EKN 110
Summaries
Chapters 1 – 5
2025
Table of Contents
TABLE OF CONTENTS_________________________________ 1
DISCLAIMER ________________________________________ 3
Limitations of These Notes ______________________________________________________________________________ 3
Disclaimer of Liability ___________________________________________________________________________________ 3
Final Acknowledgement _________________________________________________________________________________ 4
CHAPTER 1: THE WHO AND THE WHY OF ECONOMICS ___ 5
Quick rundown: _________________________________________________________________________________________ 5
Economic Perspective: __________________________________________________________________________________ 6
Scarcity & Choice: _____________________________________________________________________________________ 6
Economics: ___________________________________________________________________________________________ 6
Opportunity Cost: _____________________________________________________________________________________ 6
Rational (Purposeful behaviour): ________________________________________________________________________ 7
Consumers: __________________________________________________________________________________________ 7
Producers: ____________________________________________________________________________________________ 7
Utility: ________________________________________________________________________________________________ 7
Marginal Analysis: _____________________________________________________________________________________ 8
Scientific Method: _____________________________________________________________________________________ 8
Principles and Models in Economics ____________________________________________________________________ 8
Tools to Determine Cause and E ect ____________________________________________________________________ 9
Graphical Representation ______________________________________________________________________________ 9
Macroeconomics_____________________________________________________________________________________ 10
Microeconomics _____________________________________________________________________________________ 10
Aggregates: __________________________________________________________________________________________ 10
Positive Economics: __________________________________________________________________________________ 10
Normative Economics:________________________________________________________________________________ 11
CHAPTER 2: ECONOMIC SYSTEMS ____________________ 12
Economic System ____________________________________________________________________________________ 12
Laissez-Faire Capitalism ______________________________________________________________________________ 12
Command System____________________________________________________________________________________ 12
Market System _______________________________________________________________________________________ 12
Emerging Markets ____________________________________________________________________________________ 13
Medium of Exchange and Money _______________________________________________________________________ 13
Consumer Sovereignty and "Rand Votes" _______________________________________________________________ 13
Creative Destruction __________________________________________________________________________________ 13
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CHAPTER 3: CONSUMER BEHAVIOUR AND UTILITY
MAXIMIZATION _____________________________________ 14
CHAPTER 4: THE COST OF PRODUCTION ______________ 18
Costs and Profits _______________________________________________________________________________________ 18
Time Frames ___________________________________________________________________________________________ 18
Production _____________________________________________________________________________________________ 18
Law of Diminishing Returns_____________________________________________________________________________ 18
Costs in the Short Run __________________________________________________________________________________ 20
Long-Run Concepts ____________________________________________________________________________________ 21
CHAPTER 5: DEMAND, SUPPLY AND MARKET EQUILIBRIUM22
Demand _______________________________________________________________________________________________ 22
Supply _________________________________________________________________________________________________ 22
Market Equilibrium _____________________________________________________________________________________ 23
Economic Surpluses ___________________________________________________________________________________ 23
Government Intervention _______________________________________________________________________________ 23
BIBLIOGRAPHY _____________________________________ 24
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Disclaimer
The following notes for the EKN 110 module have been compiled for general
reference and study purposes. They are made available free of charge and
may be used, shared, or distributed as needed. However, these notes are
unofficial and do not replace the prescribed course materials, lectures,
or any guidance provided by the lecturer or university. While I have taken
care to ensure that the information is accurate and relevant, I do not
guarantee its correctness, completeness, or applicability.
Limitations of These Notes

Graphical Content: Not all types of graphs, illustrations, or visual
representations covered in the module are included in these notes.
Students are responsible for studying all required graphs from
official course materials, prescribed textbooks, and lecture slides
to ensure a full understanding of the content.

Content Scope: These notes may summarize or simplify certain concepts
for easier understanding. Some detailed explanations, examples, or
applications discussed in class may not be fully covered.
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
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performance
issues:
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any
errors,
omissions,
or
misinterpretations in these notes lead to incorrect answers on tests,
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
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
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
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Final Acknowledgement
It is strongly recommended that users cross-reference these notes with
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Chapter 1: The who and the why of economics
Quick rundown:
Definition and Economic Perspective: This chapter covers the definition of
economics and the main features of the economic perspective, including the
concept of scarcity and choice. It explains how economics studies the
choices
individuals,
businesses,
and
institutions
make
to
optimize
satisfaction under conditions of scarcity.

