1. Introduction to Economics
1.1. Economics Defined as the study of scarcity and choice Scarcity A situation where human wants/needs are forever greater than the supply of time, goods and resources Microeconomics (Branch of Economics) A study on the behaviour of individuals and organization in particular markets Macroeconomics (Branch of Economics) A study on the operation of the economy as a whole
1.2. Factors of production Land; Gifts of nature Labour; The physical and mental capacity of humans to produce goods and services Capital; Man-made goods such as machines to facilitate further production of goods Entrepreneurship; The creative ability of individuals to seek profits by combining land, labour and capital to produce the goods and services.
1.3. Three Economies Issues - What goods and services need to be produced? - How should the goods and services be produced? - For whom will these goods and services be produced?
1.4. Early Economic Theories Thomas Malthus' Economic Theory The increase in population of a nation must be controlled, so that the residents would be able to enjoy more goods and services. Adam Smith's Economic Theory Wealth creation among individuals is healthy and would improve the lives of everyone. It is freedom to accumulate wealth and make profits is vital for the survival of an economy.
2. Economic System to Address Scarcity Problem
2.1. Free Market System or Capitalism
2.1.1. All economic decision are taken by individual households and firms with no government intervention.
2.1.2. Individuals have basic rights -To own private property -To own a business and keep all profits after taxes -Freedom to compete in wealth accumulation and consumption of goods and services -Freedom of choice based on ability to pay
2.1.3. The system recognizes the importance of the private sector to drive economic growth through competition. Customers have the power to determine and influence the types and quantities of goods to be produced.
2.1.4. Limitations of this system - Inequality of income and wealth distribution; A national and global concern - Greed compromises ethics - Individuals become materialistic to fulfill self-interests rather than social interests - Potential environmental damage
2.2. The Centrally-Planned System
2.2.1. The government plans and makes almost all economic decisions for the benefit of society.
2.2.2. It adopts the ideology of Karl Marx. The government makes almost all economic decisions and owns all factors of production.
2.2.3. Limitations of this system - Public ownership - Does not promote entrepreneurship - Choices of goods and services are limited - Reduces individual incentive-brain drain
2.3. The mixed system
2.3.1. The market is allowed to operate freely, providing it does not create problems for society where markets fail, the government will intervene. It is a cross-breed between the free-market and centrally-planned systems.
2.3.2. Many economies pf the world have adopted this system because there's a lot of limitations in the other two systems.
2.3.3. The mixed economy promotes freedom of individual choice and decisins to maximize satisfaction but if the market fail, the government will intervene.
3. Free Markets in Operation and Market Structures
3.1. Market Any arrangement where buyers and sellers interact to determine the price and quantity of goods to be exchanged at a certain period. Consumers actually send signals to the producers on what to make, how many to produce and in what shape or colour, based on their choices and buying decisions.
3.2. Determining Market Price It is not determined by producers or sellers. It is determined by the forces of demand and supply. Buyers and sellers negotiate for an agreed price in the market.
3.3. Demand and Supply Demand The choice-making behaviour of consumers. Supply The choice-making behaviour of producers, suppliers or firms. The Law of Demand When price increases, quantity demanded will reduce and vice versa ceteris paribus. The Law of Supply When price increase, quantity supplied will increase and vice versa ceteris paribus.
3.4. Free Market Operating Mechanism 1. Excess demand (shortage); A market situation where quantity demanded > quantity supplied 2. Excess supply (surplus); A market situation where quantity supplied > quantity demanded 3. Equilibrium; A market situation where quantity demanded = quantity supplied
3.5. Types of Market Structure 1. Perfect Competition 2. Monopoly 3. Monopolistic Competition 4. Oligopoly
4. Macroeconomics and Its Impact on the Business Environment
4.1. Macroeconomics look at the economy as a whole or in aggregates. There are four key players in the economy which are; households, firms (businesses), the government and international trade. The macroeconomics involve the circular flow of income and expenditure.
4.2. Macroeconomic concerns Economic growth The abilty of nations to produce greater amount of goods and services ina acertain period of time, usually one year. Inflation A situation in which the overall or general price's level is persistently increasing. Unemployment A condition, where people between ages 16 and 64 who are seeking jobs within the last four weeks have not been able to find employment Globalization
4.2.1. Hyperinflation; The rate of inflation is exceptionally high Disinflation; A condition, where price increase are slowing, i.e. the inflation rate is declining Deflation; A situation, where prices are actually declining
5. Macroeconomic Concepts and Key Economic Indicators
5.1. Macroeconomic concepts which the business cycle has four phases which are; boom, recession, depression and recovery. Business cycle means periodic rise and fall that occur in economies over time.
5.1.1. Boom; Reflects an expanding economy with rapid economic growth. Recession; A downturn in the business cycle, showing a decline in economic growth / Slowdown / Slump Depression; A business cycle phase, showing persistent negative economic growth at its worst after experiencing a recession. Recovery; An upturn, showing an expansion of the economy after experiencing recession.
5.2. Key Economic Indicators - Gross Domestic Product (GDP) - Unemployment Rate - Price Indices; Consumer Price Index (CPI) and Producer Price Index (PPI) - To measure economic growth of a nation, the following may be used; Gross Domestic Product (GDP), Gross National Product (GNP) and Gross National Income (GNI)
5.3. Price Indices Consumer Price Index (CPI) An index that measures changes in the average price of consumer goods and services. Producer Price Index An index measures prices at the wholesale level. Per capita income It is obtained by dividing the Gross National Income (GNI) with the total population of the nation.
5.4. Productivity It is also a concern for businesses because itis a measure of efficiency in operation. It refers to the amount of output that can be produced by a worker in an hour.
6. Monetary and Fiscal Policies to Regulate and Stabilize the Economy
6.1. Monetary Policy; Affect aggregate demand by controlling the supply of money through the Central Bank Fiscal; Affect aggreagte demand through government expenditure and taxation
7. The Malaysian Economy and Performance
7.1. Consumer Price Index (CPI) for Malaysia - Food and non-alcoholic beverages - Alcoholic beverages and tobacco - Clothing and footwear - Housing, water, electricity, gas and other fuels - Furnishings, household equipment and routine maintenance
7.2. Consumer Price Index (CPI) for Malaysia (cont.) - Health - Transport - Communication - Recreation services and culture - Education - Restaurants and hotels - Miscellaneous goods and services
8. New Economic Model for Malaysia
8.1. New Economic Model for Malaysia 1. High income 2. Inclusiveness 3. Sustainability
8.2. Goals of the New Economic Model 1. High income; Targets US$15,000 - 20,000 per capita by 2020 2. Inclusiveness; Enables all communities to fully benefit from the wealth of the country 3. Sustainability; Meets present needs without compromising future generations.
8.3. Six National Key Result Areas (NKRAs)
8.3.1. Reducing crime
8.3.2. Fighting corruption
8.3.3. Improving student outcomes
8.3.4. Raising living standards of low income households
8.3.5. Improving rural basic infrastructure
8.3.6. Improving urban public transport
8.4. Policies developed for the private sector to support Malaysia's economic growth
8.4.1. Targetting high-value-added products and services
8.4.2. Removing barriers and costs of doing business
8.4.3. Creating an eco-system for entrepreneurship and innovation.
8.4.4. Encouraging efficiency through healthy competition
8.4.5. Promoting SME growth
8.4.6. Creating regional champions