NCERT Solutions for Class 12 Economics (Microeconomics) Chapter 1 Introduction
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Page 1
NCERT
SOLUTIONS
CLASS - 12th
aglase .co
SOLUTIONS
CLASS - 12th
aglase .co
Page 2
Book : Introductory Microeconomics Ncert Solutions | Chapter - 1 Economics
Class : 12th
Subject : Economics
Chapter : 1
Chapter Name : Introduction
Q1 Describe the central problems of an economy?
Answer. Three important central problems of an economy are-
1. what to produce,
2. how to produce
3. for whom to produce.
These arise due to scarcity of resources which is always confronted with unlimited human
wants. Let us discuss these
What to produce- It refers to the problem of allocation of resources for production of various
commodities in the economy. In this context, it is to be mentioned that commodities are broadly
of two types- Consumer goods and capital goods.
● Consumer goods are durable goods like food items, semi durable items like clothing,
shoes etc. And non durable like food items.
● On the other hand capital goods include machine equipment which is used in production
process.
Govt. has to plan very judiciously in order to make choices of commodities to be produced
keeping in view the maximum welfare of people of the country. For the same, govt. analyzes the
composition of population, their financial ability .Thus, being convinced with the status, the govt.
makes a combination of consumer goods and capital goods to be produced. Now after this the
government needs to make an estimate of the quantities of both goods to be produced , i. e.
which good is to be produced more ,which is to be produced less and in what quantity.
How to produce- It deals with the choice of the technique of production which are of 2 types-
1. capital intensive technique
2. labour intensive technique.
● In order to make a choice between the two, the govt. needs to review the employment
status of the country and in Indian unemployment being a major challenge to the govt.,
decisions for capital intensive technique may aggravate the unemployment problem.
Page 1 of 7
Class : 12th
Subject : Economics
Chapter : 1
Chapter Name : Introduction
Q1 Describe the central problems of an economy?
Answer. Three important central problems of an economy are-
1. what to produce,
2. how to produce
3. for whom to produce.
These arise due to scarcity of resources which is always confronted with unlimited human
wants. Let us discuss these
What to produce- It refers to the problem of allocation of resources for production of various
commodities in the economy. In this context, it is to be mentioned that commodities are broadly
of two types- Consumer goods and capital goods.
● Consumer goods are durable goods like food items, semi durable items like clothing,
shoes etc. And non durable like food items.
● On the other hand capital goods include machine equipment which is used in production
process.
Govt. has to plan very judiciously in order to make choices of commodities to be produced
keeping in view the maximum welfare of people of the country. For the same, govt. analyzes the
composition of population, their financial ability .Thus, being convinced with the status, the govt.
makes a combination of consumer goods and capital goods to be produced. Now after this the
government needs to make an estimate of the quantities of both goods to be produced , i. e.
which good is to be produced more ,which is to be produced less and in what quantity.
How to produce- It deals with the choice of the technique of production which are of 2 types-
1. capital intensive technique
2. labour intensive technique.
● In order to make a choice between the two, the govt. needs to review the employment
status of the country and in Indian unemployment being a major challenge to the govt.,
decisions for capital intensive technique may aggravate the unemployment problem.
Page 1 of 7
Page 3
Book : Introductory Microeconomics Ncert Solutions | Chapter - 1 Economics
● On the other hand if capital intensive technique is ignored the government has to
compromise with the value of production which will directly impact the growth rate.
Thus, in such a situation the government has to decide very wisely combination of the two which
will allow a stipulated growth rate without compromising with the employment condition of the
country. An economy has to choose that technique which makes efficient use of resources at a
minimum cost.
For whom to produce- It refers to the decision of the govt. with regard to the availability of
goods and services to the people of that country. Here the government decides whether to
produce goods for low income group or high income group. In this context it is important to note
that per capita availability of goods and services is the best indicator to judge the welfare
condition of the country. Therefore national output which is expected to distribute in an equitable
manner needs to be counted with the help of functional and personal distribution of income.
Proper selection for whom the goods are to be produced will help the government to solve
certain crucial problems of people of the country which includes reducing poverty,reducing
inequality of income and improving the standard of living of overall country.
Q2 What do you mean by production possibilities of an economy?
Answer. The various set of all the possible combinations of goods and services which can be
produced in an economy by making efficient utilization of the available resources is known as
production possibility of an economy.
Possibilities Wheat Maize
A 10 0
B 9 1
C 7 2
D 4 3
E 0 4
Page 2 of 7
● On the other hand if capital intensive technique is ignored the government has to
compromise with the value of production which will directly impact the growth rate.
