Department of Economics Module Outline 2021 - Microeconomics (12084 - 214)
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Department of Economics
Microeconomics
(12084 - 214)
Module Outline
2021
Lecturer: Dr E Moses: eldridge@sun.ac.za
Tutor: Dr E Moses
Internal moderator: Dr G Du Rand
11. LECTURER CONTACT DETAILS
Dr Eldridge Moses
CGW Schumann-building, room 613
Tel. 021 808 2228
E-mail: eldridge@sun.ac.za
2. OUTCOMES
For any student in economics it is important to understand the working of the market
mechanism. In this module the working of the market mechanism under different
circumstances is investigated.
At the end of this module the student should be able to:
• explain the role of the market in the economy;
• motivate how the market determines the production of goods and services as
well as the distribution thereof;
• determine whether the market system operates efficiently under all
circumstances;
• explain the interdependence of different consumers;
• explain the effect of government intervention in the economy.
3. PRESCRIBED LITERATURE
The prescribed textbook is:
De Villiers, Pierre & Frank, Robert. 2015. Microeconomics and Behaviour. Second Southern
African Edition. McGraw-Hill: London
Other literature used:
From time to time additional literature may be used in class. These notes will be made
available in class. Notes will only be made available once in the class. If you are not
present in the class you must collect the notes yourself within 2 days at Ms Wanza in
Room 609.
The references in the work programme refer to De Villiers and Frank.
24. LANGUAGE OF INSTRUCTION
Economics 214 is presented according to the language option as indicated in the faculty
language plan:
Both Afrikaans and English are used in the same class group and the combination of
facilitated learning opportunities is as follows:
• During each lecture, all information is conveyed at least in English and
summaries or emphasis on content are also given in Afrikaans. Questions in
Afrikaans and English are, at the least, answered in the language of the
question.
• Students are supported in Afrikaans and English during a combination of
appropriate, facilitated learning opportunities (e.g. consultations during office
hours, or scheduled tutorials and practicals).
• For first-year modules, SU makes simultaneous interpreting available during
each lecture. During the second and subsequent years of study, simultaneous
interpreting is made available by SU upon request by a faculty, if the needs of
the students warrant the service and SU has the resources to provide it. If
two weeks have passed with no students making use of the interpreting
service, it may be discontinued.
5. WRITING- AND READING ENRICHED MODULE
This module is classified as a writing- and information enriched module. This means
that your writing skills will be developed through the writing of an essay.
6. GROUP ALLOCATION
Formal lectures
214
GROUPS DAY PERIOD BUILDING AND
VENUE
Monday 15:00 MathsSc/IndPsych 1005
Gr 1 Tuesday 12:00 MathsSc/IndPsych 1005
Thursday 14:00 MathsSc/IndPsych 1005
Tuesday 09:00 MathsSc/IndPsych 1005
Gr 2 Wednesday 11:00 MathsSc/IndPsych 1005
Friday 12:00 MathsSc/IndPsych 1005
3Tutorial periods
214
LANGUAGE OF DAY PERIOD BUILDING AND
INSTRUCTION VENUE
Afrikaans Tuesday 13:00 CGW Schumann 104
English Thursday 13:00 CGW Schumann 104
English Friday 14:00 CGW Schumann 104
7. LEARNING METHODOLOGY
7.1 Method of instruction
Methods of instruction include theoretical inputs, class discussions, formative
assessments, and practical exercises in lectures and tutorial classes. You are invited to
participate interactively in this module and ask questions in class whenever anything is
unclear.
7.2 Class attendance
Stellenbosch University is a contact university. This means that a large part of your
learning takes place in class through active learning. Therefore, attending both lectures
and tutorial classes is of utmost importance. Research confirms that not attending classes
has a negative impact on your ability to pass the module.
7.3 Tutorial classes
Tutorials offer students the opportunity to put the theory of the classroom into practice.
In the Microeconomics part the tutorials will also be used to revise certain sections of
Economics 114. These sections will NOT be repeated in the formal lectures although
you may be tested on it in the assessment opportunities. Some of the tutorials may be
used to inform students about the writing of essays. Tutorials help to practice the work
covered in lectures as well as the handling of more numerical questions that require
some mathematical calculations. Tutorial answers will only be discussed in the tutorial
periods.
