DPB 10013

MICROECONOMICS
Lecturer:
SUZANA BINTI ITHNAIN
    
SYNOPSIS MICROECONOMICS provides information on concepts and basic principles
related to microeconomics problems. The course emphasizes the demand
and supply theory, elasticity and production as well as market equilibrium.
DPB 10013 It also provides information on how to determine the efficiency of a market,
MICROECONOMICS and how to evaluates the costs and benefits of government intervention in
a market.
CREDIT HOUR 3

PREREQUISITE/ None
CO-REQUISITE (IF ANY)
PROGRAMME DIPLOMA IN ISLAMIC BANKING AND FINANCE/ DIPLOMA IN RETAIL
MANAGEMENT/ DIPLOMA IN BUSINESS INFORMATION
TECHNOLOGY/DIPLOMA IN LOGISTIC AND SUPPLY CHAIN
MANAGEMENT

STRUCTURE COMPULSARY/COMMON CORE/DISCIPLINE CORE/SPECIALIZED/

EFECTIVE
 COURSE LEARNING OUTCOMES (CLO):
Upon completion of this course, students should be able to:
CLO1 Explain basic theory and concepts of microeconomics. (C2,PLO1)
CLO2 Apply the knowledge of microeconomics theories to solve the business problems. ( C3 , PLO 5 )

CLO3 Discuss clearly the impact of economic changes towards market equilibrium. ( A2 , PLO 7 )
 PROGRAMME LEARNING OUTCOMES (PLO):
PLO DIB:
PLO 1: Apply principles of Islamic banking, financial service and compliance in accordance
DPB 10013 with emerging changes and challenges in Islamic banking and finance field
MICROECONOMICS PLO 5:Use Digital Applications and Interpret Data In Islamic banking And Finance
PLO 7: Participate in acquiring new knowledge and entrepreneurship relating activities

PLO DRM:
PLO1: Apply principles of retailing and other related business areas in managing retail operations.
PLO5: Use digital applications collate information to generate data in managing retail operations.
PLO 7: Participate in acquire new knowledge and entrepreneurship relating activities

PLO DLS:
PLO1: Apply principles of logistics and supply chain and other related areas in managing business operations.
PLO5: Use digital application and interpret data in managing business operations.
PLO 7: Demonstrate personal and entrepreneurial skills in managing business operating activities.

PLO DBS:
PLO1: Apply the concepts and theories of business information systems in an organization.
PLO5: Manipulate a variety of skills in managing information, including the use of digital applications and commit to continue seeking
knowledge for self improvement.
PLO 7: Organize career paths by identifying self-improvement initiatives and possibilities of being an entrepreneur during the
exploration and engagement in activities relating to entrepreneurship.
ASSESSMENT DPB 10013 -
MICROECONOMICS
Reference book
Main:
Sarimah Aman Shah and Abd Rashid Mohd Ali (2017)
Principles of Economics 3rd Edition Oxford: Fajar Bakti
Sdn Bhd.
INTRODUCTION TO
MICROECONOMICS

CHAPTER 1
 CHAPTER 1 INTRODUCTION TO MICROECONOMICS

After studying this chapter, you should be able to:

DPB 10013
01
1.1 Elaborate microeconomic in general
MICROECONOMICS

02
1.2 Elaborate economic problems

03
1.3 Elaborate World economy system
1.1 Elaborate microeconomic
in general
 Definition of Economics “ 1

“Economics as a field of social science that studies the behavior

• A field of social science that studies the behavior of individuals and society in the distribution
and allocation of limited factors of production to maximize the production of goods and ser-
vices to fulfill man’s unlimited wants and demand.
 