Opportunity Cost: The concept of opportunity cost is discussed with
examples, such as choosing between a holiday or a new kitchen for
individuals, different machines for businesses, and new schools or
roads for governments.

Rational
Behaviour
and
Marginal
Analysis:
It
explores
rational
(purposeful) behaviour in economics, rational self-interest, and the
desire to maximize satisfaction (utility). The marginal analysis is
explained, focusing on marginal costs and benefits and the decisionmaking process.

Micro and Macro Economics: The distinction between microeconomics and
macroeconomics is highlighted. Microeconomics deals with individual
units like households and firms, whereas macroeconomics examines the
economy as a whole or its basic subdivisions like government and
business sectors.

Positive and Normative Statements: The chapter distinguishes between
positive
economics,
which
focuses
on
facts
and
cause-and-effect
relationships, and normative economics, which involves value judgments
about what the economy should be like.

Theories, Principles, and Models: It discusses economic principles
and models as tools for understanding cause and effect, including
generalizations, the other-things-equal (ceteris paribus) assumption,
and graphical expressions.
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Economic Perspective:
Scarcity & Choice:

Scarcity in economics refers to the limited availability of resources
in comparison to the unlimited wants of individuals and society,
necessitating choices on how to allocate these resources efficiently.
Choice arises because individuals, businesses, and governments must
decide how to best use scarce resources to satisfy competing needs.
o
Example: In South Africa, the energy crisis—electricity supply
is limited due to infrastructure challenges at Eskom, forcing
the government and businesses to choose between investing in
renewable energy, maintaining coal plants, or implementing load
shedding to manage demand.
Economics:

Economics is the study of how individuals, businesses, and governments
allocate scarce resources to satisfy unlimited needs and wants. It
examines
production,
distribution,
and
consumption
of
goods
and
services to achieve efficiency and growth,
o
Example: In South Africa, a key economic issue is unemployment—
policymakers must decide how to stimulate job creation, such as
investing
in
small
businesses,
improving
education,
or
supporting industrial growth, to address the high jobless rate
and drive economic development.
Opportunity Cost:

Opportunity cost is the value of the next best alternative foregone 1
when making a choice. It represents the benefits that could have been
gained if a different decision was made.
o
Example: For example, if the South African government allocates
more funds to social grants instead of improving infrastructure,
the opportunity cost is the potential economic growth and job
creation that better roads, railways, and energy systems could
have provided.
1
Go without (something desirable). (Merriam- Webster, n.d.)
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Rational (Purposeful behaviour):

Rational purposeful behaviour in economics refers to the decisionmaking process where individuals, businesses, or governments make
choices that maximize their benefits or utility based on available
information and resources.
o
Example: For example, in South Africa, a manufacturing company
facing high electricity costs due to load shedding may invest
in solar power instead of relying on the unstable national grid.
The opportunity to reduce long-term operational costs and ensure
uninterrupted production drives this rational decision.
Consumers:

Consumers in economics are individuals or groups who purchase goods
and services to satisfy their needs and wants. They drive demand in
the market, influencing production and pricing decisions.
o
Example: in South Africa, shoppers buying necessities like maize
meal and bread contribute to the demand for these staple foods,
affecting pricing and supply in the retail and agricultural
sectors.
Producers:

Producers in economics are individuals, businesses, or entities that
create goods and services to meet consumer demand, using available
resources efficiently. They play a key role in economic growth by
generating employment and contributing to market supply
o
Example: In South Africa, a local farmer growing and selling
maize
helps
supply
the
staple
food
market,
impacting
food
availability and prices while also creating jobs in agriculture.
Utility:

Utility in economics refers to the satisfaction or benefit that a
consumer derives from consuming a good or service. It represents the
value individuals place on products based on their ability to fulfil
needs or wants.
o
Example: In South Africa, a commuter using a minibus taxi for
daily
transport
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gains
utility
from
its
affordability
and
7 | Page
accessibility,
despite
potential
inconveniences
like
overcrowding or delays.

