NIOS Economics (318) Notes/Answer| Chapter-14|What micro Economics

NIOS Economics (318) Notes/Answer| Chapter-14|What micro Economics. Important questions for NIOS Economics (318) Questions Answers brings you latest queries and solutions with accordance to the most recent pointers SOS . Students will clear all their doubts with regard to every chapter by active these necessary chapter queries and elaborate explanations that area unit provided by our specialists so as to assist you higher. These queries can facilitate students prepare well for the exams thanks to time constraint . NIOS Economics (318) Notes/Answer| Chapter-14|What micro Economics

HS 2nd years Solutions (English Medium)

NIOS Economics (318) Notes/Answer| Chapter-14|What micro Economics

What Micro Economic

Intext Questions

1. State whether the following statements are true or false? 

(a) Micro and macroeconomics are two unrelated parts of economics.

Ans. False

(b) Study of the problems of the cotton textile industry is a micro economic study.

Ans. True

(c) Study of the general price level in the economy is a macro economic study.

Ans. True 

(d) Macroeconomic studies relate to a small part of the economy.

Ans. False

(e) Study of the behaviour of individual economic agents is a macro economic study. 

Ans. False 

2. Fill in the blanks with suitable words given in the brackets.

(a) The study of the allocation of resources by a producer on the production of different goods and services is the subject matter of __________ economics. (micro, micro)

Ans. micro

(b) The study of actions and reaction of a consumer is a__________economic study. (micro, macro)

Ans. micro

(c) The study of the relationship between the price of the commodity and its demand or supply is a __________ economic study. (micro, macro)

Ans. micro

(d) Our wants tend to be __________ (limited, unlimited)

Ans. unlimited

(e) The means (income) with which we have to satisfy our wants are quite__________ (limited, unlimited)

Ans. limited

3. Fill in the blanks with suitable words given in the brackets. 

(a) For formulating an economic theory, assumptions are made to__________ the area and scope of study. (wider, limit)

Ans. limit

(b) The two methods of constructing an economic theory are__________ (macro and micro economics, inductive and deductive methods) 

Ans, inductive and deductive methods

(c) The last step in the construction of an economic theory by deductive method is __________ (testing of hypothesis, logical reasoning).

Ans. testing of hypothesis

4. State whether the following statements are true or false? 

(a) The point of origin ‘O’ is the point of intersection of the OX and OY axis.

Ans. True

(b) For each combination of two variables more than one point can be plotted.

Ans. False

(c) A downward falling curve (from left to right) indicates the direct relationship between two variables.

Ans. False

(d) An upward rising curve (from left to right) shows that if the value of one variable increases, the value of the other variable falls.

Ans. False

(e) A graphical diagram can show the relationship of only two variables.

Ans. True

(D) X axis and Y axis intersect each other at an angle of 90°.

Ans. True

Terminal Exercise

1. Distinguish between micro and macro economics. 

Ans. Significant differences exist between the two branches in the following ways:

(i) Differences in the scale of study

Macroeconomics is related to the study of the aggregate while microeconomics relates to the individual economic agents

(ii) Differences in the field of study

Macroeconomic analysis is concerned with the broadest level of policies pertaining to income, employment and growth of resources while microeconomics is concerned with problems and policies relating to the optimum allocation of resources and economic activities such a price determination 

(iii) Differences in importance given to price and income concepts

Microeconomic analysis focuses on price determination in the market for goods and services while macroeconomics focuses on income determination in the economy as a whole. Every good and service has its market where buyers and sellers interact with one another to determine its price and quantity. Since decisions are taken by the individual buyers who demand the goods and the sellers who supply the goods, it forms the part of micro economics. On the other hand, determination of income of the entire economy involves mobilisation of resources by all the sectors of the economy taken together. So it forms part of macroeconomics.

(iv) Differences in the methods of study

Microeconomic study is dominated by the method called Partial Equilibrium Analysis which is focused on significant factors related to an economic activity. Under macroeconomics, the mutual dependence of important economic aggregates is studied and this is called Quasi General Equilibrium Analysis.