• A study of how people use their limited resources to fulfill unlimited want
 
• Adam Smith – the study of nation’s accumulation of wealth.
• Alfred Marshall, Lord Beveridge, Canna & Pigou -economics as a science of material welfare.
• Keynes – field of social science that studies the management of limited production re-
sources, determinants of national & efficiency
Economic Activity:
Science of wealth an activity that helps people make
economic gains
Economics as a Science of material welfare

Science of scarcity & choice

“It’s a recession when your neighbor loses his job; it’s a depression when you lose your own.”
― Harry S. Truman
RM 100 – LIMITED RESOURCES
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3. CLOTHES – RM 40
4. REFERENCE BOOKS – RM 40
4 factors of production used to
Economic Resources
2
produce goods & services
1. Land
Also known as factors of production (input)
• Naturally occurring resource
• Resources are raw or man made materials used in the production
(free gift of nature)
• Supply of land inherently fixed on process of goods & services (output)
location and geography
• Value of land is dependent on quality
and location
3. Capital 4. Entrepreneur
Payments of resources: Rent • Consists of assets such as money, • A person with the skills and ability
equipment, machinery and raw to organize production and bear
materials risks
2. Labour • Capital can be moved from one • Manages a firm and functions as a
• Physical and intellectual services location to another, and can be leader, planner and coordinator of
• Labourers: increased or decreased the firms activities
 may be skilled or unskilled
 are unique and have feeling Payments of resources: Interest/divi- Payments of resources: Profit
 offer services but are not to be dend
exploited
 can be moved from one
location to another
 differ in efficiency and
productivity

Payments of resources: Wages

 Types of Goods 3

Goods “Things which are tangible (clothes, food, drinks etc/ non tangible (air & sunshine)”
Tangible goods: used to satisfy society’s wants / to produce other goods

Economic goods (scarce goods) Consumer/finished/final goods

i. Consumer goods / final goods • Goods produced & used to satisfy society’s
ii. Capital goods (used to produce wants
01 other goods eg:machinery & 04 i. Durable goods (cars, television,
factories furniture)
ii. Perishable goods (vegetables,
Free goods (non scarce goods) fruits & fresh produce)
• Naturally occurring goods. Unlimited Capital goods
02 & available without any cost. 05 Used by consumers to produce other
• Essential for life. eg:air & water goods. Eg: printing machines to produce
books & magazine.
Public goods
Intermediate goods
03 • Non-excludable & not subject to
decision made by individuals 06 Not become finished goods & need
to be furthered processed eg: palm
• Funded by government
oil, steel, timber
eg:powerhouses
 4
MICROECONOMICS MACROECONOMICS
 overall study of a country’s economic
 Studies of small economic units i.e:
activities and main economic sectors.
individuals & firm
 also known as the theory of income
 The focus of microeconomic studies or
determination
price theory is how economic
 Macroeconomic analysis focuses on the
agents such as individuals, household,
economy as a whole.
Field of Eco- firms and producers make economic
decisions to achieve their respective
 Focus on a general price level, not on the
nomics goals

prices of individual items.
Problems are focused on consumption and
 Also discusses how the prices of goods
investment as the main variables in the
and factors of production, wages, rents
theory of national income.
and interest rates are determined.
 Monetary studies involve studies on banks
and national financial institutions.

MICROECONOMICS
Studies individual income
Analyzes demand & supply of labour
Deal with households' & firms’ decision
Studies individual prices
MACROECONOMICS
Studies national income
Analyzes total employment in the economy
Deal with aggregate decision
Studies overall price level BACK

Analyzes demand & supply of goods Analyzes aggregate demand & aggregate supply
1.2 Elaborate economic problems

Concepts of Economic Problems
Problems of Scarcity
Occur
• when goods and services are limited
compared to man’s unlimited wants
& desires.
• due to limited supply of natural re-
sources, time, energy, finances &
factors
of production.
Individuals: have problems of scarcity
of time for recreation, study and
entertainment as well as scarcity of
money to pay for fees and to purchase
food, drinks and clothes.
Firms: scarcity of capital caused by
limited economic resources.eg: a firm
may not have sufficient capital to carry
out international projects.
Government: scarcity of financial
resources & revenue to build basic
amenities for society such as schools,
clinics &roads.
Problems of Choice
When there is scarcity
choice have to be made
• Everyone cannot have what he or
she wants, so they have to choose
from the available alternatives.
• Arise when we are faced with
problems of scarcity
• Consumers need to make choices
in order to maximize satisfaction,
while producers need to make
choices in order to maximize profits
• Unlimited demand is managed
according to priorities and rational
choices based on an individual’s
current budget.
5
Problems of Opportunity Cost
“the cost of one choice in terms of the
best forgone alternative”
• If you cannot obtain what you need,
then you have to choose among the
alternatives.
• Arises from limited factors of
production.
Eg: individual may have 2 options:
to purchase a shirt or a pair of shoes
if choose to purchase shoes the
opportunity cost is the shirt
(he/she is not able to purchase)
Opportunity Cost also defined as the cost of
not selecting the “next best” alternative
Basic Economic Problems 6
1. What mix of goods and services will be produced?
2. How much goods and services should be produced?
3. How is output produced?
4. For whom should the product be produced?

