PB1023

MICROECONOMICS
Chapter 1: Introduction to Microeconomics

Pn Sazaliana Bt Hj Shairali
 End of this chapter student should be
able to:

Describe microeconomic in general

Describe economic problems
Basiceconomic problems
Concepts of economic problems

Describe world of economy systems

Definition of Economics

Economics is a study of how people use their limited

resources to try to fulfil unlimited wants and involves
alternatives or choices
Economics is one of the oldest disciplines among the
humanities and is categorized as a social science.
Economics as a study of how scarce resources are
allocated among alternative uses
Microeconomics

Macroeconomics
Microeconomics

Microeconomics studies individual economic units in

detail such as a household, a firm and a government.
Micro means looking closer into small units.
Micro can be applied to our daily life such as buying,
selling, working and producing
Issues: Price, D&S, firms production, cost, etc.
Macroeconomics

Macroeconomics studies of the economic system as a

whole such as the national income, the trade cycle, the
unemployment rate, inflation and general price levels.
Macroeconomics studies the aggregate behaviour of
the entire economy
It focuses on the national economy as a whole and
provides a basic knowledge of how things work in the
business world
Issues: National income, inflation, unemployment, etc
Basic Economic Concepts

Scarcity
limitedness of the
resources

Opportunity Choice
costs
alternative
2nd best
alternative uses
forgone available
SCARCITY

As wants are always exceeding limited

resources to satisfy clients/ society.
The needs or wants are unlimited but the world
has only a limited amount of resources of
factors of production.
Factor of production (Labour, capital, land and
entrepreneur)
If there is no scarcity, there will be no economics
CHOICE

When there is scarcity, choices have to be made

Everyone cannot have what he or she wants, so
they have to choose from the available
alternatives.
Cannot get all because limited resources
OPPORTUNITY COST

is defined as the second best alternative that

has to be forgone for another choice which gives
more satisfaction.
If you cannot obtain what you need, then you have
to choose among the alternatives. The next
alternative that you choose not to do is the cost of
the thing that you choose to do.
Example:

Aisyah has RM5 (limited resources)

Buy a book Buy a pen (unlimited

(RM5) (RM5) wants)

If Aisyah chooses the book, then the pen is the

opportunity cost.
BACIS ECONOMIC PROBLEMS

What and How to For Whom to

how much to Produce? Produce?
Produce?
BACIS ECONOMIC PROBLEMS

1 - What and how much to Produce?

The economy of every nation has to take a
fundamental decision of what to produce because of
the limited economic resource.
Every society must choose the type and the quantity
of goods and services that it will produce.
Apart from making choices about types of goods to
be produced, society must also ensure that enough
goods are produced to fulfil unlimited wants
BACIS ECONOMIC PROBLEMS
2 - How to Produce?

This refers to the cheapest method of production.

There are alternative techniques of producing goods
and services.
A producer must manage factors of production
effectively to minimize the production costs while
maximizing the output quantity and consequently
maximizing the profit
Production techniques are divided into labour-
intensive and capital-intensive techniques.
BACIS ECONOMIC PROBLEMS
3 - For Whom to Produce?

This refers to distribution. Distribution of

economic benefits depend on the distribution
of income, affordability and society
purchasing power.
ECONOMIC SYSTEM
Capitalism or Market Economy
Socialism or Command Economy
Mixed Economy
Islamic Economy
Economic Systems:
Capitalist system (Example: US, Canada, Japan)

Laissez faire, market economy, free entreprise, price

mechanism, free market

Characteristics:
Private ownership of resources
Freedom of enterprise and choice
Consumer sovereignty
Highly competitive, freedom to reap profits resulting in high
incentives to work
Completely free, with very limited or no government
intervention
Price system( price mechanism)
Economic Systems:
Socialism system (example: China, Korea, Cuba)

Command economy, centrally planned, controlled

economy, planned economy

Characteristics:
Complete control by government: Decision on basic
economic problems solved by govt
Central planning authority
Central control and ownership
Absence of competition, no business freedom
Priorities social and community welfare
Economic Systems:
Mixed economy system (example: Malaysia, Singapore, Britain)

Characteristics:
Both public and private sectors are complementary
Government intervention in certain sectors welfare
objectives
Price mechanism(private goods) and the government
(public goods)
Freedom to produce private goods, but the government
controls minimum profit rates for the production of public
goods

Income inequality reduced

Control the existence of monopolies

Economic Systems:
Islamic system

Characteristics:
Allah is the sole owner, man acts as a trustee to utilize natural
resources
Decision by individuals and producers, based on Islamic
principles and commandments
Price determination by consumers and producers based on
Islamic principles and commandments
Freedom to seek profit, provided that interest (riba) is not
involved
Prioritises the accumulation of profit and social welfare based
on Islamic principles and commandments
Economic Systems:
Concepts:
- Tauhid: Relationship between man & Allah

- Khalifah: relationship between man and man

- Tazkiyyah: purification of humans soul, wealth

- Ukhwah: social justice, brotherhood, helping each other

Principles of Islamic economy:

- Private ownership, but not absolute

- Regulated freedom,

- Government intervention for welfare protection

Activity 1
Compare how the world economic system can solve
basic economic problems
Compare the benefits of every world economic
system
Activity 2
Define economics?

Distinguish between microeconomics and

macroeconomics

Briefly explain the concepts of economic?

Identify and explain the three basic economics

decisions.
Activity 3
1. Economics is the study of 2. Scarcity exits.
how A. In all countries of the
A. Society uses a lot of world
resources to satisfy B. When people consume
unlimited wants beyond their needs
B. We choose to use C. Only in rich nations
unlimited resources
D. Only in poor nations
C. Scarce resources are
used to satisfy unlimited
wants
D. Unlimited resources are
used to satisfy unlimited
wants
3. The following are 4. In a mixed economic
basic economic system, the economics
problems, EXCEPT; problems are solved by
A. What to produce? the..
B. How to produce? A. Price mechanism
C. For whom to B. General public
produce? C. Government
D. Where to produce? D. Price mechanism and
the general public