Introduction to Economics
(Very Short Question Answers)
Q1: What is an Economy?
Answer: An economy is the system of earning livelihood. It is the sum of the basic economic activities
viz.
✒ Production,
✒ Consumption and
✒ Distribution or Distribution (Exchange).
Q2: What is an Economic Problem?
Answer: An economic problem is the problem of making choice of the given resources which have alternative uses. In other words, it is the decision making problem of husbandry of resources.
Q3: Define the term Production Possibility Curve.
Answer: It is a graphical presentation which depicts the possible combinations of producing any two goods with the given resources & the level of technology.
Q4: Define the term Opportunity Cost.
Answer: It refers to the cost of next best alternative.
Q5: Define the term scarcity of resources.
Answer: It refers to the situation when demand for resources exceeds its supply even at zero price.
Q6: Give two examples of Micro economic studies.
Answer: Study of consumer & producer equilibrium, law of demand & supply, price determination of a product in the market etc.
Q7: Name the four factors of production.
Answer:
❖ Land (including natural resources).
❖ Labor (number and skills of workers).
❖ Capital (machinery, buildings, networks).
❖ Entrepreneurship (skill in creating products, services, and processes).
Q8: When does PPC shift towards right?
Answer: When there is growth of resources & advancement of technology.
Q9: "Economising the resources means saving the resources for future use." Is it true? Why?
Answer: No, it means the optimum use of resources i.e. use of resources in such a manner that maximum output is produced at minimum cost.
Q10: "There would be no economic problem if there is no scarcity of resources." Is it true?
Answer: True, as economic problem exist due to scarcity of resources.
Q11: Define market mechanism.
Answer: The central actor in this reshuffling of resources and outputs is called the market mechanism. Market sales and prices send a signal to producers about what mix of output consumers want.
Q12: Define the term Marginal Opportunity Cost/Marginal Rate of Transformation (MRT).
Answer: It refers to the rate of sacrificing the production of a good to produce more of other good. MRT = ΔY/ΔX; implies that MRT = Amount of Y given up / Amount of good X gained.
Q13: What is the problem of choice?
Answer: It is the problem of allocating scarce resources to alternative uses.
Q14: In case of an economy operating inside the PPC, can the economy produce more of one good by not sacrificing the production of another good? Why?
Answer: Yes, because the resources are not fully used when the society is producing inside the PPC.
Q15(MCQ): A person has three job offers of Rs 10000, Rs 20000, and Rs 30000 respectively. Assuming the working conditions are same, the opportunity cost of the offer chosen is:
a. Rs 10000;
b. Rs 20000;
c. Rs. 30000;
d. None of the above
Answer: (b) Rs 20000;
Q16: Every nation confronts the three basic economic questions. What are they?
Answer: Every nation confronts the three basic economic questions of
① WHAT to produce,
② HOW to produce, and
③ FOR WHO to produce
Q17: What the basic difference between micro economics and macro economics?
Answer: The study of economics focuses on the broad question of resource allocation.
Macroeconomics is concerned with allocating the resources of an entire economy to achieve broad economic goals (e.g., full employment).
Microeconomics focuses on the behavior and goals of individual market participants.
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