chapter 1

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


MICRO AND MACRO

Discipline of Economics

Microeconomic• Demand•Supply

•Production cost•Market Structure

Macroeconomic•Inflation

•Unemployment•Growth

•Money and Banking

Economic


FACTORS OF PRODUCTION

Labour

Capital


FACTORS OF PRODUCTION

Natural Resources

Entrepreneur


ECONOMICS PROBLEM

Scarcity – wants always exceed limited resources in order to fulfill human needs


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


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


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


PPC CURVE

Corn

Cloth

•Z - UNATTAINABLE

•X - ATTAINABLE


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)


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


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


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


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


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


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


SOCIALISM ECONOMY

Characteristic:

- Public ownership of resources

- Central Authority of Central Economic Planning

- Limited use of price mechanism


SOCIALISM ECONOMY

Merits

- Social justice

- Better allocation of resources

- Good economic growth

- Efficiency in production


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


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


MIXED ECONOMY

Combination of capitalism and socialismExample: Malaysia, Singapore, India


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


MIXED ECONOMY

Merits

- Efficient allocation of resources

- More choices

- Co-operation between government and private in making economic decision

- Control of monopolies

- Economic stability


MIXED ECONOMY

Demerits

- Conflict of interest in producing goods

- Negative external influences


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


ISLAMIC ECONOMY

Based on Al-Quran and Al-HadithEconomic decision more on maslahahEmphasizes happiness on earth and

afterlife


ISLAMIC ECONOMY

Merits

- Ensures social welfare

- Avoid riba and monopolies

- Equal distribution of wealth and income

- Freedom of ownership resources


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


chapter 1

Documents

production pb102

microeconomics micro

economic efficiency

microeconomics assumptions

central economy

economic resourcespb102

economic pkb

ppc economic concept