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S.

NO

CONTENT

MARKS

1.
UNIT

Part A Introductory Micro Economics


a. Introduction
b. Theory of Consumer Behaviour& Demand

50
04
18

c. Producer's Behaviour& supply


d. Firms of Market and Price Determination

18
10

e. Simple application of tools of demand and supply curves


Part B Introductory Macro Economics
a. National Income Accounting & related aggregates

**
50
15

b. Determination of Income and Employment

12

c. Money & Banking

08

d. The government budget and the Economy

08

e. Balance of Payment

07

TOTAL

100

2.
UNIT

Design of sample Question Paper


Objectives

Percentage of Marks

Knowledge

30 %

Understanding

50 %

Application

20 %

Form of Questions

No .of.
questions

Long answer (L.A)


Short answer (S.A.I)
Short answer (S.A.II)
Very Short answer
Total

6
6
10
10
32

Mark for
each
Question
6
4
3
1

Total Marks

Estimated Time
(in minutes)

36
24
30
10
100

66 Mins
42Mins
50 Mins
10 Mins
(Four parts each)
168 + 12
minutes for
revision

Group -1
QUESTION PAPER N0-1
CLASS-XII
ECONOMICS

Q.No.
Question
1. What causes an upward movement along a demand curve
of a
commodity ?
2. What is the price elasticity of supply of a commodity whose
straight line
supply curve passes through the origin forming an angle of
75?
3. What change will take place in marginal product, when total
product
increases at a diminishing rate?
4. Give the meaning of marginal cost.

Marks
1

Type
U

Explain the inverse relationship between the price of a


commodity and
its demand.
7. State the law of supply. What is meant by the assumption
other things
remaining the same on which the law is based?
8. The price elasticity of supply of good X is half the price
elasticity of
supply of Good Y. A 10% rise in the price of good Y results in
a rise in
its supply from 400 units to 520 units. Calculate the
percentage change
in quantity supplied of good X when its price falls from Rs
10 to Rs 8
per unit.
9. State the distinction between explicit cost and implicit cost.
Give an
example of each.
10. Explain the implication of product differentiation feature of
monopolistic competition.
OR
Explain the implication of homogenous product feature of
perfect
competition.
11. Distinguish between:
How is PPC affected by unemployment in the economy.
OR
Explain the central problem of distribution in an economy.
12. If more and more resources are constantly explored and new technology
of production are constantly discovered, don't you think a day will come
when all our central problems will be solved once for all.

Value
Based

13. Calculate the percentage fall in demand for a good whose


price rises
from Rs. 10 per unit to Rs. 11 per unit. Its price elasticity of
demand is
-0.25.
14. Explain the likely behaviour of Total Product and Marginal
Product
when for increasing production only one input is increased
while all
other inputs are kept constant.
15. There is a simultaneous decrease in demand and supply of
a
3
commodity. When will it result in:
(a) No change in equilibrium price.
(b) A fall in equilibrium price.

5.

Give the meaning of oligopoly.

6.

Marking Scheme Set-1

Q.No.
Question
1. Rise in the price of the good.

Marks
1

2.

Price elasticity of supply is equal to one.

3.

Marginal product will decline but remain positive.

4.

Marginal cost is the addition to total cost on producing one more


unit of output.
It is a form of market in which there are a few firms

5.

A consumer purchases that much quantity of a good at which its


marginal utility equals its price. Given this situation, suppose
price falls. It makes marginal utility greater than the price and
induces the consumer to buy more of the good. This establishes
inverse relation between price and demand.
7. According to the law there is a direct relation between price of
the good and its supply, other things remaining the same. Other
things include all factors other than the price which can influence
supply, like prices of inputs, taxes on production, prices of other
goods, etc.
8. Es of good Y = % change in supply of Y/% change in price of Y
supply of X falls by 30 percent.
9. Explicit cost is the actual monetary expenditure on inputs, like
expenditure on
purchases of raw materials, on payment of wages, interest, rent,
etc. 1
Implicit cost is the estimated value of inputs supplied by the
owner of the firm, like imputed salaries of the owners, imputed
rent of the building of the owners, imputed interest on the
money invested by the owners, etc.
10. Product differentiation means that the buyers of a product
differentiate between the same product produced by different
firms. Therefore, they are also willing to pay different prices for
the same product produced by different firms. This gives an
individual firm some monopoly power to influence market price
of its product.
OR
Homogonous product means that the buyers treat products of all
the firms in the
industry as identical. Therefore, the buyers are willing to pay
only the same price for the products of all the firms in the
industry. It also implies that no individual firm is in a position to
charge a higher price for its product. This ensures uniform price
in the market.
11. When there is unemployment the maximum output that an
economy can produce does not change. So there is almost no
effect on position of PPC , the only thing is that economy
produces some where below the PPC.
OR
The problem is related to distribution of goods and services
produced in the economy. It arises because the output produced
is limited while the wants of people are unlimited. In other words
it is the problem of distribution of income because income gives
the people power to purchase these goods. 4 Differences
between:
(a) Positive and normative economic perspectives in economics
(b) Microeconomics and Macroeconomics
12. If more and more resources are constantly 5explored and new technology of
production are constantly discovered, I don't you think that the day will come
when all our central problems will be solved once for all , because wants are
never ending and reoccurring in nature.

6.

1
3

3
3

Group -1
QUESTION PAPER N0-2
CLASS-XII
Economics

1)

What is production function?

2)

Define Marginal Utility.


3)
How does the market supply curve derived from individual supply curves?
4)
What is the shape of MR and AR in Perfect competition?
5)
Draw a diagram and show Break-even Point.
6)
7)

What are the properties of Indifference Curve?


What is the relationship between MP and AP?

3
3

K
U

8)

Define and Draw the curve:- TC,TVC,TFC.

3
4
4

K
K
A

6
6

U
U

1
1

K
A

9)
What happen if demand changes and supply in perfect inelastic? Explain.
10)
11)
12)

Define fixed cost and variable cost.


Explain the problem How to produce?
What is Complementary Commodity? How does change in the price of
complementary commodity effect the demand of a commodity? Explain
with the diagram.
OR
Distinguish between change in demand and change in quantity demand
with the help of diagram.

13)
14)
15)

The demand function of good X is given Qx = 40-2P , Calculate price


elasticity of demand when price rises from Rs 4 to Rs 5 per unit.
Why does demand curve slope downwards?.
Explain the law of variable proportions? .

16)
What happen if supply changes and demand is perfect elastic? Explain with
diagram
17)
18)

Define central Bank.


Distinguish between direct and indirect taxes.

19)

What is a foreign exchange rate?

20)

Why is foreign exchange demanded ?

21)

Why does a rise in foreign exchange rate cause a rise in its supply?( give
any one cause)

22)

Define aggregate demand. State its components.

23)
24)

What are the functions of Central Bank?


Explain the meaning of investment multiplier. What is the minimum value
of the multiplier?

3
3

K
U

Marking Scheme-Set-2
1) It is the functional relationship between input and output.

2)

8) Definition and curve of TC,TVC,TFC.

9)

10)Definition fixed cost and variable cost.

11) Definition and (i) labour intensive and (ii) capital intensive

1+1.5+1.5=4

12)

1+1+2=4

Marginal Utility is the additional utility derived from one additional unit of
consumption.
3)
By summing up all individual supply curves
4)
The shape of MR and AR in Perfect competition is parallel to x axis.
5)
Diagram showingBreak-even Point(TR & TC).
6) The properties of Indifference Curve:
i.
Downward Sloping
ii.
Convex to origin
iii.
Never intersect each other.
iv. Never touches either axis
v. Higher the IC higher the satisfaction.
7) The relationship between MP and AP:
AP increases : MP >AP
AP is max. : MP=AP
AP decreases : MP<AP

No change in quantity only price will change .

Definition of Complementary Commodity, change in the price of


complementary commodity effect the demand of a commodity inversely .
Explanation of diagram.
OR
Difference between change in demand and change in quantity demand
on the points :
(i)
Factor affecting
8

(ii)
(iii)
(iv)

Movement along / shift in demand curve


Increase, Decrease/ Extension , contraction
diagram.

1+1+1+1=4

2+1+1+1+1=6

1+1+1+3=6

1+2+3=6

17) Central Bank is an Apex bank of the country that controls entire Banking
system.
18)
Direct tax can not be shifted whereas indirect taxes can be.

19)Foreign exchange rate is the rate at which currency of two country are
exchanged.

20)Foreign exchange demanded to make foreign purchases, FDI and Import.

21)It increases the value of Exports and FDI, increasing the earning of
exporters and foreign investors leading to increased supply of foreign
exchange.

22)Aggregate demand is total expected expenditure on all final goods and


services produced in the country. Its components are C+I+G+(X-M).

1+2=3

23)Functions of Central Bank are (Any three)


(i)
Issuing the note
(ii)
Banker to Banks
(iii)
Banker to govt.
24)Investment multiplier is a constant by which income changes due to

1+1+1=3

1+1+1=3

13)Demand at price Rs. 4 = 40-2*4 = 32


Demand at price Rs. 5 = 40-2*5 = 30 unit
Formula : Ed = (-)Q/P * P/ Q
= 2/1*4/32 =1 /4 = 0.25
14)demand curve slope downwards because of following:
(i)
Law of diminishing MU
(ii)
Real income effect
(iii)
Substitution effect
(iv)
Number of uses
(v)
Number of users
15)Statement of the law,
Assumptions of the law,
Diagram
Explanation in accordance to three stages.
16)
There is no change in Price only equilibrium quantity
Changes. Explanation with diagram

change in investment. Minimum value of the multiplier is 1(One) when


value of MPC is 0(Zero)
25)

2+2=4

1+1+1+1=4

2+2=4

In a government budget , revenue deficit is Rs.50000 crore and borrowings


are Rs.75000 cores.
The fiscal deficit = 75000+50000=125000
26)Appreciation of a currency takes place when supply of foreign exchange
is more than demand for foreign exchange. Under flexible exchange rate
system.
27)The drawbacks of barter system are :
(i)

Problem of Double coincidence of wants.

(ii)

Problem of store of value

(iii)

Problem of transfer of value and

(iv)

Problem of future payment.

28)
(i)Subsidies:- Revenue expenditure as it neither increase assets nor
decreases liabilities. (ii)Grants given to state governments:- Revenue
expenditure as it neither increase assets nor decreases liabilities.
29)Gross National Disposable Income = 240+30+40+(-20)+(-10) =280
Net National Disposable Income = 280-30 = 250
30)
GDP at market price is the value of all final goods and services produced
within the domestic territory of a country during a year,
GNP at market price value of all final goods and services produced within
the domestic territory of a country plus NFIA during a year.
NDP at market price is the value of all final goods and services produced
within the domestic territory of a country during a year subtracting the
value of depreciation.
National Income is the value of all final goods and services produced
within the domestic territory of a country during a year subtracting the
value of depreciation and NIT and adding NFIA.
NDP at factor cost is the value of all final goods and services produced
within the domestic territory of a country during a year subtracting the
value of depreciation and NIT.
GNP at factor cost National Income is the value of all final goods and
services produced within the domestic territory of a country during a year
10

1.5+1.5=3

1+1+1+1+1+1=
6

subtracting NIT and adding NFIA


NNP at market price value of all final goods and services produced within
the domestic territory of a country plus NFIA during a year subtracting
depreciation.
31)Define AD & AS , Equation , Diagram and then explanation.

1+1+1+3=6

32)From the following date calculate national income by


(a) Income method and (b) Expenditure method.
(Rs. In cores)
(i) Private final consumption expenditure
2,000
(ii) Net capital formation
400
(iii) Change in stock
50
(iv) Compensation of employees
1,900
(v)Rent
200
(vi) Interest
150
(vii) operating surplus
720
(viii) Net indirect tax
400
(x) Employers contribution to social security schemes
100
(xi)Net exports
20
(xii) Net factor income from aboard
(-)20
(xii) Government final consumption expenditure
600
(xvi) Consumption of fixed capital
100

Income method
NNP at fc = COE(1900)+OS(720)+ MI ( not given) + NFIA(-20)=2600
Expenditure Method
NNP at fc = NDP at mp + NFIA - NIT
= (2000+600+400+20) + (-20) -400
= 2600
Group -1
QUESTION PAPER N0-3
CLASS-XII
ECONOMICS

1) What is the difference between Short Run and Long Run?

2) What do you mean by monotonic preferences?

3) What is the shape of TR and AR in Monopolistic competition?

4) How to drive TC from MC?

5)

What is relation between price line and Total Revenue.


11

6) What are the factors affecting demand?

7) Explain the behavior of TP and MP when only one input is increased while
other input unchanged.

8) Define and Draw the curve AVC,AFC,MC.

9)

10) A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose
price elasticity of demand is (-)2. At what price will he buy 64 unit?
11) Explain the problem For whom to produce .

