INTRODUCTION

TO ECONOMICS
• A Greek word
• one who manages a household
Economics is the study of how society manages its scarce resources.
• Production of good and services
• Consumption
• Labour
• Microeconomics focuses on the individual parts of the
economy.
• How households and firms make decisions and how they interact in
specific markets
• Demand and supply of good and services
• Production
• Macroeconomics looks at the economy as a whole.
• Economy-wide phenomena
• inflation, unemployment, and economic growth
• Trade
• Economics policies
• Deal with how scarce resources are allocated to maximize
the unlimited wants that we want to fulfill.
• Economic is important to:
• Individual – As a consumer who wants to maximize
satisfaction and minimize expenditure.
• Businessman – As a producer who wants to maximize profit
and minimize cost.
• Government – In providing a high standard of living for the
people.
• A household and an economy face many decisions:
• Who will work?
• What goods and how many of them should be produced?
• What resources should be used in production?
• At what price should the goods be sold?
• Scarcity. . . means that society has limited resources and therefore cannot
produce all the goods and services people wish to have.
• Choice-We will choose the wants that satisfy us most
• Decision
• Involves sacrifice
• Decisions require comparing costs and benefits of alternatives.
• Whether to go to college or to work?
• Whether to study or go out on a date?
• Whether to go to class or sleep in?

• The opportunity cost of an item is what you give up to obtain that

item.
• the second best alternative
 Due to scarcity or resource, 4 basic economic problems arises
• 1. What to produce? (Services and goods)
• Need to decide what goods and services to produce.
• Goods and services most desired by the society (maximize
utility/satisfaction)
• 2. How to produce? (Method of production / technology)
• Best method of production (most efficient at lowest cost)
• Must take into account availability of technology, resource and
cost of resources.
• 3. How much to produce? (Quantity)
• Quantity desired by society
• 4. For whom to produce? (Society)
• Determined largely by distribution of income in society
• Goods and services will be consumed by those who have the
ability to pay
• The production possibilities frontier is a graph that
shows the combinations of output that the economy can
possibly produce given the available factors of production
and the available production technology.
Quantity of
Computers
Produced

3,000 D

C
2,200
2,000 A
Production
possibilities
frontier
1,000 B

0 300 600 700 1,000 Quantity of

Cars Produced
Copyright©2003 Southwestern/Thomson Learning
Quantity of
Computers
Produced

4,000

3,000

2,100 E
2,000
A

0 700 750 1,000 Quantity of

Cars Produced
Copyright © 2004 South-Western
 Economic System

Islamic Capitalism Socialism Mixed

Economics Economy

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 According to syariah principles.

 Main objective is to achieve the blessing of Allah

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Act as a vicegerent Utilize economic
(khalifah) of Allah resources wisely

Maintaining a good
Obeying all ALLAH relationship with
rules & regulation other

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• Also called a Free Market • Supply and demand (market)
Economy or Free Enterprise of goods and services
Economy determine what is produced
• How to solve eco problems? and the price that will be
charged.
• Businesses/firms and
consumers decide what they • Advantage—competition to
will produce and purchase have the best products and
and in what quantities services
• Decisions are made • Disadvantage—High income
according to law of supply & gap between wealthy and
demand (Market Mechanism) poor
• Q: Does a true market
economy exist?
• How to solve eco problems?
• The government (or central
authority) determines what,
how, and for whom goods
and services are produced.
• Two types:
• Strong Command – where
government makes all
decisions (communism – China,
Cuba)
• Moderate Command – where
some form of private
enterprise exists but the state
owns major resources
(socialism – France and
Sweden)
• Advantages
• Equal standard of living for
everyone
• Less crime and poverty
• Needs are provided for
through the government
• Disadvantages
• Minimal choices
• Fewer choices of items
• No incentive to produce better
product or limit
entrepreneurship
 • Most nations have a mixed
• Combination of a economy: United States,
market and a command England, Australia, Malaysia
economy • Advantage—balance of
• How to solve economic needs and wants met by
problems? government and in
marketplace
• Government takes care • Disadvantage—citizens have
people’s needs to pay taxes
• Marketplace takes care
of people’s wants.
Case and Fair (2007), Principles of Microeconomics (8Ed):
Pearson International

Jamal, A. Norizan, M and Zuraidah Y., (1999) Principles of

Economics, Universiti Teknologi MARA Shah Alam

N. Gregory Mankiw (2004) Principles of Economics (Third

Edition), South Western: USA

Sloman, J (2007) Essentials of Economics, Prentice Hall

Vengedesalam, D. and Madhavan, K (2013). Principles of
Economics (Third Edition), Oxford Fajar