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Karnataka Class 12 Commerce Economics Chapter 7 Introduction Complete Notes

Karnataka Class 12 Commerce Economics Chapter 7 Introduction : Karnatak University (Kannada: ಕರ್ನಾಟಕ ವಿಶ್ವವಿದ್ಯಾಲಯ) is a state university located in the city of Dharwad in the state of Karnataka in India. It was established in October 1949, and officially inaugurated in March 1950. The campus spans 750 acres (3 km²). D. C. Pavate was the first official vice-chancellor from 1954 to 1967. The rapid development of the institution is credited to him.

Karnataka Class 12 Commerce Economics Chapter 7 Introduction Complete Notes

Karnataka Class 12 Commerce Economics Chapter 7 Introduction :Karnataka Class 12 Commerce Economics is There are a variety of modern definitions of economics, some reflect evolving views of the subject or different views among economists.  Scottish philosopher Adam Smith (1776) defined what was then called political economy as “an inquiry into the nature and causes of the wealth of nations”, in particular as a branch of the science of a statesman or legislator [with the twofold objectives of providing] a plentiful revenue or subsistence for the people .

Karnataka Class 12 Commerce Economics Chapter 7 Introduction Complete Notes

Karnataka Class 12 Commerce Economics Chapter 7 Introduction : Economics borrows from multiple sciences e.g. sociology or law, to explain why and how people act to improve their well-being and wealth, e.g. behavioural economics borrows from psychology and history to analyse how past experiences may shape expectations about the future. This may lead to bad decisions.

Economist typically solve problems by:

  1. Abstraction: breaking down a problem into its various components, as any one thing has various factors influencing it, e.g. any big business is run by numerous people, each with an important role.
  2. Analysis: observing past data, the context, as well as what theory predicts, to investigate which choices are being irrationally made, and why.
  3. Correction: tweaking or removing the source of a bad choice, potentially through policy.
  4. Celebration!

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Karnataka Class 12 Commerce Economics Chapter 7 Introduction Complete Notes

Karnataka Class 12 Commerce Economics Chapter 7 Introduction : Economics is about making choices. We make all kinds of choices every day. How much should I spend on gas? What’s the best route to work? Where should we go for dinner? What are the pros and cons of finishing college versus taking a job or inventing the next, best Internet startup? Which roommate should take care of washing the dishes? Can I get that dog as a pet? Should I get married, have children, and if so, when? Which politician should I vote for when they all claim they can improve the economy? What is “the economy,” anyway? What if my personal or religious principles conflict with what people tell me is in my best economic interest?

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Many people hear the word “economics” and think it is all about money. Economics is not just about money. It is about weighing different choices or alternatives. Some of those important choices involve money, but most do not. Most of your daily, monthly, or life choices have nothing to do with money, yet they are still the subject of economics. For example, your decisions about whether it should be you or your roommate who should be the one to clean up or do the dishes, whether you should spend an hour a week volunteering for a worthy charity or send them a little money via your cell phone, or whether you should take a job so you can help support your siblings or parents or save for your future are all economic decisions. In many cases, money is merely a helpful tool or just a veil, standing in for a partial way to evaluate some of the goals you really care about and how you make choices about those goals.

Karnataka Class 12 Commerce Economics Chapter 7 Introduction-Economics is all about

1. The origin of economics can be traced to Adam Smith’s book. An inquiry into the Nature and Causes of Wealth of Nature published in the year 1776.

2. Economics was used to mean home management with limited funds available in the most economical manner possible. 3. Economics has been defined in many different ways:

  • Robbins emphasises that economics is a study of human behaviour, where there is a relationship between ends and scarce means and that the scarce means have alternative uses.
  • Samuelson’s definition of economics is most comprehensive, relevant and accepted. The definition includes both the aspects of economics, i.e., distribution of limited resources and problem of economic development.

Microeconomics and Macroeconomics

1. Microeconomics deals with the behaviour of individual decision-making units such as consumers, resource owners, etc. It is also called Price theory.

2. Macroeconomics deals with aggregate such as national income, aggregate consumption, etc. It is also called Theory of Income and Employment.

