NCERT Solutions for Class 12 Commerce Economics Chapter 1 – Introduction Microeconomics

Here you will find NCERT Solution Questions for Class 12 Economics with Answers PDF Free Download based on the important concepts and topics given in the textbook as per CBSE new exam pattern. This may assist you to understand and check your knowledge about the chapters. These Solution Questions Answers are selected supported by the newest exam pattern as announced by CBSE.

Q1. Discuss the central problems of an economy.

Answer:The allocation of scarce resources and the distribution of the final goods and services are the central problems of an economy. These are:

→ What to produce and in what quantities: An economy has to decide what goods and services are to be produce and in what quantity as resource is available in limited quantity and also it have alternative uses. Whether to produce more of food, clothing, housing or to have more of luxury goods. Whether to use more resources in education and health or to use more resources in building military services.

→ How to Produce: It is very important for an economy how to produce. Which of the resources to use in the production of each of the different goods and services. Whether to use more labour or more machines.

→ For whom to produce: It generally means the distribution of the final goods. Who gets what and how much. Whether or not elementary education and basic health services should be available freely for everyone in the economy.

Q2:What do you mean by the production possibilities of an economy?

ANSWER:Production possibilities of an economy imply those numerous alternative combinations of goods and services, which a particular economy can produce, with the given technology and employing the available resources fully and efficiently. In other words, it refers to various feasible bundles of goods and services that can be produced together by efficiently utilising the given technology and available resources.

Q3. What is a production possibility frontier?

Answer: A curve showing different possibilities of two goods that can be produced with efficient utilisation of the given resources and technology is called production possibility frontier.

In the above representation, a production possibility frontier between cotton and corn has been drawn. The points A,B,C, D and E which lie on PPC represent the situation when the resources of the economy are fully utilised. While any point lie under the curve, say F, shows inefficiency or underutilisation of available resources.

Q4:Discuss the subject matter of economics.

Answer: The subject matter of economics is sub-divided into two core branches, Micro Economics and Macro Economics. This division came into existence only after 1930 as per the suggestion by Ragnar Frisch.

The domains of interest of these two branches of economics can be presented as

Microeconomics is the study of individual economic units, i.e. the behaviour of consumers and firms. The study of how they utilise the given resources in the best possible manner in order to maximise their rational objectives falls under the domain of microeconomics. It is also the study of demand and supply and how their interaction determines prices of various goods and services. Microeconomics helps in solving the three central problems of an economy. It is also called the Price theory as it primarily focuses on how prices are determined both in commodity and factor markets.

In Macroeconomics we study how the economy as a whole operates. It focuses on the determination of the aggregate measures, like aggregate demand, aggregate supply and overall price level and how they change over time. It is also known as the Theory of Income and Employment as its main focus is on how income and employment levels are determined. Macroeconomics helps in understanding and solving problems like inflation, unemployment, Balance of Payments (BOP) disequilibrium, poverty, etc.

Q5. Distinguish between a centrally planned economy and a market economy.


Centrally Planned EconomyMarket Economy
Means of production are owned by government.Means of production are owned by private individuals.
The main motive of production is social welfare.The main motive of production is profit making.
Prices of goods and services are generally highPrices of goods and services are generally high
The production is governed by planning mechanism i.e., according to government plans.The production is governed by price mechanism i.e., by demand and supply.
The inequality of income is low.The inequality of income is high.

Q6:What do you understand by positive economic analysis?

ANSWER:Positive economic analysis refers to the analysis in which we study what is or how an economic problem is solved by analysing various positive statements and mechanisms. These are factual statements and describe what was, what is and what would be. These statements can be tested, proven or disproven and do not involve personal value judgments. For example, if someone says that it is raining outside, then the truth of this statement can be verified. It deals with actual or realistic situations.

Q7. What do you understand by normative economic analysis?

Answer:Normative economic analysis deals with what ought to be or how an economic problem should be solved. The normative statements that cannot be tested as they involve personal value judgments. For example: Government should encourage private companies to accelerate the pace of industrialisation.

Q8. Distinguish between microeconomics and macroeconomics.


It studies individual economic unit. It studies entire economic unit
It deals with how prices and quantities of goods and services are determined in individual markets.It deals with how general price level and quantities of goods and services are determined in entire economy.
It uses the method of partial equilibrium, i.e. equilibrium in one market.It uses the method of general equilibrium, i.e. equilibrium in all markets of an economy.
The major microeconomic variables are price, individual consumer’s demand, wages, rent, profit, revenues, etc.The major macroeconomic variables are aggregate price, aggregate demand, aggregate supply, inflation, unemployment, etc.
Its central problems are price determination and allocation of resources.Its central problem is determination of level of Income and employment in the economy.


