NCERT Books Class 12 Macroeconomics Chapter 4- Determination of Income and Employment

Safalta Expert Published by: Noor Fatima Updated Tue, 19 Jul 2022 05:12 PM IST

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NCERT Books Class 12 Macroeconomics Chapter 4- Determination of Income and Employment is available here. You may find links to Class 12 Macroeconomics Notes, NCERT Solutions, Important Questions, Practice Papers, and more after each chapter. Scroll down for crucial study materials on the The Theory of the firm under Perfect Competition from the NCERT Book Class 12 Macroeconomics Book.

Here, you can learn the NCERT Books Class 12 Macroeconomics Chapter 4- Determination of Income and Employment. Moreover, you can get the links for other chapters to download the links. 
 
Table of Content-
Topics Covered
Starting of the Chapter
Glimpses of the Chapter
PDF Link
 

Topics Covered in ' Determination of Income and Employment' are-

4.1 AGGREGATE DEMAND AND ITS COMPONENTS
  • 4.1.1. Consumption
  • 4.1.2. Investment
4.2 DETERMINATION OF INCOME IN TWO-SECTOR MODEL
4.3 DETERMINATION OF EQUILIBRIUM INCOME IN THE SHORT RUN
  • 4.3.1 Macroeconomic Equilibrium with Price Level Fixed
  • 4.3.2 Effect of an Autonomous Change in Aggregate Demand on Income and Output
  • 4.3.3 The Multiplier Mechanism
4.4 SOME MORE CONCEPTS
 

'Determination of Income and Employment' Starts Like This-

In the previous chapter, we studied concepts related to a firm’s production function and cost curves. The focus of this chapter is different. Here we ask : how does a firm decide how much to produce? Our answer to this question is by no means simple or uncontroversial. We base our answer on a critical, if somewhat unreasonable, assumption about firm behaviour – a firm, we maintain, is a ruthless profit maximiser. So, the amount that a firm produces and sells in the market is that which maximises its profit. Here, we also assume that the firm sells whatever it produces so that ‘output’ and quantity sold are often used interchangebly.

Examine in detail the profit maximisation problem of a firm. Then,0 we derive a firm’s supply curve. The supply curve shows the levels of output that a firm chooses to produce at different market prices. Finally, we study how to aggregate the supply curves of individual firms and obtain the market supply curve.

In order to analyse a firm’s profit maximisation problem, we must first specify the market environment in which the firm functions. In this chapter, we study a market environment called perfect competition. A perfectly competitive market has the following defining features:
  1. The market consists of a large number of buyers and sellers
  2. Each firm produces and sells a homogenous product. i.e., the product of one firm cannot be differentiated from the product of any other firm.
  3. Entry into the market as well as exit from the market are free for firms.
  4. Information is perfect.
The existence of a large number of buyers and sellers means that each individual buyer and seller is very small compared to the size of the market. This means that  no individual buyer or seller can influence the market by their size. Homogenous products further mean that the product of each firm is identical. So a buyer can choose to buy from any firm in the market, and she gets the same product. Free entry and exit mean that it is easy for firms to enter the market, as well as to leave it. This condition is essential for the large numbers of firms to exist. If entry was difficult, or restricted, then the number of firms in the market could be small. Perfect information implies that all buyers and all sellers are completely informed about the price, quality and other relevant details about the product, as well as the market.

These features result in the single most distinguishing characteristic of perfect competition: price taking behaviour. From the viewpoint of a firm, what does price-taking entail? A price-taking firm believes that if it sets a price above the market price, it will be unable to sell any quantity of the good that it produces. On the other hand, should the set price be less than or equal to the market price, the firm can sell as many units of the good as it wants to sell. From the viewpoint of a buyer, what does price-taking entail? A buyer would obviously like to buy the good at the lowest possible price. However, a price-taking buyer believes that if she asks for a price below the market price, no firm will be willing to sell to her. On the other hand, should the price asked be greater than or equal to the market price, the buyer can obtain as many units of the good as she desires to buy.

Price-taking is often thought to be a reasonable assumption when the market has many firms and buyers have perfect information about the price prevailing in the market. Why? Let us start with a situation where each firm in the market charges the same (market) price. Suppose, now, that a certain firm raises its price above the market price. Observe that since all firms produce the same good and all buyers are aware of the market price, the firm in question loses all its buyers. Furthermore, as these buyers switch their purchases to other firms, no “adjustment” problems arise; their demand is readily accommodated when there are so many other firms in the market. Recall, now, that an individual firm’s inability to sell any amount of the good at a price exceeding the market price is precisely what the price-taking assumption stipulates.
 

Glimpses of the Chapter are-







 















 

 

NCERT Books Class 12 Macroeconomics Chapter 4- Determination of Income and Employment- PDF Download

Macroeconomics Chapter 4- Determination of Income and Employment

Where can you download ‘Determination of Income and Employment’ PDF?

Candidates can download NCERT Books Class 12 Macroeconomics Chapter 4- Determination of Income and Employment PDF for free on our page. Links are given below.

Macroeconomics Chapter 4- Determination of Income and Employment

What topics are covered in ‘Determination of Income and Employment’ Chapter?

  • 4.1 AGGREGATE DEMAND AND ITS COMPONENTS
  • 4.1.1. Consumption
  • 4.1.2. Investment
  • 4.2 DETERMINATION OF INCOME IN TWO-SECTOR MODEL
    4.3 DETERMINATION OF EQUILIBRIUM INCOME IN THE SHORT RUN
  • 4.3.1 Macroeconomic Equilibrium with Price Level Fixed
  • 4.3.2 Effect of an Autonomous Change in Aggregate Demand on Income and Output
  • 4.3.3 The Multiplier Mechanism
  • 4.4 SOME MORE CONCEPTS

Why is NCERT Books Class 12 Macroeconomics recommended so highly for board exams?

Nearly majority of the questions for board exams are taken from the NCERT Books Class 12 Macroeconomics. A group of qualified professors, making them a dependable resource for pupils, also writes these books.
 

Is NCERT enough for Macroeconomics Class 12?

Yes, these are. The book can also assist in dispelling uncertainties. Studying from the NCERT Class 12 Books Economics also has the following advantages:
  • The NCERT Books Class 12 Macroeconomics provide students with in-depth knowledge of economics.
  • The course books include illustrations that might aid students in comprehending the chapters.
  • These books can aid learners in independent study

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