1
MICRO ECONOMICS
CHAPTER-1
INTRODUCTION
I. Choose the correct answer (each question carries 1 mark)
1. The scarce resources of an economy have
(a) Competing usages (b) Single usages
(c) Unlimited usages (d) none of the above
Ans: (a) Competing usages
2. Which of the following in an example of micro economic study?
(a) National income (b) Consumer Behaviour
(c) Unemployment (d) Foreign trade
Ans: (b) Consumer behaviour
3. Which of the following is a macroeconomic variable?
(a) Individual demand (b) Aggregate demand
(c) Firms output (d) Price of a good
Ans: (b) Aggregate demand
4. Central problems of an economy includes
(a) What to produce (b) How to produce
(c) For whom to produce (d) All of the above
Ans: (d) All of the above
5. Traditionally, the subject matter of economics has been studied under the following
broad branches.
(a) Micro and macro Economics (b) Positive and Normative
(c) Deductive and Inductive (d) None of the above
Ans: (a) Micro and Macro Economics.
II. Fill in the blanks (each questions carries 1 marks)
1. Scarcity of resources gives raise to.....................
Ans: Problem of choice
2. In a centrally planned economy all important decisions are made by ………………
Ans: Government
3. In reality all economies are …………………..
Ans: Mixed Economies.
III. Match the following (each question carries 1 mark)
1. Market economy a. Government
2. Service of a Teacher b. Private
3. Centrally planned economy c. Skill
4. Positive economics d. Evaluate the Mechanism
5. Normative economics e. Functioning of Mechanism
Ans: 1-b; 2-c; 3-a; 4-e; 5-d;
IV. Answer the following questions in a sentence/word. (each question carries 1 mark)
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1. Why does the problem of choice arise?
Ans: An economic problem arises because of limited resources and unlimited wants and
alternative uses of resources. To allocate limited resources to satisfy unlimited wants the
problem of choice arises.
2. What is market economy?
Ans: A market economy also known as capitalistic economy is that economy in which the
economic decisions are undertaken on the basis of market mechanism by the private
entrepreneurs. It functions on demand and supply conditions. Example, USA
3. What do you mean by centrally planned economy?
Ans: A planned economy also called as socialistic economy is that economy where the
economic activities are controlled by the central Government. Here, the Government takes
decisions about the allocation of resources in accordance with objectives to attain economic
and social welfare. Example, Vietnam,Russia, China, North Korea etc.
4. Give the meaning of micro economics.
Micro economics is the study of the economic actions of individuals and small groups of
individuals.
5. What do you mean by positive economics?
The positive economics is the study of ‘what was’ and ‘what is’ under the given set of
circumstances. It deals with the scientific explanation of the working of the economy.
6. What is normative economics?
Ans: The Normative economics studies ‘what ought to be’. It explains about ‘what should
be and should not be done’.
V. Answer the following in 4 sentences. (each question carries 2 marks)
1. Mention the central problems of an economy.
Ans: The central problems of an economy are as follows:
a) What goods are to be produced and in what quantities?
b) How the goods are to be produced?
c) For whom the goods are to be produced?
2. Distinguish between Micro and Macro economics.
The micro and macro economics are distinguished on the following grounds:
Scope: Micro Economics study in individual units so its scope is narrow.
Macro Economics study in aggregates, so its scope is wider.
Method of study: The Micro Economics follows slicing method as it studies
individual unit.
The Macro Economics follows lumping method as it studies
in aggregates.
4. Distinguish between positive and normative economics.
Positive Economics Normative Economics
The positive economics is the study of The Normative economics studies ‘what
‘what was’ and ‘what is’ under the ought to be’.
given set of circumstances. It explains about ‘what should be
It deals with the scientific explanation of and should not be done’.
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the working of the economy. Here we try to understand that
Here we study how the whether the mechanisms are desirable
different mechanisms function. or not.
5. What do you mean by production possibility set?
Ans: 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.
6. What is opportunity cost?
Ans: An opportunity cost is the cost of having a little more of one good in terms of the
amount of the other good that has to be forgone. This is known as the opportunity cost of an
additional unit of the goods.
7. What is production possibility frontier?
Ans: The production possibility frontier is a graphical representation of the combinations of
two commodities (cotton and wheat) that can be produced when the resources of the
economy are fully utilized. It is also called as Production possibility curve (PPC) also
known as transformation curve.
VI. Answer the following question in 12 sentences. (each question carries 4 mark)
1. Briefly explain the production possibility frontier.
Ans: The production possibility frontier is a graphical representation of the combinations of
two commodities (cotton and wheat) that can be produced when the resources of the
economy are fully utilized. It is also called as Production possibility curve (PPC) also
known as transformation curve.
It gives the combinations of cotton and wheat that can be produced when the
resources of the economy are fully utilized.
This can be graphically represented as follows:
A
cotton B
C
D
E
O Wheat
As per the above graph, the points lying strictly below the production possibility
curve represents a combination of cotton and wheat that will be produced when all or some
of the resources are either underemployed or are utilized in a wasteful fashion.