Very Short Answer Type Questions (1 Mark)

Q1. What is meant by economy? [CBSE 2012]

Answer: Economy is a system which provides people with the means to work and earn living.

Q2. What is economics?

Answer: Economics is about studying economic problems arising due to limited means (having alternative uses) in relation to unlimited wants.

Q3. Why does an economic problem arise? [CBSE 2007]
What gives rise to an economic problem? [CBSE, Sample Paper 2008] Or
Why does the problem of choice arise? [CBSE 2004]

Answer: If we are not able to satisfy unlimited wants out of limited resources then the economic problem arises.

Q4. State two features of resources that give rise to an economic problem.
[CBSE, Sample Paper 2010]

Answer: The two features of resources that give rise to an economic problem are:
Resources are limited.
They have alternative uses.

Q5. Which type of science is economics?

Answer: Economics is a social science.

Q6. What is the basic reason for economic problem in all economies?

Answer: It is scarcity of resources.

Q7. What is meant by economising of resources? [CBSE 2003]

Answer: Economising of resources means that resources are to be used in such a manner that maximum output is realised per unit of input. It also means optimum utilisation of resources.

Q8. What is meant by central problem of an economy?

Answer: The problem of making a choice among alternative uses of resources is known as basic or central problem of an economy.

Q9. What does a rightward shift of production possibility curve indicate?[CBSE 2007]

Answer: It indicates growth of resources.

Q10. Give two examples of growth of resources.

Answer:Supply of skilled labour (like IT engineers) has increased in India causing a rightward shift in the production of IT software.
Discovery of oil reserves in the gulf countries has caused a substantial shift to the right in the PPC of these countries.

Q11. Give two examples of underutilisation of resources.

Answer:Related to less developed countries: Labour is underutilised as indicated by mass unemployment in countries like India.
Related to developed countries: Capital is underutilised during depression when production is decreased owing to lack of demand.

Q12. Define Opportunity Cost. [CBSE 2007]
Give the meaning of ‘Opportunity Cost’. [CBSE 2008, 09]

Answer: Opportunity cost is the cost of the next best alternative.

Q13. Define Marginal Rate of Transformation (MRT). [CBSE 2012]

Answer: Marginal rate of transformation is the ratio of a number of units of a good sacrificed to produce an additional unit of another commodity.

Q14. Why PPC is concave to the point of origin? [CBSE 2011, AI 2007]

Answer: Because of increasing marginal opportunity cost.

Q15. Define microeconomics.[CBSE 2007C; AI 2005, 2012]
Give the meaning of microeconomics.[CBSE 2009]

Answer: Microeconomics studies the behaviour of individual economic units of an economy, like households, firms, individual consumers and producers etc.

Q16. Give one/two examples of microeconomics study.[CBSE 2004C, 09, 09C, 11C;AI 2004, 05, 07, 11]
Name any three variables of micro-economics.

Answer:Individual demand;
Individual supply; and
Individual income.

Q17. Name any three variables of macroeconomics.

Answer:Aggregate demand;
Aggregate supply; and
National income.

Q18. State any two central problems under ‘problem of allocation of resources’.[CBSE Sample Paper 2016]

Answer:What to produce and in what quantity?
How to Produce?

Multiple Choice Questions (1 Mark)

Q1. The law of scarcity

(a) Does not apply to rich, developed countries.
(b) Applies only to the less developed countries.
(c) Implies that consumers’ wants will be satisfied in a socialistic system.
(d) Implies that consumers’ wants will never be completely satisfied.

Answer: (d)Implies that consumers’ wants will never be completely satisfied.

Q2. The central problem in economics is that of

(a) Comparing the success of command versus market economies.
(b) Guaranteeing that production occurs in the most efficient manner.
(c) Guaranteeing a minimum level of income for every citizen.
(d) Allocating scarce resources in such a manner that society’s unlimited needs or wants are satisfied in the best possible manner.

Answer: (d) Allocating scarce resources in such a manner that society’s unlimited needs or wants are satisfied in the best possible manner.

We hope the given NCERT Solution Questions Answers for Class 12 Economics PDF Free Download solution will definitely help you to achieve perfect score. If you have any queries related to CBSE Class 12 Economics books, drop your questions below and will get back to you Soon.

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