Micro-Economic
Class-11
Important Question
* Important question which all are related to the upcoming Final Exam
Based on :- NCERT,CBSE
Unit - 1
Introduction
Question 1
Question 2
Give the meaning of Micro Economic and give two example.
Answer:-
Microeconomics is the study of individuals, households and firms' behavior in decision making and allocation of resources. It generally applies to markets of goods and services and deals with individual and economic issues.
Example:-
1) Study of consumer behaviour: consumer equilibrium and law of demand.
2) Study of producer behaviour: producer equilibrium and law of supply.
Question 3
Why does the problem of choice arise?
Answer:-
Problem of choice refers to the allocation of various scarce resources which have alternative uses that are utilized for the production of various commodities and services in the economy for the satisfaction of unlimited human wants.
Question 4
What does production possibility curve show ? when will it shift to the right?
Answer:-
Production possibility curve shows all different attainable combinations of the production of two commodities that can be produced in an economy with given the resources and technology which are to be fully utilized. So if there is increase in the availability of the resources in the economy then automatically the overall output in the economy increases which shifts the PPC to the right.
Question 5
What does a rightward shift of production possibility curve indicate?
Answer:-
The rightward shift of PPC indicates growth of resources or technological progress.
Question 6
What is opportunity cost? Explain with the help of example.
Answer:-
When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.
Question 7
Production is and economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using production possibility curve.
Answer:-
Production below the potential means that total production in the economy is somewhere below the production possibility curve PP', for example at point U in the diagram.
When the government starts employment generation schemes, and since the below potential production is due to unemployment, the economy moves forward in its attempt to remove unemployment and reach the potential. The movement forward is towards the PP' curve.
Question 8
Giving reason, Comment on the shape of the Production Possibility curve based on the following schedule:
Good-X Good -Y
0 20
1 18
2 14
3 8
4 0
Answer:-
The schedule shows that the marginal opportunity cost of production more of Good-X in place of Good-Y is rising. Accordingly, production possibility curve is to be concave to the origin.
Question 9
What will likely be the impact of large scale outflow of foreign capital of Production Possibility curve of the economy and why?
Answer:-
Large-scale outflow of foreign capital from the economy will reduce resources and thus production potential of the country will fall. Fall in production potential, in turn, will shift the PPC downwards or PPC will shift to left.
Nnnnnn .
Unit -2
Consumer's Equilibrium and Demand
N. M. Nn.
Question 1
Explain with the help of diagram the effect of the following changes on the demand of a commodity:-
I) if fall in the price of substitute goods
II) A fall in the income of its buyer
Answer:-
(i) Demand for a commodity will decrease when there is a fail in the price of substitute goods. Implying that demand curve would shift backward: less will be purchased at the same price. Demand for commodity falls from PK to PK1.
Fig. (a) illustrates this situation.
(ii) Demand for a commodity will decrease also when there is a fall in income of the consumer (assuming that the commodity demanded is a normal good). This would imply a backward shift in demand curve: less goods will be purchased at the same price. Demand for a commodity falls from PK to PK1.
Fig. (b) illustrates this situation.
Question 2
What is the relation between Googds X and Goods Y in each case , if with fall in price of X demand for good Y
I) Rises
II) Falls?
Give reason.
Answer:-
(i) If with fall in the price of X, demand for good Y rises, they are complementary goods. For example: Car and petrol. When price of car decreases, demand for petrol increases.
(ii) If with fall in the price of X, demand for y falls, they are substitute goods, For example: Tea and Coffee. When price of tea falls, demand for coffee falls.
Question 3
Distinguish between 'Increase in demand' and 'Increase in quantity demand' of a commodity.
Answer:-
Question 4
Distinguish between 'Change in demand' and ' Change in quantity demand' of a commodity.
Answer:-
Question 5
Explain any two factor that affect price elasticity of demand.
Answer:-
The four factors that affect price elasticity of demand are
(1) availability of substitutes,
(2) if the good is a luxury or a necessity,
(3) the proportion of income spent on the good, and
(4) how much time has elapsed since the time the price changed. If income elasticity is positive, the good is normal.
Question 6
A consumer consumers only two goods X and Y . state and explain the conditions of consumer equilibrium with the help of utility analysis.
Answer:-
Questionn 7
Drive the law of demand from the single commodity equilibrium condition "Marginal utility = price".
Answer:-
The price and quantity demanded of a good are usually inversely related. This means when price is more, demand is less and vice-versa. This inverse relationship between price and demand can be exhibited using single commodity equilibrium condition.
Marginal Utility (MU) = Price
The law . of diminishing marginal utility states that if we successively go on consuming more units of the same commodity, the utility which we derive from such successive units (i.e., its MU) declines.
Knowing this, one will have (or demand) more of a good when its price is less and vice-versa, because now, he is having units yielding less satisfaction. The reverse of it will be true in opposite direction.
Thus given the law of diminishing marginal utility, we have downward sloping MU curve and given the equilibrium condition, MU = Price, for a single commodity. The demand curve of the commodity coincides with the MU curve (in the positive quadrant only).
As shown in Diagram 3, the equilibrium quantity will be OQ because at this level MU and price of the commodity are equal.
Question 8
Explain the concept of "Marginal rate of substitution" by giving an example.What happens to MRS when consumer move downward along the indifference curve? Give reason for you answer.
Answer
Question 9
What are Monotonic preferences? Explain why is an indifference curve
1) Downward sloping from left to right
2) and convex.
Answer:-
Monotonic preferences means that greater consumption of a commodity by the consumer gives him higher level of satisfaction.
Indifference curve is a curve showing different combinations of two goods, each combination offering the same level of satisfaction to the consumer.
Question 10
A consumer buys 20 units of a goods at a price of ₹5 per unit. He incurs an expenditure of ₹120 when he buys 24 units. Calculate price elasticity of demand using the percentage method. Comments upon the likely shape of demand curve based on this information.
[Hint:- Price elasticity of demand = Infinity. As demand is perfectly elastic, demand curve will be horizontal straight line parallel to X- axis]
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