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CH1 INTRODUCTION TO ECONOMIC AND WORLD ECONOMIC SYSTEM (Characteristic/Ele…
CH1 INTRODUCTION TO ECONOMIC AND WORLD ECONOMIC SYSTEM
Definition
Macroeconomics
Definition : Branch of economics dealing the performance structure, behavior, and decision making of an economy as a whole
Foundation : The foundation is microeconomics
Basic concept : Ouput and income, unemployment,inflation and deflation
Applications: Used to determine on economy's overal health, standard of living, and needs for improvement
Microeconomics
Definition : Branch of economy which is concerned with the behavior of individual entitles such as market firms and households
Foundation : Consists of individual entities
Basic concept : Preference relations, supply and demand , opportunity cost
Applications: Used to determine methods of improvement for individual entities
Importance study economics
Humans attempts to fulfill their satisfaction
Allocation of economic resources that are limited
Wealth creation due to returns to entrepreneurial activities
Distribution of wealth and equity
Issue of inequiable income distribution
Scope of Islamic Economics :
More comprehensive because Islamic Economics focus on public interest
Integrated on human life
2 scholars
Ahmad 1981 : Says that the scope of islamic economics is wider more than secular economics because it treats cultural factors like attitudes, tastes, motives and social customers
Akram 1983 : Says a wider role of islamic economic because its deals with a wide-ranging set issues such as property rights,the incentives system,allocation resources,types of economic freedom, the system of economic decision-making and the proper role of government.
Purpose of Islamic Economics
Main purpose : To contribute richly to the achievement
of the major socio-economic goals of Islam
Economic well being with full employment and optimum rate economic growth
Stability the value of money to enable the medium of exchange to be reliable and stable
A return is ensured on investment and development projects
Socio-economic justice and equitable distribution of income and wealth.
To ensure the circulation of wealth
Comparison Islamic and Conventional
Conventional Economics
Behavior/Moral Value
: The behavior, taste and preference of individuals as given
Importance Hereafter
: They ignored because they want to maximize the profit
Rational Economic Man
: Serving of self interest through wealth maximization
Islamic Economics
-
Behavior/Moral Values
: Individual and social must reformed the moral uplift first which will change the behavior taste and preferences.
-
Importance hereafter
: Emphasized completely because the serve their self interest and sacrifice for the well being of others.
Rational Economic Man
: Not for the self interest, but get extended to the Hereafter through faithful compliance
Justification for Islamic Economics
According to Chapra & many scholars,
there are 4 sources of
Islamic system
Al Quran, Sunnah, Ijma & Qiyas
Why Islamic Economic is important
Based on Al Baqarah ayat 188&29
Everyone has right to use the resources
Sources of income permissible in Islam
Every source of income in which benefits are enjoyed by all the concerning parties on just basis
Characteristic/Element Of Economic System
Normative Aspect
(System derive based on
human experience characterized by the prevalent ideology)
Capitalist
Almost totally on the market for its economic activities
Individuals are absolutley free to pursue their self interest regardless of what the society desireable
Socialist
Entirely derived from the government
considered as the parent of workers class
Government decided what to produce, how to produce and for whom to produce
Islamic - Derives it norm from revealed sources, primarily from the Holy Quran and Al Sunnah
OWNERSHIP
Capitalist - Characterized by the private ownership of the means of production
Socialist - Adopt the public ownership pf the means production
Islamic
Adopt mixed ownership (private & public)
Also include properties owned by the state such as ministries and zakat institutions which to manage the fund, Distribute of wealth equally, help the 8 asnaf and have integrity in mgt
Role of Government
Capitalist
Advocates against gov intervention in the market
Assumes that the market is perfect and everyday can complete freely and fairly in the market
Socialist
Gov focus in the planned economic system, as the parent safeguarding in the interest of the working class
Islamic
Gov as a guardian is part and parcel of the integrated system of Islam
Gov intention is inevitable to harmonize between the private and societal goals of Islam
INCENTIVES
Capitalist
Provides reward that import worldly material benefit such as high wages, bonus, promotion, social security and benefits
Socialist - material rewards rely mostly on moral incentive to motivate ots workers such as slogans, medals
Islamic - Islamic covered material and moral
Islam emphasize on moral incentives that are self generating and it derived from the various shariah conjunctions
Islam acknowledge man's love for material rewards.
Decision Making
Capitalist - Decision making is centralized
Socialist - Decision are centralized ( gov)
Islam
Based on shura (consultation) / negotiation at every level of decision making that prevail
Shura takes consideration both the centralized and decentralized approaches
Activities
Capitalist
Organization arrangement are provided primarily by the market structure and its operation
Government help to provide and facilitate the climate under which such arrangement operate
Socialist- The government is fully responsible for all the institutional arrangements and operation principle
Islamic - The operational principle are derived from revealed sources