Acknowledgements
Introductory
Microeconomics
Textbook in Economics for Class XII
विद्यया S मृतमर्नुते
एनसीईआरटी
NCERT
राष्ट्रीय शैक्षिक अनुसंधान और प्रशिक्षण परिषद्
NATIONAL COUNCIL OF EDUCATIONAL RESEARCH AND TRAINING
12103 - INTRODUCTORY MICROECONOMICS
Textbook for Class XII
ISBN 81-7450-678-0
First Edition
February 2007 Phalguna 1928
Reprinted
December 2007, December 2008, January 2010, March 2013, November 2013, December 2014, December 2015, February 2017, January 2018, December 2018, September 2019, January 2021, November 2021, February 2022
Revised Edition
November 2022 Kartika 1944
Reprinted
March 2024 Chaitra 1946 January 2025 Magha 1946 April 2026 Vaishakha 1948
PD 10T HK
© National Council of Educational Research and Training, 2007, 2022
₹ 70.00
Printed on 80 GSM paper with NCERT watermark
Published at the Publication Division by the Secretary, National Council of Educational Research and Training, Sri Aurobindo Marg, New Delhi 110 016 and printed at Pearl Printers, C-105, Okhla Phase-1, New Delhi-110020
ALL RIGHTS RESERVED
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Assistant Production : Deepak Kumar Officer
Cover, Layout and Illustrations Nidhi Wadhwa
Foreword
THE National Curriculum Framework (NCF), 2005, recommends that children's life at school must be linked to their life outside the school. This principle marks a departure from the legacy of bookish learning which continues to shape our system and causes a gap between the school, home and community. The syllabi and textbooks developed on the basis of NCF signify an attempt to implement this basic idea. They also attempt to discourage rote learning and the maintenance of sharp boundaries between different subject areas. We hope these measures will take us significantly further in the direction of a child-centred system of education outlined in the National Policy of Education (1986).
The success of this effort depends on the steps that school principals and teachers will take to encourage children to reflect on their own learning and to pursue imaginative activities and questions. We must recognise that, given space, time and freedom, children generate new knowledge by engaging with the information passed on to them by adults. Treating the prescribed textbook as the sole basis of examination is one of the key reasons why other resources and sites of learning are ignored. Inculcating creativity and initiative is possible if we perceive and treat children as participants in learning, not as receivers of a fixed body of knowledge.
These aims imply considerable change in school routines and mode of functioning. Flexibility in the daily time-table is as necessary as rigour in implementing the annual calendar so that the required number of teaching days are actually devoted to teaching. The methods used for teaching and evaluation will also determine how effective this textbook proves for making children's life at school a happy experience, rather than a source of stress or boredom. Syllabus designers have tried to address the problem of curricular burden by restructuring and reorienting knowledge at different stages with greater consideration for child psychology and the time available for teaching. The textbook attempts to enhance this endeavour by giving higher priority and space to opportunities for contemplation and wondering, discussion in small groups, and activities requiring hands-on experience.
The National Council of Educational Research and Training (NCERT) appreciates the hard work done by the textbook development committee responsible for this book. We wish to thank the Chairperson of the advisory group in Social Sciences, at the higher secondary level, Professor Hari Vasudevan and the Chief Advisor for this book, Professor Tapas Majumdar, for guiding the work of this committee. Several teachers contributed to the development of this textbook; we are grateful to their principals for making this possible. We are indebted to the institutions and organisations which have generously permitted us to draw upon their resources, materials and personnel. We are especially grateful to the members of the National Monitoring Committee, appointed by the Department of Secondary and Higher Education, Ministry of Human Resource Development, under the Chairpersonship of Professor Mrinal Miri and Professor G.P. Deshpande for their valuable time and contribution. As an organisation committed to systemic reform and continuous improvement in the quality of its products, NCERT welcomes comments and suggestions which will enable us to undertake further revision and refinements.
New Delhi
20 November 2006
Director
National Council of Educational
Research and Training
RATIONALISATION OF CONTENT IN THE TEXTBOOKS
In view of the COVID-19 pandemic, it is imperative to reduce content load on students. The National Education Policy 2020, also emphasises reducing the content load and providing opportunities for experiential learning with creative mindset. In this background, the NCERT has undertaken the exercise to rationalise the textbooks across all classes. Learning Outcomes already developed by the NCERT across classes have been taken into consideration in this exercise.
Contents of the textbooks have been rationalised in view of the following:
This present edition, is a reformatted version after carrying out the changes given above.
THE CONSTITUTION OF INDIA
PREAMBLE
WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a [SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC] and to secure to all its citizens :
JUSTICE, social, economic and political;
LIBERTY of thought, expression, belief, faith and worship;
EQUALITY of status and of opportunity; and to promote among them all
FRATERNITY assuring the dignity of the individual and the [unity and integrity of the Nation];
IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949 do HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION.
