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PB102MICROECONOMICS
CHAPTER 1
INTRODUCTION 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 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 MACRO
Discipline of Economics
Microeconomic• Demand•Supply
•Production cost•Market Structure
Macroeconomic•Inflation
•Unemployment•Growth
•Money and Banking
Economic
PB102: MICROECONOMICS
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
PB102: MICROECONOMICS
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
Keywords:Combinations g&sFull and efficiently resources
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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 fixedFixed technology throughout the
production
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PPC CURVE
Corn
Cloth
•Z - UNATTAINABLE
•X - ATTAINABLE
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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
CapitalismSocialismMixed – economyIslamic - economy
CAPITALISM ECONOMY
Capitalism
- known as free-market system, laissez-faire, 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 socialismExample: 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 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
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ISLAMIC ECONOMY
Based on Al-Quran and Al-HadithEconomic decision more on maslahahEmphasizes 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
PB102: MICROECONOMICS
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