NCERT Solutions for Class 12 Economics Chapter 1: Introduction to Micro Economics

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Chapter	1. Introduction to Micro Economics
Subject	Economics
Textbook	Micro Economics
Class	Twelve
Category	NCERT Solutions for Class 12

The NCERT Solutions for Class 12 Economics cover all the questions pertaining to the subject in a very clear and lucid manner. Apart from being highly accurate, these solutions are also very easy to memorize. These solutions are written as per the latest CBSE syllabus and are helpful in clearing doubts. On this solution page, we have provided you with complete overview of the concepts and methods covered in the Chapter 1 of Micro Economics – Introduction to Micro Economics.

NCERT Solutions for Class 12 Economics Chapter 1

Introduction to Micro Economics Solutions

Q1) Discuss the central problems of an economy.

Answer) The following are the three major problems of an economy:

What to produce?
- What to produce refers to a problem in which decision regarding which goods and services should be produced is to be taken.
- Since its resources are limited, every economy has to decide what commodities are to be produced and in what quantities.
- ‘The guiding principle for an economy here is to allocate resources in such a way that gives maximum aggregate utility to the society.
How to produce?
- How to produce refers to a problem in which decision regarding which technique of production should be used is made.
- Goods and services can be produced in two ways: by using labour intensive techniques, and by using capital-intensive techniques.
- The guiding principle for an economy in such a case has to decide about the techniques of production on the basis of cost of production. Those techniques of production should be used which lead to the least possible cost per unit of commodity or service.
For whom to produce?
- For whom to produce refers to a problem in which decision regarding which category of people are going to consume a good, i.e., economically poor or rich.
- As we know, goods and services are produced for those who can purchase them or have the capacity to buy them.
- Capacity to buy depends upon how income is distributed among the factors of production. The higher the income, the higher will be the capacity to buy and vice versa. So, this is a problem of distribution.
- The guiding principle is that the economy must see here that important and urgent wants of its citizens are being satisfied for the maximum possible extent or not.

Q2) What do you mean by the production possibilities of an economy?

Answer) 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.

Q3) What is a production possibility frontier?

Answer) Production possibility frontier is a curve which depicts all the possible combinations of two goods which can be produced with given resources and technology in an economy.

Q4) Discuss the subject matter of economics.

Answer) The subject matter of economics is often categorised into two main branches – Microeconomics and Macroeconomics. Economics is often defined as the study of 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, studies the behaviour of individual economic units of an economy, like households, firms, individual consumers and producers etc. It does not study the economy as a whole.

Macroeconomics is the part of economic theory that studies the economy as a whole, such as national income, aggregate employment, general price level, aggregate consumption, aggregate investment, etc.

Q5) Distinguish between a centrally planned economy and a market economy.

Answer)

Centrally planned economy	Market economy
all the major economic decisions are taken by the government.	the various economic decisions are left to the free market or the laws of supply and demand.
The government owns the means of production and distribution.	Private ownership of the means of production and distribution
Prices are set by the government	Prices are determined by the relative demand and supply of the products.
An example of a centrally planned economy would be North Korea.	An example of a market economy would be South Korea.

Q6) What do you understand by positive economic analysis?

Answer) Positive economic analysis is purely about economic facts, objective measurements and processes. In this type of economic analysis, one might study the cause and effect relationships between various economic factors and phenomena. For example, the association between oil prices and currencies.

Q7) What do you understand by normative economic analysis?

Answer) Normative economic analysis is the process of determining whether or not a specific method is good. This analysis focuses on what should be the desired state or how the economic problems should be addressed. It offers economic goals and objectives, as well as what should be done to accomplish these goals and objectives. We come across normative propositions in normative economic analysis that cannot be evaluated because they require human value judgments. It is founded on ethics and deals with idealistic issues.

Q8) Distinguish between microeconomics and macroeconomics.