Further assessments formative (FAF) will be done by means of electronic tutorial tests.
These marks will be compiled into your final tutorial mark at the end of the semester.
4The worst two electronic tutorial test marks will not be taken into consideration in this
calculation. You have to achieve an average mark of 50% or more in these electronic
tutorial tests to pass this module. If you do not obtain the required 50%, you can still
pass if you obtain 60% or more in A2 or A3.
Tutorials already start in the second week of the semester.
7.4 Essays and plagiarism
Each student will be required to write one essay. This gives you the opportunity to
develop your ability to collect, arrange and present economic information. The writing
skills of Economics students are a great asset in their careers. You are expected to
comply with the normal conventions and requirements for academic reports. More
information will be provided at a later stageYou also have to load an electronic copy of
the final version of your essay on www.turnitin.com.
The Department views plagiarism as a very serious offence. Therefore, ensure that there
is no plagiarism in your essay. Plagiarism offences will be referred to the disciplinary
committee of the university. You also have to complete and sign the “plagiarism
declaration form” which is available on SUNLearn.
Essays contribute a meaningful portion of the final mark (FM) and must be viewed as
very important. Essays that are handed in late, will be subject to penalisation.
7.5 SUNLearn
SUNLearn is an integral part of this module and should be consulted regularly for
resources, communication (including marks) and learning activities.
8 FLEXIBLE ASSESSMENT FOR SEMESTER MODULES
Flexible assessment, in line with the Undergraduate Assessment Regulation of the Faculty
of Economic and Management Sciences, is followed in this module. Please watch the
information video on SUNLearn and read the regulation on the faculty’s webpage
(www.sun.ac.za/ems under the “current students” tab).
5This approach to assessment puts the responsibility of learning in the student’s hands.
Make use of all available assessment opportunities and ensure that you understand how
assessment in the module works.
8.1 Assessment opportunities
Assessment 1 (A1)
Test
19 May 2021
Contribution to FM: 30%
Further Assessment (FA)
Summative (FAS) Formative (FAF)
Essay Tutorials
Submission date will be announced Participation percentage to be
Contribution to FM: 10% achieved:*
None
Level of competency to be
achieved:*
A student must obtain a competency level
of at least 50% average in n – 2 online
tutorial tests, where n = total online
tutorial tests.
Outperformance clause:**
A student can still pass the module if the
competency level was not met, but a mark
of 60% or higher is obtained in A2 or A3.
Assessment 2 (A2)
Test
23 June 2021
Contribution to FM: 60%
Assessment 3 (A3)
Test
14 July 2021
Contribution to FM: 60%
* If you do not achieve the participation percentage and/or level of competency as set out in
the table above, you will not pass the module (except if you achieve the outperformance final
mark).
** If you did not achieve the participation percentage / level of competency stipulation but
obtain a final mark of 60 or above, you can still pass the module.
Please note: It is your responsibility to request special arrangements for main assessment
opportunities that have been scheduled on religious holidays. The following apply:
6• For A2 and A3 the examination office will make the necessary arrangements where
possible. Visit the Examinations Office in Admin A in the course of the last two class weeks
of the semester.
• For A1 the department/school will make the necessary arrangements if it can be feasibly
done in accordance with the arrangements usually made by the examination office for A2
and A3. If you want to request special arrangements contact your lecturer at least two
weeks before each assessment opportunity.
The calculation of your final mark (FM) is based on a weighted formula. The formulas used to
calculate the FM after A2 and A3 are as follows:
FM after A2 =
weight of A1 weight of A2 weight of FAS
( total weight x A1 mark) + ( total weight x A2 mark) + ( total weight x FAS mark)
FM after A3 =
weight of A1 weight of A2 weight of FAS weight of A3
( total weight x A1 mark) + ( total weight x A2 mark) + ( total weight x FAS mark) + ( total weight x A3 mark)
When calculating a FM using the formulas please note the following:
• The total weight is the sum of the weights of all the assessment opportunities that you have
completed (minimum 100). Even if you missed assessment opportunities, the total weight
will be at least 100.
