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Page No 6:

Question 1(A):

Fill in the blanks with appropriate alternatives given in the brackets.

1) The terms Micro and Macro Economics were first used by _______________. (Adam Smith/ Robbins/ Ragner Frisch/ Marshall).

2) Micro Economics is a study of _________. (Whole economy/ general price level/ National output/ Individual economic unit).

3) Micro Economics is also called as ________________. (Income theory/ Price theory/ Growth theory/ Employment theory)

4) Micro Economic analysis adopts __________________ method. (lumping/ aggregative/ Slicing/ inclusive)

5) Micro Economics is a __________________________ equilibrium approach. (partial/ general/ total/ multi-variable).

Answer:

1) The terms Micro and Macro Economics were first used by Ragner Frisch.
Ragner Frisch of The University of Oslo was the first person to coin the terms ‘Microeconomics’ and ‘Macroeconomics’ in the year 1993. Since then, these terms are used by economists all over the world.

2) Micro Economics is a study of Individual economic unit.
Microeconomics is the study of behaviour of individual units in an economy such as individual consumer, producer and firm.

3) Micro Economics is also called as Price theory.
Microeconomics is also known as the price theory. We know that in Microeconomics we study the behaviour of individual economic units such as the producer and the consumer. Through the study of such behaviour the main focus is the determination of prices (commodities and factor prices) in the market.

4) Micro Economic analysis adopts slicing method.
Microeconomics is the study of behaviour of individual units in the economy. For this purpose, the entire economy is sliced, i.e. divided into several smaller/individual units and each unit is then analysed in detail.

5) Micro Economics is a Partial equilibrium approach.
In microeconomics each of the individual units is studied in isolation. That is, while studying one unit/variable the effect of other units or variables is taken to be constant. It ignores the interdependence of economic variables. In other words, it is based on the assumption of “other things remain constant” (ceteris paribus). Thus, because of this assumption, it is said that microeconomics has a partial equilibrium approach.

Page No 6:

Question 1(B):

Match the following

Group A Group B
1) Adam Smith A) Aggregates
2) Micro Economics B) Prof. Boulding
3) Macro Economics C) Father of Economics
4) Dr. Marshall D) Individual units
  E) Economic efficiency
  F) Principles of Economics

Answer:

Group A Group B
1) Adam Smith C) Father of Economics
2) Micro Economics D) Individual units
3) Macro Economics A) Aggregates
4) Dr. Marshall F) Principles of Economics

Explanation:

1) Adam Smith is regarded as the Father of Economics. He is the founder of Microeconomics. In his book ‘The Wealth of Nations’, published in the year 1776, he has mentioned how the prices of commodities and factors of production are fixed.

2) In microeconomics, we study the behaviour of individual economic units, basically consumers and firms.
 
3) In macroeconomics, we study the economy as a whole. It focuses on the aggregate measures such as aggregate demand, aggregate supply and aggregate price level.

4) The principles of economics were propounded by a well-known neo-classical economist Dr. Alfred Marshall in 1890.

Page No 6:

Question 1(C):

State whether the following statements are TRUE or FALSE.

1) Dr. Marshall is known as the Father of Economics.

2) Micro Economics studies theory of firm.

3) Micro Economics deals with allocation of resources.

4) Micro Economic theory assumes full employment.

5) Micro Economic theory suggests policies to solve problem of inflation.

Answer:

1) False
Adam Smith is known as the Father of Economics, as he is the founder of microeconomics. On the other hand, Dr. Marshall is a neo-classical economist who developed the Principles of Economics.

2) True
Microeconomics studies the behaviour of individual units. Accordingly, a firm being an individual unit, its behaviour is studied under microeconomics. Microeconomics studies prices of commodities and factors of production in both the consumer and factor markets.

3) True
Microeconomics explains the optimum allocation of resources. It explains the distribution of resources among the competing groups in a manner that ensures their efficient usage; that is, there is minimum wastage of resources. In other words, it explains us how these scarce resources should be distributed so that they can be utilised to the fullest.

4) True
The microeconomic theory is based on many assumptions such as full employment, perfect competition and a laissez-faire style of working. However, these assumptions may not always exist in reality and, consequently, make the validity of microeconomics doubtful.

5) False
Microeconomics is the study of the behaviour of individual units in an economy. Problems such as inflation relate to the behaviour of the all the economic units simultaneously in an economy. In this regard, it is beyond the scope of microeconomics.

Page No 6:

Question 2(A):

Define or Explain the following concepts.