12) Distinguish between expansion of demand and increase in demand with


the help of diagram.
OR
Explain total expenditure method of measuring price elasticity of demand
with the help of table .
13) How is a consumer budget affected by the following changes.
Rise in consumers income, prices of goods remain unchanged.
Fall in the price of good X and income remain unchanged.
14)
How does change in income and price of related good effect the demand of a
commodity ?Explain

A/U

A/U

15) Explain producers equilibrium with Marginal Revenue Marginal Cost


Approach, use schedule .

16)

17) Define central bank .

18)

What happen if demand changes and supply is perfect elastic? Explain with
diagram. OR
Define Fixed factor and Variable factor.

What happen to the price of a market if both demand and supply increase ?
Explain with diagram.
OR
What happen to the price of a market if both demand and supply decrease ?
Explain with diagram.
Section B

Give two examples of non-tax revenue receipts.


19) Define Balance of trade.
12

20) How is flexible rate of exchange determined?

21) Give two examples of visible items of Balance of Payment.

22) Explain how CRR and Margin Requirement correct Excess Demand .

23) Explain any one of the following functions of a central Bank-i)currency


authority, and ii)Lender of last resort.
24) What do you mean by natural rate of unemployment? What are its causes?

25)

28) State four sources of demand for foreign exchange.

29)

31) Explain how equilibrium level of income in an economy is determined by


saving and investment? .

32) From the following data calculate National Income by


(i) Income method and (ii) Expenditure method.
(Rs. In Crore)
(i) Compensation of employees
1,200
(ii) Net factor income from abroad
(-)20
(iii) Net indirect taxes
120
(iv) Profit
800
(v) Private final consumption expenditure
2,000
(vi) Net domestic capital formation
770
(vii) Consumption of fixed capital
130
(viii) Rent
400
(ix) Interest
620
(x) Mixed income of self- employed
700

A government budget shows a primary deficit of Rs.4400 core , expenditure


on interest payment is Rs.400 Crore. How much is the fiscal deficit?
26) Find Out (a) Personal Income from following data:
(Rs. In Crore)
48,800
1,000
300
800
210
54

1.Private income
(ii) Interest on national debit
(iii) Net factor income from abroad
(iv) Corporate Savings
(v) ) Corporation tax
(vi) Personal income tax
27) What are the four function of Money ?

How can deficit in the budget be financed?


30)
Explain the concepts of leakages and injections in the circular flow of
income.

13

(xi) Net exports


(xii) Government final consumption expenditure

(-)30
1,100

Marking Scheme of Question Set -3


1

The difference between Short Run and Long Run: in short run few factors
remain fixed but in long run no factor of production is fixed

Monotonic preferences is that when a consumer prefer the bundle in


which there is increase in no. of units of a good without loosing any
quantity of other good.
The shape of MR and AR in Monopolistic competition is downward
sloping.
TC = Fixed cost + MC

U
A

3
4
5

TR is equal to the area under price line.


6
6

The factors affecting demand:


Px,Pr,Pe,T,Y+Np,Yd (any three)
Only one input increased and other unchanged initially MP in increase
and TP increase at increasing rate then MP decreases and TP increases at
decreasing rate and finally MP zero and TP is maximum and if MP become
negative TP start falling.

1+1+1=
3

Definition and curve of AVC,AFC,MC.

1+1+1=
3
3

1+1.5+
1.5=4

A/U

1+1+1+
1=4

A/U

No change in price only quantity will change . OR


Fixed factor :remain fixed at all levels of production in the short run and
Variable factor : changes with the level of production in the short run.
9

Ed= Q/P* P/Q


-2 = 80-64/P *5/80
P=0.5 , New price = 5 +0.5 = 5.5
10 The problem For whom to produce definition.
Explanation of Functional and Personal Distribution.
11 Difference between Extension in quantity demand and increase in
demand on the points :
(v)
Factor affecting
(vi)
Movement along / shift in demand curve
(vii) Increase, / Extension
(viii) diagram.
OR
Explain total expenditure method of measuring price elasticity of demand :
Direction of change in TE is Compared with direction of change in Price .
Table showing case of Ed>1,Ed=1 and Ed<1
12
The budget line now shift upwards parallel to initial
The X axis intercept of the budget line shift to the right.
14

3+3=6

2+2+2=
6

16 Central bank is an Apex bank of the country.

17

18 Balance of trade financial statement of credit and debit entries in the visible
items

19 Flexible rate of exchange determined through the market sources of


Demand for and Supply of foreign exchange.
20 Two examples of visible items:

13
Change in income effect is positive on the demand of a normal commodity
and negative in case of inferior commodity and
Price of related(substitute) good effect is positive on the demand of a
normal commodity and negative in case of complementary commodity .
14 Two condition: (i) MR=MC (ii) MC rising
Unit sold

MR

MC

10

10

10

10

10

10

10

12

Producer will satisfied at the level of 4th unit of output because at this stage
both condition are full filled.
15
What happen to the price of a market if both demand and supply increase:
the price of a market:
i.
ii.
iii.

Remain same if change in demand=change in supply, with diagram


Increases if change in demand>change in supply, with diagram
Decreases if change in demand<change in supply, with diagram
OR
Vice versa.

Give two examples of non-tax revenue receipts.:


Escheat, Fee/Fine/Penalties, profit form PSUs. Any other

15

Export and Import of Goods.


21 Increase in CRR and Increase in Margin Requirement is used to correct
Excess Demand .

22 Explanation of any one of the following functions of a Central Banki)currency authority, and
ii)Lender of last resort.
23 Natural rate of unemployment: the rate of unemployment that exists at the
point of Full Employment level.
Causes:
i.
Structural change in the Economy
ii.
Dynamic nature of economy .
24
A government budget shows a primary deficit of Rs.4400 crore ,
expenditure on interest payment is Rs.400 Crore, then

1+2= K
3

25 Personal Income = Private income- Corporate Savings- Corporation tax


=48,800-800-210=47790

26

2+2= K
4

Fiscal deficit=4400+400=4800

The four functions of money are:

Medium of exchange

Value of unit.

Standard of future payment

Storage

27 Import, Investment, Sending gifts abroad, tourists going abroad.

28 Deficit in the budget can be financed:


i.
Deficit financing
ii.
Borrowing(external/internal)
29 Concepts of leakages:
leads outflow of money from an economy.
Increases economic activities
Eg. import, saving, taxes
Injections in the circular flow of income:
leads inflow of money from an economy.
decreases economic activities
Eg. Export, Investment ,Govt. expenditure.
30
Equilibrium level of income in an economy is determined by saving and
investment:

2+2= U
4

16

3+3= K
6

2+2+ U
2=6

Concept and function of saving and investment


Diagram showing Equilibrium.
Explanation of Diagram
31

(i)

(ii)

Income method:
National Income= Compensation of employees + Rent+ Interest
+ Profit + Mixed income of self- employed + Net factor income
from abroad
=1200+400+620+700+800+(-20)
=3700
Expenditure method:
National Income= Private final consumption expenditure +
Government final consumption expenditure + Net domestic
capital formation + Net exports +Net factor income from
abroad- Net indirect taxes
2,000+1100+770+(-30)+(-20)-120
=3700

Group -2
QUESTION PAPER Set -1
CLASS-XII
ECONOMICS
Q 1. What gives rise to an economic problem?
Q 2.

Demand for electricity has increased but supply can not be increased due to limited 1
resources. Suggest one measure to solve this problem?

Q 3. Give the meaning of monotonic preferences.


Q 4. How is TVC calculated from MC ?
Q 5. Give the profit maximization situation in case of producer equilibrium.

Q 6. The total expenditure of the consumer on a commodity remains unaffected due to


change in price. Comment on the elasticity of demand for the commodity.

Q 7.

Explain the problem of what to produce. OR

Explain any three features of a centrally planned economy


Q 8.

Cal culate the price elasticity of demand for a commodity when its
price increases

by 25% and quantity demanded falls from 150 units to 120 units.
Q 9. Explain the monopolistic competition with the help of average revenue and marginal
revenue curves.

17

Q 10. Calculate AVC at each level of output.


OUTPUT

Q 11.

MC

40

30

35

39

Explain the effect of the rise in the prices of related goods on the demand for a
gooX.OR
State four factors affecting the elasticity of demand.

Q 12. Give the meaning of perfectly elastic supply and perfectly inelastic supply with the help
of diagram.

Q 13. Distinguish between fixed costs and variable costs. .

Q 14. Differentiate between monopoly and perfect competition form of market. Any Six.

Explain the law of variable proportions with the help of a


diagram.

Q 15.

OR
Explain producers equilibrium with the help of a
marginal cost and marginal revenue schedule.
Q 16. Explain the following:-

a) Law of diminishing Marginal utility


b) Exception to law of demand.
SECTION-B
Q 17. Give the meaning of involuntary unemployment.

Q 18. What is fiat money?

Q 19. Define aggregate supply

Q 20. What is balance of trade?

Q 21. What are primary deposits?

Q 22. How FDI helpful in improving standard of living of the people?

Q 23. Differentiate between consumption of Fixed Cost and capital loss.

Q 24. "GDP is not the real indicator of welfare". Justify.

OR
Differentiate between Intermediate goods and Final goods?
Q 25. How would the depreciation in domestic currency affect the export of the country?
18

Q 26. .

f)

Calculate Gross Value Added at factor cost:-

a)

Sales

800

b)

Opening stock

40

c)

Closing stock

30

d)

Subsidies

50

e)
Purchase of intermediate product 400
Purchase of machinery
200

Q 27. Distinguish between direct tax and indirect tax. Give two examples of each.

Q 28. Describe fiscal deficit and Explain its implications

Q 29. Explain the Process of Money creation by Commercial Bank..

Q 30.

Explain the working of investment multiplier with the help of a hypothetical


schedule.
Q 31.

Define central bank. Give any four functions of central bank?


Q 32.

From the following data calculate National Income by Income and Expenditure
methods.
(i)Government final consumption expenditure
(ii)
Subsidies
(iii)
Rent
(iv)
Wages and salaries
(v)
Indirect tax
(vi)
Private final consumption expenditure
(vii)
Gross domestic capital formation
(viii) Social security contributions by employers
(ix)
Royalty
(x)
Net factor income paid to abroad
(xi)
Interest
(xii)
Net domestic capital formation
(xiii) Profit
(xiv) Net exports

110
10
200
600
60
80
12
55
25
30
20
11
1
70

Marking Scheme of Question Set -1


1. Economic problem arises because:
a) resourses are scarce b) resources are alternative uses
1/2+1/2
2. Law of demand state that other things remain constant when price increases
demand decreases and price decreases demand increases .

19

3. Change in supply means increase in supply and decrease in supply .


4. This is because TVC = sum of MC .

1
1

5. Producer get maximum profit were


Profit = TR-TC.

6. If the rise or fall in own price of a commodity causes no change in total


expenditure on commodity then elasticity of demand is unitary.
Situation
Price of
Quantity
Total
Change in
Elasticity
commodity
Kg
expenditur total
of demand
e
expenditur
e
A
2
4
8
8
Unitary
1
8
8
8
elastic
1.1/2=+1.1/2
7. Relation between AR and MR
1) If AR is constant AR = MR
2) If AR is diminishing AR> MR
3) MR can be ve but not AR

8.
Land

Labour

TP

MP

1
1
1
1
1
1
1
1

1
2
3
4
5
6
7
8

2
5
9
12
14
15
15
14

2
3 =increasing
4
MP
3
2=
Diminishing
1 MP
0
-1 = -ve MP

3
9.Revenue Curve Under monopolistic compt. Is same as under mnonopoly

Revenue
MR

AR

20

Output

10. calculate AVC


Output
1
2
3
4
3

MC
40
30
35
39

TC
40
70
105
144

AC
40
35
35
36

11. demand for goods which are related (like Tea and Coffie ) is more elastic because
when price of such goods rises the consumer have the option to shifting to the related
goods .
12. perfectly inelastic supply: when supply does not response to change in price of the
commodity . Perfectly elastic supply : change in price will cause an infinite change in
quantity demanded.
1.1/2+1.1/2
14.
S.No.

Refrence

Perfect
competition
Large

1.

Number of saller
and buyers

2.

Product

Homogeneous

3.

Price

Uniform

4.

Entry of firm

Free entry

Monopoly
One saller , but
larg number of
buyers
Homogenous or
differentiated
Not uniform
because of price
discrimination
Not possible

13.
Fixed cost
1.Fixed costs do not change with
change with change in quantity of
output.
2. Fixed cost remains the same
whether output is zero or
maximum.

Variable cost
1. Variable costs change with change
in quantity of output.
2Variable cost are zero when
output
Is zero. These costs increase
when output increase and
decrease when output decreases.

