PRINCIPLES OF

ECONOMICS
[BQS406]
BASIC ECONOMIC CONCEPTS
EN ZULKHAIRY AFFANDY BIN MOHD ZAKI
1.0 BASIC ECONOMC CONCEPTS
1.1 WHAT IS ECONOMICS?
1.2 WHAT IS MEANT BY MICROECONOMICS AND MACROECONOMICS?
1.3 SCARCITY, CHOICES AND OPPORTUNITY COST
1.4 ECONOMIC RESOURCES (FACTOR OF PRODUCTION)
1.5 CLASSIFICATION OF GOODS
1.6 BIG ECONOMIC QUESTIONS: WHAT, HOW AND WHOM
1.7 PRODUCTION POSSIBILITY CURVE (PPC)
1.7.1 SHIFT IN THE PPC
1.8 OPPORTUNITY COST
1.8.1 INCREASING OPPORTUNITY COST
1.9 BASIC ECONOMIC SYSTEMS
1.9.1 CENTRALLY PLANNED OR COMMAND
1.9.2 FREE MARKET
1.9.3 MIXED ECONOMY
1.9.4 COMPARISON OF ECONOMIC SYSTEMS
1.10 THE CIRCULAR FLOW MODEL
1.1 WHAT IS ECONOMICS

Making choices
Buy a book or photocopy
Food : Cook or Buy
House or Car
Scarcity
Time and things
Choice need to be made to satisfy
Basic needs, needs, wants, desires
Resource needed to produce goods and services that are scarce
relative to human wants for good and services.
1.1 WHAT IS ECONOMICS
Economics is a study of HOW PEOPLE MAKE CHOICES ON HOW TO
ALLOCATE ITS SCARCE RESOURCES TO THE PRODUCTIOB OF GOODS
AND SERVICES IN ORDER TO SATISFY UNLIMITED WANTS AND NEEDS.
Resources, Choice, Allocation, Alternatives and Objective
Example : Time
What should I do for this upcoming weekend?
Example : Petroleum
What should the government with new founded Petroleum spot in East
Coast?
1.2 WHAT IS MEANT BY MICROECONOMICS
AND MACROECONOMICS
Microeconomics
Human behavior and choices
Household (individual), firm, an industry and single
market
Determine the pattern of production, distribution of
goods and services
Concerned on demand and supply
How much will consumer pay for entertainment, food?
Why price of chicken increase during festive season?
Does Tax affect the consumer expenditure?
The single price, demand for goods, how a tax change
affects single firms output.
1.2 WHAT IS MEANT BY MICROECONOMICS
AND MACROECONOMICS
Macroeconomics
Economics aggregate (grand total)
Overall level of prices, employment rate in a
nation
Study the performance of the national and
global economy
How much income will a country save?
What happen when the Central Bank lowers
the interest rate?
What will be the unemployment rate?
The price level, aggregate demand for goods,
how a tax change affects of an entire
economys output
1.3 SCARCITY, CHOICES & OPPORTUNITY
COST
Economic problem arise because of unlimited
wants and needs.
Availability of resources still limited in supply
Efficient use of the limited resources = making
choices
SCARCITY
Not enough to allow for everyone to consume
freely as much as they would like.
Infinite wants, resources finite
Limited supply of natural resources, finances, factors
of productions
Make choices between the alternatives
1.3 SCARCITY, CHOICES & OPPORTUNITY
COST
CHOICES
Involves sacrifices.
Choice is trade off
Let go/ giving up one thing for something else.
The sacrificed alternatives are called opportunity cost

OPPORTUNITY COST
The cost of the next best alternatives forgone by choosing a particular activity is what you give
up to get that item.
Time or money spend to one thing, the opportunity to utilize time/money is lost.
Example; a piece of land >residential or factory.
The higher Opportunity Cost, the less likely to be done.
1.3 SCARCITY, CHOICE AND
OPPORTUNITY COST

Changes in
Unlimited Make Opportunity opportunity
Scarcity
wants choices Cost cost affect
behaviour
1.3 SCARCITY, CHOICES & OPPORTUNITY
COST
How does a person make choices that scarcity demand of him/her?
Self interest
Best for him/her
Best for society =social interest

Rational choices
Increase the marginal benefits of each activities against marginal opportunity cost.
Marginal benefits > marginal cost = rational (vice versa)
Economist presume a person employ cost benefit principle
1.3 SCARCITY, CHOICES & OPPORTUNITY
COST
How does a person make choices that scarcity demand of him/her?
Self interest
Best for him/her
Best for society =social interest

Rational choices
Increase the marginal benefits of each activities against marginal opportunity cost.
Marginal benefits > marginal cost = rational (vice versa)
Economist presume a person employ cost benefit principle
1.4 ECONOMICS RESOURCES
(FACTORS OF PRODUCTION)

LAND LABOUR CAPITAL ENTREPRENEURIAL

Soils for crops, Services professional Limited Stock, factory, ABILITY
unimproved land, and non professional tools, machinery, Talent of some
mineral deposits, Quality of labour buildings, transport people in organizing
forests, oil, gas, water, depend on human Based on state of goods, seek for
air, wind, sunlight, capital, knowledge, technology business opportunities
creatures skill, education and Financing the and develop new
Natural resources- experience. capital=interest things
renewable and non Wages or Salary Risk wealth, time and
renewable effort
Rental by the They earned
landlords for the firms profit/loss
to do activity = Rent
 1.4 ECONOMICS RESOURCES
(FACTORS OF PRODUCTION)
Resources
Producers/Firms Society
Owners

LAND TRANSFORM WANTS AND NEEDS

LABOUR RESOURCES INTO
CAPITAL GOODS AND
SERVICES TO
ENTREPRENERSHIP
SATISFY
1.5 CLASSIFICATION OF GOODS
FREE GOODS
No payment, no opportunity cost
Unlimited and no cost
Air, sunlight and rain.
Rainfall and sunlight treated as free goods where there are ample supply. If it stored or
utilized for electrical supply(solar) = economic goods.

ECONOMIC GOODS
Created from scarce resources, opportunity cost
Resources are limited
Divided into 2 groups
Commodity or Tangible goods
Consumer goods final products
Capital goods produced goods for further production
Services or Intangible (non physical) goods
services
1.5 CLASSIFICATION OF GOODS
PUBLIC GOODS
Goods and services produced or purchased by the government
Non-excludable and non-rival in consumption

PRIVATE GOODS
Goods and services produced or purchased by firms and households
Offered for sale
Excludability and rivalry in consumption
1.5 CLASSIFICATION OF GOODS
MERIT GOODS
People can be excluded from using these goods and the consumption by one person will
reduce the availability of these goods to others, example government scholarship