CHAPTER 1

INTRODUCTION
Prepared by:
Noor Azimah Binti Darus
Faculty of Plantation and Agrotechnology
Universiti Teknologi MARA (Pahang)
Email: noorazimah@uitm.edu.my
Phone: 017-4839026 ; Room: L3-56
 OUTLINE
1.1 Definition of Economics

1.2 Concept of Scarcity, Choices and

Opportunity Cost

1.3 Production Possibility Curve

1.4 Basic Economic Systems

1.5 Types of Economic Systems

1.1 DEFINITION OF ECONOMICS
Micro & Macroeconomics

Concept need & wants

Economics is a social sciences

Factors of production

Goods & Services

Microeconomics Macroeconomics
➢ deals with specific ➢ deals with economy as
economic units - a whole – government,
individuals, producer, business sectors
consumer, firms, ➢ Entire system respond
industry or household. to the economic
➢ Individual part
respond to the
economic

Concept of need Concept of wants

➢ A need is something ➢ A want is something you
you must have, would like to have.
something you can't ➢ Not necessary to have it
do without. ➢ Example:
➢ Example: Energy, entertainment, games,
water, & etc. camera
A social science
➢ economics deals with how scare resources are
allocated to maximize the unlimited wants.
➢ How sources used efficiency to maximize human
unlimited wants.

Concept of goods Concept of services

➢ Anything that ➢ Performance of any
anyone needs or duties/work for
wants. another.
➢ Goods are tangible. ➢ Services are
➢ Example: free good, intangible.
public good, ➢ Example: health
consumer good, services,
capital good communication
services
 Factors of production (limited in nature)
➢ Production is to transform resources (Factors of
production) into useful form such as goods and
services. (Input – Output)
➢ Four factors of production:

1. Land 2. Labor
- natural resources used to - it is all human effort, both
produce goods or services to physical and mental, used in
satisfy human wants production

3. Capital
4. Management/
- things that have already
Entrepreneurship
been produced that are in
- person initiates the
turn used to produce other
production process
goods and services
 1.2 CONCEPT OF FACTORS OF
PRODUCTIONS
Limited Unlimited
Scarcity
resources needs & wants

Choice

Opportunity
cost
1. Scarcity
• Because of factors of productions is limited and
human wants and needs is unlimited and cannot
fulfill the human wants and so the emergence of
scarcity in nature occurs.
• Human needs & wants exceed factor of production

2. Choice
• Because of scarcity human wants must make
choice in selecting goods and services. Consumer
must choose one or scale of preferences.
• Giving preferences to your need
3. Opportunity costs
✓Something which must be sacrificed / forgone in order to
obtain something else.
✓The value of next best alternative ,so opportunity cost
measures the sacrifice we make when we are forced to
make choices due to scarcity.
✓Types of opportunity cost (three types):

1. Constant 3. Decreasing
2. Increasing
Opportunity Cost Opportunity Cost
Opportunity Cost
➢ PPC is linear ➢ PPC is convex
➢ PPC is concave
➢ Each ➢ Each
➢ Each additional
additional unit additional unit
unit of good Y,
of good Y, we of good Y, we
we have to
have to have to
sacrifice more
sacrifice the sacrifice less
and more unit of
constant unit and less unit of
good X
of good X good X
 1.3 PRODUCTION POSSIBILITY CURVE
• A curve showing various possible combinations of two goods
that the economy can produce.

• It shows greatest possible combination of two goods that can

be produced when available resources are used fully and
efficiently.

• used to describe problems of choice, scarcity and opportunity

costs

• Assumptions to be considered in the PPC are:

➢ Two products – for economic production.
➢ Full employment – for efficiency of workload
➢ Technology is not expandable – fixed
➢ Fixed resource – factors of production eg. labor.
Example
Combination Agriculture Computers
Let’s
A 10 0
assume
two B 9 4
production C 7 7
D 4 9
E 0 10

1. Make a PPC graph

2. Calculate the opportunity cost
a) What is opportunity cost if production of computer increase
from 0 to 7 units?
b) What is opportunity cost of production 9 units of computer?
c) What conclusion can be drawn if the country choose to
produce 6 agriculture and 9 computer?
d) If there is a new technology apply to the computer, what will
happen to the curve? Show how PPC will shift.
1.4 BASIC PROBLEMS OF ECONOMICS

What to produce?

How much to produce?

How to produce?