1) Micro Economics

2) Partial equilibrium

3) Economic efficiency

4) Individual economic unit

5) Resource allocation

Answer:

1) Microeconomics is the study of behaviour of individual economic units, basically consumers and firms, which interact in the market of different goods and services. It analyses how consumers make their consumption choices and take decisions, given their incomes and prices of goods and services. Similarly, it analyses how firms decide how much to produce by applying different input combinations. It also helps in determining prices, in both the commodity and factor markets, based on the demand and supply analysis. Thus, microeconomics is a study that basically focuses on the behaviour of individual economic units.

2) Partial equilibrium is an equilibrium situation achieved taking into consideration only a part of the market condition. That is, it is the equilibrium with regard to an individual unit assuming the effect of other units and variables constant. In other words, it is based on the assumption of “other things remaining constant”. It neglects the interdependence among variables. Thus, microeconomic analysis is regarded as partial equilibrium.

3) Economic efficiency can be defined as a situation in which welfare of the society is maximised. Microeconomics focuses on utilising scarce resources in a way that the public/social welfare is maximised. Economic efficiency involves attainment of efficiency along the following three aspects.

  1. Production efficiency: It refers to producing the maximum amount of output from the available resources.
  2. Consumption efficiency: It refers to distributing the produced goods and services among the various consumers in such a manner that the overall social welfare is maximised.
  3. Overall economic efficiency: It refers to efficiency with regard to the production mix. In other words, it refers to producing that combination of goods and services that provide maximum satisfaction to the people.
4) Individual economic unit refers to a single variable such as an individual firm, a particular household, the price of an individual commodity and wages/income of an individual. The behaviour of individual economic units is studied under microeconomics.

5) Resource allocation refers to the distribution of resources among competing groups. These resources may be natural resources, money, labour, etc., which the producers use in production processes to produce goods. Resource allocation involves making decisions regarding how the resources should be allocated to each group such that they can be utilised in the best possible manner providing maximum gains to the society. The decision regarding resource allocation is particularly important because resources are scarce and also have competing uses. Thus, effort must be made to use them efficiently and optimally.

Page No 6:

Question 2(B):

Give reasons or explain the following statements.

1) Micro Economics is also known as price theory.

2) Micro Economics studies individual economic unit.

3) Micro Economics analyses partial equilibrium.

4) Micro Economic theories are based on certain assumptions.

5) Marginalism principle is used as a tool of analysis in micro economics.

Answer:

1) We know that in microeconomics we study the behaviour of individual economic units such as the consumer and the producer. The basic aim of such a study is to determine the prices (in the commodities and factor markets). It is for this reason that microeconomics is also known as the price theory.

2) Microeconomics is a study that focuses on the behaviour of an individual economic units such as the consumer and the producer. It analyses how consumers make their consumption choices and take decisions, given their incomes and prices of goods and services. Similarly, it analyses how firms decide how much to produce by applying different input combinations. The basic focus of such a study is the determination of prices in the factor and the commodities market.

3) Microeconomics is based on partial equilibrium analysis. That is, while analysing each of the units/variables the effect of other units is assumed to be constant. In other words, it is based on the assumption of ceteris paribus. To put in simple words, it analyses each of the units is isolation while ignoring the interdependence among them. Such an analysis is known as partial equilibrium analysis.

4) Microeconomic theories are based on assumptions such as full employment, perfect competition, a laissez-faire style of working (no government intervention) and ceteris paribus. These assumptions help in understanding the relationship between any two variables. However, these assumptions may or may not exist in the real world.

5) Marginalism principle focuses on studying the change in total amount when one additional unit is added to it. This additional unit is called the marginal unit. All microeconomic decisions are based on this concept.

Page No 6:

Question 3(i):

Write short notes on :

Features of Micro-Economics

Answer:

Microeconomics refers to the study of individual economic units such as the consumer and the producer. The following are the features of microeconomics.
i. Individual units - Microeconomics is a study of  behaviour of individual units in an economy such as an individual consumer and producer.

ii. Price theory - Microeconomics is also called the price theory, as it helps in determining the prices of both the commodities and factors of production in their respective markets.

iii. Slicing method - Microeconomic analysis adopts the slicing method wherein, the entire economy is divided into various smaller units and then each unit is analysed individually in detail.

iv. Partial equilibrium - Microeconomics uses a partial equilibrium approach. Herein, each of the units is studied in isolation assuming the effect of the other units as constant. It ignores the interdependence among the various units.

v. Microscopic approach - Just as a microscope enables us to see a larger view of smaller things, microeconomics shows a magnified view of an individual unit. It analyses small units in detail. It examines how these individual units perform economic activities and reach equilibrium.

