## MP Board Class 12th Economics Important Questions Unit 1 Introduction

### Micro Economics Introduction Important Questions

Micro Economics Introduction Objective Type Questions

Question 1.

Question 1.
Indian economy is:
(a) Centrally planned economy
(b) Market economy
(c) Mixed economy
(d) None of these.
(c) Mixed economy

Question 2.
Who used the word ‘micro’ for the first time:
(a) Marshall
(b)Boulding
(c) Keynes
(d) Ragnar Frisch
(d) Ragnar Frisch

Question 3.
Who said economics is the ‘Science of wealth:
(a) Prof. Robbins
(b) Prof. J.K. Mehta
(c) Prof. Marshall

Question 4.
What is the shape of production possibility curve:
(a) Concave to the origin
(b) Concave
(c) Straight line
(d) None of the above.
(a) Concave to the origin

Question 5.
The reason for downward shape of production possibility curve is:
(a) Increasing opportunity cost
(b) Decreasing opportunity cost
(c) Same opportunity cost
(d) Negative opportunity cost
(b) Decreasing opportunity cost

Question 6.
The point of optimum utilization of resources lies on which side of PPC curve:
(a) Towards left
(b) Towards right
(c) Inside
(d) Upwards
(d) Upwards

Question 2.
Fill in the blanks:

1. Every person has ………………… quantity of goods.
2. ……………………economics is the study of individual economic units.
3. Opportunity cost ………………….. in production list.
4. Micro and Macro-economics are ……………………… to each other.
5. Economic growth is related to ………………………… economics.
6. Economy is a group of ………………….. units.
7. Mixed economy is composed of ………………………. and …………………………
8. The goods and services which help in the production of other goods and services are ………………………. goods.

1. Few
2. Micro-economics
3. Changes
4. Complement
5. Macro
6. Production
7. Socialism, Capitalism
8. Intermediate

Question 3
State true or false:

1. Production possibility curve is convex towards main point.
2. Central problem in the capitalist economy is solved by price mechanism.
3. An economy can be capitalist, socialist or opportunist.
4. Today all economics of the world are almost mixed economics.
5. Macro-economics is the study of the problems of unemployment, price inflation etc.
6. In socialism, the feeling of personal profit is prominent.

1. False
2. True
3. False
4. True
5. True
6. False

Question 4.
Match the following:

1. (c)
2. (d)
3. (a)
4. (e)
5. (b)

Question 5.
Answer the following in one word/ sentence:

1. Which economy is adopted in India ?
2. What is the production possibility curve towards its origin ?
3. The governmentalization of exploitation is the fault of which economy ?
4. The struggle class is the specialty of which economy ?
5. Which economy has limited the scope of private sector ?
6. What is the heart of all the institutions of capitalism ?
7. What are central problems of an economy known as ?
8. Based on priorities, who determines the production area and quantity of production ?

1. Mixed economy
2. Concave
3. Socialist
4. Capitalism
5. Socialism
6. Profit
7. Basic work
8. Central Planning Authority

Micro Economics Introduction Very Short Answer Type Questions

Question 1.
What do you mean by macro-economics ?
Macro-economics aims at dealing with the aggregates and averages. It is not interested in the individual items but as total savings, total consumption, total employment, aggregate demand, etc.

Question 2.
What do you mean by micro-economics ?
Micro-economics studies the economic actions of individuals i.e., particular firm, individual households, wages, interest, profit etc. In other words it is infact a microscopic study of the economy.

Question 3.
What is the central point of macro-economics ?
The central point of marco-economics is the analysis of national income.

Question 4.
What do you mean by goods ?
All physical, tangible objects which satisfy human wants and need i.e., objects which possess utility, are called goods.
For example : Tables, cars, etc.

Question 5.
What do you mean by economic activity ?
Economic activities are those activities which increases the material, welfare of man and which are used for increasing wealth and welfare.

Question 6.
How are services ?
Services are non – material, intangible goods which can not be seen, touched or stored and have power to satisfy human wants and needs. For example, services provided by doctor.

