1.1 Wants and Scarcity
Scarcity is the result
of our desire to consume more goods and services than we can produce.
1.1.1
Choice-Making
To decide on:
·
what to produce
·
how to produce
·
for whom to produce or distribute to
The answer to questions of what, how to produce and distribution
of products depends on the economic system a country chooses for development.
1.1.2 Values and Economics
Private ownership of property, freedom of enterprise, competition
in markets and distributive justice are some of the leading values underlying
most economic systems that operate today in various economies of the world.
1.2 Definition and Scope
- Studies the
behaviour of human beings in relation to using of scarce resources for
satisfying their wants.
- Promotes human
welfare.
- Decision-making process involves a comparison of
advantages (Benefits) and disadvantages (Opportunity Costs).
- Opportunity costs refer to the gains of second best
alternative that we have to give up in favour of what we choose to do.
1.2.1 Behavioural Norms
- Islam endorses the pursuit of self-interest within the
confines of its code of conduct.
- Also, it gives priority to the promotion of social
interest, if individual interest is in conflict with it.
1.2.2 Nature and Scope
- Economics is a social science and has both positive and
normative aspects. This is true of both the mainstream
and Islamic economics.
- A positive economics deals with the ‘what
is’ of an economy and with the forces that govern factual situations.
- A normative economics deals with ‘what should it be’
and ‘how should it be’.
- Economics is an art as well because it also deals with
policy designs and their implemental aspects.
1.3 Methodological Pitfalls
·
Methods
refer to the ways used by economists to formulate economic hypotheses, theories
and laws. They are part of the subject.
·
Methodology,
on the other hand, is part of the theory of knowledge.
1.3.1 Fallacy of
Composition
It is the assumption
that what is true for one individual, or part of a whole, is necessarily true
for the group of individuals, or the whole.
1.3.2 Causation Fallacie
- Post hoc fallacy
- Covariation versus Causation
It means saying the same
thing twice over in different words as a fault of style.
1.3.4 Exclusionist Argumentation
It means shutting out
from consideration other possible reasons that may cause an event.
1.4 Methods of Economics
- · Start with an obvious truth about the economic phenomenon.
- · Observation of facts, i.e. collection of real world data on prices and sales.·
- Formulate a possible cause and effect explanation to uphold or reject the hypothesis.
·
If
repeated experiments confirm the alternative hypothesis, it may be treated as
an economic theory.
·
Finally,
if over time and space the experiments fail to refute the theory, it may be
accorded the status of an economic law; here, the law of demand.
1.5 Money and Exchange
·
Money
provides a common expression for the value of goods in the form of its prices.
·
The
ultimate exchange is still of goods for goods; money just serves as a medium or
go-between in the process of exchange.
·
Two
main characteristics of money are general acceptability and stability in the
value of money.
1.6 Microeconomics and
Macroeconomics
·
Microeconomics
is concerned with the behaviour of individual economic entities, such as
consumers, firms, industries, individual prices for commodities and factors of
production in the markets.
·
Macroeconomics
focuses in a blanket sense on issues of growth, employment and stability. It
deals with aggregates of demand and supply, savings, investment, price levels,
money volume, balance of payments and the like for the economy as a whole
to analyze and assess its performance.
1.7 Problems Economists Seek To Resolve
· What is the
source of wealth?
· Are prices
seen varying randomly over time?
· What is the
role of money in an economy?
· How do we
define economic justice?
· What about
the ever-increasing pollution humanity faces with ever-increasing production?
· Can
universal privatization and globalization benefit all nations¾developed and developing¾in equal measures?
1.8 The Language of Economics
· Concepts,
notions and terms economics uses have to be clearly explained and understood.
· Expressions
such as harmony, common good, altruism and commitment have no scientific
content, but do create perceptions that cannot be ignored.
1.9 Economic Systems
An organizational framework to conduct economic activity.
· Capitalism
· Socialism
· Islamic System
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1.9.1 Axiomatic Differences
· Capitalism believes in freedom of
enterprise, public non-intervention in economic affairs, market arbitration and
competition as a regulatory force.
·
Socialism sees private enterprise as an
unwelcome institution leading to exploitation of the masses.
·
Islam strikes the middle course; it allows
axioms of capitalism to operate in a reformed and modified shape, in the light
of the Shari'ah requirements.
1.9.2 Property Rights
·
Property refers to natural resources and
all man-made instruments used for producing wealth.
·
Capitalism allows private ownership of
property.
·
Socialism puts property rights mostly in
the hands of the state agencies.
·
The Islamic system allows private ownership
in property, but enjoins on owners to hold it in trust for the society
as a whole.
1.9.3 Operational Mechanism
Markets, price mechanisms and profit motive are allowed to operate
in an Islamic system, but subject to the observation of its moral code of
conduct.
1.9.4 Motivation Scheme
Social good and the promotion of Shari’ah objectives work as
the main motivational force in the Islamic system.
1.9.5 Sociental
Priorities
Source: DR.
NURSILAH BINTI AHMAD. (2015). Economics with Islamic Perspective, Usim
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