Measurement of utility:
o
Cardinal Utility: Assumes utility can be measured numerically
(e.g., assigning a value to satisfaction).
o
Ordinal Utility: Assumes utility can only be ranked in order of
preference rather than measured precisely.
Marginal Analysis:

Marginal analysis in economics refers to the examination of the
additional benefits and costs associated with a small (marginal)
change in the level of an activity. It helps decision-makers determine
the
optimal
level
of
production,
consumption,
or
investment
by
comparing the marginal benefit to the marginal cost.
o
Example: In South Africa, a business deciding whether to produce
one more unit of a product will use marginal analysis to weigh
the additional revenue (marginal benefit) against the extra
costs (marginal cost) to determine if it is worth proceeding.
Scientific Method:

The
scientific
method
in
economics
refers
to
the
process
of
systematically observing, hypothesizing, experimenting, and analysing
data to understand economic phenomena and test theories. It involves
developing
models and
using
empirical
evidence
to make informed
conclusions about how the economy works.
o
Example: In South Africa, economists might use the scientific
method to analyse the impact of a minimum wage increase by
gathering
data,
forming
hypotheses
about
its
effects
on
employment, and testing these hypotheses through real-world
observations and statistical analysis.
Principles and Models in Economics

Economists use principles and models to simplify and explain complex
real-world dynamics. These frameworks help to:
o
Explore
relationships
between
different
variables,
such
as
supply and demand.
o
Predict outcomes in various economic scenarios.
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o
Evaluate the effects of policy decisions.
Tools to Determine Cause and Effect

Economists employ several methods to uncover causal links:
o
Generalizations:
These
describe
tendencies
observed
among
typical consumers, workers, or businesses (e.g., the law of
demand).
o
Examples:

Consumer Behaviour: For instance, the observation that
higher-income consumers tend to save a larger percentage
of their income.
Labor Markets: The tendency of workers with advanced
education to earn higher wages.
Business Practices: The trend of firms lowering prices
during promotional periods to increase sales volumes.


o
Ceteris Paribus (Other-things-equal): This assumption allows
analysts to focus on how one variable influence another, assuming
other factors remain constant. For example, it isolates the
relationship between price and quantity demanded.
o
Examples:

Impact of Tax Cuts: Analysing how a reduction in income
taxes affects consumer spending, assuming other factors
like employment rates remain unchanged.
Effects of Minimum Wage: Investigating how an increase in
minimum wage influences employment levels while holding
all other market conditions constant.
Price and Demand Relationship: Examining how a rise in fuel
prices affects the demand for public transportation if all
other factors (e.g., income, population size) stay the
same.


Graphical Representation

Economic
models
often
use graphs
to
visualize relationships
and
simplify analysis:
o
Demand and Supply Curves: Depicting the interplay between price
and quantity.
o
Production Possibility Frontier (PPF): Representing trade-offs
and opportunity costs.
o
Cost Curves: Showing production costs over the short and long
term.
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
Note: Check “Chapter 1 – Appendix: Graphs and their meaning” on
ClickUp. This is a very good summary of basics you need to know for
graphs
Macroeconomics

Macroeconomics focuses on understanding and analysing the overall
functioning
of
an
economy,
as
well
as
its
major
components
or
aggregates, such as:
o
Government:
Public
sector
activities,
including
taxation,
spending, and fiscal policies.
o
Households:
Consumption
patterns,
savings,
and
income
distribution of individuals and families.
o
Business
Sectors:
Investments,
production,
and
economic
contributions by firms.
Microeconomics

Microeconomics focuses on specific elements of the economy rather than
the economy as a whole.
o
A person: Their income, consumption, and choices.
o
A household: Its spending, saving, and financial activities.
o
A firm: Production, pricing, and business strategies.
o
An industry: Market structure, competition, and output levels.
Aggregates:

The total or combined amount that represents a whole. For example, it
can relate to concepts like aggregate demand (total demand for goods
and services in an economy) or aggregate supply (total output of goods
and services).
Positive Economics:

Focuses on objective facts and cause-and-effect relationships. It
involves describing, developing, and testing economic theories without
incorporating personal opinions or value judgments.

