ECONOMICS SURE SHOT Chapter wise Questions and Answer For Class 12 Students

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Printed in India II

ECONOMICS SURE SHOT Chapter wise Questions and Answer For Class 12 Students

Miss. Nidhi Gupta M.A, B.Ed. in Economics Teacher of Economics

Dr. Hemant Gupta Ph.D., M.B.A Assistant Professor in Alliance Buisness School Alliance University, Bengaluru, India

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PREFACE Our aim in writing the first edition of the book is to present a treatment of the methods of microeconomics and macroeconomics that would allow students to apply these tools on their own and not just passively absorb the pre-digested cases described in the text. We have found that the best way to do this is to emphasize the fundamental conceptual foundations of microeconomics and macroeconomics to provide concrete examples of their application rather than to attempt to provide an encyclopaedia of terminology and anecdote. A challenge in pursuing this approach arises from the lack of mathematical prerequisites for economics courses at the school level. The lack of problem-solving experience in general makes it difficult to present some of the analytical methods of economics. However, it is not impossible. One can go a long way with a few simple facts about linear demand functions and supply functions and some elementary algebra. It is perfectly possible to be analytical without being excessively mathematical. The distinction is worth emphasizing. A simple question-based approach to economics is one that uses rigorous, logical reasoning. This does not necessarily require the use of advanced mathematical methods. The language of graphics certainly helps to ensure a rigorous understanding and using it is undoubtedly the best way to proceed when possible, but it may not be appropriate for all students. We think that this approach manages to convey the idea that graphical presentation is not just a footnote to the argument of the text, but is instead a deeper way to examine the same issues that one can also explore verbally and graphically. Many arguments are much simpler with a little mathematics, and all economics students should learn that. In many cases, we’ve found that with a little motivation, and a few nice economic examples, students

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become quite enthusiastic about looking at things from an analytic perspective. There are several other innovations in this text. First, the chapters are generally very short. We’ve tried to make most of them easy so that they can be read in one sitting. Our goal in the first edition is to instill in students a fascination with both the functioning of the economy and the power and breadth of economics. The first line of our book has been “The study of economics should begin with a sense of wonder.” We hope that readers come away from our book with a basic understanding of how market economies function, an appreciation for the things they do well, and a sense of the things they do poorly. We also hope that readers begin to learn the art and science of economic thinking and begin to look at some policy and even personal decisions in a different way.

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Acknowledgments First and foremost, our gratitude goes to Ms. Soma Roy, Principal of Durgapur Public School, West Bengal. She gave us a great vision to pursue this book writing, while at the same time sharing her valuable insights and experiences with us. She has helped us greatly in shaping the foundations of this edition and always had an open ear to our questions. Moreover, I must thank Mr. Nelson Mangalam, Principal of St. Helen’s school, Howrah (West Bengal) for his guidance at the time of writing this edition of the book. Mr. Nelson provided many comments, suggestions, and exercises based on his experience and made a significant contribution to the coherence of the final product. We are also grateful to Mrs. Uma Jackson, Headmistress of junior Section, St. Helen’s school, Howrah (West Bengal) who helped us to prepare the 1st edition. Mrs. Uma did a careful proofreading and consistency check during the final stages and helped in preparing the index. We are thankful to all the members of Rudra Publications for their valuable suggestions and encouragement. We thank everyone who has directly or indirectly encouraged or supported us to write this book. Last, but certainly not least we have to thank our parents, our friends for their support during our years of writing. They have been a constant source of encouragement and motivation throughout the time of our project writing. They provided us with valuable insight as we prepared this edition and its supplement package.

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CONTENTS A. SECTION 1: MICROECONOMIC THEORY 1. Microeconomics and Macroeconomics: Introduction

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2. Demand and Law of Demand

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3. Theory of Consumer Behaviour: Marginal utility and Indifference Curve Analysis

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4. Elasticity of Demand

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5. Supply-Law of Supply and Price Elasticity of Supply

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6. Market Mechanism: Equilibrium Price and Quantity in a Competitive Market

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7. Laws of Returns-Returns to a Factor and Returns to Scale

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8. Cost and Revenue Analysis

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9. Forms of Market

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10. Producer’s Equilibrium

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11. Determination of Equilibrium Price and Output Under Perfect Competition

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B. SECTION 2: MACROECONOMIC THEORY 12. Theory of Income and Employment

