Maharashtra Board Class 12 Solutions for Economics Chapter 1 Introduction to Micro and Macro Economics

Choose the Correct Option:

1. The branch of economics deals with the allocation of resources. 

1. Microeconomics                                                   

2. Macroeconomics 

3. Econometrics      

4. None of these

Options : 

1. a b and c                                                 

2. a and b                 

3. only a                                                        

4. None of these

Ans: Correct Answer is Option (3) Only a

Microeconomics is the branch of economics that deals with the allocation of resources.

2. Concepts studied under Microeconomics.

1.  National income                                                       

2.  General price level 

3.  Factor pricing                                                            

4.  Product pricing

Options :

       1. b and c                                                       

       2. b, c, and d

       3. a, b and c                                                    

       4. c and d

Ans: Correct Answer is Option (4) c and d

National income and general price level are studied under macroeconomics whereas

Factor pricing and product pricing are reviewed under microeconomics.

3.  Method adopted in microeconomic analysis. 

       a. Lumping method                                                      

       b. Aggregative method 

       c. Slicing method                                                           

       d. Inclusive method 

Options: 

        1. a, c and d                                                   

         2. a, b and d 

         3. only c                                                          

         4. only a

Ans: Correct Answer is Option (3) only c

The slicing method is adopted in microeconomics whereas all others are adopted in

Macroeconomics.

4.  Concepts studied under Macroeconomics. 

        a. Whole economy                                                          

        b. Economic development 

        c. Aggregate supply                                                         

        d. Product pricing 

Options :

        1. a, b and c                                                      

        2. b, c, and d 

        3. only d                                                             

        4. a, b, c, and d 

Ans: Correct Answer is Option (1)  a, b and c

Product pricing is studied under microeconomics whereas the rest are studied under Macroeconomics.

2. Complete the Correlation:

1. Microeconomics: Slicing method:: Macroeconomics:

Ans: Lumping method

2. Micro economics: Tree:: Macroeconomics:

Ans: Forest

3. Macroeconomic theory: Income and employment:: Microeconomics:

Ans: Price Theory

4. Makros: Macroeconomics:: Mikros: 

Ans: Microeconomics 

5. General equilibrium: Macroeconomics::? : Microeconomics

Ans: Study of individual units

Identify and Explain The Concepts From The Given Illustrations:

1. Gauri collected information about the income of a particular firm.

Ans: The concept is the Study of Individual Units. Microeconomics is the study of the behavior of small individual economic units, like an individual firm, individual price, individual household, etc.

2. Ramesh decided to take all decisions related to production, such as what and how to produce.

Ans: The concept is a Free market economy. Microeconomics helps in understanding the working of a free market economy. A free market economy is an economy where the economic decisions regarding the production of goods, such as ‘What to produce? How much to produce? How to produce? etc.’ are taken at individual levels. There is no intervention by the Government or any other agency.

3. Shabana paid wages to workers in her factory and interest on her bank loan.

Ans: The concept is the Theory of Factor Pricing. : In Microeconomics, land, labor, capital and entrepreneurship are the factors that contribute to the production process. Microeconomics helps in determining the factor rewards for land, labor, capital, and entrepreneur in the form of rent, wages, interest, and profit respectively.

4. Answer the Following:

1. Explain the features of Microeconomics.

Ans: The features of microeconomics are:

• Study of Individual Units: Microeconomics is the study of the behavior of small individual economic units, like individual firms, individual prices, individual households, etc.

• Price Theory: Microeconomics deals with the determination of the prices of goods and services as well as factors of production.

• Partial Equilibrium: Microeconomic analysis deals with partial equilibrium which analyses the equilibrium position of an individual economic unit. 

• Based on Certain Assumptions: Microeconomics begins with the fundamental assumption, “Other things remaining constant” (Ceteris Paribus) such as perfect competition, laissez-faire policy, pure capitalism, full employment, etc. These assumptions make the analysis simple.

• Slicing Method: Microeconomics uses the slicing method. It splits or divides the whole economy into small individual units and then studies each unit separately in detail.

• Use of Marginalism Principle: Marginal analysis helps to study a variable through the changes. Producers and consumers make economic decisions using this principle.

• Analysis of Market Structure: Microeconomics analyzes different market structures such as Perfect Competition, Monopoly, Monopolistic Competition, etc.