Question 7.
Write the meaning of ‘a person’.
By person, we mean the decision taking units.

Question 8.
How many branches are there of Economics ?
Economics has two branches:

1. Micro-economics
2. Macro-economics

Question 9.
What to you mean by resources ?
Those goods and services which are used to produce other goods are known as resources. They are traditionally known as factors of production.

Question 10.
What do you mean by economy ?
It refers to the sum total of economic activities in an area, which may be a village, a city, a district, or a country as a whole. They provide source of livelihood.

Micro Economics Introduction Short Answer Type Questions

Question 1.
What do you mean by macro-economics ? Write its two characteristics.
Macro-economics:
Macroeconomics is the study of aggregate factors such as employment, inflation and gross domestic product and evaluating how they influence the economy as a whole.

The characteristics of macro-economics are as follows:
The concept of macro-economics is broader. In it small units are not given importance but with the help of it National and International economic problems.

In macro-economics broad analysis is given importance. For example, under the subject matter of macro-economics we study the monetary and fiscal policies of the government. It studies the general problems of national level like the effects on – monetary policy, fiscal policy, general price level, general employment etc. If the effect of public finance and public expenditure is good on society then we can conclude that the . effect of it is also good on each person of the society.

Question 2.
Explain the main types of Macro-economics.
Following are the types of Macro-economics:

1. Macro static:
Macro static method explains the certain aggregative  relations in 1 stationary state. It does not reveal the process by which the national economy reaches the equilibrium. It deals with the final equilibrium of the economy at a particular point of time. It does not analyse the path by which the economy reaches equilibrium. It presents a “still” picture of the economy as a whole at a particular point of time. Pro. Keynes has explained by this equation:

Y = C +1.
Here, Y = Total income, C = Total consumption expenditure, I = Total investment expenditure.

2. Comparative macro statics:
The various macro variables in the economy are subject to charge with the passage of time. Total consumption, total investment and total income etc. go on changing and so the economy reaches different levels of equilibrium.

3. Macro dynamics:
This is a realistic and new method of economic analysis. Under this method, we study how the equilibrium in the economy is reached as a result of changes in the macro variables and aggregates. This method enables us to see the movie picture of the entire economy as progressive whole. This method is a complex method. It is recently developed by Frish, Robertson, Hicks, Tinburzon, Samulson etc.

Question 3.
What is economic problem ? Why do economic problem arises ?
An economic problem is basically the problem of choice which arises because of scarcity of resources. Human wants are unlimited but means to satisfy them are limited. Therefore, all human wants cannot be satisfied with limited means.

An economic problem arises because of the following causes:
1. Human wants are unlimited :
With the satisfaction of one want, another want arises. These is a difference in the intensity of wants also. Thus, there is an unending circle of wants, when they arise, are satisfied and arise again.

2. Limited resources:
Means are limited for the satisfaction of wants. Scarcity of resources is a relative term, for satisfying a particular want, resources can be in abundance, but for the satisfaction of all the wants, resources are scarce. Thus, scarcity of resources gives rise to economic problems.

Question 4.
“Scarcity is the mother of all economic problems”. Explain.
The statement is true, no matter, how well a particular economy is endowed with resource, these resources will be relatively scarce to fulfill its unlimited wants. Moreover, these scarce resources have alternative uses and can be allocated to the production of different goods and services. Thus, it is due to the scarce availability of resources to fulfill the different and competing unlimited wants that an economy faces the economic problem of choice. Thus, it is rightly said that Scarcity of resources is the mother of all economic problems.

Question 5.
What do you understand by positive economic analysis ?
Positive economic analysis is confined to cause and effect relationship. In other words, it states “What is it relates to, what the facts are, were or will be about various economic phenomena in the economics, e.g., it deals with the analysis of questions like what are the causes of unemployment.

Question 6.
What do you understand by normative economic analysis ?
Normative economic analysis is concerned with ‘What ought to be’. It examines the real economic events from moral and ethical angles and judge whether certain economic events are desirable or undesirable, e.g., it deals with the analysis of questions like what should be the prices of food grains, unemployment is better than poverty, rich persons should be faxed more.

