Microeconomics Class 11 Introduction Chapter 1
Microeconomics Class 11 Chapter 1 Intoduction
Microeconomics Class 11 Chapter 1 Think of any society. People in society need many goods and services in their everyday lives including food, clothing, shelter, transport facilities like roads and railways, postal services, and various other services like that of teachers and doctors. In fact, the list of goods and services that any individual needs is so large that no individual in society, to begin with, has all the things she needs. Every individual has some amount of only a few of the goods and services that she would like to use.
A family farm may own a plot of land, some grains, farming implements, maybe a pair of bullocks, and also the labor services of the family members. A weaver may have some yarn, some cotton, and other instruments required for weaving cloth. The teacher in the local school has the skills required to impart education to the students. Some others in society may not have any resources except
their own labor services. Each of these decision-making units can produce some goods or services by using the resources that it has and use part of the produce to obtain the many other goods and services that it needs. For example, the family farm can produce corn, use part of the produce for consumption purposes and procure clothing, housing, and various services in exchange for the rest
of the produce. Similarly, the weaver can get the goods and services that she wants in exchange for the cloth she produces in her yarn. The teacher can earn some money by teaching students in the school and use the money for obtaining the goods and services that she wants. The laborer also
can try to fulfill her needs by using whatever money she can earn by working for someone else. Each individual can thus use her resources to fulfill her needs. It goes without saying that no individual has unlimited resources compared to her needs. The amount of corn that the family farm can produce is limited by the amount of resources it has, and hence, the amount of different goods.
Microeconomics Class 11 Chapter 1 Notes
- Introduction to Microeconomics:
- Microeconomics deals with the behavior of individual units like households, firms, and markets.
- It focuses on the allocation of resources and the interactions between buyers and sellers in specific markets.
- Basic Concepts:
- Scarcity: Resources are limited, but human wants are unlimited, leading to the need for choices.
- Choice: Making decisions about resource allocation to satisfy wants.
- Opportunity Cost: The cost of the next best alternative forgone when a choice is made.
- Positive vs. Normative Economics:
- Positive Economics: Concerned with facts and cause-and-effect relationships, describing “what is.”
- Normative Economics: Involves judgments and opinions about “what ought to be” based on values and opinions.
- Economic Problems:
- What to Produce?: Determining the combination of goods and services to be produced.
- How to Produce?: Deciding on the methods and techniques of production.
- For Whom to Produce?: Distributing goods and services among different sections of society.
- Production Possibility Curve (PPC):
- Graphical representation showing the maximum combination of goods and services that can be produced with given resources and technology.
- Illustrates the concept of opportunity cost and trade-offs.
- Economic Systems:
- Capitalism: Private ownership of resources, decentralized decision-making, and market allocation.
- Socialism: Public or collective ownership of resources, centralized planning, and distribution based on need.
- Mixed Economy: Combination of market forces and government intervention in resource allocation.
- Market Economy vs. Command Economy:
- Market Economy: Allocation of resources determined by supply and demand through price mechanism.
- Command Economy: Central authority (government) decides what, how, and for whom to produce.
- Role of Government:
- Providing public goods and services.
- Correcting market failures (externalities, monopolies, etc.).
- Redistributing income and wealth to reduce inequality.
- Stabilizing the economy through fiscal and monetary policies.
Microeconomics Class 11 Chapter 1 Explanation of the Chapter
and services that it can procure in exchange for corn are also limited. As a result, the family is forced to make a choice between the different goods and services that are available. It can have more of a good or service only by giving up some amounts of other goods or services. For example, if the family wants to have a bigger house, it may have to give up the idea of having a few more acres of arable
land. If it wants more and better education for the children, it may have to give up some of the luxuries of life. The same is the case with all other individuals in society. Everyone faces scarcity of resources, and therefore, has to use the limited resources in the best possible way to fulfill her
needs. In general, every individual in society is engaged in the production of some goods or services and she wants a combination of many goods and services not all of which are produced by her. Needless to say there has to be some compatibility between what people in society collectively want to have and what they produce. For example, the total amount of corn produced by a family
farm along with other farming units in a society must match the total amount of corn that people in the society collectively want to consume. If people in the society do not want as much corn as the farming units are capable of producing collectively, a part of the resources of these units could have been used in the production of some other good or service that is in high demand. On the other hand, if people in the society want more corn compared to what the farming units are producing collectively, the resources used in the production of some other goods and services may be
reallocated to the production of corn. Similar is the case with all other goods or services. Just as the resources of an individual are scarce, the resources of the society are also scarce in comparison to what the people in the society might collectively want to have. The scarce resources of the society have to be allocated properly in the production of different goods and services in keeping with the
likes and dislikes of the people of the society. Any allocation of resources of society would result in the production of a particular combination of different goods and services. The goods and services thus produced will have to be distributed among the individuals of the society. The allocation of limited resources and the distribution of the final mix of goods and services are two of the basic
economic problems faced by society. In reality, any economy is much more complex compared to the society discussed above. In light of what we have learned about society, let us now discuss the fundamental concerns of the discipline of economics some of which we shall study throughout this book.