Diagramitcal relation between MC and AC

3,3

15.Law of variable proportion state that as more and more variable factor are used with
fixed factor then marginal product of variable factor start declining.
Table , diagram
2,2,2
OR
Three stages are :
1) Increasing returns
21

2) Diminishing returns
3) Negative returns
2,4
16. a) Law of diminishing marginal utility

b) Exception of law of demand

4
SECTION-B

17. Macro variable are agg consumption , agg demand, agg supply , general
price level. 1/2+1/2
18. Transfer payment are one sided payment from one sector to other sector. 1
19. aggregate supply refers to the flow of goods and services as planned by the
producers during a accounting period.
1
20. BOT= export of visible items import of visible item.
1
21. autonomous consumption is compulsory consumption .
1
1

22 FDI can be useful to create employment, control inflation & reduce inequality
of income & wealth which increase the purchasing power & thus improve the
standard of living of the people.
23. Depricition means loss of value of fixed assets .

1.1/2+1.1/2

24. GDP is not true indicator of welfare


1) Distribution of income
2) composition of GDP
3) non monetary transaction

1,1,1

25.
Intermediate goods
1. These goods may be used as
raw material for the
production.
2. Value to be added to these
goods.

Final goods
1. These goods are not used as
raw material.
2. Value is not to be added to
these goods.
1.1/2+1.1/2

26. Gross value added at factor cost = Sales+(closing stock opening stock)purchased of intermediate product purchase of machinery + subsidies. 3
27. While the impact of indirect taxation (like sales tax) can be shifted on to
others, the impact of indirect taxation(like income tax) cannot be shifted.
For example:

2+2
22

28. Investment Multiplier and MPC: Investment multiplier is the ratio between
change in income and change in investment.
K = Change in Y/change in I

2+2

29. Many Creation Process Formula- 1 Marks Process-3


30. Fiscal deficit is equal to the total borrowing of the government its shows
estimated borrowing by the government to cope with its expenditure during the
year .
2+4
31. Central bank:
the central bank is an apex bank of the entire banking
system of the country , RBI is the central bank of india.
Function of the central bank
1. Issuing of notes
2. Banker of the government
3. Bankers bank
4. Supervision of bank
5. Lender of the last resort.
6. Control of credit.
32. INCOME METHOD
NNP

FC

2+4

=(iii) +(viii)+(ix)+(iv)-(x)+(xi)+(xiii)-(v)+(xiv)

Expenditure Method :
NNPFC= (i)+(ii)-(iv)+(vi)+(vii)-(x)+(xii)+(xiv)

Group -2
QUESTION PAPER Set -2
CLASS-XII
ECONOMICS

23

1
2
3
4
5

Define Budget Line


Define marginal rate of transformation
What do you mean by inferior goods in economics?
Give two differences between fixed cost and variable cost
What is the effect on price when a monopoly firm tries to sell
more ?
6 Explain the central problem How to produce.
7 State any three causes of a rightward shift of demand curve of
acommodity.
8 If both goods are complimentary, price of X good rises what
happens on demand of Y good show with the help of diagram
9 State the law of supply.
10 Explain collusive & non collusive oligopoly OR
Explain any three features of perfect competion market.
11
The quantity demanded of a commodity falls by 5 units, when its
price rises by Rs. 1 per unit. Its price elasticity of demand is (1.5). Calculate the price before change. If at this price quantity
demanded was 60 units.
12 12)
Complete the table.
Output
1

Total Variable cost


20

Average Variable cost


-

16

54

20

1
1
1
1
1

K
K
K
U
U

3
3

U
K

3
3

U
U

Margined Cost
A

Or
Why does Total Variable cost increases at diminishing rate in the
intial stage of production
13
14

Explain the value involved in law of diminishing marginal utility.

Explain consumer equilibrium with the help of indifference curve

approach, use diagram.


Explain the condition leading to maximization of profits by a
producer use Marginal cost and Marginal revenue approach
Or
State the phases of the law of variable proportion in terms of total
physical product use diagram
16 How the equilibrium price and quantity of a normal good affected?
15

4
6

S
U

1
1
1
1
1
3

K
K
K
K
K
U

When income of the consumer.


(i)

Increases

(ii) decreases
PART-B

17
18
19
20
21
22

Give the meaning of money


What is meant by cash reserve ratio
What do you mean by full employment?
Give two fiscal measures to control excess demand.
Define spot market.
What is the difference between final
24 Goods & Intermediate Goods
?OR
Does Gross domestic product is indicator of the welfare of
economy?

Marking Scheme of Question set-2


1.

Budget line represent the different combination of commodities that a


consumer can buy by spending all his money income with the given price
of commodities.

2.

MRT is the rate a which the quantity of output of one good is scarified to
produce one more unit of another commodity.

3.

When with increase in income , demand of these goods decreases. 1

4.

Fixed cost does not change with change in output.


Variable cort change with change in output

5.

The price will reduce.

6.

The economy has to decide what goods & service are to be produced
which of consumer goods & which of capital goods are to be produced,
Similarly choice has to be made between production of war time goods &
peace time goods.

7.

When income of the consumer increase


when price of Substitute good increases
when price of complementary good falls.

8.

1+1+1

Substitute goods are refers than goods when Px increases, Dy will also
increase for example Coca Cola Pepsi

Complementary goods are those goods when Px Increases Dy will decrease


for example car & Petrol
9.

.Other things being Constant with increase in price, supply with increase
&vice verse.

. Table &Diaagram

1
1

Exception:(i) In case of perishable goods


(ii) In case of Agriculture goods due do natural calamities.
10.

Collusive oligopoly is a firm of market in which firms decide to avoid


Completion through a for mal agreement

25

Non Collusive oligopoly is a form of market when each firm pursues its
11/2

price &out put policy independent of the rival firms.

or

11.

(i)

Large number of buyers & sellers.

(ii)

Homogeneous product in the market

(iii)

Free entry & exit of firms

1+1+1

The price before change = Rs 18

Out put

TVC

AVC

MC

20

20

20

32

16

12

54

18

22

80

20

26

12.

2+2
or
Because it enjoy increase return to factor out put increase at increasing
rate, MP increase means falling cost. When the cost of producing on
additional unit is falling. TVC should be increase only at decreasing
13.

That we should not have a greed for consuming more than requirement because that
may lead to negative marginal utility and we may spoil our health ourselves

Perfectly completion
Market

Monopoly
Market

Monolithic
Completion
market

14. Conditions for Consumer's equilibrium


(i) MRS xy

Px
Py

(ii) MRS is dimishing

Diagram

2
y

26

Y-good
O

x-good

Explanation

Its depend on the two condition(i)

Where slope of Indifference curve and Budget line will be equal.

(ii)

Mux/MUy=Px/Py

15.

(i)

MR=MC

(ii)

MC cuts MR below

Table

Output
1

MR
16

MC
20

2
3
4
5
6

16
16
16
16
16

18
16
15
16
17

Diagram

y
MR&MC

E1
x

Q1\

output
Or
Stage 1

When MP is increase, Called the stage of increase


return.
Stage 2
When MP is dim shining, called a stage of dim shiny return
Stage 3
When MP is negative, called the stage of negative return.
3
Table & Diagram
3
16.

27

When income of

When income of

Consumer

Consumer

Increase
17.

(3)

Decrease

(3)

Money is anything that is generally accepted as medium of exchange & at the


same time act as a measure & store of value.

18.

CRR is the ratio. of Bank deposits that commercial bank must keep with central
bank.

19.

Workers are able and willing to do work at prevailing wage rate & getting the
work.

20.

(i) Tax imposed by Govt should be increase.


(ii) Govt expenditure by Govt should be reduced.

21.

Statement of estimated receipts & expenditure of Government for the next


financial year.

22.
Final Goods
Not Resold in market

Intermediate Goods
Resold in Market

No Value is added

Value is added at each stage of

Included in estimation of

production
Not Included in estimation of

national income
11/2+11/2

national in come.

or
It is not necessary that higher the GDP & higher the welfare
If distribution of income is unequal
If production of necessity goods are comparatively low.
If increase in production tends to pollution in economy
will not increase the welfare
23.

Yes, these are wages of resident of India.


No, it is a transfer income
28

Yes, it is a part of product of self consumption.


24.

Gross National disposable income

1+1+1

(ii)+(iii)+(iv)+(v)
1000+20+150+100

Rs 1270 crores
25.

Direct Taxes

Indirect Taxes

These are imposed on income

These taxes are imposed on

& wealth of person

goods & service

Burden of these tax can't be

Burden of these taxes can be

shifted to another person

shifted to another person

Income Tax

Sale Tax
11/2+11/2

26.
Import & export of visible items
Import & export of invisible items
Unilateral transfers from one country to the other.
27.

1+1+1

Demand for foreign exchange depends upon


Payments of loans
Investment in rest of the world
Supply of foreign exchange depends upon
Exports
Direct foreign investment

28.

Fiscal deficit

2+2

Budget expenditure Budget receipts


(When BE>BR)

(Other than Barrowing )

Budget deficit
Budget expenditure

Budget receipts

(When BE>BR)

Revenue deficit
Revenue expenditure

Revenue reaction
29

(When RE>RR)
Primary deficit - = Fiscal deficit interest payment

or
Revenue receipts are the receipts which don't create liabilities to Govt. & do not
cause reduction in Assets of Govt ex:- Tax & non tax receipt
Capital receipts :- are the receipts which create liabilities to Govt& cause
reduction in Assets of Govt.
Ex:- Disinvestment

2+2

MPC

APS

85

0.15

85

85

0.05

29.

df

30.

Condition

Diagram

Explanation

31.

Bank of Govt :- Act on Financial advance of Govt and manages

accounts

of Govt.
Banker's Banks:- Central Bank keeps same cards balance of commerce this is to
help them during financial Crisis.

3+3

or
Money creation
DD

1 s
SLR

__1__ Cash deports

SLR
Explain the Concept with example

3
30

32.

GNPat fc(income method)=(ii)+(vi)+(viii)+(x)+ (iii)+(xi)

=1850+400+500+1100+100+(-50)=3900 crore
GNPat fc ( Expenditure Method )=(v)+(iv)+(i)+(iii)+(ix)+(xi)-(xii)

=2600+1100+500+100+(-100)+(-50)-250= Rs 3900 Cores


=====================================================
=======================

Group -2
QUESTION PAPER Set -3
CLASS-XII
ECONOMICS
Q 1.
Q 2.
Q 3.
Q 4.
Q 5.
Q 6.
Q 7.
Q 8.
Q 9.
Q 10.

Q 11.
Q 12.
Q 13.
Q 14.
Q 15.
Q 16.

Define Scarcity?
If the value of elasticity of demand is =.98 is it elastic or inelastic?
Define consumer equilibrium.
What do you mean by cartel?
Give the profit maximization situation in case of producer equilibrium.
The total expenditure of the consumer on a commodity remains oppositely
affected due to change in price. Comment on the elasticity of demand for
the commodity.
Differentiate between micro& macroeconomics.
With the help of a suitable schedule, explain the relationship between TU
and MU
Explain the monopolyMarketwith the help of average revenue and
marginal revenue curves.
Calculate AVC at each level of output.
OUTPUT
MC
1
40
2
30
3
35
4
39
Explain the effect of the rise in the income of consumer on the demand
for a good X.
Give the meaning of perfectly elastic supply and perfectly inelastic supply
with the help of Diagram.
Differentiate between Monopoly and Perfect Competition of Market. Any
six.
Distinguish between fixed costs and variable costs.
Explain the law of variable Proportion.
Explain the following:a) Law of diminishing Marginal utility
b) Explain geometric method of measuring Price Elasticity of Supply..

1
1
1
1
1
3

K
A
K
U
A
U

3
3

U
A

6
6
6

U
U
K

1
1
1

K
K
K

SECTION-B
Q 17.
Q 18.
Q 19.

Give the example of Macro variables?


Define Transfer payment?
Define aggregate supply
31

Q 20.
Q 21.
Q 22.
Q 23.
Q 24.
Q 25.
Q 26.

What is balance of trade?


Define autonomous consumption.
Distinguish between development expenditure and non-development
expenditure. Is government expenditure on administration and defence a
development expenditure?
Differentiate between depreciation and value loss.
"GDP is not the real indicator of welfare". Explain.
Differentiate between Intermediate product and Final product?
.
Calculate Gross Value Added at factor cost:a)
Sales
800

f)
Q 27.
Q 28.
Q 29.
Q 30.
Q 31.
Q 32.

