Class 12 Economics Short Questions With Answers (Part - 2) - Introduction to Micro Economics

Q.11. What is planned economy? 

Ans. Planned economy is an economy in which the economic activities are planned by the central government with an objective of maximizing social welfare.

Q.12. Why does the problem of what to produce arise? Explain
Ans. Problem of what to produce arises as the economy has limited resources. Because of scarcity of resources producers are unable to produce everything in desired quantity, but they will have to make a choice. This problem involves twofold kind of decision, kinds of goods to be produced and quantity of goods to be produced.

Q.13. Why do problems related to allocation of resources in an economy arise? Explain.  
Ans. Problems related to allocation of resources in an economy arise due to the following two basic features of resources:    
(a) Resources are Limited: The resources used to produce goods and services that satisfy human wants are limited. Limited resources are incapable of satisfying unlimited human wants.  
(b) Limited Resources have Alternative Uses: The resources used for producing goods and services are not only limited but they also have many competing usages. As a result, an individual has to face the problem of making a choice among the available alternatives.

Q.14. Why is Production Possibility Curve downward sloping?
Ans. It is a curve which shows various production possibilities with the help of given limited resources and technology. It is downward sloping from left to right because in a situation of fuller utilization of the given resources, production of both goods cannot be increased together.
Example: More of good X can be produced only with less of good Y as resources are scarce.

Q.15. What does a leftward shift of a Production Possibility Curve indicate?
Ans. A leftward shift of a Production Possibility Curve indicates reduction in the resources under which an economy has to produces less of both the goods.

Q.16. What does a rightward shift of a Production Possibility Curve indicate?
Ans. A rightward shift of a Production Possibility Curve indicates the situation of growth of resources under which an economy is capable of producing more of both the goods.

Q.17. When does the Production Possibility Curve shift outward to the right?
Ans. The Production Possibility Curve shifts outward to the right due to technological progress or increase in the supply of resources available to an economy or both.  

Q.18. Why is Production Possibility Curve concave to the origin?
Ans. The Production Possibility Curve is concave to the origin because of increasing marginal opportunity cost.  

Q.19. Why Production Possibility Curve is also called transformation curve?
Ans. The Production Possibility Curve is also called transformation curve because it shows trade-off between two goods. The movement along this curve indicates that one good is transformed into another, not physically, but by transferring resources from one use to the other.

Q.20. What is macroeconomics?
Ans. Macroeconomics is that branch of economics which studies the behaviour of the economy as a whole. Level of output and employment are the principal macroeconomic issues.

Q.21. Why is the study of consumer’s equilibrium a subject matter of microeconomics?
Ans. Consumer equilibrium is a subject matter of microeconomics because it is a study of individual consumer behaviour.  

Q.22. Name any one variable of study in microeconomics.
Ans. The study of an automobile industry is a microeconomic variable.

Q.23. Is the study of cotton textile industry a macroeconomic study or a microeconomic study?
Ans. The study of cotton textile industry is a microeconomic study.

Q.24. What do you understand by macroeconomics?
Ans. Macroeconomics is that branch of economics which studies the behaviour of the economy as a whole. Level of output and employment are the principal macroeconomic issues.  

Q.25. Write three points on the distinction between micro and macroeconomics.
Ans. Following points explain the difference between microeconomics and macroeconomics:

Q.26. Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using Production Possibility Curve.
Ans. 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 an optimum manner. The idle resources will now get utilised and the economy functions at its maximum capacity and moves from inside the PPC to points on the PPC.
Thus, economy moves from point ‘a’ inside the PPC to any point on PPC as shown in the diagram.