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6/9/2015

DEFINITION

CHAPTER 1

Economics defined as a study of how
people choose to use theirs limited
resources to satisfy their limited wants

Economics is concerned with the use of
limited resources to satisfy the unlimited
wants of the society and it involved choice.

Introduction to economics

Definition of economics
Economic concepts
Production Possibilities
Curve (PPC) with calculation

OF ECONOMICS

Basic economic problems
Types of Economics system

FACTORS

The discipline of economics is divided into two main branches namely
microeconomics and macroeconomics

macroeconomics

microeconomics
Is the study of individual
units in the economy. It
focuses on the price theory
, production theory and
distribution theory.

Example: pricing decisions of
firms within or among
industries, purchasing
decisions of consumers of a
particular good, government
intervention in the pricing a
goods and services and etc

Factors of
production

Lands include all resources found in the sea and on
the land.
In economics ,land include:
•Raw materials such as copper, timber and rubber.
•Landscape such as mountains, valleys and hills
•Ports such as natural harbour.
•Climatic conditions such as rain and snow.
•Geographical location such as continents and
islands.

LABOR

Labor represents the services of human beings in
the production of goods and services. Both physical
and mental efforts are included in this category.

Cont’…..
CAPITAL

ENTREPRENEURSHIP

Explanations

LAND

Is the study of economy as a
whole or aggregate. It focuses on
national income, general
employment, general price level
etc.

Example :
inflation,unemployment,eco
nomic slowdown or growth
and etc

OF PRODUCTION

BASIC ECONOMIC
Capital is equipment, factories, machines
and tools that man creates to help them
produce goods and services. The
productivity of capital is limited by the
state of technology.

Entrepreneurship is the human ability and
talent to develop products and processes and to
organize factors of production to make goods
and services available. They undertake
necessary to get the process of production
started and make the decisions relating to the
use of inputs.

SCARCITY

CHOICE

CONCEPTS

• Scarcity occurs when a society’s wants exceed the ability of the
economy to meet those wants. Human’s wants are virtually
unlimited but at any one time the world can only produce a
limited amount of goods and services. This is because the
world has only a limited amount of resources.

• Individual, business and society must make decision to choose.
We must choose among many alternative. A choice must be
made due to the scarcity of resource that we faced.
• Example : as an individual we must choose between job and
college education, between saving and consumption, or
between going to a movie and studying. Government must
choose between more spending on defense or more spending
for public education

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The study of bigger scope of economic activity It examines the functioning of individual industries and behavior of individual decision making units.Operating in full efficiency (full employment. It deals with the whole national income It focuses on the factors that influence the production of a particular of particular product and he behavior of individual industries. • How much to produce refers to the quantity of goods and services to be produced.the opportunity cost is the lost of buying a new car. Each time you choose to use resources for a purpose. • This means that how the products are to be distributed among the society. Cont’….  Fixed technology-technology does not change during our course of analysis. It focuses on the determinants of national output. • This decision is important to minimize the use of scare resources and to achieve maximum possible output of goods and services. In economics that is what we mean by the term “opportunity cost”. full production capacity)  Fixed resources. • It usually depends on the demand from consumers or the population of the society and resources available in the country. It analyses the overall general price level. • Is it to those who are willing and able to pay or those in need? PRODUCTION POSSIBILITIES CURVE (PPC) VIDEO:PRODUCTION POSSIBILITIES CURVE. it means you must forgo some other purpose. 2 .the available supplies of the factors of productions are fixed in both quantity and quality. If you decided to buy a new COST car. It analyses individual prices of goods and services.6/9/2015 THE CONT’…. BASIC ASSUMPTION OF PPC products – we assume that our economy is producing is producing only 2 goods (i. • Making a choice is not easy task. HOW TO PRODUCE FOR WHOM TO PRODUCE BASIC ECONOMICS PROBLEMS WHAT AND HOW MUCH TO PRODUCE • What to product refers to the type of product to produce. It concerns with the obtaining overview of general outline of the structure of economy and relationship among the major aggregates which constitute the economy. If you decide to go for a vacation. Opportunity cost is the best alternative(good or service) sacrificed for a chosen alternative which gives more satisfaction • OPPORTUNITY Examples: suppose you have to choose between buying a new car and going for a vacation. Decisions must be made about what to produce with the limited resources available.e. Making a choice involves a sacrifice. It focuses on the determinants of total national output and aggregate decision making. It given attention to the specific units making up the various aggregates. • Method of product can be either capitalintensive or labor-intensive. choices and opportunity  The PPC shows the various possible combinations of goods and services produces within a specified time period with all its resources fully and efficiently employed.MP4 MICROECONOMICS MACROECONOMICS The study of smaller scope of economic activity. the opportunity cost of buying a new car is the lost of going for a vacation. It deals with household income only.  Two  Used to explain the basic economic concept: scarcity. • Societies have to decide what to produce and also how to produce to ensure that scarce resources are utilized properly and efficiently COMPARISON : MICROECONOMICS AND MACROECONOMICS • It refers to the technique or method of producing a product. corn and cloth)  Efficiency . • It involves mixing technology and scarce resources in order to produce the wanted commodities.

