Introduction to Microeconomics Class 11 Notes

This is the first chapter of the Microeconomics book and it is all about the basics of Economics which are very important to understand its further concepts. Here are the introduction of microeconomics class 11 notes.

Economy

Introduction to Microeconomics Class 11 Notes — India’s Map

The economy is a system that provides people the means to work and earn a living.

Scarcity

Scarcity refers to the limitation of supply in relation to demand for the commodity.

Economic Problem

An economic problem is a problem of choice involving the satisfaction of unlimited wants out of limited resources having alternative uses.

Reasons for Economic Problem

The three main reasons for the existence of economic problems are:

1) Scarcity of Resources

It is the basic reason for the existence of economic problems. The resources are limited in relation to their demand.

2) Unlimited human wants

Human wants are never-ending, they can never be fully satisfied. The people’s wants are unlimited and they can never be satisfied because of limited resources.

3) Alternative Uses

Resources are not only scarce but they can also be put to various uses. It chooses among resources more important. As a result, the economy has to choose between alternative uses of the given resources.

Difference between Positive Economics and Normative Economics

Basis	Positive Economics	Normative Economics
Meaning	It deals with what is and how the economic problems are actually solved.	It deals with what ought to be and how the economic problems should be solved.
Verification	It can be verified with actual data.	It cannot be verified with actual data.
Purpose	It aims to make a real description of an economic activity.	It aims to determine the ideals.
Suggestive	It is based upon facts and thus not suggestive.	It is based upon individuals opinions and therefore it is suggestive in nature.
Examples	There are inequalities of income in our country.	Income inequalities should be removed.

Positive Economics Vs. Normative Economics

Difference between Microeconomics and Macroeconomics

Basis	Microeconomics	Macroeconomics
Derivation	The term micro has been derived from the Greek word “MIKROS” which means small.	The term macro has been derived from the Greek word “MAKROS” which means large.
Meaning	It is that part of economic theory that studies the behavior of individual units of the economy.	It is that part of the economic theory that studies the behavior of aggregates of the economy as a whole.
Tools	Demand and Supply	Aggregate Demand and Aggregate Supply
Other Name	Price Theory	Income and Employment Theory
Examples	Individual income, individual output	National income, national output

Microeconomics Vs. Macroeconomics

Central Problems of an Economy

There are 3 major central problems of an economy.
1) What to Produce
2) How to Produce
3) For Whom to Produce

What to Produce

This problem involves the selection of goods & services to be produced and the quantity to be used for each selected commodity.

In every economy, the resources are limited & hence an economy cannot produce all the goods.
More of one good usually means less of the other. The problem of what to produce includes what possible commodities to produce and how much to produce.

How to Produce

This problem refers to the selection of techniques to be used for the production of goods & services. A good can be produced using different techniques of production.

Generally, two techniques are used, labour-intensive technique and capital-intensive technique. The selection of technique is made to achieve the objective of raising the standard of living of people & to provide employment to everyone.

For Whom to Produce

This problem relates to the distribution of produced goods and services among the individuals within the economy i.e. selection of a category of people who will ultimately consume the goods like whether to produce goods for more poor & less rich or more rich & less poor.

Goods are produced for those people who have the paying capacity. The capacity of people to pay depends on the income level.

Therefore, this problem is concerned with the distribution of income among the factors of production that contribute to the production process.

Opportunity Cost

It is the value of the next best alternative foregone. Example: If you get two job offers with an income of Rs. 30,000 and Rs. 35,000, you choose the Rs. 35,000 jobs, then your opportunity cost will be Rs. 30,000.

Indian Economy on the Eve of Independence Notes

Production Possibility Curve (PPC/PPF)

PPC refers to a graphical representation of possible combinations of 2 goods that can be produced with given resources & technology.

Possibilities	Rose	Lily	MOC
A	21	0	–
B	20	1	1
C	18	2	2
D	15	3	3
E	11	4	4
F	6	5	5
G	0	6	6

Schedule of PPC

Planning Notes Class 12 Business Studies — Production Possibility Curve

Properties/Characteristics of PPC

1) PPC Slopes Downward

PPC is downward sloping from left to right because there exists an inverse relationship between the change in the quantity of one commodity & change in the quantity of another commodity.

2) PPC is Concave Shaped

PPC is concave shaped because of increasing MOC (Marginal Opportunity Cost) i.e. more & more units of one commodity are sacrificed to gain an additional unit of another commodity.

Assumptions for PPC

The amount of resources in the economy is fixed.
With the help of given resources, only 2 goods can be produced.
The level of technology is assumed to be constant.
The resources are fully & efficiently utilized.

Important things to note

An outward/rightward shift in PPC shows an increase in the amount of resources.
An inward/leftward shift in PPC shows a decrease in the amount of resources.
PPC is concave-shaped because of increasing MOC.
If MOC is decreasing then PPC will become convex.
If MOC is constant/same then PPC will be a straight line.

So, these are the Introduction to Microeconomics Class 11 Notes. If you have any doubts, you can ask in the comments, I will try my best to resolve those doubts.