VERY SHORT ANSWER QUESTIONS (1 MARK)
Q.1. What is economics about?
Ans. Economics is the study of the problem of choice arising out of scarcity of resources having alternative uses.
Q.2. Define scarcity.
Ans. Scarcity means shortage of resources in relation to their demand is called scarcity.
Q.3. What is an economy?
Ans. An economy is a system by which people get their living.
Q.4. Define central problem.
Ans. Central problem is concerned with the problems of choice (or) the problem of resource allocation.
Q.5. Give one reason which gives rise to economic problems?
Ans. Scarcity of resources which have alternative uses.
Q.6. Name the three central problems of an economy.
(a) What to produce?
(b) How to produce?
(c) For whom to produce?
Q.7. What is opportunity cost?
Ans. It is the cost of next best alternative foregone.
Q.8. Why is there a need for economizing of resources?
Ans. Resources are scarce in comparison to their demand, therefore it is necessary to use resources in the best possible manner without wasting it.
Q.9. What is production possibility frontier?
Ans. It is a boundary line which shows the various combinations of two goods which can be produced with the help of given resources and technology.
Q.10. Why PPC is concave to the origin?
Ans. PPC is concave to the origin because of increasing marginal opportunity cost.
Q.11. Define marginal rate of transformation.
Ans. MRT is the ratio of units of one good sacrificed to produce one more unit of other goods. MRT = Δy / Δx
Q.12. What does a point inside the PPC indicate?
Ans. Any point inside the production possibility curve indicate underutilization of resources.
Q.13. What do you mean by the problem of what to produce?
Ans. It is the problem of choosing which goods and services should be produced in what quantities.
Q.14. What do you understand by the problem of how to produce?
Ans. It is the problem of choosing technique of production of goods and services.
Q.15. What does the problem for whom to produce indicate?
Ans. The problem of for whom to produce refers to the distribution of goods and services produced in the economy.
Q.16. Give two examples each of micro economics & macroeconomics.
Ans. Micro economics – Individual demand, individual supply
Macroeconomics – Aggregate demand and aggregate supply
Q.17. What does a rightward shift of PPC indicate?
Ans. It indicates a) growth of resources b) improvement in technology
Q.18. What is meant by economising of resources?
Ans. It means making best use of available resources.
SHORT ANSWER QUESTIONS (3 / 4 MARKS)
Q.1. What is production possibility frontier?
Ans. It is a boundary line which shows that maximum combination of two goods which can be produced with the help of given resources and technology at a given period of time.
Example: An economy can produce two goods say rice or oil by using all its resources. The different combination of rice and oil are as follows:
Q.2. Draw a production possibility curve and mark the following situations:
a) under utilization of resources
b) full employment of resources
c) growth of resources
Ans. Every point on PP curve like ABCDEF indicates full employment and efficient uses of resources.
Any point below or inside PP curve like G underutilization of resources.
Any point above PP curves like H indicates growth of resources.
Production Possibility Curve And Opportunity Cost
It refers to a curve which shows the various production possibilities that can be produced with given resources and technology.
If the economy devotes all its resources to the production of commodity B, it can produce 15 units but then the production of commodity A will be zero. There can be a number of production possibilities of commodity A & B.
If we want to produce more commodity B, we have to reduce the output of commodity A & vice versa.
Shape of PP curve and marginal opportunity cost.
(1) PP curve is a downward sloping curve.
In a full employment economy, more of one goods can be obtained only by giving up the production of other goods. It is not possible to increase the production of both of them with the given resources.
(2) The shape of the production possibility curve is concave to the origin.
The opportunity cost for a commodity is the amount of other commodity that has been foregone in order to produce the first.
The marginal opportunity cost of a particular good along the PPC is defined as the amount sacrificed of the other good per unit increase in the production of the good in question.
Example: Suppose a doctor having a private clinic in Delhi is earning Rs. 5lakhs annually. There are two other alternatives for him.
(1) Joining a Govt. hospital in Bangalore earning Rs. 4 lakhs annually.
(2) Opening a clinic in his home town in Mysore and earning 3 lakhs annually.
The opportunity cost will be joining Govt. hospital in Bangalore.
Increasing marginal opportunity cost implies that PPC is concave.
Shift in PPC
(1) Upward shift
(2) Downward shift
When Resources depletes
3. Distinguish between micro economics and macroeconomics.