CHAPTER 1: INTRODUCTION TO

ECONOMICS
Learning outcomes
At the end of this chapter, students should be able to:-
 Define economics (conventional and Islamic perspective), microeconomics and
macroeconomics.
 Describe basic economic concepts of scarcity, choices and opportunity cost.
 Explain basic economic problems/questions regarding each economic system.
 Use the Production Possibilities Curve (PPC) to explain the basic economic concepts
 Explain the four types of economic systems; Islamic, capitalism, socialism and mixed
economy

Synopsis of this chapter

Definition of economics
Conventional perspective: A study of how
people use their limited resources to fulfill
unlimited human wants.
Islamic perspective: the study of economics
in the light of Islamic principles', or `bringing
economics in consonance with the Shari'ah'

Basic economic concepts

1. Scarcity
2. Choices
3. Opportunity cost
*Any points along the PPC refers to
Production possibilities curve choices.
Definition: various possible combinations of Basic economics problems
goods and services produced within a 1. What to produce?
specified time given technology and 2. How to produce?
resources. 3. How much to produce?
4. For whom to produce?

Economics systems
1. Islamic economic system
2. Capitalism/free market/free
enterprise/ laissez-faire economic
system
3. Socialism/planned/command
economy economic system.
4. Mixed economic system

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STRUCTURED QUESTIONS

QUESTION 1
Using fixed factors of production and available method a country known as Selang Jaya
producing Papayas and Coconuts at full employment in a given period of time.

Opportunity
Papayas Coconuts cost of
Combination
(‘000 kg) (‘000 kg) Papayas
(‘000 kg)
A 0 25
B 20 24
C 40 20
D 60 15
E 80 8
F 100 0

a) Calculate the opportunity cost of papayas in the above column. State the law related to
it.

b) From the above schedule, show a production possibilities curve. Label the diagram.

c) Label a point as U to represents production with unemployment in the diagram drawn

earlier.

d) State an ideal point to be chosen by this economy to fully utilize all the resources.

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e) An increase in the number of available resources in this country may incur an economic
growth. Show the changes that might occur in the above diagram. Label the diagram.

QUESTION 2
A country named Syukran City produces two goods, capital and consumer goods. Its maximum
production is plotted as shown by the curve RP at a given time period.

Capital goods
(Units)

R M

0 Consumer goods
P (Units)
a) Name the curve RP and state the shaped of the curve.
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b) Briefly explain the points indicated by:-
i) Point S __________________________________________________________
ii) Point T __________________________________________________________
iii) Point M __________________________________________________________

c) State whether each of the points S, T or M are attainable or unattainable.

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T is_______________________
M is_______________________

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d) If the point is ‘unattainable’, give three (3) factors that could make this point to be
attainable instead.
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e) Based on the above diagram, determine the shape of production possibilities curve. State
the law related to this shape.
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QUESTION 3
The following is a set of hypothetical production possibilities for a country known as Ketamba.

Combination Cupboard (‘000 units) Sofa (‘000 units)

A 0 50
B 10 45
C 20 35
D 30 20
E 40 0

a) Define scarcity.
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b) From the above table, plot the production possibilities curve and indicate the following
points in your diagram:
i) unemployment - J
ii) scarcity – K
iii) efficient choice of production – E

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c) Based on (b), is the opportunity cost increasing, decreasing or constant?
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d) What is the opportunity cost of producing the first 10,000 units of cupboard?
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e) What is the opportunity cost of producing the sofa from point C to B?

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f) On the same diagram drawn in (b) above, sketch a new PPC to show the effect of an
expansion in resources such as labours and capital.

g) List three (3) factors that can shift the PPC outwards.
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QUESTION 4
The following table illustrates hypothetical production possibilities for firm Shaipi Mall in a given
period with constant resources and technology.

Combination of Good H Good K Opportunity Cost

production (units) (units) per unit of Good H
possibilities
A 0 250
B 20 200
C 40 150
D 60 100
E 80 50
F 100 0

a) Define opportunity cost.

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b) Calculate the opportunity cost of per unit of Good H. Complete the above table.

c) State the type of opportunity cost. Justify your answer.

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d) Calculate the opportunity cost of:

i. producing 100 units of Good H.
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ii. producing 60 units of Good H.
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iii. producing 250 units of Good K.
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e) List four (4) assumptions for drawing the production possibilities curve (PPC).
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QUESTION 5
The diagram below shows the production possibilities curve (PPC) for a village known as
Camelia.
Blueberries
(‘000 kg)

A
25 W
B
20
C
15
V D
10
E
5
F
0 Cerries (‘000 kg)
2 4 6 8 10

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a) Briefly explain how this village is making a choice.
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b) What will happen to the production of Cerries and Blueberries if there is a movement
from D to C?
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c) From the above diagram construct a table to show all the combinations of production
possibilities for this village.

Opportunity
Blueberries Cerries cost of Cerries
Combination
(‘000 kg) (‘000 kg) per unit of
Blueberries
A
B
C
D
E
F

d) Compute the opportunity cost of Cerries per unit of Blueberries for all the combinations, A
to F (state in the above column).

e) State the relevant law of opportunity cost.

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f) State one point from the above diagram that can show wastage of resources, one point
that can show scarcity of resources and one point for the Camelia village to make a
choice.
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 ESSAY QUESTIONS

Answer the following questions:

QUESTION 1
Describe briefly the following Islamic economic concepts:
i) Dharuriyat
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ii) Hajiyah
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iii) Tarafiat
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iv) Tauhid
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v) Hablumminallah
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vi) Hablumminnannas
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QUESTION 2
Define economics, microeconomics and macroeconomics with relevant examples.
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QUESTION 3
Using a production possibilities curve, describe the following concepts:

i) Scarcity
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a) Choice, efficiency and full employment

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b) Opportunity cost
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c) Inefficient, unemployment and waste of resources
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QUESTION 4
Define opportunity cost. Then, with the aid of a diagram, explain how opportunity cost will
influence the shapes of the production possibility curves.
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QUESTION 5:
Define production possibilities curve. Discuss any three (3) factors that may influence the
outward shift of production possibilities curve.
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QUESTION 6:
Explain the four (4) basic economic problems faced by a laisse-faire economy.
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QUESTION 7:
Discuss how a capitalist or free market economic system solves the four (4) fundamental
economic problems?
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QUESTION 8
Discuss three (3) characteristics to differentiate between a free market economy and a
centralised economy.
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QUESTION 9
Explain how the Islamic economic system solves the basic economic problems.
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 Activity 1: CROSSWORD/
PUZZLES
CROSSWORD/ PUZZLES

1
S C Y
C

2
O R T Y C

4 4
I M I
U

2
O T
3
U L O T
I
C E
Y
5
S
A
5 6
I T S
I I

D
E
M

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Horizontal
1. Basic economic concepts comprise with _____________, choices, opportunity cost.
2. It is represent’s by the movement from one point to another point. The point is known
as _____________.
3. Any point inside PPC curve can explain _______________.
4. ___________ economy is based on Al-Quran and Al-Hadith economic decision more
on Maslahah Emphasizes happiness on earth and afterlife.
5. ___________ known as free-market system, laissez-faire, and market economy
without government intervention decision makes by individuals only.

Vertical
1. Economic devide by two are __________ and macroeconomics.
2. What to produce refers to ___________ or kind of product to produce.
3. Any point located outside PPC can explain about ____________.
4. How much to produce refers to ______of goods @ services to be produced.
5. ________ also known as Central Economy, Communist System or Planned System.
6. ____________ economy is a combination of capitalism and socialism.

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