NCERT Questions for Class 12 Economics Chapter 1 – Introduction to Macro Economics

Important Questions with Solutions of Class 12 Economics Chapter 1 – Introduction to Macro Economics

1) Who is known as the ‘father of modern economics’?

Ans – Adam Smith

2) What do the terms microeconomics & macroeconomics mean?

Ans –

Basis	Microeconomics	Macroeconomics
Focus	Examines individual economic units.	Examines the average value of economy units.
Concern	Determination of prices and output in specific markets.	Overall price level and output in the entire economy.
Challenges	Price determination and resource allocation.	Determining income levels and addressing unemployment.
Process	The bottom-up approach monitors individual components.	The top-down approach monitors the entire economy.
Scope	Narrow scope, focusing on individual markets and actors.	Broad scope, focusing on the overall economy and policies.

3) What do you understand from the term ‘entrepreneurship’?

Ans – Entrepreneurship can be defined as the skill or talent that can develop, organize, and run a business venture along with its risk factors and having the objective of earning a profit in the business—an example of entrepreneurship you can see in the formation of new companies.

4) What are the things to look at in a capitalist economy?

Ans – Karl Marx indicates capitalist exploitation in the book “Das Kapital.” It depicts workers who would be underpaid for the value of their labor.

i.e., 6 hours of pay for the 12 hours of work. On the other hand, Ferguson labeled capitalism as an automated self-reinforcing process that emerged from the confluence of individual self-interest and competition.

Some notable features of the capitalistic economy are as follows:

• Private Ownership: Property and business are owned by private individuals or companies.
• Minimal Government Interference: The government has minimal or no interference in economic activities.
• Influence of the Private Sector: All economic decisions are influenced by the private sector.
• Market Forces: Demand and supply forces drive the economy with the participants’ behavior in an economy.
• Profit Maximization: The main objective is profit maximization.
• Examples: Capital economies like the USA and Japan are the prime examples.
• Freedom of Enterprise: People have the freedom to make decisions and to discover their businesses.

5) Define macroeconomics & microeconomics! How do the 2 areas relate to one another?

Ans – There are two branches of economics: macroeconomics & microeconomics. Yet, despite having contradictions these 2 are interconnected on a more significant level. Microeconomics deals with individual and business decisions concerning resource allotment and the charges of services & goods. It looks at the supply and demand for products to determine the growth of an economy.

Macro looks at the functioning of the economy in general & microeconomics focuses on broader phenomena like inflation, unemployment, and economic growth, etc.

They are connected in the following manner:

For instance, higher inflation may increase the cost of raw materials to a business & its cost of finished goods to be passed on to consumers. This is an illustration of how events at the macro level affect those at the micro level.

The relationship between macroeconomics and individual behavior is a “2-way street,” as profoundly acknowledged by Professor Ackley. Microeconomic theories inform macroeconomic trends; simultaneously, macroeconomic insights may contribute to a deeper understanding of behavior. In other words, microeconomics denotes small-scale economic activities done by individuals and businesses, whereas macroeconomics accounts for large-scale economic activities of entire economies.

6) Explain the terms ‘scarcity’ & ‘opportunity cost’ in economics.

Ans – Scarcity

Scarcity is a situation of disparity in resources to cater to the needs of general society. Resources with a non-zero cost aren’t common things to incorporate, but relative scarcity is the center of attention.

It’s often referred to as ‘Paucity.’ Economics defines how people use limited resources to cater to unlimited wants. We must make choices since we cannot acquire all the resources we want.

Importance of Scarcity:

Scarcity impacts the supply and demand of a country or an economy.

Scarce availability of input resources leads to decreased production of goods and services. This may cause producers to find it difficult to produce the desired goods and services if resources are insufficient.

Scarce resources set high demand but low supply rates are the reason for escalated prices among goods and services.

If scarcity didn’t exist, then economic decisions would never be needed. Scarcity helps people choose between options and use resources optimally due to the availability of limited resources.

Opportunity Cost:

It’s defined as what someone gives up when making a choice. Since we can use any given resource for an intended end, the opportunity cost is the value of the next best alternative use. Here are some important opportunity costs:

• Resource Allocation: With the allocation being done, opportunity cost is highly considered resource usage, making the benefits valued more appropriately.
• Decision Making: Opportunity cost helps the individual and the business to make an informed decision by looking at what they have to give up while choosing one thing at the expense of another.
• Pricing Mechanism: The occurrence of opportunity costs is inevitable. It’s why there are varied prices for different goods/services. If there isn’t any scarcity of resources, then everything would be free & no opportunity cost would exist.
• Tied to Scarcity: Due to the unavailability of resources, consumers and producers consider the opportunity cost factor while making decisions. This is interlinked automatically with the concept of scarcity.

7) What is the scope of macroeconomics, and what areas does it cover?

Ans – The scope of macroeconomics contains some vital areas, including:

a. Defining the Economic Operation: It relates to vitally significant variables learn how the economy operates. Basic economics problems: aggregate income, output, employment, and the general price level of the economy form the core of macroeconomics.

b. Formulating Economic Policies: In developing economic policies, the use of macroeconomics by the governments of different countries is quite common. The concepts of macroeconomics assist the governments in developing countries and treat problems related to inflation, overcrowding, balance of payments, etc.

c. General Unemployment: Macroeconomics defines the causes, effects, and cures for general unemployment, which is caused by a deficiency of effective demand. An increase in the categories of total investment, output, income, and consumption tends to increase the effective demand and prevent a decline in unemployment.

d. National Income: The performance of an economy for national income is one of the prime focus areas under macroeconomics. Problems like the Great Depression of the 1930s established that it was important to understand the forces underlying general overproduction & unemployment; this forms the realm of macroeconomics.

e. Economic Growth: Growth of a country’s economy forms a part of macroeconomics, where the study targets the economy’s resources and capacities. Drawing on the macroeconomics principle, plans are chalked out and put into action to increase national income, output, and employment and contribute towards general development in a country.

8) What are the various types of goods produced in an economy?

Ans – The various classes of goods produced in an economy are:

a. Ordinary Goods: These are those types of goods whose quantity demanded is increased with a rise in the consumer’s income and decreased with a fall in the consumer’s income. They are also referred to as normal goods.

b. Free Goods: These goods are available in unlimited supply and are provided as natural gifts. Examples include air, seawater, sunlight, and desert sand.

c. Economic Products: These are goods whose supply is limited and which have value. They include vegetables, cereals, minerals, fruits, and fish—items that are not man-made and that can be bought or sold in the market.

d. Substitute Products: These can be used in place of one another. Any rise in the price of one kind of good would lead to an increase in the demand for its substitutes, and any fall in price would lead to a fall in demand for its substitutes – For example, tea and coffee.

e. Private Goods: These are goods owned by private individuals or entities. Examples include cars, houses, motorcycles, mobile phones, books, and televisions.

f. Public Goods: These goods are owned jointly by society, the public, or the government. Examples include roads, bridges, hospitals, and government schools. They are also known as social goods or government goods.

g. Consumer Materials: These are goods directly consumed by consumers for personal consumption. All these would be bread, biscuits, butter, jam, rice, fish, egg, shoes, clothes, fan, books, pen and cooking gas.

h. Capital Materials: These goods are not consumed raw but used to produce different goods. Examples are seeds, fertilizers, tools, machines, and raw materials.