Students must practice these AP Inter 1st Year Economics Important Questions 1st Lesson Introduction to Economics to boost their exam preparation.
AP Inter 1st Year Economics Important Questions 1st Lesson Introduction to Economics
Long Answer Questions
Question 1.
Discuss Wealth definition. [May 2017]
Answer:
The first definition of Economics was given by the famous classical Economist Adam Smith, in 1776 in his famous book “Wealth of Nations”. He defined Economics as “an enquiry into the nature and causes of the wealth of nations.” According to Adam Smith and his supporters, “Economics is basically a study of wealth”. It studies how wealth is produced (acquired), accumulated, consumed and distributed.
Important features:
- Economics is the study of wealth in which all human activity is directed towards the acquisition and accumulation of wealth.
- Wealth refers to only material things that include tangible goods but not services.
- Human beings are motivated or guided by self-interest in which their sole objective is to earn and accumulate more and more wealth.
Criticisms: The following are criticisms of wealth definition.
1. Carlyle and Ruskin criticised that wealth definition makes Economics as a dismal (useless) science. They argue that a separate type of selfish man is created namely the ‘Economic man’ whose main objective is wealth acquisition.
2. Marshall criticises that in wealth definition primary importance is given to wealth and secondary importance to man and welfare. He feels that wealth is only a means to end but not an end itself. .
3. It is criticised that this definition covers material wealth, that is, wealth in the form of goods. By not covering non – material wealth in the form of services, wealth definition makes the scope of Economics narrow or limited.
4. It is criticised that the wealth definition deals only with the acquisition (earning) and accumulation (increase) of wealth but not with the distribution of wealth for the welfare of society.
Question 2.
Explain the Welfare definition.
Answer:
Alfred Marshall has given a new definition to Economics in his book “Principles of Economics” in 1890.
In the words of Marshall “Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well- being. Thus it is on the one side, a study of wealth and more important side, a part of the study of man and his welfare”.
Important features:
- This definition gives primary importance to man and his welfare and secondary importance to wealth.
- It studies all actions of human beings, both individual action and social action, that promote material welfare.
- It deeds with the activities of people in organised societies.
- It studies only the economic aspects of human life and has no concern (not related to) with the social, political and religious aspects of human life.
Criticisms:
1. Economics is a social science that deals with the economic behaviour of (society) human beings. Since the fundamental laws of Economics apply to all human beings, critics argue that Economics should be treated as a human science rather than a social science.
2. It is argued by Prof. Robbins that by considering only material welfare obtained from tangible (material goods), Marshall made this definition incomplete.
3. Critics argue that welfare is subjective and measuring welfare in quantitative terms is not possible. Welfare changes from person to person, place to place and time to time.
4. It is argued that Marshall’s definition covers those goods/activities which promote human welfare. It is pointed by critics that goods like alcohol and drugs which do not promote human welfare are also a part of economic activity and part of Economics.
5. It is argued by Robbins that the welfare definition does not consider the scarcity of resources, the root cause of the economic problems.
Question 3.
Explain how Robbins’ definition is superior to the Welfare definition.
Answer:
Lionel Robbins in his book “An Essay on the Nature and Significance of Economic Science” has given a scientific definition to Economics.
In the words of Robbins, “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”. Robbins’ definition is an appropriate definition of Economics because it recognises that means are scarce have alternatives uses, wants are unlimited and the need for choice-making.
Superiority over Welfare definition :
- By covering both material and non-material things, activities of human beings living in civilised and non-civilised societies, this definition makes the scope of Economics very broad.
- For the first time, Economics was given the status of science.
- Robbins’ definition is universally acceptable because it recognises scarcity of economic resources, the need for choice making and coverage of ail types of societies.
- Robbins’ definition is superior in the sense that it makes Economics a positive science. It remains neutral between ends and does not pass any value judgements.
Question 4.
Define Prof. Samuelson’s growth definition.
Answer:
Prof. Paul A. Samuelson has given a modern definition which emphasises on growth. “Economics is a study of how people and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities overtime and distribute them for consumption, now and in the future among various people and groups in the society. Economics analyses the costs and benefits of improving the patterns of resource use”. – Paul A.
Samuelson Samuelson’s definition is a better definition because it emphasises on the following aspects:
1.This definition takes note of the fact that scarce resource can be used for the satisfaction of unlimited wants. Scarce resources have alternative uses also.
2. Dynamism: This definition is more dynamic because it covers both present and future needs of production and consumption.
3. Wide scope: The scope of this definition is very wide because it recognises that the problem of choice is important both in the present monetary economy and the erstwhile barter economy. In addition, it covers the welfare of society.
4. Economic growth: This definition is having more importance because it emphasises On the productive use of limited resources for rapid growth.
Question 5.
Distinguish between “Micro” and “Macro” Economics. [May 2016]
Answer:
The subject matter of Economics is broadly divided into two part., namely, Micro Economics and Macro Economics.
Micro – Economics: The term micro means small. Micro Economics is the study of the smallest part of the economy like an an-individual household or individual business firm. According to K.E. Bouldi’ng, Micro – Economics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries and particular commodities.
