MicroEconomics (chapter 1:introduction of microeconomic)

1.1            DEFINITIONS OF ECONOMIC

-      -    Economics studied human behavior as a relationship between ends and scares means which have alternative use. ( L. Robbins)

-       -   According K.E Case and R.C Fair economics means how people use their limited resources to fulfill unlimited wants and involved alternatives or choice.(maksudnya: macam mana manusia tu menggunakan sumber yg terhad untuk memuaskan kehendak yang tidak terhad)

-        -  By David N. Hyman studied how scare resources are allocated among alternative uses.

1.2            DIFFERENCES BETWEEN MICROECONOMICS AND MACROECONOMICS

MICROECONOMICS	MACROECONOMICS
Ø  Studied individual economics unit	Ø  Studied the aggregate behavior of the entire economy
Ø  Such as household, a firm and part of government	Ø  Such as government transaction and world trade
Ø  Study about public choices, business choices personal choices	Ø  Study about national income, trade cycle, the unemployment rate, inflation and general price.

1.3            POSITIVE VERSUS NORMATIVE ANALYSIS

POSITIVE ANALYSIS	NORMATIVE ANALYSIS
Ø  Deal with the question of “what is”	Ø  Deal with the question “what ought to be”
Ø  No indication of approval or disapproval	Ø  Incorporates value judgments about what the economy should use to be achieve economics goals.
Ø  Predict the change in government policy	Ø  Not predict by changes of government policy
Ø  Example: what is the impact on consumer  of automobiles if government increases their rates of import duty?	Ø  Should the car manufacturer produce a more fuel efficient car?

1.4            BASIC ECONOMIC CONCEPTS

-          Recall the definition by L.Robbin   human behavior as a relationship between ends and scares means which have alternative use. We shall find some important concepts which comprise the main structure of Economics Sciences.

Ends	Ø  Refers to unlimited human wants. Ø  People want many things in their life to fulfill their satisfied.
Scarce	Ø  Refers to wants which unlimited although the means satisfy these wants are limited. Ø  In other word, there are limited resources. *manusia tak dapat untuk memuaskan apa yang mereka perlukan kerana sumber yang ada sangat terhad.
Alternatives	Ø  Choices which may be made and can be maximum satisfaction of human Ø  Because of that, there can be involved opportunity cost. Ø  Example, person cannot be buying a gold but them can replace to buy a silver.

1.4.1        SCARCITY

-          Wants are always exceeding limited resources to satisfy person.

-          There is a universal problem faced by poor and rich nations in order to fulfill their needs.

-          If not have scarcity, there not will be economics

-          Factor of production have four it is Labour ,Capital ,Land and Entrepreneur

*kalau nak senang ingat. Dalam masa melayu TBMU (tanah,buruh,modal dan usahawan)

Labour	Ø  Services contributed by people in the production process that involved both mental and physical effort	Ø  Wages
Capital	Ø  Human made resources used in production process to produce goods	Ø  Interest
Land	Ø  All natural resources such as land ,air, water, forest and other	Ø  Rent or Advantages
Entrepreneur	Ø  Human ability and capability to combine land, labour and capital to develop of goods and services *maksud kat sini. Usahawan ini dia gabungkan semua faktor yang 3 itu untuk menjadikan barangan dan perkhidmatan	Ø  Profit

1.4.2        CHOICE

-          When have a scarcity, choice need to be made.

-          People cannot have what he wants so they need to choose from the available alternatives.

-          They need to choose what the choice can be made maximum capability profit.

*maksud kat sini, pilihan harus dibuat untuk memenuhi kehendak yang boleh memaksimumkan kepuasan dan untung bagi isi rumah dan firma manakala maksimumkan kebajikan bagi kerajaan.

1.4.3        OPPORTUNITY COST

-          Opportunity cost is the cost of one choice in terms of the best forgone alternatives.

-          Second best alternative that has to forgone for another choice which gives more satisfaction

*kos lepas yang dimaksudkan ialah kos yang terpaksa kita lepaskan untuk memenuhi pilihan yang kita buat sebelum ini.

1.5             BASIC ECONOMIC PROBLEMS

What to produce	Ø  Must choose the type and the quantity of goods and services that it will produce
How to produce	Ø  Need to choose the cheapest method of production
For Whom to produce	Ø  Depend on the distribution income

1.6             PRODUCTION POSSIBILITIES CURVE (PPC)

-         Used to explain basic economic concept of scarcity, choices and opportunity cost.

-         Combinations of goods and services produced within a specified time with all its resources.(TBMU)

-         Specific assumptions to illustrate the PPC

Ø  Operating in full employment and full production capacity ( full efficiency)

Ø  The amount of resources available is fixed

Ø  State of technology does not change throughout production

-         Example: country named Fadzieka produced two products – butter and sewing machines. Butter is symbolic of consumer goods and sewing machines are symbolic of capital goods. The PPC can be illustrated by used of a table or graph.

*refer to text book pages 8 – 14

1.6.2 FACTORS THAT INFLUENCE THE SHIFT OF PPC

                   I.            Economic Growth

o   PPC bounds outward

o   Production capability of a country increases as there is an expansion of resoucers

o   Input increases, output increases

                II.            Improvement In Technology

o   Will also increases the production capability of a country

o   Possible reasons for an increases in output are new innovation, application of new and efficient techniques of production.

             III.            Population

o   Population increases lead to the PPC shifting outwards.

o   Larger of population will result in an increases in production.

1.6.3 SHAPE OF THE PRODUCTION POSSIBILITIES CURVE

*refer to text book in page 14-15

a)      PPC in concave – increases of production

b)      PPC in convex – Decreases of Production

c)      PPC is linear – constant of  production

	Capitalism	Socialism	Mixed Economy
Characteristics	1.      Private ownership of resources 2.      Freedom of enterprise and choice 3.      Consumers’ soveregnty 4.      Competition 5.      Minimum government intervention 6.      Price system	1.      Public ownership of resources 2.      Central planning Authority 3.      Price mechanism of less importance 4.      Central control and ownership	1.      Public and private owbership of resources 2.      Price mechanism and economic plan used to make economic decisions 3.      Government helps to control income disparity 4.      Government intervention in the economy 5.      Large cooperation between the government,public and business sectors 6.      Government control monoplies

	Capitalism	Socialism	Mixed Economy
Merits / Advantage	1.      Production according to the needs of consumers 2.      Economic freedom 3.      Efficient utilization of resources 4.      Greater variety of consumer goods 5.      Enchanded trade,business, and research and development (R&D) 6.      Automatic incentives 7.      Flexibility	1.      Production according to basic needs 2.      Equitable distribution of income and wealth 3.      Better allocation of resources 4.      No serious enemployement or recession/inflation 5.      Rapid economic development 6.      Social welfare
Dimerit / Advantage	1.      Inequality of distribution of wealth and income 2.      Inflation and high unemployment rate 3.      Lack of social welfare 4.      Unnecessary variety and wasteful competition 5.      Misallocation of resources 6.      Social costs	1.      Lack of incentives and initiatives by individuals 2.      Loss of economic freedom and consumer sovereignty 3.      Absences of competition 4.      Waste of economics resources