Q.Discuss briefly the central problem of 'How to produce'.
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The Scope of Economics: What Does Economics Actually Study?
Think about your day so far. You woke up, had breakfast, came to school. Every single thing you used — the bed you slept on, the food you ate, the bus or bicycle you took — was produced by someone, somewhere, using limited resources. And you made choices: Which dish to eat? Which route to take? That's the seed of economics.
Economics is not just about money, stock markets, or government budgets. It is the study of choice under scarcity. Scarcity means our wants are unlimited, but the resources to satisfy them — time, land, labour, capital — are limited. So every society must answer three fundamental questions:
- What to produce? (Should we make more phones or more food?)
- How to produce? (Should we use more machines or more workers?)
- For whom to produce? (Who gets to consume what?)
The scope of economics is the answer to: What all does this subject cover? It is the boundary of the field — the topics, methods, and questions that economics deals with.
The Two Broad Branches of Economics
Economics is divided into two main parts, and understanding this division is the first step in grasping its scope.
Microeconomics vs Macroeconomics
Microeconomics (from the Greek mikros = small) studies individual economic units — a single consumer, a single firm, a single market. It asks: How does a household decide what to buy? How does a firm decide how much to produce? How is the price of a particular good determined?
Macroeconomics (from makros = large) studies the economy as a whole. It looks at aggregates — total output, total employment, the general price level, national income. It asks: Why does the whole economy sometimes slow down? What causes inflation? How does the government manage the overall level of economic activity?
The NCERT Class 11 textbook (Introductory Microeconomics) and Class 12 textbook (Introductory Macroeconomics) are built exactly on this division.
What Falls Within the Scope? (The Core Topics)
Here is what the NCERT syllabus actually covers under the scope of economics:
| Microeconomics (Class 11) | Macroeconomics (Class 12) |
|---|---|
| Consumer behaviour (utility, demand) | National income accounting |
| Producer behaviour (cost, supply) | Money and banking |
| Market forms (perfect competition, monopoly) | Determination of income and employment |
| Price determination under different markets | Government budget and the economy |
| Simple applications (price controls, taxes) | Balance of payments and foreign exchange |
The scope also includes normative and positive economics. Positive economics deals with "what is" — facts and cause-effect relationships (e.g., "A rise in price reduces demand"). Normative economics deals with "what ought to be" — value judgments and policy recommendations (e.g., "The government should provide free education"). Both are part of the scope, but positive economics forms the core of your syllabus.
Why Does the Scope Matter?
Knowing the scope tells you what tools you will learn and what questions you can answer.
- Microeconomics gives you the tools to understand individual markets — why petrol prices rise, why a movie ticket costs more in a multiplex than in a single-screen theatre, why farmers sometimes destroy crops. …
Part (b)Concept understanding — Positive Economic Analysis
Positive Economic Analysis: What Is, Not What Ought to Be
Imagine you're watching the evening news. Two different types of statements might come up:
"The unemployment rate has fallen to 6.5% this quarter."
"The government should do more to help the unemployed."
The first statement is about a fact — something you could, in principle, check with data. The second is about a value judgment — what someone believes ought to happen. Positive economic analysis deals with the first kind of statement. It is the branch of economics that describes, explains, and predicts economic phenomena as they are, without saying whether they are good or bad.
The precise meaning
Positive economics is objective and testable. A positive statement can be proven true or false by looking at evidence. For example:
- "A rise in the price of petrol leads to a fall in the quantity demanded." — This can be tested with data.
- "If the government increases the GST rate on luxury cars, tax revenue will rise." — This is a prediction that can be checked.
Positive analysis does not ask "Should we do this?" It asks "If we do this, what will happen?" It is the toolkit economists use to build models, run regressions, and make forecasts.
Why it matters for you
In Class 11 and 12, almost everything you learn in Microeconomics and Macroeconomics is positive analysis. When you study the law of demand, you are learning a positive relationship: price up, quantity demanded down (ceteris paribus). When you study the multiplier, you are learning a positive formula that tells you how much national income will change given a change in investment.
Positive economics is value-free in its method. It does not say whether a policy is fair or just — only what its likely consequences are. The moment you add "should" or "ought", you have moved into normative economics.
