Introduction

Economic concepts and PPC

Different economics systems including Islamic eco.system

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1.0 Differences between Micro Vs Macro
Microeconomics Macroeconomics
Study individual economic units in detail
such as household, firms & government
Study the aggregate behaviour of entire
economy
Ex:
What do I want for breakfast?

Shall we produce rice or compact discs?

The price of chicken increases
significantly during Hari Raya season.

Shall we allocate a budget for schools @
clinics?
Ex:
What is the unemployment rate in
Malaysia?

What causes a high inflation?

In 1994, the national income of a country is
RM23,400 million

The economic growth of the country is
expected to be 6% in 1995.
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1.1 Definition of Economic
Conventional perspective Islamic perspective
Def: A study of how people manage the
limited resources to fulfill their unlimited
wants
Def: A social science which studies the
economic problems of people imbued
with Islamic value
Obj: Main objective to gain more profits Obj: Main objective to get Allah
blessing



Do not prohibit interest Do not deal with any elements of
interest
Separation between religion and
economics
No separation between religion
and economics
Only for world satisfaction Concept of utility in world and
Hereafter
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The difference between Islamic and Conventional Economics
Q: Explain 4 differences between Islamic and
conventional economics (8 marks)- Oct 2008, Oct 2007

1.2 Philosophical Foundation
Conventional Perspective
Max of societys material welfare
consumer max satisfaction/utility
Producers max profits
Owners of resources max returns

Islamic Perspective

Islam is based on Tauhid (the belief and understanding that Allah is
The Creator, The Lord, The Sustainer and The Giver)
It encompasses 3 aspects:
the relationship between man and Allah Hablumminaan Allah
the relationship between man and man
the relationship between man and nature Hablumminaannas

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cont.

1. Rububiyyah
The belief that Allah alone nurtures, nourishes, sustains, develops, and leads us toward
success/perfection

2. Khalifah
The role of man as the vicegerent of Allah, entrusted with all the economic resources.
Has the responsibility of illustrating a role model for other men to follow.

3. Tazkiyyah
The concept of purification and growth. Responsible to enrich the world and purify his
asset/wealth through zakat, sadaqah, waqaf, and charity.

4. Ukhuwah
The concept of brotherhood, showing the right attitude towards other human being.

5. Al-Falah
The concept of success/happiness/prosperity in this world and the Hereafter.


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1.3 Economic Concepts
1. Scarcity- limited resources but unlimited wants
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Conventional perspective Islamic perspective

Def: limited resources but unlimited wants Def: In Islam, resources are provided by Allah, human have
to explore other methods to replace the depleting resources.
Unlimited wants: due to wasatiah concept
Wants- may be based on nafs
4 factors of production: 4 factors of production:
Land- refer to natural resources such as forest, water,
timber, air and others
(the reward is Rent)
Land- Nature is a gift from Allah, human should take care of
the environment without damaging it.
Labor- all forms of human input both physical and mental
in the production
(the reward is Wage)
Labor- responsible to find halal income, practice good work
ethics.
- Social obligation: paying zakat and contribute to amal
jariah
Capital-Human made resources which are used in the
production process to produce other goods & services, eg:
factory, equipments, tools, machine & others
(the reward is interest)
Capital- Should come from halal sources, no elements of
riba (prohibited)
Entrepreneur-Human ability and capability to combine
land, labour & capital to develop production of goods &
services
(the reward is profit)
Entrepreneur- Production of goods & services should follow
the Islamic rules, responsible for workers welfare
2. Choice
When there is scarcity, choices have to be made.So, they
have to choose from the available alternatives.
3. Opportunity Cost
The second best alternative that has to be forgone for
another choice which gives more satisfaction

Ex: Umie has RM5 and she would like to buy a book n a pen which cost
RM5 each (scarcity). Umie has to choose either to purchase a book
@ a pen which would satisfy her needs (choices). If Umie chooses
the book, the pen is the opportunity cost because it is the second
best alternative which she has to forgo

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1.4 Basic Economic Problems
What to produce? How to produce? For whom to produce?
Depends on the type &
quantity of goods &
services to produced.
Refers to the cheapest
method of production/
the technique @ method
of producing a product
Depends on the
distribution of income
Ex:
How many cars should
be produced?

Should more clinics be
built than schools?
Ex:
Should farmers use
traditional ways to
harvest?

