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UNIT - I
Chapter 1. INTRODUCTION
Class 11th
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1. What is an Economy ?  It is a system

 which provides people,
 the means to work and
 earn a living.
2. Vital Processes of an  Production,
Economy  Consumption, and
 Investment or Capital Formation.
3. Why Study Economics ?  Main reason for study of economics is Scarcity.
4. Meaning of Scarcity  It refers to the
 limitation of supply in relation to
 demand for a commodity.
5. Economising of Resources  It refers to
 making optimum use
 of the available resources.
6. Is Scarcity Only the  No, in addition to being scarce,
Problem ?  resources also have alternate uses,
 which gives rise to Problem of Choice.
 Scarcity and Choice go together.
7. Economic Problem  It is a
 problem of choice
 involving satisfaction of unlimited wants
 out of limited resources
 having alternative uses.
8. Reasons for Economic  Resources are limited (Scarcity of resources).
Problem  Unlimited Human Wants.
 Alternate Uses.
9. Resources Vs Human Resources Human wants

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Wants They are scarce. They are unlimited.
They have alternative uses. They differ in priorities.
10. Meaning of Economics  It is a
 social science which studies the behaviour of human
 to satisfy his unlimited wants,
 out of limited resources
 having alternative uses.
11. What is Economics All  It is all about
About ?  making choices
 in the presence of Scarcity.
12. Microeconomics Vs Basis Microeconomics Macroeconomics
Macroeconomics Meaning part of economic part of economic theory
theory which studies which studies behaviour
behaviour of individual of aggregates of the
units. economy as a whole.
Tools demand and Supply aggregate demand and
aggregate supply
Aim determine price or determine income and
factors of production employment of economy.
Basic macro variables to be micro variables to be
Assumption constant. constant.
Other Price Theory Income and Employment
Name Theory
Examples individual income, national income, national
individual output, etc. output, etc.
13. Microeconomics and  Both Microeconomics and Macroeconomics are
Macroeconomics – Interdependent, but not independent.
Interdependent or
Independent
14. Micro – Macro  Paradox is a
Paradoxes  seemingly absurd or contradictory statement,
 though, often a true statement.
 It means,
 an act which is beneficial for an individual,
 may prove to be harmful for the economy as a whole.
 Example :
 If an individual saves, his family will be benefitted,
 but if the whole economy starts saving,
 it will result in contraction of demand, output,
employment and income.
 As a result, the whole economy will suffer.
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15. Which is More  The superiority of one approach over the other cannot be
Important – claimed.
Microeconomics or
Macroeconomics ?
16. Positive Economics  It deals with
 what are the economics problems, and
 how are they actually solved.
 e.g., India is an overpopulated country or prices are
constantly rising.
 Positive Economics is neutral between ends
 It avoids economic value judgements.
 e.g., a positive economic theory might describe that
 manufacturing and sale of cigarettes is injurious to
health,
 but it does not provide any instruction or judgement
on what policy out to be followed to avoid cigarettes
in the economy.
 It can be verified with actual data.
17. Normative Economics  It deals with what ought to be or how the economic
problems should be solved.
 e.g., India should not be an overpopulated country or prices
should not rise.
 It cannot be verified with actual data.
18. Difference Between Basis Positive Economics Normative Economics
Positive and Normative It deals with what is It deals with what
Meaning
Economics or how the economic ought to be or how
problems are actually the economics
solved. problems should be
solved.
Verification It can be verified with It cannot be verified
actual data. with actual data.
Purpose It aims to make real It aims to determine
description of an the ideals.
economic activity.
Suggestive It is based upon facts, It is based upon
and thus, not individual opinion and
suggestive. therefore, it is
suggestive in nature.
Value It does not give any It gives value
Judgement value judgements, i.e. judgements.
it is neutral between