• Limited Scope: The scope of microeconomics is limited to only individual units. It doesn’t deal with the nationwide economic problems such as inflation, deflation, the balance of payments, poverty, unemployment, population, etc.

2. Explain the importance of Macroeconomics.

Ans: The importance of macroeconomics is:

• Functioning of an Economy: Macro-economic analysis gives us an idea of the functioning of an economic system. It helps us to understand the behavior pattern of aggregative variables in a large and complex economic system.

• Economic Fluctuations: Macroeconomics helps to analyze the causes of fluctuations in income, output, and employment and attempts to control them or reduce their severity.

• National Income: Study of macroeconomics has brought forward the immense importance of the study of national income and social accounts. Without a study of national income, it is not possible to formulate correct economic policies.

• Economic Development: Advanced studies in macroeconomics help to understand the problems of developing countries such as poverty, inequalities of income and wealth, differences in the standards of living of the people, etc.

• Performance of an Economy: Macroeconomics helps us to analyze the performance of an economy. National Income (NI) estimates are used to measure the performance of an economy over time by comparing the production of goods and services in one period with that of the other period.

• Study of Macroeconomic Variables: To understand the working of the economy, the study of macroeconomic variables is important. Main economic problems are related to the economic variables such as the behavior of total income, output, employment, and general price level in the economy.

• Level of Employment: Macroeconomics helps to analyze the general level of employment and output in an economy.

3. Explain the scope of Macroeconomics.

Ans: The scope of macroeconomics is:

• Theory of Income and Employment: Macroeconomic analysis explains which factors determine the level of national income and employment and what causes fluctuations in the level of income, output, and employment.

• Theory of General Price Level and Inflation: Macro-economic analysis shows how the general price level is determined and further explains what causes fluctuations in it. The study of the general price levels is significant on account of the problems created by inflation and deflation.

• Theory of Growth and Development: Macroeconomics consists of the theory of economic growth and development. It explains the causes of underdevelopment and poverty. It also suggests strategies for accelerating growth and development.

• Macro Theory of Distribution: Macro theory of distribution deals with the relative shares of rent, wages, interest, and profit in the total national income.

5. State With Reasons Whether You Agree or Disagree With The Following Statements:

1. The scope of microeconomics is unlimited.

Ans: I disagree with the above statement because the scope of microeconomics is limited to only individual units. It doesn’t deal with the nationwide economic problems such as inflation, deflation, the balance of payments, poverty, unemployment, population, economic growth, etc.

2. Macroeconomics deals with the study of individual behavior.

Ans: I disagree with the above statement because it deals with the study of the economy as a whole. It is concerned with the aggregate concepts such as national income, national output, national employment, general price level, business cycles, etc.

3. Macroeconomics is different from microeconomics.

Ans: I agree with the statement because macroeconomics deals with the economy as a whole and has an unlimited scope whereas microeconomics deals with each factor separately and has limited scope. Macroeconomics deals with nationwide economic problems whereas microeconomics deals with individual units.

4. Microeconomics uses the slicing method

Ans: I agree with the statement because it splits or divides the whole economy into small individual units and then studies each unit separately in detail. For example, the study of individual income out of national income, the study of individual demand out of aggregate demand, etc.

5. Microeconomics is known as Income theory.

Ans: It disagrees with the statement because microeconomics is known as price theory. Microeconomics deals with the determination of the prices of goods and services as well as factors of production. Hence, it is known as the price theory.

Answer in Detail :

1. Explain the importance of Microeconomics.

Ans: The importance of microeconomics is:

• Price Determination: Microeconomics explains how the prices of different products and various factors of production are determined

• Free Market Economy: Microeconomics helps in understanding the working of a free market economy. A free market economy is an economy where the economic decisions regarding the production of goods, such as ‘What to produce? How much to produce? How to produce? etc.’ are taken at individual levels. There is no intervention by the Government or any other agency

• Foreign Trade: Microeconomics helps in explaining various aspects of foreign trade like the effects of a tariff on a particular commodity, determination of currency exchange rates of any two countries, gains from international trade to a particular country, etc.

• Economic Model Building: Microeconomics helps in understanding various complex economic situations with the help of economic models. It has made a valuable contribution to economics by developing various terms, concepts, terminologies, tools of economic analysis, etc. Economic models are built using various economic variables.

