THE OPEN UNIVERSITY OF TANZANIA
FACULTY OF BUSINESS MANAGEMENT
DEPARTMENT OF MARKETING AND ENTREPRENEURSHIP
COURSE OUTLINE
OME 213: PRINCIPLES OF ECONOMICS
1
Introduction
The need to study economics arises from the fact that resources are scarce, needs and
wants are many and endless, at the same time people have different and competing uses
of resources for maximizing satisfaction at the lowest costs. To affect the same, correct
choices must be made to make efficient use of the resources. This course presents you
various economic principles which guide economic units to allocate resources efficiently
for individual economic units and the economy as a whole. The course is organized in
two major parts namely macro and micro economics and has twenty lecturers in total.
Micro economics is covered in the first eleven lectures while Macro economics is
covered in the remaining nine lectures. Microeconomics deals with the study of
behaviour of individual economic units at a market setting. The concepts covered in
microeconomics include demand and supply, production and costs, profit maximization,
elasticities and forecasting. Microeconomics explains why and how economic units
make decisions to employ resources in their operations. Macroeconomics at involve the
study of the economy as aggregate rather than dealing with individual economic units.
The concepts of national income, inflation, unemployment, monetary and financial
system, saving, investment and the standard of living are covered in macroeconomics
lectures.
COURSE OBJECTIVES
The main objective of this course is to equip students with a clear and sound
understanding of the principles of economics
At the end of this course the student should able to:
Discuss micro and macroeconomics concepts and policies
Formulate and explain economic models
Assess theory of demand and supply
Discuss the concept of market equilibrium
Calculate and interpret elasticity of demand and supply
Discuss the production theory
Critique the concept of market structures
Explain the demand estimation and forecasting
Discuss the concepts of inflation and unemployment
Describe saving, investment and Financial system
Compute and discuss the costs of living
LECTURE ONE: SCOPE AND METHODS OF MICROECONOMICS
1.1 Overview
In this lecture, you will be introduced to the subject matter of economics, the differences
between microeconomics and macroeconomics, the various concepts of economics, the
methods and approaches used to tackle the problem they encounter with.
1.2 Learning objectives
2
At the end of this lecture, you should be able to:
Define the concept of economics and microeconomics
Identify the central problem of economics
Define an economic model and describe how economic theory is developed
Discuss the microeconomics schools of thoughts
Differentiate between positive and normative economics
Analyse the role of economics in different sectors of economy
1.3 Sub topics
Meaning of Economics and Microeconomics
An economic problem
Economic models
Discuss the microeconomics schools of thoughts
Positive VS Normative economics
The role of economics in different sectors of economy
LECTURE TWO: THE THEORY OF DEMAND
2.1 Overview
The economy has a built-in guidance system that allocates resources efficiently. The
system is known as “Price System” which is based on interaction of the forces of demand
and supply in the market place. In this lecture you will learn the theory of demand.
2.2 Learning Objectives
At the end of this lecture, you should be able to:
State the meaning of an individual demand for a commodity
State and explain the law of demand
Explain the exception of the law of demand
State the distinctions between change in demand and change in quantity
demanded
Explain the factors that influence change in demand
Describe the concept of consumer surplus
2.3 Sub topics
Definition of demand
The law of demand
Exceptional demand curves
Determinants of demand for a commodity other than price
Change in demand Vs movement along the demand curve
Market demand for a commodity
Consumer surplus
3
LECTURE THREE: THE THEORY OF SUPPLY
3.1 Overview
In this lecture you will learn how firms supply goods and services to the market. The
lecture will explain how firms employ factors of production to produce products that are
meant for sale to individuals, other firms and the government. This lecture discusses the
determinants of quantity and market supply.
3.2 Learning objectives
At the end of this lecture you should be able to:
State the meaning of the words supply and supply curve
Differentiate individual producer’s supply and market supply of a commodity
Explain the determinants of market supply
State and differentiate change in supply and change in quantity supplied
Explain the concept of market surplus
Sub topics
Definition of producer’s supply, supply schedule, and supply curve
Individual firm’s supply for a commodity
Market supply for a commodity
Determinants of market supply for a commodity
Change in supply and change in quantity supplied
Producer surplus
LECTURE FOUR: MARKET EQUILIBRIUM
4.1 Overview
In this lecture you will learn the concept of Market equilibrium and you will study the
how to apply the concept of market equilibrium to maximize consumers’ welfare.