Examples:
o
Tax Rates and Revenue: Analysing how changes in income tax rates
affect government revenue without making value judgments about
whether taxes should be higher or lower.
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10 | P a g e
o
o
Subsidies and Production: Studying how subsidies for farmers
impact agricultural output, focusing on the causal relationship
rather than whether subsidies are good or bad.
Inflation and Consumer Spending: Investigating how rising
inflation rates influence consumer purchasing behaviours,
without expressing opinions on inflation policies.
Normative Economics:

Involves subjective perspectives, incorporating value judgments about
what the economy should be like. It often reflects support for specific
policies or desired outcomes.

Examples:
o
o
o
Tax Policies: Advocating for higher taxes on the wealthy to
reduce income inequality, arguing that it is "fairer" or promotes
social justice.
Minimum Wage: Proposing an increase in the minimum wage to ensure
all workers can afford a decent standard of living, based on the
belief that it is morally right.
Environmental Regulations: Supporting stricter regulations on
industries to combat climate change, asserting that it is
essential for the well-being of future generations.
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Chapter 2: Economic Systems
Economic System

An economic system encompasses the structure through which a society
organizes and coordinates the production, distribution, and consumption
of goods and services. The ownership of resources and methods for
directing economic activity differ between systems. The document outlines
two primary systems: command and market economies.
Laissez-Faire Capitalism

This system represents a form of market economy with minimal government
interference.
It
emphasizes
private
ownership,
free
markets,
and
voluntary exchanges between individuals.
Command System

In
this
centralized system,
the
government owns most
property and
controls economic activity via a planning board. Decisions on what, how,
and for whom to produce are dictated by the state. Historical examples
like the USSR illustrate its challenges, particularly coordination and
lack of incentives, which led to its collapse.
Market System

In contrast to the command system, a market system allows private
ownership and promotes competition. It is characterized by properties
such as:
o
Private Property: Individuals and businesses have legal rights
to own and control resources.
o
Freedom of Enterprise and Choice: Entrepreneurs can decide what
to produce, while consumers have the freedom to choose what to
buy.
o
Self-Interest:
People
act
in
their
own
economic
interests,
driving efficiency and innovation.
o
Specialization: Businesses focus on specific tasks or products,
which boosts productivity.
o
Division of Labour: Tasks are split among workers based on their
skills, enhancing efficiency.
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12 | P a g e
o
The
"Invisible
Hand":
Adam
Smith's
metaphor
for
how
self-
interested actions in a competitive market often lead to societal
benefits, such as efficient resource allocation.
Emerging Markets

Emerging markets are transitioning economies that adopt principles of
market systems. The contrast between South Korea (market economy) and
North Korea (command economy) illustrates how market systems lead to
greater prosperity. South Korea’s average annual income far exceeds that
of
North
Korea,
reflecting
the
benefits
of
economic
freedom
and
competition.
Medium of Exchange and Money

A medium of exchange simplifies trade by replacing barter systems. Money,
as the most widely accepted medium, enables economic transactions and
allows markets to function efficiently.
Consumer Sovereignty and "Rand Votes"

In a market system, consumers dictate what is produced through their
purchasing decisions. The term “rand votes” refers to how spending money
signals demand, guiding producers on what to supply.
Creative Destruction

This
concept
refers
to
innovation
displacing
outdated
products
or
industries. For instance, new technologies may render old ones obsolete,
fostering progress and economic growth.
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13 | P a g e
Chapter
3:
Consumer
Behaviour
and
Utility
Maximization

The law of diminishing marginal utility explains that as a consumer
acquires additional units of a good, the satisfaction (or utility)
from consuming each additional unit declines.

Utility: This is the satisfaction or pleasure derived from consuming
a
good
or
service,
which
varies
from
person
to
person
and
is
subjective.

Total Utility (TU): Refers to the overall satisfaction a consumer
gains from consuming a certain quantity of a good or service.
o
Graphic Example:
Total Utility
25
Total Utility
20
15
10
5
0
0
1
2
3
4
5
6
7
Units consumed per meal

Marginal Utility (MU): The extra satisfaction obtained from consuming
one additional unit of a good. It's key to note that MU diminishes
with each additional unit consumed.
o
Formula: MU = ΔTU/ΔQ
o
Graphic Example: (On next page)
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14 | P a g e
Marginal Utility
12
10
Marginal Utility
8
6
4
2
0
-2
0
1
2
-4

3
4
5
6
7
Units consumed per meal
Weighted marginal utility refers to the extra satisfaction a consumer
derives from spending one additional unit of currency (such as a rand
or dollar) on a product. This concept evaluates marginal utility in
relation to the price of a good, helping rational consumers make
decisions
about
how
to
allocate
their
income
to
maximize
total
utility.
o

WMU = MU/Price
Rational Behaviour: Consumers aim to maximize their total utility with
their available income by making informed and logical decisions.