For whom to produce?

1. What to produce? 2. How much to
✓ The what function produce?
is very important. ✓ The how much
✓ Do we produce function relates to
goods for home technical efficiency.
consumption or for ✓ Do we produce at
trade? maximum level, or
✓ To choose do we have
between unemployed and
alternatives of unused resources?
goods and service ✓ How many
to produce. quantities to be
produce?
3. How to produce? 4. For whom to produce?
✓ The how function refers ✓ To identify the target
to the type of market for
production techniques
to be used. production
✓ The use of technologies purposes.
in the production ✓ The distribution of
process. national
✓ If we want technical product/output.
efficiency and
maximum output, we will ✓ Who will get the
always use the lowest goods or services
cost method of
production.
✓ Minimum production
cost = maximum profit
 1.5 TYPES OF ECONOMIC SYSTEMS
• Ways to solve the basic problems have or daily life.
• Different societies have performed these economic
functions, and sought to achieve technical and
allocative efficiency, in different ways.
• These ways can be classified as different economic
systems.

Capitalist
Socialist Islam Mixed
Traditional (free
(Command)
market)
 1. TRADITIONAL ECONOMY
• It is where the system of barter trade between buyers and
sellers in exchange of goods.
• Societies with traditional economies depend on
agriculture, fishing, hunting, gathering, or some
combination of them.
• Advantages • Disadvantages
1. The distribution of 1. It can be
resources is well detrimental for the
known environment
2. It is more 2. It is not subject to
sustainable change
3. It fosters 3. It can get
togetherness and overpowered by
cooperation larger economies
 2. SOCIALIST (COMMAND)
• It is the central authority or government decides basics
problems of economics.
• Main features:
• Social ownership of factors of production
• Emergence of classes of societies
• No private ownership
• Economic planning decides by government
• Welfare of society
• Advantages • Disadvantages
1. Better allocation 1. Lack of incentives
of resources for the workers
2. Efficiency in 2. Loss of economic
production freedom of
3. Social justice managers
4. Little uncertainty- 3. No economic
decisions made for equality
you 4. Concentration of
power in the
government.
5. Not designed for
consumer wants
6. Individual abilities
not considered
 3. CAPITALIST (FREE MARKET/LEIZE
FAIRE)
• An economy in which individual people and firms pursue
their own self interests without any central direction or
regulation.
• Ownership of factors of production by individuals such as
labour, capital, and private property
• Main features.
- Private ownership of resources for firm
- Freedom of enterprise
- Profit motives
- Importance of price systems
- High Competition
• Advantages • Disadvantages
1. Higher efficiency 1. Misallocation of
and incentives to resources
perform
2. Wasteful
2. Optimum utilization competition
of resources
3. No central decision
3. Human welfare is
is made for setting ignored
firms. 4. Inequitable of
4. High consumer distribution of
satisfaction income among
5. Variety of society.
goods/services.
 4. ISLAM
• Based on Hablullminanas and Hablullminallah.

• Concept based on goods such as:

✓ Al -Tayyibat – hallal goods
✓ Al –Rizq – Allah provides heavenly gifts, Godly provision,
Devine bestowal and Godly sustenance

• Classification of goods.
✓ Dharuriyah – necessity goods (food, shelter, cloth etc)
✓ Hajiyyat – increase quality of life on basic needs
(refrigerator, radio)
✓ Tahsiniyah / Kamaliah – goods contributed towards the
perfection of human life (luxury goods)
✓ Tarafiah – goods not necessary, if present can cause
negative effects (liquor)
• Advantages
1. Banks are not charging interest on
loan -loan are regarded as an
exchange of assets , rather than the
lending of money
2. It leaves the borrower fee from
changes in interest rate .
3. the bank shares the profit and risk
with customer.
 5. MIXED
• Is the mixture of Islam, Capitalism and Socialism.

• Main features:
• Co-existence of public and private sectors
• Roles of price system and government
• Government regulations and control of private sectors
• Control of monopoly
SUPPORT
• Advantages • Disadvantages
1. Provisions of public 1. If the market has
goods too much
2. Economic stability freedom, it can
and growth leave the less
3. Social benefits vs competitive
private benefits members of
society without
4. Consumers any government
sovereignty is support.
protected
 CONCLUSION
• Economy is a science that deals with the
production, allocation and the use of goods
and services to meet the needs and wants of
the greatest number of people (consumer).
THANK YOU