Textbook Development Committee
CHAIRPERSON, ADVISORY COMMITTEE FOR SOCIAL SCIENCE TEXTBOOKS AT THE HIGHER SECONDARY LEVEL
Hari Vasudevan, Professor, Department of History, University of Calcutta, Kolkata
CHIEF ADVISOR
Tapas Majumdar, Professor Emeritus of Economics, Jawaharlal Nehru University, New Delhi
ADVISOR
Satish Jain, Professor, Centre for Economics Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi
MEMBERS
Harish Dhawan, Lecturer, Ramlal Anand College (Evening) New Delhi Papiya Ghosh, Research Associate, Delhi School of Economics, New Delhi Rajendra Prasad Kundu, Lecturer, Economics Department, Jadavpur University, Kolkata
Sugato Das Gupta, Associate Professor, CESP, Jawaharlal Nehru University, New Delhi
Tapasik Bannerjee, Research Fellow, Centre for Economics Studies and Planning, Jawaharlal Nehru University, New Delhi
MEMBER-COORDINATOR
Jaya Singh, Lecturer, Economics, Department of Education in Social Sciences and Humanities, NCERT, New Delhi
The National Council of Educational Research and Training (NCERT) acknowledges the invaluable contribution of academicians and practising school teachers for bringing out this textbook. We are grateful to Anjan Mukherjee, Professor, JNU, for going through the manuscript and suggesting relevant changes. We thank Jhaljit Singh, Reader, Department of Economics, University of Manipur for his contribution. We also thank our colleagues Neeraja Rashmi, Reader, Curriculum Group; M.V. Srinivasan, Ashita Raveendran, Lecturers, Department of Education in Social Sciences and Humanities (DESSH), for their feedback and suggestions.
We would like to place on record the precious advise of (Late) Dipak Banerjee, Professor (Retd.), Presidency College, Kolkata. We could have benefited much more of his expertise, had his health permitted.
The practising school teachers have helped in many ways. The Council expresses its gratitude to A.K. Singh, PGT(Economics), Kendriya Vidyalaya, Varanasi, Uttar Pradesh; Ambika Gulati, Head, Department of Economics, Sanskriti School; B.C. Thakur, PGT (Economics), Government Pratibha Vikas Vidyalaya, Surajmal Vihar; Ritu Gupta, Principal, Sneh International School, Shoban Nair, PGT (Economics), Mother's International School, Rashmi Sharma, PGT (Economics), Kendriya Vidalaya, JNU Campus, New Delhi.
We thank Savita Sinha, Professor and Head, DESSH, for her support.
Special thanks are due to Vandana R. Singh, Consultant Editor, NCERT for going through the manuscript.
The council also gratefully acknowledges the contributions of Dinesh Kumar, In-charge, Computer Station; Amar Kumar Prusty and Neena Chandra, Copy Editors; in shaping this book. The contribution of the Publication Department in bringing out this book is duly acknowledged.
This textbook has been reviewed with the support of experts like Meeta Kumar, Associate Professor, Miranda House, University of Delhi; Shalini Saksena, Associate Professor, DCAC; and Bharat Garg, Assistant Professor, Shyam Lal College, University of Delhi. Their contributions are duly acknowledged.
The council is also thankful to Tampakmayum Alan Mustofa, JPF, Ayaz Ahmad Ansari, Farheen Fatima and Amjad Husain, DTP Operators, in shaping this textbook.
The Council also acknowledges the efforts of Neerja Rashmi, Professor, DESS, NCERT; M.V. Srinivasan, DESS, NCERT; Jaya Singh, DESS, NCERT; Pratima Kumari, Associate Professor, DESS, NCERT; Ashita Raveendran, Associate Professor, PMD, NCERT; Sabita Patnaik, PGT Economics, DMS, RIE, Bhubaneshwar; Anita Raveendra PGT Economics, DMS, RIE, Mysore, towards the rationalishtion of content of the textbook.
contents
Foreword iii
1. INTRODUCTION 1
2. THEORY OF CONSUMER BEHAVIOUR 8
2.5 Market Demand 26
2.6 Elasticity of Demand 27
2.6.1 Elasticity along a Linear Demand Curve 29
2.6.2 Factors Determining Price Elasticity of Demand for a Good 31
2.6.3 Elasticity and Expenditure 31
3. PRODUCTION AND COSTS 36
3.4 The Law of Diminishing Marginal Product and the Law of 40 Variable Proportions
3.5 Shapes of Total Product, Marginal Product and Average Product Curves 41
3.6 Returns to Scale 42
3.7 Costs 43
3.7.1 Short Run Costs 43
3.7.2 Long Run Costs 48
4. THE THEORY OF THE FIRM UNDER PERFECT COMPETITION 53
4.1 Perfect Competition: Defining Features 53
4.2 Revenue 54
4.3 Profit Maximisation 56
4.3.1 Condition 1 56
4.3.2 Condition 2 56
4.3.3 Condition 3 57
4.3.4 The Profit Maximisation Problem: Graphical Representation 58
4.4 Supply Curve of a Firm 59
4.4.1 Short Run Supply Curve of a Firm 59
4.4.2 Long Run Supply Curve of a Firm 60
4.4.3 The Shut Down Point 61
4.4.4 The Normal Profit and Break-even Point 61
4.5 Determinants of a Firm's Supply Curve 62
4.5.1 Technological Progress 62
4.5.2 Input Prices 62
4.6 Market Supply Curve 63
4.7 Price Elasticity of Supply 65
5. MARKET EQUILIBRIUM 71
5.1 Equilibrium, Excess Demand, Excess Supply 71
5.1.1 Market Equilibrium: Fixed Number of Firms 72
5.1.2 Market Equilibrium: Free Entry and Exit 80
5.2 Applications 84
5.2.1 Price Ceiling 84
5.2.2 Price Floor 85
Glossary 88