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

Q1: What does the problem for whom to produce refer to?
Ans: The problem for whom to produce refers to the challenge of determining which section of the population will consume the produced goods and services. Due to limited resources, choices need to be made about which goods and services are allocated to different consumer groups, leading to the need for equitable distribution and addressing diverse needs and preferences.

Q2: Give two examples of Micro and Macro Economy.
Ans: Two examples of Microeconomy are individual supply and individual demand, representing the economic decisions made by individual consumers and producers. In contrast, two examples of Macroeconomy are aggregate supply and aggregate demand, reflecting the overall production and consumption patterns in a national economy.

Q3: What is the Production Possibility Frontier?
Ans: Production Possibility Frontier is the graphical representation of the maximum output possibilities of two goods or services when resources are fixed. It illustrates the trade-offs between different production options, demonstrating the most efficient utilization of resources for optimal output.

Q4: What does the opportunity cost mean? Explain with a numerical example.
Ans: Opportunity cost refers to the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. It's the cost of forgoing the next best alternative when a decision is made. In other words, it's the value of the next best alternative that must be sacrificed in order to pursue the chosen option.
Let's consider a simple numerical example to illustrate opportunity cost:
Imagine you have $1,000, and you are considering two alternatives:

• Option A: You invest the $1,000 in a savings account that offers an annual interest rate of 5%. At the end of the year, you will have $1,050.
• Option B: You use the $1,000 to enroll in a photography course. After completing the course, you expect to start a part-time photography business, which you estimate will earn you $1,200 in a year.

The opportunity cost in this scenario can be calculated by comparing the returns of the chosen option (either A or B) with the returns of the best forgone alternative.

Opportunity Cost of Choosing Option A:
Opportunity Cost = Earnings from Option B - Earnings from Option A
Opportunity Cost = $1,200 - $1,050
Opportunity Cost = $150

In this example, the opportunity cost of choosing Option A (putting money in the savings account) instead of Option B (taking the photography course) is $150. This means you're giving up the opportunity to earn an additional $150 by choosing the savings account option. Understanding opportunity cost is crucial in decision-making, especially in economics and finance, as it helps individuals and businesses make informed choices by considering the potential benefits of the options they forgo.

Q5: Define Normative Economics.
Ans: Normative Economics is a branch of economic analysis that deals with judgments about what ought to be rather than what is. It involves subjective opinions and value judgments, focusing on economic policies and goals based on ethical considerations and societal values.

Q6: What do you mean by economizing of resources?
Ans: Economizing of resources refers to the efficient use and allocation of limited resources to maximize their utility. It involves making rational decisions to optimize the utilization of resources, ensuring that they are allocated in a manner that maximizes overall welfare and satisfaction.

Q7: What are the three central problems of Economy?
Ans: The three central problems of Economy are:

• What to Produce: This refers to the selection of goods and services to be produced in an economy based on the demand and available resources.
• How to Produce: This concerns the methods and techniques to be used for producing the chosen goods and services, taking into account efficiency and cost-effectiveness.
• For whom to Produce: This problem relates to the distribution of goods and services among different sections of society, considering factors like income, needs, and preferences.

Q8: What is the opportunity cost?
Ans: Opportunity Cost is the concept that refers to the value of the best alternative that must be forgone or sacrificed in order to pursue a particular action or decision. It represents the benefits lost when one choice is made over another.

Q9: What are the three central problems of an economy?
Ans: The three central problems of an economy are:

• What to produce?
• How to produce?
• For whom to produce?