AE 0013

BASIC ECONOMIC
 OVER VIEW

MICROECONOMIC MACROECONOMIC

• Introduction to Economic • Macroeconomic: Introduction and

permintaan
Measurement
bekalan
• Demand, Supply and Market
keseimbangan
Equilibrium • Aggregate Supply, and Aggregate
• The Theory of Consumer Demand
Behaviour
• Fiscal and Monetary Policy
• Production and Costs
• Market Structure
 • At the end of this chapter, you should be able to:
• Define the economics definition;
• Compare the differences between microeconomic
and macroeconomics studies as well as positive and
normative analysis;

CHAPTER 1 • Describe the basic concepts in the economy;

• Discuss the production possibilities frontier;
INTRODUCTION
• Classify the economic system.
TO ECONOMICS
 RESOURCES
- land
- labor
WHAT IS ECONOMIC? - capital
- entrepreneur

human behaviours as a relationship between ends and

scarce which have alternative uses
• a social science that studies the choices that individual,
business, government and entire societies make as they cope
LIMITED
with scarcity
• a study of how people use their limited resources to try to
fulfill unlimited wants and involves alternatives or choices.
RESOURCES IN ECONOMIC (CELL)

• Labor - individuals who contribute to the production process. ;physical and mental
energy; skilled and unskilled.
• Land - owned by individuals; its supply is limited; two categories : renewable and non-
renewable
• Capital - refers to the money or other wealth resources used in the production process;
two categories: Physical capital (Physical capital is the equipment used to
manufacture other items such as machinery, machinery and building equipment)
and working capital Entrepreneurs (cash, stock and raw material processed )
• Entrepreneurs - individuals who have the expertise to combine and coordinate other
production
MICRO
1. firm
2. household
3. government MICROECONOMICS
4. international trade VS. MACROECONOMICS

• MICROECONOMICS MACROECONOMICS

• The study of individual The study of the economic

parts of the economy, such system as a whole, such as
as public choices, business national income, trade cycle,
choices and personal unemployment rate, inflation
choices. and general price level.
POSITIVE VS NORMATIVE ANALYSIS
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.
- If......that....
normative analysis
• is to deal with the question of
apa yang sepatutnya
“what ought to be”. It
incorporates value judgements
about what the economy should
be or what policy should be used
to achieve economic goals.
Basic economic concepts

The resources available are

limited, therefore, the society
has to make a choice
SCARCITY

OPPORTUNITY
CHOICE
COST
the forgone cost of not
to choose the best among
choosing other alternative uses
the alternative uses the
resources can provide. This
involves forgone cost
BASIC ECONOMIC QUESTIONS

based on society needs

1. WHAT TO PRODUCE? ( bcoz of scarcity)
❖Refers to the type of goods and services to be produced

2. HOW TO PRODUCE? either capital intensive / labor intensive

❖Refers to the cheapest method of production

3. FOR WHOM TO PRODUCE? - who should get?

- high or low income group
❖Refers to the distribution of income - sold locally or exports
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.
PPC is various possible combination of goods and services
produced within a specified time with given technology and resources
PRODUCTION POSSIBILITIES CURVE (PPC)
(CONT.)
- two products
Assumptions: - fixed resources
- fixed technology
- economy is at full
employment (efficient)
1. The economy is operating in full employment and full
production capacity (full efficiency). fully use all the resources
2. The amount of resources available are fixed.
3. The state of technology does not change throughout the
production.
PRODUCTION POSSIBILITIES CURVE (PPC) (cont.)
x axis - things yg meningkat
y axis - things yg mnurun
Food
- skala kne betul If it allocates all its resources to food, it will produce at
Point A.
100 A
If it allocates all its resources to cloth, it will produce at
B Point E.
90
The country produces two products – food and
cloth.
70 C
at Point C, the country produce the
combination of 70 unit of food and
40 units of cloth.
Point D shows the production of 40
40 D units of food and 60 units of cloth.

the extremist point - A and E

E
0
20 40 60 80 Cloth
PRODUCTION POSSIBILITIES CURVE (PPC) (cont.)
Food

G
A cannot reach that as we
B do not have sufficient
UNATTAINABLE resources to produce

F
Point outside the PPC
C (Point G) ➔ SCARCITY
ATTAINABLE
opportunity cost
Any point along the PPC
A --> E = EFFICIENT ➔ CHOICES
Point inside the PPC
(Point F) ➔ Waste D
of resources and Movement from one point
inefficiency x cekap to another (point A to E)
➔ OPPORTUNITY COST
E
Cloth
inside - attainable but inefficient
- wastage / unemployment
 Food cengkung

A
PPC IS CONCAVE
100
B
90
Increasing Opportunity Cost

C
70

40 D

E
0
20 40 60 80 Cloth
 Food

100 PPC IS LINEAR

80 Constant Opportunity Cost

60

40

20

Cloth
0 20 40 60 80 100
Sewing Machine

cembung
100
PPC IS CONVEX

Decreasing Opportunity Cost

60

30

10
4
0 Butter
20 40 60 80 100
FACTORS THAT INFLUENCE THE SHIFT OF PPC - INCREASE POPULATION
- TECHNOLOGY
Food - GROWTH OF ECONOMY

When there is an
Changes in resources increased in
technology and
and technology for resources for both
both goods food and cloth,
the PPC will shift
to the right.

When there is a
decreased in
technology and
resources for both
food and cloth, the
PPC will shift to the
left.

Cloth
FACTORS THAT INFLUENCE THE SHIFT OF PPC

Food

Economic
Performance When the country
enjoys economic
growth, the PPC
bounds outward.

When the country

is struck by natural
disasters, economic
growth will decline
and the PPC will
shift to the left.
Cloth
FACTORS THAT INFLUENCE THE SHIFT OF PPC (cont.)
Food

Improvements Technology increases the

in Technology production of food

Technology increases the

production of cloth.

Cloth
ECONOMIC SYSTEM based on who will make the decision

TYPES OF (SO CA MI IS)

ECONOMIC SYSTEM

individuals and sellers make

all the economic decision are made by
SOCIALISM
economic decisions using a price
the government or a central authority
CAPITALISM system
(welfare) (profit)

both individual and government

follow government rules
MIXED ISLAMIC combines both capitalism and
socialism and follows the
ECONOMIC ECONOMY principles of syariah

(al quran / hadis)