Introduction to Microeconomics and Basic Economic Problems
Introduction to Microeconomics and Basic Economic Problems is the foundation domain: DHSE questions test scarcity, opportunity cost, the production possibility frontier (PPF) and the micro–macro distinction.
Core concepts
Economics studies allocation of scarce resources among unlimited wants. Every economy faces three central problems: what to produce, how to produce, and for whom to produce. The PPF shows maximum combinations of two goods with given resources and technology; points on the curve are efficient, inside are underemployment, outside are unattainable. Its slope is the marginal opportunity cost. A rightward shift needs growth in resources or better technology; a movement along the curve is a reallocation, not growth.
Microeconomics studies individual units; macroeconomics studies aggregates. Positive statements are testable; normative statements contain value judgements. Market, centrally planned and mixed economies solve the central problems differently.
Worked example
An economy can produce either 100 rice or 50 cloth. Moving from 100 rice/0 cloth to 80 rice/20 cloth costs 20 rice for 20 cloth, so marginal opportunity cost is 1 rice per cloth. If technology improves only cloth output, the cloth intercept shifts outward while the rice intercept may stay fixed; this is a rotation, not a parallel shift.
Traps
Do not call an inside-PPF point “inefficient because resources are unemployed” and also “unattainable”. Opportunity cost is the next best alternative forgone, not the money price. A shift of the PPF is not the same as moving along it. Do not mix up positive and normative: “the government should subsidise rice” is normative.