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 40 on this concept.
- PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markMCQQ.Who gave the scarcity definition of Economics ?(a) Adam Smith(b) Dr. Marshall(c) J.S. Mill(d) Robbins
›Reveal solutionSolution
The correct option is (d) Robbins.
The scarcity definition of economics was given by Lionel Robbins, who defined economics as 'the science which studies human behaviour as a relationship between ends and scarce means which have alternative u …
- PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markMCQQ.Methodology of study in Macroeconomics is __________.(a) demand and supply equilibrium analysis(b) partial equilibrium analysis(c) general equilibrium analysis(d) price equilibrium analysis
›Reveal solutionSolution
The correct option is (c) general equilibrium analysis.
Because macroeconomics deals with the economy as a whole and the mutual interdependence of all markets, its method is general equilibrium analysis (studying all markets simultaneously). Microeconomics, dealing …
- PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markQ.Source / Case Study based question. Read the following paragraph and answer the question given below : In contrast to a centrally planned economy, in a market economy, all economic activities are organised through the market. A market, as studied in Economics, is an institution which organises the free interaction of individuals pursuing their respective economic activities. In other words, a market is a set of arrangements where economic agents can freely exchange their endowments or products with each other. It is important to note that the term 'market' as used in Economics is quite different from the common sense understanding of a market. In a market system, all goods or services come with a price (which is mutually agreed upon by the buyers and sellers) at which the exchanges take place. The price reflects, on an average, the society's valuation of the good or service. If the buyers demand more of a certain good, the price of that good will rise. This signals to the producers of that good that the society as a whole, wants more of that good than is currently being produced and the producers of the good, in their turn, are likely to increase their production. In this way, prices of goods and services send important information to all the individuals across the market and help achieve coordination in a market system. Thus, in a market system, the central problems regarding 'how much and what to produce' are solved through the coordination of economic activities brought about by the price signals. Q: What is meant by market ?
›Reveal solutionSolution
Market = an institution/arrangement for the free exchange of goods among economic agents.
According to the paragraph, a market (in economics) is an institution which organises the free interaction of individuals pursuing their respective economic activities — a set of arrangements where economic agents can freely exchange their endowments or products with one another. It is not con …
- PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markQ.Source / Case Study based question. Read the following paragraph and answer the question given below : In contrast to a centrally planned economy, in a market economy, all economic activities are organised through the market. A market, as studied in Economics, is an institution which organises the free interaction of individuals pursuing their respective economic activities. In other words, a market is a set of arrangements where economic agents can freely exchange their endowments or products with each other. It is important to note that the term 'market' as used in Economics is quite different from the common sense understanding of a market. In a market system, all goods or services come with a price (which is mutually agreed upon by the buyers and sellers) at which the exchanges take place. The price reflects, on an average, the society's valuation of the good or service. If the buyers demand more of a certain good, the price of that good will rise. This signals to the producers of that good that the society as a whole, wants more of that good than is currently being produced and the producers of the good, in their turn, are likely to increase their production. In this way, prices of goods and services send important information to all the individuals across the market and help achieve coordination in a market system. Thus, in a market system, the central problems regarding 'how much and what to produce' are solved through the coordination of economic activities brought about by the price signals. Q: Who determines all economic activities in a centrally planned economy ?
›Reveal solutionSolution
In a centrally planned economy, the government decides all economic activities.
The passage contrasts the market economy with a centrally planned economy, in which economic activities are **not organised through the market but are decided and directed by the government …
- PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markQ.Source / Case Study based question. Read the following paragraph and answer the question given below : In contrast to a centrally planned economy, in a market economy, all economic activities are organised through the market. A market, as studied in Economics, is an institution which organises the free interaction of individuals pursuing their respective economic activities. In other words, a market is a set of arrangements where economic agents can freely exchange their endowments or products with each other. It is important to note that the term 'market' as used in Economics is quite different from the common sense understanding of a market. In a market system, all goods or services come with a price (which is mutually agreed upon by the buyers and sellers) at which the exchanges take place. The price reflects, on an average, the society's valuation of the good or service. If the buyers demand more of a certain good, the price of that good will rise. This signals to the producers of that good that the society as a whole, wants more of that good than is currently being produced and the producers of the good, in their turn, are likely to increase their production. In this way, prices of goods and services send important information to all the individuals across the market and help achieve coordination in a market system. Thus, in a market system, the central problems regarding 'how much and what to produce' are solved through the coordination of economic activities brought about by the price signals. Q: Which of the following system do you prefer out of the centrally planned economy and the market economy and why ?
›Reveal solutionSolution
A reasoned choice either way is acceptable; the market economy is commonly preferred for efficiency and freedom.
This question asks for the student's reasoned opinion, so either choice is valid if justified.