• For all missed assessment opportunities, a zero mark is awarded.
8.2 Pass requirements
Firstly, a FM of at least 50 is required to pass the module. The formulas for the calculation
of the FM is set out above. Secondly, at least two main assessment opportunities MUST
be completed to achieve a valid FM in a semester module. In other words, you must
complete at least two of the following: A1, A2 and A3. If you do not obtain a valid FM you fail
the module. Finally, take note of the participation percentage and/or level of
competency percentage which must be achieved to pass the module (along with the
relevant outperformance clause).
8.3 Access to Assessment 3 (A3)
Note that it is not necessary to submit medical certificates or any other documents for missed
7assessment opportunities.
You have access to A3 if either of the following applies:
• If you completed all of the main assessment opportunities other than A3 (A1 and A2) but
have not obtained a FM of 50 or more, you have access to A3 in order to improve your
FM to 50.
• You missed a main assessment opportunity (A1 or A2) for whatever reason. In this case, a
FM of 50 or more can still be obtained if you make use of A3.
• If you missed two main assessment opportunities (A1, A2) you cannot obtain a valid
FM and therefore you fail the module. However you still have access to A3 in order
to allow you the opportunity to obtain a FM that could adhere to prerequisites or other
requirements.
No further assessment opportunities will take place after A3.
8.4 Work covered per assessment opportunity
The prescribed work covered per assessment opportunity is as follows:
• Assessment 1: Will be communicated through SUNLearn
• Assessment 2: Will be communicated through SUNLearn
• Assessment 3: Will be communicated through SUNLearn
8.5 Turnover time/feedback
Test marks will be available within 2 – 3 weeks and essay marks approximately a month after
the submission date.
8.6 Handout of tests and appeal procedure
Information on this will be posted on the module’s SUNLearn page.
8.7 Interpretation of results on the official university system (My.Sun)
Important: You must check your A1, A2 and FAS marks on SUNLearn.
After A2 you may see the following information on the official university system (MySun)
when checking for your marks:
• A FM50 and a comment of “pass” or “pass with distinction”.
8• A FM45 and a comment of “further assessment allowed”. This can mean one of the
following:
o You completed all main assessment opportunities and failed after A2. You have
access to A3 as an opportunity to pass the module with a maximum FM of 50.
o You missed one main assessment opportunity and have access to A3 as an
opportunity to obtain a FM of 50 or above.
• No final mark and a comment of “further assessment allowed”. This can mean one of the
following:
o You did not complete enough main assessment opportunities to obtain a valid FM, but
nevertheless obtained a FM50. In this case you have to complete A3 to obtain a valid
FM to pass the module.
o You are involved in a Central Disciplinary Committee case and the verdict is pending.
o You missed too many main assessment opportunities and it is not possible to obtain a
valid FM anymore. Even though you cannot pass the module you may complete A3 in
order to allow you the opportunity to adhere to any prerequisites or other
requirements.
After A3 you may see the following information on the official university system (MySun)
when checking for your marks:
• A FM50 and comment of “pass” or “pass with distinction”.
• A FM45 and comment of “fail”.
• A FM45 and comment of “insufficient assess” (insufficient assessment opportunities
completed). This means that you did not complete enough main assessment
opportunities to obtain a valid FM.
• No mark and a comment of “no assessment done”. This means that you did not
complete any assessment opportunities.
9 LECTURES
The prescribed material will not be covered in detail in the lectures. PowerPoint slides
and/or transparencies will only give the main points, and are not complete notes.
Therefore it is important that you attend classes and take down class notes. It is also
advisable to try to read through the relevant literature before a specific lecture. Prepare
long enough before evaluations and come and see your lecturer if you have problems.
910 WORK PROGRAMME
General: We assume you are familiar with basic derivatives, know the rules of
derivatives and can apply it in practical examples.
Certain sections that are covered have been done in Economics 114. As
indicated in the work programme, it will be discussed in the tutorials and
in class it will be assumed that you are familiar with it.
