notes of introduction to microeconomic chapter 1 notes
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CBSE Class–12 economics
Revision Notes
Ecomomics 01
Introduction to Micro Economics class 12 Notes Economics
Study of Economics is divided into two branches:(a) Micro economics
(b) Macro economics
Micro economics studies the behaviour of individual economic units.Ex-Consumer equilibrium, producers equilibrium, product pricing, factor pricing etc.
Micro economics is also called price theory.
Macro economics studies the behavior of the economy as a whole.Ex- National income, aggregate demand, aggregate supply, general price level, Inflation etc.
Macro economics is also called theory of income and employment.
Economy is a system in which people earn a living to sastisfy their wants through process of production, consumption, investment and exchange.
Economic problem is the problem of choice arising from use of limited means which have the alternative use for the satisfaction of various wants.
Cause of economic problems are :(a) Unlimited Human Wants(b) Limited Economic Resources(c) Alternative uses of Resources.
Central Problems of an Economy
The central problem of “what to produce” refers to which goods and services will be produced in an economy and in what quantities. An economy has to produce those goods and services where there will be maximum social utility. This problem is studies under price theory.The central problem of “how to produce” refers to what technique of production (i.e.., labour intensive or capital intensive) should be used to produce goods. An economy has to select that technique which maximizes the output at minimum cost. This problem is studies under theory of production.The central problem “for whom to produce” is related to distribution of produced goods and services(i.e.., income and wealth) among factors of production in the form of rent, wages, interest and profit.This is explained under the theory of distribution.
For the selection of an opportunity, the sacrifice of next best alternative use is called opportunity cost.In other words, it is the amount of one commodity that is to be sacrificed to increase the production of other commodity.
Production possibility frontier or production possibility curve shows all possible combinations of two set of goods that an economy can produce with available resources and given technology, assuming that all resources are fully and efficiently utilized.