Macro – Economics: The term macro means big. Macro Economics the study of the economic system as a whole. It does not’ study individual units like an individual consumer, or individual firm but the economic system as a whole.
“Macro Economics studies National Income, not individual income, general price level instead of individual prices and national output instead of individual output.”
– K.E. Boulding
Differences between Micro & Macro Economics
| Micro Economics | Macro – Economics |
| 1) The word Micro is derived from the Greek word “mikros” which means “small”. | 1) The word Macro is derived from the Greek word “makros” which means “large.” |
| 2) Micro Economics is the study of individual units or parts of the economy. | 2) Macro Economics is the study of the economy as a whole as a single unit. |
| 3) Micro Economics is also known as Price theory. | 3) Macro Economics is also known as Income and Employment theory. |
| 4) Micro Economics deals with price determination in the product (commodity) and factor markets. | 4) Macro Economics deals with variables like National Income, Aggregate or Total employment, Aggregate Savings, Aggregate Investment, General Price level and Economic growth. |
| 5) Micro Economics is based on price mechanisms, profit motive, and on forces of demand and supply. | 5) Macro Economics is based on variables like Aggregate demand and supply. |
Short Answer Questions
Question 1.
Free goods and Economic goods. [May-2019-AP]
Answer:
Free goods: Free goods are the gifts of nature. E.g: Air, sunshine. They are not man-made. They have no cost of production. They have no price. Their supply is permanently more than their demand. They have only value in use and no value in exchange. Since they do not have monetary value, their value is not included/ shown in the national income. Economic goods: They are man-made goods. E.g: Pens, books, cars, etc. They have cost of production. For using their price is to be paid. Their supply is less than their demand. They have both values in use and value in exchange. As they have price and money value, their value is included in the calculation of national income.
Differences between Free goods and Economic goods
| Free goods | Economic goods |
| 1) They are free gifts of nature and have no cost of production. | 1) They are man-made goods and have cost of production. |
| 2) Supply is unlimited or greater than their demand. | 2) Supply is less when compared to their demand. |
| 3) They have no price, as they are gifts of nature. | 3) As they are man-made, they have price. |
| 4) They have only value in use. | 4) They have value in use and also value in exchange. |
| 5) As they have’ no money value, their value is not shown in national income. | 5) Since they have monetary value, they are included in the calculation of national income. |
Question 2.
Characteristics of Wants. [May, March – 2018. 2017; May 2016]
Answer:
The starting point of all economic activities in an economy is unsatisfied human wants.
Characteristics of wants:
1. Wants are unlimited: When one want is satisfied another want arises in its place.
2. A particular want is satiable: This means though it is not possible to satisfy all our unlimited wants, a single want can be fully satisfied.
3. Wants are competitive: Wants are unlimited but resources are limited. So the unlimited wants compete with each for being satisfied with limited money.
4. Wants are complementary: This means that the satisfaction of some wants requires the use of two or more goods. E.g: The desire or want of writing can be satisfied only when we have pen, ink and paper.
5. Wants are substitutable: That means a want can be satisfied by either with one good or some other alternative good. Thirst can be satisfied either with water or cool drink.
6. Wants recur: Most of the wants recur. That means they arise again and again even though they are already satisfied.
7. Wants change into habits: When a want is satisfied regularly, it becomes a habit.
8. Wants differ in urgency: All wants are not alike. Some wants are more urgent, while some are less important and can be postponed.
9. Wants vary (change) from time to time, place to place and person to person: E.g: Car is necessity for doctor while it is a luxury to a student.
Question 3.
Various types of Utility. [May-2019-TS]
Answer:
The utility can be defined as the want satisfying power or capacity of a good or service. In Economics, satisfaction and welfare are also known as Utility.
Types of Utility: The following are some types of utility.
a) Form Utility: It is the additional utility or additional value created for a good by changing its present form into a new form. E.g: Conversion of raw wood into tables and chairs to increase the value of raw wood.
b) Place Utility: The utility/additional utility or value created for a good by transporting it from the place of production or less demand to the place of consumption or high demand is known as place utility. E.g: Transportation of apples from Simla to different places of India.
c) Time Utility: The utility / additional utility or value created for a good by storing it from the time of production till the time of consumption or sale in future is known as time utility.
E.g: Storing of new paddy from December till April/May next year to make them to become old paddy, with a higher value.
d) Service Utility: The utility which the services of professionals possess is known as service utility. E.g: Services of doctors, engineers, teachers, etc.
Question 4.
Jacob Viner’s definition. [May, March – 2018. 2017 ; May 2016]
Answer:
Prof* Jacob Viner, an American Economist has given a completely new definition of Economics, in view of the increasing scope of Economics.
According to Jacob Viner “Economics is what Economists do”.
The above definition states that, nowadays Economics is basically concerned with providing solutions to various economic and social problems faced by society. It is true that basic economic problem in any society is a scarcity of economic resources. As per the above definition, Economics is / Economists are supposed to find solutions and answers to the following issues.
