Class 12 NCERT Solutions Micro Economics - Introduction to Micro Economics - Free PDF Download
Question 1. Discuss the central problems of an economy.
Solution: An economy is a collection of organisations and structures that help or hinder the production and distribution of commodities and services in a given society. Due to the diversity of wants, the scarcity of resources, and the problems of choice, every economy faces three major issues. This scarcity puts a premium on making the greatest use of the available resources in order to meet the seemingly endless demands.
The following are the three major economic issues:
1. Issues with resource allocation.
2. Issues with resource utilisation that is complete and more efficient.
3. Issues with resource growth.
1. One of the most important difficulties that every economy face is resource allocation:
a. What to produce: There are an endless number of demands in an economy, but only a finite number of resources that can be put to various purposes. The economy can't make all kinds of products, both consumer and producer goods. As a result, the economy must decide what types of commodities and services will be produced, as well as how much of each.
b. How much to produce: It's difficult to choose a method of production. There are two sorts of production techniques: -
Labour-intensive: This is a production method that emphasises labour over capital.
Capital-intensive: In this strategy, capital is utilised more than labour.
c. From whom to produce: This is a challenge addressing the allocation of manufactured items among different social groupings. There are two aspects to it:
Personal distribution: the allocation of national income based on who owns the production factors.
Functional distribution: When national revenue or production is allocated among various factors of production, such as land, labour, capital, and entrepreneurship, for the goal of providing rent, wages, interest, and profit.
2. Problem relating to the efficient use and fuller utilisation of resources: The term "production efficiency" refers to the ability to produce the most quantity of goods and services with the resources available. Because resources are already few in contrast to demand, an economy must ensure that its resources are not squandered by underutilization.
3. Problem relating to resource growth: It has to do with boosting the economy's production capacity in order to boost output volume. Technological innovation can help us reach this goal. Underdeveloped countries continue to suffer from slow resource expansion. Aside from better use, these countries should aim to increase their productive capacities by exploring more resource availability and developing better strategies for their utilisation.
Question 2. What do you mean by the production possibilities of an economy?
Solution: The myriad potential combinations of commodities and services that a specific economy can generate with the given technology/stock of technical knowledge and utilising the available resources completely and efficiently are referred to as an economy's production possibilities. In other terms, it refers to a variety of possible bundles of goods and services that can be created together while maximising the use of available technology and resources.
Question 3. What is a production possibility frontier?
Solution: The production possibility frontier (PPF) is a curve that depicts the possible combinations of two items that an economy can generate with current technology and fully utilised resources. It's also known as the production possibility curve (PPC) since it depicts the upper limit of what can be produced with current resources.
All of the points on the PPC, i.e., curve AE, are linked to various quantities of good 1 and good 2 created by fully and efficiently utilising the available resources. Any point below the curve, such as F, represents inefficiency or underutilization of resources. Any point outside the curve, such as Z, represents an overabundance of resources and technology.
As we raise the production of Good 1, the production of Good 2 decreases due to the economy's limited resources. It signifies that resources are transferred from the production of Good 2 to the production of Good 1, i.e., one commodity is turned into the other by transferring resources rather than physically changing. As a result, it's also known as a 'transformation curve.'
As a result, PPF or PPC refers to a graphical representation of all potential combinations of two items that can be manufactured with the available resources and technology.
Question 4: Discuss the subject matter of economics.
Solution: Economics is a subject in and of itself. Economics describes how a person allocates his limited resources to meet his seemingly limitless desires. Economic theory is separated into two branches: Microeconomics and Macroeconomics. According to Ragnar Frisch's hypothesis, this division was established only after 1930.
Microeconomics is the study of particular economic units, such as consumer and business behaviour. Microeconomics is the study of how people use the resources they have to the best of their abilities in order to achieve their rational goals.
It's also the study of supply and demand, and how their interactions influence the prices of various goods and services. Microeconomics aids in the resolution of an economy's three main issues.
It's also known as the Price Theory because it's primarily concerned with how prices are set in commodity and factor markets. The main instruments of analysis are demand and supply in this case. Individual income and expenditure are its primary tools.
Since it encompasses the calculation of wages, rent, interest, and profit, it is also known as Factor theory or micro theory of distribution.
Macroeconomics refers to the study of the economy as a whole. It focuses on how aggregate metrics, such as aggregate demand, aggregate supply, and overall price level, are determined and how they evolve over time. It's also known as the Income and Employment Theory because it's primarily concerned with how income and employment levels are determined. Macroeconomics aids in the analysis and resolution of issues such as unemployment, inflation, BOP disequilibrium, poverty, and so on. The main instruments of analysis are aggregate demand and aggregate supply.
Question 5. Distinguish between a centrally planned economy and a market economy.
Solution:
Question 6. What do you understand by positive economic analysis?
Solution: Positive economic analysis is the study of what is or how an economic problem is solved via the examination of numerous positive statements and methods. To put it another way, it's also known as a cause-and-effect relationship. It expresses "what is."
