1. BAEB602
MICROECONOMICS
CHAPTER 1
INTRODUCTION TO MICROECONOMICS
PREPARED BY:
Nur Suhaili Ramli
School of Marketing and
Entrepreneurship (SoME)
FACULTY OF BUSINESS AND MANAGEMENT

2. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
LEARNING OUTCOMES
TOPIC
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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3. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
TOPIC OUTLINES
TOPIC
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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4. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Micro and Macroeconomics
TOPIC
 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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5. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Definition Economics
TOPIC
 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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6. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Basic Economic Concepts
TOPIC
 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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7. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Basic Economic Concept
TOPIC
 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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8. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Basic Economic Concept
TOPIC
 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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9. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Introduction to Microeconomics
TOPIC
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.
 Labor
 The mental and physical capacity of workers to produce goods and
services. E.g the service of farmers, assembly-line workers,
lawyers, professional football players.
 Capital
 The physical plants, machinery, and equipment used to produce
other goods.
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Topics

10. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Fundamental of Economic Problems
TOPIC
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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11. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Types of Economic Systems – Capitalistic Economy
TOPIC
 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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12. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Types of Economic Systems – Socialistic Economy
TOPIC
 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.
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13. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Types of Economic Systems – Mixed Market Economy
TOPIC
 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.
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14. CHAPTER 1: INTRODUCTION TO MICROECONOMICS
Class Activity
TOPIC
 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.
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