The basic economic problems in any society are:
- What type of goods are to be produced and in what quantities?
- How to produce such goods?
- For whom to produce such goods and services?
- Efficient and rational use of productive resources.
- Fuller utilization of available resources.
- Making the economy vibrant by achieving reasonable growth in the economy.
In this way, Economics, According to Jacob Viner, offers solutions to various economic problems faced by modern societies.
Question 5.
Various methods of Economic Investigation.
Answer:
Economics is a social science that deals with the rational, productive and optimum utilization of scarce economic resources for optimizing net social gain. Economics is the study of the never-ending efforts of man to satisfy his endless wants with limited resources.
Economists have devised two methods to analyze or study the subject matter of Economics. They are:
a) Deductive Method: it is a method of Economic investigation in which particular (conclusions) Laws of Economics are deduced/derived from general human behavior and nature. In other words, under the deductive method “We start from general and arrive at particular”.
E.g: Laws of Diminishing Marginal Utility.
The deductive method is supported by classical Economists’and is also known as the abstract, analytical and prior methods.
b) Inductive method: Inductive Method is such method of economic investigation or analysis in which generalizations are made based on particular cases or observed facts. In other words, under the inductive method, “We start from particular (cases) and arrive at general (conclusions).” E.g: Law of Diminishing Marginal Returns. The inductive method is al ‘o known as the statistical and historical method.
Very Short Answer Questions
Question 1. [May 2017]
Economic goods.
Answer:
They are man-made goods. They are not gifts of nature. As they are man-made goods, they have cost of production. For using them, price is to be paid. Their supply is less than their demand. They have both value in use and value in exchange. Their value is included in the calculation of national income. E.g : Books, fans, etc.
Question 2.
Capital goods.
Answer:
Capital goods are those goods which are used in the production of consumer goods. They are also known as producer goods. They will not satisfy the wants of the consumers directly. They provide income to their owners. E.g: Tractor, baking oven, etc.
Question 3.
Intermediary goods. [Mar. ’19 (TS); May ’18 ’16; May. ‘2017]
Answer:
They are half finished or semi-finished goods. They are not yet finished and are in the process of production between the stage of raw materials and final goods. They cannot be used by the consumers directly in their present form. The value of such goods is not shown / included in the calculation of national income.
Question 4. [Mar. ’19 (AP); Mar. 18. May 2016]
Wealth.
Answer:
Generally the term ‘Wealth’ means money arid different assets held by the people. But in Economics, all economic goods are considered as wealth. If economic goods are to be considered as wealth, they should have utility, scarcity, exchange value and transferability.
Question 5.
Income.
Answer:
The term income refers to the amount received by the people and factors of production by their efforts and through the sale of their services. Income is a flow which originates from wealth. In other words, income is a flow whereas wealth is stock.
Question 6. [May 2018]
Utility.
Answer:
The want satisfying capacity of a good/ service is generally known as utility. However, in Economics, the term utility also refers to the satisfaction, welfare, in addition to want satisfying power.
Question 7.
Exchange value.
Answer:
There are two types of values, namely, “Value use” and “Value in exchange”. In Economics, “value” means value in exchange. Value in exchange means, the quantities of other goods that can be received in exchange of this good.
Question 8. [May, March – 2018, 2017]
Price
Answer:
The value of a commodity expressed in terms of money or rupees is known as price. But in Economics, how much price a good commands in the market depends upon its value in exchange. Higher the exchange value of a good, higher the price and vice versa.
Question 9.
Choice problem. [May-2019 (AP)]
Answer:
In the society economic resources are limited. They are having alternative uses. But wants are unlimited. So, the individuals, firms and government have to decide how to use scarce economic resources for the satisfaction of unlimited wants or among alternative uses. Such decision making is known as choice problem.
Question 10.
Alternative uses.
Answer:
Wants are unlimited. But the economic resources are limited. The term alternative uses means or refers to the different uses for which the limited resources can be used.
Question 11.
Consumer goods.
Answer:
The goods which satisfy the wants of the consumers directly are known as consumer goods. E.g : Apples, pen, milk, etc.
They are divided into two types. They are a) consumer perishables b) consumer durables.
Question 12.
Economic agents.
Answer:
The term “Economic agents” refers to the consumers (individuals or buyers), producers (or sellers) and government and other middle men and factors of production who participate in economic activities. They try to satisfy unlimited wants with limited means which have alternative uses.
Question 13.
Micro Economics.
Answer:
The term “Micro” means a millionth part. It is the study of smallest part in the economy like a single or individual consumer, an individual business firm, etc. It studies how rational economic decisions are made by an individual consumer or an individual business firm to get maximum utility or to earn maximum profits. It is also known as Price theory.
Question 14.
Macro Economics.
Answer:
“Macro” means big. “Macro Economics” is also known as “Aggregative Economics”. It is the study of economic system as whole. It is the study of aggregates like changes in national income, general price level, aggregate employment, aggregate savings, aggregate investments, etc.