutional arrangement whereby rules and orders and norms facilitate the interaction of
economic units in a coherent and consistent manner given a certain constraint in order to achieve
certain objectives (production, allocation and distribution). Economics systems must:
1) Be able to adjust in order to change to circumstances or disturbances that are
exogenous e.g. changes in value
2) Be able to adapt to new situations to creation of new institutions or reformulation of
existing institutions when economic opportunities change economic systems must
change its institutional arrangement and adopt new strategies.

CLASSIFYING ECONOMIC SYSTEMS

There are certain consideration make to classify economic systems;
1) The decision making structure - this depends on the level of the economy the type of the
decision to be made and the sanctions with the decision makers. There are 4 types of
decision-making structures
a) Complete centralization of decision making - A central authority makes all the
decisions and the decisions must be implemented as made by that body
b) Administrative centralization - The formulation of decision is by the central
authority but after the decisions are made, there is a delegation of implements of
lower levels authorities which implement them to economic units without
modification.
c) Manipulative decentralization - decisions are made by the central authority but the
implementation is freely left to the lower authorities. The lower authorities decide
on how best they can be done.(if manipulate prices, taxes ,bonuses, access to credit
etc)
d) Complete decentralization - there is a complete dispersion of decision making
power-power can be held by certain organization, individuals or by individual
economic units
We can thus have 4 economic systems if we look entirely at the decisions-making structure as
the whole criteria

2) The motivation structure - There are three ways of motivating economic units
a) Material reward-remunerative power
b) Punishment by the society if they don’t perform e.g. paying of taxes. Economic units
pay taxes because if they don’t they will be punished. This fear of punishment for not
doing what is prescribed makes the economic units act the way they do.
c) Loyalty of the economic system to achieve a common good.

3) Information structure - The channels of information are different. They can be centralized
and decentralized .Two important things to note are;
a) Reliability of the information
b) Limitation of the information-too much information is detrimental as there can be
instability.

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 6

 4) Coordination structure - The activities of many economic systems must be coordinated so
that there is no conflict and also to ensure that efficient use of resources and full use of fair
distribution of income. In practice coordination can be used through
a) Traditional approach, everybody knows each other and knows what he is doing there
is barter economy and no duplication
b) The invisible hand-based on the understanding of decentralized individual economic
decision making structure
c) Planning-Commands and directives are given to coordinate the activities. All plans and
directives are made so that the society can achieve certain specified objectives.

5) Ownership of the main productive resources - ownership facilitates the use, abuse and
disposal of resources. It can be divided into
a) Private ownership
b) Collective ownership
c) Mixed ownership

6) Ideology - This seems to be the determinant. It is a set of ideas and depicting certain social
reality and depicting certain goals of the society. It can be private ownership profit
maximization etc. Based on certain ideologies, then we can classify economic systems

In summary since the economies are different with respect to the above, then we get
different economic systems. There are 3 main economic systems

1) Capitalist
This category falls under market economic systems. It is characterized by a number of institutional
arrangements. Some of these arrangements include the following;
a) Private property-Exist with certain rights which include the use, abuse, exclusion of others, ways
of distribution etc. It encourages thrift in accumulation and hence encourages growth and serves as
a stimulus to individual initiatives and motivation
b) Profit incentive- Goods are produced by firms or entrepreneurs guided by the consumers
freedom to choose what they want. Profitability is the main determinant of whether a good should
be produced or not
c) Allocation of resources through the price mechanism (the free markets) - most of the decisions
are made through prices changes as act signals. They also provide a coordinating activity
mechanism for numerous production units, hence there are no conflicts. Prices determine the kinds
and quantities of goods that are produced and how they are distributed.
d) Free enterprise –The general right of any individual to engage in any line of economic activity.
There must be free movement of resources and people from various activities and various
locations. The freedom of movement tends to be accomplished by the use of market indicators.
e) Completion-People are used to be self reliant. The argument is that competition leads to:
-Efficiency of resource use
-Product renovation and long run reduction of cost and hence lower prices
-Provision of wide range of alternative resources of supply and a wide variety of goods
f) Individualism-Each entrepreneur act as an individual guided by the prices and tries to compete.
Decisions are so decentralized that every unit makes its own decision but they tend to be consistent
with other activities of the economic systems

