CLASS 11th ECONOMICS

ECONOMIC

INTRODUCTORY STATISTICS FOR

MICROECONOMICS ECONOMICS

40 Marks 40 Marks
Studies the behaviour of individual Collection, presentation, analysis
units of the economy and interpretation of data related to
econonmy

20 Marks Project Work

CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

 Economy
 Important process of Economy
 Types of Economy
 Economic Problems
 Central Problems of Economy
 Production Possibility Curve
 Economics
 Types of Economics
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Economy is a system which provides opportunities and

means of work to an individual for earning their living
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Important Process of Economy

Production Consumption Exchange Investment

Process The process of

using up of Transfer of An asset or item
through which
goods and ownership. acquired with
inputs (tangible
services for the goal of
and Intangible)
direct generating
are converted
satisfaction of income.
into output.
human wants
and desires.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Types of Economy

Centrally Planned Economy

• Economy in which decisions are taken by Government.

• Factors of production and prodcution activities are owned
and undertaken by Government
•The role of Private entrepreneurs is minimal
•The state controls the distribution of goods among the different
segments of society.
• It is also known as socialist or controlled economy.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Market Economy

• Production activities are undertaken by the private owners.

•The Factors of production are owned by the private entities.
• Role of Government is minimal.
• Competition prevails.
• It is also known as capitalist or free economy.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Mixed Economy

• Co-existence of private and public sector.

• Profit motive and social welfare both involved.
• Mixed Economy = Socialist + Capitalist
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Economic Problems

• Economic problem is basically problem of choice

• Why Economic Problem arises??

Because resources are limited and choice has to be exercised due to
which economic problem i.e problem of choice arises.

• Economic Problem is to match limited resources to unlimited wants and

needs.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Reasons for Economic Problems

 Unlimited Human Wants and needs.

•Human wants are never ending.
• Every human has different sets of wants and desires as priorities of
human differs.

 Scarcity of Resources
• Scarcity means excess of wants over the available resources.
For Example: Demand is more than Supply
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

 Alternate Uses
• One available resources can be used alternatively.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Central Problems of an Economy

• Problems arising in the economic avtivities due to limited resources

having alternative uses and unlimited wants.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Central Problems of an Economy – What to produce?

•This problem involves:

1. Selection of Goods and services to be produced;
2. Quantity to be produced of each selected commodity.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Central Problems of an Economy – What to produce?
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Central Problems of an Economy – What to produce?

• Consumer Goods

1. Durable Goods: Goods having lifespan for more than 3 years, For
Example: Airconditioner, Refrigerators, vehicles etc

2. Non Durable Goods: Goods having short lifespan less than 3 years or
goods that are fully used at one point of time, For example : Chips, cold
drinks, food items etc.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Central Problems of an Economy – How to produce?

•This problem refers to the selection of technique to be used for production

of goods and services

Techniques

Labour Intensive
Technique Capital Intensive Technique
1. Labour oriented 1. Capital Oriented
2. Applied in India 2.Applied in Foreign
countries
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Central Problems of an Economy – For whom to produce?

•This problem refers to the selection of the category of people who will
ultimately consume the goods.

•Goods are produced keeping in mind the paying capacity of the people.

• The Capacity to pay depends on level of Income.

• This problem is concerned with the distribution of income among the

various factors of production i.e Land, Labour, Capital and Entrepreneur.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Central Problems of an Economy – For whom to produce?

For whom to produce

Personal Distribution Functional Distribution

How National Income is Share of different factors of

distributed among different production in the total
groups of people National Income
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Opportunity Cost

• The cost of next best alternative foregone.

• The Loss of other alternatives when one alternative is
choosen
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Marginal Opportunity Cost

• Refers to the number of units of a commodity sacrificed to gain one

additional unit of another commodity.
• Refers to the cost to make one more unit of a product.

Guns Butter MOC

(in units) (in units)
21 0 -
20 1 1
18 2 2
15 3 3
11 4 4
6 5 5
0 6 6
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Marginal Rate of Transformation

• MRT is the ratio of number of unit of a commodity sacrificed to gain an

additional unit of another commodity

MRT = Units Scarificed

Units Gained

Guns Butter MRT

(in units) (in units)
21 0 -
20 1 1G: 1B
18 2 2G: 1B
15 3 3G: 1B
11 4 4G: 1B
6 5 5G: 1B
0 6 6G: 1B
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Production Possibility Curve (PPC)
• Refers to the graphical representation of possible combination of two
goods that can be produced with given resources and technology.

• It is also known as:

 Production possibility frontier
Production possibility boundary
Transformation Curve
Transformation boundary
Transformation frontier

Assumptions of PPC
1. Amount of resources in an economy is fixed, but these resources can
be transferred from one use to another.
2. With the help of given resources, only two goods can be produced.
3. The resources are fully and efficiently utilised
4. Resources are not equally efficient in production of all product.
5. The level of technology is assumed to be constant
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Production Possibility Schedule

Possibilities Guns (in Butter (in MOC MRT=

units) units) Eggs/Butter
A 21 0 - -

B 20 1 1 1G: 1B

C 18 2 2 2G: 1B

D 15 3 3 3G: 1B

E 11 4 4 4G: 1B

F 6 5 5 5G: 1B

G 0 6 6 6G: 1B
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Production Possibility Curve

