Advanced Economics Notes - Grade 9

June 27, 2024

Contents

Unit 1: Introducing Economics 2

Unit 2: The Basic Economic Problems and Economic Systems 4

Unit 3: Economic Resources and Markets 6

Unit 4: Introduction to Demand and Supply 9

Unit 5: Introduction to Production and Cost 11

Unit 6: Introduction to Money 14

Unit 7: Introduction to Macroeconomics 16

Unit 8: Basic Entrepreneurship 18

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Unit 1: Introducing Economics

1.1 Meaning of Economics
• Economics: The study of how individuals, businesses, and governments
make choices to deal with scarcity.

• Nature of Economics: Economics is both a science (using data and anal-

ysis) and an art (applying principles to solve problems).

• Key Concepts:

– Scarcity: Limited resources relative to unlimited wants.

– Efficiency: Using resources wisely to maximize output.
– Human Needs: The things people require for survival and well-being.

1.2 Branches of Economics

1.2.1 Microeconomics
• Definition: Focuses on the economic behavior of individual decision-making
units like households, firms, and consumers.

• Key Issues: How individuals and businesses make choices, how prices are
determined in markets, and how resources are allocated.

1.2.2 Macroeconomics
• Definition: Studies the economy as a whole, including national income,
unemployment, inflation, and economic growth.

• Key Issues: How government policies affect the economy, how to manage
inflation and unemployment, and how to promote economic growth.

1.3 Methods and Approaches of Studying Economics

1.3.1 Methods
• Deductive Method: Reasoning from general principles to specific conclu-
sions.

• Inductive Method: Reasoning from specific observations to general con-

clusions.

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1.3.2 Approaches
• Positive Economics: Focuses on describing and explaining economic phe-
nomena as they are, using facts and data.

• Normative Economics: Involves value judgments about what the economy

*should* be like and how to improve it.

1.4 Decision Making Units

1.4.1 Households
• Role: Owners of factors of production (land, labor, capital, entrepreneur-
ship).

• Objectives: Maximize their utility (satisfaction) by making choices about

consumption, savings, and investments.

1.4.2 Business Firms

• Role: Combine factors of production to produce goods and services.

• Objectives: Maximize profits by making choices about production, pricing,

and resource allocation.

1.4.3 Government
• Role: Provides public goods and services, regulates the economy, and redis-
tributes income.

• Objectives: Promote economic efficiency, social welfare, and stability.

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Unit 2: The Basic Economic Problems and Eco-

nomic Systems
2.1 The Basic Economic Problems
2.1.1 Scarcity
• Definition: The fundamental economic problem; limited resources relative
to unlimited wants.

• Importance: Forces individuals, businesses, and governments to make choices

about how to allocate resources.

2.1.2 Choice
• Definition: The act of selecting one option over others due to scarcity.

• Link to Scarcity: Because resources are scarce, we must choose how to use
them.

2.1.3 Opportunity Cost

• Definition: The value of the next best alternative that is forgone when a
choice is made.

• Calculation: Measure the opportunity cost of choosing one option in terms

of the value of the best alternative you didn’t choose.

2.1.4 Production Possibilities Frontier (PPF)

• Definition: A curve showing the maximum combinations of two goods that
a society can produce with its given resources and technology.

• Concepts Illustrated by the PPF:

– Scarcity: The PPF shows that the economy cannot produce unlimited
amounts of both goods.
– Choice: Points on the PPF represent different choices about how to
allocate resources.
– Opportunity Cost: The slope of the PPF represents the opportunity
cost of producing one good in terms of the other.

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• Law of Increasing Opportunity Cost: As an economy produces more of

one good, the opportunity cost of producing additional units of that good
increases. This makes the PPF concave to the origin.

2.2 Central Problems of Economies

• What to produce: (Problem of Allocation)

• How to produce: (Problem of Choice of Technique)

• For whom to produce: (Problem of Distribution)

2.3 Economic Systems

2.3.1 Traditional Economy
• Features: Decisions based on customs, traditions, and historical practices.

• Examples: Many indigenous societies, rural villages in developing countries.

2.3.2 Capitalist Economy

• Features:

– Private ownership of resources.

– Free markets and competition.
– Profit motive.
– Limited government intervention.

• Examples: United States, Canada, Japan.

2.3.3 Command Economy

• Features:

– Centralized planning and government control.

– Collective ownership of resources.

• Examples: Former Soviet Union, Cuba.

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2.3.4 Mixed Economy

• Features:

– Combination of private and public ownership.

– Government regulation and intervention.
– Free markets and competition.

• Examples: Most modern economies, including Ethiopia.