Microeconomics Class 11 Chapter 1 The central problem of an economy
Production, exchange, and consumption of goods and services are among the basic economic activities of life. In the course of these basic economic activities, every society has to face a scarcity of resources and it is the scarcity of resources that gives rise to the problem of choice. The scarce
resources of an economy have competing usages. In other words, every society has to decide on how to use its scarce resources. The problems of an economy are very often summarised as follows:
What is produced and in what quantities?
Every society must decide on how much of each of the many possible goods and services it will produce. Whether to produce more food, clothing, and housing or to have more luxury goods. Whether to have more agricultural goods or to have industrial products and services. Whether to use more resources in education and health or to use more resources in building military services.
Whether to have more of a basic education or more of a higher education. Whether to have more of consumption goods or to have investment goods (like machines) which will boost production and consumption tomorrow. How are these goods produced?
Every society has to decide on how much of which of the resources to use in the production of each of the different goods and services. Whether to use more labor or more machines. Which of the available technologies to adopt in the production of each of the goods?
For whom are these goods produced?
Who gets how much of the goods that are produced in the economy? How should the produce of the economy be distributed among the individuals in the economy? Who gets more and who gets less? Whether or not to ensure a minimum amount of consumption for everyone in the economy. Whether or not elementary education and basic health services should be available freely for everyone in the economy.
Thus, every economy faces the problem of allocating scarce resources to the production of different possible goods and services and of distributing the produced goods and services among the individuals within the economy. The allocation of scarce resources and the distribution of the final goods and services are the central problems of any economy.
Microeconomics Class 11 Chapter 1 Organisation of Economic Activities
Basic problems can be solved either by the free interaction of the individuals pursuing their own objectives as is done in the market or in a planned manner by some central authority like the government. 1.3.1 The Centrally Planned Economy In a centrally planned economy, the government or the central authority plans all the important activities in the economy.
All important decisions regarding the production, exchange, and consumption of goods and services are made by the government. The central authority may try to achieve a particular allocation of resources and a consequent distribution of the final combination of goods and services which is thought to be desirable for society as a whole.
For example, if it is found that a good or service which is very important for the prosperity and well-being of the economy as a whole, e.g. education or health service, is not produced in adequate amount by the individuals on their own, the government might try to induce the individuals to produce adequate amount of such a good or service or, alternatively, the government may itself decide to produce the good or service in question.
In a different context, if some people in the economy get so little of a share of the final mix of goods and services produced in the economy that their survival is at stake, then the central authority may intervene and try to achieve an equitable distribution of the final mix of goods and services. 1.3.2 The Market Economy In contrast to a centrally planned economy, in a market economy, all economic
activities are organized through the market. A market, as studied in economics, is an institution that organizes the free interaction of individuals pursuing their respective economic activities. In other words, a market is a set of arrangements where economic agents can freely exchange their endowments or products with each other.
It is important to note that the term ‘market’ as used in economics is quite different from the common sense understanding of a market. In particular, it has nothing as such to do with the marketplace as you might tend to think of. For buying and selling commodities, individuals may or may not meet each other in an actual physical location. Interaction between buyers and sellers can
take place in a variety of situations such as a village chowk or a super bazaar in a city, or alternatively, buyers and sellers can interact with each other through telephone or internet and conduct the exchange of commodities.
The arrangements which allow people to buy and sell commodities freely are the defining features of a market. For the smooth functioning of any system, it is imperative that there is coordination in the activities of the different constituent parts of the system. Otherwise, there can be chaos. You may wonder as to what are the forces which bring the coordination between the activities of millions of isolated individuals in a market system.
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