4.2 Learning objectives
At the end of this lecture you should be able to:
Explain the concept of market equilibrium
Explain the types of market equilibrium
Explain the disequilibrium analysis
Discuss the application of equilibrium analysis
4.3 Sub topics
Define Market equilibrium
Types of equilibrium
Disequilibrium analysis
Application of equilibrium analysis
4
LECTURE FIVE: ELASTICITY OF DEMAND
5.1 Overview
In this lecture you will learn how to calculate and interpret the elasticity of demand. The
lecture will introduce you to price, income and cross elasticity of demand and its
applications.
5.2 Learning objectives
At the end of this lecture you should be able to:
Define and explain the concepts of price, income and cross elasticity of demand
Calculate price, income and cross elasticity of demand
Describe the determinants of elasticity of demand
Explain the applications of price, income, and cross elasticity of demand in the
real life situations
5.3 Sub topics
The meaning of price, income and cross elasticity of demand
Computation of price, income and cross elasticity of demand
Determinants of price elasticity of demand
Applications of price, income and cross elasticity of demand in the real life
situations
LECTURE SIX: ELASTICITY OF SUPPLY
6.1 Overview
In this lecture you will learn how to calculate and interpret the elasticity of supply. The
lecture will introduce you to the concept of price, income and cross elasticity of supply
and its applications in real life situations.
6.2 Learning objectives
At the end of this lecture you should be able to:
Define and explain the concepts of price, income and cross elasticity of supply
Calculate price, income and cross elasticity of supply
Describe the determinants of elasticity of supply
Explain the applications of price, income, and cross elasticity of supply in the
real life situations
6.3 Sub topics
The meaning of price, income and cross elasticity of supply
Computation of price, income and cross elasticity of supply
Determinants of price elasticity of supply
Applications of price, income, and cross elasticity of supply in the real life
5
LECTURE SEVEN: THEORY OF PRODUCTION
7.1 Overview
In this lecture you will learn about factors of production, production function, returns to
scale and production parameters.
7.2 Learning Objectives
At the end of this lecture, you should be able to:
Explain the concept of production and production function
Discuss the factors of production
Explain the law of diminishing marginal return
Discuss Capital and labour intensive production techniques
Define and explain the production parameters; - total product, average product,
and marginal product.
Explain the concept of returns to scale
Differentiate between economies and diseconomies of scale
7.3 Sub topics
A firm as a production unit
Assumptions of profit maximization
Factors of production
The production function
The law of diminishing marginal return
Capital and labour intensive production techniques
Returns to scale
economies and diseconomies of scale
LECTURE EIGHT: PRODUCTION COSTS, REVENUE AND PROFIT
MAXIMIZATION
8.1 Overview
In this lecture you will learn how to use the theory of production so as to maximize profit.
Profit of the firm may be maximized by Minimization of costs or/and maximizing
revenue. You will learn also the concepts of returns to scale, economies and
diseconomies of the scale.
8.2 Learning Objectives
At the end of this lecture, you should be able to:
Define and compute the costs parameters; - Total Costs, Average Costs and
Marginal Costs.
Explain and compute Total Revenue, Average Revenue and Marginal Revenue
Illustrate the concept of isocost line
Discuss the approaches for profit maximization
Distinguish between profit maximization and optimization
6
Illustrate the linear programming techniques for profit maximization
Distinguish between economists and accountants profit
8.3 Sub topic
The meaning of Total Costs, Average Costs, Marginal Costs, Total Revenue,
Average Revenue and Marginal Revenue
Computation of Total Costs, Average Costs, Marginal Costs, Total
Revenue, Average Revenue and Marginal Revenue
Illustrate the concept of isocost line
The approaches to profit maximization
Difference between profit maximization and optimization
Linear programming techniques for profit maximization
Economists and accountants profit
LECTURE NINE: THE THEORY OF CONSUMER BEHAVIOUR
9.1 Overview
In this lecture you will learn the theory of consumer behaviour and discuss how the
theory is linked to consumer satisfaction.
9.2 Learning objectives
At the end of this lecture, you should be able to:
State the meaning of term utility and marginal utility
State the law of diminishing marginal utility
Discuss the assumption and properties of indifferent curves
Explain how to use indifference curves analysis to differentiate between normal,
inferior and Giffen goods
Describe the concept of budget line
Explain the concept of consumer equilibrium
9.3 Sub topics
Meaning of utility and marginal utility,
The law of diminishing marginal utility
Assumptions and properties of indifferent curves
Normal, inferior and Giffen goods
The budget line
Consumer equilibrium
LECTURE TEN: MARKET STRUCTURES
10.1 Overview
In this lecture you will learn how to classify different markets by using different criteria
such as buyers and sellers concentration, barriers to exit and entry, availability of
information for decision making and the nature of products available in the markets.
