CBSE Class 12 Micro Economics Revision Notes Chapter 1
Class 12 Microeconomics Chapter 1 Notes
The Class 12 Microeconomics Chapter 1 notes help the students score better in the board exams. The subject matter experts at Extramarks prepare these notes to ensure that students find no difficulty in understanding every concept included in the chapter. Hence, every chapter has been explained in detail with examples such that students can grasp the essential topics to gain more knowledge and clear their concepts. In simple terms, a quick revision on the core topics can help them prepare for the examination in no time.
In the class 12 Microeconomics chapter 1 notes, the students will get to know the effect of monopoly and the characteristics of economic recession. In addition, they will also learn the marginal revenue (MR) principle – MC = MR curve where Marginal cost (MC) is the cost incurred for producing one additional unit of output. Further, they will cover the concept of elasticity from both the demand and supply sides, also called a budget constraint.
Students can regularly visit the Extramarks website for updates and notifications on the class 12 Microeconomics CBSE Syllabus. Furthermore, in addition to the class 12 Microeconomics chapter 1 notes, they can refer to various study materials that can help them learn and explore more, such as notes based on NCERT books.
Key Topics Covered In Class 12 Microeconomics Chapter 1 Notes
The key topics covered under the class 12 Microeconomics chapter 1 notes include the following.
ECONOMY
The economy of a society is an organisation that either helps or hinders the production and distribution of goods and services. The value of goods and services are also taken into consideration. The distribution of a society’s resources, its goods and services, and what can be traded or bartered for those services and goods are always determined in the economy.
Different types of Economy
There are three types of Economies covered under class 12 Microeconomics chapter 1 notes.
Centrally Planned Economy: It is one in which the government or central authority plans all allied economic activities. The government makes significant decisions regarding the production, exchange and consumption of goods and services. The central authority intends to achieve sufficient resources and distributes the final combination of goods and services deemed desirable for society. A centrally planned economy’s primary goal is social welfare.
Market Economy: Market economy is organised with the help of market research. The free interplay of individuals who pursue their respective economic activities occurs in a market. A market is a set of arrangements under which economic agents freely exchange their endowments or goods. In addition, no interference from the government takes place. However, there exists the influence of the private sector. Market Economy forces demand and supply, and participants’ behaviour determines the economy. The objective of demand and supply is profit maximisation.
Mixed Economy: In a Mixed Economy, both, the government and the private sector own and operate production factors. The primary goal is to maximise the profit in social welfare and the private sector. The central planning authority is responsible for solving significant problems.
ECONOMICS
The word Economics is derived from Greek. It is a branch of social science, and it studies the distribution, production and consumption of goods and services. Economics aims to solve the scarcity problem, which occurs when humans want goods and services. It has evolved from how to keep the family accounts to the wide-ranging subject at present.
Economics as a subject includes complete information on employment and income of the production. It helps manage a home with limited funds in the most cost-effective way. Thus, the origin of economics can be traced back to ‘An Inquiry into Nature and Causes of Wealth of Nature’, a book authored by Adam Smith in 1776.
The Real Meaning of Economics
Economics tries to explain community living problems in underlying resource costs and consumer benefits. It helps to seek a way to reconcile unlimited wants with limited resources and involves the actual study of scarcity and choices. Students will learn the real meaning of economics under class 12 Microeconomics chapter 1 notes.
Definition of Economics
The definition of economics can be traced back to the great economist, Adam Smith. He was a Scottish economist, renowned for his philosophies. He regarded Economics as a science of wealth that studied the process of wealth production, consumption and accumulation.
The book “Principles of Economics,” published in 1890, emphasises human activities and welfare rather than wealth. According to the author, Alfred Marshall’s book, “A study of men as they live, move and think in the ordinary business of life,” defines Economics.
The class 12 Microeconomics chapter 1 notes also quote Alfred Marshall, who states that Economics is a study of wealth on the one hand and a study of men on the other.
Problems of an Economy
The fundamental economic problem is one of choice compounded by a lack of resources. This is also called the resource economics problem. The problem of making better and more effective use of scarce resources to meet the needs of as many people as possible.
The economy’s problem includes natural resources such as land and air, human resources and capital resources such as machinery and buildings, entrepreneurial resources, such as an individual willing to take risks, etc. are all examples of inputs. Limitless human needs, limited economic resources and alternative uses of resources are the leading causes of the core problems.
