NSSCO Economics (6145) cheat sheet

Scarcity: wants are unlimited but resources (land, labour, capital, entrepreneurship) are limited, so choices must be made; this is the fundamental economic problem.

Opportunity cost is the value of the next best alternative forgone when a choice is made; it applies to individuals, firms and governments.

Production possibility curve (PPC) shows maximum combinations of two goods producible with given resources and technology; points inside are inefficient, points on the curve are productively efficient, points outside are unattainable.

A straight-line PPC implies constant opportunity cost; a bowed-out PPC implies increasing opportunity cost because resources are not perfectly transferable.

Free market (capitalist) economy: resources allocated by price signals and private ownership; profit motive drives production; government role is minimal.

Command (planned) economy: state owns resources and sets output targets and prices; consumer sovereignty is limited.

Mixed economy combines private enterprise with government provision and regulation; Namibia is a mixed economy with a significant public sector.

Public goods are non-excludable and non-rival (e.g. national defence), so markets under-provide them and government funds them through taxation.

Merit goods are under-consumed if left to the market (e.g. education, healthcare); demerit goods are over-consumed (e.g. alcohol, tobacco), justifying government intervention.

Law of demand: as price rises, quantity demanded falls, other things equal; the demand curve slopes downward.

Movement along a demand curve is caused only by a change in the good's own price; a shift occurs when income, tastes, prices of substitutes or complements, or population change.

Law of supply: as price rises, quantity supplied rises, other things equal; the supply curve slopes upward.

Supply shifts arise from changes in costs of production, technology, taxes/subsidies, weather or number of sellers.

Equilibrium is where quantity demanded equals quantity supplied; above equilibrium price there is a surplus (excess supply) pushing price down; below it there is a shortage (excess demand) pushing price up.

A rise in demand with unchanged supply raises both equilibrium price and quantity; a rise in supply with unchanged demand lowers price and raises quantity.

Normal goods: demand rises with income. Inferior goods: demand falls as income rises.

Price ceiling set below equilibrium creates a shortage and may require rationing; price floor set above equilibrium creates a surplus (e.g. minimum wage).

Joint demand (complements) and competitive demand (substitutes) determine how a price change in one good affects demand for another.

Price elasticity of demand (PED) = % change in quantity demanded ÷ % change in price; usually negative, so absolute value is used.

PED > 1 is elastic, PED < 1 is inelastic, PED = 1 is unitary. Elastic demand: price cut raises total revenue. Inelastic demand: price rise raises total revenue.

Determinants of PED: availability of substitutes, proportion of income spent, necessity vs luxury, time period.

Income elasticity of demand (YED) = % change in quantity demanded ÷ % change in income; positive for normal goods, negative for inferior goods.

Cross elasticity of demand (XED) = % change in quantity demanded of good A ÷ % change in price of good B; positive for substitutes, negative for complements.

Price elasticity of supply (PES) = % change in quantity supplied ÷ % change in price; higher when spare capacity exists and time period is longer.

Tax incidence: the burden falls more on the side of the market that is less elastic; if demand is perfectly inelastic, consumers bear the whole tax.

Elasticity of demand for labour depends on substitutability of labour, elasticity of product demand and labour's share of total costs.

Use the midpoint (arc) formula for large price changes: PED = (ΔQ ÷ average Q) ÷ (ΔP ÷ average P).

Factors of production: land (rent), labour (wages), capital (interest), entrepreneurship (profit).

Short run: at least one factor fixed. Long run: all factors variable.

Law of diminishing returns: adding more variable input to a fixed input eventually lowers marginal product.

Total product, average product (TP ÷ units of labour) and marginal product (ΔTP ÷ Δlabour) are related; marginal product cuts average product at its maximum.

Costs: fixed costs do not vary with output; variable costs do; total cost = fixed + variable.

Average total cost = total cost ÷ output; marginal cost = change in total cost ÷ change in output.

Economies of scale (internal: technical, managerial, financial, marketing) lower long-run average cost; diseconomies of scale raise it.

Total revenue = price × quantity. Profit = total revenue − total cost. Normal profit is the minimum return to keep the entrepreneur in the industry (part of cost); supernormal profit exceeds it.