(v) Differences in Analytical Factors 

Microeconomics deals with the study of the behaviour of economic variables in an equilibrium position while macroeconomic analysis deals with the study of the behaviour of economic aggregates in a disequilibrium position.

2. What is micro economics all about?

Ans. Microeconomics is the microscopic study of the economy which deals with decision making by any individual, firm, household with respect to matters of production, consumption, determination of prices in the market, determination of wage rate, and so on. The aim is to provide a framework within which the behaviour patterns and interrelationships between individual economic units can be studied and their behaviour with regards to production, exchange and distribution of goods and services can be predicted. Thus, attainment of a state of equilibrium from the point of view of individual economic units is the main aim in microeconomic analysis.

3. How are micro economics theories constructed?

Ans. It is not possible to study the economic behaviour of each of the numerous economic agents and also each of their interactions. From each group of economic agents a study of the behaviour of some is made and on the basis of this study some conclusions are drawn. These conclusions are nothing but a generalisation of the behaviour of that group. These generalisations are then tested and then formulated as economic law or theory.

Like any other science, Economics adopts two important methods in its investigations and formulation of laws and principles. The two methods are 

  1.  Deductive Methods and
  2. Inductive Methods. 

i. Deductive Methods

For formulating an economic theory by deductive method, following steps are taken (i) Selecting the problem:

The problem which an investigator selects for enquiry must be stated clearly. It may be very wide like poverty, unemployment, inflation, etc. or narrow relating to an industry. The narrower the problem the better it would be to conduct the enquiry.

ii. Formulating Assumptions:

The next step in deduction is the framing of assumptions which are the basis of hypothesis. To be fruitful for enquiry, the assumption must be general. In any economic enquiry, more than one set of assumptions should be made in terms of which a hypothesis may be formulated.

iii. Formulating Hypothesis: 

The next step is to formulate a hypothesis on the basis of logical reasoning whereby conclusions are drawn from the propositions. This is done in two ways: First, through logical deduction. If and because relationships (p) and (q) all exist, then this necessarily implies that relationship (r) exists as well. Mathematics is mostly used in these methods of logical deduction.

iv. Testing and Verifying the Hypothesis:

The final step in the deductive method is to test and verify the hypothesis. For this purpose, economists now use statistical and econometric methods. Verification consists in confirming whether the hypothesis is in agreement with facts. A hypothesis is true or not can be verified by observation and experiment. Since economics is concerned with human behaviour, there are problems in making observations and testing a hypothesis.

For example, the hypothesis that firms always attempt to maximise profits, rests upon the observation that some firms do behave in this way. This premise is based on a priori knowledge which will continue to be accepted so long as conclusions deduced from it are consistent with the facts. So the hypothesis stands verified. If the hypothesis is not confirmed, it can be argued that the hypothesis was correct but the results are contradictory due to special circumstances.

Under these conditions, the hypothesis may turn out to the wrong. In economics, most hypotheses remain unverified because of the complexity of factors involved in human behaviour which, in turn, depend upon social, political and economic factors. Moreover, controlled experiments in a laboratory are not possible in economics. So the majority of hypotheses remain untested and unverified in economics.

