Introduction Class 11 Notes Economics Chapter 4 - CBSE
Chapter : 4
What Are Introduction ?
What Is Economics?
Economics is a science of studying the human behaviour in allocation of scarce resources to satisfy their unlimited wants.
Essence of Economics
Scarcity of Resources
- It means the availability of less resources in relation to human wants.
- Resources have alternative uses.
Problem of Choice
- The distribution of diverse limited resources with alternative uses that are put to use in the economy to produce various goods and services in order to satisfy endless human wants.
Types of Economics
On the basis of Scope of Study
- Micro economics studies the economic behaviour of individual economics units and individual economic variables.
- Macro economics deals with the functioning of the economy as a whole.
On the basis of Facts and Judgements
- It deals with economic issues related to past, present and future on the basis of facts and figures.
- It deals with opinions of economists related to economic issues. These are not verifiable as they are not based on facts and figures.
An economy is a system that makes it possible for people to make a living and aids in the production of goods and services.
Types of Economics
Free Economy/Capitalistic Economy/Free Market Economy
- Economic activities are controlled by economic forces.
- Profit maximisation is sole objective.
- Private ownership of resources.
- Private sector dominates market.
- Consumer is sovereign.
Centrally planned Economy/ Controlled Economy/Socialistic Economy
- Economic activities are controlled by government or central authority.
- Social ownership of resources.
- Social welfare maximisation is the objective.
- Consumer is not sovereity.
- Public sector dominates economic activity.
- Existence of both public and private sectors.
- Resources are owned by both public and private individuals.
- Economic decisions are motivated by the objectives of profit maximisation and social welfare.
- Both public and private sector dominate economic activity.
Generally mean, the problem of economical use of resources or the problem of choice.
Causes of Economic Problem
- Unlimited wants.
- Limited resources.
- Alternative uses of limited resources.
Central Problem Of An Economy
What to Produce ?
- Consumer goods or capital goods?
How to Produce ?
- Labour Intensive Technique or Capital Intensive Technique?
For whom to Produce ?
- For Rich or For Poor?
Solutions To Central Problems
Different economies solve the central problems differently:
- Market Economy: In a market economy, central problems are solved by the market forces of supply and demand.
- Centrally Planned Economy: Here, central problems are addressed by government or any central authority.
- Mixed Economy: It has the features of both free and socialistic economy. Here, central problems are left to the free play of market forces, but not at the cost of social justice.
Production Possiblity Curve (PPC)
It is a curve showing alternative possiblities of production of two goods with given resources and techniques of production.
- Resources are given.
- Given resources are fully and efficiently utilised.
- There is no change in technology.
- PPC slopes downward from left to right.
- PPC is concave to the point of origin.
Opportunity Cost is commonly defined as “the next best alternative”. The opportunity cost of producing any good is the next best alternative good, that is given up to produce this good.
Marginal Opportunity Cost Or Marginal Rate Of Transformation
- It is the rate at which the producer is willing to scarifice the production of Good Y to produce an additional unit of Good X.