Break-even output occurs where total revenue equals total cost; profit is maximised where marginal revenue equals marginal cost (MR = MC).

Perfect competition: many buyers and sellers, homogeneous product, free entry and exit, perfect information; firms are price takers with a horizontal demand curve.

In perfect competition, long-run equilibrium occurs where price = marginal cost = minimum average total cost, giving normal profit only.

Monopoly: single seller, no close substitutes, high barriers to entry; a price maker facing a downward-sloping demand curve.

Monopolist maximises profit where MR = MC and sets price from the demand curve; output is lower and price higher than under perfect competition.

Monopolistic competition: many firms, differentiated products, low barriers; short-run supernormal profit attracts entry, eroding it in the long run.

Oligopoly: few large firms, interdependence, possible collusion (cartel) and price rigidity; non-price competition is common.

Barriers to entry include economies of scale, patents, exclusive ownership of raw materials, high capital requirements and legal licences.

Price discrimination requires market separation, different elasticities in each market and no resale between markets.

A contestable market has low entry and exit costs, so even a monopolist may be forced to price competitively by potential entrants.

Functions of money: medium of exchange, unit of account, store of value, standard of deferred payment.

Characteristics of good money: acceptability, durability, divisibility, portability, scarcity, homogeneity.

Barter fails because of the double coincidence of wants, lack of a common measure of value and indivisibility of goods.

Commercial banks create credit through the multiplier: total deposits = initial deposit × (1 ÷ reserve ratio), assuming no cash leakages.

Central bank functions: issue currency, act as banker to government and commercial banks, lender of last resort, manage foreign reserves, conduct monetary policy.

Monetary policy tools: open market operations, reserve (cash) requirements, discount/rediscount rate, moral suasion.

Quantity theory of money: MV = PT (or MV = PY), where M is money supply, V velocity, P price level, T transactions.

Money supply measures distinguish narrow money (currency plus demand deposits) from broad money (plus time and savings deposits).

A financial intermediary reduces risk by pooling savings, diversifying lending and screening borrowers.

Gross Domestic Product (GDP) = total value of final goods and services produced within a country's borders in a period; excludes intermediate goods to avoid double counting.

GDP at market prices = GDP at factor cost + indirect taxes − subsidies.

Gross National Income (GNI) = GDP + net factor income from abroad (income earned by residents abroad minus income paid to non-residents).

Nominal (money) GDP uses current prices; real GDP uses constant base-year prices and removes inflation effects.

GDP deflator = (nominal GDP ÷ real GDP) × 100.

Expenditure approach: GDP = C + I + G + (X − M). Income approach sums factor incomes; output approach sums value added by sectors.

Macroeconomic objectives: economic growth, full employment, price stability, balance of payments equilibrium, equitable income distribution.

Per capita income = national income ÷ population; it is a rough welfare measure that ignores income distribution and non-marketed output.

The circular flow shows households supplying factors and receiving income, and firms producing goods; injections (I, G, X) and withdrawals (S, T, M) determine equilibrium national income.

Inflation is a sustained rise in the general price level, measured by the consumer price index (CPI) using a weighted basket of goods.

Inflation rate = ((CPI current − CPI previous) ÷ CPI previous) × 100.

Demand-pull inflation arises from excess aggregate demand; cost-push inflation arises from rising costs of production (wages, imported inputs, fuel).

Effects of inflation: loss of purchasing power, uncertainty for investors, harm to savers and fixed-income earners, benefit to borrowers.

Unemployment types: frictional (between jobs), structural (skills/geography mismatch), seasonal, cyclical (demand-deficient).

Unemployment rate = (unemployed ÷ labour force) × 100, where the labour force is employed plus unemployed actively seeking work.

Phillips curve shows a short-run inverse relationship between inflation and unemployment; stagflation breaks this trade-off.

Fiscal policy uses government spending and taxation; expansionary policy raises aggregate demand (higher G, lower T).

Monetary policy controls money supply and interest rates; contractionary policy raises interest rates to reduce inflation.

Supply-side policies (education, training, deregulation, infrastructure) aim to shift aggregate supply and lower structural unemployment.

