Download Std. 12th Commerce: Economics, Maharashtra

 Written as per the revised syllabus prescribed by the Maharashtra State Board of Secondary and Higher Secondary Education, Pune.
STD. XII Commerce
Economics
Fourth Edition: March 2016
Salient Features: • Exhaustive coverage of syllabus in Question Answer Format. • Covers answers to all Textual Questions, Board Questions (Mar 08 – Mar 16). • Relevant Marking Scheme for Each Question. • Includes Additional Important Questions for better preparation. • Mnemonics to facilitate easy answer recall. • Quick Recap at the end of each chapter to facilitate quick revision. • Two Model Question Papers as per the latest paper pattern. • Includes Board Question Papers of 2014, 2015 and March 2016. • Simple and Lucid language. • Includes GG ‐ our very own mascot. Printed at: Repro India Ltd., Mumbai
No part of this book may be reproduced or transmitted in any form or by any means, C.D. ROM/Audio Video Cassettes or electronic, mechanical including photocopying; recording or by any information storage and retrieval system without permission in writing from the Publisher. P.O. No. 12886
10133_10440_JUP
PREFACE
Economics is the branch of social science that deals with the production, distribution, consumption of goods and services and their efficient management. It is broadly classified into Micro and Macro economics. Micro economics helps us to analyze the economic behaviour of small individual economic units whereas macro economics deals with the behaviour of economy as a whole. We present to you "Std. XII Commerce: Economics" with a revolutionary fresh approach towards content thus laying a platform for an in‐depth understanding of the subject. This book has been written according to the revised syllabus and guidelines as per the State Board and covers answers not only to the textual questions but also for board question papers from March 2008 to March 2016. In addition to this, we have included extra questions in each lesson that not only aim at covering the entire topic but also make students ready to face the competition. The sub‐topic wise classified “Question and Answer” format of this book helps students in easy comprehension. Furthermore, we have provided model answers to each question in the form of pointers which makes it easy for students to memorize and reproduce the answers in their examinations. We have incorporated “Mnemonics” to facilitate easy answer recall. Every chapter ends with a Quick Recap to facilitate quick revision of the lesson learnt. The book also includes two model question papers as per the latest paper pattern. The model questions are provided with relevant marking schemes so as to highlight the importance of each question. We are sure this study material will turn out to be a powerful resource for students and facilitate them in understanding the concepts of this subject in the most lucid way. The journey to create a complete book is strewn with triumphs, failures and near misses. If you think we've nearly missed something or want to applaud us for our triumphs, we'd love to hear from you. Please write to us on: [email protected] Best of luck to all the aspirants! Yours faithfully, Publisher Gyan Guru (GG) We present to you our mascot 'GG', who has been proudly introduced by us for the very first time. GG is a student‐buddy who pops up throughout the book and draws your attention to important bits of knowledge also termed as 'Good to Know'. These 'Good to Know' sections help you understand a concept distinctly with a corresponding example from your immediate environment. This is our initiative in education that helps linking learning to life and we're hopeful that you are going to love it. BOARD PAPER PATTERN
Time: 3 Hours Total Marks: 80 Q.1. Objective type questions: [16] Includes three sub‐questions. All sub‐questions are compulsory. (A) Fill in the blanks with appropriate alternatives given in the brackets: Five sub‐questions will be given. Each sub‐question carries four options. [one mark each]
(B) Match the following: It contains 5 points in Group ‘A’ and 8 options in Group ‘B’. [one mark each] (C) State whether the following statements are True or False: Six sub‐questions will be given. [one mark each] Q.2. (A) Define or Explain the following concepts: [06] (Any three out of six) [2 marks each]
