Courses

Courses for Kids

Free study material

Store

Talk to our experts

1800-120-456-456

Revision Notes

Class 12

Economics: Micro Economics

Chapter 1 Introduction To Micro Economics

Introduction to Micro Economics Class 12 Economics Chapter 1 CBSE Notes - 2025-26

Q: 4. What is a Production Possibility Curve (PPC)?

A Production Possibility Curve (PPC), also known as the Production Possibility Frontier (PPF), is a graph that shows all possible combinations of two goods that can be produced in an economy with the given resources and technology, assuming the resources are fully and efficiently utilised. It illustrates the concepts of scarcity, choice, and opportunity cost.

Q: 6. Why is the Production Possibility Curve (PPC) typically concave to the origin?

The PPC is concave to the origin because of increasing opportunity cost. As an economy shifts resources to produce more of one good, it must give up an increasing amount of the other good. This happens because resources are not equally efficient in the production of all goods. For example, land ideal for wheat may be less suitable for building factories, so shifting from wheat to factory production incurs a rising cost in terms of lost wheat.

Q: 7. How does the concept of 'opportunity cost' connect to an economy's central problems?

Opportunity cost is the value of the next-best alternative that is forgone when a choice is made. It is the underlying principle for all central problems. When deciding 'what to produce', the opportunity cost is the other goods we cannot produce. When deciding 'how to produce', the opportunity cost of using more capital might be the jobs that are not created. It forces decision-makers (both individuals and governments) to evaluate trade-offs and make efficient choices with scarce resources.

Q: 8. Can the fundamental economic problem of scarcity ever be fully solved? Why or why not?

No, the fundamental economic problem of scarcity cannot be fully solved. This is because the two conditions that cause it are permanent: human wants are unlimited, while the productive resources (like land, labour, and capital) needed to satisfy these wants are limited. Economics, therefore, is the ongoing study of how to best manage this permanent state of scarcity.

Q: 9. How do Positive and Normative economics work together to address economic issues?

Positive economics and Normative economics are two complementary branches of analysis. Positive economics describes 'what is' by providing factual, cause-and-effect analysis of economic behaviour (e.g., 'raising taxes will reduce consumption'). Normative economics deals with 'what ought to be' by making value judgements and suggesting policy actions (e.g., 'the government should raise taxes to fund healthcare'). Policymakers use positive analysis to understand the likely outcomes of a policy, and normative analysis to decide if that outcome is desirable for society.

Latest Updates

Book Free Demo :

One-to-One Learning - Any Topic, Any Time

Economics Notes for Chapter 1 Introduction to Micro Economics Class 12 - FREE PDF Download

Class 12 Micro Economics Revision Notes for Chapter 1, "Introduction to Microeconomics," help students understand key ideas of how individuals and firms make decisions in a market. Class 12 Microeconomics Chapter 1 Notes PDF explains essential concepts like demand, supply, and market equilibrium. These notes are aligned with the CBSE Class 12 Economics Syllabus, making it simpler for students to grasp important topics and prepare for exams.

Table of Content

Introduction To Micro Economics Notes PDF breaks down complex topics into easy-to-understand parts. With clear explanations, practical examples, and key points, these notes make learning effective and manageable. Class 12 Micro Economics Revision Notes are designed to simplify challenging ideas, helping students develop a strong understanding of microeconomics and feel more confident for their exams.

Access Class 12 Economics Chapter 1 – Introduction to Micro Economics Notes

Economics:

It is a branch of social science that studies the production, distribution, and consumption of goods and services.
The origin of economics can be traced back to Adam Smith’s 1776 book, ‘An Inquiry into Nature and Causes of Wealth of Nature.’ Economics was defined as managing a home with limited funds in the most cost-effective way possible.
It aims to solve the scarcity problem, which occurs when human wants for goods and services outnumber available supplies.
The term ‘economics’ is derived from two Greek words: ‘eco’, which means ‘home’, and ‘nomos’, which means ‘accounts.’
The topic has evolved from how to keep the family accounts to the wide-ranging subject at present.

The Real Meaning of Economics:

It is the actual study of scarcity and choices.
It seeks ways to reconcile unlimited wants with limited resources.
Economics explains community living problems in terms of underlying resource costs and consumer benefits.
Economics is concerned with the coordination of activities that result from specialisation.