Absolute advantage: a country produces a good using fewer resources. Comparative advantage: a country produces at lower opportunity cost; trade can benefit both parties.

Terms of trade = (index of export prices ÷ index of import prices) × 100; a rise means each unit of exports buys more imports.

Current account records trade in goods and services, income and current transfers; the capital and financial account records investment and reserve flows.

Balance of payments must balance overall: current account + capital account + financial account + errors and omissions = 0.

A current account deficit means the country is a net borrower from abroad; it must be financed by capital inflows or reserve depletion.

Trade protection tools: tariffs, quotas, subsidies to domestic producers, embargoes, administrative barriers.

Currency depreciation makes exports cheaper and imports dearer, improving the trade balance if the Marshall-Lerner condition holds (|PED exports| + |PED imports| > 1).

Appreciation raises the external value of a currency, hurting exporters and benefiting importers.

A fixed exchange rate requires central bank intervention in the foreign exchange market; a floating rate is set by demand and supply for the currency.

Economic growth is a rise in real GDP; economic development includes growth plus improvements in health, education, income distribution and living standards.

Human Development Index (HDI) combines life expectancy, education and GNI per capita; it measures development more broadly than GDP.

Characteristics of developing economies: low per capita income, high dependence on primary products, limited industrialisation, rapid population growth, external debt.

Obstacles to development include low savings and capital formation, poor infrastructure, skills shortages, political instability and commodity price volatility.

Namibia's economy relies heavily on mining (diamonds, uranium, zinc), agriculture, fishing and tourism; it is vulnerable to world commodity prices.

Namibia is classified as an upper-middle-income country but has high income inequality and unemployment, so GDP per capita overstates welfare.

SACU (Southern African Customs Union) gives Namibia duty-free access to South African markets and shares customs revenue, a major fiscal source.

Namibia's currency, the Namibian dollar, is pegged one-to-one to the South African rand, so domestic interest rates largely follow South African policy.

Development policy tools: diversification of exports, investment in education and health, infrastructure spending, and attracting foreign direct investment.

Scarcity: wants are unlimited but resources (land, labour, capital, entrepreneurship) are limited, so choices must be made; this is the fundamental economic problem.

Opportunity cost is the value of the next best alternative forgone when a choice is made; it applies to individuals, firms and governments.

Production possibility curve (PPC) shows maximum combinations of two goods producible with given resources and technology; points inside are inefficient, points on the curve are productively efficient, points outside are unattainable.

A straight-line PPC implies constant opportunity cost; a bowed-out PPC implies increasing opportunity cost because resources are not perfectly transferable.

Free market (capitalist) economy: resources allocated by price signals and private ownership; profit motive drives production; government role is minimal.

Command (planned) economy: state owns resources and sets output targets and prices; consumer sovereignty is limited.

Mixed economy combines private enterprise with government provision and regulation; Namibia is a mixed economy with a significant public sector.

Public goods are non-excludable and non-rival (e.g. national defence), so markets under-provide them and government funds them through taxation.

Merit goods are under-consumed if left to the market (e.g. education, healthcare); demerit goods are over-consumed (e.g. alcohol, tobacco), justifying government intervention.

Law of demand: as price rises, quantity demanded falls, other things equal; the demand curve slopes downward.

Movement along a demand curve is caused only by a change in the good's own price; a shift occurs when income, tastes, prices of substitutes or complements, or population change.

Law of supply: as price rises, quantity supplied rises, other things equal; the supply curve slopes upward.

Supply shifts arise from changes in costs of production, technology, taxes/subsidies, weather or number of sellers.

Equilibrium is where quantity demanded equals quantity supplied; above equilibrium price there is a surplus (excess supply) pushing price down; below it there is a shortage (excess demand) pushing price up.

A rise in demand with unchanged supply raises both equilibrium price and quantity; a rise in supply with unchanged demand lowers price and raises quantity.

Normal goods: demand rises with income. Inferior goods: demand falls as income rises.

Price ceiling set below equilibrium creates a shortage and may require rationing; price floor set above equilibrium creates a surplus (e.g. minimum wage).