3. Both micro and macro economics are complementary and should be utilised for proper understanding of an economy.

Karnataka Class 12 Commerce Economics Chapter 7 Introduction-Central Problems of an Economy

1. Basic economic problem is the problem of choice which is created by the scarcity of resources. It is also called problem of economising the resources, i.e., the problem of fuller and efficient utilisation of the limited resources to satisfy maximum number of wants.

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2. Main causes of central problems are unlimited human wants, limited economic resources and alternative uses of resources.

3. Resources of factors of production can be natural like (land, air), human (i.e., labour), capital (like machines, building) and entrepreneurial (i.e., a person who bears risk).

4. Central problems facing every economy are:

  • Allocation of resources
  • What to produce and how much to produce?
  • How to produce?
  • For whom to produce?

Production Possibility Curve and Opportunity Cost

1. It is a useful device to graphically explain the central problems of an economy. It indicates the various combinations of goods and services which can be produced by full and efficient utilisation of all resources of an economy.

2. It is downward sloping concave to the origin curve.

3. Slope of PPC is called MRT or Marginal Opportunity Cost. Slope of PPC is increasing showing that if a country wants to produce more of good X it has to give up increasing number of units of good Y it is called law of increasing marginal opportunity cost.

4. Any point inside the curve shows inefficient utilisation of resources and any point outside the curve is unattainable because of scarcity of resources.

5. Opportunity cost is the cost of alternative opportunity gives up. Production possibility curve is called opportunity cost curve at every point measures opportunity cost of good X in terms of good Y given up.

Karnataka Class 12 Commerce Economics Chapter 7 Introduction-Production Possibility Curve and Central Problems

The production possibility curve solves five problems – what and how much to produce, how to produce, full utilisation of resources, economic efficiency and economic growth. All points on the curve solves problems of what and how much to produce, how to produce, full employment of resources and economic efficiency. Production possibility curve is unable to solve the economic problem ‘for whom to produce’

Karnataka Class 12 Commerce Economics Chapter 7 Introduction Complete Notes

Karnataka Class 12 Commerce Economics Chapter 7 Introduction : Microeconomics examines how entities, forming a market structure, interact within a market to create a market system. These entities include private and public players with various classifications, typically operating under scarcity of tradable units and government regulation. The item traded may be a tangible product such as apples or a service such as repair services, legal counsel, or entertainment.

Forms include monopoly (in which there is only one seller of a good), duopoly (in which there are only two sellers of a good), oligopoly (in which there are few sellers of a good), monopolistic competition (in which there are many sellers producing highly differentiated goods), monopsony (in which there is only one buyer of a good), and oligopsony (in which there are few buyers of a good). Unlike perfect competition, imperfect competition invariably means market power is unequally distributed. Firms under imperfect competition have the potential to be “price makers”, which means that, by holding a disproportionately high share of market power, they can influence the prices of their products.

Microeconomics studies individual markets by simplifying the economic system by assuming that activity in the market being analysed does not affect other markets. This method of analysis is known as partial-equilibrium analysis (supply and demand). This method aggregates (the sum of all activity) in only one market. General-equilibrium theory studies various markets and their behaviour. It aggregates (the sum of all activity) across all markets. This method studies both changes in markets and their interactions leading towards equilibrium.

Karnataka Class 12 Commerce Economics Chapter 7 Introduction Complete Notes

Karnataka Class 12 Commerce Economics Chapter 7 Introduction : Macroeconomics examines the economy as a whole to explain broad aggregates and their interactions “top down”, that is, using a simplified form of general-equilibrium theory. Such aggregates include national income and output, the unemployment rate, and price inflation and subaggregates like total consumption and investment spending and their components. It also studies effects of monetary policy and fiscal policy.

Since at least the 1960s, macroeconomics has been characterized by further integration as to micro-based modelling of sectors, including rationality of players, efficient use of market information, and imperfect competition. This has addressed a long-standing concern about inconsistent developments of the same subject.

Macroeconomic analysis also considers factors affecting the long-term level and growth of national income. Such factors include capital accumulation, technological change and labour force growth

Karnataka Class 12 Commerce Economics Chapter 7 Introduction Complete Notes

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