 Improvement in technology -an increase in a particular output due to new innovation. In other hand. machinery and increase in productivity..6/9/2015 Explanation based on diagram above are as follows: Line passing through the points is PPC which separates attainable from unattainable Points inside the PPC – shows waste of resources. inefficiency and unemployment problem since the product has not reached maximum level. e) – individual will make choices among various possible combinations of 2 goods to give more satisfaction. application of new and efficient techniques of production or the development of new and better ways of producing goods and services. PRODUCTION POSSIBILITY CURVE (PPC) POSSIBILITY CORN CLOTH A 20 0 B 18 1 C 15 2 D 11 3 E 6 4 F 0 5 Point outside the PPC – shows the main basic economic concept: SRACITY.  Population – An increase in the population can also lead to the shift of production possibility curve to right. More population can increase in the production.  Good y  Good x Technology increases the production of good X only Good y Good x 3 . d. expansion of our production possibilities. Such as point a.An increase in the total output due to the availability of new resources. Shift to the right – production has increased Good y PPC shift outwards. At this point with limited resources and technology. (Such as point b to c) – involves an opportunity cost having less of one good to get more of another.because natural disaster. decrease in resources. c.etc Sewing Machine 16 14  Increase in population 12 Good x Shifts to the left – production has decreased 10 8 Good y PPC shift inwards. Movement from one point – shows the third concept: OPPORTUNITY COST. b.because growth in eco. unable to produce. etc 6 Decrease in population 4 2 0 1 2 3 4 5 Butter Good x THE SHIFT OF PPC  Technology increases the production of good Y only SHIFTS OF PPC HAPPEN ONLY Economic growth . FACTORS THAT INFLUENCE THE SHIFT OF PPC  Factors that Influence the Shift of PPC Population 3. Point along the PPC – shows the second concept: CHOICES. Tehn improv.

and private sectors discuss economic problems 24 • • 23 • Free market/laissez-faire economic system Everyone makes their own decision No govt.  22  What is the most cheapest or economical way to produce? One has to decide whether to use capital (machine) or labor (human) intensive. owns and governs economic resources Main objec. Who is the market? Who is going to get the goods produced? Should everyone get an equal share? Is it for the high-income earners or for the low/ idle income earners. commuters.6/9/2015 SHAPE OF PPC 4 BASIC ECONOMICS QUESTIONS/PROBLEMS WHAT to produce? i. intervention It refers to how goods and services are distributed among society. Mixed economic system 3. The most important thing is to minimize the cost of production For WHOM to produce? iv. HOW to produce? ii. Do you want to produce military goods or consumer goods? Should we produce small cars or large cars ? Produce more public transportations (buses. depends on the demand from consumers and also the availability of resources.    • • How to mix technology and resources to produce goods and services. • • • Command economy The govt. Capitalist economic system 1. Socialist economic system 2. is to make sure that the people get whatever they need Economic inputs – public and private ownership Economic run by both parties Govt. monorail) or private vehicles? • • • Main objec. – achieve Al-Falah ‘success in the world now and hereafter’ Look at economic activities from materialistic and spiritual aspect in this world and hereafter 4 . LRT. 20 • Knowing that resources are limited a producer has to decide what to produce. • • ECONOMIC SYSTEM • • • Islamic economic system 4. 21  HOW many/when to produced? iii.

relationship between man and Allah (habluminallah relationship among mankind (habluminannas)   Believing that Allah is the creator and most powerful of Ukhuwwah Concept of brotherhood. refrigerator  goods Luxury goods Without it live can still go on comfortably – bungalow. clothing   goods Comfort goods Makes life more better – car. of Khalifah Man is servant of Allah and crated as trustee to prosper land and to be in servitude to Allah by Islamic Law (Syariah) v. Concept of Tazkiyyah iii. economic planning CAPITALISM Demerits Basic philosophical foundation of Islamic Economic System iv. Based on needs 2. intervention 5.6/9/2015 CAPITALISM CHARAC:- 1. extravagant and wastage Golden cutlery.Dharuriyyah  2.  Purification of man through giving zakat and sedekah (sharing of wealth) How to solve basic economic problems? 1. BMW 4. respect and be responsible to each other. Economic freedom 3. 27 i. Public ownership 2. golden bed 5 . Loss economic freedom and consumer sovereignty 3. Minimum govt. Price system What and how much to produce? goods produce must be Halal (in accordance to Islamic classification of goods)  Personal interest must not exceed public interest Classification of good and services Hierarchy of goods in Islam:-  1. Private ownership 2. Private and govt. Lack of incentives & initiative by individuals 2. Better allocation of resources 4.Hajiyyah For whom to produce?  The poor should come first (but the rich should not be ignored) 3. Prod. R & D 1. MIXED 28 Believing there is only Allah. shelter. accord. Misallocation of resources 4. Public and private ownership 2. television.Tarafiyyah  30 29  goods Not permissible (Haram). How to produce?  Most cost effective and efficient method 2. Consumer’s sovereignty 4. Inequality distribution of income 2.  The belief of:- SOCIALISM 1.Concept Concept of Rububiyyah ii. Social welfare MIXED 1. Prod. to need (variety of goods) 2. 1. goods Basic goods Must have to live – food. Social cost 26 1. Equitable income and wealth distribution 3. Lack of social welfare 3.Concept   ii. Freedom of enterprise and choice 3. Central planning 25 Merits SOCIALISM 1. love.Kamaliyyah/Tahsiniyyah   3. Absence of competition Basic philosophical foundation of Islamic Economic System Concept of Tauhid i.