ECO 162 MICROECONOMICS Chapter 1 ROSMAH BT ABD GHANI@ISMAIL

Topics to be covered
1. DEFINITION OF ECONOMICS 2.PHILOSOPHICAL FOUNDATION 3. ECONOMICS CONCEPTS 4.ECONOMICS PROBLEMS 5.ECONOMICS SYSTEMS

INTRODUCTION

ECONOMICS SYSTEMS

DEFINITION OF ECONOMICS

ECONOMICS PROBLEMS

PHILOSOPHICAL FOUNDATION

ECONOMICS CONCEPTS

DEFINITION OF ECONOMICS:
1. K.E. Case and R.C= is a study of how people use their limited resources to try to fulfill unlimited wants an involves alternatives or choices. 2. David N. Hyman= study of how scarce resources are allocated among alternatives uses.

*A study of how people use their limited resources to fulfill unlimited wants.

Macroeconomics Economics Microeconomics

macroeconomics

The study of the economics system as a whole such as the national income, inflation rate and unemployment rate

microeconomics

The study of individual parts of the economy such as public choices, business choices and personal choices

Microeconomics 1. analyzes demand and supply of

Macroeconomics 1. analyzes aggregate demand and

individual goods
2. analyzes demand and supply of labour such as number of employees in an industry. 3. deals with household and firms decisions. 4. What do I want for breakfast?

aggregate supply
2. analyzes total employment in the economy and also unemployment problems. 3. deals with aggregate decisions. 4. What is the unemployment rate in Malaysia?

5. Shall we produce rice or compact

discs? 6. The price of chicken increases significantly during Hari Raya season. 7. Shall we allocate a budget for schools @ clinics?

5. What causes a high inflation?

6. In 1994, the national income of a country is RM23,400 million 7. The economic growth of the country is expected to be 6% in 1995.

Definition of economics
Criteria Definition Conventional perspective A study of how people use their limited resources to fulfill unlimited wants. Islamic perspective Is a social science which studies the economic problems of people imbued with Islamic value

Objective

Attainment of maximum worldly Achievement of Al Falah satisfaction and gain more and the blessings of Allah profits Do not prohibit interest Do not deal with any elements of interest In world and hereafter

Elements of riba Concepts of utility Separation

Only for world satisfaction

Separation between religion and No separation between economics religion and economics

PHILOSOPHICAL FOUNDATION
Conventional Perspective Max of societys material welfare consumer ---- max satisfaction/utility Producers---- max profits Owners of resources----max returns

The Philosophic Foundation Of Islamic Economics

TAUHID -Including 3 aspects: i. The relationship between man and Allah ii. The relationship between man and man iii. The relationship between man and nature Habluminnaan Allah

habluminnaannas

1. Rububiyyah 2. Khalifah 3. Tazkiyyah 4. Ukhuwah 5. Al Falah

1.Rububiyyah The belief that Allah alone nurtures, nourishes, sustains, develops, and leads us toward success/perfection 2. Khalifah The role of man as the vicegerent of Allah, entrusted with all the economic resources. Has the responsibility of illustrating a role model for other men to follow. 3. Tazkiyyah The concept of purification and growth. Responsible to enrich the world and purify his asset/wealth through zakat, sadaqah, waqaf, and charity. 4. Ukhuwah The concept of brotherhood, showing the right attitude towards other human being. 5. Al-Falah The concept of success/happiness/prosperity in this world and the Hereafter.

Basic Economic concepts

Ex: Syaz has RM5 and she would like to buy a book n a pen which cost RM5 each (scarcity). Syaz has to choose either to purchase a book @ a pen which would satisfy her needs (choices). If Syaz chooses the book, the pen is the opportunity cost because it is the second best alternative which she has to forgo

Cont.
FACTORS OF PRODUCTION Factors
Land

Conventional
- Inputs into production that are provided by nature such as raw materials from the surface of earth, mineral and oil deposits. --The reward is rent. - All forms of human input, both physical and mental, into current production. - The reward is wage

Islamic
- Nature is a gift from Allah, therefore man should take care of the environment without damaging it.

Labour

- Responsible to find halal income and practice good work ethics. Aware of his social obligation to the society such as paying zakat and contribute to amal jariah - Should come from halal sources. Returns in the form of riba are prohibited

Capital

-All inputs into production that have themselves been produced such as factories, machineries, equipments and tools. -The reward is interest. -The person who has the capability to combine all resources into the production of goods and services. - The reward is profit.

Entrepreneur

- Production of goods and services should follow the Islamic rules

Basic Economic Problem

What to produce? Depends on the type & quantity of goods & services to produced. Ex: How many cars should be produced? Should more clinics be built than schools? How to produce? For whom to produce? Refers to the cheapest Depends on the method of production/ the distribution of income technique @ method of producing a product Ex: Should farmers use traditional ways to harvest? Should the firm use labour @ machine to produce pizza? Ex: Should the company sell to lower income people @ higher income people?

Question: Explain briefly the basic economic problems faced by every country.-Apr 2008