Difference Between Microeconomics And Macroeconomics
| Sr No. | Basis of Difference | Microeconomics | Macroeconomics |
| 1. | Origin | The word “Micro” means “small” and it has a Greek origin. It also holds the meaning of price theory. | The word “Macro” has a Greek origin. Macros means large. It is also known as income, and its meaning resembles the Income and Employment theory. |
| 2. | Study Matters | It involves investigating economic relationships and issues such as households, businesses and consumers. | It involves investigating the economy as a whole. |
| 3. | Objective | Its objective is to examine the principles, issues and policies which can be used to achieve the optimal goal of resource allocation. | Its objective is to look into the principles, issues and policies that go into achieving full employment and expanding production capacity. |
| 4. | Deals with | It deals with how consumers and producers make decisions. It’s based on the budget and other factors. | It deals with the different economic sectors, such as households, industries and the international community making decisions. |
| 5. | Methods | It uses the partial equilibrium method and involves achieving equilibrium. | It uses the general equilibrium method; it ensures that all markets in an economy are in equilibrium. |
| 6. | Variables | Price, individual consumer demand, wages, rent, profit and other microeconomic variables are important. | Aggregate price, aggregate demand, supply, unemployment and other macroeconomics variables are important. |
| 7. | Theories |
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| 8. | Main Problem | Price determination and resource allocation. | Determining the economy’s level of income and employment. |
| 9. | Popularised by | Alfred Marshall | John Maynard Keynes |
Difference Between Positive and Normative Economy
Students may refer to the following table of class 12 Microeconomics chapter 1 notes to understand the difference between positive and normative economy.
| Sr no. | Positive Economy | Normative Economy |
| 1. | A positive economy deals with the cause and effect relationship between facts. | A negative economy deals with moral principles. |
| 2. | It is concerned with what is and what was. | It deals with what ought to be. |
| 3. | Positive Economy uses actual data to verify the information. | A positive economy does not use data to verify. |
| 4. | The value of judgement is not given in this case. | The value of judgement is given in this case. |
Central Problems Of An Economy
The central problems of an economy are well explained with three simple questions in class 12 Microeconomics chapter 1 notes.
- What to produce: An economy sometimes has many wants and a finite number of resources. Sometimes, the economy cannot make all goods, such as consumer and producer goods. The economy has to decide what types of goods and services will be produced.
- How much to produce: It’s a problem deciding on a production technique. There are two types of production techniques:
- Labour-intensive Technique
- Capital-Intensive Technique
- From whom to produce: It is a problem involving distributing manufactured goods among various social groups. It has two aspects:
- Personal distribution: National income is distributed according to who owns the production factors.
- Functional distribution: National income or production is distributed among various factors of production. It includes lands, labour, capital and entrepreneurship to provide their services regarding rent and profit.
Problem Relating To The Efficient Use And Fuller Utilisation Of Resources
Problem efficiency involves producing the greatest amount of goods and services possible with available resources. Resources are scarce in comparison to the demand for them. Thus, the economy must ensure that resources are not wasted by remaining underutilised. Students may study more regarding problem efficiency under class 12 Microeconomics chapter 1 notes.
Problem Relating to Resource Growth: Increasing the production capacity to increase the quantity of output.
Production Possibility Frontier: The production possibility is also known as the transformation curve, and it is a curve that depicts all possible combinations of two goods. It can be produced in a given economy with given resources and technology. A commodity may increase if there is a reduction in the other commodity due to scarce and finite resources.
Assumptions
The curve concept is founded on the following assumptions:
- The revenue base of the economy is fixed.
- The technology is preinstalled and unaltered.
- Resources are efficient and used to their full potential.
- Not all commodities are equally efficient in their production.
Shifts in Production Possibility Curve
In Class 12 Microeconomics chapter 1 notes, students will learn about the shifts in the production possibility curve.
Reasons: Changes in resources and manufacturing technology for both groups.
Rightward Shift: The Production Possibility Curve is designated to the right, indicating an increase in resources. For example, skilled labour, technological advancements, and increased land productivity.
Leftward Shift: The Production Possibility Curve shift to the left indicates that the resources are deteriorating and decreasing, for example, unskilled labour and technological obsolescence. The reduced land productivity is all factors contributing to the decreasing productivity.
Methods for Resolving Fundamental Issues in Capitalistic and Planned Economies
This mechanism is well explained in class 12 Microeconomics chapter 1 notes. It helps the fundamental problems in a capitalist or market-oriented economy.
- Economic planning replaced the price mechanism. The state sets the prices for numerous products, referred to as administered prices.
- In a planned economy, the government may decide what, how and for whom to produce.
- The market forces the demand and supply to make an impact on price.
AN INTRODUCTION TO MICROECONOMICS
It is the first and most important topic in Microeconomics as it is a central economic problem. It is based on three simple questions:
- What to produce?
- How to produce?
- For whom to produce?
Next, the students will experience that the central problems of the economy are briefly discussed in the Class 11 Microeconomics Chapter 1 notes.
- What to produce? Society is facing an alarming dearth of resources. Above all, we belong to a finite world, and the resources must be allocated based on our collective requirements and wants. Various products can be produced with identical accessible resources.
- How to produce? There are numerous ways and procedures that prevent people and the government from producing a commodity or service. For instance, production can occur through capital-intensive or labour-intensive based on how capital and labour are operated.
- For Whom to produce? In the context of Class 11 Microeconomics Chapter 1 notes, it might be the most significant question. Society involves some degree of hierarchy in uneven members. The meaning of the question is meant to derive the people who can get benefits. Once the luxury commodities are produced, then those will be afforded by only the rich. The commodities at affordable rates will benefit the low-income groups.
