Class 11 Economics – Chapter 1: Introduction to Microeconomics (Full
Notes)
1. What is Economics?
Economics is a social science that studies how individuals, businesses, and governments
make choices when faced with limited resources. It focuses on how these choices affect the
production, distribution, and consumption of goods and services.
2. Types of Economics
There are two main branches of economics:
a) Microeconomics: This branch deals with individual units of the economy such as a
consumer, a firm, or an industry. It studies how they make decisions regarding allocation of
limited resources. It focuses on demand, supply, prices, and output in individual markets.
b) Macroeconomics: It deals with the economy as a whole. It includes national income,
overall price levels, employment, inflation, and economic growth.
3. Central Problems of an Economy
Every economy has limited resources but unlimited wants. Due to this scarcity, every
economy must solve the following central problems:
a) What to produce?
Deciding which goods and services should be produced and in what quantity.
b) How to produce?
Choosing the method of production: labor-intensive (more labor) or capital-intensive (more
machines).
c) For whom to produce?
Determining who will consume the goods and services—rich or poor, urban or rural
population.
4. Types of Economy Based on Resource Allocation
a) Market Economy (Capitalist):
All economic decisions are taken by private individuals based on market forces of demand
and supply. E.g., USA.
b) Planned Economy (Socialist):
All economic decisions are taken by the government. E.g., North Korea.
c) Mixed Economy:
Combines features of both market and planned economies. E.g., India.
5. Basic Concepts of Microeconomics
a) Consumer: A person who buys goods and services to satisfy wants.
b) Producer: A person or firm that produces goods and services.
c) Firm: An individual production unit that employs resources to produce goods/services.
d) Market: A place where buyers and sellers interact for exchange of goods/services.
e) Utility: Satisfaction received by a consumer from consuming a product.
f) Price: The amount of money paid in exchange for a good or service.
6. Positive and Normative Economics
a) Positive Economics:
Deals with facts and objective analysis. It explains ‘what is’. E.g., ‘The unemployment rate in
India is 6.1%.’
b) Normative Economics:
Deals with opinions and value judgments. It explains ‘what ought to be’. E.g., ‘The
government should reduce unemployment.’
7. Opportunity Cost
Opportunity cost is the value of the next best alternative foregone when a choice is made. It
reflects the basic economic problem of scarcity and choice.
For example, if a farmer uses land to grow wheat instead of rice, the opportunity cost is the
rice crop that was not produced.
8. Scarcity and Choice
Scarcity means resources are limited. Because of scarcity, choices must be made about how
to allocate resources efficiently. Every choice involves an opportunity cost.
9. Production Possibility Frontier (PPF)
PPF is a curve that shows the maximum possible output combinations of two goods that an
economy can produce with available resources and technology. It illustrates concepts like
scarcity, opportunity cost, efficiency, and economic growth.
