MICROECONOMICS ECO 1013 Syaiful_2019

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MICROECONOMICS ECO 1013 Syaiful_2019

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 About Me

MICROECONOMICS ECO 1013 Syaiful_2019

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 About You

MICROECONOMICS ECO 1013 Syaiful_2019

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 CHAPTER 1
INTRODUCTION TO
MICROECONOMICS

MICROECONOMICS ECO 1013 Syaiful_2019

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MICROECONOMICS ECO 1013 Syaiful_2019
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 LEARNING OBJECTIVE

 OBJECTIVE

 Define what is economics.

 Differentiate between microeconomics and
macroeconomics
 Differentiate positive vs normative statement

MICROECONOMICS ECO 1013 Syaiful_2019

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 DEFINITION OF ECONOMICS

 Economics is a science which studies human

behaviors as a relationship between ends and
scarce which have alternative uses.
OR
 Economics is a study of how people use their
limited resources to try to fulfil unlimited
wants and involves alternatives or choices.

MICROECONOMICS ECO 1013 Syaiful_2019

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 MICROECONOMICS
VS. MACROECONOMICS
MICROECONOMICS
 Studies individual
economics units
Eg: household, firm &
government
 The study of
individual parts of the
economy
Eg: public choices, business
choices and personal choices.
MICROECONOMICS ECO 1013
@ KPM Bandar Melaka
MACROECONOMICS
 Studies the aggregate
behavior of the entire
economy
• The study of the
economic system as a
whole
Eg: national income, trade
cycle, unemployment rate,
inflation and general price
level.
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 DIFFERENCE BETWEEN
MICROECONOMICS AND
MACROECONOMICS
MICROECONOMICS MACROECONOMICS
 Studies on individual  Studies on national income
income  Analyzes total employment
 Analyzes demand for and in the economy
supply of labour  Deals with aggregate
 Deals with household and decisions
firms decisions  Studies overall price level
 Studies on individual prices  Analyzes aggregate
 Analyzes demand and demand and aggregate
supply of goods supply

MICROECONOMICS ECO 1013 Syaiful_2019

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 POSITIVE VS. NORMATIVE
ANALYSIS

 A positive analysis is to deal with the question

of “what is” and no indication of approval or
disapproval. It focuses on facts and cause-and-
effect relationships.

 A normative analysis is to deal with the

question of “what ought to be”. It incorporates
value judgements about what the economy
should be or what policy should be used to
achieve economic goals.
MICROECONOMICS ECO 1013 Syaiful_2019
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 LEARNING OBJECTIVE

 OBJECTIVE

 Identify basic economic concepts:

– Scarcity, choice & opportunity cost
 Differentiate basic economic problems:
– What, how & for whom to produce
 Draw Production Possibility Curve

MICROECONOMICS ECO 1013 Syaiful_2019

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 SCARCITY CHOICE

BASIC ECONOMIC
CONCEPTS

OPPORTUNITY COST

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 BASIC ECONOMIC CONCEPTS

 SCARCITY
– One of the important concepts in economics is
scarcity.
– Scarcity is defined as wants always exceed limited
resources to satisfy them.
– Scarcity is a universal problem faced by poor as well
as rich nations in order to fulfil their needs.

MICROECONOMICS ECO 1013 Syaiful_2019

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 BASIC ECONOMIC CONCEPTS
(cont.)

 CHOICE
– When scarcity exists, choices are to be made.

 OPPORTUNITY COST
– Opportunity cost is defined as the second best
alternative that has to be forgone for another choice
which gives more satisfaction.

MICROECONOMICS ECO 1013 Syaiful_2019

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 BASIC ECONOMIC PROBLEMS

1. WHAT TO PRODUCE?
 Refers to the type of goods and services to be produced

2. HOW TO PRODUCE?
 Refers to the cheapest method of production

3. FOR WHOM TO PRODUCE?

 Refers to the distribution of income

MICROECONOMICS ECO 1013 Syaiful_2019

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 PREVIOUS LESSON

Should be able to:

 Differentiate Micro & Macro

– Income, price, decision, labour & demand
 Identify basic economic concepts:
– Scarcity, choice & opportunity cost
 Differentiate basic economic problems:
– What, how & for whom to produce

MICROECONOMICS ECO 1013 Syaiful_2019

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 LEARNING OBJECTIVE

 OBJECTIVE

 Define the Production Possibility Curve

(PPC)
 Draw PPC
 State the assumptions of PPC
 Identify and differentiate the concept of
scarcity, choice and opportunity cost at PPC

MICROECONOMICS ECO 1013 Syaiful_2019

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 PRODUCTION POSSIBILITIES
CURVE (PPC)

 Used to explain the basic economic concepts:

Scarcity, Choices and Opportunity cost.