(B) Give Reasons or Explain: [06] (Any three out of six) [2 marks each] Q.3. (A) Distinguish between the following: [06] (Any three out of six) [2 marks each] (B) Write short notes on: [06] (Any two out of four) [3 marks each] Q.4. Answer the following questions: [12] (Any three out of six) [4 marks each] Q.5. State with reasons, whether you agree or disagree with the following statements: [12] (Any three out of six) [4 marks each] Q.6. Answer the following questions in detail: [16] (Any two out of four) [8 marks each] Total: 80 Scheme of Evaluation
(A) (B) Written Examination Project (with Viva) Total:
(A)
Sr.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Marks 80 20 100 Unitwise Weightage Units Section – A
Introduction to Micro Economics Consumer’s Behaviour A. Demand Analysis B. Elasticity of Demand Producer’s Behaviour Forms of Market & Price Determination Under Perfect Competition Factors of Production Section – B
Introduction to Macro Economics National Income Determinants of Aggregate Money Marks
Marks With Option
4 6 8 8 6 08 10 15 15 10 6 10 4 06 4 6 8 4 08 13 15 07 11. 12. 13. Commercial Banking Central Banking Public Economics Total:
6 6 4 80
10 10 07 144 (B) Weightage to Objectives Sr. No. 1. 2. 3. 4. Objectives Knowledge Understanding Application Skill Total: Marks
17 20 28 15 80
Percentage
21 25 35 19 100
Marks With Option
30 36 50 28 144 (C) Weightage to Type of Questions Sr. No. 1. 2. 3. Objectives Objective Short Answer Long Answer Total: Marks
16 48 16 80
Percentage
20 60 20 100
Marks With Option
16 96 32 144 Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Topic Name
Section – A (Micro Economics) Introduction to Micro Economics Consumer’s Behaviour A. Demand Analysis B. Elasticity of Demand Producer’s Behaviour Forms of Market & Price Determination under Perfect Competition Factors of Production Section – B (Macro Economics) Introduction to Macro Economics National Income Determinants of Aggregate Money Commercial Banking Central Banking Public Economics Model Question Paper ‐ I Model Question Paper ‐ II Board Question Paper : March 2014 Board Question Paper : October 2014 Board Question Paper : March 2015 Board Question Paper : October 2015 Board Question Paper : March 2016 Note: All Textual questions are represented by * mark. Page No.
1 12 31 50 70 98 113 128 140 163 191 207 223 240 255 257 259 261 263 265 267 01. Introduction to Micro Economics Chapter 01 : Introduction to Micro Economics
Introduction Economics is a social science which studies the production & consumption of goods and the transfer of wealth to produce & obtain those goods. The term ‘economics’ comes from the Ancient Greek ‘oikos’ which means ‘house’ and ‘nomos’ which means ‘custom’ or ‘law’. The subject was earlier known as ‘Political Economy’. However, in the late 19th century, the economists suggested ‘economics’ as a shorter term. Economics explains how people interact within markets to fulfill their desires/wants/goals. Also, if one properly studies economics, he/she can comprehend why certain people and/or government/s behave in particular ways. Definition of Economics: According to Dr. Alfred Marshall, “Economics is the study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected and social action which is most closely connected with the attainment and use of the material requests of wellbeing.” There are two main types of economics viz. Macro Economics and Micro Economics. Micro Economics: Study of economic behaviour of an individual unit. Macro Economics: Study of economic behaviour of the economy, as a whole. The terms ‘Micro Economics’ and ‘Macro Economics’ were coined and eventually used by Ragnar Frisch of Oslo University in 1933. Meaning of Micro Economics: ‐ The term ‘Micro’ has been derived from the Greek word ‘mikros’ which means ‘small’. ‐ Micro economics deals with the study of economic behaviour of small individual economic units such as individual consumer, firm, producer etc. In other words, its approach is individualistic in nature. ‐ It splits / divides the whole economy into small individual units and then studies each unit separately in detail. Micro economics is, thus, a microscopic study of the economy. ‐ It is also known as price theory. Definitions of Micro Economics: ‐ According to Kenneth Boulding, “Micro economics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries and particular commodities.” The above definition intends to explain that micro economics is a study of economic activity of households as a consumption unit, individual firms and industries as a production unit and individual prices, wages, incomes and their determination. ‐ According to Maurice Dobb, “Micro economics is in fact a microscopic study of the economy.” The above definition intends to explain that in micro economics, each individual unit is separately examined and analyzed in detail. Good to Know:  Dr. Alfred Marshall is considered as the real architect of Economics.  He developed and popularized the concept of Micro Economics.  Marshall’s book ‘Principles of Economics’ (1890) was his most important contribution to economic literature.  In this work Marshall emphasized that the price and output of a good are determined by supply and demand, which act like “blades of the scissors” in determining price. 1