1
1
3

K
K
U

3
3
3
3

U
U
U
A

4
4
6
6
6

U
U
U
K
A

b)
Opening stock
40
c)
Closing stock
30
d)
Subsidies
50
e)
Purchase of intermediate product 400
Purchase of machinery
200

Distinguish between direct tax and indirect tax. Give two examples of
each.
Differentiate between money multiplier and investment multiplier
Distinguish between a commercial bank and a central bank.
Describe fiscal deficit and its importance in economic development?
Define central bank. What are the functions of central bank?
From the following data calculate National Income by Income and
Expenditure methods.
(I)Government final consumption expenditure
110
(ii)
Subsidies
10
(iii)
Rent
200
(iv)
Wages and salaries
600
(v)
Indirect tax
60
(vi)
Private final consumption expenditure
800
(vii) Gross domestic capital formation
120
(viii) Social security contributions by employers
55
(ix)
Royalty
25
(x)
Net factor income paid to abroad
30
(xi)
Interest
20
(xii) Net domestic capital formation
110
(xiii) Profit
130
(xiv) Net exports
70

(marking scheme of Set-3


1 Economic problem arises because:
a) resourses are scarce b) resources are alternative uses
1/2+1/2
2. Law of demand state that other things remain constant when price increases
demand
decreases and price decreases demand increases .
1
3. Change in supply means increase in supply and decrease in supply .
1
4. This is because TVC = sum of MC .
1
5. Producer get maximum profit were
Profit = TR-TC.
1

32

If the rise or fall in own price of a commodity causes no change in total expenditure on
commodity then elasticity of demand is unitary.
Situation
Price of
Quantity
Total
Change in
Elasticity of
commodity
Kg
expenditure total
demand
expenditure
A
2
4
8
8
Unitary
1
8
8
8
elastic
1.1/2=+1.1/2
7. Relation between AR and MR
1) If AR is constant AR = MR
2) If AR is diminishing AR> MR
3) MR can be ve but not AR
3
8.
Land
Labour
TP
MP
1
1
1
1
1
1
1
1

1
2
3
4
5
6
7
8

2
5
9
12
14
15
15
14

2
3 =increasing
4
MP
3
2= Diminishing
1 MP
0
-1 = -ve MP
3
9.Revenue Curve Under monopolistic compt. Is same as under mnonopoly
A
Revenue
AR
MR
Output
10. calculate AVC
Output
1
2
3
4

MC
40
30
35
39

3
TC
40
70
105
144

AC
40
35
35
36

3
11. demand for goods which are related (like Tea and Coffie ) is more elastic because when price of
such goods rises the consumer have the option to shifting to the related goods .
3
12. perfectly inelastic supply: when supply does not response to change in price of the commodity .
Perfectly elastic supply : change in price will cause an infinite change in quantity demanded.
1.1/2+1.1/2
13.
33

S.No.
1.

Perfect competition
Large

2.

Refrence
Number of saller
and buyers
Product

3.

Price

Uniform

4.

Entry of firm

Free entry

Homogeneous

Monopoly
One saller , but larg
number of buyers
Homogenous or
differentiated
Not uniform
because of price
discrimination
Not possible
3

14.
Fixed cost
1.Fixed costs do not change with change
with change in quantity of output.
3. Fixed cost remains the same
whether output is zero or
maximum.

Variable cost
1. Variable costs change with change in
quantity of output.
2Variable cost are zero when output
Is zero. These costs increase when
output increase and decrease when
output decreases.
Diagramitcal relation between MC and AC
3,3
15.Law of variable proportion state that as more and more variable factor are used with fixed factor
then marginal product of variable factor start declining.
Table , diagram
2,2,2
OR
16. a) Law of diminishing marginal utility
3
b) Methods
3

SECTION-B
17. Macro variable are agg consumption , agg demand, agg supply , general price level.
1/2+1/2
18. Transfer payment are one sided payment from one sector to other sector. 1
19. aggregate supply refers to the flow of goods and services as planned by the producers
during a accounting period.
1
20. BOT= export of visible items import of visible item.
1
21. autonomous consumption is compulsory consumption .
1
22.FDI can be useful to create employment, control inflation & reduce inequality of income &
wealth which increase the purchasing power & thus improve the standard of living of the
people.
23. Depricition means loss of value of fixed assets .
1.1/2+1.1/2
24. GDP is not true indicator of walfare
1) Distribution of income
2) composition of GDP
3) non monetary transaction
1,1,1
25.
Intermediate goods
Final goods
7 These goods may be used as raw
3. These goods are not used as raw
material for the production.
material.
8 Value to be added to these goods.
4. Value is not to be added to these
goods.
1.1/2+1.1/2
34

26. Gross value added at factor cost = Sales+(closing stock opening stock)-purchased of
intermediate product purchase of machinery + subsidies. 3
27. While the impact of indirect taxation (like sales tax) can be shifted on to others, the
impact of indirect taxation(like income tax) cannot be shifted.
For example:
2+2
28. Investment Multiplier and MPC: Investment multiplier is the ratio between change in
income and change in investment.
K = Change in Y/change in I
2+2
29. Commercial bank: A commercial bank is a financial institute engagedin the business of
accepting deposit and making loans to the people.
Central bank: the central bank is an apex bank of the entire banking system of the
country , RBI is the central bank of india.
2+2
30. Fiscal deficit is equal to the total borrowing of the government its shows estimated
borrowing by the government to cope with its expenditure during the year .
2+4
31. Central bank: the central bank is an apex bank of the entire banking system of the
country , RBI is the central bank of india.
Function of the central bank
7. Issuing of notes
8. Banker of the government
9. Bankers bank
10. Supervision of bank
11. Lender of the last resort.
12. Control of credit.
2+4
32. INCOME METHOD
NNP FC =(iii) +(viii)+(ix)+(iv)-(x)+(xi)+(xiii)-(v)+(xiv)
Expenditure Method :
NNPFC = (i)+(ii)-(iv)+(vi)+(vii)-(x)+(xii)+(xiv)
3+3
Group -3
QUESTION PAPER Set -1
CLASS-XII
ECONOMICS
S.
No.
1.

Section A

What is law of demand?

2.

State one feature of oligopoly

3.

In which market form demand curve of a firm is perfectly elastic.

4.

Why is demand for water inelastic?

5.

Name one characteristic which make monopolistic competition different from


prefect competition.
Explain any two factors that affect elasticity of demand.

6.

35

7.

Given below is the cost schedule of a firm. Its average fixed cost is Rs 20
when it produced 3 units.
Output(u 1
2
3
nits)
Average variable cost 30
28
32
(Rs)
Calculate its
marginal
cost and average cost at each given level of output.
8. Total revenue at the price of Rs 4 per unit of a commodity is Rs 480. Total
revenue increase by Rs 240 when its price rises by 25 percent. Calculate its
price elasticity of supply.
9. Explain the implication of homogenous product feature of prefect
competition.
10. Explain the law of diminishing marginal utility with the help of utility
schedule.
11. Explain the effect of increase the income of buyer of a normal commodity on
its equilibrium price.
12. Explain the problem of what to produce Give diagram?.

13. When the price of the commodity falls by Rs. 2 per unit, its quantity
demanded increase by 10 units .its price elasticity of demand is ( -)1.
Calculate its quantity demanded at the price before change which was Rs 10
per unit.
14. State explains the characteristic of indifference curve.

15. Explain the law of variable proportion with the help of total product and
marginal product curve.
16. State whether the following statement are true or false. Give reason for your
answer.
(a) When total revenue is constant average revenue will also will constant.
(b) Average variable cost can fall even when marginal cost is rising.
(c) When marginal product falls average will also fall.

Section B
17. State two source of supply of foreign exchange.

18. Give the meaning of aggregate demand.

19. State the meaning of money supply.

20. How is the primary deficit calculated?

21. Give the meaning of deflationary gap.

22. How can Government budget be helpful in altering distribution of income in


an economy? Explain.
23. Explain center bank function as currency authority.

24. Explain how distribution of gross domestic product is its limitation as a


measure of economic welfare.
25. Distinguish between autonomous and accommodating transaction of balance

36

of payment account.
26. Giving any two examples explain the relation between the rise in price of
foreign currency and its demand.
27. Distinguish between :
(a) Capital receipts and revenue receipts.
(b) Direct tax and indirect tax.

28. Giving reason , state whether the following statement true and false :
(a) Average propensity to save is always greater than zero
(b) Value of investment multiplier varies between zero and infinity.
29. Explain the process of money creation by commercial Banks.

30. In an economy75 percent of the increase income is spent on consumption.


Investment is increase by Rs 1,000 crore . calculate:
(a) Total increase in income
(b) Total increase in consumption expenditure.
31. How will you treat the following while estimating national income of India?

(a) Dividend received by an Indian from his investment in share of a foreign


company.
(b) Money received by a family in India from relative working in abroad.
(c) Interest received on loan given to a friend for purchasing a car.
32. From the following data calculate (a) GDP at factor cost and (b) factor
income to abroad :
(Rs. In Crores)
(I)
(II)
(III)
(IV)
(V)
(VI)
(VII)
(VIII)
(IX)
(X)
(XI)

Compensation of employees
Profit
Dividend
GNP at market price
Rent
Interest
Gross domestic capital formation
Net fixed capital formation
Change in stock
Factor income from abroad
Net indirect taxes

800
200
50
1400
150
100
300
200
50
60
120

MARKING SCHEME SET-1


ONE MARKS ANSWERS
1. Inverse relationship between price and demand of a good , other things remains constant , is
termed law of demand .
2. (a) few firm
(b) Firms are interdependence in taking price and output decision.
(c) Non price competition (any one)
37

3. Prefect competition.
4. Because it is a necessity.
5. Forms produced differentiated products.
6. (i) NATUR OF GOOD 1\2
Demand is inelastic in case necessities while elastic in case of luxuries

(II) Number of substitution


More the number of substitution more the choice the consumer has and therefore more elastic the
demand 1
7

output

AVC

AFC

TVC

MC

ATC
*6

1
2

30
28
32

60
30
20

8. PRICE (Rs)

TR(Rs)

480

30
56
96

30
26
40

90
58
52

OUTPUT(RS)
120

1
5

720

144

Ed= % change in quantity/% change in price


1
= 24/1*4/120
= .8
9 Due to homogenous product price remain constant .Because supplier has no ground to change price.
10
Consumption units
1
2
3
4
Or any other relevant schedule

Total utility
4
7
9
10

Marginal utility
4
3
2
1

Explain the law of diminishing marginal utility on the base of schedule


11 Increase in income increase in demand at the given price ;4
(I) This lead to excess demand.
(II) Leads to competition among the buyers as a result price start rising.
38

(III) Rise in price leads to rise in supply and fall in demand


(IV) These change continue till supply and demand become equal at new equilibrium price.
(V) Equilibrium price rise.
12. The economy can produced different possible combination of goods and services from the given
resource.
The problem is that which of this combination should be economy produce. This is the problem of
choice if more of one goods produced then lesser resources are left for producing other goods.
13 Given
Change in price = -4
Change in quantity = -10
Ed = %change in quantity of demand /%change in price
-1=10/-2*10/Q
Q = 50 UNITS.
14(i) sloping down ward from left to right.

(II) Strictly convex to the origin


(III) Higher indifference curve represent higher utility
(Explanation)
15

According to the law of variable proportion when only one factor is increased while other factor
remain unchanged, MP and TP change in the following manner:
Phase - 1 MP increase and TP increase at increase rate
Phase - 2MP decrease but is positive and TP increase at decreasing rate
Phase - 3 MP decrease and is negative and TP falls
16(a) false because when TR is constant, AR will fall as output increases
(c) True, provided MCAP.
(d) False because AP falls only when MP AP. AP falls not because MP falls but because MP
AP
SECTION - B
17 Exports, foreign tourism etc.
39

18It is the expected demand for all goods and services in the economy.
19. (i) Currency and coin with public (ii) demand deposit of commercial bank.
20Primary deficit = fiscal deficit - interest paid.
21Excess of aggregate supply over aggregate demand at full employment level
22Through the budget government can reduce inequality of income. It can adopt progressive taxation
policy and spend more on requirement of the poor.
23It has solo authority to issue currency. It does so in accordance with the requirement of the
economy.
24If with increase in GDP inequality of income increase, poor become poorer while rich become
richer. This may lead to decline in welfare even though GDP has increased.
25Autonomous transaction take place independently of the state of B.P.O. Accommodating transaction
are transaction that are determine by net consequence of Autonomous transaction.
26When price of foreign exchange rises,
(i)

Import become dearer resulting in less import and therefore falls demand for foreign
currency.
(ii)
Tourism abroad become costlier and so demand for foreign currency falls.
(or any other points
27(a) Receipts which lead to either reduction in assets or increase in liabilities are called capital
receipts. Receipts which neither reduced assets not create any liability are revenue receipts.
(b)Direct tax is a tax whose incidence and impact fall on the same person .indirect tax is a tax whose
incidence and impact fall on the different person.
28. (I) false, it can be negative at low level of income when consumption
income.

expenditure is greater than

(II) false, it varies from 1 to infinity.