Joint demand (complements) and competitive demand (substitutes) determine how a price change in one good affects demand for another.

Price elasticity of demand (PED) = % change in quantity demanded ÷ % change in price; usually negative, so absolute value is used.

PED > 1 is elastic, PED < 1 is inelastic, PED = 1 is unitary. Elastic demand: price cut raises total revenue. Inelastic demand: price rise raises total revenue.

Determinants of PED: availability of substitutes, proportion of income spent, necessity vs luxury, time period.

Income elasticity of demand (YED) = % change in quantity demanded ÷ % change in income; positive for normal goods, negative for inferior goods.

Cross elasticity of demand (XED) = % change in quantity demanded of good A ÷ % change in price of good B; positive for substitutes, negative for complements.

Price elasticity of supply (PES) = % change in quantity supplied ÷ % change in price; higher when spare capacity exists and time period is longer.

Tax incidence: the burden falls more on the side of the market that is less elastic; if demand is perfectly inelastic, consumers bear the whole tax.

Elasticity of demand for labour depends on substitutability of labour, elasticity of product demand and labour's share of total costs.

Use the midpoint (arc) formula for large price changes: PED = (ΔQ ÷ average Q) ÷ (ΔP ÷ average P).

Factors of production: land (rent), labour (wages), capital (interest), entrepreneurship (profit).

Short run: at least one factor fixed. Long run: all factors variable.

Law of diminishing returns: adding more variable input to a fixed input eventually lowers marginal product.

Total product, average product (TP ÷ units of labour) and marginal product (ΔTP ÷ Δlabour) are related; marginal product cuts average product at its maximum.

Costs: fixed costs do not vary with output; variable costs do; total cost = fixed + variable.

Average total cost = total cost ÷ output; marginal cost = change in total cost ÷ change in output.

Economies of scale (internal: technical, managerial, financial, marketing) lower long-run average cost; diseconomies of scale raise it.

Total revenue = price × quantity. Profit = total revenue − total cost. Normal profit is the minimum return to keep the entrepreneur in the industry (part of cost); supernormal profit exceeds it.

Break-even output occurs where total revenue equals total cost; profit is maximised where marginal revenue equals marginal cost (MR = MC).

Perfect competition: many buyers and sellers, homogeneous product, free entry and exit, perfect information; firms are price takers with a horizontal demand curve.

In perfect competition, long-run equilibrium occurs where price = marginal cost = minimum average total cost, giving normal profit only.

Monopoly: single seller, no close substitutes, high barriers to entry; a price maker facing a downward-sloping demand curve.

Monopolist maximises profit where MR = MC and sets price from the demand curve; output is lower and price higher than under perfect competition.

Monopolistic competition: many firms, differentiated products, low barriers; short-run supernormal profit attracts entry, eroding it in the long run.

Oligopoly: few large firms, interdependence, possible collusion (cartel) and price rigidity; non-price competition is common.

Barriers to entry include economies of scale, patents, exclusive ownership of raw materials, high capital requirements and legal licences.

Price discrimination requires market separation, different elasticities in each market and no resale between markets.

A contestable market has low entry and exit costs, so even a monopolist may be forced to price competitively by potential entrants.

Functions of money: medium of exchange, unit of account, store of value, standard of deferred payment.

Characteristics of good money: acceptability, durability, divisibility, portability, scarcity, homogeneity.

Barter fails because of the double coincidence of wants, lack of a common measure of value and indivisibility of goods.

Commercial banks create credit through the multiplier: total deposits = initial deposit × (1 ÷ reserve ratio), assuming no cash leakages.

Central bank functions: issue currency, act as banker to government and commercial banks, lender of last resort, manage foreign reserves, conduct monetary policy.

Monetary policy tools: open market operations, reserve (cash) requirements, discount/rediscount rate, moral suasion.

Quantity theory of money: MV = PT (or MV = PY), where M is money supply, V velocity, P price level, T transactions.

Money supply measures distinguish narrow money (currency plus demand deposits) from broad money (plus time and savings deposits).

A financial intermediary reduces risk by pooling savings, diversifying lending and screening borrowers.