PPC of Guns and Butter

21 A
B

18 C

15 D

12
E

6 F

0 G
0 1 2 3 4 5 6 7
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Properties of PPC

1. PPC slopes downwards

• More Production of one good is associated with the decline in the
production of other goods.
• There is an inverse relationship between change in quantity of production.
• Production of Guns

• Production of Butter

2. PPC is Concave Shaped

• Because of increasing rate of transformation i.e more and more units of
one commodity are sacrificed to gain an additional unit of another
commodity
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Change in PPC

Change in PPC

Shift in PPC Rotation in PPC

Change in production Change in production

capacity with respect to capacity with respect to
both the goods only one good
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Change in PPC – Shift in PPC

Rightward shift – Advancement or upgradation of technology and growth

of resources in respect to both the goods i.e Guns and butter.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Change in PPC – Shift in PPC

Leftward shift – Technological degradation or decrease in resources with

respect to both the goods i.e Guns and butter.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Change in PPC – Rotation in PPC

Rotation for commodity on the X-axis – Technological improvement or

increase in resources for production of the commodity on the X-axis.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Change in PPC – Rotation in PPC

Rotation for commodity on the Y-axis – Technological improvement or

increase in resources for production of the commodity on the Y-axis.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Practicals on Opportunity Cost

Question 1 : Rahul is working as a sales manager at a salary of Rs 95,000

per month. He received 2 more job offers. He got an offer of Rs 70,000 at
Tata Power and Rs 85,000 from Reliance Industries. What is his
Opportunity cost for working as a sales manager ?

Question 2 : A farmer produces 100Kg of wheat on a piece of land with the

help of a given quantity of resources. If this farmer can also produce 70Kg
of rice with the same quantity of resources, then what is opportunity cost of
producing wheat?
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Practicals on PPF

Question 1: Calculate the marginal opportunity cost (MOC) of commodity A

for the given combination

Commodity A 0 1 2 3 4 5

Commodity B 15 14 12 9 5 0

MOC
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Practicals on PPF

Question 2: Determine the Marginal Opportunity cost from the following

data:
Commodity A Commodity B MOC
20 10
10 14
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Practicals on PPF

Question 3: Compute the Marginal Opportunity cost from the following data:

GoodX 0 10 20 30 40
GoodY 200 180 140 80 0
MOC
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Practicals on PPF

Question 4: A country produces two commodities X and Y its production

possibilities are shown in the following table:

Possibilities A B C D E F
Commodity X 20 14 9 5 2 0
Commodity Y 0 1 2 3 4 5
MRT

a) Calculate marginal rate of transformation (MRT)

b) Construct a PPF with the help of various possibilities;
c) Comment on the shape of PPF along with its reason.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Practicals on PPF

Question 5: Giving reasons, comment on the shape of Production

Possibilities Curve based on the following schedule:

Goods X (units) Goods Y (units) MRT

0 10
1 9
2 7
3 4
4 0
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

What is Economics ?

• Economics studies the way a society chooses to use its limited resources
which have alternate uses to produce goods and services and to distribute
the among different group of people

 Study of Scarcity
 Study of how people uses resources
Study of decision making
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Positive Economics and Normative Economics

•Positive Economics:- Deals with what are the economic problems and how
they are actually solved
•Describes :
 What is
 What was
 What will be
Example: Increased public expenditure, Government provided healthcare.

Normative Economics:- Deals with what ought to be or how the economic

problems should be solved.
• Describes
 What ought to be
 What should happen
 What should have happened
Example: Government should provide basic healthcare to all the citizens.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Positive Economics and Normative Economics
Basic Positive Economics Normative Economics
Meaning It deals with what is or how It deals with what ought to be
the economic problems are or how the economic problems
actually solved. should be solved.
Verification It can be verified with actual It cannot be verified with actual
data. data.
Purpose It aims to make real It aims to determine the ideals.
description of an economic
activity.
Suggestive It is based upon facts, and It is based uponindividuals
thus, not suggestive. opinion and therefore, it is
suggestive in nature.
Value Judgements It doesn’t give any values It gives value judgements.
judgements i.e it is nuetral
Examples 1. Pricing in Indian economy 1. India should take steps to
are constantly rising. control rising prices.
2. There are inequalities of 2. Income inequalities should
income in our economy. be reduced.
CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION

Microeconomics and Macroeconomics

Macroeconomics:-
• Derived from Greek word “makros” which means Large
•It is that part of economic theory, which studies the behaviour of aggregate
of the economy as a whole

MACRO

Aggregate

Example : National Income, Aggregate output.

CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Microeconomics:-
• Derived from Greek word “mikros” which means Small
•It is that part of economic theory, which studies the behaviour of individual
unit of economy.

MICRO

Individual

Example : Individual Income, Individual output.

CLASS 11th ECONOMICS – CHAPTER 1- INTRODUCTION
Microeconomics and Macroeconomics
Basic Microeconomics Macroeconomics

Meaning It is a study of economic It is a study of economic

behaviour of individual behaviour of whole economy.
economic units.
Tools It deals with individual demand It deals with aggregate
and individual supply. demand and aggregate
supply.
Alternate names It is also termed as pricing It is also termed as income
theory. employment theory.
Scope Micro is primarily concerned Macro is concerned with
with determination of price and determination of aggregate
output of goods and services. output and general price level
in the economy as a whole.
Example Pricing of the product. National Income
Pricing of the factors of National Output
production. Economic welfare and
Economic growth