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[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
ends.
Examples 1. Prices in Indian 1. India should take
economy are steps to control
constantly rising. rising prices.
2. There are 2. Income inequalities
inequalities of should be reduced.
income in our
economy.
19. Central Problems of an  These problems are called central problems because
Economy  these are the most basic problems of an economy, and
 all other problems revolve around them.
 Main 3 Central Problems are :
 What to produce.
 How to produce.
 For whom to produce.
 These 3 problems are studied under the problem of
“Allocation of Resources”.
20. Allocation of Resources  It refers to the
 problem of assigning scarce resources in such a manner
 so that maximum wants of the society are fulfilled.
21. What to Produce ?  This problem involves
 selection of goods and services to be produced and
 the quantity to be produced of each selected commodity.
 This is a problem of allocation of resources among
different goods.
 The problem of ‘What to produce’ has two aspects :
 What possible commodities to produce.
 Economy has to make a choice between civil goods
(bread, butter, etc.) and war goods (guns, tanks, etc.).
 How much to produce.
 After deciding the goods to be produced,
 economy has to decide the quantity of each
commodity that is selected.
 Guiding Principle.
 Allocate the resources in a manner
 which gives maximum aggregate satisfaction.
22. How to Produce ?  This problem refers to
 selection of technique to be used
 for production of goods and services.
 A good can be produced using different techniques of
production namely :
 Labour intensive techniques (LIT), and
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 Capital intensive techniques (CIT).
 This is a problem of selection of techniques.
 Guiding Principle
 Combine factors of production in such a manner
 so that maximum output is produced at minimum cost,
 using least possible scarce resources.
23. For Whom to Produce ?  This problem refers to
 selection of the category of people
 who will ultimately consume the goods,
 i.e. whether to produce goods
 for more poor and less rich
 or more rich and less poor.
 This is a problem of distribution of income
 among the factors of production (land, labour, capital and
enterprise),
 who contribute in the production process.
 The problem can be categorised under two main heads :
 Personal Distribution.
 It means how national income of an economy is
distributed
 among different groups of people.
 Functional Distribution.
 It involves deciding the share of different factors of
production
 in the total national product of the country.
 Guiding Principle
 Ensure that urgent wants of each productive factor
 are fulfilled to the maximum possible extent.
24. Opportunity Cost  It is the
 cost of next best alternative foregone.
 For example,
 Suppose, Mr. A is working in a bank at the salary of
` 40,000 per month.
 Further suppose, he receives two more job offers :
 to work as an executive at ` 30,000 per month, or
 to become a journalist at ` 35,000 per month.
 In the given case, the opportunity cost of working in the
bank is the cost of next best alternative foregone, i.e.
` 35,000.
25. Production Possibility  It refers to
Frontier (PPF)  graphical representation of possible combinations

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 of two goods that can be produced
 with given resources and technology.
 It is also known as
 Production Possibility Curve/Boundary/Frontier, or
 Transformation Curve/Boundary/Frontier.

26. Assumptions for PPC  The amount of resources in an economy is fixed,

 but these resources can be transferred
 from one use to another.
 Only two goods can be produced.
 The resources are fully and efficiently utilised.
 Resources are not equally efficient in production of all
products.
 The level of technology is assumed to be constant.
27. Diagrammatic Table : Production Possibility Schedule
Representation of PPC
With Schedule Guns Butter ∆ 𝐆𝐮𝐧𝐬
MRT =
Possibilities (units) (units) MOC ∆ 𝐁𝐮𝐭𝐭𝐞𝐫
A 21 0 --- ---
B 20 1 1 1:1
C 18 2 2 2:1
D 15 3 3 3:1
E 11 4 4 4:1
F 6 5 5 5:1
G 0 6 6 6:1

 When points A, B, C, D, E, F and G are joined,

 we get a curve AG, known as ‘Production Possibility
Frontier’.
 AG curve shows the maximum limit of production of guns
and butter.

