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Intro to microeconomics
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7/21/2019 DPB1023 Unit 1 Introduction to Microeconomics
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UNIT 1
INTRODUCTION TOMICROECONOMICS
NIK AZIDA BINTI ABDGHANI
DPB1023MICROECONOMICS
7/21/2019 DPB1023 Unit 1 Introduction to Microeconomics
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Students should be able to:
1.1 Interpret mir!e!n!mi in "ener#$
• Defne microeconomics
• Compare between study felds o economics:micro and macro economics
1.2 C$#%%i&' E!n!mi Pr!($em%
• Describe three economic problems.
• Relate the concept o economic problems
a. scarcity
b. choice
c. opportunity cost
)e#rnin" O*t!me%
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De+niti!n !& E!n!mi%
• Economics is a science o studieshuman behaviour as a relationshipbetween ends and scarce means
which have alternative uses.
• Economics is a study o how peopleuse their limited resources to try to
ulfll unlimited wants and involvesalternatives or choices.
• Economics as a study o how scarce
resources are allocated among
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De+niti!n !&Mir!e!n!mi%
Economics
Mir!economics
M#r!economics
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De+niti!n !&Mir!e!n!mi%
• Mir!e!n!mi% studies individual economicunits in detail such as household, a frm and agovernment.
•
Mir!e!n!mi% the study o individualparts o the economy such as public choices,business choices and personal choices.
• M#r!e!n!mi% the study o the economic
system as a whole such as the nationalincome, the trade cycle, the unemploymentrate, in!ation and general price levels.
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De+niti!n !&Mir!e!n!mi%
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De+niti!n !&Mir!e!n!mi%
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Di,erene% (et-eenMir!e!n!mi% #n M#r!e!n!mi%
B#%i% Mir!e!n!mi% M#r!e!n!mi%
"eaning Studies economicissues and problems atthe level o individual
frm, household etc.
Studies economic issues andproblems at the level o theeconomy as a whole.
Concern Concerned with thedetermination
Concerned withdetermination o aggregateoutput and general price levelin the economy as a whole.
#ocus #ocus on ma$imisationo individual%s gain.
#ocus on ma$imisation osocial welare.
Scope &t has narrow scope i.e.individual person,mar'et etc.
&t has a very wide scope i.e. acountry.
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3 E!n!mi% Pr!($em%
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E!n!mi Pr!($em%
• /#t t! pr!*e – (o decide what to produce because o the limited
economic resources.
– Can be solved through the price mechanism )in a
capitalist economy* or by central planning )socialistsystem*.
• H!- t! pr!*e
– Cheapest+ uic'est+ environmental riendly method oproduction.
– -se more human power or robotic /utomatic machinesor assembly line wor'ers
• !r -!m t! pr!*e – Distribution o economic benefts depends on the
distribution o income.
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E!n!mi Pr!($em%
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3 E!n!mi% C!nept%
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E!n!mi C!nept%
• S#rit' – 0uman wants are always greater than
the available resources. Scarcity reers to
wants which are always e$ceeding thelimited resources meant to satisy them.
– #actors o production )labour, capital,
land 1 entrepreneur* are scarce.
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E!n!mi C!nept%
• C!ie% – 2hen there is scarcity, choices have to
be made decisions to choose rom
available alternatives. – Consists o mental process o thin'ing
involved with the process o 3udging the
merits o multiple options and selectingone o them.
– Choice involves sacrifce.
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E!n!mi C!nept%
• Opp!rt*nit' !%t% – "a'ing choices in the ace o scarcity implies
a cost.
–
4pportunity costs 5 cost o one choice in termso the best orgone alternative the ne$talternative that you choose not to do is thecost o thing that you choose to do.
–
(he second best alternative that has to beorgone or another choice which gives moresatisaction.
– (he higher the opportunity cost, the less li'ely
to do it.
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1.3 C!mp#re !- te -!r$ !& e!n!mi%'%tem% %!$e te B#%i E!n!miPr!($em%
•
Describe the economic problems: what,how much, how to be produced and towhom the product should be produced
• Describe the characteristic o world
economic systemsa. Capitalism )ree mar'et*
b. Central planned
c. "i$ed economic
d. &slamic economic
)e#rnin" O*t!me%
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1.3 C!mp#re !- te -!r$ !&e!n!mi %'%tem% %!$e teB#%i E!n!mi Pr!($em%
• Compare the benefts o everyworld economic system
• Compare how the world economicsystems can solve basic economicproblems
)e#rnin" O*t!me%
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/!r$ E!n!mi S'%tem
• Economic system describes how acountry%s economy is organised.
