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Class 12 Introduction to Microeconomics: cheat sheet
CBSE Social Science. Scarcity and choice: the central problems of an economy, the production possibility frontier and opportunity cost, how economies are organised, and positive and normative economics.
Key ideas
- Resources are scarce and have alternative uses, so every economy must choose what to produce, how to produce and for whom to produce.
- The production possibility frontier (PPF) shows the largest combinations of two goods an economy can make with all resources fully used.
- Moving along the PPF, more of one good means giving up some of the other: that is the opportunity cost.
- The PPF is usually bowed out because resources are not equally suited to both goods, so opportunity cost rises.
- A point inside the PPF means unused or wasted resources; a point outside cannot be reached; more resources or better technology shift the PPF outward.
- In a market economy prices coordinate decisions; in a centrally planned economy a central authority decides; a mixed economy combines both.
- Positive economics describes how things work; normative economics judges what ought to be. Microeconomics studies individual markets; macroeconomics the whole economy.
Remember
| Opportunity cost of a unit | units of the other good given up = Y before − Y after |
| Average opportunity cost | total units of Y given up ÷ extra units of X |
| Opportunity cost of a choice | the value of the next best alternative (not the sum of all others) |
| Positive or normative? | “ought to” or “should” = normative; a testable statement of fact = positive |
| Micro or macro? | demand for apples, one firm’s cost: micro; national income, price level, unemployment: macro |
Watch out
- Adding up all the alternatives given up: opportunity cost is only the next best one.
- Saying unemployment shifts the PPF inward: it puts the economy at a point inside it.
- Calling “prices of books ought to be lower” a positive statement.
Worked example
Zoya has three options for an evening: repairing phones (₹6,000), selling fruit (₹4,500), driving an auto-rickshaw (₹5,000). Which should be chosen to earn the most, and what is the opportunity cost?
Working: opportunity cost = value of the next best alternative
Answer: repairing phones; opportunity cost ₹5,000 (driving an auto-rickshaw)
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