Plus Two Economics(Micro)
Important Focus Area Q&A 2022
by Hss Learner
Q1.Center problem of economy?
Ans:
a. What to produce and in what quantities?
Every society wants thousands of goods and services. Since resources are scarce, all these goods and services cannot be produced. Therefore, it has to decide what type of goods should be produced, whether to produce more food or goods for national security or to have more of luxury goods.
b. How to produce?
The question "How to produce" implies which methods or techniques of production are to be used, i.e., whether to choose labor-intensive techniques or capital intensive techniques of production. The choice of technique of production depends on the availability and price of labour and capital in the economy.
c. For whom to produce?
For whom to produce means the functional distribution of output. It implies the distribution of output (income) amongst the owners of the factors of production, i.e., the distribution of rent, wages, interest and profit amongst the owners of land, labour, capital and organisation respectively.
Q2.Indifference Curve?
Ans:
Indifference Curve is defined as the locus of points of combinations of two goods, good 1 and good 2, which gives the consumer the same level of satisfaction. It is the graph showing the bundles that give the consumer the same level of satisfaction.
Q3. Features of Indifference Curve?
Ans:
1. Indifference curve slopes downwards from left to right
2. Higher indifference curve indicates higher level of utility
3. Two indifference curves never intersect each other
Q4. Elastic Demand (e > 1)
Ans:
If the percentage of change in demand is greater than the percentage change in price, it is called elastic demand,
Q5. The Short Run and The Long Run?
Ans:
Short run is the period in which the firm cannot vary all inputs.
Long run is the period in which the firm can vary all inputs.
Q6. Short Run Production Function?
Ans:
The situation in which application of one factor is varied, while all other factors are kept constant, the production function which operates in such a situation is called short run production function.
Q7. Long Run Production Function
Ans:
The effect of proportionate change in all inputs on output is called Long Run Production Function or Law of Returns to Scale. Since proportion between inputs are fixed, it is also known as Fixed Proportion Production Function.
Q8. Relation between TP and MP?
Ans:
1. When TP increases
at an in creasing rate MP increases up to variable factor x,
2.
When TP increases at a decreasing rate MP decreases but remains
positive from the variable factor x.
3.
When TP reaches its maximum, MP becomes zero.
4. When TP
decreases MP becomes negative
Q9. Relationship between MP and AP
Ans:
1. As AP increases,
MP is greater than AP. In Diagram 3.3, till variable input x,, AP
curve increases. Then MP curve is above the AP curve.
2. When AP
reaches maximum, AP and MP will be equal. In Diagram 3.3 when
variable input is x, AP is equal to MP.
3. When AP decreases, MP
is less than AP
Q10. Consumer's Equilibrium (Optimal Choice of the Consumer)?
Ans:
Consumer's
equilibrium can be defined as the position of maximum
satisfaction.
According to indifference curve approach, a
consumer attains equilibrium at the point where budget line is
tangent to indifference curve or MRS equals price ratio or slope of
indifference curve (MRS) is equal to slope of budgetline.
Q11. What Is the Marginal Cost of Production?
Ans:
The marginal cost of production is the change in total production cost that comes from making or producing one additional unit. To calculate marginal cost, divide the change in production costs by the change in quantity.
Q12.
Relationship
between AVC and MC?
Ans:
1.
AVC and MC initially falls and later rise.
2. When AVC falls, MC
will be less than AVC.
3. When AVC rises, MC will be more than
AVC.
4. When AVC is minimum, MC and AVC will be equal. In the
diagram when output is q,, AVC= MC. MC cuts the minimum point of AVC
Q13. Price Ceiling?
Ans:
Price
ceiling is the upper limit on the price of goods and services imposed
by the government to protect the interest of consumers. It is
generally imposed on essential items.
Q14. Floor Price?
Ans:
Price
floor or support price is the minimum price of goods and services
imposed by the government to protect the interest of producers. When
the price determined by the forces of demand-supply is very low, the
producers suffer much loss. Then the government intervenes in the
market and declares price floor.
Q15. Excess Demand?
Ans:
The situation in which market demand is higher than market
supply at a given price is called excess demand.
Q16. Excess Supply?
Ans:
The
situation in which market supply is higher than market demand at a
given price is called excess supply.
