… is the study of how people choose to use resources. Science that deals with the production, allocation and use of goods and services. It is important to study how resources can be best distributed to meet the needs of the people.
As decision making process – household (individual); firms (private sectors); government. As guidance for country development – theories help leaders in economic development. As problem solving.
Microeconomics and macroeconomics are closely intertwined.
Focuses on the individual parts of the economy. How households and firms make decisions. How they interact in specific market. Looks at the economy as a whole (economy performance). Economy – wide phenomena including inflation, unemployment, economic growth. Microeconomics Macroeconomics
DEFINITIONS <ul><li>“… it deals with how scarce resources are allocated to maximize the unlimited wants that we want to fulfill” </li></ul><ul><li>(Hashim, 1990) </li></ul><ul><li>The study of how society manage its scarce resources </li></ul><ul><li>(Mankiw,1997) </li></ul>
It focused on THREE (3) main things. Unlimited wants and needs. Resources and scarcity. Choice and opportunity cost.
Refers to all natural resources used to produce goods and services. This includes crops that are grown on a land, minerals that are mined from land. Rent that is paid to an owner of land for its use.
Represents anything that can help production process. Included physical capital and non physical capital. E.g. machines, cars, share, money Received income in term of interest.
This is the effort that an individual person puts into making a good or service. This for the effort the person is paid a wage. Labor includes factory workers, medical personal, and teachers. They all provide their labor for a wage.
Someone who creates system to offer a product or service in order to obtain certain profit. Income - profit
Choice & Opportunity Cost Conflicting goals of unlimited wants and resources scarcity implies to make choices regarding allocation. Opportunity cost – something which must be sacrificed in order to obtain something else (next best alternative forgone). Production based on opportunity cost in society can be measured by using production possibility curve or Mass Selection Curve.
What and how much to produce? Solve through price theory How to produce? Solve through production theory How to distribute goods and services amongst individual and group? Solve through distribution theory
Positive Economics Positive statement Capable being verified or refuted by resorting to fact or further investigation. E.g. “Health care can be improved with more tax funding”; “Pollution control is effective through a system of fines”
Normative Statement Contains a value judgment which cannot be verified by resort to investigate or research. E.g. “Society ought to provide homes for all”; “ Any strategies aimed at reducing factory closures in deprived areas would be helpful”
(laissez-faire, market economy, free enterprise, price mechanism, free market economy) No government intervention/interference Existence of consumer sovereignty Mobility of labor Right to own property Presence of competition Motivated by profits E.g. US, Canada
(planned economy, communist system, centrally-planned economy, controlled economy, totalitarian economy) Everything is planned by the government. Consumers have no choice. Absence of competition Theoretically, unemployment does not exist.
Theoretically, there is no difference between the rich and the poor (classless society). No business freedom Government may produce goods that are not required by the public. e.g. North Korea
(Regulated Market Economy) Both public & private sectors. The public sector complement the private sector. The government will intervene in particular matters/industries. Reduce income inequality. Control the existence of monopolies. E.g. Malaysia, Singapore, Britain
Malaysia Economy Malaysia was under British and also its economy. British changed Malaysia economy structure. Ownership land system by registration called Torrens system Took over rubber plantation Took over mining from Malay elites and Chinese by using their huge capital. Agriculture still at the Malay hand. Chinese and Indian were brought as immigrant labors by British.
Malaysia Economy After independence: Introduce New Economic Policy (NEP) after the 13 May 1969 riot caused by imbalance in economy. NEP was introduced to overcome inter-ethnic economic imbalance. Allowed state intervention. Development oriented strategy and growth oriented strategy. Malaysia applied economic diversification.
Some food for thought… When economists are trying to explain the world, they are scientists. When economists are trying to change the world, they are policy advisor.