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Unit 3: Economic Resources and Markets

3.1 Types of Resources and Factor Payments
• Free Resources: Unlimited in supply and have no price (e.g., air, sunlight).

• Economic Resources: Scarce in supply and have a price (e.g., land, labor,
capital, entrepreneurship).

3.1.1 Types of Economic Resources

• Land: Natural resources used in production (e.g., fertile soil, minerals).

• Labor: Human effort used in production.

• Capital: Man-made resources used in production (e.g., machinery, tools,

buildings).

• Entrepreneurship: The ability to organize and manage other factors of

production.

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3.1.2 Factor Payments

• Rent: Payment for the use of land.

• Wages: Payment for labor.

• Interest: Payment for the use of capital.

• Profit: Reward for entrepreneurship.

3.2 Renewable and Non-renewable Resources

3.2.1 Renewable Resources
• Definition: Can be replenished naturally over time (e.g., solar energy, wind
energy, forests, fish stocks).

3.2.2 Non-renewable Resources

• Definition: Exist in fixed amounts and are not replenished at a rate com-
parable to consumption (e.g., fossil fuels, minerals).

3.2.3 Conservation
• Importance: Essential to ensure that resources are available for future
generations.

• Methods: Reduce, Reuse, Recycle.

3.3 Types of Markets

• Definition: A place where buyers and sellers interact to exchange goods
and services.

3.3.1 Goods and Services Market

• Description: Households buy consumer goods and services, businesses sell
them.

3.3.2 Labor Market

• Description: Individuals sell their labor services, businesses buy them.

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3.3.3 Financial Market

• Description: Individuals and businesses buy and sell financial assets (e.g.,
stocks, bonds).

3.4 Circular Flow of Economic Activities

• Definition: A simplified model showing how income and expenditure flow
through an economy.

3.4.1 Two-Sector Model

• Components: Households and firms.

• Flows: Factor services (from households to firms), goods and services (from
firms to households), money payments (in both directions).

3.4.2 Three-Sector Model

• Components: Households, firms, and government.

• Flows: Includes government revenue (taxes), government spending, and

government transfers (e.g., subsidies).

3.5 Land as an Economic Resource in Ethiopia

• Importance: Land is a vital resource in Ethiopia, as agriculture is a major
sector of the economy.

• Soil Types:

– Red-to-reddish brown soils (suitable for crops).

– Brownish-to-grey and black soils (with high clay content).

• Land Ownership and Use Rights: A complex issue in Ethiopia, with a

history of feudalism, socialism, and current state ownership with restricted
use rights.

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Unit 4: Introduction to Demand and Supply

4.1 Concept of Demand
• Demand: The quantity of a good that consumers are willing and able to
buy at various prices, during a specific time period.

4.1.1 Law of Demand

• Definition: As the price of a good increases, the quantity demanded de-
creases, assuming other factors remain constant (ceteris paribus).
• Explanation:
– Substitution Effect: Consumers switch to cheaper alternatives.
– Income Effect: As the price rises, consumers have less purchasing
power.

4.1.2 Demand Schedule and Curve

• Demand Schedule: A table showing the quantity demanded at different
prices.
• Demand Curve: A graph showing the relationship between price and quan-
tity demanded, typically downward sloping.

4.1.3 Demand Function

• Definition: A mathematical equation representing the relationship between
price and quantity demanded.

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4.1.4 Market Demand

• Definition: The total quantity demanded of a good by all consumers in a
market at various prices.

4.2 Concept of Supply

• Supply: The quantity of a good that producers are willing and able to sell
at various prices, during a specific time period.

4.2.1 Law of Supply

• Definition: As the price of a good increases, the quantity supplied increases,
assuming other factors remain constant (ceteris paribus).

• Explanation:

– Profit Incentive: Higher prices mean higher profits, encouraging pro-

ducers to produce more.

4.2.2 Supply Schedule and Curve

• Supply Schedule: A table showing the quantity supplied at different prices.

• Supply Curve: A graph showing the relationship between price and quan-
tity supplied, typically upward sloping.

4.2.3 Supply Function

• Definition: A mathematical equation representing the relationship between
price and quantity supplied.

4.2.4 Market Supply

• Definition: The total quantity supplied of a good by all producers in a
market at various prices.

4.3 Market Equilibrium

• Equilibrium: A state of balance where opposing forces are equal.

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4.3.1 Market Equilibrium

• Definition: The point where the quantity demanded equals the quantity
supplied.
• Graphical Representation: The intersection of the demand curve and the
supply curve.