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Historical Review of Micro Economics
*Q.1. Ans: Write a short note on: Historical review of Micro Economics. [Oct 14] [3] ‐ Micro economics is a traditional approach and its origin can be traced back to the era of classical economist. ‐ It was founded by Adam Smith, also known as “The father of Economics”. In his book “Wealth of Nations” published in 1776, he discussed how prices of individual commodities and the factors of production are determined. He said that if the government doesn’t tamper with the economy, a nation’s resources can be used efficiently. ‐ Micro economic analysis was developed and popularized by the neo classical economist Dr. Alfred Marshall. ‐ He is regarded as the real architect of Micro economics. His book “Principles of Economics”, published in 1890 is based on Micro economic approach. ‐ Marshall proposed an idea of study of specific, individual markets and firms, as a means of understanding the dynamics of economics. ‐ The marginalism principle used by him became an important and indispensible tool of micro analysis. ‐ Micro economics approach can also be found in the writings of David Ricardo and J.S. Mill. ‐ Some other economists who participated in the development of Micro Economics are J. R. Hicks, Prof. Samuelson, Prof. Pigou, Chamberlin, Mrs. Joan Robinson etc. Basic Economic Questions Dealt with by Micro Economics Micro Economics deals with basic questions related to: i. Production: ‐ It focuses on how efficiently resources are allocated to the production of goods and services in the economy. ‐ It considers the questions such as ‘what and how much to produce?’, ‘how to produce?’ and ‘who has to produce?’. ii. Distribution: ‐ It aims at efficient distribution of produced goods and services in the economy. ‐ It considers the questions of ‘how to distribute the produced goods?’, ‘to whom the goods should be distributed?’ etc. iii. Efficient Allocation of Resources and Welfare: ‐ It takes into account the measures of efficient allocation of resources so as to maximize the satisfaction and welfare of people. Scope and Subject Matter of Micro Economics
*Q.2. Ans: 2 2
Explain the scope and subject matter of Micro Economics. [8] According to Kenneth Boulding, “Micro economics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries and particular commodities.” Scope of Micro economics: ‐ Micro Economic analysis is individualistic in nature. ‐ It considers individual constituents such as consumer, firm, producer, individual income, price etc. ‐ Its study is mainly confined to price theory and resource allocation. ‐ It does not take into account aggregates of economy or national problems such as poverty, unemployment, inequalities of income etc. ‐ Some theories such as fiscal and monetary policies are also beyond the limit of micro economics. We can thus conclude that, the scope of Micro economics is limited. Chapter 01 : Introduction to Micro Economics
Subject Matter of Micro Economics: The subject matter of Micro economics basically deals with the following theories: [Mnemonic: PM‐WELFARE] i. Theory of Product Pricing: ‐ This theory explains how the relative prices of cotton, cloth, rice, car and thousands of other commodities are determined. ‐ Price of a commodity depends upon the forces of demand and supply. ‐ Therefore, in order to explain the process of determination of price, analysis of demand and supply is necessary. ‐ Study of Demand side covers the analysis of consumer’s behaviour whereas its supply side covers the analysis of conditions of production, cost and behavior of firm and industry. Thus, the theory of product pricing is divided into two parts viz. ‘Theory of Demand’ and ‘Theory of Production and Cost’. ii. Theory of Factor Pricing or Micro Theory of Distribution: ‐ The theory of the price determination of various factors of production, such as rent for land, wages for labour, interest for capital and profits for entrepreneur is called theory of factor pricing or micro theory of distribution. ‐ Accordingly, the theory of factor pricing discusses how the reward or return for the various factors of production (land, labour, capital and entrepreneur) should be repaid, when they are contributing to the production activities. iii. Theory of Economic WELFARE: ‐ This theory deals with the efficiency in the allocation of resources. ‐ Efficiency in the allocation of resources is attained when it results in maximization of satisfaction of people. *Q.3. Ans: Economic Efficiency implies maximum satisfaction with the help of minimum use of resources. It involves three efficiencies: ‐ Efficiency in production: It means producing maximum possible amount of goods from the given resources. ‐ Efficiency in consumption: It means distribution of goods and services among the people for consumption, in such a way that it gives maximum satisfaction to consumers. ‐ Efficiency in the direction of production: It means production of those goods which are most desired by the people. Thus, the subject matter of micro economics is mainly concerned with the price theory and allocation of resources. It seeks to examine the basic economic questions regarding production, distribution and consumption of goods and services. Features of Micro Economics
Explain the features of Micro Economics. [8] Micro economics deals with the study of economic behaviour of small individual economic units such as individual consumer, firm, producer etc. The various features of Micro economics are as follows: [Mnemonic: The Poor MAMMALS2] i. Price Theory: ‐ All the factors of production (such as land, labour, capital and entrepreneur) contribute towards the production process. ‐ As a consideration, they receive rewards in the form of rent, wages, interest and profits respectively. ‐ Micro economics deals with the determination of such rewards i.e. factor prices. 3
Std. XII : Commerce
‐ Also, it deals with the determination of prices of goods and services. ‐ Hence, it is correctly known as “price theory”. ‐ Price theory benefits both, the consumers (by rendering guidance as to how to make optimum use of money to attain maximum satisfaction) as well as the producer (by rendering guidance as to how to fix the price of a product / service, which would fetch maximum profit). ii. Partial equilibrium: ‐ Micro economic analysis is a partial equilibrium analysis. ‐ Partial equilibrium analyses equilibrium position of an individual economic unit i.e. individual consumer, individual firm, individual industry etc. ‐ It isolates an individual unit from other forces and proceeds with the assumption “Other things remaining the same” (Ceteris Paribus). Many theories of micro‐economics are based on such assumptions. ‐ Partial equilibrium also neglects the interdependence between economic variables. iii. Microscopic approach: ‐ Micro economics analyzes and examines each individual unit separately in detail. ‐ In the words of Prof. A.P. Lerner, “It is looking at the economy through microscope, as it were to see how the millions of cells in the body of economy ‐ the individuals or households as consumers, and individuals or firms as producers, play their part in the working of whole economic organism.” ‐ Thus, micro economics is said to conduct the microscopic study of the economy. ‐ Micro economics gives us a ‘worms’ eye view of the economy. In simple words, it studies the tree and not the entire forest as a whole. iv. Analysis of Resource Allocation and Economic Efficiency: ‐ Micro economics deals with the resource allocation among the competing groups. ‐ It further explains how the relative prices of both, goods as well as factors of production would determine the allocation of resources. ‐ This in turn, can help to answer the following questions: Who will produce the goods? What goods will be produced? In what quantities the goods will be produced? How to price the produced goods? How will they be distributed? etc. ‐ Moreover, it examines whether the given allocation of resources is efficient or not i.e. whether it results in the economic welfare of society. v. Use of Marginalism Principle: ‐ Marginal refers to the change brought about in total by an additional unit (marginal unit). ‐ Micro economics makes use of marginalism principle as its tool of analysis as all important micro economic decisions are taken at the margin. ‐ The concept of marginalism is important in all the areas of micro economics. ‐ Producers and consumers also take economic decisions using this principle. vi. Analysis of Market Structure: ‐ Micro economics analyses different market structures such as perfect competition, monopoly, monopolistic competition, oligopoly etc. and explains how prices and quantities are determined in these markets. 4 4
