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 CHAPTER 1
INTRODUCTION TO
MICROECONOMICS

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 What is Economics?
Study of how
Economics people use their
limited
RESOURCES to
fulfill unlimited
wants and involves
alternatives and
choices.
Microeconomics
Macroeconomics
study choices made by
 The study of the nation’s economy
households, firms and
as a whole.
government and how these
choices affect the markets for  Eg: economic growth, inflation,
goods and services unemployment

Demand and supply for car in

Malaysia
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 ECONOMIC RESOURCES

Land
Natural resources provided
by nature such as minerals,
oil, timber, air etc

Entrepreneur
Who organizes the Labour
other factors of
production and who Human effort in
make decision on Resources producing goods
production and services such as
enjoy the profit and teacher
bear losses

Capital
Stocks that can be used in
the production process
such as office buildings,
equipment and machine
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 The Entrepreneur

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 BASIC ECONOMIC CONCEPTS

SCARCITY
The condition in which resources or factors of production available are not enough
to meet all wants.

CHOICE
A comparison of alternatives: compare costs and benefits for each alternative

OPPORTUNITY COST
as the second best alternative that has to be forgone for another choice which
gives more satisfaction

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 PRODUCTION POSSIBILITIES CURVE
(PPC)

v Scarcity, Choices and Opportunity cost can be

explained using the PPC

DEFINITION:
The PPC shows the various possible
combinations of goods and services
produced within a specified time period
with all its resources fully and
efficiently employed.

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 PRODUCTION POSSIBILITIES CURVE
(PPC) (cont.)

Assumptions:

To draw PPC, we need 4 assumption:

Producing 2 goods
Fixed resources
Fixed technology
Producing at full employment

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 PRODUCTION POSSIBILITIES CURVE
(PPC) (cont.)

Sewing Machine Alternative Sewing Butter

Machine
16 A 15 0
A
B
B 14 1
14
C 12 2
12 C
D 9 3
10 D E 5 4
8 F 0 5

6
E
4
2
F
0 1 2 3 4 5 Butter

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 PRODUCTION POSSIBILITIES CURVE
(PPC) (cont.)

Point outside the PPC

Sewing Machine
(Point Z)  SCARCITY

16 Z
A Movement from one point to
B another (point C to D)
14 OPPORTUNITY COST

12 C
Any point along the
10 D PPC  CHOICES
Eg Point A-F
8 Y
6 Point inside the PPC
(Point Y)  Attainable E
4 BUT inefficiency
2
F
0 1 2 3 4 5 Butter

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 Tutorial 1

Alternative/ Combination Car (unit) Book (unit)

A 0 30

B 10 20

C 20 10

D 30 0

The following is a set of hypothetical production possibilities of an economy

1) Using a GRAPH PAPER plot the PPC for the above table.
2) What is the consequences when the economy try to produce:
i. 10 units of car and 30 units of book?
ii. 15 units of car and 5 units of book?
iii. 30 units of car and 0 unit of book?

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 Calculating Opportunity Cost Using
Table
Alternative/ Car (unit) Book (unit) Opportunity cost of Book
Combination
A 0 30 (10-0=10 units of car)
B 10 20 (20-10= 10 units of car)
C 20 10 (30-20= 10 units of car
D 30 0 0 unit of car
(no car should be let go because no
production of book

*** Opportunity cost of book means that how much of car should be let go when we
produce book.

Start calculating from the biggest value of car i.e at combination D because in this case
car should be let go to enable more book production

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 Do It Your Self (D.I.Y)

Alternative/ Car (unit) Book (unit) Opportunity cost

Combination of Car
A 0 30
B 10 20
C 20 10
D 30 0

Remember!!!
*** Opportunity cost of Car means that how much of Book
should be let go when we produce more car.

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 TUTORIAL QUESTION

Calculating the Opportunity Cost (Diagram)

Calculate the opportunity cost:

1. when the production of food
increase from 2kg to 4 kg
2. of producing 9 units of cloth
3. of producing 6 unit kg of
foods

Explain
1. Why point G is unattainable?
2. Even point F is attainable is it
inefficient? Why?
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 Shape of PPC

Sewing Machine PPC IS CONCAVE

16

14

12
Increasing Opportunity
10 Cost

4
2

Butter
0 1 2 3 4 5
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 Shape of PPC (cont.)

Sewing Machine
PPC IS LINEAR
16

14

12

10
Constant Opportunity
Cost
8

4
2
Butter
0 1 2 3 4 5
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 BASIC ECONOMIC PROBLEMS

What to produce?
• Decisions must be made about what to produce due to
limited resources

How to produce?
• technique @ method of producing a product either to
use capital intensive @ labor intensive or both

How much to produce?

• quantity of goods @ services to be produced depends on
the demand from consumers or the population and
resources available

For whom to produce?

Means who finally gets to enjoy the commodities produced

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 Assignment 1 (10 marks)

Using production possibility curve (PPC) explain

the basic economic concept that you learn just
now.
What should be included in your answer?
1. PPC Diagram (allocate point of scarcity,
choices and opportunity cost)
2. Definition of PPC
3. Explanation of scarcity, choices and
opportunity cost based on your diagram
by providing suitable example.

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 THE END

Be Prepared For Your QUIZ

and POP QUIZ as well

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