1. What mix of goods and services will be produced?

• In a market economy, the interaction of self-interested buyers and sellers determines the mix of
goods and services that are produced
• There are insufficient available economic resources to fulfill man’s unlimited wants.
• The determination of the goods to be produced by a country determines the pattern of allocation
of available economic resources to the various economic activities
• The pattern of allocation of economic resources is determined to ensure that available economic
resources are efficiently used to produced goods and services to yield maximum satisfaction to
the economy as a whole.
• Due to limited factors of production, not all goods that a society demands can be produced.
Basic Economic Problems 7
1. What mix of goods and services will be produced?
2. How much goods and services should be produced?
3. How is output produced?
4. For whom should the product be produced?

2. How much goods and services should be produced?

• To overcome this basic economic problem, a producer must identify the quantity of demand in the
market
• If there is a high demand for a particular good, the producer will increase production of the good.
If there is a low demand, the producer must decrease the production.
• Due to limited factors of production, excess production in wastage of factors of production.
Therefore, the government’s main aims to ensure sufficient production of goods and services.
Basic Economic Problems 8
1. What mix of goods and services will be produced?
2. How much goods and services should be produced?
3. How is output produced?
4. For whom should the product be produced?

3. How is output produced?

• In a market economy, profit-maximizing producers will be expected to select a mix of re-

sources that result in the lowest possible level of cost
• Production techniques are divided into labour-intensive and capital-intensive techniques
• In the cost of labour is less than the cost of capital, the producer selects the labour-intensive
production method.
 Basic Economic Problems 9
1. What mix of goods and services will be produced?
2. How much goods and services should be produced?
3. How is output produced?
4. For whom should the product be produced?

4. For whom should the product be produced?

• This basic economic problems deals with the issue of who gets what?
• This is determined by the interaction of buyers and sellers in both output and resource markets.
• Producer produces a good for people who can afford the cost of the good.
• People with a lower income can afford fewer goods.
• To ensure that society as a whole can afford goods that are produced, government should introduce a
fair distribution system.

BACK
1.3 Elaborate World economy
system
 10

ECONOMIC SYSTEM

Capitalism/ market economy/ Socialism/ command economy/

free enterprise/ laissez-faire planned system
1 2

3 4
Mixed economy Islamic Economy
 11

Capitalism/ market economy/

free enterprise/ laissez-faire
1
“An economic system where individuals and sellers make economic decisions using
a
price system”. Individuals make all the decisions without any government
intervention

Characteristics

• Freedom of enterprise and choice- Individuals free to set up business and provide
the goods and services they want
• Consumers’ sovereignty - Consumers free to decide which goods and services to
purchase.
• Government intervention - Government intervention limited to the protection of
private property and provision of public goods.
• Price system - Price mechanism (free operation of Dd & Ss forces without any
intervention.