Definition of Economics:

The formal definition of economics can be traced back to the great Scottish economist Adam Smith (1723-90). Adam Smith and his followers, following the mercantilist tradition, regarded economics as a science of wealth that studies the processes of wealth production, consumption, and accumulation.
The emphasis in Alfred Marshall's book “Principles of Economics,” published in 1890, was on human activities or welfare rather than wealth. “A study of men as they live, move, and think in the ordinary business of life,” Marshall defines economics. He claimed that economics is a study of wealth on the one hand and a study of man on the other.

Central Problems of An Economy

The basic economic problem is one of choice, which is exacerbated by resource scarcity.
It's also known as the problem of resource economization, or the problem of making better and more efficient use of limited resources to meet the needs of the greatest number of people.
Natural resources, such as land and air, human resources, such as labour, capital resources, such as machines and buildings, and entrepreneurial resources, such as a person willing to take risks, are all examples of factors of production.
Unlimited human wants, limited economic resources, and alternative uses of resources are the main causes of central problems.

The key economic questions are:

a. What to Produce?

The dearth of resources is faced by almost every society. We belong to a finite world and the resources must be allocated based on our collective requirements and wants. As per the Class 12th Economics Chapter 1 notes at this juncture, the problem of choice arises. You might have to select between the various products which can be produced with identical accessible resources.

b. How to Produce?

There are several ways and procedures that people and government can select from when they are producing a commodity or service. For instance, production can occur through either capital-intensive or labour-intensive procedures based on how capital and labour are operated.

c. For Whom to Produce?

In the context of Class 12th Economics Chapter 1 notes, this might be the most significant question. Every society consists of some degree of uneven members. The inner meaning of the question is to derive the people who get benefits from the commotion of economic production. If only luxury commodities are produced, then those will be afforded by only the rich. A broad range of daily commodities at affordable rates will benefit the low-income groups.

Problem Relating to the Efficient Use and Fuller Utilization of Resources:

Production efficiency refers to producing the greatest amount of goods and services possible with the resources available. Resources are already scarce in comparison to the demand for them, so an economy must ensure that its resources are not wasted by remaining underutilised.

Problem Relating to Resource Growth:

It has to do with increasing the economy's production capacity to increase the quantity of output.

Production Possibility Frontier:

The production possibility frontier is a curve that depicts all possible combinations of two goods that can be produced in a given economy with given resources and technology.
The production possibility frontier is also known as the transformation curve or the production possibility curve.
Due to scarce and finite resources, the production of a commodity could only be increased if there is a reduction in the other commodity. Hence, the PPC curve is concave.

Assumptions

The PP curve concept is founded on the following assumptions:

The economy's resource base is fixed.
The technology is pre-installed and unmodified.
The resources are effective and fully utilized.

In the production of all goods, all resources are not equally efficient.

Different Types of Economy:

Centrally Planned Economy: A centrally planned economy is one in which the government or a central authority plans all the economy’s major activities. All major decisions regarding the production, exchange, and consumption of goods and services are made by the government. The central authority attempts to achieve a specific resource allocation and also the distribution of the final combination of goods and services that is deemed desirable for the society as a whole. The primary goal is social welfare.
Market Economy: All economic activities in a market economy are organised through the market. Free interaction of individuals who pursue their respective economic activities takes place in a market.

In other words, a market is a collection of arrangements in which economic agents freely exchange their endowments or products with one another. Also, no interference of government takes place, and there exists the influence of the private sector . the forces of demand and supply, as well as the behavior of economic participants determines the economy. The main objective is profit maximisation

Mixed Economy: The economy in which both the government and the private sector own and operate production factors. Profit maximisation in the private sector and social welfare in the public sector are the primary goals. The central planning authority and the price mechanism solve central problems.

Positive and Normative Economics

There are various ways to solve an economy's central problems, each affecting resource use and distribution differently. Economics analyzes these methods to find the best outcomes. Positive economics looks at how mechanisms work, while normative economics assesses how desirable they are. Both analyses are closely related and understanding one often requires knowledge of the other.

Difference Between Positive and Normative Economy:

S. No	Positive Economy	Normative Economy
1.	It is concerned with what is and what is.	It deals with what ought to be.
2.	It is based on the cause-and-effect relationship between facts.	It is based on moral principles.
3.	Actual data can be used to verify it.	Actual data cannot be used to verify it.
4.	The value of judgement is not given in this case.	This is where the value of judgement is given.

