T1

Economics definition

Study of how people use their limited resources to try to fulfil unlimited wants and involved alternative or choices

Microeconomics definition

Study of individual parts of the economy, such as public choices, business choices and personal choices

Macroeconomics definition

Study of the economic system as a whole such as national income, trade cycle, unemployment rate

What is positive analysis

Question of ‘What Is’ and no indication of approval or disapproval. It focuses on facts and cause and effect relationships

What is Normative analysis

Question of ‘what ought to be’
It incorporates value judgements about what the economy should be or what policy should be used to achieve economic goals

Basic economic concept

Scarcity
Opportunity cost
Choices

Scarcity definition

Wants exceed limited resources to satisfy them

Choice

When scarcity exist, choices are to be made

Opportunity cost

Second best alternative forgone for another choice which gives more satisfaction when making a decision

Basic economic problems

1) WHAT to produce
2) HOW to produce
3) FOR WHOM to produce

PPC definition

Shows the various possible combinations of good and services produced within specified time period with all its resources fully and efficiently employed

PPF ( Product Possibilities frontier) Definition

A graph that shows various combinations of output that the economy can possible produce

PPC assumptions

1) Economy is operating in full employment and full production capacity

2) Amount of resources are fixed

3) The State of technology does not change throughout production

Factors that influence PPC

1) Economic Growth

2) Improvements in technology

3)Population

What shape is PPC when opportunity cost increases

Concave

What shape is PPC when opportunity cost decreases

Convex

Shape of PPC when opportunity cost is constant

Linear

Types of economic system

- Mixed Economy

- Socialism

- Capitalism

- Islamic Economy

What is Capitalism

An economic system where individuals and sellers make economic decision using a price system

Characteristics of Capitalism

- Private ownership of resources

- Freedom of enterprise and choice

- Competition

- Government intervention

- Price system

- Consumers’ sovereignty

Advantages to Capitalism

-Economic freedom
- Efficient utilization of resources
- Variety of consumer goods
- Flexibility
- Automatic incentives
- Production according to consumer needs

Disadvantages to Capitalism

-Inequality of distribution of wealth and income
-Inflation and high unemployment rate
- Lack of social welfare
- Wasteful Competition
- Social cost
- Misallocation of resources

What is Socialism

Economic system where all economic decisions are made by the government or central authority

Characteristic of Socialism

- Public ownership of resources
- Central Planning authority
- Price mechanism of lesser importance
- Central control and ownership

Advantages to socialism

- Production according to basic need
- Equal distribution of income and wealth
- Better allocation of resources
- No serious unemployment or inflation
- Rapid economic development
- Social Welfare

Disadvantages to Socialism

-Lack of incentive and initiative by individuals
-Loss of economic freedom and consumer sovereignty
- Absence of competition
- Waste of economic resources

What is mixed economy

Combines both capitalism and socialism to solve basic economic problems

Characteristics of mixed economic system

- Public and private ownership of resources
- Price mechanisms and economic plans used to make economic decision
- Government intervention helps to control income inequality
- Government control of Monopolies

what is Islamic economy?

An economic system that combines both capitalism and socialism and follows the principles of Syariah

Characteristics of Islamic economy

-Public and private ownership of resources owned by God
- Price mechanism and limited government intervention
- Distribution of wealth
-Prohibition of interest
- Freedom of economic enterprise