Chapter 1 Introduction

(Q.) Why does a PPC slope downwards from left to right? (1 Mark) (Ans)

PPC slope downwards from left to right because more ofone commoditycan be produced only with less productionof another commodity or by shifting resources from the production of one commodity to another commodity. (Q.) Why production possibility curve is termed as the production frontier of an economy ?
(1 Mark) (Ans)

Production possibility curve is based on the assumption of fuller and efficient utilization of resources.It represents the level of maximum production achievable in the economy and hence it is termed as production frontier of an economy. (Q.) Define marginal rate of transformation.
(1 Mark) (Ans)

Marginal rate of transformation is defined as the rate at which one commodity is sacrificed in order to increase the production of another commodity. (Q.) Define opportunity cost of producing a commodity.
(1 Mark) (Ans)

Opportunity cost of producing a commodity is defined as the next best alternative commodity that have been sacrificed in order to produce the given commodity.
(Q.) What is the basic nature of all central problems in the economy? (1 Mark) (Ans)

Problem of choice or decision making is the basic nature of all central problems of an economy. (Q.) What is the root cause of central problems?
(1 Mark) (Ans)

Scarcity of resources is the root cause of all central problems leading to the problem of choice. (Q.) Problem of unemployment, illiteracy etc. are studied under which branch of economics.
(1 Mark) (Ans)

Macroeconomics deals with the economy as a whole and studies the problems of unemployment, illiteracy etc. (Q.) Define Macroeconomics.

(1 Mark) (Ans)

Macroeconomics is that branch of economics which studies about the economy as a whole. It deals with the behaviour of aggregates such as national income, unemployment etc. (Q.) Define Microeconomics.
(1 Mark) (Ans)

Microeconomics is that branch of economics which deals with individual units of the economy and mainly deals with allocation of resources and price determination in the economy. (Q.) If the marginal rate of transformation remains constant along the PPC, then what will be shape of PPC?
(1 Mark) (Ans)

If MRT sloping (Q.) If be the

(Ans)

remains constant along the PPC then the PPC will be represented as a downward straight line. marginal rate of transformation is decreasing along the PPC, then what will shape of PPC ?
(1 Mark)

If MRT is decreasing along PPC then PPC will be convex to the origin. (Q.) What is the problem of For whom to produce ?
(1 Mark) (Ans)

For whom to produce may be defined as the problem of choice between different ways of personal andfunctional distribution of income. Personal distribution is concerned with th problem of inequality in the distribution of income and functional distribution is related to the distribution of income among factors of production. (Q.) What is meant by the problem of " What to Produce"?
(1 Mark) (Ans)

What to produce may be defined as the problem of allocation of resources or the problem of choice between different commodities i.e., consumer goods or capital goods,that can be produced. It also deals with the problem that in what quantity the goods should be produced with the scarce resources.
(Q.) Which branch of economics deals with the study of behaviour of individual

decision making units?

(1 Mark) (Ans)

Microeconomics deals with the study of behaviour of individual decision making units.
(Q.) A lot of people died and many factories were destroyed because of a severe earthquake in a country. How will it affect the countrys PPC? (1 Mark)

(Ans) Desturction due to severe earthquake leads to a decrease in productive capacity of the country due to which the PPC of the country will shift to the left. (Q.) What is the reason for the rightward shift of PPC? (1 Mark) (Ans) Growth of resources due to increase in quantity of available resources or technological advancement leads to a rightward shift in PPC. (Q.) Why is the problem of choice called Central problem ? (1 Mark) (Ans) The problem of choice or decision-making is basic or central problem for all economies whether they are big or small, poor or rich, developed or under-developed. That iswhy the problem of choice is calledthe '' Central Problem''. (Q.) What do you understand by fuller utilisation (or economising) of resources? (1 Mark) (Ans) Fuller utilisation (or economising) of resources represents the optimum allocation of resources so that no other resource allocation leads to increase in output of goods and services even by a single unit. (Q.) What are the main factors of production? (1 Mark) (Ans)

Land, labour, capital and entrepreneurship are the four main factors of production that helps in the production process.
(Q.) What do you mean by scarcity? (1 Mark) (Ans)

Scarcity means limited supply of goods and services in relation to their demand.
(Q.) What are the two main branches of economic theory? (1 Mark) (Ans) Microeconomics and Macroeconomics are the two main branches of economic theory. (Q.) Define Economics. (1 Mark) (Ans)

Economics is a social science, which studies economic activities of human beings concerned with allocation of resources with optimum efficiency.
(Q.) What is the problem of How to Produce ? (1 Mark) (Ans)

How to produce may be defined as the problem of choice between different techniques of

production i.e.labour intensive technique or capital intensive techniqueso that the available scarce resources can be used efficiently.
(Q.) Give any two characteristics of economic resources. (1 Mark) (Ans)

Two characterstics are: (i) Resources arelimited or scarcein relation to their demand (ii) Resources can be put todiverse uses