Production Possibilities of An Economy
Class 12 Microeconomics Chapter 1 depicts the production possibilities of the economy. An economy can produce numerous commodities that have accessible resources. It helps to obtain technologies and other resources of production.
Production Possibilities Frontier
PPF is derived from a mathematical curve showing the equilibrium between the production levels of two separate products within restricted resources.
The Basics of Economics
The Class 12 Microeconomics Chapter 1 notes also deal with the basic subject matter of Economics. It is classified into two categories, including Macroeconomics and MicroeconomicsMicroeconomics. Further, it includes the production, distribution, and consumption of commodities and services termed as Economics.
Microeconomics deals with entrepreneurship whose decisions and behaviour impact the economy, and consumer behaviour comes under Microeconomics. Further, Macroeconomics deals with the way the economy operates as a whole. The topic under Macroeconomics includes RBI Monetary Policy, IS-LM Curve, etc., and National Income.
Centrally Planned Economy
The students learn about different economic decisions taken in the free market. Further, they will also learn about the demand and supply of the products that determine the prices.
Market Economy
Class 12 Microeconomics Chapter 1 Notes include different economic decisions taken in the free market based on laws of supply and demand in the market. The market economy determines the prices of the products involved in demand and supply.
Positive Economics Analysis
The concepts of positive economics analysis have been vividly explained. Thus, the students can learn about economic facts, objective measurements, and procedures. The cause and effect relationships between different economic factors and phenomena are clearly explained in the class 12 Microeconomics chapter 1 notes.
Class 12 Microeconomics Chapter 1 Notes: Exercises & Answer Solutions
Students can access the Class 12 Microeconomics Chapter 1 notes while studying or during revision for their examination. The notes are compiled by experts who aim at making the subject interesting for the students. Further, it is prepared in a precise and student-friendly manner, including CBSE sample papers, exercises and solutions and more.
Class 12 Microeconomics Chapter 1 notes cover all the essential topics, such as the concept of positive economic analysis and its objective measurements. They will also get to learn the relationship between cause and effects. The exercise and answer solution provided by Extramarks can be of immense benefit to students, especially while preparing for the examination.
NCERT Exemplar Class 12 Microeconomics
NCERT Exemplar Class 12 Microeconomics is available for the students on the Extramarks website. It will help the students during their exams. All topic-wise questions with solutions will help the students revise the complete chapter and help them score more marks in the exams.
The example helps the students clearly understand the concepts and develop a strong base on the chapter. The students can refer to the NCERT exemplar to perform well in the exam. Further, the students can tackle higher-order thinking skills questions easily. Students may also refer to chapter 1 Microeconomics class 1 notes along with the exemplar to grasp the concepts.
NCERT exemplar consists of well-structured solutions, different types of practice problems, and in-depth explanations prepared by experts. It enables students to improve their overall learning and better knowledge of the subjects.
Besides, students can visit the Extramarks website for the latest Class 12 Microeconomics notes Chapter 1.
Key Features of NCERT Solutions Class 12 Microeconomics Chapter 1 Notes
To understand the topics better and perform well in the examination, the students can refer to Class 12 Microeconomics Chapter 1 Notes. The students will grasp some essential topics such as the basics of economics and the distribution of the market economy. Further, they will learn about the market forces of demand and supply that impact price.
Some of the critical features of NCERT Solutions Class 12 Microeconomics Chapter 1 notes provided by Extramarks include:
- All factors related to capitalism and market forces of demand are well elaborated.
- The students will learn the introduction of economics and basic concepts of Microeconomics.
- It helps to revise challenging theories quickly. Thus, the students can understand and remember complex chapter concepts easily.
- Moreover, the students will learn about the different market forces of demand and supply. They will also get to understand how demand and supply affect the price.
- In addition, some questions related to the characteristics of competition and monopoly are explained in great detail.
- Further, the students can learn about price discrimination in the market?
- The students can score good grades by referring to NCERT Solutions Class 12 Microeconomics Chapter 1 notes. It offers a quick revision of all topics related to the distribution of the market economy.
FAQs (Frequently Asked Questions)
1. How do the Class 12 Microeconomics Chapter 1 notes help?
Extramarks provides Class 12 Microeconomics Chapter 1 notes. The students can take advantage of the revision notes that are well elaborated and structured. The notes are written by the best subject matter expert. Every concept and theory is explained in detail so that students can refer to and revise their ideas.
2. How to prepare for the Class 12 board exam?
The students can refer to Class 12 Microeconomics Chapter 1 notes and the previous year question papers of the CBSE syllabus. It is available on the Extramarks website and easily accessible. The revision notes are built as per the guidelines of the CBSE board.
3. Distinguish between Micro and Macroeconomics?
Microeconomics impacts individual economic agents in an economy like an individual’s income, prices of goods, and outputs of goods. On the other side, Macroeconomics deals with aggregate financial measures like national income, employment, and unemployment. The aggregate price level of commodities is discussed. Besides, the students can also get help through the Microeconomics Chapter 1 Class 12 notes.
