Principles of Economics: Anizah Md Ali

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INTRODUCTION TO ECONOMICS

Principles of Economics: Anizah Md Ali

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Introduction
 Economics is a branch of social science.
 It concerns the effective use of minimal or scarce resources
to achieve full satisfaction of the material needs of people.
 In this chapter we will discuss some basic key concepts in
economics.
 This chapter deals with the definition of economics,
relevant economic studies, some key concepts in economic
analysis and economic categories or scope.

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Definition of Economic

 Economics is the study of how peoples make decisions in

the face of scarcity. These decisions can be individual,
family, business or societal decisions.
 scarcity can be defined as a situation when people’s wants
for goods and services are greater than what is available. In
other word, the desires are unlimited but the resources are
scarce.
 Resources can be divided in four categories; land, labor,
capital and entrepreneurship.

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Categories of Resources

Land - all natural resources

or gift of nature such as
arable land, minerals, oil,
forests, and water

Labor is the physical and

Entrepreneurship is mental talents of individual
the particular talent Resources available and usable in
that some people have production process

Capital is all manufactured goods that can

be used as inputs for further production -
Such as machinery, tools, computers,
equipment, factories and buildings

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Scarcity Effect
Figure 1.1: Scarcity Effect

Scarcity Rationing device

Competition

Opportunity cost Change

Scarcity Choice
behaviour

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Importance of Study Economic

To study a
way of
thinking

Importance
of Studying
Economic
To be To
knowledgeab understand
le citizens community

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Importance of Study Economic
MB, MC

MC

MB = MC

MB > MC MC >MB

MB

1 2 3 4 5 6 7
Time Spent Training (Hours)

Figure 2 Efficiency and Marginalism

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Ceteris Paribus and Theory

 Ceteris Paribus is from Latin term means “all other things

constant” or “nothing else changes.”
 Ceteris paribus is an assumption used to examine the effect
of one influence on an outcome or the correct relationship
between two variable while holding all other influences
constant. For example, people will buy more egg, if the
price of egg decrease, assuming that nothing else change.

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Ceteris Paribus and Theory

 Theory is an abstract representation of the real world.

 Abstract mean we omit certain variable to explain
something or situation.
 Economist develop a theory or model, they focus on major
factors that determine the situation. Suppose to explain
why people like bread.
 A theory emphasizes only the major factors that explain the
situation.

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Economic Categories
Microeconomics
• Study is focus on small unit of
economic agent.
• Such as an individual, a firm
and a single market in
decision making or behavior.
• Question: who gets the
products? Which firm is
produces the ice cream?
Principles of Economics: Anizah Md Ali
Macroeconomics
• Study of the whole economy
or in other word at national
or aggregate level.
• Deals with the determinants
of total national income such
as consumption, investment,
and price at aggregate level
instead of individual level.
• Question: how government
policy influences national
output? How much
economic growth?
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Economic Categories
Positive economics
• An approach to economics
that seeks to understand
behavior and the operation of
systems without making
judgments.
• Describes what exists and how
it works.
• Positive economic concerns
with what is.
• Example, most of people in
this country do not perform
annual health checks up. Half
of people in manufacturing
industry is women.
Principles of Economics: Anizah Md Ali
Normative economics
• An approach to economics
that analyzes outcomes of
economic behavior and involve
evaluation or judgement, and
may prescribe courses of
action.
• It also known as policy
economics. It’s with concern
what should to be.
• Example, poverty should not
exist in Malaysia as a higher
income.
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THESE TEACHING MATERIALS ARE TAKEN FROM THE
PRINCIPLES OF ECONOMICS WRITTEN BY ANIZAH MD ALI
AND PUBLISHED BY UUM PRESS 2021. ISBN 978-967 2486-
65-7

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