Q. State the assumptions of the production possibility curve.
Ans:- Production possibility curve is based on the following assumptions:-
a. Only two goods X ( consumer goods ) and Y ( capital goods) are produced in different proportions in the economy.
b. There is full employment of resources.
c. The supplies of factors are fixed. But they can be re-allocated for the production of the two goods within limits.
d. The production techniques are given and constant.
e. The time period is short.
Q. Define marginal opportunity cost.
Ans:- Marginal opportunity cost refers to the numbers of units of a commodity sacrified to gain one additional unit of another commodity. In case of production possibility curve, marginal opportunity cost is always increasing, i.e, more and more units of a commodity have to be sacrified to gain an additional unit of another commodity.
Q. What is a centrally planned economy ?
Ans:- A centrally planned economy is an economic system in which the means of production and distribution are controlled and regulated by the government.
Characteristics of centrally planned economy:-
a. The government makes the economic decisions.
b. The government controls all aspects of the economic production.
c. The government decides how resources are distributed and used.
d. The government can determine the prices of goods and services.
Q. What does the slope of production possibility curve show ?
Ans:- The slope of production possibility curve defines the rate at which production of one good can be redirected, by reallocation of productive resources, into production of the other.
Q. Define problem of choice.
Ans:- Problem of choice involves allocation of various scarce resources in relation to the composition of total output in the economy. Since the resources of the economy are scarce, the problem of the nature of goods and their quantities has to be decided on the basis of priorities or preferences of the society. If the society gives priority to the production of more comsumer goods now, it will have less in the future. A higher priority on capital goods implies less consumer goods now and more in the future.
Q. What is meant by the problem of allocation of resources?
Ans:- The problem of allocation of resources refers to the optimal allocation of limited or scarce resources to productive activities with a view to minimizing the cost incurred by the allocation.
Q. Give two examples of microeconomic studies.
Ans:- Two examples of microeconomic studies are ;
a. Individual Consumer Behaviour
b. Individual Producer Behaviour
Q. Give two examples of macroeconomic studies.
Ans:- Two examples of macroeconomic studies are ;
a. National Income
b. General Price Level
Q. Distinguish between positive and normative economics.
Ans:- The basic differences between positive ecomonics and normative economics are:-
a. Positive economics deals with what is or how the economic problems are actually solved, on the other hand, normative economics deals with what ought to be or how the economic problems should be solved
.
b. Positive economics is based on positive statements which can be accepted or rejected through applying the scientific methods while normative economics is based on opinions or value judgements known as normative statements.
c. Positive economics depends upon scientific logic or facts while normative economics depends upon ethical logic or values.
d. Positive economics is objective and quantitative in nature whereas normative economics is subjective and descriptive in nature.
Example of positive economics:- Prices in Indian economy are rising.
Example of normative economics:- India should take steps to control rising prices
QWhat is economic problem?
Ans:- Economic problem refers to the problem that is concerned with the production of goods and services to satisfy unlimited human wants with limited resources.
Q What are the five main central problems of an economy ?
Ans:- The five main central problems of an economy are:-
a. What is to be produced and in what quantities ?
b. How to produce these goods ?
c. For whom are the goods produced ?
d. How efficiently are the resources being utilised ?
e. Is the economy growing ?
Q. Define Labour Intensive Technology.
Ans:- Labour Intensive Technology refers to that techniques of production which requires comparatively more of labour input and less of capital input in terms of cost in the process of production.
Q Define Capital Intensive Technology.
Ans:- Capital Intensive Technology refers to that techniques of production which requires comparatively more of capital input and less of labour input in terms of cost in the process of production.
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Introduction to Microeconomics Part 1
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