MICRO ECONOMICS CHAPTER 1 INTRODUCTION I Choose the correct answer each question carries 1 mark 1 The scarce resources of an economy have a Competing usages b Single usages d Foreign trade c Unlimited usages d none of the above Ans a Competing usages 2 Which of the following is an example of micro economic study a National income b Consumer Behaviour c Unemployment Ans b Consumer behaviour 4 Central problems of an economy includes a What to produce b How to produce c For whom to produce d All of the above Ans d All of the above 5 Traditionally the subject matter of economics has been studied under the following broad branches a Micro and macro Economics b Positive and Normative c Deductive and Inductive d None of the above Ans a Micro and Macro Economics II Fill in the blanks each questions carries 1 marks 1 Scarcity of resources gives raise to 2 In a centrally planned economy all important decisions are made by 3 is a set of arrangement where economic agents can freely exchange their endowments Ans Problem of choice Ans Government with each other Ans Market 4 In reality all economies are Ans Mixed Economies III Match the following each question carries 1 mark 1 Market economy a Government 2 Service of a Teacher b Private 3 Centrally planned economy c Skill 4 Positive economics d Evaluate the Mechanism 5 Normative economics e Functioning of Mechanism Ans 1 b 2 c 3 a 4 e 5 d IV Answer the following questions in a sentence word each question carries 1 mark 1 Why does the problem of choice arise Ans An economic problem arises because of limited resources unlimited wants and alternative uses of resources 2 What is market economy Ans A market economy is that economy where economic decisions are undertaken on the basis of market mechanism by the private entrepreneurs It is also known as capitalistic economy 3 What do you mean by centrally planned economy Ans A planned economy is that economy where the economic activities are controlled by the central Government 4 Give the meaning of micro economics Micro economics studies small units of an economy 5 What do you mean by positive economics The positive economics is the study of what was and what is under the given set of circumstances It deals with the scientific explanation of the working of the economy 6 What is normative economics Ans The Normative economics studies what ought to be It explains about what should be and should not be done V Answer the following in 4 sentences each question carries 2 marks 1 Mention the central problems of an economy Ans The central problems of an economy are as follows a What goods are to be produced and in what quantities b How the goods are to be produced c For whom the goods are to be produced 2 Distinguish between Micro and Macro economics Micro Economics Micro Economics study in individual units Its scope is narrow Follows slicing method 5 Distinguish between positive and normative economics Macro Economics Macro Economics study in aggregates Follows lumping method Its scope is wider Positive Economics Here we study how the different mechanisms function It deals with the scientific explanation of the working of the economy Normative Economics Here we try to understand whether the different mechanisms are desirable or not It explains about what should be and should not be done 6 What do you mean by production possibility set Ans The collection of all possible combinations of the goods and services that can be produced from a given amount of resources and a given stock of technological knowledge is called the production possibility set of the economy 7 What is opportunity cost Ans An opportunity cost is the cost of having a little more of one good in terms of the amount of the other good that has to be forgone This is known as the opportunity cost of an additional unit of the goods Type text Type text Type text 3 8 What is production possibility frontier Ans The production possibility frontier gives the combinations of two commodities cotton and corn that can be produced when the resources of the economy are fully utilized It is also called as Production possibility curve PPC also known as transformation curve VI Answer the following question in 12 sentences each question carries 4 mark 1 Briefly explain how the family farm weaver and Teacher can use their resources to fulfill A weaver may have some yarn some cotton and other instruments required for weaving Every individual has some amount of only a few of the goods and services that he would The teacher in the local school has the skills required to impart education to the students Each of these decision making units can produce some goods or services by using the their needs in a simple economy Ans People in the society need many goods and services in their everyday life including food clothing shelter transport facilities postal services and various other services like that of teachers and doctors In fact the list of goods and services that any individual needs is so large that no individual in society has all the things he needs like to use A family farm may own a plot of land some grains farming implements may be a pair of bullocks and also the labour services of the family members cloth resources that it has and use part of the produce to obtain the many other goods and services which it needs purposes and procure clothing housing and various services in exchange for the rest of the produce Similarly the weaver can get the goods andservices that he wants in exchange for the cloth he produces in his yarn The teacher can earn some money by teaching students in the school and use the money for obtaining the goods and services that he wants has unlimited resources compared to his needs The quantity of corn that the family farm can produce is limited by the quantity of resources it has and hence the amount of different goods and services that it can procure in exchange of corn is also limited As a result the family is forced to make a choice between the different goods and services that are available It can have more of a good or service only by giving up some amounts of other goods or services Thus each individual can use his resources o fulfill his needs It is said that no individual For instance the family farm can produce corn use part of the produce for consumption 2 Briefly explain the production possibility frontier Ans The production possibility frontier is a graphical representation of the combinations of two commodities cotton and