Page No 6:

Question 3(ii):

Write short notes on :

Subject matter of Micro Economics

Answer:

Microeconomics is the study of the following theories:
i. Theory of product pricing - The theory of product pricing explains how the prices of goods are determined in the market. For this, it is important to study demand and supply in the market. The demand is studied by studying the consumer behaviour and the supply is studied by studying the cost and production behaviour of the firm.
ii. Theory of factor pricing - The theory explains how the prices of various factors of production, namely, land, labour, capital and entrepreneur, are determined in the factor market in the form of rent, wages, interest and profits respectively.
iii. Theory of economic welfare - This theory of microeconomics deals with the allocation of resources. It explains that resources should be used in a manner that gives maximum satisfaction to people. It involves making decisions such as what to produce, how much to produce, when to produce, for whom to produce and by what technique to produce.

Page No 6:

Question 3(iii):

Write short notes on :

Historical review of Micro Economics

Answer:

History of microeconomics can be traced to classical economists. Adam Smith is regarded as the Father of Microeconomics. In his book ‘The Wealth of Nations’, published in the year 1776, he discussed how the prices of goods and the factors of production are determined. However, microeconomic analysis was done by Dr. Alfred Marshall, a neo-classical economist. He was the first person to use the principle of marginalism. Some of the other popular economists who have contributed to the development of microeconomics are Prof. Pigou, J. R. Hicks, Prof. Samuelson, Mrs. Joan Robinson and Chamberlin.

Page No 6:

Question 3(iv):

Write short notes on :

Importance of Micro Economics

Answer:

The following points highlight the importance of microeconomics:
i. It helps us in understanding how free market economies work.
ii. It explains how the prices are determined in both commodity and factor markets.
iii. It helps in making policies such as the tax policy, public expenditure policy and price policy.
iv. It helps businessmen in making decisions about prices, cost of production, investment, etc., on the basis of knowledge of the price theory.
v. It helps in examining different aspects of international trade such as the effect of tariffs on the exchange rates and gains from international trade.
vi. It helps in the development of certain models that are used for understanding and solving complex economic situations.

Page No 6:

Question 4(i):

Answer the following questions

Explain the meaning of Micro Economics with the help of few important definitions.

Answer:

Microeconomics is the study of the issues pertaining to individual economic units, basically consumers and firms, which interact in the market of different goods and services. It studies how consumers make their consumption choices and decisions, given their incomes and prices of goods and services. Similarly, it analyses how firms decide how much to produce by using different input combinations. The basic focus of this study is the determination of prices in the commodity markets and factor markets. The meaning of microeconomics can be better understood with the help of the following definitions.

According to Prof. K. E. Boulding, “Micro Economics is the study of particular firm, particular household, individual prices, wages, incomes, individual industries and particular commodities.”
In the words of Maurice Dob, “Micro economics is in fact a microscopic study of the economy.”

Page No 6:

Question 4(ii):

Answer the following questions

What is the scope & subject matter of Micro Economics?

Answer:

Microeconomics deals with the study of the following theories:
i. Theory of product pricing - The theory of product pricing explains how the prices of goods are determined in the market. For this, it is important to study demand and supply in the market. The demand is studied by studying the consumer behaviour and the supply is studied by studying the cost and production behaviour of the firm.
ii. Theory of factor pricing - The theory explains how the prices of various factors of production, namely, land, labour, capital and entrepreneur are determined in the factor market, in the form of rent, wages, interest and profits, respectively.
iii. Theory of economic welfare - This theory of microeconomics deals with the allocation of resources. It explains that resources should be used in a manner that gives maximum satisfaction to people. It involves making decisions such as what to produce, how much to produce, when to produce, for whom to produce and by what technique to produce.



Page No 7:

Question 4(iii):

Answer the following questions

What is the importance of Micro Economics?

Answer:

The following points highlight the importance of microeconomics:
i. It helps us in understanding how free market economies work.
ii. It explains how the prices are determined in both commodity and factor markets.
iii. It helps in making policies such as the tax policy, public expenditure policy and price policy.
iv. It helps businessmen in making decisions about prices, cost of production, investment, etc., on the basis of knowledge of the price theory.
v. It helps in examining different aspects of international trade such as the effect of tariffs on the exchange rates and gains from international trade.
vi. It helps in the development of certain models that help in understanding and solving complex economic situations.
vii. It helps in allocating resources in an efficient manner so that there is no wastage.

Page No 7:

Question 4(iv):

Answer the following questions

What are the features of Micro Economics?

