A. What Is a Market? There is no higher authority that directs the behavior of these economic agents; rather, it is the invisible hand of the marketplace that allocates final goods and services, as well as factors of production. 1

Markets Market equilibrium occurs when the price is such that the quantity that buyers are interested in purchasing is equal to the quantity that sellers are interested in supplying to the market. 2

Economic Systems Economic systems are the basic arrangements made by societies to solve the economic problem. 3

Four Systems 1.Islamic economy 2.Laissez-faire economies 3.Command economies 4.Mixed systems 4

Islamic Economy Some people think that Islam has no economic system of its own Islamic Economics is as Old as Islam Itself 5

Islamic Economy Islamic economics is accordance with Islamic law.economicsIslamic law Islamic economics can refer to the application of Islamic law to economic activity either where Islamic rule is in force or where it is not; 6

Definition of Islamic economics The Islamic economics is both a science and an art which deals with the daily routine of a Muslim's economic life. 7

Principles of Islamic Economics 1.All wealth belongs to Allah (SWT( 2.The Muslims are the custodians and trustees ( الحراس والامناء ) of the wealth. 3.Hoarding the wealth is forbidden. ( اكتناز الثروة ممنوع ) 4.Circulating the wealth is obligatory 8

The free market system In a laissez-faire economy, individuals and firms pursue their own self-interests without any central direction or regulation. A market is the institution through which buyers and sellers interact and engage in exchange. 9

Consumer sovereignty سيادة المستهلك Consumer sovereignty is the idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase). 10

Free enterprise Free enterprise: under a free market system, individual producers must figure out how to plan, organize, and coordinate the production of products and services. 11

distribution of output In a laissez-faire economy, the distribution of output is also determined in a decentralized way. The amount that any one household gets depends on its income and wealth. 12

Free System The basic coordinating mechanism in a free market system is price. Price is the amount that a product sells for per unit. It reflects what society is willing to pay. 13

Command economies In a command economy, a central government either directly or indirectly sets output targets, incomes, and prices. The government determine what to produce and how much and How and for Whom to produce. 14

Mixed Systems, Markets, and Governments Since markets are not perfect, governments intervene and often play a major role in the economy. Some of the goals of government are to: 15

goals of government in mixed economy Minimize market inefficiencies Provide public goods Redistribute income Stabilize the macro economy: – Promote low levels of unemployment – Promote low levels of inflation 16