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13. Money: Meaning and Functions

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14. Banks: Commercial Bank and Central Bank

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15. Balance of Payments and Exchange Rate

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16. Fiscal Policy

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17. Government Budget

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18. National Income and Circular Flow of Income

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19. National Income Aggregates

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20. Methods of Measuring National Income

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CHAPTER - I Microeconomics and Macroeconomics: Introduction 1. What is microeconomics? The Micro meaning is small. Micro-economics as a subject deal with economic issues related to small economic units like an individual consumer, an individual producer, an individual industry, an individual firm or an individual market. 2. Define macroeconomics? Macro means “large” It studies economic activities related to the economy as a whole. For example, it studies aggregate demand for all goods and services in the economy. 3. Give two differences between microeconomics and macroeconomics. Microeconomic i.

Macroeconomic

It studies a person or firm

It studies the whole firm or economy.

ii.

It

deals

with

individual It

deals

with

aggregate

economic variables. Such as economic variables. Such as the

price

commodity.

of

a

single the general price level which is the

combination

of

all

commodities in the market.

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iii.

It deals with the income of an It deals individual

with the national

income or total income of the nation.

iv.

It deals with the output It deals with the total output of produced by a single firm

a

nation

(that

is)

Gross

domestic output v.

vi

It deals with the demand of

It deals with the aggregate

an individual

demand

To determine (know) price of

To

commodity

employment

or

factor

of

production vii

All

determine

income level

in

and the

economy.

macro

variables

are All micro variables are constant

constant like national income like price of individual output. & savings etc. 4. Critically

examine

the

„scarcity‟

definition

of

economics? Scarcity is a situation when demand for a good exceeds its supply even at a zero price. It means that the supply of resources is less than its demand. The resource is said to be scarce in the sense that the supply of resources is limited as compared to its demand. In view of the scarce means, only a limited quantity of goods can be produced. Since the resources are scarce, all the wants cannot be satisfied. Therefore, society has to decide how to allocate the scarce resources in the production of different commodities. 2

5. Which definition of economics is the best? Give reasons in support of your answer? According to Prof. A. Samuelson “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” It is the study of how people and society choose, with or without the use of money, to employ the scarce productive resources, which have alternative uses, to produce various commodities over time and distribute them for consumption. Samuelson emphasizes the economic problems in the long term. It has adopted a dynamic approach. Samuelson‟s definition of economics is very comprehensive. It is growth-oriented as well as future-oriented. It applies to all types of economies capitalist, socialist and mixed. That is why Samuelson‟s definition is the most accepted definition of economics today. 6. Define economics? Economics is a social science concerned with the allocation of scarce resources to alternative uses in a manner such that an individual maximizes his satisfaction, a producer maximizes his profits and society as a whole maximizes its social welfare. 7. What is meant by an economic problem? Economic problems are the problem of choice or the optimum utilization of scarce resources.

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8. What do you mean by economizing the use of resources? Economizing the use of resources means that resources are to be used in a manner such that maximum output is realized per unit of input. 9. What is meant by an economy? The economy is the total of economic activities directed towards the satisfaction of unlimited wants using the scarce means. 10. What is the problem of resource allocation? The problem of resource allocation is related to the allocation of resources for optimal uses and alternative uses in a manner such that it is optimally utilized. 11. Why does the problem of choice arise? The problem of choice arises because: i)

The resources are limited in relation to customer needs

ii) Resources should have alternative uses. 12. “Economics is about making choices in the presence of scarcity” Explain? If there were no scarcity, there would not have been any economic problem or the problem related to „choices. As the wants are unlimited and the resources to fulfill them are limited so we have to choose between the scarce resources.

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13. Why does an economic problem arise? Explain? The economic problem arises because i)

Resources are scarce.

ii) Resources have alternative uses. 14. Distinguish between a centrally planned economy and a market economy. A Centrally Planned Economy is the one in which economic activities (production, consumption, investment and exchange) are firmly controlled by the government or some central authority. The market economy is a free economy in which economic activities are controlled by the market forces of supply and demand. 15. “Economics is a social science”. Explain. Economics is a social science because it deals with one aspect of human behaviour, how men deal with problems of scarcity. Samuelson says that Economics is “the queen of the social sciences.” 16. Define mixed economy? The mixed economy is the one in which economic activities are governed by the free play of market forces but are regulated by the government. Both public and private sectors dominate the economic activity.

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