SECTION 1: INTRODUCTION
10.1 BASIC CONCEPTS OF DEMAND AND SUPPLY
Chapters 1 & 2 [Only an overview will be given - Selfstudy]
Scarcity problem
Key issues
Cost benefit analysis
Implicit costs
Sunk costs
Proportions vs percentages Marginal/average distinction
Positive and normative questions
Micro and macroeconomics
Factors of production
Labour specialisation
Economic systems
Production possibility curve
Demand
Determinants Supply
Determinants Market equilibrium
Consumer and producer surplus
Price regulation
Floor and ceiling prices
Incidence of a tax
10.2 BASIC MATHEMATICAL CONCEPTS
Derivatives and their applications
SECTION 2: THE THEORY OF CONSUMER CHOICE
1010.3 RATIONAL CONSUMER CHOICE
Indifference curve analysis
Consumer preferences
Underlying assumptions
Indifference curves
Cardinal and ordinal utility
Assumptions and properties
Special cases
Marginal rate of substitution (MRS)
Slope indifference curve
Decreasing
Meaning
Budget restriction
Budget line
Meaning
Slope
Effect of change in income
Effect of change in prices
Kinked budget lines
Consumer equilibrium
Why is that equilibrium
Slope budget line = slope indifference curve
Increase/decrease in price
Increase/decrease in income
Corner solutions
Why corner solution
Practical applications
Trust fund, food coupons, drinks
Marginal utility
Chapter 3
10.4 INDIVIDUAL AND MARKET DEMAND
Price changes and derivation of demand curve
Look how price changes influence equilibrium
11Price-consumption curve
Individual demand curve
Income changes and derivation of the Engel curve
Look how a change in income influences equilibrium
Income-consumption curve
Engel curve
Normal and inferior goods
Income and substitution effect
Price increase and decrease
Normal good
Inferior good
Giffen good
Market demand curve
Horizontal summation of individual demand curves
Chapter 4; page 93-110
Price elasticity of demand
Calculation
Interpretation
Elasticity and total income
Determinants
Income elasticity of demand
Calculation
Application
Energy tax with tax rebate
Cross-price elasticity of demand
Calculation
Chapter 4; page 110-127
Network Externalities
Other consumers influence consumption patterns of a consumer
Positive - Bandwagon effect
Negative - Snob effect
Chapter 4; page 127-130
Intertemporal consumption bundles
12Budget constraint
Indifference curves
Optimal intertemporal solution
Chapter 4; page 130-135
SECTION 3: THE THEORY OF THE FIRM AND MARKET STRUCTURES
10.5 PRODUCTION
Intermediate products
Fixed and variable inputs
Short run [Revision of the short run will be done in tutorial 1.]
Only one input can change
Production with one variable input
Total product (TP)
Average product (AP)
Marginal product (MP)
Relationship between above-mentioned three curves
Law of diminishing marginal returns
Practical applications
Chapter 7; page 195-209
Long run
All inputs can change
Production with two variable inputs
Isoquants
Definition and shape
Technical efficiency
Special cases
Slope is marginal rate of technical substitution
(MRTS) Returns to scale
Increasing, Constant, Decreasing
Chapter 7; page 210-218
10.6 COSTS
Cost of production
Short run [Revision of the short run is done in tutorial 2.]
Fixed costs (FC)
13Variable costs (VC)
Cost curves
Total cost (TC) [=TFC + TVC] Average fixed costs (AFC)
Average variable costs (AVC)
Average cost (ATC)
Marginal cost (MC) Optimum production
MC all production units the same
Relationship MP, AP, MC and AVC
Chapter 8; page 225-238
Long run
Isocost curves
Slope
Isoquants
Technical efficiency
Optimum production levels
Slope isoquant = slope isocost curve
Economic efficiency
Applications
Expansion path
Short run with restrictions
Long run
Derive LAC curve
Economies and diseconomies of scale
Learning curve
Old vs new firms
Difference between learning curve and economies of scale
Chapter 8; page 238-251
10.7 PERFECT COMPETITION
Goal profit maximization [This section up to page 266 will be covered in a tutorial.]