Chapter 01 : Introduction to Micro Economics
vii. Based on Certain Assumptions: ‐ Many economists have used Good to Know: micro economic analysis to  ‘Ceteris Paribus’ the Latin develop different theories phrase which is translated which are based on the as ‘other things remaining assumption of Ceteris Paribus the same’ was used in which means “Other things english for the first time in remaining the same”. 1601 by the famous ‐ The theories follow the partial writer Thomas Wright. equilibrium analysis in order to study a particular individual unit of an economy. ‐ They are based on certain assumptions such as perfect competition, laissez fair policy, pure capitalism, full employment, ceteris paribus etc, which do not exist in reality. ‐ These assumptions make the analysis simple and the theories static, but at the same time neglect the interdependence between economic variables and the changing economic world. viii. Limited Scope: ‐ The scope of micro economics is limited since it doesn’t deal with the nationwide economic problems such as inflation, deflation, balance of payment situation, poverty, unemployment, population, economic growth etc. ix. Study of individual units: ‐ Individual economic unit refers to the smallest part of an economy viz. individual household, individual firm, individual income, etc. ‐ Micro economics studies the economic behaviour of such individual economic units. ‐ In other words, micro economics splits the economy into small individual units and further studies each unit separately. x. Slicing Method: ‐ Micro economics uses slicing method since it splits or divides the whole economy into small individual units and then studies each unit separately in detail. Importance of Micro Economics
*Q.4. Ans: i. ii. iii. What is the importance of Micro Economics? [4] The importance of Micro Economics is as given below: [Mnemonic: D‐FIRM‐TUB] Price Determination: ‐ Micro economics helps in explaining how the prices of different commodities are determined. ‐ It also explains how the prices of various factors of production such as rent for land, wages for labour, interest for capital and profits for entrepreneur are determined in the commodity and factor market. Working of a Free Market Economy: ‐ Free market economy is that economy where the economic decisions regarding production of goods such as ‘What to produce, How much to produce, How to produce etc.’ are taken by private individuals. ‐ These decisions are based on the preference of the consumer or demand for the product. ‐ Micro economics theory helps in understanding the working of the free market economy. International Trade & Public Finance: ‐ Micro economics helps to explain many international trade aspects like effects of tariff, determination of exchange rates, gains from international trade etc. ‐ It is also useful in public finance to analyze both, the incidence as well as effect of a particular tax. 5
Std. XII : Commerce
iv. Utilization of Resources: ‐ Micro economics helps in explaining how the scarce resources can be effectively and efficiently utilized by the producers in order to achieve maximum output. v. Model Building: ‐ Micro economics helps in understanding various complex economic situations with its simple models. ‐ It has made a valuable contribution to the science of economics by the development of various terms, concepts, terminologies, tools of economic analysis etc. vi. Helps in Taking Business Decisions: ‐ Micro economic theories are helpful to businessmen for taking crucial business decisions. ‐ These decisions include the cost of production, prices, maximum output, consumer’s preferences, demand and supply of the product etc. vii. Useful to Government: ‐ Micro economics is that branch of economics which is concerned with the study of economic behaviour of individual economic units. ‐ It is useful in framing economic policies such as taxation policy, public expenditure policy, price policy etc. ‐ These policies help the government to attain its goal of efficient allocation of resources and promoting economic welfare of the society. viii. Basis of Welfare Economics: ‐ Micro economics promotes economic and social welfare by making optimum utilization of the resources, thereby avoiding wastage. Multiple Choice Questions I. Fill in the blanks with appropriate alternative from those given in the brackets: [1 mark each] *1. The terms micro and macro economics were first used by _______. [Mar 15, 16] (Adam Smith / Robbins / Ragnar Frisch / Marshall) 2. Economics is _______ science. [Oct 10] (a political / a natural / a