CBSE Class 12 Economics Introduction To Micro Economics VBQs

Q1.Massive unemployment will shift the PPF to the left. Defend or refute.

Ans. The given statement is refuted . Massive unemployment does not decrease the capacity of economy to produce. So, there will be no shift of PPF. However, economy will operate at some point inside the PPF, due to unutilisation of human resources.

Q2.What is the opportunity cost of an input which has no alternative use?

Ans. The opportunity cost of such input is zero.

Q3.Utility is directly linked with the usefulness of a commodity. Is it true or false? Give reason.

Ans. False. A commodity may not be useful, yet it may have utility for a particular person. For example, chewing tobacco is harmful for health ,yet many people derive high degree of utility from it.

Q4.In order to encourage tourism in Goa, Indian Airlines reduces the air fare to Goa. How will it affect market demand curve for air travel to Goa ?

Ans. There will be a downward movement along the same market demand curve for air travel to Goa. It happens because of decrease in the air fare.

Q5. At certain level of output ,the marginal cost of a firm is above its margi revenue .Can this be its equilibrium output ?

Ans. No,it can not be its equilibrium output because the marginal cost exceeds the marginal revenue. The firm is running at a loss.

Q6. Trendz produces both jeans and shirts .How will an increase in the price of jeans affect the supply curve of shirts ?

Ans. An increase in the price of jeans will make the production of jeans more attractive . As a result ,Trendz will shift its resources from shirts to jeans. It will shift the supply curve of shirts towards left 

Q7. A severe drought results in a drastic fall in the output of wheat. Analyze how it will affect the market price of wheat.

Ans. Market price of wheat will increase(due to decrease in supply).

Q8.What will be the effect on equilibrium price and equilibrium quantity of telephone instruments ,if China exports a large number of telephone instruments to India.

Ans. Equilibrium price will fall and equilibrium quantity will rise(due to increase in supply).

Q9. ‘Both  microeconomics and macroeconomics have same degree of aggregation’. Defend or refute.

Ans. The given statement is refuted

●Micro economics involves limited degree of aggregation .For example, market demand (micro concept)is derived by aggregating individual demands of all the buyers in particular market.

●On the other hand , macro economics involves the highest degree of aggregation. For example, aggregate demand(macro concept)is derived for the entire economy. It means ,micro economics and macro economics differ in degree of aggregation.

Q10.”Law of demand is a quantitative statement”. Comment.

Ans. Law of demand is only an indicative and not a quantitative statement. It indicates only the direction, in which the demand will change with a change in price. It says nothing about the magnitude of such a change. For example price of Pepsi rises from Rs 10 to Rs 12 per bottle, then, as per law of demand, we can say that the demand for Pepsi will fall. But the law does not give the actual amount by which the demand for Pepsi will decline.

Q11. “MC can be calculated both from total cost and total variable cost and is not affected by total fixed cost.” Discuss.

Ans. The given statement is correct.MC is not at all affected by total fixed cost (TFC). MC is addition to TC or TVC when one more unit of output is 7 produced. As TFC remains same with increase in output ,MC is independent of fixed cost and is affected just by change in variable costs.

Q12.Why AR curve under monopolistic competition is more elastic than AR curve under monopoly?

Ans. The AR curve under monopolistic competition is more elastic because there exists close substitutes of the product sold by the monopolistic firm where as under monopoly the AR curve is less elastic because there is non availability of close substitutes of the product sold by the monopoly firm.

Q13.How does a firm under monopolistic competition exercise partial control over price?

Ans. A monopolistic competitive firm enjoys partial control over price. It happens because by incurring heavy selling costs, the firm is able to create a differentiated image of its product in the minds of consumers. Products are differentiated on the basis of brand ,size, color, shape, etc. Buyers are attracted to buy a particular product even at a relatively higher price.

Q14.Why is number of firms small in an oligopoly market ?

Ans. The main reason for small number of firms under Oligopoly is the Barriers to entry, which prevent entry of new firms into the industry. Patents, requirement of large capital, control over crucial raw materials, etc, are some of the other reasons, which prevent new firms from entering into industry. As a result ,there are few firms in an Oligopoly market.

Q15.”Demand and supply are like two blades of a pair of scissors”. Comment.

Ans. The given statement is correct.Both the blades of pair of scissors are equally important to cut a piece of cloth.Similarly ,both demand and supply are neede for determining price in the market.There is no use for demand for a product if there is no supply for the product and supply is not needed if there is no demand for the product. One of the two may play more active role in price determination in the short run. But both are needed to determine the price in the long run.

Very Short Answer Type Questions(1 Mark)

Question. Why does the problem of choice arise?