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 7

g) Consumer sovereignty-Consumption is the basic rationale of economic activities (consumption
enables the producers to mobilize the resources)
-There is competition and the consumers vote through money
-There is freedom of choice-consumers are free to choose whatever they want
-Consumers are capable of making rational decisions
h) Work ethic- There are various types of ethics. They include;
-Hard work
-Diligence
-Thrift
-Whatever people do it is to the best of their ability
-There must be no wastage
I) Limited government –The mechanism is in charge .In the ideal capitalist situation there is no
government .However there is no state without the government, there is no ideal capitalist system.
j) Capital formation –savings come from individuals and firms who through their thrift and their
wish to accumulate and earn interest lead to investors.

NON MARKET ECONOMIC SYSTEMS

The other extreme of capitalism are
a) Communism
b) Socialism
COMMUNISM
This is a higher state of socialism which is characterized by
1) Plenty of everything - hence no restriction to use of resources
2) Distribution according to need - there is no accumulation
3) Absence of money and the market mechanism
4) Disappearance of capitalism
This is an ideal state where everybody is satisfied according to his need. This origin started with the
city states where everything would be held in common. It arose due to the existence of capitalism. it
was thought that capitalism was not a good system and there was need for a better system. Several
institutions therefore arose;
1) Economic planning-When the market mechanism is used; the resources are allocated
favoring the bourgeoisie- a waste since it was not according to the need. There was thus
need to allocate resources according to targets set by the planning agency and also to
reduce wastage through conspicuous consumption.
2) Social ownership of property –means of property was owned by the state and allocation
was done through planning.
3) Concentration of power within a certain setup where the decisions were made by the
central authority and passed through a certain chain of command. This power is not
challenged and hence can be misguided
4) Cooperation –people cooperate and do not behave individually.

SOCIALISM
This is a move towards capitalism from communism. It is a derivative from communism which
tends to capitalism.
It is a welfare state:

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 8

 a) Some private ownership-it is generally limited to consumption goods. Productive
means are generally owned by the society(collective ownership)
b) The price system –resources are allocated using the price system but the economic
units done solely rely on the price system to make their economic decisions.
Government makes decision on production because the price system does not reflect the non
economic wants of the society. The market mechanisms would allocate resources towards
goods which majority of the people cannot afford. Some other mechanisms of capitalism are
also found in socialism but are modified.

MIXED ECONOMIC SYSTEMS

Features
a) They combine some of the basic features of capitalism and socialism
-Private ownership
-Individualism
-Competition
-Collective ownership
-Commands
b) There is a reliance on the market mechanism to allocate resources
c) There is a lot of government involvement in terms of allocation of resources ,social and
economic policies which involves economic agents ,development projects and
formulation of policies

COMPARING THE ECONOMIC SYSTEMS

There are three ways of comparing different economic systems
1) Factors that determine the character of the system
a) Level of economic development showing different indicators e.g. output, life
expectancy, expenditure on defense etc
b) Social and cultural forces
c) Environmental factors
2) Operations-patterns of resource allocation, social welfare, functional distribution of
resources organizational arrangement, tools used by the government
So operations are
a) Social welfare function
b) Institutional arrangement
3) Performance –This depends on who is evaluating the indicators used, circumstances
Certain criteria have however been recommended:
a) Output(GNP,GDP)-This is the theory of plenty
b) Growth of output of an economy
c) Stability in terms of output, employment, prices, political etc.It assumes that a country
would be more stable if there is plenty growth and equity.
d) Economic security of the individual enterprise (economic entity)This is why the
government is involved in fixing wages to guarantee security in terms of employment
etc
e) Economic freedoms-The freedom of the consumers to choose what they want
produced, ownership of property, choice of jobs etc

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 9

 f) Equity and justice-depending on who is looking at it.

