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PB102
MICROECONOMICS
CHAPTER 1
INTRODUCTION TO ECONOMIC
PKB: JULAI 2010
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CHAPTER 1: INTRODUCTION TO ECONOMICS
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-Assumption
-Definitions of
economics
-Discipline of
economics (micro and
macroeconomics)
DEFINITIONS
-Capitalisme
-Central Planned
- Mixed economic
-Islamic economic
-Factors that
influence the shift
of PPC
CONCEPT OF
ECONOMICS
PROBLEM
-Scarcity
-Choice
-Opportunity cost
PRODUCTION
POSSIBILITIES
CURVE (PPC)
WORLD
ECONOMIC
SYSTEMS
BASIC
ECONOMIC
PROBLEMS
What, How much,
How to be produced,
to whom should be
produced
PB102: MICROECONOMICS

Economics is a study of how people uses
their limited resources to try to
fulfill unlimited wants and involved
alternative or choice
DEFINITION OF ECONOMICS
PB102: MICROECONOMICS

Discipline of Economics
Microeconomic
• Demand
•Supply
•Production cost
•Market Structure
Macroeconomic
•Inflation
•Unemployment
•Growth
•Money and Banking
Economic
MICRO AND MACRO
PB102: MICROECONOMICS

Labour

Capital
FACTORS OF PRODUCTION
PB102: MICROECONOMICS

Natural Resources

Entrepreneur
FACTORS OF PRODUCTION
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
wants always exceed
limited resources in order to fulfill
Scarcity –
human needs
ECONOMICS PROBLEM
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
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
ECONOMICS PROBLEM
PB102: MICROECONOMICS
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

PRODUCTION POSSIBILITIES
CURVE (PPC)
PB102: MICROECONOMICS
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

ASSUMPTIONS
PB102: MICROECONOMICS
Corn
•Z - UNATTAINABLE
•X - ATTAINABLE
Cloth
PPC CURVE
PB102: MICROECONOMICS
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)

PPC EXPLAINATION
PB102: MICROECONOMICS
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

BASIC ECONOMIC QUESTIONS
PB102: MICROECONOMICS
Capitalism
 Socialism
 Mixed – economy
 Islamic - economy

ECONOMIC SYSTEMS

Capitalism
- known as free-market system, laissezfaire, market economy
- without government intervention
- decision make by individuals only
- Ex: USA, Japan, Germany
CAPITALISM ECONOMY
PB102: MICROECONOMICS

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
PB102: MICROECONOMICS

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
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
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
CAPITALISM ECONOMY
PB102: MICROECONOMICS
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
PB102: MICROECONOMICS

Characteristic:
- Public ownership of resources
- Central Authority of Central Economic
Planning
- Limited use of price mechanism
SOCIALISM ECONOMY
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
Merits
- Social justice
- Better allocation of resources
- Good economic growth
- Efficiency in production
SOCIALISM ECONOMY
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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
PB102: MICROECONOMICS

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
SOCIALISM ECONOMY
PB102: MICROECONOMICS
Combination of capitalism and socialism
 Example: Malaysia, Singapore, India

MIXED ECONOMY
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
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
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
Merits
- Efficient allocation of resources
- More choices
- Co-operation between government and
private in making economic decision
- Control of monopolies
- Economic stability
MIXED ECONOMY
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
Demerits
- Conflict of interest in producing goods
- Negative external influences
MIXED ECONOMY
PB102: MICROECONOMICS

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
MIXED ECONOMY
PB102: MICROECONOMICS
Based on Al-Quran and Al-Hadith
 Economic decision more on maslahah
 Emphasizes happiness on earth and
afterlife

ISLAMIC ECONOMY
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
Merits
- Ensures social welfare
- Avoid riba and monopolies
- Equal distribution of wealth and income
- Freedom of ownership resources
ISLAMIC ECONOMY
PB102: MICROECONOMICS

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
ISLAMIC ECONOMY
PB102: MICROECONOMICS