baeb602 chapter 1: introduction to microeconomics

BAEB602

School of Marketing and Entrepreneurship (SoME)FACULTY OF BUSINESS AND MANAGEMENT

PREPARED BY:Nur Suhaili Ramli

CHAPTER 1

MICROECONOMICS

INTRODUCTION TO MICROECONOMICS

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CHAPTER 1: INTRODUCTION TO MICROECONOMICS

LEARNING OUTCOMES

At the end of this chapter, students will be able to:

Understand the basic concept of microeconomics Understand the term of economics Getting familiar with economics picture such as term, concepts

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TOPIC OUTLINES

1.1 Definition Economics

1.2 Micro and Macro Economics

1.3 Basic Economics Concept

1.4 Fundamental of Economics Problem

1.5 Types of Economic Systems – Capitalistic Economy

1.6 Types of Economic Systems – Socialistic Economy

1.7 Types of Economic Systems – Mixed Market Economy

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Micro and Macroeconomics

Economics: The study of how individuals and societies use economic resource

(limited resources) to produce goods and services to satisfy their unlimited

wants.

Microeconomics: The study of economics activities and decision making of a

single individual; like a seller, buyer or consumer, film or producer or a

government unit or level.

Macroeconomics: The study of the economics activities and decision-making

of the economy as a whole.

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Definition Economics

Choices due to the unlimited needs and wants.

What is needs?

"Need" is something that is essential for survival like food, water or

shelter.

What is wants?

"Want" is something that you don't really need, but if you had it, it could

make your life a bit better.

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Basic Economic Concepts

What is markets?

Market is the interplay of all potential buyers and sellers of a particular

commodity or service.

Price always refers to the nominal price or real price of an item.

Nominal price: The absolute price, not adjusted for the changing value of

money.

Real price: the nominal price adjusted for the changing value of money.

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Basic Economic Concept

There are THREE basic assumptions about market participants (buyers & sellers).

Goal-oriented behavior : the behavior of market participants interested in fulfilling their own personal goals.

Rational behavior: The behavior of market participants based on a careful, deliberative process that weighs expected benefits and costs.

Scarce resources: insufficient time, money or other resources for individuals to satisfy all their desires.

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Basic Economic Concept

Explicit costs is money used in the pursuit of a goal that could otherwise have been spent on an alternative objective.

Implicit costs is costs associated with the individual’s use of his or her own time and other resources in the pursuit of a particular activity versus alternatives.

Opportunity costs (anything that is forgone or scarified in order to enjoy a commodity

Accounting costs is costs reported in companies’ net income statements generated by accountants.

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Introduction to Microeconomics

The problem of scarcity What is scarcity?

The condition in which human wants are forever greater than the available supply of time, goods, and resources.

There are THREE main categories of resources: Land

A shorthand expression for any natural resource provided by nature. It include anything natural above or below the ground. E.g Farming, building factories, forests, river, lake, sea, diamond, gold, etc.

LaborThe mental and physical capacity of workers to produce goods and

services. E.g the service of farmers, assembly-line workers, lawyers, professional football players.

CapitalThe physical plants, machinery, and equipment used to produce

other goods.

Topics

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Fundamental of Economic Problems

1. What and how much to produce?The type of product to produce, the amount of product to be produced.

2. How to produce?The technique or method of producing a product.

3. Whom to produce?Who finally gets to enjoy the goods and services produced.

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Types of Economic Systems – Capitalistic Economy

Capitalistic Economy

Is also known as a free market economy system.

In which no one is told what to do or how to do it, what to produce, who to

work for and how to get the things they need.

The forces of market demand and supply is without any government

intervention, determines how resources is allocated.

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Socialistic or Command Economy

The government owns and operates the factors of production.

The government will decide what will be produced , how it will be produced

and for whom it will be produced for.

Example of socialism are North Korea, Cuba, Laos, and China.

The motive is to make sure that everything that people need is produced

and that everyone gets what they need.

Types of Economic Systems – Socialistic Economy

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The Mixed Market Economy

Has features of both market and command economies.

Most countries are mixed economies, though some are close to the

command economy and others are nearer to the free market economy.

Usually they have a free market, but the government owns some business

and provides some goods and services to the citizens

Example are Malaysian, the UK, and Singapore.

Types of Economic Systems – Mixed Market Economy

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Class Activity

Perform a group of 2and identify the following: What is microeconomics? Differentiate between microeconomics and macroeconomics Give one example for each of micro and macro economics. What is opportunity cost? Give example of your own of opportunity cost. Differentiate 3 types of market economy based on definition, characteristics

and examples.

baeb602 chapter 1: introduction to microeconomics

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