Budget Constraint: The limit set by the consumer's income and the
prices
of
goods,
determining
which
combinations
of
goods
are
affordable.

Utility-Maximizing Rule: To achieve the optimal combination of goods,
consumers compare the marginal utility per unit of money (MU/Price)
for each good and allocate their spending where this value is equal
across goods.

Budget Line: This curve shows the various combinations of two goods
that a consumer can afford given their income and the prices of the
goods.
o
Example: (Next Page)
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15 | P a g e
Budget Line
12
10
Bananas
8
6
4
2
0
0
1
2
3
4
5
6
Apples
o
Note:



Any point under the budget line is attainable. (Fits within
budget aka you can afford it).
Any point over the budget line is unattainable (Does not
fit withing budget aka you cannot afford it).
Indifference Curve: Represents all the combinations of two goods that
provide the same level of satisfaction. Consumers are indifferent
between combinations on the same curve.
Indifference curve
9
8
7
Q(A)
6
5
4
3
2
1
0
0
2
4
6
8
10
12
14
Q(B)
o

Note:
 At any point on the graph, you are indifferent between two
products.
 Graph is convex of nature.
Marginal Rate of Substitution (MRS): The rate at which a consumer is
willing to substitute one good for another while maintaining the same
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16 | P a g e
level of total utility. MRS diminishes as more of one good is consumed
and less of another.

Equilibrium Position: This is where the budget line is tangent to the
highest
attainable
indifference
curve,
indicating
the
consumer's
optimal consumption point.
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Chapter 4: The Cost of Production
Costs and Profits

Economic (Opportunity) Cost: The value of the next best alternative
foregone when resources are used in a specific way.

Explicit Costs: Monetary payments made for resources the firm
doesn't own, such as wages, raw materials, or utilities.

Implicit Costs: The opportunity costs of using the firm's own
resources, such as the income foregone by using the owner's time
or capital internally.

Normal Profit: The minimum return required to keep an entrepreneur
engaged in a business, considered an implicit cost.

Economic Profit: Total revenue minus total costs (both explicit and
implicit, including normal profit). It represents the extra profit
above the opportunity costs.
Time Frames

Short Run: A period during which at least one resource (like plant
size) is fixed, but other resources can be adjusted.

Long Run: A period long enough to allow the firm to adjust all
resources, including plant capacity.
Production

Total Product (TP): The total quantity of output produced.

Marginal Product (MP): The additional output produced by adding one
more unit of a variable resource (e.g., labour), calculated as MP=
ΔΤP/ ΔInput

Average Product (AP): Output per unit of input, calculated as AP=
TP/input
Law of Diminishing Returns

As additional units of a variable resource are added to a fixed
resource,
the
marginal
product
eventually
declines,
assuming
technology remains constant.

Note:
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18 | P a g e
Units
of
the
Marginal Product
cost Total Product
∆TP/∆Input
Average
variable
(Labour)
(Labour)
(TP/Input)
0
0
0
0
1
10
10
10
2
25
15
12,50
3
45
20
15
4
60
15
15
5
70
10
14
6
75
5
15,5
7
75
0
10,71
8
70
-5
8,75
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Product
19 | P a g e
Law of diminishing returns
80
70
Total Product
60
50
40
30
20
10
0
0
1
2
3
4
5
6
7
8
8
9
Law of Diminishing Marginal Return
25
Marginal PRoduct
20
15
10
5
0
-5
1
2
3
4
5
6
7
-10
Marginal Product
Average Product
Costs in the Short Run

Fixed Costs (FC): Costs that remain constant regardless of output,
such as rent or salaries.

Variable Costs (VC): Costs that vary with output, like raw materials
or electricity.

