Teaching and Learning Modes

This course will be delivered using the following means : Lecture (3 hours per week). Tutorial (1 hour per week).
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Assessment
Coursework
1.

(40%)

Group Assignment (15%) Midterm Test (15%) Presentation (10%) A two-hour final examination (60 %)
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2.

3.

Reading Materials
Main Text: Tucker, I.B (2008). Economics for todays world. (5th ed.). Mason, OH: Thomson South Western.

Syllabus
Chapter 1 : Introduction to Factors of
Production & Consumer and producer surplus

Chapter 2 : Consumer choice theory Chapter 3 : Production and costs Chapter 4 : Perfect Competition & Monopoly Chapter 5 : Monopolistic Competition &
Oligopoly
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Syllabus
Chapter 6 : Measuring national income and cost
of living

Chapter 7 : Aggregate demand and aggregate

supply

Chapter 8 : Introduction to inflation,

unemployment & business cycles

Chapter 9 : Fiscal Policy Chapter 10 : Monetary Policy & Money creation

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IMPORTANT!!!
Attendance is taken for lectures and tutorials. You must meet the 80% minimum requirement or you may be barred from taking the final examination. No resit of tests should they absent from the tests without ACCEPTABLE reasons.
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Topic 1: Introduction to Factors of Production & Consumer & Producer Surplus

Economics is the study of how individuals and society choose to allocate scarce resources in order to satisfy unlimited wants. Faced with unlimited wants and scarce resources, we must make choices among alternatives. Unlimited wants Scarcity chooses Opportunity cost Society

Introduction
Because of the problem of scarcity (human wants exceed available limited resources), No society has enough resources to produce all the goods and services necessary to satisfy all human wants.
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What are Resources?

The basic categories of inputs used to produce goods and services. - These include land, labour, capital & entrepreneurship.

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What are the FOUR categories of resources? Land Labour Capital Entrepreneurship

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What is a Land Resource?

A shorthand expression for any natural resource provided by nature.

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 Includes anything natural above or below the ground. Eg: forests, gold, diamonds, oil, wildlife, rivers, lakes, seas, air, sun, moon, etc. Natural resources: Renewable resources nature can automatically replace (clean air). Non-renewable resources nature cannot automatically replace (oil).

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What is Labour?

The mental and physical capacity of workers to produce goods and services.
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 Service of farmers, lecturers, lawyers, bankers, etc all forms of labour. Labour resource measured by:
Number of people available for work The skills and qualities of workers

Ability to produce differs from one country to the other because of difference in:
Education Experience Health Motivation of workers

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What is Capital?
The physical plants, machinery, and equipment used to produce other goods; they do not directly satisfy human wants.
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Financial Capital
Capital in everyday conversation means money or money value of paper assets such as stocks, bonds or house deed. This is actually financial capital. Financial capital is not productive, instead it is only paper claim on economic capital.
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What is Financial Capital?

The money used to purchase capital. Financial capital by itself is not productive; it is a paper claim on capital (factor of

production - physical plants, machinery, equipment used 18 to produce goods)

What is Human Capital?

The productive knowledge and skill people receive from:
Education On-the-job training Health Other factors that increase productivity
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What is Entrepreneurship?
Creative labor of individuals that enables them to seek profits by combining resources to produce innovative products.

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 Entrepreneur motivated person who undertakes risky activities:

seeks new products or invent new ways to accomplish tasks.

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Ordinary People as Entrepreneurs

We become entrepreneurs when:
We find better ways to manage our households Or our study time

Rather than make money, our profits:

Greater enjoyment Additional time for recreation Better grades
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Land