KENYA’S ECONOMIC SYSTEM

a) Ownership of resources-both private and collective with emphasis on private
b) Allocation of resources –price mechanism and planning with emphasis on planning
c) Decision making structure-manipulative decisions but implementation left to the
individuals without restrictions.
d) Motivational structure-remunerative, coercive if you must pay taxes. Normative forces
are all found with emphasis on the remunerative
e) Coordination structure –traditional market and planning –emphasis on planning.
f) Information structure –centralized through the KNA and office of the president but an
element of distention.
g) Operations in determining the composition of output and its distribution: consumer
sovereignty, planner’s sovereignty and democratic forces are all present.

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 10

 THE THEORY OF DEMAND AND SUPPLY
DEMAND

Definition

An individual demand for a commodity may be defined as the quantity of that commodity that the
individual is willing and able to buy during a given time period. Factors which may influence a
consumers demand for a good x over a given time period (dx)

a) The price for the good (px)

b) The prices of other goods which are related to good x (PR)
c) The consumers income (Y)
d) The consumers taste for good x (T)
e) The consumers’ expectations about future prices (E)

The demand function can be written as: Dx=f (Px, Pr, Y, T, E, Z)

The price of the commodity is in many cases the most important factor influencing an individual’s
demand for it and so economists analyze the relationship between a consumers demand for X
and the price of X by assuming that all other factors remain unchanged. This is the important
ceteris Paribas assumptions, a Latin phrase meaning “other things being equal”

Dx=f (Px) ceteris Paribus;

This means that the individuals demand for X is determined by the price of X assuming that all
other influencing factors are held constant

Illustration

Individuals’ consumers demand schedule for good X

Price of X consumers demand

(Shillings per unit) (Units per week)
10 3
20 2
30 1
40 0

This can be represented most conveniently by using graphs. The price is conventionally on the
vertical axis while the quantity demanded per time period on the horizontal axis as shown below

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 11

 A
40
Price of x (KSH)

30

20

10

0 B

1 2 3 4
Quantity of x demanded (units per
week)

The line AB reproduces the information contained in the table and is called the individuals demand
curve for X. Note that the quantity is labeled the quantity of X per week. Since demand is a flow
concept, in measuring the quantity of a good demanded, it is imperative to refer to sometime
period. A demand of 2 units has no meaning whatsoever unless it is expressed over some specified
period of time.

The demand curve for X is a straight line and slopes from left to right i.e. it are negatively sloped. It
certainly need not be a straight line but in our example it is a straight line simply because of the
simple numbers used in the example

The negative slope of the demand curve reflects reasonable expectation that a price of X falls,
ceteris paribus, our consumers demand for it will rise.

Market demand

The market for a good can be thought of as an area in which the buyers and sellers of a good come
into contact with each other to transact their business. The limits of a market are however
necessarily defined by the national or geographical boundaries advanced nature of communication
these days has enabled the market for many commodities to become worldwide

The market demand for good X is the sum of all the individual demand but will not be influenced by
an individual’s income but the national income

The market demand function for X can be written as

Dx=f (Px, Pr, Y, E, T, Z)

Making the ceteris Paribas assumption and holding all the influencing factors constant except the
price of X

Dx=f (PX), Ceteris Paribus

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 12

Assuming that a fall in price of will course an increase in the total quantity demanded, we have the
downward sloping market demand curve DD
D
Price

P1

P2

0 Q1 Q2 Quantity per time period

As the price falls from OP1 to OP2 the total quantity demanded in the market rises from Oq1 to Oq2,
if price should rise back to OP1, quantity demanded would fall back to Oq1. This inverse
relationship between price of a commodity and the quantity demanded in the market is summed up
in the so called law of demand.

The law of demand: A rise in the price of a good leads to a fall in the quantity demanded. A fall
in the price of a good leads to arise in the quantity total demanded.

REASONS FOR THE DOWNWARD SLOPING DEMAND CURVE

i. Lowering prices brings in new buyers who were not able to buy at the previous price.
ii. Reduction of price may coax out some extra purchases by each of the initial consumers of
the goods, while a rise in price may lead to less purchases. Naturally, consumers will try to
substitute the commodity with another cheaper one. Note also that a fall in price implies a
rise in real income, hence the ability to purchase more of the same good.
iii. Whenever a commodity becomes expensive its consumption normally will be left for only
very important uses. For instance a consumer may opt to use electricity lighting only, and
not for cooking if its prices sky rocket. The vice versa is also true.

