Question Bank SERIES
1. Define production possibility Curve. Explain the problem of choice with its help. PPC shows various combinations of two goods that can be produced with available technologies and with given resources, which are fully efficiently utilized.
At a given point of time, the technologies available to produce various goods and services as well as resources available in the economy are limited. If more resources go into the production of one good, less is available for the production of other good. In order to decide which combination of goods is the best, we have to first identify various combinations that are available to an economy. This is illustrated by concept called production possibility curve.
At the point A only Good Y is produced no good X. At the point F only good X is produced but no Y. Points B, C, D, and E shows various combinations of both the goods. Which combination to be produced, depends on the taste and preferences of the society. Any point on the curve (like a, b, c, d and f) show full employment of resource Any point below the PPC (point G)show under employment of resource Any point above the PPC (point H) show beyond the reach with available resource
2.What are the characteristics of PPC
a. PPC is downward sloping because in order to produce more units of one goods some units of the other goods must be sacrificed.
b. PPC is concave to the origin because of the increasing marginal rate of transformation or increasing slope of the PPC
3. What are the causes of Shift in PPC to right?
It indicates economic growth. It can be due to:-
a. Increase in labour availability
b. Improvement in technology of production
c. Increase in productivity of labour
d. Growth of finding of new resources
4. What are the causes of Shift in PPC to left?
It indicates decrease in productive capacity of the economy. It can be due to:-
a. Natural calamities and wide spread destruction of capital stock
b. Decrease in labour supply
c. Depletion if resources.
5. Define Resources. State its two characteristics.
Resources are inputs used in the production of goods and services. Two important features of resources that give rise to economic problems are
a. Resources are limited in supply
b. Resources have alternative uses.
6. Explain the Central Problems of an economy related to allocation of resources.
a. What is produced and in what quantities:- How much of each commodity to be produced-whether to produce more food, clothing, housing, luxury goods etc. Whether to allocate more resources on production of education, health or military services etc. Whether to produce more consumer goods or investment goods.
b. How are these goods produced?- This refer to technology of production. How much of which of the resources to use in production of each of the different good. Whether to use more labour or capital or which of the available technology to be utilized?
c. For whom to produce?- how should the produce of the economy be distributed among the individuals in an economy? Who gets more and who gets less? Whether to ensure a minimum amount of consumption to every one in the society? Whether the basic education and public health be available to all in the country Etc. For whom to produce refer to distribution of income in the society.
7. Define Micro and Macro economics.
Micro economics: It deals with individual economic units. Example: Price theory
Macro economic: It deals with the economy as a whole: Theory of income determination
8. Distinguish between positive and normative economics.
Positive economics: It deals with ‘what a phenomenon is’ and ‘what it likely to be’- It explains a fact. There are no value judgement
Normative economics: It deals with “what should be” or what is desirable” based on value judgment.
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