OMTEX CLASSES: Microeconomics deals with allocation of resources.

Microeconomics deals with allocation of resources.

6. Microeconomics deals with allocation of resources.

Ans. Microeconomics is concerned with the study of economic behavious of small individual economic units of an economy. Resources allocation means utilisation of resources for the production of various goods and services. The study of microeconomics is maily confined to resource allocation.

Microeconomics explains how relative prices of commodities and factors of production determine the allocation of resources. Allocation or resources determines what goods are to be produced, how the goods are to be produced and distributed, etc. Microeconomics also examines the efficiency in the allocation of resources and economic welfare of society.

1. Supply is directly related to price.
Ans. Meaning: -The law of supply establishes a functional relationship between the price of a commodity and its quantity supplied in the market.

Definition: -According to Marshall the law of supply is defined asOther thing being equal, the quantity of a commodity supplied is directly related to its price”
In other words, more quantity of a commodity is offered for sale at a higher price and less quantity is offered for sale at a lower price. So supply of a commodity is directly related to its price.
Symbolically it can be stated as follows:

Sx = f (Px)

Where, S stands for supply, f stands for function of, P stands for Price, x stands for a given commodity.

2. Price discrimination is possbile under monopoly.

Ans. This implies charging different prices for the same product to different buyers. In monopoly the seller succeeds in increasing his profit by adopting the technique of price discrimination.

(i) In a monopoly market, there is a single seller or single producer. Therefore, the monopolist has no rivals and he faces no competition. In a monopoly market, there are large number number of buyers and they do not have any other substitute for the product produced by the monopolist.

(ii) Under monopoly, the entry of other firms is strictly restricted by natural, economi, technological or legal barriers. Therefore, in monopoly, the monopolist can charge any price for his peoduct. He can also charge different prices to different consumers for the same product. Therefore, price discrimination is possible uner monopoly.
3. Labour cannot be stored.

Ans. Labour is perishable in nature. If a worker is absent for a day, the days labour has gone. The amount of labour lost is lost forever. Labour cannot be stored and used for future.

(i) Labourer and his labour (work) always go together. Hence labourer must be present himself where he is supposed to render his services.

(ii) Labour is perishable in nature. If a labourer is absent for a day, his labour for that day goes wasted. Thus, the amount of labour lost is lost forever, it cannot be used for future. Thus, labour cannot be stoed and used for future.

4. Macro economics is the study of aggregates.

Ans. The term Macro is derived from Greek word “Makros” which means large. It is the branch of economics, which studies the behaviour of all economics units combined together. Macroeconomics is a study of aggregates. It is the study of the economic system as a whole. Therefore, it is also called as Aggregate Economics.

Definition: -“Macroeconomics deals not with individual quantities as such, but with aggregates of these quantities; not with individual incomes but with the national incomes; not with individual prices but with the price level; not with individual outputs but with the national output’.  Defined by (Kenneth E. Boulding)


5. Cash reserve ratio (CRR) affects the lending capacity of banks.

Ans. By the Banking Act, commercial banks have to maintain a certain percent (3 percent to 15 percent) of cash with Central bank (RBI) as reserves against their demand and time deposits. This amount cannot be used by banks for lending activities.

If the CRR is increased the amount available for lending gets reduced and vice versa. Thus, the CRR affects the lending capacity of the banks.