However, this law is not an unassailable truth. There are two major exceptions to it

a) Geffen goods

A Geffen good (named after an economist Sir Robert Geffen) is a very inferior good for which the
demand increases as the price rises, and demand decreases as the price falls. This is possible when
the consumers in certain less privileged countries e.g. Bangladesh, are so poor that most of their
income are spent on a commodity necessary for subsistence, like rice (or sukumawiki). If the price
of rice should fall in such a circumstance, consumers may reduce their demand for rice and use
their extra real income to purchase meat or some other more nutritious food.

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 13

 b) Veblen goods

A Veblen good, (Named after the economist Thorstein Veblen) is a luxury good, like jewellery which
is greater demand at a higher price than a low price. Thus if a gold necklace is put for sale at a low
price, it may lack snob-appeal and the demand for it may drop. A price is raised the good gets snob-
value and demand for it increases.

The market demand curve for a Geffen good and for a Veblen good will be upwards sloping from
left to right i.e. positively sloped. Such goods explains why an individual consumer demand curve
may be positively rather than negatively sloped.

D
Price

O Quantity per time

MOVEMENT A LONG AND SHIFT OF THE DEMAND CURVE

D
Price(sh per
unit)

C
30
20 A
B
10

400 500 600 quantity per time period

Consider the graph
Suppose the price is Ksh 20 the quantity demanded will be 5000 and this combination is
represented by point A. If the price should fall to Ksh 10 per unit, ceteris paribus, quantity
DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 14
demanded will rise to 600 units. This fall in price simply means that we have moved along the
demand curve from point A and B. If the price rises to Ksh 30 per unit, quantity demanded will fall
to 400 units. Again we simply moved along the demand curve to point C. Such movements along the
demand curve are called expansions of demand (for an increase in quantity demanded following a
price change) or contractions of demand (for a decrease in quantity demanded following a price
change

The effect in change in price of good x ceteris paribus can be traced my moving along the market
demand curve for X.

Suppose that one of the other influencing factors changes e.g. Suppose that the real national income
increases so that everyone has more to spend on all goods .The market demand for good X will now
increase at all prices. In other words we must draw a new demand curve to represent the new
relationship between the quantity demanded and the prices.

D1
D
Real
national
income

D1

Quantity dd per unit

DD is the original demand curve. D1D1 is the new one which lies above and to the right of the
original one

A change in any one of the influencing factors except the price of X (in this case change in real
national income) courses a shift in the demand curve for X from DD to D1D1.

Illustration: Likely course of shifts in the demand curve for tilapia.

Cause Effect

1. Increase in the national income Increase in the demand for tilapia

2. Decrease in national income Demand curve shifts to the right

3. Increase in the price of substitute goods Decrease in the demand for tilapia

4. Fall in price for substitute goods Demand curve for tilapia shift to the right

5. Rise in the price for complementary goods Demand curve for tilapia shifts to the left

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 15

 6. Fall in price for complementary goods Demand curve for tilapia shifts to the right

7. Change in taste in favor for tilapia Demand curve shifts right

8. Change in taste against tilapia Demand curve shifts to the left

9. Expectation of a rise in the future Demand curve shifts to the right

10. Expectation of fall in the future price Demand curve shifts left

NB The stability of any given market demand curve depends on the reasonableness of the ceteris
paribus assumption.

ENGLE CURVES
It is sometimes useful to consider the relationship between demand and income, ceteris paribus.
Represented graphically, such a relationship is called an Engel curve (named after economist Ernst
Engel. Engle curve can be drawn either for an individual or for the market as a whole. Consider an
individual’s Engel curve for good X.

Consumer’s income Quantity demanded

(Sh per week) (Units per week)
500 1
600 2

700 4

800 7

Drawn on a graph this information gives the consumers Engel curve for good X

800 Engel curve

700

600
Income (Sh)

500

400

300
200
100

2 4 5 8 quantity per week

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 16

For the economy as a whole, Engel curve can be drawn in the same way though in the vertical axis it
should be national income while in the horizontal axis it should be the total quantity demanded in
the market.

DOUGLAS RM. | INTRODUCTION TO MICROECONOMICS NOTES 17