Introduction to Microeconomics

Economics begins with the fact that human wants are unlimited while the resources to satisfy them are scarce and have alternative uses, so every society must make choices. In this chapter you will learn the meaning of microeconomics, which studies the behaviour of individual economic units such as a consumer, a producer or a single market, and how it differs from macroeconomics. You will study the central problems of an economy: what to produce and in what quantities, how to produce, and for whom to produce. You will see how these problems are solved in a centrally planned economy, a market economy and a mixed economy like India. The chapter introduces the production possibility frontier, which shows the combinations of two goods an economy can produce when given resources and technology are fully used. You will calculate opportunity cost and the marginal rate of transformation, explain why the frontier is concave to the origin, and interpret points inside, on and outside it. You will also learn what shifts or rotates the frontier and distinguish between positive and normative economic analysis.

Detailed Worksheet: Introduction to Microeconomics Section A - Definitions (10 marks) 1. Define scarcity. Why does scarcity give rise to the problem of choice? (2 marks) 2. What is opportunity cost? Give one example from daily life. (2 marks) 3. Define the production possibility frontier. State two assumptions on which it is based. (2 marks) 4. What is the marginal rate of transformation? (2 marks) 5. Distinguish between positive and normative economic analysis with one example of each. (2 marks) Section B - Calculations and Applications (15 marks) 6. An economy can produce the following combinations of good X and good Y: (X, Y) = (0, 21), (1, 20), (2, 18), (3, 15), (4, 11), (5, 6), (6, 0). Calculate the MRT at each step and state the shape of the PPF with reason. (3 marks) 7. Using the schedule in question 6, state whether each of the following points is attainable and efficient, attainable but inefficient, or unattainable: (2, 15), (3, 17) and (4, 11). Give reasons. (3 marks) 8. A farmer can earn Rs 30,000 by growing wheat, Rs 25,000 by growing rice and Rs 20,000 by growing mustard on his land. If he grows wheat, what is his opportunity cost? Explain why the cost of mustard is not included. (3 marks) 9. An economy can produce the combinations (X, Y) = (0, 40), (1, 30), (2, 20), (3, 10), (4, 0). Calculate the MRT at each step. What will be the shape of the PPF? Under what assumption about resources does this happen? (3 marks) 10. An economy produces at (X, Y) = (2, 12) though its PPF passes through (2, 18). By how many units of Y could output be increased without reducing X? What does this situation indicate? Give two possible causes. (3 marks) Section C - Diagrams (10 marks) 11. Draw a PPF concave to the origin. Mark a point on it, a point inside it and a point outside it, and explain the meaning of each point. (4 marks) 12. Draw a diagram showing a rightward shift of the PPF due to growth of resources, and another showing rotation of the PPF due to better technology in producing good X only. (3 marks) 13. Draw a flowchart showing the central problems of an economy (what, how and for whom to produce) and how they are solved in a market economy and a centrally planned economy. (3 marks) Section D - Analysis and Higher-order Thinking (15 marks) 14. Explain why the PPF is concave to the origin, using the idea of increasing opportunity cost and the fact that resources are not equally efficient in producing all goods. When would it be a straight line? (5 marks) 15. Analyse the effect on the PPF of India in each case: (i) a massive earthquake destroying factories, (ii) large-scale unemployment, (iii) introduction of a new high-yielding variety of wheat, (iv) Skill India training programmes. Draw a diagram for any two. (5 marks) 16. Compare how a centrally planned economy, a market economy and a mixed economy solve the three central problems. Which system does India follow, and why? (5 marks) Instructions: Time allowed 2 hours. Attempt all sections. Show the MRT calculation at every step. Draw neat, labelled PPF diagrams.