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28. Marginal Opportunity  It refers to

Cost (MOC)  the number of units of a commodity sacrificed
 to gain one additional unit of another commodity.
 In case of PPF, MOC is always increasing,
 i.e. more and more units of a commodity have to be
sacrificed
 to gain an additional unit of another commodity.
29. Why Increasing MOC  It is because
Operates ?  productivity and efficiency of factors of production
decreases
 as they are shifted from one use to another.
30. Marginal Rate of  It is the
Transformation (MRT)  ratio of number of units of a commodity sacrificed
 to gain an additional unit of another commodity.
∆ Units Sacrificed
 In numerical, MRT = .
∆ Units Gained

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31. Characteristics or  PPF Slopes Downwards
Properties of PPF  More of one good can be produced only by taking
resources away from the production of another good.
 As there exists an inverse relationship between changes
in quantity of one commodity and change in quantity of
the other commodity
 PPF is Concave Shaped
 PPF is concave shaped because of increasing marginal
rate of transformation,
 i.e. more and more units of one commodity are sacrificed
to gain an additional unit of another commodity.

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32. Whether Economy Will  Economy will operate on PPF only when resources are fully
Always Operate on PPF and efficiently utilised.
?  Economy will operate at any point inside PPF if resources
are not fully and efficiently utilised.
 Economy cannot operate at any point outside PPF as it is
unattainable with the available productive capacity.
 It means
 Economy can either operate on PPF or inside PPF, known
as “Attainable Combinations”.
 But, economy cannot operate outside PPF, known as
“Unattainable Combinations”.

 Attainable Combinations.
 It refers to those combinations at which economy can
operate.
 There can be two attainable options :
 Optimum Utilisation of Resources : If the resources
are used in the best possible manner, then economy
will operate at any point (like, A, B, C or D) on PPF.
 Inefficient Utilisation of Resources : However, the
actual production can fall short of its capabilities. If
there is wastage or inefficient utilisation of
resources, then economy will operate at any point
inside the PPF (like E).
 Unattainable Combinations.
 With the given amount of available resources, it is
impossible for the economy to produce any combination
more than the given possible combinations
 i.e. an economy can never operate at any point outside the
PPF (like F).

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33. Slope of PPF  The slope of PPF is a
 measure of the MRT.
 Since the slope of a concave curve increases as we move
downwards along the curve,
 the MRT also rises as we move downwards along the
curve.
 For example, MRT between the possibilities D and E is equal
DH EI
to and between E and F, it is equal to and so on.
HE IF

34. Can PPF be a Straight  PPF Can be a Straight Line.

Line Or Convex to the  If we assume that MRT is constant,
Origin ?  i.e. same amount of a commodity is sacrificed to gain
an additional unit of another commodity.
 It is possible only when we assume that all the resources
are equally efficient in production of all goods. In such
case, PPF will be a straight line as shown in Fig. 1.4.

 Can PPF be Convex to the Origin ?

 PPF can be convex to the origin
 if MRT is decreasing, i.e. less and less units of a

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[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
commodity are sacrificed to gain an additional unit of
another commodity.
 In such case, PPF will be a convex shaped curve as shown
in Fig. 1.5.
35. PPF and Opportunity  PPF illustrates the concept of opportunity cost.
Cost  As we move from ‘E’ to ‘F’ in Fig. 1.6, the production of
butter rises from 4 units to 5 units, but the number of guns
decreases from 11 units to 6 units,
 The opportunity cost of producing more butter is fewer guns
i.e. the 5th unit of butter is sacrifice of 5 units of guns.

36. PPF as Transformation  In Table 1.1, when we move down the curve,
Curve  we transform guns into butter, and
 when we move up, we transform butter into guns.
 Because of this reason, PPF is known as “Transformation
Curve.”
Table 1.1 : Production Possibility Schedule

Guns Butter ∆ 𝐆𝐮𝐧𝐬

MRT =
Possibilities (units) (units) MOC ∆ 𝐁𝐮𝐭𝐭𝐞𝐫
A 21 0 --- ---
B 20 1 1 1:1
C 18 2 2 2:1
D 15 3 3 3:1
E 11 4 4 4:1
F 6 5 5 5:1
G 0 6 6 6:1
37. Change in PPF  Changes in resource lead to change in PPF.
 The change in PPF indicates
 either an increase or a decrease in the productive

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capacity of the economy.
 The change in PPF can be of two types :
 Shift in PPF
PPF will shift when there is change in productive capacity
(resources or technology) with respect to both the goods.