29. Money creation by bank is determine by (1) fresh deposit and( 2) legal reserve ratio. Suppose
fresh deposit is Rs 10000 and LRR is 20%. Initially bank keeps Rs. 2000 as cash and lendsRs
8000. Those who barrow spend this Rs8000. it is assumed that this rupees 8000 comes into
bank as a fresh deposit .bank again keep 20% of it as cash reserve and lend the rest . in this way
money creation goes on. Total money creation is Rs 50000.
Money creation = initial deposit X 1/LRR.
30. MPC = 3 / 4 , MPS =1 / 4, K = 4
30. (i) Y = I*K
= 1000*4
= RS4000 Crore
ii.Given that Y = C + I
40

C = Y- I
=
4000- 1000
Rs 3000 crore
31. (a) it is factor income from abroad , so will be included in N.I
(b) It is transfer receipts, so it is not included in N.I.
(c) Not included in N.I. because it is a non-factor receipt as the loan is not used for production but for
consumption.
32. (A) GDP at factor cost = (i) + (ii)
=
800 + 200 +150
= Rs 1300 crore.
(B) NFIFA = GNP @MP GDP @ MP
= (VI) - (GDP@FC+ (XI))

(v)

+ ((VI)

- (vii) - (viii+ix))

+ 100+ (300-200-50)

= 1400-(1300+120)
= -20
FITA = FIFA - NFIFA
= 60-

( -20)

== Rs 80 crore
===================================================================
Group -3
QUESTION PAPER SET -2
CLASS-XII
ECONOMICS

41

SNo.
1
2
3
4
5

Section A
What happens to total utility when marginal utility is negative?
Why is the PPC concave to origin?
Marginal
Saving
Average
How many firms are there in Monopoly Market?
Income
Propensity to
Propensity to
When demand for a good rise due to rise in price of substitute goods?
Consume
Consume
What is meant by change in demand called?
0
--40
-What is meant
by
Fixed
Cost?
100
--20
-A lot of people
are destroyed
because
200died and many factories
-0
-- of a severe
earthquake in
a
country.
How
will
it
affect
the
countrys
PPC?
300
-60
-400
-120
-Why does budget line slope downwards from left to right?
Explain the effects of change in income of the buyers of a good on its
demand.
OR
Explain any there determinants of demand for a commodity for a household.
Explain the effect of Change in Prices of inputs used on the supply of a
product.
Define Perfect competition. State its any two features.
A consumer buys 80 units of a good at a price of Rs. 5/- per unit. Suppose
price elasticity of demand is (-) 2. At what price will he buy64 units?

1
1
1
1
1

K
U
K
U
K

3
3

K
U

3
3

U
U

4
4

K
A

13

Define Producers Equilibrium. Explain producers Equilibrium with


Marginal Revenue (MR) and Marginal cost (MC) approach under perfect
competition.
Or
Calculate total variable cost and marginal cost at each given level of output
from the following tableOutput
0
1
2
3
4
Total
40
60
78
97
124

14

When will the equilibrium price of a commodity not change if its demand
and supply both increase? Explain through a diagram.
OR
There is a simultaneous decrease in demand and supply of a commodity.
When it will result in: No change in equilibrium Price. A fall in equilibrium
price.

15

Explain the meaning of increasing returns to a factor with the help of TPP
schedule and TPP curve.
Explain different situation under which budget line shifts. Use diagram.

1
1
1

1
1
3

K
K
A

6
7
8
9

10
11
12

16

Section B
17.
18.
19.
20.
21.
22.

Give the meaning of ex-ante aggregate demand.


State the relationship between MPC and investment multiplier.
What is Dirty Floating?
State the two components of money supply.
Name the primary function of money.
From the following data relating to a firm, calculates its net Value
Added
at factor cost:
Items
Sales
Subsidy
Closing stock
Depreciation
Intermediate purchase
Import of raw material
Exports

42

(Rs. In Lacs)
1600
80
40
60
1000
120
200

MARKING SCHEME FOR QUESTION PAPER -SET-II


SECTION A
1.
2.
3.
4.
5.
6.

Total utility should be falling.


1
Because of increased marginal opportunity cost.
1
One
1
Increase in demand.
1
Costs, which incurred on fixed factor.
1
With the death of lot of people amount of labour will fall and destruction of factories will
cause a reduction in the stock of capital. This decrease in resources causes of shift of production
possibility curve to the left showing less production of two goods than before.
1.1/2*2=3

7.

Because with given income and given prices of two goods, if a consumer buys more of one
good he has to buy less of the other good.
3
8.
Normal goods Increase in the income of consumer increases his demand.
1
Inferior goods- Negative relationship between income and demand.
1
Necessities of life- demand is unaffected.

1
OR

Following are the factors that affecting demand for a commodity by a consumer.
(1)Price of the commodity

(2)Income of the consumer

(3)Price of Related goods (Substitute and Complementary goods)

9.

Supply curve shifts rightward and leftward due to increase or decrease in price of the inputs.
Diagram

43

10.

Perfect competition- It refers to a market situation in which there are large number of buyers
and sellers selling homogeneous product.
1
Features- (any two)
1*2=2
(1) Very Large number of buyers and sellers.
(2) Homogeneous Product
(3) Free entry and exit of firms
(4) Perfect knowledge about market
(5) No Transport Cost.
Q P

P Q

11.

ep =

(-)2 =

16 5
x
P 80

2=

1
P

P =

1
1
2

P = 0.5

New price P +P = 5+0.5 = Rs 5.5 per unit.

12.

PRODUCERS EQUILIBRIUM-A producers said to be in equilibrium when he produces the


level of output at which his profit is maximum.

3+1=4

Under perfect competition, price =MR=AR which is parallel to X axis. Two conditions must be
satisfied to achieve producers equilibrium.
44

(1) MR=MC, (2) MC cuts MR from below

In the diagram OQ2 is the equilibrium level of output because it satisfies both the conditions of
equilibrium that is MR=MC and MC cuts MR from below.
(2). MC should be greater than MR after equilibrium output.
If the firm produces less than OQ2 then profit are not maximize. On the other hand, if firm produces
more than OQ2 then there will be a loss and total profits will be reduced.
OR

2+2=4
Output
0
1
2
3
4

Total Cost
40
60
78
97
124

TFC
40
40
40
40
40

TVC
0
20
38
57
84

MC
0
20
18
19
27

13. When both demand and supply of a commodity increase (when both demand and supply curve
of a commodity shift to the right), the equilibrium quantity will increase but the equilibrium
price may or may not be affected. This can be shown by diagram.

When both demand and supply of a commodity increase in equal proportion, the equilibrium price will
remain the same. As shown in the diagram after change in both demand and supply price will remain
the same as P and the equilibrium quantity changed from Q to Q.
3+3=6
OR
Decrease means less quantity at the same price. Decrease in demand shift the demand curve to the left
downwards. Decrease in supply shifts the supply curve to the left upwards.
45

(i)If decrease in demand is equal to decrease in supply, there will be no change in the equilibrium
price .In the figure, both demand and supply decrease by EE = QQ at a given price OP

(ii)If decrease in demand is greater than decrease in supply, the equilibrium price will fall. In the
figure, decrease in DD=AE. While decrease in supply is lower i.e. BE. Therefore, equilibrium price
falls from OP to OP.
15 law of variable proportions The law of variable proportion states that if we go on using more and
more units of a variable factor (Labour) with a fixed factor (land), the total physical product
increases at an increasing rate in the beginning,then increases at a decreasing rate after a level of
output and ultimately it falls. In accordance with the law , the Marginal Physical Product increases
in the beginning, then its start falling but remain positive and ultimately it continues to fall but
also becomes negative. The following schedule and diagram illustrate the law.
Schedule and DiagramFixed
1
1
1
1
1
1
1

Variable
1
2
3
4
5
6
7

Total
10
30
45
52
52
48
38

Marginal
10
20
15
7
0
-4
-10

46

Average
10
15
13
13
10.4
8
5.4

Stages
First Stage (Increasing
Returns to Factor)
Second
Stage
(Decreasing Returns to
factor)
Third Stage (Negative
Returns to a Factor)

The schedule and the diagram shows that there are three phases of the law of variable proportions. In
the First phase, TPP increases at an increasing rate and MPP rises. In phase II, TPP increases at a
diminishing rate and MPP falls but remain positive. In phase III, TPP starts falling and MPP becomes
negative. Phase I is up to unit 2 and phase II is from unit 2 to unit 5. Phase III is after unit 5.
2+2+2=6
16. Shifts In Budget Line.
Case I When consumers money income increases but price of commodities remain constant.
3
If LM is the Budget Line. Suppose if money income is increases then consumer will be able to
purchase more goods with the new income at the given prices, therefore budget line will shift to the
right (LM). Suppose if money income is decreases then consumer will be able to purchase less goods
with the new income at the given prices, therefore budget line will shift to the left (LM). New
budget line LM and LM is parallel to the original budget line LM because slope of new budget
lines remain same since price do not change.

Case II When prices of good X change and income of consumers remain constant.

If LM is the Budget Line. Suppose if price of good X falls but money income and price of Y good
remain constant then consumer will be able to purchase more of good X only, therefore

budget line will shift to the right (LM). Suppose if price of good X rises but money income and price
of Y good remain constant then consumer will be able to purchase less of good X only, therefore
budget line will shift to the right (LM).
SECTION B
17.
Ex-ante aggregate demand refers to the anticipated total demand for goods and services in an
economy during a given period of time.
1
18.

Multiplier (K) = 1/1-mpc

47

19.

Definition

20.
The two components of money supply are : Currency held with the public and demand deposits
with commercial banks.
1
21.

Money as the measure of Value And Money as a medium of exchange.

22.

NVA fc = 1600+40-100-1000-60+80

= Rs560 lakhs

23.
Domestic Product refers to the output produced by all production units located within the
domestic territory of a country during a accounting period.
1
National product refers to the output produced by normal resident of a country (within and outside the
country) during an accounting year.
1
When Net Factor Income from Abroad is positive then National product can be more than Domestic
product
1
24.

Whether machine is a final good or not depends on how it is being used .


If the machine is bought by a household, then it is a final good.
1
If the machine is bought by a firm for its own use, then also it is a final good.
1
If the machine is bought by a firm for resale then it is an intermediate good.
1
25.
Three reasons.
(1x3 = 3)
(1) To purchase goods and services from other countries by the domestic residents.
(2) To send gifts and grants to foreign countries.
(3) To invest and purchase financial assets in some other country
OR
Appreciation of domestic currency means a rise in the price of domestic currency (say rupee) in terms
of a foreign currency (say $). It means one rupee can be exchanged for more $. So with the same
amount of money more goods can be purchased from USA. It means imports from USA have become
cheaper. They may result in increase of imports (from USA).
3
26.
The current account records transactions relating to the export and import of goods and
services, income and transfer receipts and payments during a year.
1
The capital accounts records transactions affecting foreign assets and foreign liabilities during a year.1
Since import of machinery is an import of good, it is recorded in the current account.

27.

(a) It is a capital receipt as it results in reduction of assets.

(b) It is a capital receipt as it creates a liability.

(c) It is a revenue receipt as it neither creates a liability nor reduces any assets.

(d) It is a revenue receipt as it neither creates a liability nor reduces any assets.

28.

Definition = 1 Any Three Measurement-3


OR
Incom

Saving

Consumptio

C
48

MPC

APC

--

-40

40

--

--

--

100

100

-20

120

80

0.8

1.2

200

100

200

80

0.8

1.0

300

100

60

240

40

0.4

0.8

400

100

120

280

40

0.4

0.7

9.
Government Budget is a statement of expected receipt and expenditure of the government
during a financial year.
1

(a)

(a) Revenue deficit is the excess of revenue expenditure over revenue receipts. 1
(b) Fiscal deficit is the excess of total expenditure over total receipts excluding borrowings.
1
(c) Primary deficit refers to the deference between fiscal deficit of the current year and interest
payments on the previous borrowings.
1
30. Saving Function
S = - 100 + 0.5 Y
Consumption Function
C = Y- S
C = Y + 100 0.5 Y
C = 100 + 0.5 Y
Investment
I = 7000
Equilibrium Level of National Income
3
Y = AD = C + I
Y = 100 + 0.5 Y + 7000
0.5 Y = 7100
Y = 7100 / 0.5 = Rs. 14200
(b)
Consumption expenditure at equilibrium level of national income
3
C = Y + 100 0.5 Y
Y = 14200 = 100 + 0.5 (14200)
= 7200
31.
Any six function of RBI
1*6
32-Expenditure Method
National Income

vi + i + vii + xiv v + ii xii x

2400+300+360+210-180+30-30-90

1.1/2

Rs. 3000 Crores.

1/2

iv + viii + (iii + ix) +xi + xiii x

1800+165+(600+75)+60+390-90

1.1/2

Rs. 3,000 Crores.

