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PB102PB102MICROECONOMICSMICROECONOMICS
CHAPTER 1INTRODUCTION TO ECONOMIC
PKB: JULAI 2010
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BASIC ECONOMIC PROBLEMS
-Definitions of economics-Discipline of economics (micro and macroeconomics)
-Capitalisme-Central Planned- Mixed economic -Islamic economic
-Scarcity-Choice-Opportunity cost
What, How much, How to be produced, to whom should be produced
PRODUCTION POSSIBILITIES CURVE (PPC)
WORLD ECONOMIC SYSTEMS
CONCEPT OF ECONOMICS PROBLEM
DEFINITIONS
CHAPTER 1: INTRODUCTION TO ECONOMICS
-Assumption
-Factors that influence the shift of PPC
PB102: MICROECONOMICS
DEFINITION OF ECONOMICSDEFINITION OF ECONOMICS
Economics is a study of how people uses
their limited resources to try to
fulfill unlimited wants and involved alternative or choice
Keywords:Limited resourcesUnlimited wants
PB102: MICROECONOMICS
MICRO AND MACROMICRO AND MACRO
Discipline of Economics
Microeconomic• Demand
•Supply•Production cost•Market Structure
Macroeconomic•Inflation
•Unemployment•Growth
•Money and Banking
Economic
PB102: MICROECONOMICS
FACTORS OF PRODUCTIONFACTORS OF PRODUCTION
Labour
Capital
PB102: MICROECONOMICS
FACTORS OF PRODUCTIONFACTORS OF PRODUCTION
Natural Resources
Entrepreneur
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ECONOMICS PROBLEMECONOMICS PROBLEM
Scarcity – wants always exceed
limited resources in order to fulfill human needs
PB102: MICROECONOMICS
ECONOMICS PROBLEMECONOMICS PROBLEM
Choices – exists from scarcity. They have
to make a choice from certain alternatives.
or
ECONOMICS PROBLEMECONOMICS PROBLEM
Opportunity cost – defined as second best alternative that has to forgo for another choice which gives more satisfaction
PB102: MICROECONOMICS
PRODUCTION POSSIBILITIES PRODUCTION POSSIBILITIES CURVE (PPC)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
Keywords:Combinations g&sFull and efficiently resources
PB102: MICROECONOMICS
ASSUMPTIONSASSUMPTIONS
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 fixedFixed technology throughout the
production
PB102: MICROECONOMICS
PPC CURVEPPC CURVE
Corn
Cloth
•Z - UNATTAINABLE
•X - ATTAINABLE
PB102: MICROECONOMICS
PPC EXPLAINATIONPPC 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 QUESTIONSBASIC 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
PB102: MICROECONOMICS
ECONOMIC SYSTEMSECONOMIC SYSTEMS
CapitalismSocialismMixed – economyIslamic - economy
CAPITALISM ECONOMYCAPITALISM ECONOMY
Capitalism- known as free-market system, laissez-faire, market economy- without government intervention- decision make by individuals only- Ex: USA, Japan, Germany
PB102: MICROECONOMICS
CAPITALISM ECONOMYCAPITALISM 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
PB102: MICROECONOMICS
CAPITALISM ECONOMYCAPITALISM ECONOMY
Merits- Resources are efficiently utilized- Enhances R&D and competition- Incentive to work
CAPITALISM ECONOMYCAPITALISM ECONOMY
Demerits- Inequitable distribution of income- Inflation and high unemployment rate- Human welfares are ignored- Wasteful resources
PB102: MICROECONOMICS
CAPITALISM ECONOMYCAPITALISM 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
PB102: MICROECONOMICS
SOCIALISM ECONOMYSOCIALISM 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
PB102: MICROECONOMICS
SOCIALISM ECONOMYSOCIALISM ECONOMY
Characteristic:- Public ownership of resources- Central Authority of Central Economic Planning- Limited use of price mechanism
PB102: MICROECONOMICS
SOCIALISM ECONOMYSOCIALISM ECONOMY
Merits- Social justice- Better allocation of resources- Good economic growth- Efficiency in production
PB102: MICROECONOMICS
SOCIALISM ECONOMYSOCIALISM 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
PB102: MICROECONOMICS
SOCIALISM ECONOMYSOCIALISM 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
PB102: MICROECONOMICS
MIXED ECONOMYMIXED ECONOMY
Combination of capitalism and socialismExample: Malaysia, Singapore, India
PB102: MICROECONOMICS
MIXED ECONOMYMIXED 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
PB102: MICROECONOMICS
MIXED ECONOMYMIXED ECONOMY
Merits- Efficient allocation of resources- More choices- Co-operation between government and private in making economic decision- Control of monopolies- Economic stability
PB102: MICROECONOMICS
MIXED ECONOMYMIXED ECONOMY
Demerits- Conflict of interest in producing goods- Negative external influences
PB102: MICROECONOMICS
MIXED ECONOMYMIXED ECONOMY
Solving economic problems- What to produce
Determined by price mechanismWelfare 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
PB102: MICROECONOMICS
ISLAMIC ECONOMYISLAMIC ECONOMY
Based on Al-Quran and Al-HadithEconomic decision more on maslahahEmphasizes happiness on earth and
afterlife
PB102: MICROECONOMICS
ISLAMIC ECONOMYISLAMIC ECONOMY
Merits- Ensures social welfare - Avoid riba and monopolies- Equal distribution of wealth and income - Freedom of ownership resources
PB102: MICROECONOMICS
ISLAMIC ECONOMYISLAMIC 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
PB102: MICROECONOMICS