all rights reserved

All Rights ReservedPRINCIPLES OF ECONOMICS Third Edition

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

DPB1023

MICROECONOMICS



COURSE LEARNING OUTCOME

NO LEARNING OUTCOME

1 Apply effectively the knowledge of basic theories in the world

of microeconomics

2 Use the knowledge of microeconomics theories to solve the

business problems

3 Explain clearly the impact of economic changes towards

market equilibrium



COURSE CONTENT

NO COURSE CONTENT

1 INTRODUCTION TO MICROECONOMICS

2 THE DEMAND AND SUPPLY THEORY

3 PRICE ELASTICITY OF DEMAND AND SUPPLY

4 MARKET EQUILIBRIUM

5 PRODUCTION THEORY

6 PRODUCTION COST

7 DETERMINANT OF OUTPUT LEVEL AND MARKET PRICE

STRUCTURE



ASSESSMENT



CHAPTER 1

INTRODUCTION TO

MICROECONOMICS



DEFINITION OF ECONOMICS

Economics is a science which studies human

behaviours as a relationship between ends

and scarce which have alternative uses.

OR

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

The study of

individual parts of the

economy, such as

public choices,

business choices and

personal choices.

MACROECONOMICS

The study of the

economic system as

a whole, such as

national income,

trade cycle,

unemployment rate,

inflation and general

price level.



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



BASIC ECONOMIC CONCEPTS

SCARCITY

OPPORTUNITY COST

CHOICE





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 fulfill their needs.




(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.



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 periodwith all its resources fully and

efficiently employed.




CURVE (PPC) (cont.)

Assumptions:

1. There are only two types of goods

2. Factors of production cannot be further increased

3. Level of technology is fixed or stagnant

4. The economy has achieved maximum efficiency (full employment)




CURVE (PPC) (cont.)

Sewing Machine

Butter

12

4

D

C

6

5

A

F2

4

8

10

14

16

0 1 2 3

If it allocates all its resources to sewing machine, it will produce at Point A.

If it allocates all its resources to butter, it will produce at Point F.

The country Jaya, produces two products –butter and sewing machine.

If the country Jaya is at Point C on the PPC, it can produce the combination of 2,000 kg butter and 12,000 units of sewing machine.

Point D shows the production of 3,000 kg butter and 9,000 units of sewing machine.




CURVE (PPC) (cont.)

Sewing Machine

Butter

12

4

D

C

6

5

A

F2

4

8

10

14

16

0 1 2 3

B

E

Z

Y

Point inside the PPC (Point Y) Waste of resources and inefficiency

ATTAINABLE

UNATTAINABLE Point outside the PPC (Point Z) SCARCITY

Any point along the PPC CHOICES

Movement from one point to another (point C to D) OPPORTUNITY COST



FACTORS THAT INFLUENCE

THE SHIFT OF PPC

1. Economic

Growth

5

Sewing Machine

Butter

12

4

6

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

2

4

8

10

14

16

0 1 2 3

When the country is struck by natural disasters, economic growth will decline and the PPC will shift to the left.




THE SHIFT OF PPC (cont.)

2. Improvements

in Technology

Butter

12

4

6

5

Technology increases the production of sewing machine.

2

4

8

10

14

16

0 1 2 3

Technology increases the production of butter.

Sewing Machine




THE SHIFT OF PPC (cont.)

3. PopulationSewing Machine

Butter

12

4

6

5

Increase in population

2

4

8

10

14

16

0 1 2 3

Decrease in population



SHAPE OF PPC

Butter4 5

PPC IS CONCAVE

Sewing Machine

12

6

2

4

8

10

14

16

0 1 2 3

Increasing Opportunity Cost



SHAPE OF PPC (cont.)

Sewing Machine

Butter

12

4

6

5

2

4

8

10

14

16

0 1 2 3

PPC IS CONVEX

Decreasing Opportunity Cost



SHAPE OF PPC (cont.)

Butter5

Sewing Machine

12

4

6

2

4

8

10

14

16

0 1 2 3

PPC IS LINEAR

Constant Opportunity Cost



ACITIVITY

According to the group, please collect

information(Merits and Demerits) and present

the following Economic Systems

i) Free Market Economy (Capitalism)

ii) Centrally Planned Economy (Socialism)

iii) Mixed Economy

iv) Islamic Economy

all rights reserved

Documents