In class 11, we studies only Microeconomics
Economy : Economy is an economics organization which provides us sources to earn livelihood.
Important Questions about Economy :-
Que. What is the economics problem and why does it arise?
Ans. Economic problem is mainly the problem of choice among scarce resources, which means, in every economy human beings have unlimited wants but the resources to satisfy them are limited and these resources have alternative uses therefore the problem of choice arises and this problem is known as economic problem.
Economic problem arises because of the following three factors :
- Human wants are unlimited : some human wants are recurring in nature whereas some wants arises due to social and economics factors like increase in income, changes in taste and Preferences etc.
- Scarce resources : The resources available in the economy are limited in supply as compared to their demand.
- Alternative uses of resources : The resources available in the economy can be put to alternate uses. For example steel can be used for manufacturing machineries, automobiles etc.
Que. Discuss the central problem of an economy.
Ans. Every economics system whether it is capitalist, socialist or mixed all have some basic economic problems. These are called the central problem of an economy. Economic problem defined as the problem of decision making or problem of choice in order to allocate the available resources efficiently in producing activities to satisfy human wants.
The central problems of an economy are categorized as followed :
Problem of allocation of resources : It is the basic problem related to utilization of resources for the production of different goods and services.
Following are the problems relating to allocation of resources :
(i) What to produce , and what in quantity : It is defined as the problem of choice between different commodities that can be produced from a given scarce resource. This problem arise because of alternative uses of scarce resources. The choice made is on the basis of various social and economics factors. So every economy has this problem that what to produce and in what quantities. It has two dimensions :
a. Kinds of goods to be produced
b. Quantity of goods to be produced.
For example, An economy has to make a choice between consumer goods and capital goods. A developed economy can give more preference to consumer goods as it has to maintain the level of infrastructure already developed. On the other hand, a developing economy will give more preference to capital goods in order to increase the level of production and growth rate in the economy.
(ii) How to produce? : It is defined as the problem of choice between different techniques of production that can be used in the production of different commodities so that the given resources are utilized to their maximum efficiency. It arises due to availability of alternative technique of production.
In this there are two types of techniques of production that are to be used for production :
a. Labour Intensive Technique : The technique which uses more of labour and less of capital is known as labour intensive technique.
b. Capital Intensive Technique : The technique which uses more of capital and less of labour is known as capital Intensive technique.
For example, In economics, 100 meter cloth is produced by spending 1000rs. on labour and 500rs. on capital, then it is labour intensive technique. On the other hand, if 100 meter cloth is produced by spending 200rs. on labour and 800rs. on capital, then it is capital Intensive technique. From both the techniques the capitalist economy will select capital Intensive technique as the cost of production is 1000rs. On the contrary, an economy where labour is abundant as compared to capital will prefer to use labour intensive techniques as it wants to give more employment to people.
(iii) For whom to produce : This problem is related to distribution of income or output in the economy. Thus, this problem has two aspects :
a. Personal distribution : It means how national income of an economy is distributed among different groups of people like rich or poor.
b. Factorial distribution : It refers to the returns of factors of production in the total national income of an economy. Like rent, wages, interest and profits.
Que. Explain the concept of the Economizing of resources?
Ans. In economics, Economizing means making the optimum use of available resources. As human wants are unlimited and resources are limited so an economy need to economise the available resources. In order to make the optimum use of what is available, the society and individuals must make choices. Every individual and society have to make a choice as to which wants he should satisfy by making use of scarce means which have alternative uses.
Que. What is Economics?
Ans. Economics is a study of how individuals and society make choices in the presence of scarcity of resources and how levels of national income and employment are determined and what determine their growth.
Que. What is the wealth definition of Economics?
Ans. According to the father of Economics Adam Smith, “Economics is an enquiry into the nature and causes of wealth of nation”. So according to this definition, the study of economics enables us to know what is wealth, how the volume of wealth can be increased and on what factors depend the saving and investment for economic development.
Que. Define scarcity.
