Introduction To Micro Economics Class 12 Notes: CBSE Economics Chapter 1

Economics: 

• It is a branch of social science that studies the production, distribution, and consumption of goods and services. 

• The origin of economics can be traced back to Adam Smith’s 1776 book, ‘An Inquiry into Nature and Causes of Wealth of Nature.’ Economics was defined as managing a home with limited funds in the most cost-effective way possible. 

• It aims to solve the scarcity problem, which occurs when human wants for goods and services outnumber available supplies.

• The term ‘economics’ is derived from two Greek words: ‘eco’, which means ‘home’, and ‘nomos’, which means ‘accounts.’ 

• The topic has evolved from how to keep the family accounts to the wide-ranging subject at present.

The Real Meaning of Economics:

• It is the actual study of scarcity and choices.

• It seeks ways to reconcile unlimited wants with limited resources.

• Economics explains community living problems in terms of underlying resource costs and consumer benefits.

• Economics is concerned with the coordination of activities that result from specialisation. 

Definition of Economics:

• The formal definition of economics can be traced back to the great Scottish economist Adam Smith (1723-90). Adam Smith and his followers, following the mercantilist tradition, regarded economics as a science of wealth that studies the processes of wealth production, consumption, and accumulation.

• The emphasis in Alfred Marshall's book “Principles of Economics,” published in 1890, was on human activities or welfare rather than wealth. “A study of men as they live, move, and think in the ordinary business of life,” Marshall defines economics. He claimed that economics is a study of wealth on the one hand and a study of man on the other.

Central Problems of An Economy 

• The basic economic problem is one of choice, which is exacerbated by resource scarcity. 

• It's also known as the problem of resource economization, or the problem of making better and more efficient use of limited resources to meet the needs of the greatest number of people.

• Natural resources, such as land and air, human resources, such as labour, capital resources, such as machines and buildings, and entrepreneurial resources, such as a person willing to take risks, are all examples of factors of production. 

• Unlimited human wants, limited economic resources, and alternative uses of resources are the main causes of central problems.

The key economic questions are:

a. What to Produce?

The dearth of resources is faced by almost every society. We belong to a finite world and the resources must be allocated based on our collective requirements and wants. As per the Class 12th Economics Chapter 1 notes at this juncture, the problem of choice arises. You might have to select between the various products which can be produced with identical accessible resources. 

b. How to Produce?

There are several ways and procedures that people and government can select from when they are producing a commodity or service. For instance, production can occur through either capital-intensive or labour-intensive procedures based on how capital and labour are operated.

c. For Whom to Produce?

In the context of Class 12th Economics Chapter 1 notes, this might be the most significant question. Every society consists of some degree of uneven members. The inner meaning of the question is to derive the people who get benefits from the commotion of economic production. If only luxury commodities are produced, then those will be afforded by only the rich. A broad range of daily commodities at affordable rates will benefit the low-income groups.

Problem Relating to the Efficient Use and Fuller Utilization of Resources:

Production efficiency refers to producing the greatest amount of goods and services possible with the resources available. Resources are already scarce in comparison to the demand for them, so an economy must ensure that its resources are not wasted by remaining underutilised.

Problem Relating to Resource Growth:

It has to do with increasing the economy's production capacity to increase the quantity of output.

Production Possibility Frontier:

• The production possibility frontier is a curve that depicts all possible combinations of two goods that can be produced in a given economy with given resources and technology.

• The production possibility frontier is also known as the transformation curve or the production possibility curve.

• Due to scarce and finite resources, the production of a commodity could only be increased if there is a reduction in the other commodity. Hence, the PPC curve is concave.

Assumptions

The PP curve concept is founded on the following assumptions:

• The economy's resource base is fixed.

• The technology is pre-installed and unmodified.

• The resources are effective and fully utilized.

In the production of all goods, all resources are not equally efficient.