The actual quantity of two possible goods would ultimately depend upon the market conditions of demand and supply for each of the goods. For example choice between capital goods and consumer goods, between war time goods and peace time goods and the like. Solution: The problem of ‘what to produce’ relates to the choice of goods for production. Ques 8 Explain briefly the central problem of ‘‘What to produce’’. If a resource can be put only to a specific use then the problem of resource allocation would not arise The economic problem of resource allocation arises because resources are scare & can be put to alternate uses. Solution: Yes the given statement is correct. Ques 7‘‘Problem of resource allocation would not arise, if resources do not have alternative uses.’’ Defend or refute the statement with valid arguments. The change in potential production over the two periods would be represented by a shift from _. Ques 4 Distinguish between microeconomics and macroeconomics the government should promote social safety nets to take care of the poor population Western Railways has earned 517.41 crores by selling scrap material in 2018-19.Į.g. Normative economics is that branch of economics which deals with economic issues as “what ought to be“. Positive economics is that branch of economics which deals with economic issues as “what is”. Ques 3 Distinguish between positive economics and normative economics, with suitable examples. Ii) Normative statement- it deals with a situation as it ‘ought to be’. Solution: i) Positive statement – it deals with a real life situation, justifiable by facts. (ii) “Government should further liberalise the business rules.” – The Economic Times (i) “India jumped 23 points in the World Bank’s ease of doing business index to 77 th place, highest in 2 years.” – The Economic Times This is shown in Figure 3 where the graph XY shifts to X2Y2.Ques 2 Identify and discuss the nature of the following newspaper reports in terms of positive or normative economic analysis : The negative economic growth could be due to a decrease in production factors, or a decrease in demand, both of which lead to a decrease in supply.Īn outward shift in PPC means economic growth. The PPC shifts inwards as shown in Figure 3, when the graph XY shifts to X1Y1, and the LRAS curve shifts to the LRAS 1 curve on the left, as shown in Figure 4, when the graph Y shifts to Y1. When there is negative economic growth, both the PPC and LRAS curves are negatively affected. The LRAS curve of an economy represents a point on the country’s PPC. This means that when there is a change in the production factors such as the resources, labour capacity, advancements in technology etc., the LRAS curve will change. Similar to the PPC, the LRAS curve also depends on the factors of production. The shifts in the PPC is linked to the shift of the economy’s Long Run Aggregate Supply curve or LRAS curve. 3 - The shift in the production possibility curve On the flip side, when a factor of production such as capital decreases, the PPC shifts inwards, indicating that the economy is producing fewer quantities.įig. In this situation, the curve, X1Y1, shifts outwards to the curve X 2Y 2. When a factor of production such as capital increases, the PPC shifts outwards, indicating that the economy can produce more. The factors of production are land, labour, capital, and enterprise. Shifting the production possibility curveĪ PPC will shift inwards or outwards when there is a change in the factors of production. To attain these levels the country will have to increase their resources, improve its technology, and productivity. The points above the PPC, such as point Q, are output combinations that are unsustainable at the given time. The points that fall under the curve, such as point P, mean that the resources are either inefficiently employed or are not fully employed. It is important to remember that the production of one product can not be increased without the decrease in the production of another product. Any point on the curve also shows maximum production of products. Points such as A and B on the curve show maximum production that can be achieved by the economy. 2 - Points along the production possibility curve Point Y shows maximum sugar production and minimum wheat production.įig. In Figure 2, point X shows maximum wheat production and zero sugar production. Price Elasticity Of Supply in the Short and Long Run.Price Determination in a Competitive Market.Market Equilibrium Consumer and Producer Surplus.Determinants of Price Elasticity of Supply.Determinants of Price Elasticity of Demand.Cross Price Elasticity of Demand Formula.Effects of Taxes and Subsidies on Market Structures.Perfect Competition vs Monopolistic Competition.Monopolistic Competition in the Short Run. Monopolistic Competition in the Long Run.Behavioural Economics and Public Policy.
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