DPB1023 Unit 1 Introduction to Microeconomics

7/21/2019 DPB1023 Unit 1 Introduction to Microeconomics

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UNIT 1

INTRODUCTION TOMICROECONOMICS

NIK AZIDA BINTI ABDGHANI

DPB1023MICROECONOMICS



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%



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



De+niti!n !&Mir!e!n!mi%

Economics

Mir!economics

M#r!economics




• 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.









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.





3 E!n!mi% Pr!($em%



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.



E!n!mi Pr!($em%



3 E!n!mi% C!nept%



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.



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.



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.



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%



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%



/!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.



/!r$ E!n!mi S'%tem





/#t "!!% #n %erie%t! (e pr!*e



/!r$ E!n!mi S'%tem



/!r$ E!n!mi S'%tem



/!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.



/!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.



/!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.

http://www.investopedia.com/terms/f/freemarket.asp

http://www.investopedia.com/terms/f/freemarket.asp



/!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.

http://www.investopedia.com/terms/m/monopoly.asp

http://www.investopedia.com/terms/m/monopoly.asp



/!r$ E!n!mi S'%tem





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.



B +t & Mi



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

https://www.boundless.com/business/definition/mixed-economy

https://www.boundless.com/business/definition/economy

https://www.boundless.com/business/definition/command-economy




https://www.boundless.com/business/definition/economy

https://www.boundless.com/business/definition/mixed-economy



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.

https://www.boundless.com/business/definition/standard

https://www.boundless.com/business/definition/standard



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.



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.



E!n!mi S'%tem t! %!$e te(#%i E!n!mi% Pr!($em%



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.



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*




• 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.




• 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.




• 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.



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.



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.




• 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.




• 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.



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



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


H!- t!

Pr!*e

"ar'et State "ar'et

T! /!mt!Pr!*e




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%

Documents

DPB1023 Unit 1 Introduction to Microeconomics