4.3.2 Equilibrium Price and Quantity

• Equilibrium Price: The price at which quantity demanded equals quantity
supplied.
• Equilibrium Quantity: The quantity bought and sold at the equilibrium
price.

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Unit 5: Introduction to Production and Cost

5.1 Definition of Production, Inputs, and Outputs
• Production: The process of combining inputs to create outputs.

5.1.1 Inputs
• Definition: Resources used in the production process (e.g., land, labor,
capital).
• Types of Inputs:
– Fixed Inputs: Quantity cannot be changed in the short run (e.g.,
factory buildings).

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– Variable Inputs: Quantity can be changed in the short run (e.g.,

labor, raw materials).

5.1.2 Outputs
• Definition: Goods or services that are produced.

• Types of Outputs:

– Tangible Outputs: Physical goods that can be touched (e.g., cars,

furniture).
– Intangible Outputs: Services that are not physical (e.g., education,
healthcare).

5.2 Periods of Production

5.2.1 Short Run
• Definition: A time period where at least one input is fixed, while others
are variable.

5.2.2 Long Run

• Definition: A time period where all inputs are variable.

5.2.3 Productivity Measures

• Total Product (TP): The total output produced.

• Average Product (AP): Total product per unit of a variable input.

• Marginal Product (MP): The change in total product from using one
additional unit of a variable input.

5.2.4 Stages of Production

• Stage I: Increasing marginal returns (MP is rising).

• Stage II: Diminishing marginal returns (MP is falling, but still positive).

• Stage III: Negative marginal returns (MP is negative).

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5.3 Cost of Production

5.3.1 Explicit Costs
• Definition: Actual monetary outlays for inputs purchased from outside the
firm.

5.3.2 Implicit Costs

• Definition: The opportunity cost of using the firm’s own resources.

5.3.3 Economic Cost

• Definition: The sum of explicit and implicit costs.

5.3.4 Accounting Cost

• Definition: Only includes explicit costs.

5.3.5 Fixed Costs (FC)

• Definition: Costs that do not vary with the level of output.

5.3.6 Variable Costs (VC)

• Definition: Costs that vary directly with the level of output.

5.3.7 Total Cost (TC)

• Definition: The sum of fixed costs and variable costs.

• Equation: TC = FC + VC

5.3.8 Average Total Cost (ATC)

• Definition: Total cost per unit of output.

• Equation: ATC = TC / Q (where Q is quantity of output)

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5.3.9 Marginal Cost (MC)

• Definition: The additional cost of producing one more unit of output.

• Equation: MC = Change in TC / Change in Q

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Unit 6: Introduction to Money

6.1 Definition of Money
• Money: Anything that is generally accepted as a medium of exchange, unit
of account, and store of value.

6.1.1 Criteria for Money

• Standardization: Must be easily recognizable and have a consistent value.

• Acceptability: Must be widely accepted by buyers and sellers.

• Divisibility: Must be easily divisible into smaller units.

• Portability: Must be easy to carry and transport.

• Durability: Must be resistant to damage and wear.

6.2 Evolution of Money

• Barter System: Direct exchange of goods and services without money.

• Commodity Money: Early forms of money, using valuable commodities

(e.g., gold, silver, salt).

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• Paper Money: Fiat money, backed by government decree, not by a tangible

commodity.

• Checks: Written orders to banks to transfer funds.

• Electronic Money (e-money): Digital forms of money (e.g., debit cards,

credit cards).

6.2.1 History of Money in Ethiopia

• Early Forms: Salt, cloth, beads, Maria Theresa thalers.

• Modern Money: Birr, introduced in 1945.

6.3 Functions of Money

• Medium of Exchange: Facilitates transactions, reducing the need for
barter.

• Unit of Account: Provides a common measure of value.

• Store of Value: Allows individuals to save purchasing power for later use.

• Standard of Deferred Payments: Enables borrowing and lending.

6.4 Demand and Supply of Money

6.4.1 Demand for Money
• Motives for Holding Money:

– Transaction Motive: For everyday purchases.

– Precautionary Motive: To cover unexpected expenses.
– Speculative Motive: To profit from changes in interest rates.

6.4.2 Supply of Money

• Components of Money Supply:

– Currency: Cash in circulation.

– Bank Deposits: Balances held in checking and savings accounts.

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6.5 Money and Electronic Money (e-money)

• Definition of e-money: Digital forms of money used for transactions.

• Examples: Debit cards, credit cards, mobile money.

• Advantages of e-money: Convenience, speed, security.

• Disadvantages of e-money: Cybersecurity risks, potential for fraud.

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Unit 7: Introduction to Macroeconomics

7.1 Definition of Macroeconomic Variables
• Macroeconomics: The study of the economy as a whole, focusing on ag-
gregate variables and national-level issues.