 Rotation of PPF
PPF will rotate when there is change in productive
capacity (resources or technology) with respect to only
one good.

 Shift in PPF
The PPF can shift either towards right or towards left, when
there is change in resources or technology with respect to
both the goods.
 Rightward Shift in PPF
When there is advancement of technology or/and
increase in availability of resources in respect to both
the goods, then PPF will shift to the right in Fig 1.7.

 Leftward Shift in PPF

PPF will shift towards left, when there is a technological
degradation and/or decrease in resources with respect to
both the goods in Fig. 1.8.

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[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]

 Rotation of PPF
It happens when there is change in productive capacity
(resources or technology) with respect to only one good. The
rotation can be either for the commodity on the X - axis or
for commodity on the Y - axis.

 Rotation for commodity on the X – axis.

When there is a technological improvement or an increase
in resources for production of the commodity on the X-
axis (say, butter), then PPF will rotate from AB to AC.
However, in case of technological degradation or
decrease in resources for production of butter, then PPF
will rotate to the left from AB to AD in Fig. 1.9.

 Rotation for commodity on the Y – axis.

A technological improvement or an increase in resources
for production of commodity on Y - axis (say, guns), will
rotate the PPF from AB to CB.
However, in case of degradation in technology or a

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[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
decrease in resources for production of guns, will rotate
the PPF to the left from AB to DB as shown in Fig. 1.10.
38. Overview of PPF

MISCELLANEOUS
39. Impact of Schemes 1. MAKE IN INDIA
Launched by Modi  The objective of Make in India initiative is
Government on  to promote India as a manufacturing hub.
Production Possibility  It will give upgradation or improvement in technology
Curve (PPC)  which leads to economic transformation in India.
 This will lead to rightward shift in Production Possibility
Curve (PPC).
2. SWACCHH BHARAT ABHIYAN (CLEAN INDIA
MISSION)
 It is a national campaign by Government of India
 based on the extent of open defecation and
 solid waste management practices
 which leads no change in resources,
 else it will lead to fuller and efficient utilization of
resources.
 This will make a point to move from inside to on the
Production Possibility Curve (PPC) if earlier the economy
was inside the Production Possibility Curve (PPC).
 But the Production Possibility Curve (PPC) shifts towards
rightward if earlier the economy was on the Production
Possibility Curve (PPC).
3. DIGITAL INDIA
 This scheme is launched
 with the vision to transform India
 into a digitally empowered society
 leading to upgradation in technology.
 It results in rightward shift of Production Possibility

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[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
Curve (PPC).
4. SKILL INDIA
 It focuses on
 creating jobs for youth
 which increases production capacity of an economy.
 It will enhance resources resulting in rightward shift in
Production Possibility Curve (PPC).
5. BETI BACHAO, BETI PADAO
 This scheme is a social campaign of the Government of India
that aims to generate awareness and improve the efficiency
of welfare services intended for girls.
 This will enhance the working skills and efficiency of girls by
educating them, hence creating woman empowerment.
 This will lead to rightward shift in Production Possibility
Curve (PPC).
6. MAHATMA GANDHI NATIONAL RURAL
EMPLOYMENT GAURANTEE ACT (MGNREGA)
 It is the best job guarantee scheme of India.
 It is designed to provide job guarantee for at least 100 days
in rural parts of the country.
 There will be no effect on PPC as there is no increase in
the productive capacity of the economy.
 However, actual level of employment and output will increase
due to increase in workdays.

7. EDUCATION FOR ALL CAMPAIGN (SARV

SHIKSHA ABHIYAN)
 It is an Indian Government programme
 aimed at the universalisation of elementary education "in
a time bound manner", and
 making free and compulsory education to children
between the ages of 6 to 14 a fundamental right.
 Education raises efficiency by making a worker a skilled
worker.
 This will increase Production Potential shifting the
Production Possibility Curve rightward.

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