These are true statements that explain what was, is, and will be in the future. These assertions may be examined, proven, or disproven, and they are free of personal value judgments. If someone states it's raining outside, for example, the truth of that assertion can be checked. It is concerned with real-life or realistic issues. Economic theory is regarded as pure science by economists such as Lionel Robbins. Other instances include India being an overpopulated country with a diversified economy, and so on.
Question 7. What do you understand by normative economic analysis?
Solution: Normative economic analysis is the process of determining whether or not a specific method is good. This analysis focuses on what should be the desired state or how the economic problems should be addressed. It offers economic goals and objectives, as well as what should be done to accomplish these goals and objectives. We come across normative propositions in normative economic analysis that cannot be evaluated because they require human value judgments. It is founded on ethics and deals with idealistic issues.
For instance, the government should support private enterprises to increase the pace of industrialization, as an illustration of this analysis. Economists such as Marshall, Pigou, and others consider economics to be a normative science.
Question 8. Distinguish between microeconomics and macroeconomics.
Solution:
Microeconomics Chapter 1 Class 12 - Free PDF Download
The Class 12 Economics Chapter 1 NCERT solutions will have optimized content that will help you understand the concepts with ease. Our app and website will have the content of Chapter 1 of Microeconomics so that you can easily download the content. The concepts of Microeconomics Class 12 Chapter 1 NCERT Solutions will be so interesting that the students who read the concepts will not forget them easily. This will help a lot while taking the exam. Once the content is downloaded, it will be available to you anytime so that you can easily find it and go through it. The contents will be interesting and will make the learning process interesting too.
NCERT Solutions of Class 12 Microeconomics Chapters
Chapter – 1: Introduction to Microeconomics
NCERT Solutions of Class 12 Microeconomics Chapter 1 - Introduction to Microeconomics will cover all the basic concepts related to Microeconomics and all the terms which will be used to explain the concepts. It explains the types of economics and its importance. It will clearly explain the difference between Microeconomics and macroeconomics.
It will give a basic idea of Possibility Curve and Opportunity Cost, Production Possibility Curve, and Central problems. These topics will be covered in detail in the next chapters. The importance of this concept is medium to low. All the important concepts will provide a good weightage of marks in the examination.
NCERT Solutions of Class 12 Microeconomics Chapter-Wise Marks Weightage
Microeconomics will have 50 marks weightage in the entire syllabus. The weightage of marks will have the introduction topic with 4 marks, customer behaviour and demand will constitute 18 marks, producer behaviour and supply will constitute 18 marks as well. The forms of market and price determination will have 10 marks weightage. Customer behaviour and demand and producer behaviour and supply will have the highest weightage and are the most important concepts from the exam point of view. These two concepts will hold 60% of marks in this concept so preparing them will ensure good results.
Our subject matter experts have made sure that all the important points and tips and tricks are included which are important while preparing for the examination.
Why are NCERT Solutions for Class 12 Microeconomics Chapter 1 Important?
NCERT Class 12 Microeconomics Chapter 1 provides an in-depth explanation of concepts and also the importance of the subject.
The solutions are very handy in last-minute revisions during the exams from Microeconomics Class 12 Chapter 1 NCERT solutions.
It lists all the repeated questions and important points which can be expected in the exams.
The topics are listed along with the weightage of marks so that it will be easy to figure out the important concepts.
Important Study Material Links for Class 12 Economics Chapter 1 - Introduction to Micro Economics
NCERT Solutions for Class 12 Macro Economics - Chapter-wise List
Given below are the chapter-wise NCERT Solutions for Class 12 Macro Economics. These solutions are provided by the Macro Economics experts at Vedantu in a detailed manner. Go through these chapter-wise solutions to be thoroughly familiar with the concepts.
NCERT Solutions for Class 12 Micro Economics - Chapter-wise List
Given below are the chapter-wise NCERT Solutions for Class 12 Micro Economics. These solutions are provided by the Micro Economics experts at Vedantu in a detailed manner. Go through these chapter-wise solutions to be thoroughly familiar with the concepts.
Additional NCERT Books for Class 12 Economics
The NCERT Books for Class 12 Economics provide a comprehensive understanding of key economic theories and concepts. These textbooks are essential resources for students preparing for their board exams, covering both microeconomics and macroeconomics in detail.
Related Links for NCERT Solutions Class 12 Economics
These links offer direct access to detailed NCERT Solutions for Class 12 Economics. Covering both microeconomics and macroeconomics, these solutions help students understand key concepts and prepare effectively for exams.
Important Related Links for CBSE Class 12 Economics
FAQs on NCERT Solutions for Class 12 Micro Economics Chapter 1 Introduction To Micro Economics
1. What are the three central problems of an economy, as explained in the NCERT Class 12 Microeconomics textbook?
According to the NCERT solutions for the 2025-26 syllabus, every economy faces three central problems due to the scarcity of resources. The correct method to answer this involves detailing each problem:
- What to produce and in what quantities? This problem involves choosing which goods and services to produce (e.g., consumer goods vs. capital goods) and deciding the quantity of each, as resources are limited.
