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All Rights ReservedPRINCIPLES OF ECONOMICS Third Edition
© Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 1
DPB1023
MICROECONOMICS
All Rights ReservedPRINCIPLES OF ECONOMICS Third Edition
© Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 2
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
All Rights ReservedPRINCIPLES OF ECONOMICS Third Edition
© Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 3
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
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ASSESSMENT
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CHAPTER 1
INTRODUCTION TO
MICROECONOMICS
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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.
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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.
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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
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BASIC ECONOMIC CONCEPTS
SCARCITY
OPPORTUNITY COST
CHOICE
BASIC ECONOMIC CONCEPTS
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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 fulfill their needs.
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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.
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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.
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PRODUCTION POSSIBILITIES
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)
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PRODUCTION POSSIBILITIES
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.
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PRODUCTION POSSIBILITIES
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
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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.
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FACTORS THAT INFLUENCE
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
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FACTORS THAT INFLUENCE
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
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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
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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
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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
All Rights ReservedPRINCIPLES OF ECONOMICS Third Edition
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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