Ans. Scarcity is a stock of resources being available in insufficient amounts relative to the amount desired at a particular point of time. In other words when demand of resources is greater than supply of resources then it is known as scarcity.
Demand of Resources > Supply of Resources
Que. Explain the concept of Production Possibility Curve with help of diagram.
Ans. Production Possibility curve may be defined as a curve which represents various possible combinations of two commodities that can be produced with fuller utilisation of given resources and technology in an economy. It is also known as Production Possibility Frontier because it represents the maximum quantity of two commodities that can be produced with the help of a given resource so that no economy can operate outside the Production Possibility curve.
Production Possibility curve is based on following assumed :-
a. The amount of productive resources available in the economy are fixed and transferable.
b. Only two commodities can be produced from the given amount of resources.
c. There is no change in technology, used in the production process.
d. All the resources are fully and efficiently employed.
e. The given resources are not equally efficient in all productive activities.
Que. Explain the properties of Production Possibility curve.
Ans. Properties of PPC :-
It slopes downwards : Production Possibility Curve slopes downwards from left to right. PPC is based on fuller and efficient utilization of resources and hence represents the maximum production level that can be achieved. Hence, the production of one commodity can be increased only by transforming the resources from another commodity i.e., by reducing the production of another commodity. The production of both the goods can’t be increased simultaneously because resources are already being fully utilized. So to increase the production of one commodity, economy has to sacrifice the production of other commodity.
- It is concave to the origin : Production Possibility Curve is concave to the origin which is based on the concept of increasing marginal rate of transformation. When the resources are withdrawn from one commodity, in order to increase the production of another commodity, the marginal rate of transformation increases i.e., MRT increases.
Reasons for increasing MRT/MOC :
(i) Resources are not equally efficient in production of all commodities.
(ii) Law of Diminishing Returns apply.
Que. Explain the shift in production possibility curve.
Ans. Production Possibility can shift in the following ways :
(i) Upward shift of PPC : PPC shifts to the right or upward from its existing position if resources i.e., skilled labour, capital goods, better technology increases. Shift in PPC shows that the production of both the goods has increased. It is the indicator of growth of resources.
(ii) Downward shift of PPC : PPC never shifts towards left, but it is only possible when there is decreases in resources due to large scale natural calamities i.e., earthquake, flood, or war etc. But it is a rare possibility. Sometimes if any of the resources decreases or destroyed then only a point inside lies, not PPC entirely shifts.
Que. What is Marginal Rate of Transformation? How it affects PPC?
Ans. Marginal Rate of Transformation (MRT) is the ratio of number of units of a good sacrificed to increase one more unit of the other good. MRT can also be called Marginal opportunity cost. It is defined as the additional cost in terms of number of units of a good sacrificed to increase an address unit of the other good.
MRT affects the PPC in the following way :
(i) If MRT increases then PPC will be concave to the point of origin.
(ii) If MRT is constant then PPC will be a downward sloping straight line.
(iii) If MRT decreases then PPC will be convex to the point of origin.
Que. What is opportunity cost? Explain it with the help of an example.
Ans. The opportunity cost of any commodity is defined as the cost of next best alternative, which has been sacrificed for producing the given commodity. For example, on a piece of land a farmer can produce 50 kg. of wheat by using a given quantity of inputs. He can also produce 40 kg. of rice with the same amount of resources. Here the opportunity cost of producing 50 kg. of wheat is 40 kg of rice.
Que. Define Micro Economics.
Ans. The term micro in English language has been derived from Greek word ‘Mikros’ which means ‘small’. Micro economics is that part of economic theory which deals with the individual parts of a system. It is also called “price theory”.
Que. Define Macro Economics.
Ans. The term macro in English language has been derived from Greek word ‘Makros’ which means ‘large’. Macroeconomics is the branch of economics that studies the overall performance and behavior of an economy as a whole, focusing on aggregative indicators like GDP (Gross Domestic Product), inflation, economic growth, and unemployment.
Important MCQs of Consumer Equilibrium - Class 11th
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