Class 12 Micro Economics - Chapter Introduction to Micro Economics NCERT Solutions | Discuss the central problems of an econo
Discuss the central problems of an economy.
Every economy faces three central problems due to scarce availability of resources. This scarcity challenges the best possible usage of these available resources to fulfil the unlimited demands.
The three central problems of an economy are as follows:
1. What to produce and in what quantities?
The very first problem encountered by any economy is to decide what goods are to be produced and in what quantities or amount. There is a lot to be decided; whether to produce consumer goods or luxury goods; agricultural goods or investment goods; whether to cater the education and healthcare sector or to strengthen the country's military. An appropriate example was set by the Latin American nation Costa Rica; they dismantled their military in 1949 and invested the money, which earlier was spent on the maintenance of their army, on education and healthcare. Once it is decided, what to produce, the next decision is to estimate the amount or quantity of the production. So the economy constantly struggles to choose what to produce and in what quantities.
2. How to produce?
The second problem that arrives is how to harvest the given or available resources? That is, what technique is to be used for producing various goods and services? It depends majorly on the nation’s endowment of resources in deciding the optimum technique. It has to be decided whether efficient production is possible through labour - intensive or capital-intensive techniques. This decision rests on the present economic conditions and also that the selected technique shall not only reduce the cost of production but also add to the social and economic welfare. For example, if a country is facing wide unemployment possibly due to a huge population, then it is wise to opt for labour-intensive technique so that there is reduction in unemployment.
3. For whom to produce?
Finally, the purposeful distribution of final goods and services produced (national income) has to be done; that is, who gets what and how much? The economy needs to decide the best suitable mechanism for distribution of the final products among different segments of the society. The objective behind selecting such a mechanism is to reduce inequality of income, to reduce poverty and to add to the social welfare and standard of living of people.
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What would be the shape of the demand curve so that the total revenue curve is?
(a) A positively sloped straight line passing through the origin?
(b) A horizontal line?
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What is the total product of input?
- Q:-
From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:
Quantity
1
2
3
4
5
6
7
8
9
Marginal
Revenue
10
6
2
2
2
0
0
0
-
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How are the total revenue of a firm, market price, and the quantity sold by the firm related to each other?
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Recently Viewed Questions of Class 12 Micro Economics
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If the monopolist firm of Exercise 3 was a public sector firm. The government set a rule for its manager to accept the government fixed price as given (i.e. to be a price taker and therefore behave as a firm in a perfectly competitive market). And the government has decided to set the price so that demand and supply in the market are equal. What would be the equilibrium price, quantity and profit in this case?
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Suppose the demand and supply curves of salt are given by:
(a) Find the equilibrium price and quantity.
(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is qs = 400 + 3p
How does the equilibrium price and quantity change? Does the change conform to your expectation?
(a) Suppose the government has imposed at ax of Rs 3 per unit of sale on salt. How does it affect the equilibrium rice quantity?
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How does the budget line change if the price of good 2 decreases by a rupee
but the price of good 1 and the consumer’s income remain unchanged? - Q:-
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
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A shift in demand curve has a larger effect on price and smaller effect on quantity when the number of firms is fixed compared to the situation when free entry and exits is permitted. Explain.
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What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?
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Consider a market where there are just two consumers and suppose their demands for the good are given as follows:
Calculate the market demand for the good.
p
d1
d2
1
9
24
2
8
20
3
7
18
4
6
16
5
5
14
6
4
12
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Explain why the budget line is downward sloping.
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