PB102 MICROECONOMICS CHAPTER 1 INTRODUCTION TO ECONOMIC PKB: JULAI 2010

Arrow Process Why use graphics from PowerPointing.com? 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 resources Unlimited 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 PB102: MICROECONOMICS

FACTORS OF PRODUCTION Natural Resources Entrepreneur PB102: MICROECONOMICS

ECONOMICS PROBLEM Scarcity – wants always exceed limited resources in order to fulfill human needs PB102: MICROECONOMICS

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&s Full and efficiently resources PB102: MICROECONOMICS

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 fixed Fixed technology throughout the production PB102: MICROECONOMICS

PPC CURVE Corn Cloth Z - UNATTAINABLE X - ATTAINABLE PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

ECONOMIC SYSTEMS Capitalism Socialism Mixed – economy Islamic - 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 PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

SOCIALISM ECONOMY Characteristic: - Public ownership of resources - Central Authority of Central Economic Planning - Limited use of price mechanism PB102: MICROECONOMICS

SOCIALISM ECONOMY Merits - Social justice - Better allocation of resources - Good economic growth - Efficiency in production PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

MIXED ECONOMY Combination of capitalism and socialism Example: Malaysia, Singapore, India PB102: MICROECONOMICS

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 PB102: MICROECONOMICS

MIXED 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 ECONOMY Demerits - Conflict of interest in producing goods - Negative external influences PB102 : MICROECONOMICS

MIXED ECONOMY Solving economic problems - What to produce Determined by price mechanism Welfare 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 ECONOMY Based on Al-Quran and Al-Hadith Economic decision more on maslahah Emphasizes happiness on earth and afterlife PB102: MICROECONOMICS

ISLAMIC ECONOMY Merits - Ensures social welfare - Avoid riba and monopolies - Equal distribution of wealth and income - Freedom of ownership resources PB102: MICROECONOMICS

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