1.

Define scarcity

In economics, scarcity refers to the basic fact of life that there exists only a finite amount of
human and nonhuman resources which the best technical knowledge is capable of using to
produce only limited maximum amounts of each economic good.

Scarcity is a fundamental concept in economics that refers to the limited availability of resources
in relation to the unlimited wants and needs of individuals and society. It is an inherent condition
that arises from the fundamental problem of scarcity, which is the central focus of economics.
Scarcity affects all aspects of human life and shapes economic decision-making at both
individual and societal levels.

Scarcity is an economics concept rooted in one of the most basic facts of life: we live in a world
of limited resources that requires choices about how they are allocated. In that sense, every
product down to a pack of gum or a book of matches is scarce, since someone expended
resources that could have been deployed elsewhere to produce it

Scarcity is so fundamental to economics that scarce goods are also known as economic goods. In
economics, scarce goods are those for which demand would exceed supply at a price of zero.

2. Mention the three positive concept to face relative scarcity in Islam

Scarcity is a common economic reality that affects societies and individuals worldwide. Islam, as
a comprehensive way of life, provides guidance on how to approach scarcity and its associated
challenges.

These concepts are Taqwa (God-consciousness), Sadaqah (charity), and Tawakkul (reliance on
God). By embracing these principles, Muslims can navigate the challenges of scarcity while
cultivating a sense of gratitude, compassion, and trust in the divine providence.

Taqwa (God-Consciousness)

Taqwa is a central concept in Islam that refers to the state of God-consciousness, mindfulness,
and piety. In the context of relative scarcity, Taqwa plays a crucial role in shaping one's mindset
and actions. It reminds individuals that material possessions are transient and that true wealth lies
in seeking Allah's pleasure. Taqwa encourages Muslims to adopt the following attitudes and
behaviors:

Gratitude. Rather than focusing on what is lacking, Taqwa prompts individuals to appreciate and
be grateful for the blessings they do have. Expressing gratitude fosters contentment, reduces
feelings of scarcity, and promotes a positive outlook.

Moderation. Taqwa encourages Muslims to adopt a balanced approach to their material needs
and desires. It teaches self-discipline, emphasizing the avoidance of excessive consumption and
wastefulness. By practicing moderation, individuals can make the most of their resources and
prevent the negative consequences of overindulgence.

Sadaqah (Charity)

Sadaqah, or voluntary giving, holds a significant place in Islam and acts as a remedy for scarcity-
related challenges. Islam encourages individuals to be generous and compassionate towards
those in need. Sadaqah offers several positive benefits in the face of relative scarcity:

Redistribution of Wealth. Sadaqah promotes the equitable distribution of resources within

society. By giving to the less fortunate, individuals contribute to alleviating poverty and
addressing the economic disparities that often accompany scarcity. This fosters a sense of
solidarity and strengthens the social fabric.

Personal Transformation. Sadaqah not only benefits the recipients but also positively impacts the
givers. Engaging in acts of charity cultivates empathy, humility, and a heightened awareness of
the blessings one possesses. It encourages individuals to detach themselves from material
possessions and instead find contentment in giving and helping others.

Tawakkul (Reliance on God)

Tawakkul is the concept of complete trust and reliance on Allah. It acknowledges human efforts
while recognizing that ultimate control lies with the divine. Tawakkul enables individuals to
confront relative scarcity with confidence and serenity:
Confidence in Divine Providence. Tawakkul teaches Muslims to have faith in Allah's wisdom
and providence. It instills the belief that whatever sustenance one receives, be it abundant or
limited, is ultimately determined by Allah's decree. This trust helps individuals face scarcity
without succumbing to despair or anxiety.

Resourcefulness and Effort. Tawakkul does not negate the importance of human effort. Rather, it
encourages individuals to strive for self-sufficiency, productivity, and resourcefulness within the
means available to them. Tawakkul inspires individuals to utilize their skills, knowledge, and
opportunities wisely, while relying on Allah for the outcomes.

In conclusion, Taqwa, Sadaqah, and Tawakkul are three positive concepts in Islam that provide
a holistic approach to facing relative scarcity. By cultivating gratitude, practicing charity, and
relying on God, individuals and communities can navigate the challenges of scarcity with
resilience and optimism.

3. State the principle of resource allocation in Islamic economics

Islamic economics is the knowledge and application of the injunctions and rules of Shariah
(Islamic law) that prevent injustice in the acquisition and disposal of material resources in order
to provide satisfaction to human beings and enable them to performtheir obligations towards
Allah and society.

