PB102 MICROECONOMICS

CHAPTER 1 INTRODUCTION TO ECONOMIC

PKB: JULAI 2010

CHAPTER 1: INTRODUCTION TO ECONOMICS

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-Definitions of economics -Discipline of economics (micro and macroeconomic s)
DEFINITIO NS CONCEPT OF ECONOMICS PROBLEM

Arrow graphics from Why use Process

-Assumption -Factors that influence the shift of PPC

PRODUCTION POSSIBILITI ES CURVE (PPC) BASIC ECONOMIC PROBLEMS

-Capitalisme -Central Planned - Mixed economic -Islamic economic

WORLD ECONOMIC SYSTEMS

-Scarcity -Choice -Opportunity cost

What, How much, How to be produced, to whom should be produced PB102: MICROECONOMICS

DEFINITION OF ECONOMICS
Economics

is a study of how people uses their limited resources to try to fulfill unlimited wants and involved alternative or choice
Ke Limit ywords: ed Unlim resourc es ited w ant s

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MICRO AND MACRO

Discipline

of Economics
Macroeconomic
Inflation Unemployment Growth Money and Banking

Microeconomic
Demand Supply Production cost Market Structure

Economic

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FACTORS OF PRODUCTION
Labour

Capital

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FACTORS OF PRODUCTION
Natural

Resources

Entrepreneur

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ECONOMICS PROBLEM
Scarcity

wants always exceed limited resources in order to fulfill human needs

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ECONOMICS PROBLEM
Choices

exists from scarcity. They have to make a choice from certain alternatives.

or

ECONOMICS PROBLEM
Opportunity

cost defined as second best alternative that has to forgo for another choice which gives more satisfaction

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PRODUCTION POSSIBILITIES CURVE (PPC)

Various

possible combinations of goods and services produced within a specific period with all its resources fully and efficiently employed Used to explain scarcity, choices and opportunity cost
Ke Com ywords: b Full a inations g nd e fficie &s reso n u rce t l y s
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ASSUMPTIONS
Only

1 person and 2 products produced (Example: Jane; Cloth and corn) Operating in full efficiency (full employment, full production capacity) Amount of resources are fixed Fixed technology throughout the production

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PPC CURVE
Corn
Z - UNATTAINABLE

X - ATTAINABLE Cloth
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PPC EXPLAINATION
Points

inside the PPC waste, inefficiency and unemployment Points outside the PPC economic concept: scarcity (limited resources and technology) Points along the PPC economic concept: choice (make choices among 2 goods) Movement from one point economic concept: opportunity cost (having less of one good to get more another) PB102: MICROECONOMICS

BASIC ECONOMIC QUESTIONS

What

to produce? - type of goods and services How and how much to produce? - depends on cheapest method - technical efficiency and economic efficiency For whom to produce? - depends on the distribution of income
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ECONOMIC SYSTEMS
Capitalism Socialism Mixed

economy Islamic - economy

CAPITALISM ECONOMY
Capitalism

- known as free-market system, laissezfaire, market economy - without government intervention - decision make by individuals only - Ex: USA, Japan, Germany

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CAPITALISM ECONOMY
Characteristics:

- Individual decision making; less government intervention - Price mechanism - Freedom of enterprise and choice - Production objective is more to max profit - Role of self-interest
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CAPITALISM ECONOMY
Merits

- Resources are efficiently utilized - Enhances R&D and competition - Incentive to work

CAPITALISM ECONOMY
Demerits

- Inequitable distribution of income - Inflation and high unemployment rate - Human welfares are ignored - Wasteful resources

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CAPITALISM ECONOMY
Solving

economic problems - What to produce? Power of demand and supply - How to produced? Maximizing output with minimum cost - For whom to produce? Only for who willing to pays
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SOCIALISM ECONOMY
Known

as Central Economy, Communist System, Command Economy or Planned System Where all the economic decision made by government or central authority Ex: China, North Korea, Cuba

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SOCIALISM ECONOMY
Characteristic:

- Public ownership of resources - Central Authority of Central Economic Planning - Limited use of price mechanism

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SOCIALISM ECONOMY
Merits

- Social justice - Better allocation of resources - Good economic growth - Efficiency in production

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SOCIALISM ECONOMY
Demerits

- Errors in decision making - Lack of motivation and incentive to work - Lack of development and R&D - Loss of economic freedom - Waste of economic resources
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SOCIALISM ECONOMY
Solving

economic problems - What to produce? More on welfare goods - How to produce? Production technique chosen based on social welfare - For whom to produce? All members in society
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MIXED ECONOMY
Combination

of capitalism and socialism Example: Malaysia, Singapore, India

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MIXED ECONOMY
Characteristics:

- Public and private ownership resources - Price mechanism and economic plan to make economic decision - Government helps to control disparity - Government intervention in the economy
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MIXED ECONOMY
Merits

- Efficient allocation of resources - More choices - Co-operation between government and private in making economic decision - Control of monopolies - Economic stability
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MIXED ECONOMY
Demerits

- Conflict of interest in producing goods - Negative external influences

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MIXED ECONOMY
Solving

economic problems - What to produce Determined by price mechanism Welfare and private goods - How to produce? Production methods based on social benefit and social costs - For whom to produce? Determined by price mechanism through taxation and subsidy policy
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ISLAMIC ECONOMY
Based

on Al-Quran and Al-Hadith Economic decision more on maslahah Emphasizes happiness on earth and afterlife

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ISLAMIC ECONOMY
Merits

- Ensures social welfare - Avoid riba and monopolies - Equal distribution of wealth and income - Freedom of ownership resources

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ISLAMIC ECONOMY
Solving

economic problems - What to produce Free to produce subject to Islamic laws - How to produce? Maximize production and minimize cost - For whom to produce? Based on purchasing power and individual income
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