1/2

Income Method
National Income

OR
49

Personal Income

GNDI

(iv - xi) + (vii- ix- x) viii iii

=2000 - 160 + 140- (-40) + 60 80 180

1.1/2

1/2

Rs. 1820 Crores.

iv + ii + vi ix

2000 + 200 + 100 - (-40)

1.1/2

Rs. 2340 Crores.


Group -3
QUESTION PAPER SET -3
CLASS-XII
ECONOMICS

1.
Why does an economic problem arise?
1
U
2.
What is meant by Consumers equilibrium?
1
K
3
What do you mean by MU?
1
K
4
What is MC?
1
K
5
In which market both AR and MR equal.
1
U
6
Explain why production possibility curve is concave to the origin.
3
U
7
What are the factors affecting demand? Any Three
3
K
8
Explain the relationship between TR and MR .
3
U
9
Differentiate between Change in Quantity demanded and Change in demand
3
50

A
or

Differentiate between Change in Quantity supply and Change in supply.


10
How Monopoly Affect the lower class consumers?
3
U
11
A consumer buys 160 units of a good at a price of Rs 8 per unit. Price falls to Rs 6 per unit.
How much quantity will the consumer buy at the new price if price elasticity of demand is (-)2) ?
4
A
12
Why demand curve slopes downward?
4
U
13
Calculate Total Variable Cost and Marginal Cost from the following cost schedule of a firm whose
Total Fixed Cost is Rs. 12 :
Output
Total Cost
(Unit)
(Rs.)
1
20
2
26
3
31
4
38
4
A
14
Explain the likely behaviour of Total Product and Marginal Product when only one input is increased
while all other inputs are kept unchanged.
OR
Explain the producer equlibrium with the help of MR-MC approach.
6
U
15
There is a simultaneous decrease in demand and supply of a commodity.
When will it result in:
(a) No change in equilibrium price. (b) A fall in equilibrium price. Use Diagram.
6
A
16
What are the determinants of market supply?
6
K
51

Sl.No

SECTION : B

1
2
3
4
5
6
7

Items

Rs. In lakhs

CFC/ Depreciation
Sales in domestic market
Exports
Opening stock
Purchase of raw material
Closing stock
Import of raw material

15
250
50
20
150
30
25

17
What do you
Deficient demand?
1
K
18
What do you meant by Bartersystem.
1
K
19
What do you mean by Inflationary gap?
1
K
20
Give the relationship between APC and APS.
1
U
21
What do you meant by Primary Deficit?
1
K
22
Calculate Personal Income from the following data :
Items
(i) Undistributed profits of corporations
(ii) Net domestic product accruing to the
private sector
(iii) Corporation tax
(iv) Net factor income from abroad
(v) Net current transfers from government
(vi) National debt interest
(vii) Net current transfers from the rest of the world

(Rs.
crores)
20
500
55
(-) 10
15
40
15

3
A
OR

Calculate Gross Value Added at MP from the following data.

52

meant by

23
State any three functions of money.
3
K
or

What are three drawbacks of barter system


24
Differentiate between fiscal deficit and revenue deficit.
3
U
25
A Rs. 200 crore increase in investment leads to a rise in national income by Rs. 1000 crores. Find out
marginal propensity to consume.
3
A
26
What are causes for disequilibrium of balance of payments.
3
K
27
Explain how foreign exchange rate is determined in a foreign exchange market ?
4
U
28
Distinguish between revenue receipt and capital receipt and give two examples of each.
4
U
29
What are the functions of Central bank. Explain any two.
4
K
or

Give reasons to categorize the following into revenue receipts and capital receipts?
i
Recovery of loans
ii
Income tax
iii
dividends on investment made by government
(i)
Sale of public undertaking
30
How will you treat the following while estimating domestic product of India?
53

(i) Rent received by a resident Indian from his property in Singapore.


(ii) Salaries to Indians working in Japanese Embassy in India.
(iii) Profits earned by a branch of an American Bank in India.
6
U
OR

Explain any two precautions that should be taken while estimating national income each by (a) value
added method, and (b) income method
31
Can an economy be in a state of under employment equilibrium? Explain with the help of a diagram.
6
U
32
Calculate GDP at MP by a) Expenditure method, b) Income method
Items
(Rs. In Crores)
1)
Net domestic fixed capital formation
50
2)
Operating Surplus
50
3)
Subsidies
5
4)
Mixed income
60
5)
Pvt. Final consumption expenditure
120
6)
Social security contributions by employees
10
7)
Net factor income from abroad
(-)10
8)
Indirect tax
30
9)
Addition to stocks
5
10)
Compensation of employees
70
11)
Govt. final consumption expenditure
25
12)
Net exports
5
6
A
ANSWER KEYSET-3
1. An economic problem is basically the problem of choice, which arises because of scarcity of
resources. Human wants are unlimited but resources to satisfy them are limited. In such a situation
every individual and society have to make a choice as to which wants should be satisfied by making
use of scarce resources which have alternative uses.
2)
Consumer equilibrium:-It refers to a situation when he spends his given income on purchase
of a commodity ( or commodities) in such a way that yields him maximum satisfaction
3) Marginal utility is the satisfaction derived from consumption of additional commodity,
MUn= TUnTUn-1
4) Defunation
5) Perfect competitive market.

54

6) Shape of PPC:- Normally, the PPC is concave to the origin and slopes downwards, because of
increasing marginal rate of substitution.
Downward sloping concave PP curve shows increasing Marginal Rate of Transformation (MRT) as
more quantity of one good is produced by reducing quantity of the other good. This behaviour of the
MRT is based on the assumption that all resources are not equally efficient in production of all goods.
As more of one good is produced, less and less efficient resources have to be transferred to the
production of the other good which raises marginal cost i.e. MRT.
7. a. Price of the commodity: With the fall in the price of a commodity, its demand extends.
b. Price of other related goods: Demand for a commodity is also influenced by the change in the
price of other related goods.
(i) Substitute goods: Increase in the price of one causes increase in demand for the other and
decrease in the price of one causes decrease in demand for the other.
(ii) Complementary goods: A fall in price of one causes increase in the demand of the other and
a rise in the price of one causes decrease in the demand for the other.
c. Income of the consumer: Change in the income of the consumer also influences his demand for
different goods. The demand for normal goods tends to increase with increase in income, and viceversa. On the other hand, the demand for inferior goods like coarse grain tends to decrease with
increase in income and vice-versa.
8.
When TR increases
MR is positive
Output
Price

MR
(Rs.)
10
8
6
-4

(units)
(Rs.)
When TR is maximum
MR is zero
1
10
2
9
When TR decreases MR is
3
8
negative
4
5

TR
(Rs.)
10
18
24
20

9. Change in Quantity demanded: The change in the price of commodity leads,


there will be change in quantity of demand for the commodity .Expansion due to fall in price, and
Contraction due to rise in price. (diagram A)

Change in demand: A change or shift of demand curve is due to a change the other
factors(Income of the consumer iii) Price of related goods and iv) Tastes and preferences of the
individual/ consumer) than price of the commodity. Rightward shift of DDcurve means increase
quantity, while leftward shift DDcurve means decrease quantity.
Or
55

CHANGE IN QUANTITY SUPPLIED:- It is caused by a rise/fall in the price of a commodity. It is express


either in form of an expansion in supply or contraction in supply. Expansion and contraction in supply are
represented diagrammatically in the form of a movement along a given supply curve. Contraction is due to fa
in price.

CHANGE IN SUPPLY:- A change in supply of a commodity caused by


factors other than (Income of the consumer ii) Price of related goods and iii) Tastes and preferences of the
individual/ consumer) the price of a commodity. Change in supply is represented graphically by a rightward
leftward shift. Decrease is due to fall in other factors than the price. Leftward shift shifting of supply curve le
to decrease the supply.

10. MONOPOLY: 1) Effect of Price Discrimation

11.

DQ P
Ed
x
DP Q

8 X 160 X 140
2
x

160
2
40

X = 160 = +80 , X = +80 + 160 = 240 The

Consumer will buy 240 units


12. The demand curve slopes downward because of :i)
Law of diminishing marginal
utility : According to this law, as a consumer in a given time, increases the consumption of a thing, the
utility from each successive unit goes on diminishing A Consumer gets maximum satisfaction. When
the price of a commodity is equal he its marginal utility. As more units are bought, their marginal
utility diminishes. Thus, a consumer will boy more units of a commodity, with fall in its price.
ii)Income effect : Change in the price of a commodity causes a change in the real income of
the consumer. With fall in price, real income increases. The increased real income is used to boy
more units of the commodity.
iii)Substitution effect : When the price of community X falls it becomes cheaper in relation to
commodity. Accordingly X is substituted for the commodity. A consumer in order to get more
satisfaction, will boy more units of the commodity whose price has fallen in relation to the commodity.
iv)Uses of commodity : If a commodity has diverse uses, with the fall in the price of product consumer
will buy more.
Q
1
2
3
4
A.14.

TC
20
26
31
38

TFC
12
12
12
12

TVC
8
14
19
26

MC
8
6
15
7

56

13.

10

TPP

12

16

19

21

22

22

21

19

APP

3.5

3.8

3.5

3.14

2.75

MPP

2.33
-1

1.9
-2

Law of Variable Proportions- The law states that if we go on using more and
more units of a variable factor (Labour) with a fixed factor( land , Capital) the total output initially
increases at an increasing rate but beyond certain point, it increases at a diminishing rate and finally it
falls.
This can be studied in three stages (I, II, and III) Total Physical Product (TPP) :- The total output of
commodity at a particular level of employment of an input(Labour), Average Physical Product (APP):Dividing the TPP by the number of inputs. Marginal Physical Product (MPP):- An addition made to
the TPP by employing an additional unit of a variable input
TPP & MPP Relationship:- a) When MPP is positive, TPP increases at increasing rate (I stage) b)
When MPP is zero, TPP is maximum,(II stage) c) When MPP is negative, TPP is falling(III stage)
( or)
(i) It means that TPP increases at an increasing rate and consequently MPP rises. It is due to (a) more
efficient utilization of fixed input and (b) division of labourandspecialisation due to increase in the
quantity of variable input. (3)
(ii) It means output increasing in greater proportion than the increase in all input simultaneously and in
the same proportion. It is due to (a) more division of labour leading to specialisation that increases
productivity and(b) use of specialized machines
15. Equilibrium Price - It is the price at which quantity
demanded and quantity supplied are equal. It is also called market price.
(a) If .decrease. in demand is equal to decrease in supply, there will be no change
in the equilibrium price. In the figure, decrease in dd = decrease in SS = E1E2
Equilibrium price remains the same at OP. (1)
(b) If decrease in demand is greater than decrease in supply, the equilibrium price
will fall. In the figure, decrease in dd = AE, while decrease in supply is lower i.e.
BE1 Therefore, equilibrium price falls from OP1 to OP2
16. The factors affecting market supply are : . The factors affecting market supply
are
1

Technological changes : Technological advancement in the field of production lower the


marginal cost of production Since, MC curve is essentially the supply curve, technological
progress shifts supply curve to the right.
57

Input price changes :- Increase in the price of factor inputs leads to an decrease in supply & the
supply curve shifts to the left conversely, if the price of factor factor inputs decreases, the
supply increases and the supply curve shifts to the right.

Change in the excise tax rate : If product the marginal cost, which curve to the left. If the
excise duty decreases, the MC would decrease and the supply curve would shift to the right.
Changes in the prices of related goods : An increase in the price of a substitute good in
predictor shifts the supply curve of a good to the right, white a decrease in the price of a
substitute good, would shift the supply curve of a good to the left.

4. No. of suppliers.:- When suppliers more, the supply will be more of any commodity other
wise less.
Diagrams may be used.
SECTION B
17. Deficient demand:employment.