Total Cost (TC): The sum of fixed and variable costs, TC=TFC+TVC

Average Fixed Cost (AFC): Fixed cost per unit of output, AFC=TFC/Q

Average
Variable
Cost
(AVC):
Variable
cost
per
unit
of
output,
AVC=TVC/Q

Average Total Cost (ATC): Total cost per unit of output, ATC=TC/Q.
Alternatively,
ATC
=
TC/Q
=
(TFC+TVC)/Q=
TFC/Q
+TVC/Q = AFC+AVC
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20 | P a g e

Marginal Cost (MC): The additional cost of producing one more unit of
output MC= ΔΤC / ΔQ
Long-Run Concepts

Economies of Scale: Reductions in average total cost as production
increases due to factors like specialization and efficient use of
capital.

Diseconomies of Scale: Increases in average total cost as production
expands
beyond
an
efficient
scale,
often
due
to
coordination
difficulties.

Constant
Returns
to
Scale:
When
output
increases
in
the
same
proportion as inputs.

Minimum Efficient Scale (MES): The lowest level of output where a firm
can minimize its long-run average costs.

Natural Monopoly: A market condition where a single firm can produce
the entire market output at a lower average cost than multiple firms,
often due to extensive economies of scale.
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Chapter 5: Demand, Supply and Market Equilibrium
Demand

Demand: Represents the quantity of a product consumers are willing
and able to purchase at various prices over a given period.

Demand Schedule: A table showing the relationship between price and
quantity demanded.

Law of Demand: As price falls, quantity demanded increases (inverse
relationship), assuming other factors remain constant.

Diminishing Marginal Utility: Each additional unit consumed provides
less satisfaction, reducing willingness to pay more.

Demand
Curve:
A
downward-sloping
graph
showing
the
relationship
between price and quantity demanded.

Determinants of Demand: Include consumer tastes, income, prices of
related goods, expectations, number of buyers, and population growth.

Normal Goods: Goods for which demand increases as income rises.

Inferior Goods: Goods for which demand decreases as income rises
(e.g., second-hand goods).

Substitute Goods: Goods that can replace one another; when the price
of one rise, demand for the other increases.

Complementary Goods: Goods used together; when the price of one fall,
demand for the other rises.

Change in Demand: A shift of the entire demand curve due to changes
in determinants like income or consumer preferences.

Change in Quantity Demanded: A movement along the demand curve due to
price changes.
Supply

Supply: Refers to the quantity of a product producers are willing to
sell at various prices over a specific period.

Supply Schedule: A table that shows the relationship between price
and quantity supplied.

Law of Supply: As price rises, quantity supplied increases (direct
relationship), assuming other factors remain constant.
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
Supply Curve: An upward-sloping graph showing the relationship between
price and quantity supplied.

Determinants
of
Supply:
Include
resource
prices,
technology,
taxes/subsidies, prices of other goods, producer expectations, and
number of sellers.

Change in Supply: A shift of the supply curve caused by changes in
supply determinants (e.g., technology improvements).

Change in Quantity Supplied: A movement along the supply curve due to
price changes.
Market Equilibrium

Equilibrium
Price:
The
price
at
which
quantity
demanded
equals
quantity supplied, balancing the market.

Equilibrium Quantity: The quantity exchanged at the equilibrium price,
where buyers’ and sellers’ intentions align.

Surplus: Occurs when quantity supplied exceeds quantity demanded at a
certain price, leading to downward pressure on price.

Shortage: Occurs when quantity demanded exceeds quantity supplied,
causing upward pressure on price.
Economic Surpluses

Consumer Surplus: The difference between the highest price consumers
is willing to pay and the actual price paid.

Producer Surplus: The difference between the price producers receives
and the minimum price they are willing to accept.
Government Intervention

Price Ceiling: A maximum legal price (e.g. rent control) that can lead
to shortages.

Price Floor: A minimum legal price (e.g., minimum wage) that can
result in surpluses.
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All Rights Reserved.
23 | P a g e
Bibliography
1. MerriamAvailable
Webster,
at:
n.d.
Merriam
Webster.
[Online]
https://www.merriam-webster.com/dictionary/foregone
[Accessed 25 February 2025].
©Daniel w. Vermaak.
All Rights Reserved.
24 | P a g e