Topic 1:
Semester 1,
Academic Session 2025 -2026
01 02
Definition of Economic Understand the Resources
03 04
Understand the Concept of Understand the PPC to explain
Scarcity the basic economic concepts.
• Adam Smith (1776): Economics or political economy is an enquiry
into the nature and cause of the wealth of nations.
• Milton Friedman (1962): Economics is the science of how a
particular society solves its economic problems.
• Richard Lipsey (1990): Economics is the study of scarce resources
to satisfy unlimited human wants.
Economics - examines and
analyses the economic
activity or people in order to
satisfy their needs and
desires (wants)
The study of how
individuals and society
choose to use scarce
resources
❑ Economists often talk about people’s needs and
wants.
❑ A need is a basic requirement for survival and
includes food, clothing and shelter
❑ Wants are goods or services that are not necessary
but that we desire or wish for
Microeconomics Macroeconomics
Studies individual units in the Studies the economy as a whole. It
economy i.e., individual households looks at the economy from a
and firms. broader perspective rather than the
detailed individual choices.
It analyses the overall performance of the
It focuses on the choices made by
economy. Among the issues that
individual participants in the economy and
macroeconomics deals with are national
emphasizes the role or prices in business
income, money supply, economics growth,
and personal decisions.
unemployment, inflation, etc.
Microeconomics Macroeconomics
Studies individual and specific economic units What is the unemployment rate in Malaysia?
Shall we produce rice or compact discs? What causes a high inflation?
The price of chicken increases significantly during In 1994. the national income of a country is
Hari Raya season. RM23,400 million.
The economic growth of the country is expected to
Shall we allocate a budget for schools @ clinics?
be 6% in 1995.
Analyzes demand & supply of individual goods. Analyses aggregate demand and aggregate supply.
Studies on the production & cost in an industry such Studies on national output such as gross domestic
as numbers of cars produced in Proton company. product and also growth rate.
“...those things we use to
produce the goods we want”
Factor of Production
❑ Agricultural land
❑ Rivers, lakes and seas. This also means
fish and other things contained in these
rivers, lakes and seas
❑ Mineral wealth and natural resources
❑ The forests
❑ The atmosphere, whether and climate
A country needs to produce
more goods and services in
order to have a higher
standard of living for its
residents.
Scarcity can be explained as
wants are always exceeding
limited resources to satisfy
them.
When there is scarcity, choices
have to be made. Everyone
cannot have what he/she wants,
so they have to choose from the
available alternatives.
Second best alternative that
has to be forgone for
another choice which gives
more satisfaction.
Eg: Jasmin has RM5 and she would like to buy
a book and a pen which cost RM5 each
(scarcity).
Jasmin has to choose either to purchase a
book or a pen which would satisfy her needs
(choices).
If Jasmin choose the book, the pen is the
opportunity cost because it is the second
best alternatives which she has to forgone.
1)What to produce
2)How to produce
3)For whom to produce
4)How much to produce?
How much to produce
What to produce? How to produce? For whom to produce?
?
Refers to the cheapest
Depends on the types method of Depends on the
Depends on the
of goods and services production/technique quantity of goods and
distribution of income.
to produced or method of services to produced
producing a product.
Eg: Should the firm use Eg: Should the
Eg: Should more MPV
foreign labour or company sell to lower Eg: How many cars
cars be produced than
machine to produce income people or should be produced?
compact cars?
cars? higher income people?
• A graph that shows various
combination of goods and services that
can be produced using all the
resources available.
• Function: To explain the basic economic
concepts.
• Assumptions: Full employment,
technology constant, fixed resources and
producing of two goods.
To explain the basic
economic concepts of
scarcity, choices and
opportunity cost.
Various possible
combinations of goods and
services produced within a
specified time with given
technology and resources.
A nation’s PPC shows how many
units of two goods or services
the nation can produce in one year if
it uses its resources fully and
efficiently.
A nation’s PPC shows how many
units of two goods or services the
nation can produce in one year if it
uses its resources fully and
efficiently.
A table of numbers that illustrates the
production possibilities of an economy –
the alternative combinations of two goods
that an economy can produce with given
resources and technology.
A production possibilities schedule
illustrates that the economy must give
up the production of one good to
produce of another good (the basic
economic notion of opportunity
1)Economic growth
2)Technological advances
3)Population