Should the firm use
labour @ machine to
produce pizza?
Ex:
Should the company sell
to lower income people
@ higher income
people?
Q: Explain briefly the basic economic problems faced by
every country.-Apr 2008
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1.5 Production Possibilities Curve (PPC)
Definition:
A graph that shows various combinations of goods & services that
can be produced using all the resources available.

Function:
To explain the basic economic concepts

Assumptions
Full employment
Technology constant
Fixed resources
Producing of 2 goods





Miza.Jan.2010.UiTM Johor
How to draw PPC ????
Schedule of PPC

Combination Cars Motorcycles
A 15 0
B 14 1
C 12 2
D 9 3
E 5 4
F 0 5
cars
motorcycles
Points along the curve are considered efficient combinations (A,B,C,D,E,F)
Points outside the curve are unattainable due to the problem of scarcity (X)
Points inside the curve are attainable but inefficient allocation of resources &
unemployment of resources (Y).

Q: Explain the basic economic concepts using a production possibilities curve
(PPC).-Oct 2009,Apr 2009, Oct 2007, Apr 2007,March 2004
Graph of PPC
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How to calculate Opportunity Cost???
Combination Computer
(units)
Radio (units) Opportunity Cost of
producing Radio
A 200 0
B 150 10
C 100 20
D 50 30
E 0 40
-50
-50
-50
-50
+10
+10
+10
+10
Question 3, Part B - Apr 2008


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a) Define production possibilities curve (PPC) (2 marks)

b) Explain the type of opportunity cost faced by this economy. (2 marks)

c) Sketch a production possibilities curve (PPC) for the economy and label
the following:
Point X to show inefficiency
Point Y to show a scarcity of resources
Point Z to show an occurrence of unemployment in the economy.(3 marks)

d) Calculate the opportunity cost:

i- of producing 100 units of computer
ii- of producing 30 units of radio
iii- when the production of computer decreases from 150 units to 50
units of computer.

Exercise 1:
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Exercise 2:







The diagram above shows the Production Possibilities Curve
(PPC) of cement and tile in an economy.

Cement (bag)
Tile (unit)
1500 2000
0
2500
6000
Miza.Jan.2010.UiTM Johor
Cont..

a) Calculate the opportunity cost of:
i- Producing 2000 units of tile (1 mark)
ii- Increasing the production of cement from 2500 bags to 6000 bags (1 mark)
iii- What is the economic concept shown by point M and N in the diagram (2
marks)

b) Give two assumptions to explain the production possibilities curve. (2 marks)

c) In separate diagram, draw the effect of advancement in technology of producing
cement on the PPC. (2 marks)

d) Suggest two ways that this economy can increase the production the production
of both products in the future.


Miza.Jan.2010.UiTM Johor
1.5.1 The shape of PPC and the types of Opportunity
Cost
Increasing Opportunity
Cost
Decreasing
Opportunity Cost
Constant Opportunity
Cost
















A linear PPC shows that the
opportunity cost is constant

Combination Good A Good B
A 6 0
B 3 1
C 1 2
D 0 3
Combination Good A Good B
A 6 0
B 4 1
C 2 2
D 0 3
Combination Good A Good B
A 6 0
B 5 1
C 3 2
D 0 3

Good A
Good B
Good B
Good B
Good A Good A
A concave PPC shows
that the opportunity cost is
increasing
A convex PPC shows that
the opportunity cost is
decreasing
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1.5.2 Factors That Influence The Shift of PPC
1.1 Economic Growth 1.2 when a country faces
natural disaster
Good A







Good B
Good A
Good B
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2.0 Improvements in technology





3.0 Population
Miza.Jan.2010.UiTM Johor
Assignment Eco 162
Economic System
Title Group
Socialism 1
Capitalism 2
Mixed 3
Islamic 4

The assignment must be submitted on 14/1/10 &
presentation on 13/1/10
Assignment must not less than 15 pages & not more than
25 pages



Miza.Jan.2010.UiTM Johor
Content:
1.0 Introduction
2.0 Definition of Islamic Economy
3.0 Characteristic of Islamic System
4.0 The advantages & Disadvantages
4.1 Advantages
4.2 Disadvantages
5.0 How Islamic System solve the
economic problems
6.0 Conclusion
7.0 Reference

Miza.Jan.2010.UiTM Johor