Thus, in such a situation the government has to decide very wisely combination of the two which
will allow a stipulated growth rate without compromising with the employment condition of the
country. An economy has to choose that technique which makes efficient use of resources at a
minimum cost.
For whom to produce- It refers to the decision of the govt. with regard to the availability of
goods and services to the people of that country. Here the government decides whether to
produce goods for low income group or high income group. In this context it is important to note
that per capita availability of goods and services is the best indicator to judge the welfare
condition of the country. Therefore national output which is expected to distribute in an equitable
manner needs to be counted with the help of functional and personal distribution of income.
Proper selection for whom the goods are to be produced will help the government to solve
certain crucial problems of people of the country which includes reducing poverty,reducing
inequality of income and improving the standard of living of overall country.
Q2 What do you mean by production possibilities of an economy?
Answer. The various set of all the possible combinations of goods and services which can be
produced in an economy by making efficient utilization of the available resources is known as
production possibility of an economy.
Possibilities Wheat Maize
A 10 0
B 9 1
C 7 2
D 4 3
E 0 4
Page 2 of 7
Page 4
Book : Introductory Microeconomics Ncert Solutions | Chapter - 1 Economics
If all resources are used in the production of wheat, maximum of wheat that can be produced is
10 and if all resources are used in the production of maize, maximum amount of maize that can
be produced is 4.
The other various combinations are 7 units of wheat and 2 units of maize, 4 units of wheat and 3
units of maize. All these are known as production possibilities of an economy.
Q3 What do you mean by production possibility frontier?
Answer. Production possibilities curve of an economy refers to locus of various combinations of
two commodities that can be produced from a given set of resources having no change in the
technology of production of both commodities. It is known as production possibility frontier or
transformation curve.
Assumptions of production possibility curve are following:
● There is availability of proper resources to be used in production.
● Resources should be fully and efficiently utilised and in best possible manner.
● Technique of production cannot change for any of the two commodities to be produced.
Page 3 of 7
If all resources are used in the production of wheat, maximum of wheat that can be produced is
10 and if all resources are used in the production of maize, maximum amount of maize that can
be produced is 4.
The other various combinations are 7 units of wheat and 2 units of maize, 4 units of wheat and 3
units of maize. All these are known as production possibilities of an economy.
Q3 What do you mean by production possibility frontier?
Answer. Production possibilities curve of an economy refers to locus of various combinations of
two commodities that can be produced from a given set of resources having no change in the
technology of production of both commodities. It is known as production possibility frontier or
transformation curve.
Assumptions of production possibility curve are following:
● There is availability of proper resources to be used in production.
● Resources should be fully and efficiently utilised and in best possible manner.
● Technique of production cannot change for any of the two commodities to be produced.
Page 3 of 7
Page 5
Book : Introductory Microeconomics Ncert Solutions | Chapter - 1 Economics
Here the above graph shows the different possibilities of cotton and sugar that can be produced.
Here A, B, C, D, E are the points which indicate different choices of the two commodities that
can be produced by efficient utilization of available resources in an economy.
Page 4 of 7
Here the above graph shows the different possibilities of cotton and sugar that can be produced.
Here A, B, C, D, E are the points which indicate different choices of the two commodities that
can be produced by efficient utilization of available resources in an economy.
Page 4 of 7
Page 6
Book : Introductory Microeconomics Ncert Solutions | Chapter - 1 Economics
Q4 Discuss the subject matter of economics?
Answer. Economics is the branch of science which is concerned with the administration of
scarce resources which have unlimited uses and is confronted with unlimited human wants.
The scarce resources are insufficient to fulfil the human wants; these wants therefore can be
satisfied partially. This raises the problems of administration which are subject matter of
economics. Thus it is important to ensure that resources are fully utilized and human needs are
satisfied.
There are two types of subject matter of economics that is micro economics and macro
economics.
● Microeconomics is the study of individual decision making unit. It includes
determination of price and quantity of goods in market , theory of demand and supply in
the market, factor prices that is rent ,wages, profit and interest .
● Macro economics includes study of economy as a whole and deals with determination
of aggregate price level in an economy, economic growth, theory of national income and
employment.
Q5 Discuss between centrally planned economy and market economy?
Answer.
Basis Centrally planned economy Market economy
Meaning The economy where In market, economy decisions
decisions are controlled by are taken by individuals in the
the government that is the market so as to attain profit
central authority to achieve maximization.
the desired growth of an
economy.
Page 5 of 7
Q4 Discuss the subject matter of economics?
Answer. Economics is the branch of science which is concerned with the administration of
scarce resources which have unlimited uses and is confronted with unlimited human wants.