Capitalism/ market economy/
free enterprise/ laissez-faire
1 from consumers so as to enjoy higher
Advantages/merits of
capitalism
• Production according to the needs
of consumers
• economic freedom
• efficient utilization of resources
• variety of consumer goods
• enhanced trade, business and
research and development
• automatic incentives
• flexibility
Economic decisions in capitalism
12
What to produce
An entrepreneur will only produce goods
& services for which there is a demand
profits. Production depends on the goods
demanded by the consumer
Disadvantages/demerits of
capitalism How many to produce
Based on price mechanism which was
determined by consumers’ demand and
• inequality of distribution of wealth
supply
and income
• inflation and high How to produce
unemployment rate Firms can produce any product or provide
• lack of social welfare any service using more than one method.
• unnecessary variety & The method depends on the relative price
wasteful competition of the Resources involved. As resources
• misallocation of become scarce relative to demand, prices
resources social costs will rise and discourage their usage.
Only the cheapest method of production &
the most efficient techniques will be
adopted in the production
For whom to produce
Answered through the price system
Goods and services are obtained by
anyone who can afford them
 Economic decisions in socialistic
What to produce 13
• planning authorities decide what to
Socialism/ command economy/ planned system produce
• collect detailed statistics on the
2 resource availability in the country &
• all the economic decisions are made by the government or a central authority link it with national priorities
• no private property rights since the government officially owns all resources
How many to produce
• no rights for public to determine
what product & the quantity that
Characteristics should be arise. Prefer to basic
public facilities
• Public ownership of resources- All resources owned & operated
by the state How to produce
• Central planning – CP responsible for making economic decisions • central planning authority decides
for society. Plans & allocate resources between current consumption on the techniques to be used in the
production of different goods &
& investment for the future services whether used traditional or
• Price mechanism of lesser importance – Fixed by government & modern technique
not determined by Dd & Ss.
• Central control & ownership – Government controls production, For whom to produce
• the distribution of various
consumption & the distribution of goods & services.
commodities among citizens is done
through a set of administered fixed
processes. The purpose is to
reduce inequalities in the distribution
of income
 Economic decisions in socialistic
Socialism/ command economy/ planned system
2
Advantages Socialism
• production according to
basic needs
• equal distribution of
income and wealth
• better allocation of
resources
• no serious unemployment or
recession / inflation
• rapid economic development
• social welfare
14
Disadvantages Socialism
• lack of incentives and
initiatively by individuals
• loss of economic
freedom and consumer
sovereignty
• absence of competition
• waste of economic
resources
 15

Mixed economy
3
• 3
combination between capitalism and socialism
• both public and private sectors play a role in the economy

Characteristics

• public and private ownership of resources

• price mechanism and economic plans in making economic decisions
• government helps to control income disparity
• government intervention in the economy
• co-operation between the government, public & business sectors
 16

• Mixed economies start from the basis of

allowing private enterprise to run most
businesses.
• Then the governments intervene in
certain areas of the economy, such as
providing public services (health, educa-

tion, waste management) and the

regulation or private business (e.g. legal
right to private property, and abuse of
monopoly power)

Mixed economy
3 What to produce
3 sectors
Advantages Mixed Economy
• More options/choice (govern-
ment produce public good, pri-
vate sector produce private
goods)
• Quality of live is higher
• Efficient resource allocation
• Social welfare prioritized
• Prevention of control of mo-
nopolies
• Guaranteed economic stability
compared to free market
mechanism
• Incentives to work
• Prohibitions of illegal activities
17
Economic decisions in
mixed economy
• decided by both the public & private
• goods produced and the services
provided depend on the consideration
of social welfare and economic growth
Disadvantages Mixed
Economy
How many to produce
• Conflict of opinion
• public sectors provide goods and
between private sec-
services based on price mechanism
tor & government
• government will provide public
• Uneven distribution
facilities
of income
• Possibility of market
How to produce
& income disability • public and private sectors will
(due to quota sys- decide on the techniques of
tem) production to be used
For whom to produce
• the distribution of goods & services
is also decided by the public &
private sectors
 18

Islamic Economy
4
• 3 of social science that studies the unlimited desires of individuals to use available
Branch
resource to achieve happiness on earth & in the afterlife.
Advantages Islamic Economy
Characteristics Islamic Economics System • Priorities safety & happiness
• Eliminates economic activities
Resources ownership Allah absolute title and human merely acting as trustee to explore  having elements of interest
source that was awarded. (riba)
Decision maker Individual and manufacturer based on principle and Islam principle. • Ensures social welfare
• Prohibits monopolies
Pricing consumer and manufacturer(market power) that based on  • Distributes wealth & income
principle and Islam principle. fairly
Freedom of profit free profit as long as does not involve riba’.
Freedom of choice individual and independent private manufacturer making choice 
as long as does not violate principle and Islam principle.

Production objective Profit turnover and social welfare emphasized according to  BACK

principle and Islam principle
END OF CHAPTER
 TUTORIAL TOPIC1

1. What are the differences between microeconomics and

macroeconomics?
2. Explain the four factors of production.
3. Discuss the differences between the capitalism and
socialism.
4. Identify advantages and disadvantages of mixed economy
and islamic economy.