Islamic economics believes that the resources available in the world are more than enough to
meet the basic needs of every human being on the planet.

Islamic economics is a system of economic principles and guidelines based on the teachings of
Islam. It seeks to provide a comprehensive framework for economic activities that are in line
with Islamic values and principles. One of the key aspects of Islamic economics is resource
allocation, which involves the distribution and utilization of resources in an equitable and
efficient manner. This principle of resource allocation in Islamic economics is guided by several
fundamental principles and objectives, which are rooted in Islamic teachings.

The Principle of Equity and Social Justice. The principle of equity and social justice is central
to the resource allocation in Islamic economics. Islam emphasizes the fair distribution of wealth
and resources to ensure social welfare and eliminate poverty and inequality. In an Islamic
economic system, the allocation of resources should prioritize the needs of the less privileged
members of society. This principle requires the state and individuals to take responsibility for the
welfare of the disadvantaged and provide them with basic necessities. The concept of zakat
(obligatory alms) and sadaqah (voluntary charity) are integral to resource allocation in Islamic
economics, as they serve as mechanisms to redistribute wealth and ensure social justice.

The Principle of Efficiency. While equity and social justice are crucial, Islamic economics also
emphasizes efficiency in resource allocation. Islam encourages individuals and society as a
whole to utilize resources effectively and efficiently. Wastefulness and extravagance are
discouraged, and individuals are encouraged to make the best use of their resources while
avoiding excessive consumption. Islamic economics promotes productive and sustainable
economic activities that generate value and benefit society as a whole. This principle of
efficiency encourages innovation, entrepreneurship, and investment in productive sectors of the
economy.

The Principle of Ownership. Islamic economics recognizes the concept of private property and
individual ownership as essential for resource allocation. However, Islam imposes certain
restrictions on property rights to prevent exploitation and promote social welfare. The principle
of ownership in Islamic economics emphasizes responsible ownership, where individuals are
encouraged to use their resources for productive purposes and contribute to the overall welfare of
society. Islam also recognizes the concept of collective ownership and encourages the
establishment of waqf (endowment) to allocate resources for charitable purposes and public
benefit.

The Principle of Fair Trade and Prohibition of Exploitation. Islamic economics places great
emphasis on fair trade and ethical business practices. Exploitation, fraud, and unfair competition
are strictly prohibited. The principle of fair trade ensures that resources are allocated in a manner
that upholds justice and integrity in economic transactions. Islam encourages transparency,
honesty, and mutual consent in all business dealings. Exploitative practices such as usury (riba)
and gambling (maysir) are forbidden, as they create an unjust distribution of resources and harm
society as a whole.
The Principle of Environmental Sustainability. In recent years, environmental sustainability
has gained significant importance in the field of economics. Islamic economics recognizes the
principle of environmental sustainability and the responsibility of humans to be custodians of the
Earth's resources. Islam encourages the preservation and protection of the environment, as
wasteful and unsustainable use of resources is considered a violation of Islamic principles.
Resource allocation in Islamic economics takes into account the long-term impact on the
environment and promotes sustainable practices that ensure the preservation of natural resources
for future generations.

Conclusion, the principle of resource allocation in Islamic economics is based on a

comprehensive set of principles and objectives rooted in Islamic teachings. It emphasizes equity,
social justice, efficiency, responsible ownership, fair trade, and environmental sustainability.

4. Define consumption in Islam

Consumption is an integral part of human life, and Islam provides a comprehensive framework
for understanding and practicing consumption.

Consumption, in the context of Islam, refers to the act of utilizing resources and goods in a
manner that aligns with the teachings of the Qur'an and the Sunnah (the practice and sayings of
the Prophet Muhammad, peace be upon him). It encompasses the process of acquiring, using,
and disposing of material possessions, food, wealth, and natural resources. Islamic teachings
emphasize a holistic approach to consumption, taking into account the individual, social, and
environmental aspects.

5. Outline the basic principles of consumption in Islam

Principle of Moderation (I'tidal). Islam unequivocally discourages its followers to cross the
limits and follow extremes. The Muslims have been called by the Qur’an a middle nation
(2:143). Therefore, the principle of moderation carries paramount importance especially in the
economic field. This principle is followed by the true believers in the production of wealth as
well as in the consumption and spending of wealth. Islam promotes moderation in consumption,
discouraging both excessive materialism and asceticism. The Qur'an encourages believers to
strike a balance between fulfilling their worldly needs and engaging in spiritual pursuits.
Muslims are advised to avoid extravagant and wasteful consumption, practicing self-restraint and
contentment.