Other goals
Assumption
Total cost (TC) and total income (TR) curves
14Profit maximization
Relationship industry and individual firm
Marginal analysis (MC and MR)
Optimise profits
Shutdown point P = min AVC
Chapter 9; page 257-266
Short run supply
Market supply curve horizontal summation individual supply curves
Profit maximisation
Economic profits/losses
Individual firm supply curve
Breakeven point – normal profits, but zero economic profits
Producer surplus
Difference between market price and price willing to sell for
Individual firm
Market
Consumer surplus
Chapter 9; page 266-274
Long run
Supply
Profit maximisation
Long run competitive equilibrium
Firm vs industry
Long run supply curve
Constant cost industry
Increasing cost industry
Decreasing cost industry
Increase in demand and effect on long run industry supply curve
Decrease in demand and effect on long run industry supply curve
Elasticity of supply
Applications
Chapter 9; page 274-288
10.8 MONOPOLY [This section up to page 312 will be covered in a tutorial]
What is a monopoly
15Sources of monopoly
Profit maximizing monopolist
Total income
Total cost
Profit = TR - TC
Elasticity and profit maximizing
Average income/demand curve
Marginal income
Average cost
Marginal cost
Profit maximization
Marginal principles
Can influence market prices
Optimal ‘mark-up’
Measuring monopoly power
Monopolist’s shutdown condition
Chapter 10; page 295-312
Pricing with market power
Consumer surplus
Reservation price
Reaping of consumer surplus
First-degree price discrimination
Perfect and imperfect price discrimination
Second degree price discrimination
Based on volumes
Third degree price discrimination
Split market into two
Rush hour price policy
Hurdle model
Chapter 10; page 312-321
Monopoly
Deadweight loss with the aid of consumer / producer surplus approach
Natural monopoly
State ownership
Regulation
Price at level of perfect competition
16Price at minimum average cost
Exclusive contracting
Enforcement antitrust laws
Laissez-faire policy
Chapter 10; page 321-330
10.9 IMPERFECT COMPETITION: A GAME THEORETICAL APPROACH
Oligopoly
Cournot model
Competitor keeps output the same
Reaction curves
Profit maximizing
Bertrand model
Competitor keeps prices the same
Equilibrium
Stackelberg model
Price leadership
Chapter 11; page 337-346
Price rigidity
Kinked demand curve
Equilibrium if costs change
Price leadership of dominant firm
Determination of market price
Who supplies what in the market
Practical applications
Chapter 11; page 346-352
Monopolistic competition
Chamberlain model
Characteristics
Equilibrium Short run
Long run
Monopolistic competition vs perfect competition
Practical applications
Chapter 11; page 352-356
17Game theory
Dominant strategy
Nash equilibrium
Maximin strategy
Sequential games
Chapter 11; page 356-367
Applications
Chapter 11; page 367-376
SECTION 4: FACTOR MARKETS
10.10 LABOUR
Competitive markets Derived demand VMPL
Imperfect market MRPL
Supply curve of labour
Equilibrium
Income and substitution effects of change in wages
Monopsony
Average factor cost (AFC)
Total factor cost (TFC)
Marginal factor cost (MFC)
Optimum strategy
Chapter 12; page 383-400
Minimum wages
Labour unions
Monopoly power and wages
Labour market discrimination
Statistical discrimination
Internal wage structure
Winner-take-all
Chapter 12; page 400-413
SECTION 5: EXTERNALITIES, PUBLIC GOODS AND WELFARE
1810.11 GENERAL EQUILIBRIUM AND MARKET EFFICIENCY
Partial analysis
Always done
General equilibrium analysis
Build in time dimension
Interdependence between different markets
Pareto efficient allocation of resources (simple exchange economy without
production)
Edgeworth exchange box
Pareto optimal allocation
Contract curve
Competitive equilibrium in consumption
Pareto efficient allocation of resources (with production)
Efficiency in production
Efficient combination goods and services
Production possibility frontier (PPC)
Marginal rate of transformation (MRT) Slope PPC
General competitive equilibrium
Consumers and producers MRT = MRS
Sources of inefficiency
Chapter 16; page 495-513
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