Deficient demand refers to the situation when AD is less than AS at full

18.. Barter System: The direct exchange of goods for goods without the use of money called barter
system.
19. Excess demand leads to inflationary gap, it is the situation when AD is more than AS at full
employment.
20.The sum of average propensity to consume and average propensity to save is equal to one because
Y=C+S
Dividing both sides by Y we get
Y
Y

C
Y

S
Y

1 = APC + APS
i.e. APC = 1-APS
APS = 1-APC
21. Primary Deficit Difference between fiscal deficit and interest payments.(PD=FD-Interest
payments)
22. Calculate Personal Income from the following data :
(Rs. crores)
(i) Undistributed profits of corporations

20

(ii) Net domestic product accruing to the private sector


(iii) Corporation tax

= 500+(10)+15+40+15

500
55

(iv) Net factor income from abroad

() 10
58

PI= ii+iv+v+vi+vii

=560
= 560-iii-I =485 Cr

(v) Net current transfers from government

15

(vi) National debt interest

40

(vii) Net current transfers from the rest of the world

15

OR
Calculate Gross Value Added at MP from the following data.
Sl.No

Items

Rs. In
lakhs
15
250
50
20
150
30
25

1
2
3
4
5
6
7

CFC/ Depreciation
Sales in domestic market
Exports
Opening stock
Purchase of raw material
Closing stock
Import of raw material

ANS

= 2+3 (6-4) = (250+50)- (30-20) = 290

23. Functions of Money:- I) A unit of value The values of different goods can be expressed
through money. ii) A medium of exchange People can exchange goods and services through the
medium of exchange. iii) Standard deferred payments- Future truncations can be carried on in terms
of money. iv) A store of value Value of goods can be stored in the form of money.
(or)
Lack of double coincidence of wants it is very difficulties to get the same persons who can be
exchanged each other with their goods
Lack of a common measure of value no proper counting system possible in the absence of
common measure of value .
Lack of standard of deferred payments, - Future payments by goods create many problems, they
have to be stated in specific goods or services which may involve disagreement over the
quality of goods etc.,
Lack of store of value- storing commodities leads deterioration or appreciation in the value of goods.
Only durable goods can be stored others cannot be done or stored in the same way.
24. Revenue deficit is the excess of revenue expenditure over revenue receipts. in terms of formula,
revenue deficit = revenue expenditure revenue receipts.
Fiscal Deficit is the excess of total expenditure over revenue receipt and non debt capital receipts
recovery of loans and disinvestments of PSU excluding borrowings .
25.. Ans. K= 5 ( I. Rs. 200, Y=Rs. 1000 and MPC =0.8, )
26. DISEQUILIBRIUM IN BOP: It is a state of either deficit BOP status or surplus BOP status.
Equilibrium in BOP is achieved when the net balance of all receipts & payments is zero.

59

CAUSES OF DISEQUILIBRIUM: Disequilibrium in BOP is caused by a number of factors, broadly


categorized as (a) economic factors (b) political factors (c) social factors. Following are the details:
ECONOMIC FACTORS: -Huge development expenditure: Huge development expenditure by the
government owing to which there are large scales imports. It may cause a deficit BOP dis equilibrium.
Business cycle: Business cycles in terms of recession, depression, recovery & boom. A period of
boom may witness a large scale export of a country. Accordingly a surplus BOP disequilibrium may
occur.
High rate of inflation: High rate of inflation in domestic market, compelling large scale imports of
essential goods. This drives the economy towards deficit BOP disequilibrium ( or)

27. FOREIGN EXCHANGE RATE: It is a rate at which the currency of one country I
exchanged with the currency of other country eg., $1 = Rs.48 or one Indian rupee 1/48 th $.
Determination of the FER The rate is determined in the foreign exchange market by the interaction
of the demand for and supply of foreign exchange currencies
Demand for Foreign exchange comes from a) domestic resident to purchase goods and services from
other countries b)for sending gifts to foreigners c) by the domestic residents to purchase financial
assets in a particular country d) Speculation purpose
Supply of Foreign exchange comes from a) the foreigners purchasing home currency goods and
services through exports b) the foreigners who invest in home country through joint ventures
28. Revenue Receipts:- It refer to the receipts of the govt. which dont create any liability and cause
any reduction in the assets of the govt. It may be divided into two, tax revenue ( direct tax, e.g.
income tax and indirect tax, e.g. excise duty) and non-tax revenue( eg. Fees, fines and penalties)
CAPITALRECEIPTS:- It refers to those receipts of the govt. which create a liability / cause
reduction in its assets. Loans raised by the govt. from the public( market loans) b) borrowings by the
govt. from the central bank and other parties through the sale of treasury bills. C) Loans received from
foreign govt and international financial institutions(world bank / IMF) D) Recoveries of loans granted
to state and UT govts. And other parties E) small savings and deposits in PPF F)PSU disinvestment
selling shares /securities of PSU..
29. Issue of Currency:
The Central Bank is given the monopoly of issuing currency in order to
secure control over volume currency and credit. These notes are circulated through out due country as
legal tender money. It has to keep a reserve in the form if gold and foreign securities as per the
statutory rules against the notes issued by it. It issues notes above Rs.2/-. One Rupee coins and other
small coins are issued by the mints of Government.
Bankers to Government: Central Bank acts as the bank of Central and State governments. It
carries out al banking business of Government. Government keep their cash balances in the current
account with Central Bank. Similarly central bank accepts receipts and makes the payment on behalf
of the Government. Also Central bank carries out exchange, remittances and other banking operation
on behalf of Government. Central Bank gives the loans and advances for a short period to the
Governments. It also manages the public debt of the country.

60

Bankers Bank & Supervisor:


All the scheduled banks are controlled and supervised by the
Central Bank. These banks are required to keep certain percentage of their deposits with Central
Bank. They can take loans from the Central Bank.
Controller of Credit & Money Supply:
Central Bank regulates the supply of money and credit
according to the interest of the country. It follows various instruments like (i) Bank rate, (ii) Open
Market operations (iii) Cash reserve ratio, (iv) Moral suasion (v) Marginal requirements. They are the
instruments of Monitory policy
.Exchange Control: It maintains the external value of currency. Every citizen should deposit foreign
currency they earn with RBI and they can get foreign currency from RBI with application.
Lender of Last Resort:
Scheduled banks can take the loans by rediscounting first class bills or
short term approved securities, whenever they do not get funds from any other sources.
Custodian of Foreign Exchange Balance: Central Bank maintains the balance of foreign exchange
gold and bullions.
Clearing house function: Central Bank clears the cheques received by a bank belong to other
banks issued by the customers without delay.
Collection and publication of data: It collects, completes the data regarding the other banks and
publishes this information
or
29. i) Recovery of Loans., Capital receipts as it decrease assets
ii) Income tax.

Revenue receipts as neither increase liability nor reduce assets

iii) Dividends on Investments made by Government are revenue receipts as neither increase liability
nor reduce assets
iv) Sale of public sector undertaking. Capital receipts as it decrease assets
30.i) Income is creating in the domestic territory of Singapore and not in India .
(ii) No, It is a part of domestic territory of Japan not in India .
(iii) Yes, Income is created in the domestic territory of India .
(iv)

Yes, (Indian embassy)It is a part of domestic territory of in India .


or

Product method / Value added method:-. Precautions:


1

Sale and purchase of second hand goods are not included. Because it is not a part of
current production.

The value of intermediate goods should not be included. Because it will lead to the
problem of double counting.

Production for self consumption should be included. Because it is a part of national


income. Hence its imputed value should be included.

61

Services of owner occupied houses / imputed rent should be included in national income
because these are part of the current years production.

Own account production of fixed capital should be included; it is a part of final investment
expenditure.

Income method:-Precautions:
1.
Transfer Incomes: These should not be included in national income. Because these are not part
of factor incomes.
2.
Income from illegal activities: It is not included in national income. Because these activities are
not part of productive activities.
3.
Income from sale of Second hand goods: It is not included in national income. Because it is
not part of current productions.
4.
Windfall gains:
These are not included in national income. Because there is no
corresponding increase in production.
5.
Income received from sale of shares/bonds: It should not be included in national income.
Because they are financial transactions.
31.Yes, there can be a state of under employment equilibrium. In the below given diagram it is shown
at OM output/income .
Income
(Y)
0
100
200

Consumption
(C)
50
100
150

Investment
(I)
100
100
100

AD =
C+I
150
200
250

300

200

100

300

300

400
500

250
300

100
100

350
400

400
500

AS = Y
0
100
200

Remarks
AD>AS
Employment
AD=AS
(Full employment)
AD<AS
Employment

A brief explanation about the schedule along with a diagram.


The equilibrium level of income and output is that level at which planned saving and planned
investment are equal. (1)
SS. is the saving curve that shows planned saving at different levels of income. I
I. shows fixed level of investment as it is assumed that investment is given and is
constant, OQ is the equilibrium level of income and output as at this level,
planned saving and investment are equal If planned expenditure is less than
planned output inventories will increase. So output will be reduced till planned
expenditure and planned output are equal. (see schedule in the next paragraph)..
62

(C)

(S)

(I)

Remarks

50

-50

100

100

100

100

200

150

50

100

300

200

100

100

S=I

400

250

150

100

S>I

S<I

What happens if savings exceed planned investment? In the diagram, at ON level of income (output),
RN amount of saving exceeds SN amount of investment by an amount equal to RS. This shows
households are consuming lesser than the investment of firms ( i.e, level of output). As a result firms
stock of unsold goods will pill up, i.e., there will be undesired and unplanned build-up of inventories,
firms will cut back production and reduce employment leading to fall in income. The tendency of
reducing out put and income to fall will continue until it reaches the OQ equilibrium level of income
(output) at which planned saving TQ is exactly equal to planned investment TQ.(Any one approach)
32. a) 205 Crores

b)

205 Crores

=========================================================================
Group -4
QUESTION PAPER Set -1
CLASS-XII
ECONOMICS

PART A
1
2
3
4
5
6
7
8
9
10
11

12

13

What do you mean by Scarcity?


Define Marginal Utility?
Give two examples Inferior goods.
Give theone example of implicit cost.
In which market term a firm is price taker?
What do you mean by How to produce? in the economics?
Explain meaning and three causes of increase in demand ( Use Diagram)
State the effect of change in income and the demand of Giffin goods.
Write the causes of rightward shifting supply curve of a commodity.
Describe three characteristics of oligopoly?
A consumer buys 100 units a price Rs 5. Co-efficient of Price elasticity of
demand is 1. At what price will consumer purchase 140units?
OR
If a consumer buys 100 units initially. Now if there is fall in price 50% and
demand increase 150 units calculate price elasticity of Demand.
Explain Relationship between MC and AC (Use Diagram).
OR
Calculate AFC and AVC from given data
OUTPUT
0
1
2
TC
50
80
120
Indian economy is not utilizing its available resources to the maximum
63

1
1
1
1
1
3
3
3
3
3
4

K
K
K
K
K
K
K&S
U
U
U
U

U&S

14
15

16
17
18
19
20
21
22
23
24
25

26

27

28
29

30
31

possible extent. As a result, its PPC is placed at lower level compared to the
potential level. What needs to be done in this period?
What is law of variable proportion, explain it with the help of Diagram and
schedule.
Give the meaning of consumer equilibrium; state the conditions of consumer
equilibrium using indifference curve approach.
OR
With the help of a demand and supply schedule, explain the meaning of
excess demand and its effect on price of a commodity.
Explain the effects of change in demand on equilibrium Price (Use Diagram).
PART B
Define Bank Rate.
Give example of intermediate good.
What do you mean by subsidy?
Why recovery of loan is capital Receipt.
Define Balance of Payment.
Write it components of compensation of employees?
Give any three functions of money.
Describe the concept of investment multiplier with the help of a numerical
example.
Explain any one component of aggregate demand.
OR
How govt. Budget helps in Redistribution of income and wealth.
If inflation is higher in country x than in country y and exchange rate between
the two countries is fixed, what is likely to happen to trade between two
countries?
Calculate net value added at factor cost.
Total sales
= 500
Expenditure on intermediate goods
= 200
Net indirect tax
= 175
Subsidy
= 25
Depreciation
= 50
OR
Define any two terms from the following:
I.
Capital Goods
II.
Operating surplus
III.
Nation income
IV. Stock
How does commercial bank create credit?
Define following any two terms:
I.
Revenue deficit
II.
Fiscal deficit
III.
Primary deficit
Explain how flexible rate of foreign exchange is determined in the market
( Use diagram)
Using diagram explain the concept of deficient demand. State two measures
to correct deficient Demand.
64

U&S

U&S

U&S

1
1
1
1
3
3
3

K
K
U
K
K
U
U&A

4
4

U
K

U&S

U&S

OR
In an economy saving function is S = -50 +5Y and investment is 7000 /-.
Calculate
I.
Equilibrium level and national income.
II.
Consumption expenditure at equilibrium level of national income.
32 Calculate
(i) NNPFC (iv) Personal Disposable Income
6
I.
Compensation of employees
= 900
II.
Rent
= 300
III.
Interest
= 500
IV. Private Income
= 2500
V. Profit
= 600
VI.
Mixed income
= 500
VII.
NFIA
= (-)50
VIII.
NIT
= 100
IX.
Corporation Tax
= 100
X.
Depreciation
= 90
XI.
Net retained earnings of Private corporate Sector = 50
XII.
Direct taxes paid by households
= 60
XIII.
Net Export
=(-)30
=============================================================

65

66

Q12.
Output
0
1
2

TC
50
80
120

AFC
50
25

AVC
30
35

TFC
50
50
50

TVC
30
70

Q13. Relationship between MC and AC


i)
ii)
iii)

(i)
(ii)

As long as MC decreases, AC also decreases but AC>MC. (1)


As long as MC increases, AC also increases, but AC<MC. (1)
MC cuts AC from its below, where MC=AC.
(1)
OR
Economy has to identify the forces that prevent it from utilizing the resources fully and efficiency.
In most production areas especially in rural areas, techniques of production need to be upgrated.
Q14. Law of variable indicates that as more and more variable factor is combining with fixed factor a
stage has ultimately come the marginal product of the variable factor starts diminishing.
2
Assumptions of the law of variable proportions: 1.5
Table presentation
Fixed factor land
(acres)
1
1
1
1
1
1
1
1
1

Total production
(units)
2
5
9
12
14
15
15
14
12

Marginal product
(units)
2
3
4
3
2
1
0
-1
-2

1.5
Diagrammatic presentation with three stages.

Q.15
Price
Demand
Supply
Price Trend
1
100
0
Rising
5
60
40
Rising
8
50
50
Neutral
10
30
60
Falling
20
0
100
Falling
Q16. Change in the demand has two effects on equilibrium price When demand increases supply
remaining same equilibrium price and eq. quantity both increase. (3)

67

When demand decrease supply remaining same equilibrium price and eq. quantity both decrease. (3)
d
p1
p

d1
-

e1

p1
d

d1

d1

Q1

Q Q1

Q17. The rate at which central bank give loan to the commercial bank.
Q18. Raw material.

