What Is Economics?
Economics is the science of analyzing the production, distribution, and consumption of goods and services. In other words, what choices people make and how and why they make them when making purchases.
The study of economics can be subcategorized into microeconomics and macroeconomics.
Microeconomics is the study of economics at the individual or business level; how individual people or businesses behave given scarcity and government intervention. Microeconomics includes concepts such as supply and demand, price elasticity, quantity demanded, and quantity supplied.
Macroeconomics is the study of the performance and structure of the whole economy rather than individual markets. Macroeconomics includes concepts such as inflation, international trade, unemployment, and national consumption and production.
Definition of economics
Definition of economics have two perspective:
1)conventional perspective
2)Islamic perspective
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Conventional
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Islamic
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Definition:A study of how societies make use of scarce resources to fulfill their unlimited wants.
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Definition:Islamic economics is a social science which studies the economic problems of people imbued with Islamic values
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Factors of production:
- Land:Inputs into production that are provided by nature such as raw materials from the surface of earth,mineral,and oil deposits.The reward is rent
- Labor:All forms of human input,both physical and mental,into current production.The reward is wage or salary
- Capital:All inputs into production that have themselves been produced such as factories, machineries, equipments and tools.The reward is interest .
- Entrepreneur:The person who has the capability to combine all resources into the production of goods and services.The reward is profit
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Factors of production
- Land:Nature is a gift from Allah,therefore man should take care of environment without damaging it
- Labor:Responsible to find 'halal' income and practice good work ethics.Aware of his social obligation to the society such as paying 'zakat' and contribute to 'amal jariah'
- Capital:Should come from permissible sources.Returns in the forms of 'riba' is prohibited
- Entrepreneur:Production of goods and services should follow the Islamic rules.Practice good corporate governance and responsible for his workers' walfare.
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Focus to gain wealth
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Focus to gain Al-Falah(The concept of success in this world and the Hereafter
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➤ Scarce resources refer to the limited factors of production,which are:1)Land 2)Labor 3)Capital 4)Entrepreneur
Economic concepts
1)Scarcity:
The excess of human wants over what can actually be produced from the limited resources.
2)Choice:
Since resources are limited,choices must be made.Therefore one must choose the best alternative with the most benefit.
➤Household or individual:maximize satisfaction.
➤Firm:maximize profit
➤government:maximize welfare
3)Opportunity cost:
When one chose the best alternative,the second best alternative must be forgone.Therefore opportunity cost is measured in terms of the second best alternative forgone.
Objectives of macroeconomics
The objectives of macroeconomics are divided by two perspectives:
1)perspectives in conventional.
2)perspectives in Islamic.
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Conventional
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Islamic
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1)To achieve full employment
- All resources are fully utilized.
- Low level of unemployment.
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1)Max employment
- Creation of new employment generation.
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2)To achieve economic growth
- A steady rate of increase of national output
- Economic growth can be classified as:
- Actual growth:what is actually produced.
- Potential growth:if resources used fully and efficiently.
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2)Achieve optimal rate of economic growth:
- Emphasize on human capital formation(moral,spiritual and material) aspect of man's life.
- Research must be done to evolve a suitable technology in line with
each individual country's resource endowment.Education with emphasized
on technology and scientific knowledge should be implemented.
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3)To achieve price stability
- No inflation or deflation.
- Inflation:A continues increase in general price level
- Deflation:A continues decrease in general price level.
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3)Achieve social justice and distribution of income and health
- The economic doctrine of Islam is very well reflected in its concepts of Tauhid
- According to Al-Quran,this concept of Tauhid encompasses two integrated aspects such as:
- The relationship between man and man(Hablunminannaas).
- The relationship between man and his Creator or God(HablumminaAllah).
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4)To achieve equilibrium in foreign sector
- Cash outflow = cash inflow = balance BOP.
- Import = Export = balance BOP
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4)Universal education
- Free education.
- subsidized or provide free of charge education.
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5)Equitable distribution of income
- Reduce gap between higher group and lower income group.
- Methods:fiscal policy(tax policy and expenditure policy.
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