Question 7.
Write main assumptions of production possibility curve.
Following are the main assumptions of production possibility curve:

1.  Economy produces only two goods X and Y in different proportions.
2.  Amount of resources available in an economy are given and fixed.
3.  Resources are not specific i.e., they can be shifted from the production of one goods to the other goods.
4.  Resources are fully employed, i.e., there is no wastage of resources.
5.  State of technology in an economy is given and remains unchanged.
6.  Resources are efficiently employed.

Question 8.
What is production possibility curve ? Explain with example.
Production possibility curve shows graphical presentation of various combination of two goods that can be produced with available technologies and given resources assuming that the resources are fully and efficiently employed. The production possibility curve is also known as transformation curve. PPC can be explained with the help of example and imaginary schedule.

Question 9.
What do you mean by opportunity cost ?
The opportunity cost of a good is the value of the next best alternative good is forgone for it. In other words opportunity cost of any commodity is the amount of other good which has been given up in order to produce that commodity.

Question 10.
A school teacher takes two years of leave for study to get the degree of doctorate of philosophy from a university. His monthly income is Rs 35,200 and the fees of research degree is Rs 40,000. What will be his opportunity cost for doctorate degree ?
Solution:
Opportunity cost = (35,200 × 12 x 2) + 40,000
= (35,200 × 24) + 40,000
=  Rs 8,84,800.

Question 11.
Why is production possibility curve downward sloping ?
Production possibility is a curve which shows various production possibilities with the help of given limited resources and technology. It is also known as production possibility frontier and transformation curve. It i&downward sloping from left to right because in a situation of fuller utilization of the given resources, production of both the goods cannot be increased together. More of goods X can be produced only with less of goods Y as resources are scarce. Because of this un use relationship between production of both the goods, PPC is downward sloping.

Question 12.
Why is production possibility curve concave to the origin ?
Production possibility curve is concave to the origin because to produce each additional unit of goods X, more and more unit of goods Y is to be sacrificed. Opportunity cost of producing every additional unit of goods ‘A’ tends to increase in terms of the loss of production of goods Y. It is so because factors of production are not perfect substitute of each other. As we move down along the PPC, the opportunity cost increases. And this causes the concave share of PPC.

For example, if in any state, production of mango is more and it may not be same in other state, the other state may lead in the production of sugar cane. So, it is not Goods (A) necessary that a person who is efficient in the production of one goods will also lead in the production other good. This shows increase in marginal opportunity cost reason of marginal opportunity cost that PP curve is concave to the origin.

Question 13.
What is studied in Economics ?
It is an important question that what should be studied under subject matter of economics. Wants are unlimited but resources are limited. It is decided in economics that row resources should be economically and more efficiently used. Study of subject-matter of economics includes the rational use of resources. The ultimate air of any economy is to have maximum economic welfare.

In any economy, what economic system we use is based on macro and micro-economics. In micro-economics, we study principle of consumers, price determination, producers behavior, monetary policy, inflation, Government budget, exchange rate etc. is studied.

Micro Economics Introduction Long Answer Type Questions

Question 1.
Distinguish between Micro-economics and Macro-economics.
Differences between Micro-economics and Macro-economics;

Question 2.
Define micro-economics and explain its characteristics.
The word ‘micro’ is originated from the Greek word micros; which means small. Micro-economics studies the economic actions of individuals. Under this branch the whole economy is divided into small individual parts i.e., a particular firm, individual household, wages, interest, profit etc. According to Chamberlain, “The micro model is built solely on the individual and deals with interpersonal relations only.”

Characteristics:
Followings are the characteristics of micro-economics:
1. Study of individual units :
The first characteristics of micro-economics is that it studies individual units. It helps to explain personal income (individual income), individual production, individual consumption etc. Micro-economics studies the individual problems and helps in analyzing the whole economic system.