• 6ecause o the problem o scarcity)not having enough o something*,every country needs a system todetermine how to use its productive
resources.
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/!r$ E!n!mi S'%tem
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/#t "!!% #n %erie%t! (e pr!*e
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/!r$ E!n!mi S'%tem
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/!r$ E!n!mi S'%tem
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/!r$ E!n!mi S'%tem4 C#pit#$i%m
• / system o economics based on te pri#te!-ner%ip !& #pit#$ #n pr!*ti!n inp*t%,and on the production o goods and services orproft.
• (he production o goods and services is (#%e!n %*pp$' #n em#n in the general mar'et,rather than through central planning )plannedeconomy*.
• Capitalism is generally characteri7ed by!mpetiti!n (et-een pr!*er%. 4ther acets,such as the participation o government inproduction and regulation, vary across models o
capitalism.
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/!r$ E!n!mi S'%tem4 C#pit#$i%m
• 8roduction and price are determined bythe mar'et rather than by governments.
• &ndividuals have reedom to produce
goods and services they can sell in themar'et.
• Capitalism has been critici7ed or its
underlying ocus on proft, and how thatocus can lead to social and economicine9uality.
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/!r$ E!n!mi S'%tem4 C#pit#$i%m % &ree m#r5et %'%tem
• C#pit#$i%m is an economic system based onownership o the actors o production. Some 'eyeatures o capitalism are competition betweencompanies and owners, private ownership and
motivation to generate a proft. (he production andpricing o goods and services is determined by theree mar'et, or the supply and demand.
• / &ree m#r5et system is an economic system
based solely on demand and supply, and there islittle or no government regulation. &n a ree mar'etsystem, a buyer and a seller transact reely onlywhen they voluntarily agree on the price o a good
or a service.
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/!r$ E!n!mi S'%tem4 C#pit#$i%m % &ree m#r5et %'%tem
• Capitalism is ocused on the creation o wealthand ownership o capital and actors oproduction
•
/ ree mar'et system is ocused on thee$change o wealth, or goods and services. /ree mar'et system is based solely on supplyand demand and leads to ree competition in
the economy, without any intervention romoutside orces.
• / private owner in a capitalist system can havea monopoly on the mar'et and prevent ree
competition.
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/!r$ E!n!mi S'%tem
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Mi6e E!n!mi S'%tem
• / mi$ed economy means that part o theeconomy is let to the ree mar'et, and part oit is run by the government.
• &n reality most economies are mi$ed, withvarying degrees o state intervention.
• "i$ed economies start rom the basis oallowing private enterprise to run mostbusiness. (hen the governments intervene incertain areas o the economy, such asregulation, and spending money on publicservices.
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B +t & Mi
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Bene+t% !& Mi6eE!n!m'
•Mi6e e!n!mie% allow many morereedoms than !mm#n e!n!mie% 5reedom to possess the means oproduction; to participate in managerial
decisions; to buy, sell, fre, and hire asneeded; and or employees to organi7eand protest peaceully.
•
"i$ed economies have a high level ostate participation and spending in ta$5unded libraries, schools, hospitals, roads,utilities, legal assistance, welare, and
social security.
B +t & Mi
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Bene+t% !& Mi6eE!n!m'
• <arious restrictions are made or thegreater good 5environmental regulation, labor
regulation, antitrust and intellectualproperty laws.
• (he ideal combination o these
reedoms and restrictions is meant toensure the ma$imum standard oliving or the population as a whole.
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Di%##nt#"e% !&Mi6e E!n!m' S'%tem
• Di=cult to 'now how muchgovernments should intervene, e.g.discretionary fscal policy may createalternative problems such asgovernment borrowing.
• "i$ed economies are criticised by
Socialists or allowing too much mar'etorces, leading to ine9uality and anine=cient allocation o resources.
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Di%##nt#"e% !&Mi6e E!n!m' S'%tem
• "i$ed economies are criticised byree mar'et economists or allowing
too much government intervention 5governments ma'e very poormanagers o the economy,invariably being in!uenced bypolitical and short5term actors.