The scarce resources are insufficient to fulfil the human wants; these wants therefore can be
satisfied partially. This raises the problems of administration which are subject matter of
economics. Thus it is important to ensure that resources are fully utilized and human needs are
satisfied.
There are two types of subject matter of economics that is micro economics and macro
economics.
● Microeconomics is the study of individual decision making unit. It includes
determination of price and quantity of goods in market , theory of demand and supply in
the market, factor prices that is rent ,wages, profit and interest .
● Macro economics includes study of economy as a whole and deals with determination
of aggregate price level in an economy, economic growth, theory of national income and
employment.
Q5 Discuss between centrally planned economy and market economy?
Answer.
Basis Centrally planned economy Market economy
Meaning The economy where In market, economy decisions
decisions are controlled by are taken by individuals in the
the government that is the market so as to attain profit
central authority to achieve maximization.
the desired growth of an
economy.
Page 5 of 7
Page 7
Book : Introductory Microeconomics Ncert Solutions | Chapter - 1 Economics
Ownership of factors of Government owns all the Private individuals can own
production. factors of production. the factors of production.
Objective Social welfare is the prime Profit maximization is the
objective. main objective.
Governing mechanism Production is governed as The market demand and
per the government plans supply that is price
that is via planning mechanism is the governing
mechanism. factor.
Distribution of income The inequality of income There is unequal distribution
distribution is low. of income.
Q6 What do you mean by positive economic analysis?
Answer. In positive economic analysis, we study how the different mechanism in an economy
functions. It focuses on facts and causes which effect behavioural relationships .It also includes
economic theories of development and testing.
The positive economic analysis answers the question 'what is'. It tells us about the facts and
figures without analysing them whether they are good or bad for the economy. This theory was
given by Lionel Robbins.
Q7 What do you understand by normative economic analysis?
Answer. In normative economic analysis, we try to understand whether the mechanisms
involved to solve the central problems of an economy are desirable or not. It includes the value
judgements of economic fairness or what the outcome of the economy is to be.
Page 6 of 7
Ownership of factors of Government owns all the Private individuals can own
production. factors of production. the factors of production.
Objective Social welfare is the prime Profit maximization is the
objective. main objective.
Governing mechanism Production is governed as The market demand and
per the government plans supply that is price
that is via planning mechanism is the governing
mechanism. factor.
Distribution of income The inequality of income There is unequal distribution
distribution is low. of income.
Q6 What do you mean by positive economic analysis?
Answer. In positive economic analysis, we study how the different mechanism in an economy
functions. It focuses on facts and causes which effect behavioural relationships .It also includes
economic theories of development and testing.
The positive economic analysis answers the question 'what is'. It tells us about the facts and
figures without analysing them whether they are good or bad for the economy. This theory was
given by Lionel Robbins.
Q7 What do you understand by normative economic analysis?
Answer. In normative economic analysis, we try to understand whether the mechanisms
involved to solve the central problems of an economy are desirable or not. It includes the value
judgements of economic fairness or what the outcome of the economy is to be.
Page 6 of 7
Page 8
Book : Introductory Microeconomics Ncert Solutions | Chapter - 1 Economics
It answers the question 'what ought to be'. This theory was propagated by Marshall. It decides
whether the facts and data presented are good or bad as per the judgement made by various
people.
Q8 Distinguish between microeconomics and macroeconomics?
Answer.
Basis Micro Economics Macro Economics
Meaning It refers to the branch of It refers to the branch of
economics which deals with economics which deals with
the individual decision the economy as a whole.
making units.
Nature It includes study of consumer It includes study of
behaviour, producer employment status of a
behaviour etc. country, growth rate, import
and export and imports of the
country.
Focus It focuses on supply and It focuses on determinants of
demand. price level.
Page 7 of 7
It answers the question 'what ought to be'. This theory was propagated by Marshall. It decides
whether the facts and data presented are good or bad as per the judgement made by various
people.
Q8 Distinguish between microeconomics and macroeconomics?
Answer.
Basis Micro Economics Macro Economics
Meaning It refers to the branch of It refers to the branch of
economics which deals with economics which deals with
the individual decision the economy as a whole.
making units.
Nature It includes study of consumer It includes study of
behaviour, producer employment status of a
behaviour etc. country, growth rate, import
and export and imports of the
country.
Focus It focuses on supply and It focuses on determinants of
demand. price level.
Page 7 of 7
Document Details
| Board / Org | NCERT |
| Exam | Class 12 |
| Type | Solution |
| Pages | 8 |
| Updated | 30 Apr 2026 |