NAME OF STUDENT

STUDENT ID

NUR AREENA BINTI MUHAMMAD FIRDAUS JOHN

2015464696

NURUL IZZATI BT ARIFIN

2015402544

GROUP
AC1101A2
NAME OF LECTURE
DR TAUFIK BIN ABDUL HAKIM
COURSE CODE
ECO 162
DATE OF SUBMISSION
4th SEPTEMBER 2015

NO

TITLE

PAGE

.
1.

ASSIGNMENT COVER

2.

CONTENT

3.
4.

ACKNOWLEDGEMENT
QUESTION 1
a) DEFINE MICROECONOMICS

5.

6.
7.

b) DIFFERENCE BETWEEN MIXED AND ISLAMIC

ECONOMY
QUESTION 2
a) PRICE CEILING AND PRICE FLOOR

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7-9

b) (i) INCREASE PRICE OF PETROL

(ii) INCREASE COST OF MATERIAL TO PRODUCE
PROTON CAR

8.

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(iii) DECREASE IN THE PRICE OF PERODUA

CARS IN THE MARKET
(iv) IMPROVEMENT OF PROTOS TECHNOLOGY
( v ) A SUCCESSFUL ADVERTISING CAMPAIGN
IS LAUNCHED BY PERODUA MYVI

9.

REFERENCE

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12

CONTENT

ACKNOWLEDMENT

Thank you to the Almighty for giving us strength and patience to complete this
assignment.
We would like to express our gratitude to everyone that is involve rather direct or
indirectly helping us to complete this assignment. Firstly, we really appreciate all the helps,
advisor and information which given by our lecterur, Dr Taufik Bin Abdul Hakim, without his
support, we may not be able to solve problems during the process until we finish the
assignment successfully.
In addition, we would like to take this opportunity to thank our friend who helps us
and giving some guide to complete this assignment. Last but not least, thousand of thanks we
would like to express to our group member for the cooperation given to the group. Without
the cooperation and tolerance between the group, we couldnt finish this assignment. Finally,
thanks again to anyone who helped and guide us in order to finish this assignment.

QUESTION 1
A) DEFINE MICROECONOMICS
Microeconomics is the study of individuals, households, and firms behaviour in
decision making and allocation of resources. It generally applies to markets of goods and
services and deals with individual and economic issues.
There are three basic economic concepts. One of the basic is scarcity. Scarcity is define
as the limited supply of resources that are used of the satisfaction of unlimited wants. In other
words, scarcity is the inability of human beings to provide themselves with all the things they
desire or want. For an example, a student need to buy a school stuff such as books and other
stationery worth RM 100, but she only has RM 50. Therefore, it can be said that her resources
will not be sufficient to buy all she needs.
The third basic economy is choice. Choice can be defined as a system of selecting or
choosing one out of a number of alternatives. Human wants are many and we cannot satisfy
all of them because of our limited resources. We therefore decide which of the wants we can
satisfy first. Choice therefore arises as a result if scarcity of resources. Since it is extremely
difficult to produce everything one wants, choice has to be made by accepting or taking up
the most pressing wants for satisfaction based on available resources.
Lastly, the last basic economy is opportunity cost. Opportunity cost is defined as an
expression of cost in terms of forgone alternatives. It is the satisfaction of ones want at the
expense of another one. It refers to the wants that are left unsatisfied in order to satisfy
another more pressing need. Human wants are plentiful, while the means of satisfying them
are scarce or limited. Therefore, we are faced with the issue of choosing one from a whole
host of another human wants.

DIFFERENCE BETWEEN MIXED ECONOMY AND ISLAMIC ECONOMY.

Mixed economy is formed by combined both capitalism and socialism to solve basic
economic problems. Mixed economy is define when both the public and private sectors play
role. Most countries practice a mixed economy in the real world. One of mixed economy
characteristic is it has public and private ownership of resources. All the important roles in
mixed economy played by the private and public sectors. All the private enterprises conduct
their business freely and they also encouraged by the government by providing them with
infrastructure and facilities. Mixed economy also use price mechanism and economic plans
in making economic decisions. The reason of using the price mechanism is to price both
goods and services. However, there are also some goods that are declared as controlled items
in Malaysia and the government fixes their prices such as commodities like sugar, oil, and
rice. Moreover, in mixed economy, government helps to control income disparity. The
government controls income disparity through income taxes and welfare payments. Profits,
wages and rents also direct controlled by the government. Narrowed the income gap between
the rich and the poor also done by the government. In mixed economy, government
intervention in the economy. The government will not intervene in the economy except for
particular industries. The government will carry out certain projects or produce certain goods
that the private sector considers unprofitable. It also had a co-operation between the
government, public and business sectors. Economic development leads by the significant
co-operation between the public and private sectors. Lastly, the characteristic in mixed
economy is government control of monopolies. Monopolist are single players in an
industries. They have complete, sole control over the price of goods or services. In order to
avoid customers being exploited by monopolists, the government will regulate the power of
monopolists.
Islamic Economy define by the questions of what, how and for whom to produce are
decided for whom to produce are decided for by public and private sectors according to
Islamic principles. One of the characteristic is, Islamic economy had a private and public
ownership by God. Properties are owned by God and human beings are considered as trustees
of properties, in Islam. Humans have the right to enjoy and use these properties, but not as
absolute owners. However, God created all wealth for all humans in equal right is the concept
5