social / an anthropological) 3. The book _______ was published by Adam Smith in 1776. (Welfare of nations / Wealth of Nations / Nations’ wealth / Nation’s welfare) *4. Micro economics is a study of _______. [Oct 14, 15] (whole economy / general price level / national output / individual economic unit) 5. A study of _______ is Micro Economics. [Mar 09] (firm / whole economy / industries / national income) 6. Micro economics studies _______. [Oct 11] (small factor / large factor / economy as a whole/ total demand) *7. Micro economics is also called as_______. (Income theory / Price theory / Growth theory / Employment theory) *8. Micro economic analysis adopts_______ method. (lumping / aggregative / slicing / inclusive) *9. Micro economic is a _______ equilibrium approach. [Mar 14] (partial / general / total / multi‐variable) 6 6
Chapter 01 : Introduction to Micro Economics
Match the Pairs II. Match the correct pairs: *1. Group “A” i. Adam Smith ii. Micro Economics iii. Macro Economics iv. Dr. Marshall Ans: (i – c), (ii – d), (iii – a), (iv – f). 2. i. ii. Group “A” Marginalism Theory of welfare iii. iv. Wealth of Nations Partial equilibrium Ans: (i – c), (ii – d), (iii – a), (iv – b). 3. i. ii. iii. iv. Group “A” Mikro Interest Ceteris paribus Theory of demand Ans: (i – b), (ii – d), (iii – e), (iv – f). III. *1. *2. *3. *4. *5. 6. 7. 8. 9. [1 mark each pair] a. b. c. d. e. f. Group “B” Aggregates Prof. Boulding Father of Economics Individual units Land Principles of Economics Group “B” a. Adam Smith b. Neglects interdependence between economic variables c. Micro economics d. Economic Efficiency e. Pigou a. b. c. d. e. f. Group “B” Pigou Small Land Capital Other things remaining same Product pricing True or False
State whether the following statements are True or False: [1 mark each] Dr. Marshall is known as the ‘Father of Economics’. Micro economics studies theory of firm. Micro economics deals with allocation of resources. Micro economic theory assumes full employment. Micro economic theory suggests policies to solve problem of inflation. Boulding is the real architect of Micro Economics. Dr. Marshall is a neo‐classical economist. Micro approach is a relatively modern approach. Slicing method splits the economy into small individual units. 7
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10. 11. 12. 13. 14. Ans: Marginal means change in total by additional unit. Chamberlin participated in the development of micro economics. Theory of supply is a part of factor pricing. Micro economics is the study of aggregates. Price Theory is the base of Micro‐economic analysis. 1. False 2. True 3. True 5. False 6. False 7. True 9. True 10. True 11. True 13. False 14. True 4. 8. 12. [Mar 08] [Mar 13, Oct 09] True False False Give Reasons
IV. Ans: Give reasons or explain: Price theory is useful to businessmen. [2] ‐ Micro economics (Price theory) analyses the patterns of supply and demand so as to determine the price and output in the individual markets. ‐ The theories of product pricing and factor pricing help an entrepreneur in various ways. ‐ The price mechanism helps the businessmen to determine the prices of their goods and services. ‐ It also helps them to take important decisions related to cost of production. ‐ Moreover, by using this theory, the businessmen can efficiently allocate their resources as well as forecast the factors of demand for their product. Thus, price theory is very useful to businessmen. State with Reasons, Agree or Disagree V. State with reasons, whether you agree or disagree with the following statements: [4 marks each] *1. Micro economics studies behaviour of individual economic unit. Ans: Yes, I do agree with the above statement. Reasons: ‐ The word ‘Micro Economics’ has been derived from the Greek word ‘mikros’ which means ‘small’. ‐ Micro economics splits or divides the whole economy into small individual units and then studies each unit separately in detail thereby using slicing method. ‐ It studies the economic behaviour of small individual economic units such as individual firm, individual consumer, individual producer etc. Thus, we can say that, micro economics analysis is individualistic in nature. ‐ It does not study the economic behaviour as a whole such as total national income, total national output, total consumption, aggregate investment etc. ‐ Micro economics is in fact a microscopic study of the economy. Therefore, micro economics studies behaviour of individual economic unit. *2. Ans: 8 8
