Please refer to below Exam Question for Class 12 Economics Chapter 1 Introduction to Micro Economics. These questions and answers have been prepared by expert Class 12 Economics teachers based on the latest NCERT Book for Class 12 Economics and examination guidelines issued by CBSE, NCERT, and KVS. We have provided Class 12 Economics exam questions for all chapters in your textbooks. You will be able to easily learn problems and solutions which are expected to come in the upcoming class tests and exams for standard 12th.

Chapter 1 Introduction to Micro Economics Class 12 Economics Exam Question

All questions and answers provided below for Exam Question Class 12 Economics Chapter 1 Introduction to Micro Economics are very important and should be revised daily.

Exam Question Class 12 Economics Chapter 1 Introduction to Micro Economics

Short Answer Type Questions

Question. What does a PPC show? When will it shift to the right?
Answer. Production Possibility Curve shows the different combinations of two goods which an economy can produce with available technology and resources.
It would shift towards right-hand side in case of growth of resources or technological progress.

Question. Explain the problem ‘How to produce’.
Answer. Broadly, there are two techniques of production.
a. Labour intensive Technique : Under this technique, production depends more on the use of labour.
b. Capital Intensive Technique : Under this technique, production depends more on the use of machines (called capital) efficient technique of production is that which uses minimum possible inputs for a given amount of output. So that, cost per unit of output is minimised.

Question. Does production take place only on the PP curve?
Answer. Yes and no, both. Yes, if the given resources are fully and efficiently utilized. No if the resources are underutilized or inefficiently utilized or both.
Refer to the above figure; on a point anywhere on the PPC the resources are fully and efficiently employed. On point U, below the PPC or any other point but below the PPC, the resources are either underutilized or inefficiently utilised or both. Any point below the PP curve thus highlights the problem of unemployment and inefficiency in the economy.

Question. Why does an economic problem arise? Explain.
Answer. Reasons-
1. Unlimited wants – Human wants go on multiplying with the expansion of education, knowledge, scientific advancement and economic growth. A man can not satisfy all of his wants and therefore he has to make a choice in order of urgency.
2. Limited resources – The resources are limited in relation to need for them. It is the main cause of economic problem.
3. Alternative use of resources – A resource can be utilized in a different way and for different purposes. Therefore choice has to be made among different uses of resources

Question. Why does PPC look concave to the origin? Explain.
Answer. PPC looks concave to the origin because of increasing marginal rate of transformation/substitution (or increasing marginal opportunity cost). It means that more and more units of commodity ‘y’ are to be sacrificed, to get each additional unit of commodity ‘x’.

Question. Calculate MRTXY at different production possibilities from the following hypothetical data. Draw a PPC on the basis of the schedule.

Answer. Production possibility Schedule

Question. Draw PPC and show the followings:-
a. Full employment of resources,
b. Underutilisation of resources, and
c. Growth of resources.

Answer.
a. Full employment of resources – A point anywhere on the PPC, shows the efficient use or full employment of resources.
b. Underutilisation of resources – A point anywhere inside of the curve, shows inefficient/under utilisation of resources.
c. Growth of resources – It refers to the shift in PPC. If more resources are generated, the level of production will increase. In the figure it is represented by a shift in PPC from PP to P’P’.

Question. Why is a production possibilities curve concave? Explain.
Answer. The production possibility curve being concave means that MRT increases as we move downward along the curve. MRT increases because it is assumed that no resource is equally efficient in production of all goods. As resources are transferred from one good to another, less & less efficient resources have to be employed. This raises cost and raises MRT.

Question. Explain the problem of ‘what to produce’.
Answer. An economy can produce different possible combinations of goods & services with given resources. The problem is that, out of these different combinations, which combination is produced. If production of one good increases then less resources will be available for other goods.

Question. Explain properties of a production possibilities curve.
Answer. There are two properties of a production possibilities curve.
a. Downward sloping : It is because as more quantity of one good is produced some quantity of the other good must be sacrificed.
b. Concave to the origin : It is because the marginal rate of transformation increases as more of one good is produced.

Question. What is ‘Marginal Rate of transformation’? Explain with the help of an example.
Answer. MRT is the rate at which the units of one good have to be sacrificed to produce one more unit of the other good in a two goods economy Suppose an economy produces only two goods X and Y. Further suppose that by employing these resources fully and efficiently, the economy produces 1X + 10Y. If the economy decides to produce 2X, it has to cut down production of Y by 2 units. Then 2Y is the opportunity cost of producing 1X. Then 2Y:1X is the MRT.