7
10.2 Learning Objectives
At the end of this lecture, you should be able to:
Explain the concept of market structure
Categorize different markets
Discuss the relationship between market structure and profit
Discuss the importance of market structure for private and public firms
10.3 Sub topics
Meaning of market structure
Criteria for classifying/categorizing market structures
Relationship between market structures and profit
The importance of market structure for private and public firms
LECTURE ELEVEN: DEMAND ESTIMATION AND BUSINESS
FORECASTING
11.1 Overview
Production of goods in a required volume is essential for profit maximization for any
business firm. In this lecture you will learn how to use different methods to estimate
demand of products sold in different markets.
11.2 Learning Objectives
At the end of this lecture, you should be able to:
Explain the concept of demand forecasting
Discuss difference techniques for forecasting demand
State the assumptions to consider when forecasting demand
Discuss the importance of demand forecasting in production
11.3 Sub topics
Meaning of demand forecasting
Techniques for demand forecasting
Assumptions for demand forecasting
The importance of demand forecasting in production
References
Clark, J.R. and Veseth, M. (1987). Economics, Cost and Choice, Harcourt Brace
Jovanovih Publishers, USA. Lecture 1, pp 3 – 24
Schiller, B.R. (1986) The Micro economy Today, 2nd ed. Random House, N.Y. Lecture
1,pp 3 – 24
Kazungu, K.G.M. (2003). Overview to Microeconomics I (study Manual), The Open
University of Tanzania
Hyman, D.N. (1989). Economics, Irwin, USA. Lecture 1, pp 1 – 8 plus appendix to
lecture 1 and lecture 2 pp. 12 – 16
Truett, L.J. and Truett, D.B. (1987). Microeconomics, Times Mirror / Mosby College
8
Publishing, USA. Lecture 1, pp. 3- 15 and lecture 2, pp. 2 - 36
McConnell, C.R. and Bruce, J.L. (1999) Microeconomics, Irwin / McGraw – Hill.
Lecture 1, pp. 3 - 13
Nicholson, W, (1998). Microeconomics Theory, basic Principles and extensions, 7th
edition, Fortworth, London, Dryden Press
Samuelson, P. and Nordhus, W. (1992). Economics, 14th edition, McGraw-Hill.
LECTURE TWELVE: MACROECONOMICS METHODS
12.1 Overview
In this lecture, you will be introduced to diverse concepts of macroeconomics. You will
learn the analytical methods of macroeconomics and resource allocation in Private and
Public sectors of the economy.
12.2 Learning objectives
At the end of this lecture you should be able to;
State the meaning of Macroeconomics
Explain the methods used to analyze macroeconomics
Explain how resources are allocated under macro economics -level
Explain the role played by various sectors of the economy
12.3 Sub topics
• Definition of Macroeconomics
• Analytical methods of macroeconomics
• Resources allocation under macro- level of economics
• Sectors of economy
• Private household and business
• Government and public enterprises
LECTURE THIRTEEN: NATIONAL INCOME AND MACRO- BALANCES
13.1 Overview
In this lecture you will be provided with ways of measuring the total output of the
economy. The lecture will explain the relationship between an economy’s total output,
total income and wealth of the country.
13.2 Learning Objectives
At the end of this lecture you should be able to:
• Explain the concept of national income and its components
• Distinguish between Gross National Product and Gross Domestic Product
• Discuss the ways of measuring the national income
9
•
Differentiate between real and nominal income
13.3 Sub topics
• Meaning of National income
• Gross National Product and Gross Domestic
• Measurement of the National income
• Real and nominal income
LECTURE FOURTEEN: AGGREGATE DEMAND AND SUPPLY
14.1 Overview
In this lecture you will learn the concepts of aggregate demand and supply. The lecture
presents the type of aggregate demand and supply and factors that influence aggregate
demand and supply.
14.2 Learning objectives
At the end of this lecture, you should be able to;
Define aggregate demand and supply
Explain the types of aggregate supply
Differentiate between Short –run and Long-run aggregate supply
Explain the factors that influence aggregate demand and supply
14.3 Sub topics
• Definitions of Aggregate supply and demand
• Types of aggregate supply
• Short –run and Long-run aggregate supply
• Factors that Influences aggregate demand and supply
LECTURE FIFTEEN: NATIONAL INCOME EQUILBRIUM AND SECTOR
MODELS
15.1 Overview
In this lecture you will learn the concept of National income equilibrium and economic
sector models. In this chapter you will analyse different sector models of the economy.