• Business Decisions: Microeconomic theories are helpful to businessmen in taking crucial business decisions. These decisions are related to the determination of cost of production, determination of prices of goods, maximization of output and profit, etc

• Useful to Government: It is useful to the government in framing economic policies such as taxation policy, public expenditure policy, price policy, etc. These policies help the government to attain its goals of efficient allocation of resources and promoting the economic welfare of the society

• Basis of Welfare Economics: Microeconomics explains how best results can be obtained through optimum utilization of resources and their best allocation. It also studies how taxes affect social welfare

2. Explain the concept of Macroeconomics and its features.

Ans: Macroeconomics is the branch of economics that analyses the entire economy. It deals with the total employment, national income, national output, total investment, total consumption, total savings, general price level interest rates, inflation, trade cycles, business fluctuations, etc. Thus, macroeconomics is the study of aggregates.

The features of macroeconomics are:

• Study of Aggregates: Macroeconomics deals with the study of the economy as a whole. It is concerned with the aggregate concepts such as national income, national output, national employment, general price level, business cycles, etc.

• Income Theory: Macroeconomics studies the concept of national income, its different elements, methods of measurement, and social accounting. Macroeconomics deals with aggregate demand and aggregate supply. It explains the causes of fluctuations in the national income that lead to business cycles i.e. inflation and deflation

• General Equilibrium Analysis: Macroeconomics deals with the behavior of large aggregates and their functional relationship. General Equilibrium deals with the behavior of demand, supply, and prices in the whole economy. 

• Interdependence: Macro analysis takes into account interdependence between aggregate economic variables, such as income, output, employment, investments, price level, etc. For example, changes in the level of investment will finally result in changes in the levels of income, levels of output, employment, and eventually the level of economic growth

• Lumping Method: Lumping method is the study of the whole economy rather than its part. According to Prof. Boulding, “Forest is an aggregation of trees but it does not reveal the properties of an individual tree.” This reveals the difference between microeconomics and macroeconomics

• Growth Models: Macroeconomics studies various factors that contribute to economic growth and development. It is useful in developing growth models. These growth models are used for studying economic development. For example, Mahalanobis's growth model emphasized basic heavy industries.

• General Price Level: Determination and changes in the general price level are studied in macroeconomics. The general price level is the average of all prices of goods and services currently being produced in the economy.

• Policy-Oriented: According to Keynes, macroeconomics is a policy-oriented science. It suggests suitable economic policies to promote economic growth, generate employment, control inflation, depression, etc.

Try This: 

1. Visit the vegetable market in the nearest area and try to get information about income and expenditure items of a particular seller. 

Ans: Try it by yourself. 

Importance of Maharashtra Board Class 12 Economics Chapter 1 Introduction to Micro and Macro Economics

This chapter introduces the students to the various concepts of micro and macroeconomics. You will find out what these terms mean and how they are important to define the economy of a country.

Progressing further, this chapter will define what microeconomics is and what its scopes are. The fundamental principles related to theory or pricing, factors related to pricing, and economic welfare will all be explained. You will also get to know the importance of microeconomics in the modern world.

You will also learn what macroeconomics is and what its features are. Its meaning, factors, theories and features will be explained sequentially. Students will find studying these new concepts quite fascinating. To overcome the doubts, you can refer to the Maharashtra Board Class 12 Economics Solutions Chapter 1 Introduction to Micro and Macro Economics prepared by the experts.

Progressing further, you will learn about income and employment. The growth models and importance of macroeconomics will be explained with proper examples. This is the first and most fundamental chapter of this subject’s syllabus. Hence, you need to pay attention to this one while studying it.

Benefits of Class 12 Economics Chapter 1 Solutions

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• There is no need to waste time making concise notes for this chapter. It is already done by the experts. They have primarily focused on the basic concepts and terminologies so that you can easily prepare the chapter.

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Download Class 12 Economics Chapter 1 Notes and Solutions PDF

Get the free PDF version of the Introduction to Micro Economics and Macro Economics exercise solutions and resolve doubts on your own. Use the simplified version of the definitions and descriptions given in the notes to understand micro and macroeconomics better. Use your knowledge to score well in the board exams.