Microeconomics Class 12 Chapter 1 questions and answers: Introduction Microeconomics ncert solutions
| Textbook | NCERT |
| Class | Class 12 |
| Subject | Economics |
| Chapter | Chapter 1 |
| Chapter Name | Introduction Microeconomics class 12 ncert solutions |
| Category | Ncert Solutions |
| Medium | English |
Are you looking for Ncert Solutions for Class 12 Micro Economics Chapter 1 Introduction Microeconomics? Now you can download Microeconomics class 12 chapter 1 questions and answers pdf from here.
Question 1: Discuss the central problems of an economy.
Answer 1: The central problems of an economy arise because resources are limited, but human wants are unlimited. These problems are the core concerns that every economy—whether it’s a traditional, market, or command economy—must address. They stem from the basic issue of scarcity and the need to allocate resources efficiently. The main problems can be broken down into three interrelated questions:
- i) What to produce?
- ii) How to produce?
- iii) For whom to produce?
1. What to Produce?
Nature of the Problem: An economy has to decide which goods and services should be produced and in what quantities, given the limited resources available. This involves determining what combination of consumer goods (e.g., food, clothing) and capital goods (e.g., machines, tools) should be produced to meet the needs and preferences of the society.
- Factors to Consider:
- Consumer Preferences: What do people need and want?
- Resource Availability: What goods can be efficiently produced with the available resources?
- Government Policies: Are there policies favoring certain industries or products (e.g., subsidies, tariffs)?
- Example: A country may need to decide whether to allocate more resources to producing healthcare and education services or luxury goods like smartphones and cars.
2. How to Produce?
Nature of the Problem: This question concerns the methods of production and how resources (labor, land, capital, etc.) will be utilized to produce goods and services. The economy must decide which techniques (labor-intensive or capital-intensive) and technologies to use.
- Factors to Consider:
- Efficiency: How to maximize output while minimizing costs.
- Technology: What production methods and technologies are available or feasible.
- Resource Availability: Whether labor or capital is more abundant.
- Environmental Impact: How production affects the environment.
- Example: A country may choose between using more labor (labor-intensive) for producing textiles in developing economies, or using advanced machines (capital-intensive) in highly industrialized nations.
3. For Whom to Produce?
Nature of the Problem: This problem is about distribution. Once goods and services are produced, the economy must decide who will receive them. It deals with how to allocate the output among different individuals and groups within the society.
- Factors to Consider:
- Income Distribution: How wealth and income are distributed across the population.
- Equity: Should goods be distributed based on need or based on purchasing power?
- Social Welfare: To what extent should the government intervene to ensure that everyone has access to basic goods and services?
- Example: In a market economy, those with higher incomes can purchase more goods, whereas in a welfare state, the government may redistribute wealth to provide for the needy.
Question 2: What do you mean by the production possibilities of an economy?
Answer 2: The production possibilities of an economy refer to the capability of an economy to produce different goods with the available resources, accessible technologies and other means of production.
Question 3: What is a production possibility frontier?
Answer 3: A Production Possibility Frontier (PPF), also known as the Production Possibility Curve (PPC), is a graphical representation that shows the maximum possible combinations of two goods or services that an economy can produce, given its resources and technology, when all resources are fully and efficiently utilized.
A curve showing different possibilities of two goods that can be produced with efficient utilisation of the given resources and technology is called production possibility frontier.
In the above representation, a production possibility frontier between cotton and corn has been drawn. The points A,B,C, D and E which lie on PPC represent the situation when the resources of the economy are fully utilised. While any point lie under the curve, say F, shows inefficiency or underutilisation of available resources.
Question 4: Discuss the subject matter of economics.
Answer 4: The subject matter of Economics is often categorised into two main branches – Microeconomics and Macroeconomics. Economics is often defined as the study of the production, distribution and consumption of goods and services. Another way of looking at Economics would be in terms of scarcity and how society organises the exchanges that happen between various scarce resources.
Microeconomics is about individual consumers and businesses whose decisions and behaviour affect the economy and vice versa. For example, a topic like the costs of production would come under Microeconomics.
On the other hand, Macroeconomics is all about how the economy functions as a whole. For example, topics like national income and aggregate quantitative measures like deflation and inflation would come under Macroeconomics.
Question 5: Distinguish between a centrally planned economy and a market economy.
Answer 5:
Centrally Planned Economy: In a centrally planned economy, the government or central authority makes all the key decisions about the economy. This includes what goods and services to produce, how to produce them, and for whom to produce. The government controls most or all factors of production, including land, labor, and capital.
Market Economy: In a market economy, economic decisions are largely driven by the interaction of supply and demand in a free market. Individuals and businesses decide what to produce, how to produce, and for whom to produce based on price signals and profit motives. The government plays a limited role, mostly focusing on regulation and enforcing property rights.
| Aspect | Centrally Planned Economy | Market Economy |
|---|---|---|
| Decision Maker | Government makes all economic decisions | Decisions made by individuals and businesses |
| Resource Allocation | Based on government plans | Based on supply and demand |
| Ownership of Resources | Mostly state-owned or public ownership | Predominantly privately owned |
| Role of Prices | Prices are set by the government | Prices are determined by market forces (supply/demand) |
| Incentives | Limited profit motive, focus on social goals | Profit-driven, encouraging innovation and efficiency |
| Efficiency | Often less efficient due to lack of competition | Generally more efficient due to competition |
| Examples | Former Soviet Union, North Korea | United States, Canada, Germany |
Question 6: What do you understand by positive economic analysis?
Answer 6: Positive economics deals with what is, what was or how an economic problem facing the society is actually solved by analysing various positive statements and mechanisms.These statements can be tested, proven or disproven and do not involve personal value judgments. For example: India is an overpopulated country. India have adopted mixed economy.
Question 7: What do you understand by normative economic analysis?
Answer 7: The normative economic analysis contains value-based propositions, suggestions and hypotheses related to various economic problems. An evaluation of ‘good’ and ‘bad’ based on some ideology is often a feature of normative economic thinking. In other words, normative economics is all about ‘what should be’ rather than ‘what is’. Some examples would be concepts like Universal Basic Income or a statement like, “Taxes should be abolished.”
Question 8: Distinguish between microeconomics and macroeconomics.
Answer 8: Microeconomics and macroeconomics are two main branches of economics that focus on different aspects of the economy. Here’s how they differ:
1. Microeconomics:
- Focus: Deals with the behavior and decisions of individual units such as households, firms, and specific markets.
- Scope: Studies supply and demand, price determination, consumer behavior, production, and costs at a small scale.
- Examples: How a company maximizes profit, how consumers decide to buy goods, price determination in specific industries.
2. Macroeconomics:
- Focus: Examines the economy as a whole, focusing on aggregate factors and broad economic outcomes.
- Scope: Analyzes national income, inflation, unemployment, economic growth, and monetary/fiscal policies.
- Examples: National GDP growth, inflation rates, unemployment levels, government policies affecting the entire economy.
| Criteria | Microeconomics | Macroeconomics |
|---|---|---|
| Definition | Study of individual economic units like households and firms | Study of the economy as a whole |
| Focus | Individual markets, consumer behavior, and firm decision-making | National and global economic issues such as growth and inflation |
| Scope | Supply and demand, price determination, market structures | Aggregate economic variables like GDP, unemployment, and inflation |
| Key Players | Consumers, firms, and workers | Government, central banks, and international organizations |
| Examples | How a firm sets prices, consumer choice theory | National unemployment rates, monetary policy decisions |
| Objective | Efficiency in resource allocation and production | Economic stability, growth, and overall employment levels |