Difference Between Microeconomics and Macroeconomics:

S.no	Basis of Difference	Microeconomics	Macroeconomics
1.	Origin	The word ‘micro’ comes from the Greek word ‘micros,’ which means ‘small.’ It's also known as Price theory.	The word macro originated from the Greek ‘makros,’ which means ’large.’ It's also known as the Income and Employment Theory.
2.	Study Matters	It investigates individual economic relationships or issues such as households, businesses, and consumers.	It investigates the economy as a whole.
3.	Objective	Its main goal is to examine the principles, issues, and policies that can be used to achieve the goal of optimal resource allocation.	It looks into the principles, issues, and policies that go into achieving full employment and expanding productive capacity.
4.	Deals with	It is concerned with how consumers and producers make decisions based on their budget and other factors.	It examines how different economic sectors, such as households, industries, the government, and the international community, make decisions.
5.	Method	It employs the partial equilibrium method, which involves achieving equilibrium in only one market.	It employs the general equilibrium method, which ensures that all markets in an economy are in equilibrium.
6.	Variables	Price, individual consumer demand, wages, rent, profit, revenues, and other microeconomic variables are important.	Aggregate price, aggregate demand, aggregate supply, inflation, unemployment, and other macroeconomic variables are important.
7.	Theories	Consumer behavior and Demand Theory. Producer behavior and Supply Theory. Price Determination Theory under various Market Situations. Factor pricing/distribution theory. Economic Welfare Theory.	National Income Theory. Money Theory. General Price Level and Inflation Theory. Employment Theory International Trade Theory. Macro-distribution Theory. Economic Growth Theory.
8.	Main Problem	Its main issues are price determination and resource allocation.	Its main issue is determining the economy's level of income and employment.
9.	Popularised by	Alfred Marshall	John Maynard Keynes

5 Important Topics of Class 12 Economics Chapter 1 you shouldn’t Miss!

S. No	Important Topics for Introduction to Microeconomics
1.	Basic Economic Concepts
2.	Demand and Supply
3.	Market Equilibrium
4.	Types of Markets
5.	Role of Government

Importance of Economics Chapter 1 Introduction To Micro Economics Class 12 Notes PDF

The notes introduce key concepts like scarcity, choice, and opportunity cost, which are foundational for understanding microeconomics.
They explain how demand and supply determine prices and quantities, helping you grasp how markets work.
The notes cover market equilibrium and how changes in demand or supply affect prices and quantities.
They outline different market structures, such as perfect competition and monopoly, showing how various markets operate.
The notes discuss the impact of government policies on markets and economic welfare, emphasizing the role of policy decisions.

Tips for Learning the Chapter 1 Introduction to Micro Economics Class 12 Notes PDF

Focus on understanding key concepts like scarcity, choice, and opportunity cost, as they are the basics of the chapter.
Learn how demand and supply interact to set prices and quantities. Practice problems to see how changes in one affect the other.
Understand how markets reach equilibrium and how changes in demand or supply impact prices. Use diagrams to help visualise these ideas.
Study different market structures like perfect competition and monopoly. Compare how they affect prices and output.
Connect the concepts to real-world examples to make them more understandable and relevant.
Summarise each section in your own words and review them regularly to reinforce your learning.

Conclusion

Studying Chapter 1 of "Introduction to Micro Economics" is important because it covers the basic concepts of how individuals and firms make decisions in markets. This chapter helps you understand key ideas like scarcity, choice, and market equilibrium. It also explains how demand and supply determine prices and quantities and explores different market structures. By learning these concepts, students gain a solid grasp of fundamental microeconomic principles and their practical applications, providing a strong foundation for more advanced economic topics.