Principle of Accountability (Mas'uliyyah): Islam emphasizes the accountability of individuals

for their consumption choices. Muslims are reminded of their responsibility to utilize resources
in a just and ethical manner, considering the impact of their actions on others and the
environment. This principle encourages conscientious consumption, avoiding exploitation,
oppression, and harmful practices.

Avoidance of Extravagance (Israf): Islam encourages its followers to avoid extravagance and
waste in their consumption habits. Muslims are encouraged to be mindful of their resource
utilization, avoiding excessive consumption and unnecessary hoarding. The Quran states, "And
waste not by excess, for Allah loves not the wasters" (Quran 6:141). This verse highlights the
importance of utilizing resources responsibly and avoiding wastefulness. Islam strongly
condemns extravagance and wastefulness. Muslims are encouraged to avoid excessive
consumption, excessive spending, and hoarding of wealth. The Qur'an explicitly prohibits
extravagance, stating, "Indeed, the wasteful are brothers of the devils" (Qur'an 17:27). This
principle encourages responsible and mindful consumption.

Principle of Fairness and Justice (Adl): Consumption in Islam is grounded in principles of

fairness and justice. Muslims are instructed to be fair in their transactions, ensuring that their
consumption practices do not involve exploitation or harm to others. Ethical business practices,
honesty, and equitable distribution of resources are encouraged, fostering an environment of
social justice.

Social Responsibility: Consumption in Islam is not solely an individual matter but also carries
social responsibilities. Muslims are encouraged to be mindful of the needs of others and to share
their wealth and resources with those who are less fortunate. Islam promotes the concept of
giving in the form of charity (Zakat), which requires Muslims to donate a portion of their wealth
to help the needy.
6. Factors which may affect consumption in Islamic economic system

Religious. Beliefs Religious beliefs significantly influence consumption behavior in an Islamic

economic system. Islamic teachings encourage moderation, avoidance of extravagance, and the
importance of fulfilling basic needs. Zakat, a mandatory wealth distribution mechanism, obliges
Muslims to donate a portion of their wealth to support the less fortunate. This practice promotes
equitable consumption by reducing income inequality and enhancing social cohesion. For
Example, Many Muslims prioritize spending on basic needs and giving to charity rather than
engaging in excessive consumption. For instance, instead of purchasing luxury goods,
individuals may opt to donate to philanthropic organizations or support local community
development projects.

Income Distribution. Equitable income distribution is another crucial factor affecting

consumption patterns in an Islamic economic system. Islamic principles emphasize reducing
wealth disparities, promoting social justice, and ensuring the welfare of all members of society.
The concentration of wealth is discouraged, and efforts are made to distribute resources more
evenly. For Example , In an Islamic economy, policymakers may implement progressive taxation
systems and welfare programs to redistribute wealth more equitably. By ensuring a fair income
distribution, individuals from all socio-economic backgrounds can access basic necessities and
engage in responsible consumption.

Social Norms. Social norms play a significant role in shaping consumption patterns in Islamic
societies. Cultural values, customs, and traditions often influence individuals' choices regarding
consumption. These norms can either encourage responsible and ethical consumption practices
or perpetuate patterns of excessive materialism. For Example, In many Islamic societies,
communal values emphasize sharing and collective well-being. These norms can influence
consumption behaviors, such as joint family purchases, community-based initiatives, and
cooperative businesses. Additionally, cultural practices like Ramadan promote self-discipline
and temperance, impacting consumption choices during the holy month.
Environmental Consciousness. Environmental consciousness is an emerging factor influencing
consumption patterns in Islamic economies. Islam emphasizes the concept of stewardship
(khilafah), emphasizing the responsible and sustainable use of resources. This principle
encourages Muslims to adopt eco-friendly practices and prioritize environmental well-being. For
instance, consumers may choose organic and ethically sourced goods, support renewable energy
initiatives, or engage in recycling and waste reduction efforts.

7. What is production?

Production refers to the process of creating goods or providing services through a series of
organized activities and resources. It involves the conversion of raw materials, labor, and other
inputs into finished products or useful services that can be consumed or utilized by individuals or
organizations.

The goal of production is to satisfy the needs and wants of consumers by manufacturing and
delivering products of desired quality and quantity. It is an essential economic activity that drives
growth, generates employment, and contributes to the overall development of societies.

In Islam, production refers to the process of creating goods or providing services through human
effort and utilizing the resources of the Earth. Islam places great importance on productive and
lawful economic activity as a means of fulfilling individual and societal needs, as well as seeking
the pleasure of Allah.

