Building Blocks in Economics: The Problem of Choice
Short Questions
1. What is the Economic Survey of India?
Answer: The Economic Survey is an annual report that reviews India’s economic performance and analyses different sectors of the economy.
2. Which ministry prepares the Economic Survey?
Answer: The Ministry of Finance prepares the Economic Survey.
3. Before which document is the Economic Survey presented in Parliament?
Answer: It is presented before the Union Budget.
4. What does scarcity arise from?
Answer: Scarcity arises because human wants are unlimited while resources are limited.
5. What is the opportunity cost of producing sugarcane mentioned in the chapter?
Answer: It is the forgone benefits of saved water and improved soil health.
6. Why are school shoes produced differently from office shoes?
Answer: Because they are made for different groups of consumers with different needs.
7. Which factors do producers study before making products?
Answer: Producers study consumers’ needs, income, and demand.
8. Which four factors of production are mentioned in the chapter?
Answer: Land, labour, capital, and technology.
9. Which type of production uses more workers than machines?
Answer: Labour-intensive production.
10. Which type of production uses more machines and technology?
Answer: Capital-intensive production.
11. What is an economic system?
Answer: An economic system is the system that decides how goods, services, and resources are produced, distributed, and consumed.
12. Name one country that has a planned economy.
Answer: North Korea. (The chapter also mentions the former Soviet Union and Cuba.)
13. In a market economy, what mainly decides production?
Answer: Demand and supply mainly decide production.
14. What is the main aim of a mixed economy?
Answer: It combines the roles of the government and the private sector in making economic decisions.
15. When did India introduce major economic reforms?
Answer: India introduced major economic reforms in 1991.
Long Questions
1. Explain the importance of the Economic Survey of India.
Answer: The Economic Survey is prepared every year by the Ministry of Finance and presented before the Union Budget. It reviews India’s economic performance, studies sectors such as agriculture, industry, services, employment, education, health, and infrastructure, and discusses future challenges and opportunities. It also helps the government make policy decisions.
2. Explain the three key economic questions.
Answer: Economics tries to answer three important questions: What to produce, How to produce, and For whom to produce. These questions arise because resources are limited while human wants are unlimited. Every economy must answer these questions to use resources efficiently.
3. Explain the meaning of “What to produce and for whom to produce?”
Answer: This question helps decide which goods and services should be produced and in what quantity. It also decides who will use these goods. Producers study consumers’ needs, income levels, tastes, lifestyles, and demand before deciding what products to make.
4. Explain how producers decide the method of production.
Answer: After deciding what to produce, producers choose how to produce it. They select the right combination of land, labour, capital, and technology. Their decision depends on the cost of machines, availability of labour, level of technology, nature of the product, and government laws and regulations.
5. Describe the main features of a planned economy.
Answer: In a planned economy, the government makes major economic decisions. It decides what goods will be produced, how they will be produced, who will receive them, and their prices. The government owns most resources and regulates production through permits and licences.
6. Describe the main features of a market economy.
Answer: In a market economy, demand and supply mainly decide production and prices. Most resources are owned by private individuals and companies. Competition encourages better quality, lower prices, and innovation, while the government mainly maintains law, order, and public services.
7. Explain the features of a mixed economy.
Answer: A mixed economy combines features of both planned and market economies. The government and private sector both take part in economic activities. Private ownership exists, but the government regulates markets, provides public goods, and runs important public sector enterprises.
8. Explain how India’s economic system changed after 1991.
Answer: Before 1991, India followed a more state-led economic system with government control over many industries. In 1991, economic reforms reduced excessive regulations, encouraged private businesses, increased competition, and opened the economy to global trade and investment while keeping an important role for the government.
9. Why do economic choices involve opportunity cost?
Answer: Resources are limited, so choosing one option means giving up another. This is called opportunity cost. Individuals, businesses, and governments must compare different alternatives and choose the one that gives the greatest benefit.
10. Why is understanding economics important?
Answer: Understanding economics helps people know how limited resources are used to satisfy unlimited wants. It explains how individuals, businesses, and governments make decisions, how different economic systems work, and how public policies influence the production, distribution, and use of resources.
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