Introduction to Micro Economics ||Micro Economics Notes
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(A) Answer the following questions in a sentence or word (each question carries 1 mark)
1. Why does the problem of choice arise?
Every society faces the problem of scarcity. Our resources are limited and wants are unlimited, this leads to the problem of choice.
2. What is market economy?
An economy where the economic decisions are taken through the market mechanism I. e., demand and supply is called as market economy.
3. What do you mean by a centrally planned economy?
Centrally planned economy is an economy in which the course of economic activities is decided by central authority or by the government. Example: China.
4. Give the meaning of micro economics?
Micro economics is that part of economics which studies the economic problem of individual units.
5. What do you mean by positive economics?
The study of 'what is' and 'what was' under the given circumstances is called positive economics.
6. What is normative economics?
The study of 'what should be' or 'what ought to be' is called normative economics.
(B) Answer the following questions in 4 sentences (each question carries 2 marks)
1. Mention the central problems of an economy.
The central problems of an economy are as follows:
*What to produce and in what quantities
*How to produce
*For whom to produce.
2. Distinguish between micro and macro economics.
Basis of difference | Micro economics | Macro economics |
Meaning | It is that part of economics which studies the economic problem of as individual units | It is that part of economics which studies the economic problems at aggregate level. |
Objective | It aims to determine the price of commodity or factors of production | and employment level of the Economy. |
Tools | Demand and supply. | Aggregate demand and aggregate supply |
3. Distinguish between positive and normative economics.
Positive economics | Normative economics |
It deals with the scientific explanation of the working of the economy | It is concerned with how the basic economic functions should be performed. |
It states 'what is' | It states 'what ought to be' |
Ex-It deals with the analysis of questions like -what are the causes of unemployment. | Ex-It deals with the analysis of questions like- What should be the price of the food grains |
4. What do you mean by the production possibility set?
The collection of all possible combinations of the goods and services that can be produced From a given amount of resources and a given stock of technological knowledge is called the Production possibility set of the economy.
5. What is opportunity cost?
There is always a cost of having a little more of one good in terms of the amount of other good That has to be forgone. This is known as opportunity cost.
6. What is production possibility frontier?
The production possibility frontier is a graphical representation of all the possible combinations of two products that can be produced with given resources and technology.
(C) Answer the following in 12 sentences ea ch (each question carries 4 marks)
1. Briefly explain the production possibility frontier.
The production possibility frontier is a graphical representation of all the possible combinations of two products that can be produced with given resources and technology.
The above figure illustrates the production possibilities of the economy.
*Any point on or below the curve represents a combination of corn and cotton that can
be produced with the economy's resources.
*The curve gives the maximum amount of corn that can be produced in the economy for
any amount of cotton and vice-versa.
*Any point above the production possibility curve is unattainable.
2. Briefly explain the central problems of an economy.
The allocation of scarce resources and the distribution of the final goods and services are the central problems of an economy. The central problems are as follows
*What to produce and in what quantities
An economy has to decide what goods and services to be produced and in what quantities as resource is available in limited quantity and also it has alternative uses. Whether to produce
more of food, clothing, and housing or to have more of luxury good_Whether to use more resources in education and health or to use more resources in building military services.
*How to produce
It is very important for an economy how to produce-It relates to which of the resources to use in the production of each of the different goods and services.Whether to use more labor or more capital.
*For whom to produce
It generally means the distribution of the final goods. Who gets what and how much, whether or not the elementary education and basic health services should be available freely for everyone in the economy.
3. Write a short note on centrally planned economy.
In a centrally planned economy, the government or the central authority plans takes the important activities in the economy. All important decisions regarding production, exchange and consumption of goods and services are made by the government. The central authority may try to achieve a particular allocation of resources and a consequent distribution of the final combination of goods and services which is thought to be desirable for society as a whole. For example, if it is found that a good or service which is very important for the prosperity and well-being of the economy is not produced in adequate amount by the individuals on their own. the government might try to induce the individuals to produce those goods or the government itself will produce such goods. Social welfare is the main motive. Ex : China.
4. Write a short note on market economy.
In a market economy all economic activities are organized through the market. The government does not play any role in the production, exchange and consumption of goods and services. All the resources are privately owned and the decision of what to produce and for whom to produce is decided through price mechanism. If the buyers demand more of a certain goad, the price of that good wilt rise. This signals the producers to produce more of that good than is currently being produced. In this economy, profit is the sole motive. Ex : USA, Japan. In a market system, all goods or services come with a price ( which is mutually agreed upon by the buyers and sellers) at which the exchange take place. Thus, in a market system, the central problems regarding how much and what to produce are solved through the coordination of economic activities brought about by the price signals.
Micro Economics
Micro Economics
- Introduction to Micro Economics
- Theory of consumer behaviour
- Production and costs
- Theory of firm under perfect competition
- Market equilibrium
- Non-Competitive Market