Labor

Capital

Entrepreneurship organizes resources to produce goods and services

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EXAMPLE
Bill Gates
an American business magnate, philanthropist, author, and chairman of Microsoft, the software company he founded with Paul Allen. He is ranked consistently one of the world's wealthiest people and the wealthiest overall as of 2009. During his career at Microsoft, Gates held the positions of CEO and chief software architect, and remains the largest individual shareholder with more than 8 percent of the common stock. Gates is one of the best-known entrepreneurs of the personal computer revolution.
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Q1:Scarcity exists: a. when people consume beyond their needs. b. only in rich nations. c. in all countries of the world. d. only in poor nations. Q2: which of the following would eliminate scarcity as an economic problem? a. moderation of peoples competitive instincts. b. discovery of sufficiently large new energy reserves. c. resumption of steady productivity growth d. none of the above because scarcity cannot be eliminated Q3: which of the following is not a resource? a. land b. labor c. money d. capital
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Q4: economics is the study of a. how to make money b. how to operate a business c. people making choices because of the problem of scarcity d. the government decision-making process Q5: computer programs, or software, are an example of a. land b. labor c. capital d. none of the above

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Q6: Microeconomics approaches the study of economics from the viewpoint of a. individual b. Federal Reserve operation c. economy wide effects d. national economy Q7: Economic theory claims that rise in gasoline prices will cause gasoline purchases to fall, ceteris paribus. Ceteris paribus means a. other relevant factors like consumer income must be held constant b. gasoline prices must be adjusted for inflation c. theory is widely accepted but cannot be tested d. consumers need for gasoline remains the same regardless of price

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Q8: Which of the following would not be classified as capital resource? a. building b. bulldozer c. computer d. 100 shares of stock Q9: Explain why both rich and poor nations face the problem of scarcity. If you won RM1 million in a lottery, would you escape the scarcity problem?

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 A poor nation with many people who lack food, clothing & shelter experiences wants beyond the availability of goods & services to satisfy these unfulfilled wants. On the other hand, no wealthy nation has all the necessary resources to produce everything that everyone wishes to have. Even if you had RM1 million, your other wants would still be unfulfilled like love & happiness. There is never enough time & resources to accomplish all the things that you can imagine to be worthwhile.

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REFERENCE

Tucker, 2008 Chapter 1

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Consumer & Producer Surplus

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Consumer Surplus
Measures the value between the price consumers are willing to pay for a product along the demand curve and the price they actually pay.
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How is consumer surplus measured?

By the total area under the market demand curve and above the equilibrium price.
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Consumer Surplus
$20 $15 $10 $5 3 4 5 6 7 8 9 10 11 12
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Example: Consumer Surplus for Ice Tea

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Producer Surplus
Measures the value between the actual selling price of a product and the price along the supply curve at which sellers are willing to sell the product.
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How is producer surplus measured?

By the total area under the equilibrium price and above the supply curve.
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Producer Surplus
$20 $15 $10 $5 3 4 5 6 7 8 9 10 11 12
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Total Surplus
The sum of consumer surplus and producer surplus
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Total Surplus
$20 $15 $10 $5 3 4 5 6 7 8 9 10 11 12
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Total Surplus

Deadweight Loss
The result of a market that operates in disequilibrium, The net loss of both consumer & producer surplus resulting from underproduction or overproduction of a product.
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Deadweight Loss
$20 $15 $10 $5 3 4 5 6 7 8
Deadweight loss

F D

D
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9 10 11 12

Market Efficiency
Competitive markets are efficient when they maximize the sum of consumer and producer surplus.
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Conclusion Made
The total value of potential benefits not achieved is the deadweight loss, resulting from too few or too many resources used in a given market.
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Q1: if Bill is willing to pay $10 for one good X, $8 for a second, and $6 for a third, and the market price is $5, then Maxs consumer surplus is a. $24 b. $18 c. $9 d. $6 Q2: ABC willing to sell Y for $10, a second Y for $12, a third for $14, and a forth for $20, and the market price is $20. What is ABCs producer surplus? a. $56 b. $24 c. $20 d. $10 Q3: in an efficient market, deadweight loss is a. maximum b. minimum c. constant d.zero

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Q4: deadweight loss results from a. equilibrium b. underproduction c. overproduction d. none of the above are correct e. either b or c Q5: total surplus equals a. consumer surplus + producer surplus deadweight loss b. consumer surplus producer surplus deadweight loss c. consumer surplus producer surplus + deadweight loss d. consumer surplus + producer surplus

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Reference
Tucker, 2008 Chapter 3 (appendix)
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