Case for the market economy (commonly preferred): As the passage shows, prices act as signals that automatically coordinate the decisions of millions of buyers and sellers, allocate resources efficiently to where they are most wanted, and give individuals freedom of choice and an incentive (profit) to produce. It solves the 'what and how much to produce' problem without any central direction.
Case for the centrally planned economy: It can ensure equity, fair distribution and provision of public goods, and avoid the market's problems of inequality, unemployment and neglect of social welfare.
…
- PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markQ.Source / Case Study based question. Read the following paragraph and answer the question given below : When the Goods and Services Tax (GST) was first introduced in 2017, it was considered a major tax reform in India since independence. It integrated several indirect taxes like excise, service tax and VAT into a single unified tax system. But with the passage of time, this tax system also needed to be changed. GST 1.0 included 5 major tax rates - 0%, 5%, 12%, 18% and 28% as well as additional cess on items such as luxury goods, tobacco and expensive cars. Though it was aimed at increasing revenue in an affordable manner, the GST 1.0 rates were criticised for being complex and putting an additional burden on small enterprises. Traders found it difficult to classify goods accurately, which often led to corrections and confusion. But GST 2.0 offers a streamlined tax system. The government has significantly reduced the number of rates and product categories for clarity. There are now rates of 0%, 5%, 18% and 40% for commodities. By eliminating the 12% rate and imposing a special higher rate of 40% on luxury goods, GST 2.0 removes ambiguity. It makes a clear distinction between necessities, simple and luxury goods. Essential items like butter, utensils, sewing machines and toothpaste will be cheaper. Now there will be no tax on rubber, notebooks, pencils, maps and health services. The new rates are effective from September 22, 2025. The revenue shortfall on account of rate cut will be around Rs. 93,000 crore but the revenue gain on luxury goods at the rate of 40% will be around Rs. 45,000 crore. Q: Which three types of goods have you studied in Micro Economics ?
›Reveal solutionSolution
The three types of goods: necessities, comforts and luxuries.
The passage distinguishes necessities, simple goods and luxury goods. In microeconomics, goods are commonly classified into three types according to their nature of use — ** …
- PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 markMCQQ.__________ are two principal branches of Economics.(a) Micro Economics(b) Macro Economics(c) Modern Economics(d) Both(a) and (b)
›Reveal solutionSolution
The correct option is (d) Both (a) and (b).
Economics is traditionally divided into two principal branches: Microeconomics (the study of individual units — consumers, firms, markets and price determination) and Macroeconomics (the study of the economy as a whole …
- PSEB Punjab Class 12 (Commerce) 2024Set ANNUAL1 markMCQQ.Indian economy was __________ at the time of independence.(a) Under Developed(b) Developed(c) Dynamic(d) All the above
›Reveal solutionSolution
The correct option is (a) Under Developed.
At the time of independence (1947), India's economy was under-developed — marked by low per-capita income, poverty, over-dependence on backward agriculture, low productivity and little in …
- PSEB Punjab Class 12 (Commerce) 2024Set ANNUAL1 markQ.The full form of WTO is __________.
›Reveal solutionSolution
WTO = World Trade Organization.
WTO stands for the World Trade Organization. Established on 1 January 1995 (succeeding GATT), it is the international organisation that lays down the rules of global trade, promotes free and fa …
- PSEB Punjab Class 12 (Commerce) 2024Set ANNUAL1 markMCQQ.Which one of the following is the suggestion for removal of poverty ?(a) Population control(b) Increase in employment(c) Balanced regional development(d) All of the above
›Reveal solutionSolution
The correct option is (d) All of the above.
Poverty in India can be tackled through several measures — controlling population growth (to ease pressure on resources), increasing employment opportunities (to raise incomes), and ensuring balanced regional development (to spread gro …
- PSEB Punjab Class 12 (Commerce) 2024Set ANNUAL1 markMCQQ.Which one of the following is a reason for poor human capital formation in India ?(a) Brain drain(b) Insufficient resources(c) High growth of population(d) All of the above
›Reveal solutionSolution
The correct option is (d) All of the above.
Poor human-capital formation in India results from several factors — brain drain (loss of skilled people abroad), insufficient resources/investment in education and health, and high population growth (which …
- PSEB Punjab Class 12 (Commerce) 2024Set ANNUAL1 markMCQQ.Coal, petroleum, natural gas, etc. are renewable sources of energy. (True/False)(a) True(b) False
›Reveal solutionSolution
The statement is False.
Coal, petroleum and natural gas are non-renewable (conventional, exhaustible) fossil fuels — once used they cannot be replaced within a human time-scale. Renewable sources are those that are naturally replenished, such as solar, wind, hydro and biogas. H …
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