PRINCIPLES OF ECONOMICS

(MICROECONOMICS)

-IRENE TANG MEI WEN-

-DAT1-S1-
 CONTENTS

1. Introduction to Microeconomics

2. Theory of demand(需求) and supply(供应)
3. Market equilibrium(平衡)
4. Consumer behavior
5. Elasticity of demand and supply
6. Theory and cost of production
7. Market structure
 CHAPTER ONE
INTRODUCTION OF
MICROECONOMICS
 Definition of Microeconomics

Microeconomics is the study of

how individuals and societies
use limited resources to satisfy
unlimited wants and how much
choices are made.
 Basic economics concept

1.
scarcity

3 creates

3.
Opportunity
2.
cost choices
Economics resources

Land Labour

Entrepreneur
Capital
(企业家)
Factors of production LAND

A naturally occurring resource (free gift of nature).

Exists(存在) independent of human action.

Supply of land is inherently(本质) fixed in location and geography. rent

Value of land is dependent on quality and location.

Examples:

• (i) Minerals (iii) Timber(木材)

• (ii) Oil deposits (iv) Water that exist on or below land/the ground
Factors of production LABOUR

The physical and intellectual services provided

by man.

Labourers :

•May be skilled or unskilled

•Are unique and have feelings
•Offer services, but are not to be exploited(利用) wages
•Can be moved from one location to another
•Differ in efficiency(效率) and productivity(生产率)
Factors of production CAPITAL

Consists of assets
•Money
•Equipment Interest / dividend

•Machinery
•Raw materials(原料)

Can be moved from one location to another

Can be increased or decreased

Factors of production ENTREPRENEUR

A person with the skills and

ability to organize
production and bear risks(
承担风险)
Profit (for the
efforts and risks of
entrepreneurship)

Entrepreneur

Functions : (i) leader

(ii) planner Manages(管理) a firm
(iii) co- ordinator of the
firm’s activities
 Classification of Goods

Goods are things which are tangible(看得见，有形的)

or non-tangible(看不见，非有形).
They are used to satisfy society’s goods that can
satisfy human needs.
Tangible : (i) clothes
(ii) foods
(iii) cars
Non-tangible : (i) air
(ii) sunshine
Types of goods
Economic
goods

Free Public
goods goods

Goods

Capital Finished
goods goods
 Economic goods

 Scarce(稀缺) goods which the quantity demanded(需求) exceeds(超出) the

quantity supplied at a zero price and whose usage(用量) involves prices and
opportunity costs.
 Divided into two : (i) consumer goods
(ii) capital goods
 Consumer goods (final goods)- (i) durable(耐用) goods – electrical fans, radios
(ii) perishable(易腐) goods – food
 Capital goods – not intended(打算) for final use, but are used to produce other
goods.
- examples : (i) machinery
(ii) factories
 Free goods(non-scarce goods)

 Naturally occurring goods that are unlimited and available without

any cost.
 Quantity supplied(提供) exceeds the quantity demanded at a zero
price.
 Do not have price.
 The opportunity cost is zero.
 Essential(必要) for life.
 For example: (i) air
(ii) water
 Due to pollution, clean air and water may no longer be free.
 Public goods

Non-excludable
Not subject to decisions made by
individuals
Individuals and communities are not
exempt(免除) from using public goods
For example – powerhouse that are
funded(资助) by the government through
taxation(税收)
 Finished goods
Goods produced and used to satisfy society’s wants
2 classes: (i) durable goods
(ii) perishable goods
Durable goods : (i) cars
(ii) televisions
(iii) refrigerators
(iv) furniture
Perishable goods : (i) vegetables
(ii) fruits
(iii) fresh produce
 Capitals goods

Goods used by consumers to produce other goods

or for other specific purposes
For example – (i) printers are used to produce books
(ii) lorries are used to transport goods
 Intermediate goods

 Goods which have not become finished goods

 Need to be further processed before it can be used by
consumers
 For example : (i) palm oil
(ii) timber
(iii) cloth
(iv) steel
 Cannot provide satisfaction to the consumers
Differences between microeconomics and
macroeconomics
Microeconomics Macroeconomics
The study of individual parts of the The study of economic system as a while.
economy.
Such as: Such as:
1. Public choices 1. National income
2. Business choices 2. Trade cycle
3. Personal choices 3. Unemployment(失业) rate
4. Inflation
5. Growth
6. General price level
7. Money
8. Banking

Example:
(i) Demand
(ii) Supply
(iii) Production cost
(iv) Market structure
Economic concept
scarcity

Three types
of
economics
problem

Opportunity
choice
cost
Scarcity
Individuals – scarcity of money to
pay for fees and to purchase
food, drinks an clothes

Firms – may not have sufficient Explained as wants which

capital to carry out are always exceeding
international projects limited resources meant to
satisfy them

Government – scarcity of financial

resources and revenue(收入) to
build basic amenities(设施) for
society such as schools
Choice
Individuals- managed according
to priorities(优先级) and rational(理
性) choices based on individual’s
current budget
Cannot have what he or
she wants, they have to
Firms – makes choices based choose from the
on goals, i.e. to maximize available alternatives.
profits

Governments – makes choices based

on priorities to fulfil the wants of society
– based on the amount of benefit to
society that each amenity can provide
Opportunity cost

Individuals – arises(产生) from

limited factors of production

Defined as second best

Firms – choose XX which will alternative that has to
be forgone for another
result in a higher profit, the
choice which gives
opportunity cost is opening of more satisfaction
a new business

Government – choose XX
which will provide more
benefit to the public.
 Basic economic problems
• What mix of goods and services will be produced ?
– refers to the type of goods and services to be produced

• How much goods and services should be produced ?

– refers to the cheapest method of production

• How is output produced ?

– refers to the distribution of income

• For whom should be product be produced ?

– refers to the demand of the market
 Economic system
Free Market Economy

Centrally Planned Economy

Mixed Economy

Islamic Economy
Solving Basic Economic Problems
Determined by the power of demand or
What ? consumer spending patterns

Dependent on the price determined by

the market demand
How much ?
Capitalism /
Laissez Faire
Firms will choose a combination of production
factors to minimize costs. The determination
How ?
of production factors on the goals of
maximizing output while minimizing costs.

For whom ? Determined based on individual’s purchasing power or

income. Firms offer goods to parties that are willing to
pay the price.
 Read
lecturer’s
note