VIVEK JAISWAL : , INTRODUCTION

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1 INTRDUCTIN Q.1 What is meant by economy? ns. n economy is a system which provides people the means of work and earn a living in the process of production. People earn money by rendering productive services so as to get goods and services for satisfaction of their wants. Thus an economy is a system that helps to produce goods and services and enables people to earn income for buying and goods and services. Q.2 What is micro economics? Give two example. ns. Microeconomics is that branch of economic theory which deals with the behaviour of individual economic units of the economy such as individual households, individual firms or industries etc. Example : (i). Study of consumer behaviour (ii). Study of Price determination in the market. Q.3 What is meant by macroeconomic theory? ns. Macroeconomics is that branch of economic theory which studies economy in its totality or as a whole. ggregate demand, aggregate supply, level of employment etc. are some example of macroeconomics theory. Q.4 Give two examples of microeconomic studies. ns. a. Study of consumer behaviour b. Study of Price determination in the market. Q.5 Do you Think that the study of pricing of a software of the firm is the part of microeconomic study? (HTS) ns. Yes, it is the part of microeconomic study as it is concerned with the study of an individual firm. Q.6 Is the study of cotton textile industry, a microeconomic study or a macroeconomic study? (HTS) ns. It is a microeconomic study, because it is a case of an indivisual industry. Q.7 Why is the study of the problem of unemployment in India considered as a macroeconomic study? (HTS) ns. The problem of unemployment of India is an economic issue at the level of an economy as a whole, hence it is considered as a macroeconomic study. Q.8 What is planned economy? ns. It is an economy in which all economic decisions are taken by the government or by the central authority. Here, means of production are owned by the whole community. Q.9 Explain any two features of centrally planned economy? ns. Two main features of centrally planned economy are as follows (i). In centrally planned economy, decisions relating to what, how and for whom to produce are taken by central authority or by the government. (ii) Market forces are regulated and controlled by the government.

2 Q.10 Explain the meaning of positive economics and normative economics. ns. Positive economics : It deals with the actual happenings. It presents the real picture of facts without any comment and suggestion. Example : Indian economy is a developing Normative Economics : It deals with things they ought to be. It tells how the economic problem should be solved. It promotes social and economical values. Example : gricultural income should be fixed. Q.11 What is scarcity of resources? ns. Scarcity of resources means limited availability of resources in relation to demand for it. Q.12 Why does problem of choice arise? ns. Problem of choice arises due to scarcity of resources and their alternative uses. Human wants are unlimited but the resources to satisfy these wants are limited and the resources have alternative uses due to which problem of choice arises. Q.13 What is economic problem? Why does it arise? ns. Economic problem is basically the problem of choice which arises due to scarcity of resources having alternative uses. Human wants are unlimited but the resources to satisfy these wants are limited and the resources have alternative uses due to which economic problem arises. Q.14 State the fundamental problem of an economy that resulted in the emergence of economics which have alternative uses. (HTS) ns. It is the problem of scarcity of resouces in relation to our needs. Q.15 What is meant by economising the use of resources? (HTS) ns. It means that resouces are to be used in such a manner that maximum output is realised per unit of input Q.16 Water resources are limited in our country, how can we economise the water resources so that it would not become a future problelm for us? Give any two suggestions. (VBQ) ns. The two points which can be used for economising the water resources, are as follows (i) Rainwater should be preserved for future usage. (ii) Wastage of water should be avoided so that economical use of water can be made. Q.17 How can you say that economic problem is a choice making activity? ns. n economic problem is a choice making activity because it requires a decision to make best use of resources to satisfy human wants. Q.18 you are living in a country whose economy is underdeveloped. In this context why there is a need of efficient utilisation of resources? ( Value Based Question ) ns. Developmental needs are more in unerdeveloped economy and these can be fulfilled with the help of limited resources. Thus, there is a need of efficient and effective utilisation of resouces.