Where it has a formula: The Expenditure Multiplier
A classic example of positive analysis in macroeconomics is the investment multiplier. The NCERT textbook (Class 12, Macroeconomics) states the formula:
K=1−MPC1
Where:
- K = the multiplier (the factor by which national income changes)
- MPC = marginal propensity to consume (the fraction of additional income that is spent on consumption)
This is a positive relationship. It tells you: If the MPC is 0.8, then a ₹100 crore increase in investment will increase national income by ₹500 crore (because K=1/(1−0.8)=5). You can test this prediction against real data. The formula does not say whether the increase is desirable — that is a separate question.
A diagram in words …
Part (a)
'How to produce' is one of the three central problems of an economy. Because resources are scarce, society must choose the technique of production — the combination of factors used to make a good. Broadly it is a choice between:
- Labour-intensive techniques (more labour relative to capital), suited to labour-abundant economies, and
- Capital-intensive techniques (more capital/machinery relative to labour), suited to capital-abundant economies. …
Part (a): 'How to produce' is the central problem of choosing the technique of production — labour-intensive vs capital-intensive — for efficient use of scarce resources.
Part (b): (a) is normative ("should" = value judgement); (b) is positive (a verifiable factual statement).
Part (a): The central problem of 'How to produce'
Every economy faces scarcity — wants are unlimited but resources are limited — which forces choices about resource allocation. One of the three central problems (alongside what to produce and for whom to produce) is 'how to produce'.
'How to produce' is the problem of choosing the technique of production: which combination of factors (labour, land, capital, enterprise) to use to make a given good. A good can usually be produced by more than one method:
- Labour-intensive technique — relatively more labour, less capital (e.g., handloom weaving, traditional farming). Suitable where labour is abundant and cheap.
- Capital-intensive technique — relatively more capital/machinery, less labour (e.g., automated factories). Suitable where capital is abundant.
The choice depends on:
- Availability of factors — a labour-abundant country tends to favour labour-intensive methods; a capital-abundant one, capital-intensive methods.
- Relative prices of factors — cheap labour favours labour-intensive techniques.
- Technology available and government policy (e.g., employment or subsidy policy). …
Showing the 12 most recent of 84 on this concept.
- CBSE 2026Set MARCH1 markMCQQ.Which among the following is a characteristic of Centrally planned economy?(a) Private ownership(b) Profit motive(c) Central problems solved by price mechanism(d) Central problems solved by planning mechanism
›Reveal solutionSolution
A centrally planned economy answers what, how and for whom to produce through central planning by the state, so the correct choice is (d).
…
- CBSE 2026Set MARCH1 markMCQQ.The founding father of modern economics –(a) Alfred Marshall(b) J.M. Keynes(c) Paul A. Samuelson(d) Adam Smith
›Reveal solutionSolution
Adam Smith is called the father of modern economics, so the answer is (d).
…
- CBSE 2026Set ANNUAL1 markMCQQ.Which of the following is the study area of macro economics? A) Aggregate price level B) Determining the quantity of goods C) Determining the price of goods D) None of the above
›Reveal solutionSolution
Macroeconomics studies economy-wide aggregates like the aggregate price level, so the answer is A.
Macroeconomics deals with the behaviour of the economy as a whole — aggregate output, aggregate employment and the aggregate (general) price level. Determining the price of an individual good or the quantity of a single commodity belongs to microeconomi …
- CBSE 2026Set ANNUAL1 markMCQQ.In a centrally planned economy, all economic decisions are made by A) Government B) Market C) Producer D) Consumer
›Reveal solutionSolution
In a centrally planned economy the government makes all economic decisions, so the answer is A.
Economies are broadly organised as market economies (decisions made through market forces of demand and supply) or centrally planned economies. In a centrally planned (command) economy, a central authority — the government — decides what to produce, how to produce an …
- CBSE 2026Set ANNUAL1 markQ.Fill in the blank: In ________ analysis we study that how different mechanisms works.
›Reveal solutionSolution
The blank is filled by 'positive' (positive analysis).
