Market in Islamic point of View

1. Islamic Perspective on Pricing Theory of The
Firm
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TSR for Better Civilization

2. 2
What is
Market?
Contents
Cost Theory
Pricing Theory Inplementation
In Reality
Perfect
Competettion

3. What is Market ?
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The market is a mechanism of exchange of goods and
services that are natural and have been ongoing since
the beginning of human civilization.
The market is an important part in the life of a Muslim,
and can be used as a catalyst for Muslim
transcendental relationship with God, in other words
the market is trading in a Muslim worship in economic
life. This was never done by the Prophet when
migrated to Medina, where he often went to the market
to meet their needs.
Definition

4. What is Market ?
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.
Trading in the market based on sharia does not limit the
profit that must be produced, but sharia prohibits fraud
(tadlis), fraud, to lie on the goodness of goods as well
as hide the disgrace (gharar) contained in an item
Qur’an and
Ijma
Al Furqaan 20
Al Furqaan 7
Abdurrahman al-Jaziri : 1970

5. What is Market ?
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.
A ban on consuming usury
Honesty in the transaction (muamalah)
A ban on buying and selling activities that aim to trick
/ cheat the buyer or the seller (Bai'Najasy)
A of asymmetric information
A ban on selling goods incomplete ownership
Prohibition of wealth hoarding (Ikhtikar)
The concept of ease and willingness in the market
Islamic
Ethics in
Market
Fair in measures and weights

6. Market in Perfect Competition?
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An indefinitely large number of sellers or firms exist.
Thereby, no single firm can influence by itself the prices of
its product or of the factors of production in market
exchange.
Easy entry and exit from the market prevail. Thus no
inefficient firms can continue on in business nor can
single firms capture most of resource and profits.
Undifferentiated output prevails. That is, the products of
all firms are homogeneous and their output levels are
determined solely in terms of prices in the market for the
same type of goods.
Perfect information prevails. That is, the input and
product markets being complementary to each other,
entrepreneurs are assume to have full knowledge of the
factors market as also of the product market
Required to
be Perfect
Competition

7. Cost Theory
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Link of Perfect
Competition
and cost theory

8. Cost Theory
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Cost of
Production
Output Cost
Revenue Structure It is obvious that total cost of production (TC = C) is a
positive function of output. Revenue (R) too is a positive
function of output, as firms would aspire to make higher
profits by selling and earning at higher levels of output.
This is despite the fact that in the short-run there can
exist negative profits due to a gestation period of
investment and recovery. Hence, with (R - C) > 0,
positive profits are earned. These are called economic
profits because of the concept of alternatives that are
chosen and other ones that are substituted for. (R - C) <
0 yields net investment costs in the short run.

9. Cost Theory
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Cost of
Production
MARGINAL COST
AND MARGINAL
REVENUE
RELATIONS:
PRICING, OUTPUT
AND PROFIT -
MAXIMIZA TION
CONDITIONS

10. Cost Theory
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Cost of
Production
MARGINAL COST
AND MARGINAL
REVENUE
RELATIONS:
PRICING, OUTPUT
AND PROFIT -
MAXIMIZA TION
CONDITIONS
Marginal revenue can likewise be derived in the same
way as marginal cost. The additional unit of revenue
per unit of increase in output is known as marginal
revenue, MR. That is, MR = dRldq, with total revenue
being R = R(q). Likewise, additional cost per unit of
increase in output is known as marginal cost of
production, MC. That is, MC = dC/dq, with total cost
being C = C( q). The decision for the firm to produce or
not depends upon whether, MR> MC or not,
respectively. Finally, with all the above results in the
situation where the firm is a pricetaker in perfect
competition, we obtain the compressed result for
pricing of output of a firm in perfectly competitive
market: p = MC = Min. AC = AR = MR.

11. Pricing Theory
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PRICE
THEORY,
AND THE
MARKET
MECHANISM
And they say: "Why does this Messenger eat food, and walk
about in the markets. Why is not an angel sent down to him to
be a warner with him'‘ (Al-Furqaan; 7)
AL QURAN VERSES WHICH THE THEORY OF PRICE
& MECHANISMS MARKET ECONOMY IN ISLAM

12. Pricing Theory
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PRICE
THEORY,
AND THE
MARKET
MECHANISM
Economic practices at the time of the Prophet and
Khulafaurrasyidin indicate the role of a big market. Prophet
greatly appreciate the price established by the market as a fair
price. He rejected any intervention price if price changes occur
due to fair market mechanism. However, here the market
requires morality (fair play), honesty (honesty), openness
(Transparency) and justice (justice). If these values are upheld,
then there is no reason to reject the market price.
Role of The
Market

13. Pricing Theory
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PRICE
THEORY,
AND THE
MARKET
MECHANISM
1. Rida, ie, all transactions should be done on the basis of
willingness among each of the parties (freedom of contract).
This is in accordance with the Qur'an Sura al-Nisa 'verse 29:
Mechanism Market Principles In Islam

14. Pricing Theory
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PRICE
THEORY,
AND THE
MARKET
MECHANISM
2. Based on fair competition market mechanism will be
hampered work in case of hoarding (ihtikar) or monopoly.
Monopoli each item that detention would harm consumers or
crowds.
3. Honesty, honesty is a very important pillar in Islam, because
honesty is the other name of truth itself. Islam forbids firmly
commit falsehood and deception in any form. Therefore, the
value of this truth will have a direct impact to the parties to a
transaction in commerce and society at large.
4. Disclosure (Transparency) and justice. Implementation of
these principles is required for transactions carried out
correctly in the disclosure will prevail and the real situation
Mechanism Market Principles In Islam

15. Pricing Theory
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PRICE
THEORY,
AND THE
MARKET
MECHANISM
Islamic economic theory regarding the price. Prophet
Muhammad in the hadith does not determine the price. This
shows that the conditions it is left to the market mechanism
impersonal nature. Prophet rejected the offer and said that the
market price should not be set, because it is Allah who decide
It's amazing, the theory of the Prophet about prices and
markets. Admiration is due, the Prophet's speech implies that
the market price in accordance with the will of God that the
laws or the laws of supply and demand.
According to contemporary Islamic economic experts, this is
the theory adopted by Western economists, such as Adam
Smith with the name of the theory of invisible hands.
According to this theory, the market will be governed by the
hands of invisible (invisible hands). Is not the theory of
invisible hands it is more correct to say God Hands (hands of
God).
The Principles of Islam in Pricing Theory

16. Pricing Theory
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Islamic
pricing
theory
Banning transactions Bai Najasy. Najasy transactions
forbidden in the trade because the salesman told other
people praise the goods or bid at a higher price, so that other
people are also interested to buy it. The level of demand that
occurs is not produced naturally
Prohibition Ikhtikar (Monopoly)
Prohibition of fraud (tadlis). Tadlis containing transaction is a
thing that is not known by any of the parties unknown to one
party. Tadlis (fraud), can occur in 4 (four) things, namely in:
1. quantity; 2. Quality; 3. Price; and 4. Delivery Time
.
Hadith :
From Ma'mar bin Abdullah bin Fadhlah, he said, I heard the Prophet said, "Do not do
ihtikar unless the guilty (innocent)". (H.R.Tarmizi)
Banning transactions Talaqqi Rubban. Talaqqi Rukban, trader
activity is a way to meet village traders who carry merchandise
on the street (to the market).

17. Implementation
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Now is the time
to implement the
Islamic
Principles as the
part of your life
for better
civilization

18. Greetings: Syukron
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