Introduction Important Questions for class 12 Economics Basic Concepts of Economics
1. INTRODUCTION
Topic 1 : Basic Concepts of Economics
1. Macroeconomics It studies economic problems at the level of an economy as a whole. It is concerned with the determination of aggregate output and general price level in which are not concerned with an individual rather the economy as a whole.
2. Scope of Macroeconomics
Macroeconomics is the study of aggregates of the economy as a whole. Study of macroeconomics includes:
(i) Aggregate consumption
It is the consumption of goods and services by all individuals in the economy during the period of an accounting year.
(ii) Aggregate investment
It refers to the total capital formation in the economy during an accounting year.
(iii) Aggregate Demand (AD)
It is the total demand of an economy including all the sectors at a given level of income during at a given period of time.
(iv) Aggregate Supply (AS)
It is the total supply of goods and services by all the sectors of an economy at a given period of time.
(v) Domestic income
It is the income generated with in the domestic boundary of the country during an accounting year.
(vi) General price level
It is the index of prices of all goods and services at the end of the specific time period.
3. Importance of Macroeconomics
(i) It helps in government policy formulation.
(ii) It facilitates international comparison.
(iii) It helps in understanding the distribution of income among different groups of people.
(iv) It has special significance in studying monetary problems that affects the economy.
4. Types of Goods Produced in An Economy
(i) Final goods
The goods, which have crossed the boundary line of production and are ready for use by their final users are known as final goods, e.g. clothes, milk consumed by a consumer. Final goods are often classified as:
(a) Final consumer goods
These are the goods which are consumed by the consumers like milk, bread etc.
(b) Final producer goods
These are the goods which are consumed or used by the producers like machinery equipment etc.
(ii) Intermediate goods
The goods purchased by a firm for the use in production of other goods or for the purpose of reselling, are known as intermediate goods, e.g. steel used in the production of cars and those finished goods which are meant for resale such as milk purchase by milk seller.
(iii) Consumer goods Goods
which are directly used for satisfaction of human wants and which are not used in production for other purpose are known as consumer goods, e.g. ice-cream and milk used by the households.
Consumer goods are further classified into:
(a) Durable goods
These are those goods, which can be used several number of times for a considerable period of time. i.e. these goods has certain life spam like car, A.C. etc.
(b) Semi-durable goods
These are those good which do not have very long life span however do not gets exhausted in a single use either. For example, crockery, clothing etc.
(c) Non-durable goods
These are the goods which have a very short life span and mostly get exhausted in a single use. For example, milk, vegetables etc.
(d) Services
It refers to the intangible items which cannot be seen however it can be felt. For example, services of a doctor, teacher etc.
(iv) Capital goods
The goods which are repeatedly used in the process of production. They are the fixed assets of the producer, e.g. building, plant and machinery. They help to convert intermediate goods into finished goods.
5. Great Depression :
The period from 1929 to 1933 is called the period of great depression. In this period, there was huge fall in the levels of output and employment in the countries of Europe and North America.
Previous years Examination Questions
1 Mark Questions
1. Give the meaning of capital goods. (Compartment 2014)
or
Define capital goods. (Delhi 2012; All India 2010)
Ans. The goods which are repeatedly used in the process of production. They are the fixed assets of the producer, e.g. building, plant and machinery. They helps to convert intermediate goods into finished goods. *
2. Give two examples of intermediate goods. (All India 2013)
Ans. Two examples of intermediate goods are:
(i) Steel used in the car.
(ii) Mobile sets purchased by a mobile dealer.
3.Define consumption goods. (All India 2012)
Ans . Goods which are directly used for satisfaction of human wants and which are not used in production and for other purpose are known as consumer goods or consumption goods, e.g. ice-cream and milk used by the households.
4.Define intermediate goods. (Delhi 2011 c)
Ans. The goods purchased by a firm for the use in production of other goods or for the purpose of reselling are known as intermediate goods, e.g. steel used in the production of cars and those finished goods which are meant for resale, such as milk purchases by a milk seller.
5.Define final product. (Delhi 2010 c)
Ans. The goods, which have crossed the boundary line of production and are ready for use by their final users, known as final goods, e.g. clothes, milk consumed by a consumer.
Final goods are often classified as:
(i) Final consumer goods (ii) Final producer goods
4 Marks Questions
6.Giving reasons, classify the following into intermediate products and final products
(i) Furniture purchased by a school.
(ii)Chalks, dusters, etc purchased by school (Delhi 2012)
Ans . (i) Furniture purchased by school — Final product.
Reason : Schools buy furnitures for long-term use and it can be considered an investment.
(ii) Chalks, dusters, etc purchased by school — Intermediate good
Reason : Chalks, dusters, etc; are purchased by a school for use in their day-to-day consumption. This is meant for further production in the form of services.
7. Give reason and identify whether the following are final expenditures or intermediate expenditure.
(i) Expenditure on maintenance of an office building.
(ii) Expenditure on improvement of machine in a factory. (All India 2012)
Ans. (i) Expenditure on maintenance of an office building — Intermediate expenditure.
Reason: Expenditure on maintenance of office building is for production purpose.
Expenditure on improvement of machine in a factory — Final expenditure
Reason: Expenditure on improvement of machine in a factory is a kind of capital investment, so it should be considered as final expenditure.
8. Giving reasons, classify the following into intermediate products and final products.
(i) Computers installed in an office.
(ii)Mobile sets purchased by a mobile dealer. (Delhi 2011)
Ans. (i) Computers installed in an office — Final product
Reason Offices buy computers as long-term durable products and are investment for them.
(ii) Mobile sets purchased by a mobile dealer — Intermediate products
Reason: A mobile dealer purchases mobile sets for reselling purpose. That’s why it is considered as intermediate products.
9. Giving reasons, classify the following into intermediate and final goods.
(i) Machine purchased by a dealer of machines.
(ii) A car purchased by a household. (All India 2010)
Ans. (i) Machine purchased by a dealer of machines — Intermediate goods
Reason: A dealer purchases machines for reselling purpose, so it is an example of intermediate goods. (ii) A car purchased by a household — Final goods
Reason: A household purchases a car for consumption purpose, so it is an example of final goods.
10. Distinguish between intermediate and final goods. Give two examples of each. (All India 2010)
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