Answer :  Relative scarcity of resources having alternative uses in relation to unlimited wants, gives rise to an economic problem.

Question. Why does PPC look concave to the origin?

Answer :  PPC is concave to the origin because of increasing marginal rate of transformation (or increasing marginal opportunity cost).

Question. Which factor lead to a shift of PPC towards right hand side?

Answer : Growth of resources or technological progress leads to a shift of PPC towards right-hand side.

Question. What does a point below PPC indicate?

Answer :  It shows inefficient/under utilization of resources.

Question. What does slope of PPC show?

Answer : Negative slope of PPC shows that in order to produce more units of one good, some units of the other good must be sacrificed.

Question. When allocation of resources is considered as inefficient?

Answer : Allocation of resources is considered as inefficient when economy performs below the PPC curve.

Question. India is a labour abundance and capital scarce economy. Which technique of production should be used to produce the commodity?

Answer : India should adopt labour intensive technology.

Question. As water resources are limited in our country, how can we economise the water resources so that it would not become a future problem for us. Give any two suggestions.

Answer :  i) Rain water harvesting to be implemented as must.

ii) Recycling of Water and economical use of water.

Question. A teacher is getting Rs. 6000/- as salary per month. If he leaves the job and starts tuition work, he is expected to earn Rs. 5000/- per month what would be his opportunity cost.

Answer : The opportunity Cost of a school Job is Rs. 5000/- p.m . That a teacher could have earned in the next best alternative use that is doing tuition work.

Question. With the same amount of resources, a farmer can feed the following combination of goats and Horses.

                    Goats              Horses

Option -1      168                   44

Option-2       150                  50

Given the option available with him,What is the opportunity cost of the farmer of feeding one Horse. ?

Answer :  The opportunity cost to the farmer of feeding one horse is 3 goats

i.e: 168- 155 ÷ 50-44 =3/1

Question. Lot of people die and many factories are destroyed because of a severe earthquake in a country. How will it affect the countries PPC?

Answer :  As a result of death and destruction of factories due to Earthquake there will be reduction in Production as a result PPC will shift to left, due to decline in resource.

Short Answer Type Questions

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.. 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. 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. 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.

Question. Give two examples of Micro and Macro Economy.
Answer : The two examples of Micro economy are Individual supply and demand and the two examples of Macro economy are aggregate supply and demand.

Question. A growth of resources in an economy is shown in PP by.
1. Leftward Shift
2. Unchanged PPC
3. Rightward Shift
4. None of the above
Answer : Rightward Shift

Question. The central economy in market research is solved by.
1. Demand for goods
2. Supply of goods
3. Planning authority
4. Market mechanism
Answer : Market mechanism

Question. What is Production Possibility Frontier?
Answer : Production Possibility Frontier is the curve that depicts the maximum output possibility for two combination goods that are produced when the resources are fixed at a given period of time.

Question. Which of the following is a statement of normative nature in economics
1. Economics is a study of choices /alternatives
2. The government should be concerned with how to reduce unemployment
3. According to the estimate, in spite of severe shortage, more than 10% of houses in Indian cities are vacant
4. Accommodation of refugees is posing a big problem for Europe
Answer : Economics is a study of choices /alternatives

Question. What is the opportunity cost?
Answer : Opportunity Cost is the next best alternative foregone.

Question. Define Normative Economics.
Answer : Normative Economics is a theory that understands what an actual economy should be under an ideal circumstances as compare to what actually it is. It is mostly based on judgmental analysis and a statement ‘what ought to be’.

Question. What does the opportunity cost mean? Explain with a numerical example.
Answer : Opportunity Cost is something when an individual has to give up something to achieve or acquire something else. In microeconomy, the opportunity cost is also known as alternative cost and is also used in calculating cost benefits or analyzing a project in terms of best alternative while making a choice. For example, Dev has three career offers to choose from. Job X has a salary offer of Rs 60000, job Y offer is Rs. 70000 and job Z offer is Rs. 80000. So, in this case, Devout of three offers he has to choose what is best for him.

Question. Explain the central problem of the choices of products to be produced.
Answer : The basic economic activities are based on the production, allocation, and distribution of goods and services. These are the major problem in the economy and other difficulties revolve around them. Allocation of goods and services relates to a problem of assigning the inadequate supplies in such a way so that it fulfills that maximum number of the consumer. As the demand for the insufficient goods is more than that of the supply it is important to utilize it in the most effective way. In other words, an economy allocates its goods and resources and pick from a different possible package of goods (what to produce), select from various ways of production (how to produce), and therefore decide who will utilize the product (for whom to produce).