DEFINITION:
The PPC shows the various possible
combinations of goods and services
produced within a specified time period
with all its resources fully and
efficiently employed.

MICROECONOMICS ECO 1013 Syaiful_2019

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 PRODUCTION POSSIBILITIES
CURVE (PPC) (cont.)
Assumptions:

1. Only produce two goods or services

2. The economy is operating in full employment
and full production capacity (full efficiency).
3. The amount of resources available are fixed.
4. The state of technology does not change
throughout the production.

MICROECONOMICS ECO 1013 Syaiful_2019

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 PRODUCTION POSSIBILITIES
CURVE (PPC) (cont.)
Sewing Machine (‘000 unit)
If it allocates all its resources to sewing machine, it
will produce at Point A.
16
A If it allocates all its resources to butter, it will
produce at Point F.
14
The country Jaya, produces two products –
12 C butter and sewing machine.

If the country Jaya is at Point C

10 D on the PPC, it can produce the
combination of 2,000 kg butter
8 and 12,000 units of sewing
machine.
6
Point D shows the production of
4 3,000 kg butter and 9,000 units
of sewing machine.
2
F
0 1 2 3 4 5 Butter (‘000 kg)

MICROECONOMICS ECO 1013 Syaiful_2019

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 PRODUCTION POSSIBILITIES
CURVE (PPC) (cont.)
Sewing Machine

16 Z
A
B UNATTAINABLE Point outside the PPC
14 (Point Z)  SCARCITY
Y C
12
Any point along the PPC
 CHOICES
10 D
8 Movement from one point
ATTAINABLE to another (point C to D)
 OPPORTUNITY COST
6 Point inside the PPC
(Point Y)  Waste E
4 of resources and
inefficiency
2
F
0 1 2 3 4 5 Butter
MICROECONOMICS ECO 1013 Syaiful_2019
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 FACTORS THAT INFLUENCE
THE SHIFT OF PPC
Sewing Machine
1. Economic
Growth 16
When the country
14 enjoys economic
growth, the PPC
12 bounds outward.

10

8
When the country
6 is struck by natural
disasters, economic
4 growth will decline
and the PPC will
2 shift to the left.
Butter
0 1 2 3 4 5
MICROECONOMICS ECO 1013 Syaiful_2019
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 FACTORS THAT INFLUENCE
THE SHIFT OF PPC (cont.)
Sewing Machine
2. Improvements
in Technology 16
Technology increases the
14 production of sewing machine.

12
Technology increases the
10 production of butter.

4
2

0 Butter
1 2 3 4 5
MICROECONOMICS ECO 1013 Syaiful_2019
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 FACTORS THAT INFLUENCE
THE SHIFT OF PPC (cont.)
Sewing Machine
3. Population
16

14
Increase in
population
12

10

8
Decrease in
6
population
4
2

0 Butter
1 2 3 4 5
MICROECONOMICS ECO 1013 Syaiful_2019
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 SHAPE OF PPC

Convex Concave
to the origin to the origin

Decreasing Increasing
opportunity opportunity
cost. Linear cost.
to the origin

Constant
opportunity
cost.
MICROECONOMICS ECO 1013 Syaiful_2019
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 SHAPE OF PPC

Sewing Machine

16 PPC IS CONCAVE

14
Increasing Opportunity Cost
12

10

4
2

Butter
0 1 2 3 4 5
MICROECONOMICS ECO 1013 Syaiful_2019
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 SHAPE OF PPC (cont.)

Sewing Machine

16
PPC IS CONVEX
14

12
Decreasing Opportunity Cost
10

4
2

Butter
0 1 2 3 4 5
MICROECONOMICS ECO 1013 Syaiful_2019
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 SHAPE OF PPC (cont.)