Answer:

i. Individual units - Microeconomics is a study that basically focuses on the behaviour of individual units such as an individual consumer and producer.
ii. Price theory - Microeconomics is also called the price theory, as it helps in determining the prices of both the commodities and factors of production in their respective markets.
iii. Slicing method - Microeconomic analysis adopts the slicing method. Under this method, the entire economy is divided into smaller units and then each unit is analysed individually in detail.
iv. Partial equilibrium - Microeconomics uses a partial equilibrium approach. The equilibrium points are identified assuming “other things remain constant” (ceteris paribus). It ignores the interdependence of economic variables.
v. Microscopic approach - Just as a microscope enables us to see a larger view of smaller things, microeconomics shows a magnified view of an individual unit. It analyses small units in detail. It examines how these individual units perform economic activities and reach equilibrium.
vi. Marginalism principle: Marginal means change in the total due to an additional unit. The additional unit is known as the marginal unit. Microeconomics is based on the principle of marginalism as important economic decisions are based on the marginal unit.  
vii. Analysis of market: Microeconomic studies deals in the study of  different market structure namely, perfect competition, monopoly, monopolistic competition, oligopoly. It analyses how prices and ouput are determined in the market.

Page No 7:

Question 4(v):

Answer the following questions

What are the basic economic questions dealt by Micro Economics?

Answer:

Microeconomics deals with the following questions:
i. What goods are to be produced and in what quantities? - This question deals with the types of goods that are to be produced by the firm and the quantity in which they are to be produced.
ii. Who will produce them and how? - After taking the decision on the type of goods to be produced, the firm must decide upon the technique (labour-intensive or capital-intensive) required to produce those goods.
iii. To whom & how the wealth, so produced, shall be distributed? - This question is concerned with the distribution of income or wealth and the channel through which this wealth is to be distributed.
iv. How resources are to be allocated to ensure production and consumption in an efficient manner? - Efficient allocation of resources means distribution of resources in a manner such that they reach the individual or group who values it the most.

Page No 7:

Question 5:

Do you agree with the following statements? Give reasons.
i) Micro Economics studies behaviour of individual unit.
ii) Micro Economics is known as income theory.

Answer:

i) Micro Economics studies behaviour of individual unit - True
Yes, microeconomics is a study that basically focuses on the behaviour of an individual units in the economy such as consumer and producer.

ii) Micro Economics is known as income theory - False
No, microeconomics is not known as the income theory, rather ,it is known as the price theory, as it focuses on determining the prices of commodities and factors of production in the market.

Page No 7:

Question 6.1:

Answer in details

Explain the features of Micro Economics.

Answer:

The following are the features of microeconomics.
i. Individual units - Microeconomics is a study that basically focuses on the behaviour of individual units such as an individual consumer and producer.
ii. Price theory - Microeconomics is also called the price theory, as it helps in determining the prices of both the commodities and factors of production in their respective markets.
iii. Slicing method - Microeconomic analysis adopts the slicing method. Under this method, the entire economy is divided into smaller units and then each unit is analysed individually in detail.
iv. Partial equilibrium - Microeconomics uses a partial equilibrium approach. The equilibrium points are identified assuming “other things remain constant” (ceteris paribus). It ignores the interdependence of economic variables.
v. Microscopic approach - Just as a microscope enables us to see a larger view of smaller things, microeconomics shows a magnified view of an individual unit. It analyses small units in detail. It examines how these individual units perform economic activities and reach equilibrium.
vi. Marginalism principle: Marginal means change in the total due to an additional unit. The additional unit is known as the marginal unit. Microeconomics is based on the principle of marginalism as important economic decisions are based on the marginal unit.  
vii. Analysis of market: Microeconomic studies deals in the study of  different market structure namely, perfect competition, monopoly, monopolistic competition, oligopoly. It analyses how prices and ouput are determined in the market.
viii. Based on assumptions: Microeconomic analysis is based on certain assumptions such as laissez faire, full employment, perfect competition, ceteris paribus, etc. Such assumptions although make the analysis simple, but may not exists in reality.

Page No 7:

Question 6.2:

Answer in details

Explain the scope and subject matter of Micro Economics.

Answer:

Microeconomics is the study of the following theories:
i. Theory of product pricing - The theory of product pricing explains how the prices of goods are determined in the market. For this, it is important to study demand and supply in the market. The demand is studied by studying the consumer behaviour and the supply is studied by studying the cost and production behaviour of the firm.
ii. Theory of factor pricing - The theory explains how the prices of various factors of production, namely, land, labour, capital and entrepreneur are determined in the factor market in the form of rent, wages, interest and profits, respectively.
iii. Theory of economic welfare - This theory of microeconomics deals with the allocation of resources. It explains that resources should be used in a manner that gives maximum satisfaction to people. It involves making decisions such as what to produce, how much to produce, when to produce, for whom to produce and by what technique to produce.



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