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Micro Economics Introduction NCERT Textbook With Solutions Book PDF Free Download
Chapter 1: Introduction
Production, exchange, and consumption of goods and services are among the basic economic activities of life.
In the course of these basic economic activities, every society has to face a scarcity of resources and it is the scarcity of resources that gives rise to the problem of choice.
The scarce resources of an economy have competing usages. In other words, every society has to decide on how to use its scarce resources.
What is produced and in what quantities?
Every society must decide on how much of each of the many possible goods and services it will produce. Whether to produce more of food, clothing, housing or to have more luxury goods.
Whether to have more agricultural goods or to have industrial products and services. Whether to use more resources in education and health or to use more resources in building military services.
Whether to have more of basic education or more of higher education. Whether to have more of consumption goods or to have investment goods (like machine) which will boost production and consumption tomorrow.
How are these goods produced?
Every society has to decide on how much of which of resources to use in the production of each of the different goods and services. Whether to use more labor or more machines. Which of the available technologies to adopt in the production of each of the goods?
For whom are these goods produced?
Who gets how much of the goods are produced in the economy? How should the produce of the economy be distributed among the individuals in the economy?
Who gets more and who gets less? Whether or not to ensure a minimum amount of consumption for everyone in the economy.
Whether or not elementary education and basic health services should be available freely for everyone in the economy.
Thus, every economy faces the problem of allocating scarce resources to the production of different possible goods and services and 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.
In a centrally planned economy, the government or the central authority plans all the important activities in the economy. All important decisions regarding the 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 as a whole, e.g.
education or health service is not produced in adequate amount by the individuals on their own, the government might try to induce the individuals to produce adequate amount of such a good
or service or, alternatively, the government may itself decide to produce the good or service in question.
In a different context, if some people in the economy get so little a share of the final mix of goods and services produced in the economy that their survival is at stake, then the central authority may intervene and try to achieve an equitable distribution of the final mix of goods and services.
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NCERT Solutions Class 12 Economics Chapter 1 Micro Economics Introduction
1. Discuss the central problems of the economy.
The central problems of an economy are
i) What to produce?
ii) How to produce?
iii) For whom to produce?
i) What to produce?
Every society faces a scarcity of resources. Because we live in a finite world, our resources have to be allocated based on our collective ‘needs and wants as a society.
This creates a problem of choice, where we might have to choose between the different products that can be produced with the same available resources. For example, consider the practice of agriculture in a village.
Food production and distribution depend upon agriculture. The agricultural output of a given economy depends upon finite resources like water, manpower, fertilizers, farming equipment, etc. Therefore, the farmer has to decide what to produce based on what people want.
If people tend to eat more rice and less wheat in a given region, the production of wheat and rice will correspond to that tendency. (But, factors like import and export can also influence such decisions) The problem of how much to produce also has to be determined en masse. (i.e. keeping in mind the population and the demand)
ii) How to produce?
There are various techniques and methodologies that people and governments can choose from when they are producing a good or service. For example, based on the way in which capital and labour are utilized, production can happen through capital-intensive or labor-intensive methods.
iii) For whom to produce?
Every society has some degree of inequality among its members. So, when we are asking ‘for whom to produce?’, we are trying to determine who eventually benefits from the activity of economic production.
Producing more luxury good will mean that only the rich can afford to consume them. In contrast, producing an extensive range of everyday goods at affordable prices can benefit low-income groups.
2. What do you mean by the production possibilities of an economy?
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.
3. What is a production possibility frontier?
The production possibility frontier (PPF) can be illustrated using a mathematical curve that showcases the balance between the production levels of two different products within limited resources.
For example, if a food producer can either produce 50 mangoes or 25 oranges with the same amount of resources, the production possibility of the two can be plotted in a graph. And this gives us the production possibility frontier.
PPF is calculated under the assumption that the production of product A can increase only when the production of product B is compensated.
PPF data is often used by companies to determine the relative costs of producing one product over another. This data is then analysed to effectively make decisions when allocating finite resources and to increase profits.
NCERT Class 12 Economics Textbook Chapter 1 Micro Economics Introduction With Answer PDF Free Download