Micro economics is known as income theory. No, I do not agree with the above statement. [Micro economics is known as Price theory] Reasons: ‐ The subject matter of micro economics includes the theory of product and factor pricing. ‐ The theory of product pricing explains how the prices of different commodities such as cloth, wheat, rice, sugar, etc. are determined. ‐ The theory of factor pricing explains how prices of various factors of production such as rent for land, wages for labour, interest for capital and profits for entrepreneur are determined. ‐ These are determined by the forces of demand and supply in the economy. ‐ Micro economics helps in determining product prices as well as factor prices. Therefore, Micro economics is not known as income theory but is known as price theory. Chapter 01 : Introduction to Micro Economics
Additional Questions for Revision
Q.1. Define or explain the following concepts: [2 marks each] [Mar 09, 10, 12, 13, 16, Oct 10, 11, 12, 14] *i. Micro economics. Ans: Page No.1. [Definitions of Micro economics] *ii. Economic Efficiency. Ans: Refer Q.2. Point (iii) “Economic Efficiency” iii. Ans: *iv. Ans: *v. Ans: *vi. Ans: Q.2. *i. Ans: *ii. Ans: *iii. Ans: *iv. Ans: Slicing Method. Refer Q.3. Point (x) Individual Economic Unit. Refer Q.3. Point (ix) [Mar 14] [Oct 15] [Mar 15] Partial equilibrium. Refer Q.3. Point (ii) Resource allocation. Refer Q.3. Point (iv) Give reasons or explain the following statements: [2 marks each] Micro economics is also known as price theory. Refer Q.3. Point (i) [Mar 11] Micro economics analyses partial equilibrium. Refer Q.3. Point (ii) Marginalism principle is used as a tool of analysis in Micro Economics. Refer Q.3. Point (v) Micro economic theories are based on certain assumptions. [Mar 08, 14, Oct 15] Refer Q.3. Point (vii) v. Assumptions of micro economics are unrealistic. Ans: Refer Q.3. Point (vii) *vi. Micro economics studies individual economic unit. Ans: Refer Q.3. Point (ix) [Mar 15, 16, Oct 09] vii. Ans: Q.3. i. Ans: *ii. Ans: *iii. Ans: Micro economics is useful to the government. Refer Q.4. Point (vii) [Mar 10] [Oct 14] Write short notes on: [3 marks each] Micro economics. [Oct 08, Mar 09] Page No.1. “Meaning and Definition of Micro Economics” Subject matter of micro economics. Refer Q.2. [Subject Matter of Micro‐economics] Features of Micro Economics. Refer Q.3. [Any 6 points are expected] iv. Microscopic study. Ans: Refer Q.3. Point (iii) [Mar 14] [Mar 08, 10, 12, 13, 16, Oct 09, 10, 11] [Mar 15] *v. Importance of Micro Economics. [Oct 15] Ans: Refer Q.4. [Any 6 points are expected] *Q.4. Explain the meaning of Micro economics with the help of few important definitions. [4] Ans: Refer Page. No.1. “Meaning and Definitions of Micro Economics”. 9
Std. XII : Commerce
*Q.5. Ans: Q.6. Ans: *Q.7. Ans: What is the scope and subject matter of Micro Economics? Refer Q.2. *Q.8. Ans: What are the features of Micro Economics? Refer Q.3. [Any 6 points are expected] [4] Explain the subject matter of Micro Economics. [Mar 16] [4] Refer Q.2. “Subject Matter of Micro Economics”. What are the basic economic questions dealt with by Micro Economics? Refer Page. No.2. “The basic economic questions dealt with by Micro Economics”. [4] [Mar 11][4] QUICK RECAP
Scope of Micro Economics
i. Analysis is individualistic in
nature. ii. Study is mainly confined to
price theory and resource
allocation. iii. Does not take into account
aggregates of economy. iv. Theories such as fiscal and
monetary policies are also
beyond the limit of micro economics. Subject Matter of Micro Economics
[Mnemonic: PM‐WELFARE
Theory of Product Pricing Theory of Demand (Analysis of Consumer
Behaviour) Theory of Supply (Production and Cost)
10
10 Theory of Factor Pricing
(Micro theory of Distribution)
Theory of Economic WELFARE
Price for use of labour (wages)
Efficiency in Production
Payment for use of land (Rent)
Efficiency in Consumption
Price for use of capital (Interest)
Efficiency in Direction of
Production Monetary reward of entrepreneur (Profit)
Chapter 01 : Introduction to Micro Economics
Micro Economics
Features [Mnemonic: The Poor
MAMMALS2] Price Theory Partial equilibrium Microscopic approach Analysis of Resource
Allocation and Economic
Efficiency v. Use of Marginalism Principle vi. Analysis of Market Structure vii. Based on Certain
Assumptions viii. Limited Scope ix. Study of individual units x. Slicing Method i. ii. iii. iv. Importance
[Mnemonic: D‐FIRM‐TUB] i. Price Determination ii. Working of a Free Market
Economy iii. International Trade & Public
Finance iv. Utilization of Resources v. Model Building vi. Helps in Taking Business
Decisions vii. Useful to Government viii. Basis of Welfare Economics 11