Teaching PowerPoint Slides - Chapter 1

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 1

CHAPTER 1
INTRODUCTION TO
MICROECONOMICS

DEFINITION OF ECONOMICS
 Economics is a study of how people use their

limited resources to try to fulfil unlimited
wants and involves alternatives or choices.

MICROECONOMICS
VS. MACROECONOMICS
MICROECONOMICS MACROECONOMICS
The study of The study of the

individual parts of the economic system as
economy, such as a whole, such as
public choices, national income,
business choices and trade cycle,
personal choices. unemployment rate,
inflation and general
price level.

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.

SCARCITY
SCARCITY CHOICE
CHOICE
BASIC ECONOMIC
BASIC ECONOMIC
CONCEPTS
CONCEPTS
OPPORTUNITY
OPPORTUNITY COST
COST

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.

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.

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

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.

CURVE (PPC) (cont.)
Assumptions:
1. The economy is operating in full employment

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

CURVE (PPC) (cont.)
Sewing Machine
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

CURVE (PPC) (cont.)
Sewing Machine
16 Z
A
B UNATTAINABLE Point outside the PPC
14 (Point Z)  SCARCITY
C
12 Y
Any point along the PPC
 CHOICES
10 D
8
ATTAINABLE
6 Point inside the PPC
(Point Y)  Waste E
4 of resources and
inefficiency
2
F
0 1 2 3 4 5 Butter
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
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
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
SHAPE OF PPC
Sewing Machine
16 PPC IS CONCAVE
14
Increasing Opportunity Cost
12
10
4
2
Butter
0 1 2 3 4 5
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
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
ECONOMIC SYSTEM
MIXED
MIXED ISLAMIC
ISLAMIC
ECONOMY
ECONOMY SOCIALISM CAPITALISM ECONOMY
ECONOMY
SOCIALISM CAPITALISM

CHARACTERISTICS
CAPITALISM
An economic system where individuals and sellers
make economic decisions using a price system
MERITS AND DEMERITS

CHARACTERISTICS
 Private ownership of resources

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

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

CHARACTERISTICS
 Public ownership of resources

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

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

CHARACTERISTICS
 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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PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 1

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

 Economics is a study of how people use their

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

The study of The study of the

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

3. FOR WHOM TO PRODUCE?

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

1. The economy is operating in full employment

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

If the country Jaya is at Point C

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

12 Constant Opportunity Cost

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

MERITS AND DEMERITS

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

 Private ownership of resources

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

MERITS AND DEMERITS

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

 Public ownership of resources

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

 Public and private ownership of resources

PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved

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