NIOS Class 12th Economics (318) Notes/Question Answer

Chapter Chapters NameLink
Chapter 1Economy and Its ProcessClick Here
Chapter 2Basic Problems of an EconomyClick Here
Chapter 3Economic Development and Indian EconomyClick Here
Chapter 4Statistics: Meaning and ScopeClick Here
Chapter 5Making Statistical Data MeaningfulClick Here
Chapter 6Presentation of Statistical DataClick Here
Chapter 7Statistical MethodsClick Here
Chapter 8Index Numbers (Meanings and Its Construction)Click Here
Chapter 9Index Numbers (Problem and Uses)Click Here
Chapter 10Income FlowsClick Here
Chapter 11National Income: ConceptsClick Here
Chapter 12National Income: MeasurementClick Here
Chapter 13Uses of National Income EstimatesClick Here
Chapter 14What micro EconomicsClick Here
Chapter 15What affects demandClick Here
Chapter 16What affects supplyClick Here
Chapter 17Price determinationClick Here
Chapter 18CostClick Here
Chapter 19RevenueClick Here
Chapter 20Profit maximizationClick Here
Chapter 21Government budgetingClick Here
Chapter 22Money supply and its regulationClick Here
Chapter 23Need for planning in IndiaClick Here
Chapter 24Achievements of planning in IndiaClick Here
Chapter 25Recent economic reforms and the role of planningClick Here

Optical Module – I

Chapter 26AgricultureClick Here
Chapter 27IndustryClick Here
Chapter 28Independence of Agriculture and IndustryClick Here
Chapter 29Transport and CommunicationClick Here
Chapter 30EnergyClick Here
Chapter 31Financial InstitutionsClick Here
Chapter 32Social Infrastructure (Housing, Health and Education)Click Here

Optical Module – II

Chapter 33Direction and composition of India’s Foreign tradeClick Here
Chapter 34Foreign exchange rateClick Here
Chapter 35Balance of trade and balance of paymentsClick Here
Chapter 36Inflow of capital (Foreign Capital and Foreign Aid)Click Here
Chapter 37New trade policy and its implicationsClick Here
Chapter 38Population and economic developmentClick Here
Chapter 39Population of IndiaClick Here

2. Inductive Method: 

For formulating an economic theory by inductive method, following steps are taken 

(i) The Problem:

In order to arrive at a generalisation concerning an economic phenomenon, the problem should be properly selected and clearly stated. 

(ii) Data:

The second step is the collection, enumeration, classification and analysis of data by using appropriate statistical techniques. 

(iii) Observation:

Data is used to make observations about particular facts concerning the problem. 

(iv) Generalisation:

On the basis of observation, generalisation is logically derived which establishes a general truth from particular facts. Thus induction is the process in which we arrive at a generalisation on the basis of particular observed facts. 

4. Distinguish between the dependent variables and an independent variable. Is each variable represented on a particular axis in Economics?

Ans. The table shown below shows the different prices of pens and of pens purchased at each price. So the price of the pen is one variable and the number of quantity demanded is another variable

This table also shows that changes in the price of pens affect the number of pens purchased. So price of pen is called an

Price of Pen (Rs.)Number of pona purchased
510
420
330
240
150

independent variable and is generally shown on OY axis. Number of pen purchased, as shown in the table, depends upon the price of pen. Thus, Y-axis represents price of pen and the X-axis represents the number of pens purchased as shown in the figure. Y axis has been divided into 5 parts, each part shows Re. 1. Thus, point marks 0, 10, 20, 30, 40 and 50 on OX axis show zero unit, 10 pens, 20 pens, 30 pens, 40 pens and 50 pens respectively. Points marked 0, 1, 2, 3, 4, and 5 on Y axis show price as zero, Rs. 1, Rs.2, Rs.3, Rs.4, and Rs.5 respectively. For example, the distance from zero to 40 on OX-axis shows that number of pens purchased is 40. Similarly the distance from zero to 3 on OY axis shows that the price of pen is Rs.3.

We take Rs.5 as the price on Y axis and draw a perpendicular from this point. At this price the number of pens purchased was 10 as shown in the table. We now take the point showing 10 pens on OX axis and draw a perpendicular from this point on OX line. The two perpendicular intersect at point A. Point A represents both the price (Rs.5 per unit) and

the number of pens purchased (10) at this price. In this way we can plot point B which shows the price as Rs.4 per pen and the number of pens purchased at this price i.e. 20 units. Similarly points C, D and E are plotted. Thus, five point A, B, C. D and E give total information contained in the table. If we join these points we get line A B C D E. It is called a straight line curve. Each point on this curve shows a price of pen and number of pens purchased at that price.

