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What, How much, How to be produced, to whom should be produced PB102: MICROECONOMICS
DEFINITION OF ECONOMICS
Economics
is a study of how people uses their limited resources to try to fulfill unlimited wants and involved alternative or choice
Ke Limit ywords: ed Unlim resourc es ited w ant s
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of Economics
Macroeconomic
Inflation Unemployment Growth Money and Banking
Microeconomic
Demand Supply Production cost Market Structure
Economic
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FACTORS OF PRODUCTION
Labour
Capital
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FACTORS OF PRODUCTION
Natural
Resources
Entrepreneur
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ECONOMICS PROBLEM
Scarcity
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ECONOMICS PROBLEM
Choices
exists from scarcity. They have to make a choice from certain alternatives.
or
ECONOMICS PROBLEM
Opportunity
cost defined as second best alternative that has to forgo for another choice which gives more satisfaction
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possible combinations of goods and services produced within a specific period with all its resources fully and efficiently employed Used to explain scarcity, choices and opportunity cost
Ke Com ywords: b Full a inations g nd e fficie &s reso n u rce t l y s
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ASSUMPTIONS
Only
1 person and 2 products produced (Example: Jane; Cloth and corn) Operating in full efficiency (full employment, full production capacity) Amount of resources are fixed Fixed technology throughout the production
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PPC CURVE
Corn
Z - UNATTAINABLE
X - ATTAINABLE Cloth
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PPC EXPLAINATION
Points
inside the PPC waste, inefficiency and unemployment Points outside the PPC economic concept: scarcity (limited resources and technology) Points along the PPC economic concept: choice (make choices among 2 goods) Movement from one point economic concept: opportunity cost (having less of one good to get more another) PB102: MICROECONOMICS
to produce? - type of goods and services How and how much to produce? - depends on cheapest method - technical efficiency and economic efficiency For whom to produce? - depends on the distribution of income
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ECONOMIC SYSTEMS
Capitalism Socialism Mixed
CAPITALISM ECONOMY
Capitalism
- known as free-market system, laissezfaire, market economy - without government intervention - decision make by individuals only - Ex: USA, Japan, Germany
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CAPITALISM ECONOMY
Characteristics:
- Individual decision making; less government intervention - Price mechanism - Freedom of enterprise and choice - Production objective is more to max profit - Role of self-interest
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CAPITALISM ECONOMY
Merits
- Resources are efficiently utilized - Enhances R&D and competition - Incentive to work
CAPITALISM ECONOMY
Demerits
- Inequitable distribution of income - Inflation and high unemployment rate - Human welfares are ignored - Wasteful resources
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CAPITALISM ECONOMY
Solving
economic problems - What to produce? Power of demand and supply - How to produced? Maximizing output with minimum cost - For whom to produce? Only for who willing to pays
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SOCIALISM ECONOMY
Known
as Central Economy, Communist System, Command Economy or Planned System Where all the economic decision made by government or central authority Ex: China, North Korea, Cuba
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SOCIALISM ECONOMY
Characteristic:
- Public ownership of resources - Central Authority of Central Economic Planning - Limited use of price mechanism
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SOCIALISM ECONOMY
Merits
- Social justice - Better allocation of resources - Good economic growth - Efficiency in production
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SOCIALISM ECONOMY
Demerits
- Errors in decision making - Lack of motivation and incentive to work - Lack of development and R&D - Loss of economic freedom - Waste of economic resources
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SOCIALISM ECONOMY
Solving
economic problems - What to produce? More on welfare goods - How to produce? Production technique chosen based on social welfare - For whom to produce? All members in society
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MIXED ECONOMY
Combination
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MIXED ECONOMY
Characteristics:
- Public and private ownership resources - Price mechanism and economic plan to make economic decision - Government helps to control disparity - Government intervention in the economy
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MIXED ECONOMY
Merits
- Efficient allocation of resources - More choices - Co-operation between government and private in making economic decision - Control of monopolies - Economic stability
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MIXED ECONOMY
Demerits
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MIXED ECONOMY
Solving
economic problems - What to produce Determined by price mechanism Welfare and private goods - How to produce? Production methods based on social benefit and social costs - For whom to produce? Determined by price mechanism through taxation and subsidy policy
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ISLAMIC ECONOMY
Based
on Al-Quran and Al-Hadith Economic decision more on maslahah Emphasizes happiness on earth and afterlife
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ISLAMIC ECONOMY
Merits
- Ensures social welfare - Avoid riba and monopolies - Equal distribution of wealth and income - Freedom of ownership resources
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ISLAMIC ECONOMY
Solving
economic problems - What to produce Free to produce subject to Islamic laws - How to produce? Maximize production and minimize cost - For whom to produce? Based on purchasing power and individual income
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