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E!n!mi S'%tem t! %!$e te(#%i E!n!mi% Pr!($em%
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I%$#mi E!n!m' S'%tem
De+niti!n !& I%$#mi E!n!m'
• (he 'nowledge and application o
in3unctions and rules o Shariah thatprevent in3ustice in the ac9uisitionand disposal o material resources in
order to provide satisaction tohuman beings and enable them toperorm their obligations to /llah andthe society.
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e#t*re% !& I%$#mi E!n!m'S'%tem
• ree!m !& -!r5 #n enterpri%e -it#$$!-#(i$it' !n%tr#int – /n entrepreneur can produce only permitted
things, proft should be normal ater givingwages to the labourers in accordance with&slamic principles.
– Disallow monopoly and hoarding as social
evils.
• Spei#$ !nept !& !-ner%ip trustownership )man as vice5gerant, to inherit+
own wealth rom /llah*
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e#t*re% !& I%$#mi E!n!m'S'%tem
• Kin% !& !-ner%ip8
a* 8rivate individual ownership
b* Communal such as water, canal andgraveyards
c* State ownership mines, rivers and land
• St#te !-ner%ip basic economic
institutions may be brought under stateownership i it is re9uired to establishsocial 3ustice or protect the interests othe community.
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e#t*re% !& I%$#mi E!n!m'S'%tem
• Pr!i(iti!n !& intere%t re9uires atotal reorganisation o the economy,ban'ing, investment, e$change,business and international trade.
• Z#5#t compulsory on the wealth orich "uslims distributes wealth
between the rich and the poor o thesociety, in!uences investments, savingsand allocation o income and resources.
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e#t*re% !& I%$#mi E!n!m'S'%tem
• C!nern &!r p!!r
• Di%tri(*ti!n !& inerit#ne &slam
distributes inheritable propertyamong several groups o people)children, husband+ wie, parents,
brothers and sisters in certainsituations.
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C!mp#ri%!n -it !terE!n!mi S'%tem
• &slamic economic system implies satisyingthe economic needs o the members oorganised society in accordance with /l5
uran and Sunnah.• /bolition o interest
• 8rohibition o gambling in all its 'inds
• /bolition o unlawul contracts o e$change
• &mposition o 7a'at
• &mposition o other uranic sources opublic revenue.
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Merit% !& I%$#mi E!n!miS'%tem
• Democratic in nature giving authority toindividuals to get rewarded or theirproductive e>orts.
•
8rovision o 6asic ?ecessities o @ie li'eood, clothing, shelter and education to everyciti7en.
• Enorcement o &slamic @aw @aw o syariah peace and fnancial stability.
• Economic Austice provide e9ual chances oemployment and economic development toall people.
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Merit% !& I%$#mi E!n!miS'%tem
• Social Austice all citi7en, rich or poorshould be e9ual beore the eyes o law.Courts should be honest to provide 3ustice
to people.• -tili7ation o Resources or the
economic welare o the people
• Economic #reedom everybody is allowedto adopt any proession or businesswithin the law and it is the duty o thestate to give them protection.
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Merit% !& I%$#mi E!n!miS'%tem
• Establishment o 6aitulmal revenueand e$penditure is through6aitulmal.
• Collection o 7a'at and -sher inreplacement o ta$ system.
• #air distribution o wealth &slam is
against the concentration o wealthin ew hands.
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Demerit% !& I%$#mi E!n!miS'%tem
• Di=cult to implement the economicsystem based on the moral values.
• Calculation o 7a'at and ushercannot be verifed. Escape rom theresponsibility o 7a'at and usher iseasy.
• Collaboration with other system isnot possible and di=cult toimplement in non5"uslim societies.
H i t
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H!- e!n!mi %'%tem% #n%!$e (#%i e!n!mi pr!($em%
E!n!miPr!($em%
C#pit#$i%m Centr#$$'P$#nne
Mi6eE!n!m'
H!- M*t!
Pr!*e
"ar'et State State+"ar'et
/#t t!Pr!*e
"ar'et State State+"ar'et
H!- t!
Pr!*e
"ar'et State "ar'et
T! /!mt!Pr!*e
"ar'et State State+"ar'et
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E!n!miS'%tem%
E6#mp$e%
C#pit#$i%m -S, Aapan,
Bermany
"ost
developedeconomies
Centr#$$'
P$#nne
?orth orea,
China
Communist
countries
Mi6eE!n!m'
"alaysia,Singapore
E6#mp$e% !& e!n!mi %'%tem%
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