- How to produce? This refers to the choice of production technique. An economy must decide whether to use labour-intensive techniques (more labour, less capital) or capital-intensive techniques (more capital, less labour), depending on resource availability.
- For whom to produce? This problem concerns the distribution of the final goods and services among the population. It addresses how the national product is shared among different households and factors of production (land, labour, capital, entrepreneur).
2. How should a student explain the Production Possibility Frontier (PPF) with a diagram for board exams?
To correctly explain the Production Possibility Frontier (PPF), or Production Possibility Curve (PPC), you should follow these steps:
First, define the PPF as a graphical representation showing all possible combinations of two goods that can be produced with available resources and technology, assuming full and efficient utilisation. It is also called a Transformation Curve.
Next, draw a diagram with two axes (Good X and Good Y). The curve should be downward sloping and concave to the origin.
Finally, explain the key points on the diagram:
- Points on the curve: Represent efficient and full utilisation of resources.
- Points inside the curve: Indicate underutilisation or inefficient use of resources.
- Points outside the curve: Are unattainable with the current level of resources and technology.
The downward slope signifies that to produce more of one good, some units of the other good must be sacrificed.
3. What is the correct method to distinguish between a Centrally Planned Economy and a Market Economy?
As per the NCERT solutions, the correct method to distinguish between these two economic systems is by comparing their core features in a structured manner:
- Ownership of Resources: In a centrally planned economy, resources are collectively owned by the government. In a market economy, resources are predominantly owned by private individuals.
- Economic Decisions: Decisions regarding production, consumption, and investment are made by a central authority or the government in a planned economy. In a market economy, these decisions are driven by the forces of supply and demand.
- Motive: The primary motive in a planned economy is social welfare. In a market economy, the main motive is profit maximisation.
- Role of Government: The government plays a comprehensive role in all economic activities in a planned economy. In a market economy, the government's role is generally limited to maintaining law and order.
4. Why is a Production Possibility Curve (PPC) typically concave to the origin?
A Production Possibility Curve (PPC) is concave to the origin because of the increasing marginal opportunity cost (MOC) or Marginal Rate of Transformation (MRT). This means that to produce one additional unit of a good, an increasing amount of the other good has to be sacrificed. This happens because resources are not equally efficient in the production of all goods. When resources are transferred from the production of one good to another, their productivity decreases, leading to a higher rate of sacrifice.
5. How does the concept of 'opportunity cost' relate to the central problem of 'what to produce'?
The concept of opportunity cost is fundamental to solving the central problem of 'what to produce'. Opportunity cost is the value of the next-best alternative that is given up when making a choice. Since resources are scarce and have alternative uses, an economy cannot produce everything it wants. When it decides to produce more of one good (e.g., wheat), it must divert resources from the production of another good (e.g., cloth). The amount of cloth that is sacrificed is the opportunity cost of producing more wheat. Therefore, the decision of 'what to produce' is always made by evaluating the opportunity cost involved.
6. What do 'Positive' and 'Normative' economic analyses mean, and how are they approached differently?
The NCERT solution distinguishes between Positive and Normative economic analyses based on their approach to economic issues:
- Positive Economic Analysis: This focuses on 'what is'. It deals with factual statements and cause-and-effect relationships that can be tested and verified with data. For example, stating "An increase in the price of a good leads to a decrease in its quantity demanded" is a positive statement. The approach is objective and descriptive.
- Normative Economic Analysis: This focuses on 'what ought to be'. It involves value judgements, opinions, and deals with how economic problems should be solved. For example, stating "The government should increase the minimum wage to reduce poverty" is a normative statement. The approach is subjective and prescriptive, and its conclusions cannot be empirically tested.
7. According to NCERT, what is the fundamental difference between Microeconomics and Macroeconomics?
The fundamental difference lies in the scope of study:
- Microeconomics is the study of economic behaviour at the level of individual units, such as a single consumer, a household, a firm, or a specific market. It deals with how prices of individual commodities and factors of production are determined. It is also known as Price Theory.
- Macroeconomics is the study of the economy as a whole. It deals with aggregate variables like national income, aggregate demand, aggregate supply, unemployment, and inflation. It is also known as the Theory of Income and Employment.
Essentially, microeconomics looks at the individual trees, while macroeconomics looks at the entire forest.
8. What key topics are covered in the NCERT Solutions for Class 12 Microeconomics, Chapter 1: Introduction to Microeconomics?
The NCERT solutions for this introductory chapter focus on the foundational concepts of economics. The key topics you need to solve and understand are:
- The meaning of an economy and why economic problems arise (scarcity, choice).
- The three central problems of an economy: what, how, and for whom to produce.
- The concepts of Opportunity Cost and the Production Possibility Frontier (PPF).
- The distinction between Microeconomics and Macroeconomics.
- The difference between Positive and Normative Economics.
- An introduction to different types of economies, mainly Centrally Planned, Market, and Mixed Economies.