7.1.1 Key Macroeconomic Variables

• Gross Domestic Product (GDP): The total market value of all final
goods and services produced in a country during a specific time period.

• Gross National Product (GNP): The total market value of all final goods
and services produced by a country’s residents, regardless of location.

• Per Capita Income (PCI): Average income per person in a country.

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7.2 Macroeconomic Goals

• Economic Growth: Sustained increase in national income.

• Full Employment: Maximizing the use of resources, with minimal unem-

ployment.

• Stable Balance of Payments: Equilibrium between a country’s payments

and receipts from international transactions.

• Price Stability: Controlling inflation to keep the price level stable.

• Fair Distribution of Income and Wealth: Ensuring that the benefits of

economic growth are shared equitably.

7.3 Macroeconomic Problems

7.3.1 Inflation
• Definition: A sustained increase in the general price level of goods and
services.

• Causes:

– Demand-Pull Inflation: Excessive demand relative to supply.

– Cost-Push Inflation: Increased costs of production, leading to price
increases.

7.3.2 Unemployment
• Definition: Individuals who are willing and able to work but cannot find
jobs.

• Types:

– Frictional Unemployment: Temporary unemployment due to job

transitions.
– Structural Unemployment: Unemployment due to a mismatch be-
tween job seekers’ skills and available jobs.
– Cyclical Unemployment: Unemployment due to downturns in the
business cycle.

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7.3.3 Disguised Unemployment

• Definition: Workers are employed but are not fully productive, or their
skills are underutilized.

7.3.4 Trade Balance Deficit

• Definition: A country’s imports exceed its exports, leading to a negative
trade balance.

7.3.5 Balance of Payments Deficit

• Definition: A country’s payments to other countries exceed its receipts
from other countries.

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Unit 8: Basic Entrepreneurship

8.1 Definition of Enterprise, Entrepreneur, and Entrepreneur-
ship
• Enterprise: A business or organization.

• Entrepreneur: An individual who creates and manages a business, taking

risks and seeking profits.

• Entrepreneurship: The process of creating, developing, and managing a

business venture.

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8.1.1 Social Entrepreneurship

• Definition: Using entrepreneurial principles to address social problems and
create positive change.

8.2 Creativity and Innovation in Solving Local Problems

• Creativity: The ability to generate new ideas and solutions.

• Innovation: The implementation of new ideas to create value.

• Relationship: Creativity is essential for innovation, and innovation is cru-

cial for entrepreneurship.

8.3 Entrepreneurial Attitudes, Behaviour, and Mind-set

• Entrepreneurial Mind-set: A state of mind that embraces innovation,
risk-taking, and a desire to solve problems.

8.3.1 Key Attitudes

• Passion: Enthusiasm and dedication to the business.

• Bravery: Willingness to take risks and persevere through challenges.

• Flexibility: Adaptability to change and new circumstances.

• Strong Work Ethic: Commitment to hard work and dedication.

• Integrity: Honesty and trustworthiness in business dealings.

8.3.2 Skills and Attributes

• General Management Skills: Strategy, planning, marketing, finance,
project management, time management.

• People Management Skills: Communication, leadership, motivation, del-

egation, negotiation.

8.4 Windows of Entrepreneurial Opportunities

• Entrepreneurial Opportunity: A situation where a profitable idea meets
a viable market demand.

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8.4.1 Finding Opportunities

• Methods:

– Identify unmet needs in the market.

– Develop new markets for existing products.
– Use technology to create new products or processes.

8.5 Entrepreneurial Success, Teamwork, and Diversity

8.5.1 Importance of Teamwork
• Benefits of Teamwork:

– Cooperation: Working together to achieve common goals.

– Broader Perspectives: Different team members bring unique ideas
and viewpoints.
– Productivity: Teamwork can increase efficiency and output.
– Learning: Members can learn from each other’s skills and experience.
– Company Culture: Strong teams contribute to a positive and sup-
portive work environment.

8.6 Finance and Promotion of Entrepreneurship

8.6.1 Financial Requirements
• Permanent Capital: Long-term financing for the initial setup and major
expansions of a business.

• Working Capital: Short-term financing to cover day-to-day operations.

• Asset Finance: Loans to purchase fixed assets (e.g., machinery, buildings).

8.6.2 Financing Options

• Personal Savings: Self-funding.

• Friends and Relatives: Investments from close contacts.

• Partners: Sharing ownership and resources.

• Angels: Wealthy individuals who invest in start-ups.

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• Venture Capital Firms: Organizations that invest in high-growth busi-

nesses.

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