, 4
2. Briefly explain the central problems of an economy.
Ans: An economic system or economy is a mechanism where the scarce resources are
channelized on priority to produce goods and services. These goods and services produced
by all the sectors of the economy determine the national income.
Generally, human wants are unlimited and resources to satisfy them are limited. If
there was a perfect match between human wants and availability of resources there would
have been no scarcity, no problem of choice and no economic problems at all. So, one has
to select the most essential want to be satisfied with limited resources. In economics, this
problem is called ‘Problem of Choice’.
The problem of choice arising out of limited resources and unlimited wants is
called economic problem. Every economy whether developed or underdeveloped,
Capitalistic or socialistic or mixed economy, there will be three basic economic problems
viz., What to produce, How to produce and For whom to produce. Let us discuss in detail.
a) What to Produce i.e., what is to be produced and in what quantities:: Every country
has to decide which goods are to be produced and in what quantities. Whether more
guns should be produced or more foodgrains should be grown or whether more capital
goods like machines, tools, etc., should be produced or more consumer goods (electrical
goods, daily usable products etc.) will be produced. What goods to be produced and in
what quantity depends on the economic system of the country. In socialistic economy,
the Government decides and in Capitalistic economy market forces decided and in
mixed economy both the Government and market forces provide solutions to this
problem.
b) How to Produce i.e., how are goods produced?: There are various alternative
techniques of producing a product. For example, cotton cloth can be produced with
either handloom or power looms. Production of cloth with handloom requires more
labour and production with power loom use of more machines and capital. It
involves selection of technology to produce goods and services.
There are two types of techniques of production viz., (a) Labour intensive
technology and (b) capital intensive technology.
The society has to decide whether production be based on labour intensive or capital
intensive techniques. Obviously, the choice of technology would depend on the availability of
different factors of production (land, labour, capital) and their relative prices (rent, wages, interest).
c) For whom to produce i.e., for whom are the goods to be produced: Another
important decision which an economy has to take is for whom to produce. The
economy cannot satisfy all wants of all the people. Therefore, it has to decide who
should get how much of the total output of goods and services. The society has to
decide about the shares of different groups of people- poor, middle class and the rich, in
the national output.
Thus, every economy faces the problem of allocating the scarce resources to the
production of different possible goods and services and of distributing the produced goods
and services among the individuals within the economy. The allocation of scarce resources
and the distribution of the final goods and services are the central problems of any economy.
MICRO ECONOMICS
CHAPTER-1
INTRODUCTION
I. Choose the correct answer (each question carries 1 mark)
1. The scarce resources of an economy have
(a) Competing usages (b) Single usages
(c) Unlimited usages (d) none of the above
Ans: (a) Competing usages
2. Which of the following in an example of micro economic study?
(a) National income (b) Consumer Behaviour
(c) Unemployment (d) Foreign trade
Ans: (b) Consumer behaviour
3. Which of the following is a macroeconomic variable?
(a) Individual demand (b) Aggregate demand
(c) Firms output (d) Price of a good
Ans: (b) Aggregate demand
4. Central problems of an economy includes
(a) What to produce (b) How to produce
(c) For whom to produce (d) All of the above
Ans: (d) All of the above
5. Traditionally, the subject matter of economics has been studied under the following
broad branches.
(a) Micro and macro Economics (b) Positive and Normative
(c) Deductive and Inductive (d) None of the above
Ans: (a) Micro and Macro Economics.
II. Fill in the blanks (each questions carries 1 marks)
1. Scarcity of resources gives raise to.....................
Ans: Problem of choice
2. In a centrally planned economy all important decisions are made by ………………
Ans: Government
3. In reality all economies are …………………..
Ans: Mixed Economies.
III. Match the following (each question carries 1 mark)
1. Market economy a. Government
2. Service of a Teacher b. Private
3. Centrally planned economy c. Skill
4. Positive economics d. Evaluate the Mechanism
5. Normative economics e. Functioning of Mechanism
Ans: 1-b; 2-c; 3-a; 4-e; 5-d;
IV. Answer the following questions in a sentence/word. (each question carries 1 mark)
, 2
1. Why does the problem of choice arise?
Ans: An economic problem arises because of limited resources and unlimited wants and
alternative uses of resources. To allocate limited resources to satisfy unlimited wants the
problem of choice arises.
2. What is market economy?
Ans: A market economy also known as capitalistic economy is that economy in which the
economic decisions are undertaken on the basis of market mechanism by the private
entrepreneurs. It functions on demand and supply conditions. Example, USA
3. What do you mean by centrally planned economy?
Ans: A planned economy also called as socialistic economy is that economy where the
economic activities are controlled by the central Government. Here, the Government takes
decisions about the allocation of resources in accordance with objectives to attain economic
and social welfare. Example, Vietnam,Russia, China, North Korea etc.
4. Give the meaning of micro economics.
Micro economics is the study of the economic actions of individuals and small groups of
individuals.