Related Study Materials for Class 12 Economics Chapter 1 Introduction to Micro Economics

Students can also download additional study materials provided by Vedantu for Micro Economics Class 12, Chapter 1–

S. No	Study Material Links for Introduction to Economics Class 12
1.	Class 12 Economics Introduction to Micro Economics Important Questions
2.	Class 12 Economics Introduction to Micro Economics NCERT Solutions

Revision Notes Links for Class 12 Economics

S. No	Links for Class 12 Microeconomics Notes
1.	Chapter 2 - Theory of Consumer Behaviour Notes
2.	Chapter 3 - Production and Costs Notes
3.	Chapter 4 - The Theory of The Firm Under Perfect Competition Notes
4.	Chapter 5 - Market Equilibrium Notes

Important Study Materials for Class 12 Micro Economics

S. No	Important Links for Class 12 Economics
1.	CBSE Class 12 Economics NCERT Books
2.	CBSE Class 12 Economics Important Questions
3.	CBSE Class 12 Economics NCERT Solutions
4.	CBSE Class 12 Economics Previous Year’s Question Papers
5.	CBSE Class 12 Economics Sample Papers

FAQs on Introduction to Micro Economics Class 12 Economics Chapter 1 CBSE Notes - 2025-26

1. What is the central theme of Chapter 1, Introduction to Microeconomics, for quick revision?

The central theme of this chapter is the problem of choice that arises from the scarcity of resources. It introduces the fundamental economic concepts of how individuals and firms make decisions to allocate limited resources to satisfy unlimited human wants. Key revision topics include the central problems of an economy, opportunity cost, and the Production Possibility Frontier.

2. How does Microeconomics differ from Macroeconomics?

For revision purposes, it's crucial to understand their core difference in scope. Microeconomics studies the behaviour of individual economic units, while Macroeconomics studies the economy as a whole.

Microeconomics focuses on individual demand, supply, product pricing, and factor pricing. It is also known as Price Theory.
Macroeconomics deals with aggregates like national income, general price level, inflation, and employment. It is also known as the Income and Employment Theory.

3. What are the three central problems of an economy that these notes explain?

The three central problems of an economy, arising from resource scarcity, are:

What to produce? This involves deciding which goods and services to produce and in what quantities, given the available resources.
How to produce? This involves selecting the technique of production, such as choosing between labour-intensive or capital-intensive methods.
For whom to produce? This concerns the distribution of the produced goods and services among the population, addressing who gets to consume what.

4. What is a Production Possibility Curve (PPC)?

A Production Possibility Curve (PPC), also known as the Production Possibility Frontier (PPF), is a graph that shows all possible combinations of two goods that can be produced in an economy with the given resources and technology, assuming the resources are fully and efficiently utilised. It illustrates the concepts of scarcity, choice, and opportunity cost.

5. What is the core difference between a centrally planned economy and a market economy?

The core difference lies in the decision-making authority and primary objective. In a centrally planned economy, the government or a central authority makes all major economic decisions with the main goal of achieving social welfare. In a market economy, economic decisions are made by the free interaction of individuals and firms in markets, driven by the objective of profit maximisation.

6. Why is the Production Possibility Curve (PPC) typically concave to the origin?

The PPC is concave to the origin because of increasing opportunity cost. As an economy shifts resources to produce more of one good, it must give up an increasing amount of the other good. This happens because resources are not equally efficient in the production of all goods. For example, land ideal for wheat may be less suitable for building factories, so shifting from wheat to factory production incurs a rising cost in terms of lost wheat.

7. How does the concept of 'opportunity cost' connect to an economy's central problems?

Opportunity cost is the value of the next-best alternative that is forgone when a choice is made. It is the underlying principle for all central problems. When deciding 'what to produce', the opportunity cost is the other goods we cannot produce. When deciding 'how to produce', the opportunity cost of using more capital might be the jobs that are not created. It forces decision-makers (both individuals and governments) to evaluate trade-offs and make efficient choices with scarce resources.

8. Can the fundamental economic problem of scarcity ever be fully solved? Why or why not?

No, the fundamental economic problem of scarcity cannot be fully solved. This is because the two conditions that cause it are permanent: human wants are unlimited, while the productive resources (like land, labour, and capital) needed to satisfy these wants are limited. Economics, therefore, is the ongoing study of how to best manage this permanent state of scarcity.

9. How do Positive and Normative economics work together to address economic issues?

Positive economics and Normative economics are two complementary branches of analysis. Positive economics describes 'what is' by providing factual, cause-and-effect analysis of economic behaviour (e.g., 'raising taxes will reduce consumption'). Normative economics deals with 'what ought to be' by making value judgements and suggesting policy actions (e.g., 'the government should raise taxes to fund healthcare'). Policymakers use positive analysis to understand the likely outcomes of a policy, and normative analysis to decide if that outcome is desirable for society.