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45 views3 pages

INTRODUCTION TO MICRO ECONOMICS Chapter 1 Cycle - 4

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saksham.sarougi15577
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DELHI PUBLIC SCHOOL-BOPAL, AHMEDABAD

SESSION – 2024-25
Cycle-4

CLASS-XI ECONOMICS
Chapter 1: INTRODUCTION TO MICRO ECONOMICS

1. Study of Economics is divided into two branches:(a) Micro economics


(b) Macro economics
2. Micro economics studies the behaviour of individual economic units. Ex-Consumer
equilibrium, producer’s equilibrium, product pricing, factor pricing etc.
3. Micro economics is also called price theory.
4. Macroeconomics studies the behavior of the economy as a whole. Ex- National
income, aggregate demand, aggregate supply, general price level, Inflation etc.
5. Macroeconomics is also called theory of income and employment.
6. Economy is a system in which people earn a living to satisfy their wants
through process of production, consumption, investment and exchange.
7. Economic problem is the problem of choice arising from use of limited means
which have the alternative use for the satisfaction of various wants.
8. Cause of economic problems are :
(a) Unlimited Human Wants(b) Limited Economic Resources
(c) Alternative uses of Resources.

9. Central Problems of an Economy

10. 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.
11. 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.

Example of Opportunity Cost: (i) Mohan decides to use the train to get to work rather than
driving each day. The train fare each month will be Rs.350. After one month, he calculates
that he is spending Rs.250 less on petrol and about Rs.25 less on maintaining her car. What is
the opportunity cost of using the train?
Cost of using train pm= Rs.350. Cost of using the car pm = Rs.250 + Rs.25 = Rs. Opportunity
cost of using the train = Rs.350 – Rs.275 = Rs.75 per month
(ii) Ruth has a mobile shop. She wants to employ 2 students to work for her between June and
August. She expects each employee to generate Rs.250 a day each of the 78 working days of
this period. However, if she lost 2 days at the start of the period and fully trained her
employees they could generate Rs.260 a day. What is the opportunity cost of not training her
employees?
Earnings from her 2 employees without training = (Rs.250 x 78) x 2 = Rs.39000 If she trained
the employees she would lose 2 working days worth of revenue. The revenue would be = (260
x 76) x 2 = Rs.39520 The opportunity cost of not training her employees = Rs.39520 –
Rs.39000 = Rs.520
(iii) Jim, a consultant, earns Rs.85 an hour. Instead of working one night, he goes to a
Premier League cricket match in Delhi which costs him Rs.55 and lasts two hours. What is
the opportunity cost of watching the football instead of working?
Jim earns Rs.85 per hour. In 2 hours he earns 2 x 85 = Rs.170
Opportunity of attending match = Rs.170 + 55 = Rs.225

12. 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.
13. Economizing of resources means utilisation of resources in best possible manner to
maximize output.
14. Production Possibility Frontier or Curve Features

(a) Slopes downward from left to right because if production of one commodity is to
be increased then production of other commodity has to be sacrificed as there is
scarcity of resources.
(b) Concave to the origin because of increasing marginal opportunity cost or (MRT)

15. The Production possibility curve will shift under following two condition:

(a) change in resources, (b) Change in technology of production for both the goods.

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