15.2 Learning objectives
At the end of this lecture, you should be able to:
Explain the equilibrium level of income and output
Explain the economic sector models; two sectors, three sectors, four sectors
model
Analyse different sectors models
10
15.3 Sub topics
Determination of equilibrium level of income and output
Sector analysis: consumption, investment, savings and net export
Sector analysis: two sectors, three sectors, four sectors model
LECTURE SIXTEEN: INFLATION
16.1 Overview
In this lecture you will learn about causes and effects of inflation in the economy. You
will also learn different techniques of overcoming inflation
16.2 Learning Objectives
At the end of this lecture you should be able to;
Define the term inflation
Describe various types of inflation
Identify causes of inflation
Explain the impact of inflation to individuals and society
Explain different approaches of curbing inflation
16.3 Sub topics
Definition of inflation
Types of inflation
Causes of inflation
Impacts of inflation
Ways of curbing inflation
LECTURE SEVENTEEN: UNEMPLOYMENT
17.1 Overview
This lecture introduces to you causes and effects of unemployment in the economy. You
will also learn different techniques of overcoming the problem of unemployment.
17.2 Learning Objectives
At the end of this lecture you should be able to;
Define the term Unemployment
Identify types of unemployment
Discuss the causes of unemployment
Discuss impacts of unemployment (economically / socially)
Examine the various ways of overcoming the problem of unemployment
17.3 Sub topics
Definition of unemployment
Types of unemployment
Causes of unemployment
11
Impacts of unemployment
Ways of overcoming the problems of unemployment
LECTURE EIGHTEEN: SAVING, INVESTMENT AND THE FINANCIAL
SYSTEM
18.1 Overview
This lecture will explain to you the details on how saving, investment and financial
system affect the economy. The lecture will expose to you the issues of public and
private budgets; budgets deficits and surpluses and will analyse the role of money in
the economy.
18.2 Learning objectives
At the end of this lecture the student should be able to:
Explain the difference between saving and investment and examine their
importance in the economy
Distinguish between private and public savings, budget deficits and surpluses
Analyse the different forms of money and discuss the advantages of each form
Discuss the functions of money in the economy
Evaluate the effects on interest rate on saving and investment
18.3 Sub topics
The meaning and differences of savings and investment and their importance in
the economy
Difference between private and public savings; budget deficits and surpluses
Advantages and disadvantages of different forms of money
The functions of money in the economy
Importance of interest rates on saving and investment
LECTURE NINETEEN: MACROECONOMIC POLICIES
19.1 Overview
This lecture discusses how Macroeconomic policies affect private and public firms in
different ways. In this lecture you will learn how Fiscal and Monetary policies affect both
private and public firms in the economy.
19.2 Learning Objectives
At the end of this lecture you should be able to;
Explain the term macroeconomic policies
Discuss the Fiscal Policy
Discuss Monetary Policy
Evaluate the Policy Tools
19.3 Sub topics
Explain the concept of the macroeconomic policies
12
Fiscal policies
Monetary policies
Policy tools
LECTURE TWENTY: MEASURING THE COST OF LIVING
20.1 Overview
In this lecture you will learn how to measure the cost of living, calculation of costs of
living and identify problems associated with measuring the cost of living.
20.2 Learning Objectives
At the end of this lecture you should be able to;
Define the term cost of living
Explain how to compute the cost of living
Analyse the advantages and disadvantages of using CPI and the GDP deflator as
measures of the overall price level
Differentiate between real and nominal interest rates
Identify the Problems associated with Measuring the Cost of Living
20.3 Sub topics
Definition of the cost of living
Methods of measuring the cost of living
Advantages and disadvantages using CPI and the GDP deflator as measures of the
overall price level
Difference between real and nominal interest rates
Applications associated with measuring the cost of living
References
Ruffin, R.J. et al, (1998) Principles of Macroeconomics, 3rd ed. Scott, Foresman and
Company, London. Lecture 9 & 10
Slavin, S. L. (1996) Economics, 4th Ed. Irwin, and McGraw Hill. Lecture 10
Mansfield, G.(1986) Principles of Macroeconomics, 5th ed. W.W.Norton and company
,N.Y. Lecture 9
Clark, J.R. and Veseth, M.(1987), Economics, Cost and Choice, Harcourt Brace
Jovanovih Publishers, USA Lecture 11
Dornbusch, R., Fischer, N and Starz. R (2008). Macroeconomics, International Edition,
McGraw Hill, Newyork
13
COURSE ASSESSMENT
The course will be evaluated as follows;
1Timed Test
30%
1 Final/ Annual Exam
70%
Total =
100%
14