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Long Answer Questions: Introduction to Microeconomics | Economics Class 11 - Commerce PDF Download

Q1:What is the production possibility frontier?
Ans: 
Production possibility frontier:

  • The production possibility frontier is a curve that depicts all possible combinations of two goods that can be produced in a given economy with given resources and technology.
  • The production possibility frontier is also known as the transformation curve or the production possibility curve.
  • Due to scarce and finite resources, the production of a commodity could only be increased if there is a reduction in the other commodity. Hence, the PPC curve is concave.

Assumptions
The PP curve concept is founded on the following assumptions:

  • The economy's resource base is fixed.
  • The technology is pre-installed and unmodified.
  • The resources are effective and fully utilised.
  • In the production of all goods, all resources are not equally efficient.

Diagram:

Long Answer Questions: Introduction to Microeconomics | Economics Class 11 - Commerce

In the diagram, there are different combinations of good X and good Y, that is combination A,B,C and D which could be produced when the the resources in the economy are optimally and fully utilised. Any point on or below the production possibility frontier gives a combination of goods that could be produced given the resources and technology, however any combination under the PPC (Point E) signifies the underutilization or wasteful utilisation of resources.
Shifts in Production Possibility Curve.

  • Reasons:
    • Changes in resources. 
    • Changes in manufacturing technology for both goods.
  • Rightward shift:
    Production Possibility Curve shift to the right indicates an increase in resources or technological advancement. Example skilled labour, technological advancements, and increased land productivity are all factors that are contributing to increased productivity.
  • Leftward shift:
    Production Possibility Curve shift to the left indicates a decrease in resources or a deterioration in technology in the economy. Example unskilled labour, technological obsolescence, and decreased land productivity are all factors that are contributing to decreased productivity.


Q2: Draw a production possibility curve and mark the following situations.
a. Underutilization of resources
b. Full employment of resources
c. Growth of resources
Ans: 
Before the diagram, the explanations are:
a. Underutilization of resources : Underutilization of resources refers to a situation in which resources are used inefficiently during the production process. A point located below the production possibility curve indicates underutilization or inefficient resource utilization. The actual output is less than the potential output in this case. The examples of underutilization are shown below.

  • Labor illiteracy
  • Inefficient or partial utilization of resources such as machines

b. Full employment of resources: Full employment refers to an economic situation in which all available labor resources are used as efficiently as possible. Full employment represents the maximum amount of skilled and unskilled labor that an economy can employ at any given time.
c. Growth of resources : Growth is defined as an increase in an economy's output over a period of time, with a minimum of two consecutive quarters.
The second definition of economic growth is an increase in what an economy can produce if all of its scarce resources are used. An increase in an economy's productive potential can be demonstrated by an outward shift in the production possibility frontier of the economy (PPF).
Production possibility curve depicting all the above situations: It refers to a curve that depicts the many production possibilities that can be realized with the available resources and technology.
In the diagram given below:
Long Answer Questions: Introduction to Microeconomics | Economics Class 11 - Commerce

  • Every point on the PP curve, such as ABCDEF, denotes full employment of resources and efficient resource usage. 
  • Any point below or inside the PP curve, such as G, indicates underutilization of resources. 
  • Any point above PP curves such as H shows growth of resources.

If the economy commits all of its resources to the production of commodity wheat, it can generate 14 units, but commodity cloth’s output will be zero. Commodity cloth and wheat may have a variety of production options. If we wish to increase the output of cloth , we must reduce the output of commodity wheat, and vice versa.

Q3: What is the difference between a planned economy and market economy?
Ans: 
The difference between a planned economy and market economy is as follows:
Long Answer Questions: Introduction to Microeconomics | Economics Class 11 - Commerce
Long Answer Questions: Introduction to Microeconomics | Economics Class 11 - Commerce

Q4: Explain the central problem of the choice of products to be produced.
Ans:
What to produce:
This problem involves two issues, mainly:

  • The choice regarding the choice of products.
  • The quantity of the chosen product.

Since there is a choice problem, the economy must decide which goods and services to produce, as the resources are limited and scarce in an economy, hence an optimum decision needs to be taken in respect to the choice as well the quantities of goods and services. The problem of choice mainly exists between consumer goods and capital goods.
For example, which consumer goods, such as wheat, rice, and cloth, and which capital goods, such as machines and tools, are to be produced.
When an economy decides what goods or services to produce, it must also decide on their quantity. Hence, it is not about choosing to produce either of the two, it is about deciding the quantity of each of them. If a decision is taken regarding more production of consumer goods, then it will have an impact on the quality of life of the current generation, whereas if capital goods are produced in more quantity, it will impact the production capacities of the future. Hence a decision needs to be made that takes into consideration both the present and the future generations.

The document Long Answer Questions: Introduction to Microeconomics | Economics Class 11 - Commerce is a part of the Commerce Course Economics Class 11.
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FAQs on Long Answer Questions: Introduction to Microeconomics - Economics Class 11 - Commerce

1. What is microeconomics and why is it important?
Microeconomics is a branch of economics that focuses on the behavior of individuals, households, and firms in making decisions regarding the allocation of scarce resources. It analyzes how individuals and firms make choices, interact with each other in markets, and how government policies can affect these decisions. Microeconomics is important because it helps us understand the fundamental principles that underlie economic decision-making and provides insights into how markets function and how they can be improved.
2. What are the main factors that influence demand and supply in microeconomics?
The main factors that influence demand in microeconomics are price, income, tastes and preferences, prices of related goods, and expectations. When any of these factors change, it can lead to a shift in the demand curve. On the other hand, the main factors that influence supply are price, input costs, technology, government policies, and expectations. Changes in these factors can cause a shift in the supply curve.
3. How does microeconomics differ from macroeconomics?
Microeconomics and macroeconomics are two branches of economics that study different aspects of the economy. Microeconomics focuses on the behavior of individual economic units, such as households and firms, and how they interact in markets. It examines the determination of prices and quantities in specific markets and analyzes the effects of government policies on these markets. On the other hand, macroeconomics looks at the economy as a whole and studies aggregate variables such as GDP, inflation, and unemployment. It analyzes the overall performance of the economy and the factors that influence it.
4. What is the concept of elasticity in microeconomics?
Elasticity is a measure of the responsiveness of demand or supply to changes in price or other factors. It quantifies the percentage change in quantity demanded or supplied in response to a percentage change in price or another variable. The price elasticity of demand measures how sensitive the quantity demanded is to changes in price, while the price elasticity of supply measures how sensitive the quantity supplied is to changes in price. Elasticity is important in microeconomics as it helps us understand how changes in price or other factors affect consumer behavior and producer decisions.
5. How does microeconomics help in understanding consumer behavior?
Microeconomics provides insights into consumer behavior by analyzing how individuals make choices based on their preferences and budget constraints. It examines how consumers allocate their income among different goods and services to maximize their satisfaction or utility. Microeconomics also studies consumer decision-making under conditions of uncertainty and analyzes factors that influence consumer choices, such as prices, income, tastes, and advertising. By understanding consumer behavior, firms can better understand and predict consumer demand, which helps in making pricing and production decisions.
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