8. Outline the efficient production techniques in an Islamic economic system

Islamic economics is based on the principles of Islamic law, known as Shariah, which
emphasizes fairness, justice, and ethical conduct in economic activities. In an Islamic economic
system, the efficient allocation of resources and production techniques plays a vital role in
achieving economic growth and prosperity.

Emphasis on Resource Efficiency: One of the key principles of Islamic economics is the
responsible use of resources. In an Islamic economic system, efficient production techniques
prioritize the optimal utilization of resources to avoid waste and promote sustainability. This
includes efficient energy usage, minimizing material waste, and adopting technologies that
conserve natural resources. By emphasizing resource efficiency, Islamic economics aims to
ensure long-term economic viability while preserving the environment.

Ethical Labor Practices: Islamic economics places great importance on social justice and fair
treatment of labor. Efficient production techniques in an Islamic economic system incorporate
ethical labor practices, such as fair wages, safe working conditions, and respect for workers'
rights. This not only ensures social justice but also enhances productivity by fostering a
motivated and satisfied workforce. By promoting ethical labor practices, an Islamic economic
system creates a conducive environment for efficient production and sustainable growth.

Technology and Innovation: Islamic economics encourages the use of technology and
innovation to enhance productivity and efficiency. Technological advancements can greatly
improve production processes, reduce costs, and increase output. However, it is important to
ensure that technological advancements are in line with Islamic principles and do not result in
harm to society or the environment. In an Islamic economic system, technological innovation is
guided by ethical considerations, ensuring that it serves the greater good and contributes to
sustainable development.

Cooperation and Collaboration: Efficient production techniques in an Islamic economic

system also emphasize cooperation and collaboration among various stakeholders. Islamic
economics promotes the concept of mutual assistance and cooperation in economic activities.
This can be seen in the form of partnerships, joint ventures, and profit-sharing arrangements. By
fostering cooperation and collaboration, an Islamic economic system leverages collective
strengths and resources, leading to more efficient production processes and improved outcomes.

Value-Added Production: Islamic economics encourages value-added production, which

involves transforming raw materials into finished goods with higher value. This approach
promotes efficiency by maximizing the utilization of resources and generating higher returns.
Value-added production techniques can be achieved through innovation, skill development, and
investment in research and development. By focusing on value-added production, an Islamic
economic system fosters economic growth and competitiveness.
Zakat and Social Redistribution: Zakat, one of the pillars of Islam, is an obligatory form of
charity based on the redistribution of wealth. In an Islamic economic system, the collection and
proper utilization of Zakat funds contribute to economic efficiency. Zakat serves as a mechanism
for redistributing wealth and reducing income inequalities, ensuring that resources are allocated
more effectively and efficiently. By addressing social disparities, Zakat promotes a more
inclusive and just economic system, leading to improved overall efficiency.

9. Outline the goals of a firm

The goals of a firm play a pivotal role in shaping its strategic direction and determining its long-
term success. These goals act as guiding principles that drive decision-making processes,
resource allocation, and overall organizational performance.

Profit Maximization: One of the primary goals of a firm is to maximize profits. Profit serves as
a vital indicator of financial performance and sustainability, enabling firms to invest in growth,
reward stakeholders, and withstand economic uncertainties. Profit maximization can be achieved
through various means, such as cost optimization, revenue generation, pricing strategies, and
efficient resource management.

Market Share Expansion: Expanding market share is another crucial goal for many firms. By
increasing their market share, companies can solidify their position within the industry and gain
a competitive advantage. A larger market share often translates to increased brand recognition,
economies of scale, and enhanced bargaining power with suppliers. Firms can pursue market
share expansion through strategies like aggressive marketing campaigns, product differentiation,
strategic partnerships, and mergers/acquisitions.

Customer Satisfaction and Retention: Satisfying customers and fostering their loyalty is a key
objective for any firm. Building strong customer relationships contributes to a firm's reputation,
brand equity, and long-term success. Satisfied customers are more likely to make repeat
purchases, provide positive word-of-mouth referrals, and remain loyal even in the face of
competitors' offerings.
Innovation and Continuous Improvement: Firms must strive to stay ahead of the curve by
embracing technological advancements, anticipating market trends, and developing new and
improved products or services. By fostering a culture of innovation, firms can differentiate
themselves from competitors, enhance their value proposition, and meet the ever-changing
demands of customers.

Social and Environmental Responsibility: Firms are increasingly recognizing the importance
of balancing financial success with ethical and sustainable practices. Incorporating social and
environmental goals into their business strategies can enhance a firm's reputation, attract socially
conscious customers, and mitigate risks associated with negative environmental impacts.