3 Q.19 What are the central problem of an economy? ns. There are three main central problem of an economy which are explained as under- (a). What to produce and in what quantity : It is a problem of choosing which commodities should be produce and in what quantity. Since the resources are scarce, every economy has to decide which goods and services has to produce with available resources to get maximum satisfaction For example, an economy has to decide whether to produce luxury goods or consumer goods. (b). How to produce : It is a problem of choosing technique of production. Usually there are two types of technique of production. 1. Labour intensive technique : In this technique of production more labour and less capital is used for production. 2. Capital intensive technique of production : In this technique of production less labour and more capital is used for production. Every economy has to choose which technique of production should be adopted for production to minimise production cost. (c). For whom to produce :This problem means who gets how much of goods that are produced. This problem describes how should the output be distributed among those who have helped to produce it. Hence it is a problem of distribution of national income among factors of production. Under this problem, the decision is to be taken for whom we should produce commodities for the rich or for the poor? ll goods and services cannot be produced for everyone. If we produce for the rich, who have capacity to buy, then poor people will suffer from starvation. n the other hand, if we produce for the poor for the sake of social justice, then we will have to consider, do they have resources to buy? Q.19a. Explain how the issues of growth and equity conflict while dealing with the problem how to produce? ns. Problem of how to produce is the problem of choice of technique of production to be used for production, i.e., whether to use labour intensive technique or capital intensive technique. Labour intensive which uses more labour and less capital generates employment. This increases the share of wages and hence promote equity. Capital intensive which uses more capital and less labour increases efficiency. This increases the pace at which the economy is growing. Q.20 What is production possibility curve? Explain with the help of schedule and diagram. ns. Production possibility curve : Production possibility curve is a curve which depict all possible combination of two goods which an economy can produce with full employment of available resources and given technique.these can be explained with the help following schedule and diagram. Production Possibility Schedule ptions Tank Wheat MC B C D E F 5 0 5

4 Production Possibility Curve Y Q.21 What are the assumptions while preparing Production Possibility Curve ns. Production Possibility Curve is drawn on the following four assumptions. (i) Resources are given and are fixed. (ii) Resources are used fully and efficiently. (iii) Technology is given and does not change, i.e., it remains constant. (iv) Resouces are not equally efficient in production of all goods. Q.22 What is opportunity cost? ns. pportunity cost of one activity is equal to the value of next best alternative sacrificed. Q.23 What is marginal opportunity cost (moc)? ns. Marginal opportunity cost of a particular good is the amount of other good which is sacrificed to produces an additional unit of the particular good. Q.24 What is marginal rate of transformation? ns. MRT is defined as the ratio of units of one good sacrificed for production of an additional unit of other good. 5 MRT = Unit of one good sacrificed More units of other good produced Q.25 Which factors lead to a shift of the production possibility curve? ns. Production possibility curve shifts when (i) Resources increase or decrease. (ii) Technology changes for both the goods. Q.26 What are the properties of Production possibility curve? ns. The production possibility curve has two basic properties. (i) Production Possibility curve is downward sloping curve from left to right. (ii) The shape of the Production Possibility curve is concave to the origin. Q.27 Why is PP curve downward sloping from left to right? ns. PPC slopes downward from left to right because in presence of scarcity of resources more of one good can be produced only after sacrificing some quantity of other good. Q.28 Why does PPC look concave to the origin? ns PPC look concave to the origin due to increasing marginal opportunity cost. Marginal op-

5 portunity cost implies that for producing an additional unit of a good, sacrifiec of unit of other goods goes increasing.the situation can be explain with the help of following diagram and schedule. Production Possibility Schedule ptions Tank Wheat MRS B C D E F Y Q.29 Giving reason comment on the shape of production possibilities curve on the following schedule : Good ( Units ) : Good Y (Units ) : ns. Good Good Y MC : : : :1 The schedule shows that the MC of producing more of Good in place of Good Y is increasing. ccordingly production Possibility curve is to be concave to the origin. Q.30 Giving reason comment on the shape of production possibilities curve on the following schedule : Good ( Units ) : Good Y (Units ) : ns.