Gross Domestic Product (GDP) = total value of final goods and services produced within a country's borders in a period; excludes intermediate goods to avoid double counting.

GDP at market prices = GDP at factor cost + indirect taxes − subsidies.

Gross National Income (GNI) = GDP + net factor income from abroad (income earned by residents abroad minus income paid to non-residents).

Nominal (money) GDP uses current prices; real GDP uses constant base-year prices and removes inflation effects.

GDP deflator = (nominal GDP ÷ real GDP) × 100.

Expenditure approach: GDP = C + I + G + (X − M). Income approach sums factor incomes; output approach sums value added by sectors.

Macroeconomic objectives: economic growth, full employment, price stability, balance of payments equilibrium, equitable income distribution.

Per capita income = national income ÷ population; it is a rough welfare measure that ignores income distribution and non-marketed output.

The circular flow shows households supplying factors and receiving income, and firms producing goods; injections (I, G, X) and withdrawals (S, T, M) determine equilibrium national income.

Inflation is a sustained rise in the general price level, measured by the consumer price index (CPI) using a weighted basket of goods.

Inflation rate = ((CPI current − CPI previous) ÷ CPI previous) × 100.

Demand-pull inflation arises from excess aggregate demand; cost-push inflation arises from rising costs of production (wages, imported inputs, fuel).

Effects of inflation: loss of purchasing power, uncertainty for investors, harm to savers and fixed-income earners, benefit to borrowers.

Unemployment types: frictional (between jobs), structural (skills/geography mismatch), seasonal, cyclical (demand-deficient).

Unemployment rate = (unemployed ÷ labour force) × 100, where the labour force is employed plus unemployed actively seeking work.

Phillips curve shows a short-run inverse relationship between inflation and unemployment; stagflation breaks this trade-off.

Fiscal policy uses government spending and taxation; expansionary policy raises aggregate demand (higher G, lower T).

Monetary policy controls money supply and interest rates; contractionary policy raises interest rates to reduce inflation.

Supply-side policies (education, training, deregulation, infrastructure) aim to shift aggregate supply and lower structural unemployment.

Absolute advantage: a country produces a good using fewer resources. Comparative advantage: a country produces at lower opportunity cost; trade can benefit both parties.

Terms of trade = (index of export prices ÷ index of import prices) × 100; a rise means each unit of exports buys more imports.

Current account records trade in goods and services, income and current transfers; the capital and financial account records investment and reserve flows.

Balance of payments must balance overall: current account + capital account + financial account + errors and omissions = 0.

A current account deficit means the country is a net borrower from abroad; it must be financed by capital inflows or reserve depletion.

Trade protection tools: tariffs, quotas, subsidies to domestic producers, embargoes, administrative barriers.

Currency depreciation makes exports cheaper and imports dearer, improving the trade balance if the Marshall-Lerner condition holds (|PED exports| + |PED imports| > 1).

Appreciation raises the external value of a currency, hurting exporters and benefiting importers.

A fixed exchange rate requires central bank intervention in the foreign exchange market; a floating rate is set by demand and supply for the currency.

Economic growth is a rise in real GDP; economic development includes growth plus improvements in health, education, income distribution and living standards.

Human Development Index (HDI) combines life expectancy, education and GNI per capita; it measures development more broadly than GDP.

Characteristics of developing economies: low per capita income, high dependence on primary products, limited industrialisation, rapid population growth, external debt.

Obstacles to development include low savings and capital formation, poor infrastructure, skills shortages, political instability and commodity price volatility.

Namibia's economy relies heavily on mining (diamonds, uranium, zinc), agriculture, fishing and tourism; it is vulnerable to world commodity prices.

Namibia is classified as an upper-middle-income country but has high income inequality and unemployment, so GDP per capita overstates welfare.

SACU (Southern African Customs Union) gives Namibia duty-free access to South African markets and shares customs revenue, a major fiscal source.

Namibia's currency, the Namibian dollar, is pegged one-to-one to the South African rand, so domestic interest rates largely follow South African policy.

Development policy tools: diversification of exports, investment in education and health, infrastructure spending, and attracting foreign direct investment.