5. What do you mean by positive economics?
The positive economics is the study of ‘what was’ and ‘what is’ under the given set of
circumstances. It deals with the scientific explanation of the working of the economy.
6. What is normative economics?
Ans: The Normative economics studies ‘what ought to be’. It explains about ‘what should
be and should not be done’.
V. Answer the following in 4 sentences. (each question carries 2 marks)
1. Mention the central problems of an economy.
Ans: The central problems of an economy are as follows:
a) What goods are to be produced and in what quantities?
b) How the goods are to be produced?
c) For whom the goods are to be produced?
2. Distinguish between Micro and Macro economics.
The micro and macro economics are distinguished on the following grounds:
Scope: Micro Economics study in individual units so its scope is narrow.
Macro Economics study in aggregates, so its scope is wider.
Method of study: The Micro Economics follows slicing method as it studies
individual unit.
The Macro Economics follows lumping method as it studies
in aggregates.
4. Distinguish between positive and normative economics.
Positive Economics Normative Economics
The positive economics is the study of The Normative economics studies ‘what
‘what was’ and ‘what is’ under the ought to be’.
given set of circumstances. It explains about ‘what should be
It deals with the scientific explanation of and should not be done’.
, 3
the working of the economy. Here we try to understand that
Here we study how the whether the mechanisms are desirable
different mechanisms function. or not.
5. What do you mean by production possibility set?
Ans: 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.
6. What is opportunity cost?
Ans: An opportunity cost is the cost of having a little more of one good in terms of the
amount of the other good that has to be forgone. This is known as the opportunity cost of an
additional unit of the goods.
7. What is production possibility frontier?
Ans: The production possibility frontier is a graphical representation of the combinations of
two commodities (cotton and wheat) that can be produced when the resources of the
economy are fully utilized. It is also called as Production possibility curve (PPC) also
known as transformation curve.
VI. Answer the following question in 12 sentences. (each question carries 4 mark)
1. Briefly explain the production possibility frontier.
Ans: The production possibility frontier is a graphical representation of the combinations of
two commodities (cotton and wheat) that can be produced when the resources of the
economy are fully utilized. It is also called as Production possibility curve (PPC) also
known as transformation curve.
It gives the combinations of cotton and wheat that can be produced when the
resources of the economy are fully utilized.
This can be graphically represented as follows:
A
cotton B
C
D
E
O Wheat
As per the above graph, the points lying strictly below the production possibility
curve represents a combination of cotton and wheat that will be produced when all or some
of the resources are either underemployed or are utilized in a wasteful fashion.
, 4
2. Briefly explain the central problems of an economy.
Ans: An economic system or economy is a mechanism where the scarce resources are
channelized on priority to produce goods and services. These goods and services produced
by all the sectors of the economy determine the national income.
Generally, human wants are unlimited and resources to satisfy them are limited. If
there was a perfect match between human wants and availability of resources there would
have been no scarcity, no problem of choice and no economic problems at all. So, one has
to select the most essential want to be satisfied with limited resources. In economics, this
problem is called ‘Problem of Choice’.
The problem of choice arising out of limited resources and unlimited wants is
called economic problem. Every economy whether developed or underdeveloped,
Capitalistic or socialistic or mixed economy, there will be three basic economic problems
viz., What to produce, How to produce and For whom to produce. Let us discuss in detail.
a) What to Produce i.e., what is to be produced and in what quantities:: Every country
has to decide which goods are to be produced and in what quantities. Whether more
guns should be produced or more foodgrains should be grown or whether more capital
goods like machines, tools, etc., should be produced or more consumer goods (electrical
goods, daily usable products etc.) will be produced. What goods to be produced and in
what quantity depends on the economic system of the country. In socialistic economy,
the Government decides and in Capitalistic economy market forces decided and in
mixed economy both the Government and market forces provide solutions to this
problem.
b) How to Produce i.e., how are goods produced?: There are various alternative
techniques of producing a product. For example, cotton cloth can be produced with
either handloom or power looms. Production of cloth with handloom requires more
labour and production with power loom use of more machines and capital. It
involves selection of technology to produce goods and services.
There are two types of techniques of production viz., (a) Labour intensive
technology and (b) capital intensive technology.
The society has to decide whether production be based on labour intensive or capital
intensive techniques. Obviously, the choice of technology would depend on the availability of
different factors of production (land, labour, capital) and their relative prices (rent, wages, interest).
c) For whom to produce i.e., for whom are the goods to be produced: Another
important decision which an economy has to take is for whom to produce. The
economy cannot satisfy all wants of all the people. Therefore, it has to decide who
should get how much of the total output of goods and services. The society has to
decide about the shares of different groups of people- poor, middle class and the rich, in
the national output.
Thus, every economy faces the problem of allocating the scarce resources to the
production of different possible goods and services and of distributing the produced goods
and services among the individuals within the economy. The allocation of scarce resources
and the distribution of the final goods and services are the central problems of any economy.