of public property in Islam. In Islamic economy, price mechanism and limited government
interventions is the market is determined by the forces of demand and supply, in another
words, price fixing by buyers and sellers is strictly prohibited, no individual ( seller or buyer )
has the power to control the market. The benefit is, government interventions are encouraged
only under specific circumstances when the market fails. In this economy, producers provide
consumers with information and knowledge about the quality and quantity of goods. The
third characteristic is distribution of wealth. The distribution of goods is based on the needs
of consumers, not wealth creation. Moreover, in Islamic economy they prohibit of interest
(riba). Therefore, banking, finance and businesses in Muslim countries have reorganized and
set up Islamic institution which apply the principles of Syariah that prohibits riba. Lastly, the
characteristic in Islamic economy is freedom of economic enterprise. In Islam, man has the
freedom of work and enterprise, such as agriculture, business or trade, but need to meet the
ends of economic activities. The ends of economic activities could be individual or society
which includes basic necessity for survival, such as food and shelter.

QUESTION 2
a) Using appropriate digrams,explain the concept of price ceiling and price floor.
Price Ceiling and Price Floors are Price Controls. The government and fixed prices
for certain good and services. For an example sugar, rice and cooking oil. However,
the government merely determines the price, not price mechanism.
PRICE CEILING

Figure 2.1
Price Ceiling are maximum prices set by the government for particular goods and
services that they being sold at too high of a price and thus consumer need some help
purchasing them. Price Ceilings only become a problem when they are set below the
market equilibrium price.
When the ceiling is set below the market price, there will be excess demand or supply
shortage. Producers wont produce as much at the lower price, while consumer will
demand more because the goods are cheaper. Demand will outstrip supply, so there
will be a lot of people who want to buy at this lower price but cant. Still, if the
demand curve is relatively elastic, then the nett effect to consumer surplus will be
positive. Producers are truly harmed, as their surplus is doubly hit with a reduction
the number of firms willing to take that lower price, and those who remain in the
market have to take a lower price.

As shown in figure 2.1,fixing the price below the equilibrium level creates an
excess in

demand or shortage.this shortage results from the quantity demanded

being more than quantity supplied.

PRICE FLOOR

Figure 2.2
Price Floor are minimum prices set by the government for certain commodities and
services that it believes are being sold in an unfair market with too low of a price and
thus their producers deserves some assistance. Price floors are only an issue when
they are set above the equilibrium price, since they have not effect if they are set
below market clearing price.
When they are set above the market price, then there is possibility that there wll an
excess supply or a surplus. If this happens, producers who cant foresee trouble ahead
will produce the larger quantity where the new price intersects their supply curve.
Furthermore, to them consumer will not buy that many goods at the higher price and
so those goods will go unsold.
There will be economic harm done even if the suppliers can look ahead and see that
there is not sufficient demand and cut back on production in response. There is still
deadweight loss associated with this reduction in quantity, reflected in the loss of
consumer and producers surplus at lower levels of production. Producers can gain as a
result of this policy, but only if their supply curve is relatively elastic and therefore,
8

they have no nett loss. Consumers will definitely loss with this kind of regulation, as
some people are price out of the market and others have to pay a higher price than
before.
There are numerous strategies of the government for setting a price floor and dealing
with its repercussions. They can set a simple price floor, use a price support, or set
production quotas. Price supports sets a minimum price just like as before, but here
the government buys up any excess supply. This is even more inefficient and costly
for the government and society as a whole than the government directly subsidizing
the affected firms. Production quotas artificially raise the price by restricting
production using either mandated quotas or giving businesses incentives to reduce
their production.
As shown in figure 2.2, fixing the price above the equilibrium level creates a surplus.
A surplus exist because quantity demanded is less than quantity supplied.

a) By referring to the demand and supply analysis, explain the effect of each
following situations on the equilibrium price and quantity for proton car.

Figure 2.3

i.

An increase in the price of petrol

Based on figure 2.3 increase in the price of petrol it will less demand of cars, supply will
more than demand. The price of Proton cars will decrease from P1 to P2 to reach the
equilibrium.

ii.

An increase in the cost of raw material to produce proton car

Based on figure 2.3 increase in the cost of raw material to produce Proton car it will less
production of supply, supply will less than demand. The price of Proton cars will increase
from P3 to P2 to reach the equilibrium.

iii.

A decrease in the price of Perodua cars in the market.

Based on figure 2.3 decrease in the price of Perodua ,the demand of Perodua will increase
but demand for Proton will decrease, supply will more than demand.it will substitute to
Proton. The price of Proton car will decrease from P1 to P2 to reach the equilibrium.
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iv.

Improvement of protons technology

Based on figure 2.3 improvement of Protons technology, production of Proton will increase
supply will more than demand. The price of Proton car will decrease from P1 to P2 to reach
the equilibrium.

v.

A successful advertising campaign is launched by Perodua Myvi

Based on figure 2.3 successful advertising by Perodua it will substitute to Proton, demand
will more than supply of Perodua. Demand will less than supply of Proton. The price of
Proton will decrease from P1 to P2 to reach the equilibrium.

REFERENCES
1. INTERNET
https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF8#q=price%20ceilings%20and%20price%20floors
2. BOOK

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Principles of Economic, third edition, by Deviga Vengedasalam and Karunagaran

Madhavan, published by Oxford Fajar Sdn. Bhd.
3. LECTURE
Dr Taufik Bin Abdul Hakim

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