2. Study of small variable:
Micro-economics gives importance to the study of small variable. These variables have such little influence that they do not affect the whole economy.
For e.g., a single consumer by his consumption or a single producer by his production cannot have influence over the demand and supply of whole economic system.

3. Determination of individual price :
Micro-economics is also called the price theory. It determines the individual price of different products by analyzing the demand and supply i. e., behavior of buyers and sellers.

4. Based on the concept of full-employment:
While studying micro-economics the concept of full employment is taken into consideration.

Question 3.
Write any five importance of Micro-economics.
The importance of micro-economics can be studied under the following points:
1. Essential for the knowledge of whole economy:
The sum of individual demand, individual production etc., make the aggregated demand and combined supply. Hence, micro-economics analysis is essential for knowing the position of whole economy.

2. Helpful in solving economic problems :
The problems of pricing of product and pricing of factors of production are main economic problems. Each factor of production demands more remuneration for it, each seller wants to get maximum price for his product. What price should be paid, at what price the problems should be sold all these problems are studied in micro-economics,

3. Helpful in determining economic policies:
The economic policies of government are studied in micro-economics in order to know as to how they influence the functioning of individual units.

4. Investigation of condition of economic welfare:
The study of micro-economics also reveals the effects of public expenditure and public revenue along with the position of individual consumption individual living standard etc. The classical economists favored micro-economic analysis as a measuring rod of economic welfare.

5. Helpful in decision making for individual units:
Micro-economics analysis proves helpful in taking rational decision about the problems of individual units profit of individual firm, individual income etc. Each consumers wants to get maximum satisfaction from his limited means, each firms want to get maximum profit.

Question 4.
What are the limitations of macro-economics ?
Or
Write defects of macro-economics.
The limitations of macro-economics are as follows :

1. Ignorance of individual units :
Macro-economics gives importance to aggregate rather than individual units. The sum of small individual economic units make the wall of whole economy. The whole economy depend on the economy of individual unit. Thus, the small individual units play the role of foundation which are ignored in the macro-economic analysis.

2. Conclusions are not practical :
The conclusions drawn from macro-economic analysis are after misleading. For example, if the general price index number is unchanged, it cannot be concluded that the price level is unchanged. The increase in prices of certain commodities and decrease in prices of other commodities may make the general price level in – charged but the fluctuations are found in the prices of individual commodities.

3. Measurement of aggregates is difficult:
The measurement of aggregates itself presents serious problems in certain cases. Despite several improvements in statistical techniques in recent years, it has not been possible to obtain reliable measures of aggregates.

4. Macro-economics does not depict correct picture of Individual units :
Macro-economics does not depict the true picture of individual units. For example, if the aggregate demand increases, the production will rise but there may be certain firms whose cost and output may increase or decrease.

Similarly if the level of income increases the consumption of some goods may increase and that of some may decrease also. The out of those goods will be reduced whose consumption tends to decrease and the output of those goods will be reduced whose consumption tends to decrease and the output of those goods will be in-creased whose consumption tends to increase.

5. It may not influence all the sectors of economy:
The principles or analysis of Macro-economics may not influence all the sectors of economy. For example, a general rise in prices may not affect all the sections of the community in a similar manner. Some sections may be affected more adversely than others. Some industries may get more benefit than others.

6. No consideration of composition of the aggregate:
Macro-economic analysis takes into consideration the size and types of the aggregate but does not take into consideration the composition of the aggregate. Unless and until the composition and all the components of the aggregate are not analysed, the forecasts of Macro-economic analysis are baseless the suggestions given on their basis will be of no use.

Question 5.
Explain any five points of importance of macro-economics.
Or
Write any five advantages of macro-economics.
The importance of macro-economics is clear from the following facts:

1. Helpful in making and executing governmental economic policies:
The study of macro-economics is essential for formulation of the economic policies of the government. Government has to make policies of general level of production, general price level. Macro-economists help.in formulation of such policies.

The study of macro-economics is helpful for studying micro-economics. No micro-economic law can be formulated without studying macro-economics.

3. Measurement of economic development:
Macro-economics deals with the aggregates (output, consumption, income, capital formation) which help in measuring the economic development of the country.