6 ns. Good Good Y MC : : : :1 The schedule shows that the MC of producing more of Good in place of Good Y is constant. ccordingly production Possibility curve is to be a downward sloping straight line. Q.31 Diffirentiate between Shift in PPC and Rotation in PPC. ns. Shift in PPC : The production possibility curve will shift under the following conditions. The production possibility curve can shift both ways rightward or leftward. The rightward shift of production possibility curve indicates the increase in the resources or productive capacity of the economy. n the other hand, the leftward shift of production possibility curve indicates the decrease in resources or productive capacity of the economy. Good Y Good B B B Good Good B Rotaion in PPC: The production possibility curve will rotate under the following conditions. When the technologies are efficient for commodity, PPC rotates from Q to Q1 as this will raise the productivity of. When the technologies are efficient for commodity Y, PPC rotates from Q to 1Q as this will raise the productivity of Y. B 1 Q Q 1 Q Q.32 How does the ppc solve central problems? ns. PPC helps in solving central problem which are explained as under: (i). What to produce : Central problem What to Produce is represented by movement along PPC. Different points on PPC shows Different combinations of two goods and different choices that are open to society. From these choices society has to select one. Hence the problem of What to Produce is the problem of choosing between the points indicated on the PPC. In this way the

7 problem of What to produce can be solved. (ii). How to produce : How to produce is a problem of choosing technique of production, i.e., lablour-intensive technique or capital intensive technique. PPC helps to solve this problem. For instance, if the technique is used in production is absolete, the economy will operate at some point not on the PPC but inside it. This will inspire the economy to change the technique so as to produce at some point on PPC itself by making efficient use of its resources. (iii). For whom to produce: PP curve reflect how the problem for whome to produce is being solved. If combination of goods being produced shows increase in output of luxury goods than necessary goods, it indicates taste of rich people is being preferred to the needs of poor people. thus necessary change can be made. Q.33 Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using production possibility curve. ns. 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 who were sitting idle now get job and the economy function at its maximum capacity and moves from inside the PPC to point on the PPC. Thus, economy moves from point a in the PPC to any point on PPC as shown in the following diagram. Q.34 Why is production possibility curve called opportunity cost curve? (HTS) ns. Production Possibility curve is also called opportunity cost curve because slope of the curve at each and every point measures opportunity cost of one commodity in terms of alternative commodity given up. The rate of this sacrifice is called the marginal opportunity cost of the expanding good. Q.35 The Government establishes a large number. of Institutes of science and technology. How will it affect the production possibility frontier' Explain. ns. Production Possibility Frontier refers to a graphical representation of possible combination of two goods that can be produced with given resources and technology change in the productive capacity of the economy due to change in technology or resources will shift the PPF either towards left or right. By establishing institutes of science and technology, the government is trying to improve productivity of the economy through promotion of skills and professional qualifications. skilled and professionally qualified workforce combined with technological up gradation will ultimately, lead to a rightward shift in the Production Possibility Frontier Establishment of these institutes also signifies improvement in educational. Q.36 What is likely to be the impact of 'Make in India" appeal to the foreign investors by the Prime Minister of India, on the production possibilities frontier of India? Explain ns. The Prime Minister of India has appealed to the people the world over to come and make in India and sell their products in any country of the world. This initiative is expected to focus n job creation and skill enhancement in various sectors. The Prime Minister has appealed to the foreign investors to make investments in various sectors and boost the 'Make in India' initiative with the much needed infrastructure and rapid urbanisation The inflow of foreign resources will increase the country s available resources and boost the country's developmental process thereby shifting the Production Possibility Frontier (PPF) upwards to the right signifying increase in its productive

8 capacity. Q.37 lot of people have died and many industrial units have been razed to the ground owing to a massive earthquake in Nepal. How will it affect the country's PPC? Explain diagrammatically ns. Production possibility curve (or, PPC) is drawn on the assumption of a given amount of resources. Destruction of manpower and industrial capital of the country leads to a massive fall in the quantum of resources. ccordingly, PPC will shift to the left, as in Fig. Y Good Good B B B

STUDY MATERIAL DAKSHINA C L A S S E S. Session:

STUDY MATERIAL DAKSHINA C L A S S E S Class Subject : XII : Economics(Study Material, HOTS and VBQ) Session: 2015-16 Head Office : 305, Green Plaza, L.P Savani Circle, Adajan, Surat. Web Site : www.thedakshinaclasses.com,