SEMESTER NOVEMBER 2020

TEST 2

COURSE : ISLAMIC ECONOMICS

COURSE CODE : PFS 3313
FACULTY : BUSINESS AND ACCOUNTANCY
DURATION : 1 HOUR 30 MINUTES
DEPARTMENT : MARKETING AND MUAMALAT
PROGRAM : BACHELOR OF BUSINESS ADMINISTRATION
LECTURER : MS NIK NOR AMALINA BT NIK MOHD SUKRRI

NAME : SRI THARSHINI VISVANATHAN

: 4 1 8 3 0 0 7 5 1 1
STUDENT ID

DATE : 25.1.2021

CLO Course Learning Outcome MARKS

Understand the implication of consumption, production
2 and distribution for Shariah law towards its application in /30
economic and financial system.
TOTAL /30

Do Not Open the Question Paper Until Instructed

This Question Paper Consists of Three (3) Printed Pages

SECTION A: STRUCTURE QUESTION (30 MARKS)
ANSWER ALL QUESTIONS

QUESTION 1 (30 MARKS)

a) From your own understanding, elucidate how consumer will spend their money
according to prioritisation in consumption.

Human wants are divided into three types which are requirements which are goods to
meet basic needs, Comforts where goods that can improve people's well-being and luxury
goods that may not lead to higher efficiency. Needs are those items or services that you
absolutely have to buy with your income. Requirements include basic food, clothing,
shelter, heat, and medical care. Hence, luxury consumption is rooted in the concept of
'conspicuous consumption,' which summarizes the notion that the rich tend to consume
conspicuous goods in order to display their wealth and social status.

(9 marks)

b) Is savings necessary for a consumer; or should all wealth be spent? Discuss.

Consumer spending is the total money spent on final goods and services by
individuals and households for personal use and enjoyment in an economy. Hence,
savings is necessary for a consumer because they can use it for their business and
household purposes. They don’t need to worry about their expenses in any emergency
incase if they need it. Besides that, savings is important because consumers can be
prepared back-up plan if they lose their job. This will help them in solving their
financial problems. Lastly, consumers will be more comfortable in retirement. Once
they are retired or unemployed, they will be having their own wealth from their
savings. It will be easy for them to handle their expenses with their savings. So,
consumers are not advisable to spend all of their wealth’s.
(3 marks)

c) Is fixed wage the only type of compensation for labor that is acceptable in Islam? If
not, explain what are the other alternative methods of compensation of hired labor
allowed in Shariah?

The wages should not be a fixed wage in Islamic perspective. The alternative methods
of compensation of hired labor are firstly, they should ensure that everyone will get
what is rightful due to the labors according to their contribution to outputs. Besides,
the system should be able to establish justice. The employer has to pay the right
number of wages to employees. The minimum wage rate should cover the basics
necessities as long as the wage rate does not exceed the contribution of labor. The
reward to workers will be divided into two parts, first a fixed minimum wage and
 second a flexible wage or bonus will be paid based on the profit and by mutual
agreement about the sharing ratio.
(4 marks)

d) How an Islamic government plays their role as a policy maker and public trustee?

Government as a policy maker play their role as according to Islam, the negligence of
either of the two aspects of life will prevent humanity from achieving true welfare. At the
same time, the Islamic government must perform spiritual and material welfare functions.
In fact, there is little division in Islam between the material and the spiritual aspects of
life. In general, every human effort, whether for "material," "social," "educational" or
"scientific" purposes, is of a spiritual nature as long as it conforms to the value system of
Islam. For the material welfare function of the Islamic state was particularly stressed by
the Prophet when he started: “any ruler who is responsible for the affairs of Muslims but
does not strive sincerely for their well-being will not enter Paradise with them”. For the
spiritual, it is for reason that Islam lays stress on education and creation of condition
conducive to the practice of the normal norms on which the edifice of the whole Islamic
way of life is raised. Besides, the Islamic government roles towards the public trustee is
the Islamic Government guarantees a minimum standard of living for its entire
population, regardless of age, sex, race, colour, language, caste and religion. However,
the primary responsibility for meeting the living needs lies with the individual himself.
Satisfaction of basic needs is one of the signs of a fair distribution of income and wealth
in society. This is considered as the equitable distribution of income and wealth. Hence,
the state administration is responsible for ensuring that the income and wealth distribution
system operates smoothly and that its implementation is not unduly disrupted. It is the
government's responsibility not only to collect revenue, but also to ensure the
implementation of other measures for the distribution of wealth in the economy, for
example, to ensure that activities leading to the concentration of wealth are not carried
out. The Legal Authority: The basic principle for a fair distribution of income and wealth
has been described in the Qur'an as: 'so that wealth does not circulate only among your
rich class' 59:07 Coran. By its operation and in this spirit, the Government has both
powers and obligations to implement relevant policies and practices in order to achieve
this result. However, such policies and practices must never, by default, defeat the
objective of equality and justice for all citizens.

(6 marks)

e) Elaborate the basic principle of trades in Islam.

(8 marks)
Trade in Islamic perspective is the exchange of commodities based upon the mutual
agreement of the two free sane, adult owners who are capable of handing over what they are
trading. Trade have always been part of Islam. The Holy City of Mecca has been the center of
commercial activity since the pre-Islamic days. It was indeed the annual trading center of
Mecca that provided the forum for the preaching of Islam to Prophet Muhammad (PBUH).
Early Muslims were not only engaged in business, but went to distant lands in connection
with business. In fact, Islam has reached East and West Africa, East Asia through business
people. Islam encourages work in general, and trade and commerce in particular, Prophet
Muhammad (PBUH) was engaged in this profession before he became a prophet. He was a
very successful businessman. Known for integrity, he bore the honorary title, The
Trustworthy, The Quran says: "God has made business lawful for you." In one of the Hadiths,
Prophet Muhammad says, "Nine out of ten sources of livelihood are in business". The basic
principles of trades in Islam are firstly freedom where Islam recognizes the right of
individuals and groups to own and alienate any kind of property freely and without coercion.
It gives both individuals and groups complete freedom to make any type of transactions
approved or important decisions on their property. The Quran declares that trade is legal.
Detailed rules on trade in several Qur'anic verses provide ample evidence that Islam not only
allows, but also encourages, Muslims to engage in honest and mutually beneficial trade.
Islam encourages the owner of the capital to invest his capital and to make a profit through a
lawful undertaking. Secondly, justice where It consists of commands and recommendations
regarding conduct in business such as: fulfilment of promises, pacts and contracts: Islam
demands that all contracts and promises be honoured and all obligations fulfilled. It is clear
evidence of the fact that Islam wants justice to be maintained even in respect of one’s
concluded pacts. Work as well as the specification of the job to be done must be clearly
stipulated at the time of making an agreement. Thirdly, also justice where the safeguards are
in order to maintain justice in the conduct of business, the Quran has provided believers with
certain guidelines that serve as dependable safeguards. Most of these safeguards are writing
of contract, witness, mortgage and the principle of individual responsibility. Lastly, manners
where Islamic teachings have prescribed certain manners and recommended certain others for
proper ethical conduct in business and Muslims are required to conduct any kind of
transaction in the light of these manners such as politeness. Politeness is the first step towards
goodwill and mutual trust. Muslims are asked to be nice and charitable towards the poor. If
for some reason he is not able to help their poor brethren monetarily, they must at least treat
them with kind words and a pleasant discourse

END OF QUESTIONS PAPER