4. Study of inflation and deflation:
The study of aggregate demand and aggregate supply of currency enables us to analyse the rate of inflation and deflation in the country. By this we can get the idea of economic conditions and standard of living of people.

5. Helpful in the study of fluctuation in economy:
Macro-economics proves helpful in the study of fluctuations in the economy through the analysis of national aggregates like; income, output saving, investment etc.

Question 6.
Write any five limitations of Micro-economics.
Following are the limitations of micro-economics:

1. Conclusions drawn are not accurate:
What is true in the case of individual units may not be true in the case of aggregates. For example, individual saving is good but if the entire community starts saving more, effective demand will be reduced.

2. Based on unrealistic assumptions:
Micro-economist assumes other things being equal, and is based on the assumption of full employment in society. This is unrealistic assumption.

3. Concentration on small parts:
Instead of studying the total economy, micro-economics studies only small parts of it. It fails to enlighten us the collective functioning of the national economy.

4. Unable to analyse certain problems:
There are certain economic problems which cannot be analysed with the aid of Micro-economics. For example, important problems relating to public finance, monetary and fiscal policy etc., are beyond purview of microeconomics.

5. Infeasible:
Micro-economics fails to provide us with a description of the real world as it is. It is not in a position to take into accountable the entire economic data of the real world.

Question 7.
What is opportunity cost ? Explain with suitable example.
Opportunity cost is defined as the value of a factor in its next best alternative use or it is the cost of foregone alternatives, or it can be defined as the value of the benefit that is sacrificed by choosing an alternative. We can also say that opportunity cost of any commodity is the amount of other goods which has been given up in order to produce that commodity. It is also known as opportunity lost or transfer earning of a factor e.g., a person is working in college ‘A’ at the salary of ? 70,000/- per month, he has two more options to work:

1. To work in college “C” at Rs 65,000 per month.
2. To work in college “D” at Rs 62,000 per month.

In this case opportunity cost of working in college “A” is Rs 65,000 i.e., salary he would get in college “C” (cost of foregone alternative) because it is the value of next best alternative between college “C” and college “D”. Thus, opportunity cost is very important concept in economics. It is because our re-sources are limited, we are always making choices from the available alternatives. Thus, the opportunity cost of using a resource is defined as the value of the next best use to which that resource could be put.

Question 8.
What is production possibility curve ? Explain with example.
Production possibility curve:
Production possibility curve shows graphical presentation of various combination of two goods that can be produced with available technologies and given resources assuming that the resources are fully and efficiently employed. The production possibility curve is also known as transformation curve. PPC can be explained with the help of example and imaginary schedule.
Example:

We can show the basic problem of choice or all forms of economic problems with the help of this production possibility curve. This is shown in the table and diagram. Here, for the sake of simplicity we have presumed that only two commodities i.e., wheat and machines are being produced in an economy with limited capital.

From the table, it is clear that when the production of machine is zero then production of rice is 500 tone. If, the production of machines increase from 1 to 2 then the production of rice will be decreased from 500 to 450 ton. If all resources are implied on production of machines then production of machines will become 4 and production of rice will be zero. So suitable combination is essential for production.

Question 9.
What do you mean by Marginal Opportunity Cost ? Explain with the help of an imaginary schedule.
Marginal Opportunity Cost can be explained as if the resources are transferred from one use to the other, it is obvious that there would be loss in production of one goods in order to increase output of the other. This loss is marginal opportunity cost which is technically termed as marginal rate of transformation. It is also called as rate of sacrifice.

i.e., $$\frac { ΔY }{ ΔX }$$
Here,
ΔY = Increase in production of Goods.
ΔX = Increase in production in Goods of X.

From the above table it is clear that in order to produce one unit of commodity ‘A’ he has to sacrifice all the units of commodity ‘B’. After combination ‘E’ to ‘F’ marginal opportunity cost increases to 25.0. Thus, it is clear that production possibility curve is also known as transformation curve or rate of sacrifice.