Sewing Machine

16
PPC IS LINEAR
14

12 Constant Opportunity Cost

10

4
2
Butter
0 1 2 3 4 5
MICROECONOMICS ECO 1013 Syaiful_2019
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 LEARNING OBJECTIVE

 CONTENTS

 Differentiate all Economics Systems:

– Free economics
– Command economics
– Mixed economics
– Islamic economics

MICROECONOMICS ECO 1013 Syaiful_2019

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 ECONOMIC SYSTEM

TYPES OF ECONOMIC SYSTEM

CAPITALISM ISLAMIC
SOCIALISM MIXED ECONOMY
ECONOMY

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 CHARACTERISTICS

CAPITALISM
 An economic system where individuals and sellers
make economic decisions using a price system

MERITS AND DEMERITS

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 CHARACTERISTICS [capitalism]

 Private ownership of resources

 Freedom of enterprise and choice
 Consumers’ sovereignty
 Competition
 Government intervention
 Price system

MICROECONOMICS ECO 1013 Syaiful_2019

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 CHARACTERISTICS [capitalism]

Private ownership of Competition

resources Competition among the
Individuals has right to acquire producer to get higher profit.
private ownerships of resources.
Government
Freedom of enterprise intervention
and choice Very limited. Only involve to
Individuals are free to own stabilize the economyc
resources, free to trade, condition of the country.
invest & organize them.
Price system
Consumers’ sovereignty Using price mechanism. The
Consumer’s taste & preferences free operation of demand and
will affect the production goods supply forces without any
and services. Seller produced intervention.
refer to consumer.
MICROECONOMICS ECO 1013 Syaiful_2019
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 [capitalism]
MERITS
 Production according to
consumers’ needs
 Economic freedom
 Efficient utilization of
resources
 Variety of consumer goods
 Enhanced trade, business
and R&D
 Automatic incentives
 Flexibility
MICROECONOMICS ECO 1013
@ KPM Bandar Melaka
DEMERITS
 Inequality of distribution
of wealth and income
 Inflation and high
unemployment rate
 Lack of social welfare
 Wasteful competition
 Misallocation of
resources
 Social cost
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 CHARACTERISTICS

SOCIALISM
 An economic system where all the economic decisions
are made by the government or a central authority

MERITS AND DEMERITS

MICROECONOMICS ECO 1013 Syaiful_2019

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 CHARACTERISTICS [socialism]

 Public ownership of resources

 Central planning authority
 Price mechanism of lesser importance
 Central control and ownership

MICROECONOMICS ECO 1013 Syaiful_2019

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 CHARACTERISTICS [socialism]

Public ownership of Price mechanism of

resources lesser importance
Owned & operated by the state or Less important to market forces.
government. Price fixed by government & not
determined by demand & supply.

Central control and

ownership
Fully planned economy where the
government intervenes in all
aspects of economic activity.
Government control production,
consumption, & distribution of
goods & services
Central planning
authority
Central authority is responsible for
making economics decisions for
society. Allocate resources between
current consumption & investment
for future.

MICROECONOMICS ECO 1013 Syaiful_2019

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 [socialism]

MERITS DEMERITS
 Production according to  Lack of incentives and
basic need initiative by individuals
 Equal distribution of  Loss of economic
income and wealth freedom and consumer
 Better allocation of sovereignty
resources  Absence of competition
 No serious unemployment  Waste of economic
or inflation resources
 Rapid economic
development
 Social welfare

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 CHARACTERISTICS

MIXED ECONOMY
 An economic system which combines both capitalism
and socialism to solve basic economics problems

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 CHARACTERISTICS [mixed]

PUBLIC AND PRIVATE OWNERSHIP OF RESOURCES 01

GOVERNMENT INTERVENTION IN THE ECONOMY 02
COOPERATION - GOV, PUBLIC & BUSINESS SECTOR 03
GOVERNMENT CONTROL OF MONOPOLIES 04
GOVERNMENT HELPS TO CONTROL INCOME
05
DISPARITY
PRICE MECHANISM & ECONOMIC PLANS IN
06
MAKING ECONOMICS DECISION

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 CHARACTERISTICS

ISLAMIC ECONOMY
 An economic system which combines both capitalism
and socialism and follows the principles of Syariah

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 CHARACTERISTICS [Islamic]

 Public and private ownership of resources

owned by God
 Price mechanism and limited government
intervention
 Distribution of wealth
 Prohibition of interest
 Freedom of economic enterprise

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 ECONOMIC SYSTEMS

01 - CAPITALISM 02 - SOCIALISM 03 - MIXED 04 - ISLAMIC

Free market, Free Planned system & Combines both  Combine both
enterprise, Laissez- command economy. Capitalism & Capitalism &
faire, Market Russia, Cuba, North socialism to solve Socialism to solve
economy. Korea basic economics basic problems
USA, Canada problems. according to the
Malaysia, Indonesia, Islamic principles.
Thailand  Saudi Arabia, Brunei

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