NCERT Book Class 12 Economics (Microeconomics) Chapter 1 Introduction

Chapter 1
1.1 A SIMPLE ECONOMY
Think of any society. People in the society need many goods and
services1 in their everyday life 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 individual2 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 labour 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 resource3 excepting their own labour 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 which 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 labourer 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

1
By goods we means physical, tangible objects used to satisfy people’s wants and needs. The
term ‘goods’ should be contrasted with the term ‘services’, which captures the intangible satisfaction
of wants and needs. As compared to food items and clothes, which are examples of goods, we can
think of the tasks that doctors and teachers perform for us as examples of services.
2
By individual, we mean an individual decision making unit. A decision making unit can be a
single person or a group like a household, a firm or any other organisation.
3
By resource, we mean those goods and services which are used to produce other goods and
services, e.g. land, labour, tools and machinery, etc.