Confused with the difference between the economics and economy? Is the concave graph of PPC scaring you? We are then here to provide you with the study notes you need to ace your Class 11 economics. Here is everything you need to know about economics class 11 chapter on Introduction to Microeconomics. We have summarized the key pointers and sections you must know to understand what Microeconomics is all about.
Economy and Economics
To begin our class 11 Introduction to Microeconomics, we must first have our fundamentals clear about what is economics and economy and the difference between micro and macro economics. Have a look here:
- The word ‘economy’ was taken from a french word, ‘economie’. It is a system in which people earn their livelihoods and live through production, consumption, investment and exchange to satisfy their wants and needs.
- Similarly, the word economics was derived from the word ‘Oikonomos’. According to the chapter of class 11 Introduction to Microeconomics, economics is the study of those problems of choice that arise out of scarcity of resources and alternative uses.
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Types/Branches of Economics
According to the chapter of class 11 Introduction to Microeconomics, the study of Economics is divided into two branches namely:
- Microeconomics: Microeconomics studies the behaviour of individual units of economics such as the demand of a consumer, supply of a producer, consumer equilibrium, factor pricing, product pricing etc. it is also known as price theory.
- Macroeconomics: Macroeconomics studies the economy and its behaviour as a whole such as National Income, aggregate demand, aggregate supply, inflation etc. it is also called the theory of income and employment.
Do you Know? Adam Smith is called as the Father of Microeconomics.
Types of Economy
After studying what is an economy, economics, and types of economics, let us now discover different types of the economy. As per the chapter of class 11 Introduction to Microeconomics, there are 3 different types of economy:
- Capitalist economy or Market economy: It is a system of the economy where all the materials and means of production are owned and operated by private individuals. This concept of economy or type of economy has only one major aim or motive, which is to earn profits.
- Socialist economy or Planned economy: On the contrary to the capitalist or market economy, the socialist economy is one where the government owns all the means and materials of production. The government is the centrally planned authority of any nation who takes all the important decisions regarding production, exchange, consumption, availability of goods and services, distribution of goods and services, etc. They have the main aim or motive to produce for social welfare.
- Mixed economy: A mixed economy is that type of economy with traits and characteristics of both the above-mentioned economies- capitalist and socialist.
Causes of Economic Problems
According to the chapter of class 11 Introduction to Microeconomics, although the nature and scope of economics are great, the economic problem is the problem of choice. This problem of choice in the economy arises due to the use of limited means and resources, that have alternative use as well. As per the chapter of class 11 Introduction to Microeconomics, there are 3 different reasons or causes of the economic problem:
- Unlimited human wants
- Limited economic resources or scarcity of resources
- Alternative uses of these limited resources
Central Problems of an Economy
The chapter of class 11 Introduction to Microeconomics has also described how important and crucial it is to allocate the resources which are scarce and limited in the economy. Scarce resources should be used in the best possible manner without any waste. The allocation of resources depends on three things or 3 questions:
- What to produce and in what quantity: Deals with the selection of goods or resources.
- How to produce: Deals with the selection of the right technique or technology to produce.
- For whom to produce: Deals with the distribution of goods and income in the economy in the right manner.
According to the chapter of class 11 Introduction to Microeconomics, the opportunity cost is the cost of the next best alternative foregone. In simple words, it is the cost or the amount of one commodity that is to be sacrificed to increase the production of another commodity. Let us understand it with the help of an example. Suppose, Harry right now is a Head Chef at Taj Hotel in Bombay. Apart from joining Taj as a Head Chef, he was having 2 alternatives or choices as well:
- To be Assistant Chef at ITC Hotel in New Delhi.
- To open his own restaurant.
The opportunity cost which Harry has forgone in this scenario is to be an assistant chef at ITC Hotel in New Delhi.
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Production Possibility Curve
As per the chapter of class 11 Introduction to Microeconomics, Production Possibility Curve or PPC is a concave curve that shows all the possible combinations of the set of 2 goods produced in an economy. PPC is also known as PPF or Production Possibility Frontier. It tells about the goods that an economy can produce with the available limited resources and given technology, assuming that the resources are utilised fully and efficiently.
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Features of PPC/PPF
Mentioned below are the various features of PPC/PPF. It is an important part of class 11 Introduction to Microeconomics. Have a look here:
- PPC or PPF is a concave curve. It is concave to the origin because of increasing MOC or marginal opportunity cost.
- PPC sloped downwards from left to right. It slopes downwards because if the production of one commodity is to be increased, the production of the second commodity has to be sacrificed as resources are limited and scarce.
- PPC or PPF will be convex if MOC starts decreasing.
- PPC or PPF will be a straight line when MOC will be constant.
- The PPC or PPF will shift rightwards if there is an increase in the resources or any improvement or up-gradation in technology. Example: more skilled labour, new machinery etc.
- The PPC or PPF will shift towards the left when the resources in the economy will decrease and/or degradation in technology in the economy.
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So these were some important notes on the chapter of class 11 Introduction to Microeconomics. We hope that the blog can be of use for the students at the time of their final revision. For more such amazing content, study notes and career guidance, stay tuned with Leverage Edu. Sign up for a free session today!