Economic analysis is of two kinds. Positive analysis studies how the economy and its various mechanisms actually work — describing facts and cause-and-effect relationships ('what is') without saying whether an outcome is good or bad. Normative analysis, by contrast, deals wi …
- CBSE 2026Set ANNUAL1 markQ.Explain the meaning of economic agent.
›Reveal solutionSolution
Economic agents are the decision-makers of an economy — consumers, producers, firms and the government.
In economics, an economic agent (or economic unit) is any individual or institution that takes economic decisions and carries out economic activities. Examples include consumers deciding what to buy, producers and firms deciding what and how much to produce, and the government deciding on taxes and spending. The whole study of economics is about the decisions these agents make and how those decisions interact in markets. This is a basic defini …
- CBSE 2026Set ANNUAL1 markMCQQ.How does Robbins define Economics?(a) Science of market(b) Science of business(c) Science of life(d) Science of scarcity
›Reveal solutionSolution
Robbins defined economics as a science of scarcity (and choice), so the answer is (d).
Lionel Robbins defined economics as 'the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses'. Because human wants are unlimited while the means (resources) to satisfy them are limited and have alternative uses, economics becomes the study of how people m …
- CBSE 2026Set ANNUAL1 markMCQQ.Inventory is a .......... concept whereas the change in inventory is a .......... concept.(a) stock, flow(b) flow, stock(c) stock, stock(d) flow, flow
›Reveal solutionSolution
Inventory is a stock concept and the change in inventory is a flow concept, so the answer is (a).
Inventory (the stock of unsold goods or raw materials a firm holds) is measured at a particular point of time, so it is a stock. The change in inventory over a period of time (for example, during a year) is measured over an interval and therefore is a flow. Thus inv …
- CBSE 2026Set ANNUAL1 markMCQQ.Among the competing usage of resources, the main cause of the “Problem of Choice” in every economy is:(a) Abundance of resources(b) Scarcity of resources(c) Misuses of resources(d) No uses of resources
›Reveal solutionSolution
The problem of choice arises from scarcity of resources — option (b).
Since resources are scarce (limited) and have alternative (competing) uses while human wants are unlimited, an economy cannot satisfy all wants at once and must choose how to allocate its resources. Thus scarcity of re …
- CBSE 2026Set ANNUAL1 markMCQQ.Which of the following is studied under micro economics?(a) Individual family(b) Individual firm(c) Individual industry(d) All of these(a) Individual family(b) Individual firm(c) Individual industry(d) All of these
›Reveal solutionSolution
Microeconomics studies individual units — families, firms, and industries alike.
Microeconomics focuses on the economic decisions and behaviour of individual, specific units within the economy: an individual family/household (how it allocates its budget among goods, theory of consumer behaviour), an individual firm (how it decides output and price, theory of the firm), and an individual industry (how price and quantity are determined in a specific market, e.g., the sugar industry or the steel industry). All three are 'micro' in the sense of being individual, specific unit …
- CBSE 2026Set ANNUAL1 markMCQQ.Macroeconomics studies : (A) the behaviour of individual prices (B) the behaviour of individual quantity of a particular commodity (C) the behaviour of individual income (D) the behaviour of large aggregates such as the general price level of the economy
›Reveal solutionSolution
Macroeconomics studies economy-wide aggregates, not individual prices/quantities/incomes.
Economics is traditionally divided into microeconomics and macroeconomics. Microeconomics studies the behaviour of individual economic units -- a single consumer's choices, a single firm's output decision, the price and quantity of one particular commodity, or one person's income. Macroeconomics, by contrast, studies the economy in aggregate: total output (national income), the general (average) price level of all goods and services, aggregate employment and unemployment, the total money supply, and the overall balance of payments. Options (A), (B) and (C) all describe the behaviour of a single/individual …
- CBSE 2025Set MARCH1 markQ.Fill in the blank by choosing correct answer from the bracket (Financial, Government, RBI, Perfect competition, Product, Private): In a centrally planned economy, all important decisions are taken by __________.
›Reveal solutionSolution
The blank is filled by 'Government'.
Economies are broadly of three types: market economy, centrally planned economy and mixed economy. In a centrally planned economy, the central authority (the Government/State) plans and decides the central problems of the economy — what and how much to produce, how to p …
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