Question 10.
“Micro-economics and Macro-economics are not competitive to each other but complementary to each other”. Explain.
Interdependence of micro and macro can be studies as follows:

1. Macro – economics depends on micro-economics:
Macro-economics and microeconomics depend on each other. Both are interdependent, macro-economics contributes to the micro-economics. For example, the theory of investment belongs to micro-economics. It is derived from the behavior of the individual entrepreneur. The theory of aggregate investment function can also be derived from micro-economic theory of investment. Thus, we can say, that macro-economics depends on micro-economics.

2. Micro-economics depends on macro-economics:
Micro-economics depend upon macro-economics to a certain extent. For example, the rate of interest is a subject which belongs to micro-economics but it is influenced by macro-economics aggregates. Thus, micro-economics depends upon macro-economics.

Conclusion:
Macro and micro-economics both are interdependent on each other. Neither is complete without the other. We must study macro-economics because it deals with average variables, such as national income and national output. We must study microeconomics because national output and national income are eventually the result of decision of millions of business firms and individuals. Thus, we can conclude that both are complementary to each other.

Question 11.
Search for new entrepreneurs so that expansion of industries can be done and more use of capital intensive technology can be done in the country.
When the economy is below its potential due to unemployment, the economy operates inside the PPC. When the government starts employment generation scheme, it enables the economy to utilise its existing resources in the optimum manner. The resources which were sitting idle, now get

job and the economy functions at its maximum capacity and moves from inside the PPC to points on the PPC. Thus, economy moves from point ‘a’ below PPC, to any point on PPC as shown in the figure.

Question. 12.
Explain the subject matter of macro-economics under five headings.
We can study the subject matter of economics under the following heads :

1. Income and level of employment:
Income and level of employment is the main subject matter of Macro-economics. Level of employment and income depends on effective demand. Effective demand is determined by total expenditure.

2. Price theory :
It includes the study of inflation and deflation. Macro-economics also studies the normal level of prices of goods. It also studies the causes of inflation.

3. Theory of economic growth:
Macro-economics studies the economic growth by economic planning we can solve the problems of economic growth.

4. Theory of distribution :
During distribution of shares of national income many problems arise. How much should be paid as wages, what should be rent, how much interest should be paid all are the main elements of the subject matter of macro economics.

5. Theory of public finance:
Public revenue, public expenditure, public debts, taxation, fiscal policies are the subject matter of macro-economics.

Question 13.
Explain the five factors determining demand.
1. Price of commodity:
Price is a dominating factor. The demand for a commodity is increased when the price of it decreases and the demand for it decreases when the price increases. For example, if the price of a commodity is Rs 50 then its demand is 100 units. If the price increases to Rs 100, its demand will be 50 units. In other words, there is an inverse relation between price and demand.

2. Price of substitutes:
If the price of substitutes of a commodity rises, the price of the commodity will also rise. If the price of substitute of a commodity goes down, the price of the commodity will also go down. For example, tea and coffee are substitutes to each other. If the price of tea rises, the demand for coffee will increase. In other words, the increase or decrease in the price of the substitute of a commodity results in the increase or decrease in the price of the commodity.

3. Price of complementary goods:
If the price of complementary goods increases, the price of the commodity will decrease. For example, the increase in the price of petroleum results in the decrease of demand for motor-cars and scooters etc. If the price of petroleum decreases, the demand for motor-car and scooter etc. will increase.

4. Income of consumer :
There is a direct correlation between the income of consumer and demand. If the income of a consumer increases, the demand for commodities will also increase. If the income of a consumer decreases, the demand for commodities will also decrease. The main reason for this tendency is that the purchasing power of a consumer increases or decreases as a result of increase or decrease in income.

5. Tastes and preferences of consumers:
The consumers, often, consume those commodities which suit to their taste and preference. If a commodity does not suit to their taste and preference, there will no remarkable change its demand as a result of increase or decrease in its price. If the price of a commodity of consumer’s taste and preference goes down, the demand for it will certainly increase and vice-versa.

Question 14.
Distinguish between Market Economy and Centrally Planned Economy.