5. What relationship between the two variables is indicated by  

(a) upward sloping curve and 

(b) downward sloping curve?

Ans. (a) Downward Rising Curve

The table shown below shows the different prices of pens and the number of pens purchased at each price. So the price of the pen is one variable and the number of quantity demanded is another variable

Price of Pen (Rs.)Number of pons purchased
510
420
330
240
150

This table also shows that changes in the price of pen effect the number of pens purchased. So price of pen is called an independent variable and is generally shown on OY axis. Number of pen purchased, as shown in the table, depends upon on the price of pen. Thus, Y-axis represents price of pen and X axis represents the number of pens purchased as shown in the figure. Y axis has been divided into 5 parts, each part shows Re. 1. Thus, point marks 0, 10, 20, 30, 40 and 50 on OX axis show zero unit, 10 pens, 20 pens, 30 pens, 40 pens and 50 pens respectively. Points marked 0, 1, 2, 3, 4, and 5 on Y axis show price as zero, Rs.1, Rs.2, Rs.3, Rs.4, and Rs.5 respectively. For example, the distance from zero to 40 on OX-axis shows that number of pens purchased is 40. Similarly the distance from zero to 3 on OY axis shows that the price of pen is Rs.3.

We take Ks. as the price on Y axis and draw a perpendicular from this point. At this price the number of pens purchased was 10 as shown in the table. We now take the point showing 10 pens on OX axis and draw a perpendicular from this point on OX line. The two perpendicular intersect at point A. Point A represents both the price (Rs.5 per unit) and the number of pens purchased (10) at this price. In this way we can plot point B which shows the price as Rs.4 per pen and the number of pens purchased at this price i.e. 20 units. Similarly points C, D and E are plotted. Thus, five point A, B, C, D and E give total information contained in the table. If we join these points we get line ABCDE. It is called a straight line curve. Each point on this curve shows a price of pen and number of pens purchased at that price. 

Notice that this curve is downward falling from left to right.

This shows that there is an inverse relationship between price (independent variable) and number of pens purchased (dependent variable). As price falls, more pens are purchased 

(b) Upward Rising Curve

It is not necessary that the curve showing the relationship between two variables may always be downward falling from left to right. It will be so only when there is an inverse relationship between two variables.

If there is a direct relationship between two variables i.e. when one increases the other also increases vice versa, and then the curve will be upward rising from left to right.

Price of Pen (in Rs.)Number of pens supplied by its sellers (per day)
220
330
440
550
660

As the price of pens rises the number of pens supplied by the seller is increasing. If we plot the table given above on a graph paper we get the following curve shown in the figure below

Point A shows the price of pen as Rs.2 per pen and the quantity supplied as 20 pens. Point B shows the price as Rs.3 and the quantity supplied as 30 pens and so on. This curve SS

Price of penMarket demand of penMarket supply of pen
5100500
4200400
3300300
2400200
1500100

is upward rising from left to right. Remember that to find out the direction of the curve we always start from the left. When a curve is downward falling from left to right it is also called negatively sloped. When a curve is upward rising from left to right, it is also called positively sloped.

7. Distinguish between inductive method and deductive method of formulating economic theories.

Ans. The deductive method is also named as analytical, abstract or prior method. The deductive method consists in deriving conclusions from general truths, takes a few general principles and applies them to draw conclusions. On the other hand, the inductive method, also called the empirical method, was adopted by the “Historical School of Economists”. It involves the process of reasoning from particular facts to general principle.

Inductive methods in economics start from the gathering of facts and data before forming a theory based result gathered. However, a deductive method begins with general theories and principles about economics, generating a hypothesis before testing them, a reserve of inductive methods in economics when discussing theories.

Deductive method is near to reality. It is less time consuming and less expensive. On the other hand, the inductive method is a time-consuming process and thus expensive as well.

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