(1)
(1)

Q19. Subsidy- These are financial help by government to an enterprise on production of a certain
commodity.
Q20. It decreases capital assets.

(1)

Q21. It is double entry book keeping record of economic transactions of residents of one country with
the rest of world.
It is the difference between inflow of foreign exchange and outflow of foreign exchange on account of
economic transaction.
(1)
Q22. It is reward to employees for rendering productive services. E.g. wages and salaries in cash and
kind.
Q23. I) money act as medium of exchange- one commodity can be exchange for other in term of
money. (1)
ii)Money as unit of value- it has its own value. The value of goods and services is expressed as its
price. (1)
iii)A standard of deferred payments with the help of money future payments can be possible.(1)
Q24. Investment multiplier is the ratio of change to the initial change in investment expenditure.
K=Y/I

(1)

Example- if investment increase by 4 crore and due to which income increases by 20 crore, multiplier
would be ;
(2)
K=Y/I= 20crore/ 4crore=5, Y= K X I.
Q25. 1) Private final consumption expenditure - It refer to the total expenditure incurred by the
household on the purchase of goods and services during a given period of time. (1)
2) Investment expenditure It is total expenditure by producing sector for the investment such as
purchase of capital goods, plant, machinery.
(1)

68

3) Government expenditure it is total expenditure incurred by govt. on intermediate consumption,


compensation of employee, import by govt. sector.
(1).
OR
The govt. uses fiscal instruments of taxation and subsidies to improve the distribution of income and
wealth in the economy.
Q26 Ans. Under the given conditions, trade balance of countries x will be in deficit whereas that of
country y will be in surplus. When there is higher inflation in country x and prices of country y
remaining constant, imports of country x will rise or exports of country x will decline. Consequently
trade balance of country x will become unfavourable and that of y will become favourable.
(3)
Q27. GVOmp= sales + change in stock
= 500 + 0 =500
GDPmp= GVOmp - I.C
= 500-200

=300

GDPfc = GDPmp- NIT


= 300- 17 = 125
NDPfc = GDPfc - depreciation
= 125- 50 =75.
OR

Capital goods- capital goods are those final goods which help in production of goods and services
further.
(1)
Operating surplus- it is the income from property (rent, interest, and royalty) and income from
entrepreneurship. (Profits= dividends +corporate tax+ corporate profits)
(1)
National income- is the income earned by the all factor of production during an accounting year.
(1)
Stock- these are those variable which can be measured in a point of time. E.g.-our bank balance in 31
march 2013, wealth etc.
(1)
Q28. Commercial bank creates credit multiple times of its initial deposits.
Total money creation = initial deposit X 1/LRR.
Rounds of
transactions

deposits

Legal reserves

69

Loans

First round
Second round
Third round
Fourth round
Fifth round

1000
200
800
160
640
128
512
102.4
-------------5000
1000
Q29. *Revenue deficit = revenue expenditure revenue receipts.
I.
II.

800
640
512
409.6
------4000
(2+2)

Fiscal deficit= total expendituretotal receipts (excluding borrowings).


Primary deficit = difference between fiscal deficit and interest payments. (Do any two)

Q30. It refers to a system in which exchange rate between currencies of different s is determined by
the market forces of demand and supply. (3)
*Exchange rate is determined by the market. (Diagram is provided by teacher)(3)
31. Deficient demand -- when AD>AS,
Inflationary gap is the excess of AD over and above its level required to maintain full employment
equilibrium in the economy. (Diagram is provided by teacher)
(3)
a) Increases in govt. expenditure, owing to its active participation in the process of growth and
social welfare.
(3)
b) Increase in exports
c) Decrease in imports.
d) A cut in tax rate.
Or
S= -50 +.5Y so C= 50 + .5Y
I= 7000
Y= C+S ,

C+I

Y= C+I
=> Y= 50 +.5Y + 7000
=> Y- .5Y=7000 + 50
=> .5Y = 7050
=>

Y = 7050/.5

C= 50+.5 X 14100 =>


Q32.

=> 14100
7IOO

NNPfc = 2750

PDI= 229
=============================================================================
Group -4
70

QUESTION PAPER Set -2


CLASS-XII
Economics

PART A
1
2
3
4
5
6
7
8

10
11

12

13

14

15

Give the meaning of opportunity cost.


Define marginal revenue.
What is production function?
Define marginal rate of substitution.
Give the meaning of Equilibrium Price.
Distinguish between extension and contraction in demand.
State the central problem of What to produce?
What will be the effect of the following on the price elasticity of demand of a
commodity explain :
i. Number of substitutes
ii. Nature of the commodity.
Complete the following table:
Output(Units)
Total
Total Variable
Marginal
Cost(Rs.)
cost(Rs.)
Cost(Rs.)
0
20
1
38
2
50
State the three feature of Oligopoly market.
Fees in public schools have increased several times during the last decades. As
a result, the demand for public school education by the poor has declined
considerably. What steps the government is required to take in this regard?
Given three changes leading to the shift of demand curve of a consumer to the
right.
OR
Explain the consumer equilibrium in the case of two commodities by using
Utility analysis approach.
A seller of potatoes sells 80kg a day when the price of potatoes is Rs4 per Kg.
The elasticity Of supply of potatoes is known to be 2. How much quantity will
this seller supply when the price Rises to Rs.5 per Kg.
On the basis of the information given below, determine the level of output at
which the producer Will be in equilibrium. Use the marginal cost and marginal
revenue approach. Give reason for Your answer.
Price per
Output
Total
Unit(Rs)
(Units)
Cost(Rs)
8
1
6
7
2
11
6
3
15
5
4
18
4
5
23
Explain consumers equilibrium with the help of indifference curve analysis.
(use diagram)
OR
State the phases of the law of variable proportion in terms of total physical
product use diagram.
71

1
1
1
1
1
3
3
3

K
K
K
K
K
U
U
U

3
4

K
U

U&S

16

17
18
19
20
21
22
23

24

25
26
27
28
29
30

31

32

There is a simultaneous decrease in demand and supply of a commodity.


When will it result in
a) No change in equilibrium price
b) a fall in equilibrium price.
Use diagram
PART B
What is the value of MPC if MPS =0.2

U&S

Give the meaning of deflationary gap?


Name two components of money supply.
What do you mean by Cash Reserve Ratio?
What are the major categories of accounts in the BOP accounts statement?
Differentiate between real flow and money flow?
calculate net national disposable income from the following data:
Item
Rs(In crores)
1.Net domestic product at factor cost
500
2. Net indirect tax
50
3.Net factor income from abroad
(-)20
4. Net export
(-)30
5. Net current transfers from rest of the world
40
Give the difference between final goods and intermediate goods with
example?
OR
If Indias currency is appreciated, what will be its impact on exports of the
country?
Distinguish between autonomous and accommodating items of the Balance of
payment.
How exchange rate is determined in an exchange market?
Explain the excess demand with the help of diagram.
Give the features of revenue Expenditure and capital Expenditure?
What are the objectives of government budget?
State the following function of central bank:
i) Clearing house
ii) Banker to the Government
Explain the working of investment multiplier with the help of numerical
example.
OR
What is planned saving and planned investment? What happens in an
economy when planned saving are more than planned investment?
Calculate National Income (NNPfc) by income method and Expenditure
method:
Items
Rs (in crores)
1. Compensation of employees
250
2. Imports
20
3. Mixed income
50
4. Gross fixed capital formation
120
5. Private final consumption expenditure
550

1
1
1
1
3
3

K
K
K
K
U
A

3
4
4
4
6

K
U&S
U
K
K

U& A

72

6. Consumption of fixed capital


7. Net factor income from abroad
8. Indirect taxes
9. Change in stock
10. Subsidies
11. Operating surplus
12. Exports
13. Govt. Final consumption expenditure

1.
2.
3.
4.
5.

10
20
100
20
20
350
10
60

Marking scheme-2
It refers to the value of factor in its next best alternative use.
It is the change in total revenue on account of sale of one more unit of output.
Functional relationship between physical inputs and physical output.
Rate at which one more units of good 1 is substituted for good 2.
Price which corresponds to the equality between market demand and market supply of
commodity.

6.
Extension in demand
1. Other things remaining the same
when price falls demand increase is
called extension in demand.
2. Here the movement along the same
demand curve from above to below
3.

Contraction in demand
1. Other things remaining the same
when price increase demand will
decrease.
2. Here movement along the same
demand curves from below to above.
3.

7. Central economic problem how to produce means which technique should be used either
labour intensive technique or capital intensive
1. Labour intensive technique- it is that technique in which labour is cheap as compare to
capital i.e. Labour is an abundant factor.
2. Capital intensive technique- it is that technique in which capital is cheap as compare to
labour i.e. Capital is an abundant factor.
8. I) Number of substitutes: if number of substitutes is there Ed is more elastic and vice versa.
II) a) necessities goods Ed is inelastic
b) Comfort goods Ed is elastic
c.) luxuries goods Ed is more elastic
9.
Output TC TV
MC
C
0
20 1
38 18
18
2
50 30
12
10. 1.A few sellers and large number of buyers
2. Interdependence of sellers
73

3. Restriction of entry and exist of firm


4. Demand curve is uncertain
11.
(i)
The Government may fix the maximum limit on fee structure.
(ii)
It may fix a certain minimum percentage of total seats for the children
belonging to BPL families. These children should be provided free education
in public schools like government schools.
12.

Increase in the income of the consumer.


Rise in the price of substitutes.
Fall in the price of complements.
OR
Condition:
1. MUx/Px= MUy/Py ---------------------= (necessary condition)
2. PxQx+PyQy+----------------------------- = M(sufficient condition)
Units
1
2
3
4
5

MUy/Py

MUx/Px MUy/Py
12
10
10
8
8
6
6
4
4
2

MUx/Px

units
Consumer is in equilibrium when he purchases 3 units of comm.. X and 2 units of Comm. Y
T.U. = 12+10+10+8+8=38
12. Q=80 p=4
Es=2 p=1
Es = q/p X p/q
2= qX 4/80
4q=160
74

q=40
Q1=80+40
Price
8
7
6
5
4

Output
1
2
3
4
5

TC
6
11
15
18
23

TR
8
14
18
20
20

MR
8
6
4
2
0

MC
6
5
4
3
5

14.

Consumer is in equilibrium when he sells 3 units. That is


1. MC=MR
2. MC curve cuts MR curve from below and after cutting it should rise
15. Condition:
1. MRSxy=Px/Py
2. IC should tangent to the budget line

Goods X

IC3
IC2
IC1

Goods Y

16.
D1

S1

Price

P
P1

S1

75

D1

qi

(1)When demand and supply both decreases in same proportion there is no change in
equilibrium price
(2)When demand decreases more than supply there is decrease in equilibrium price.
Section-B
17.mpc+mps=1
Mpc+0.2=1
Mpc=0.8
18. when AD curve cuts AS curve Beyond full employment level is called inflationary gap.
19. M3= M1+ net time deposit with commercial bank
20.CRR requires the commercial banks to maintain a certain minimum percentage of total deposits
with the central bank.
21.(i) Current account (ii) Capital account.
22.
Real flow
1.It refers to flow of goods and services
across different sector of the economy
2
Goods and services

Money flow
1. it refers to flow of money across the
different sector of the economy.
2.
exp. On goods and services

Household
producer

household

producer
factor payments

Factor services
23. NNDY=NNPmp+ net current transfer from rest of the world
(500+50+(-)20)+40
=570 ans
24.
Final goods
1.these are the beyond the boundaries of
production.
2.value is not to be added in these goods
3.these are included in national income

Intermediate goods
1. these goods remain within the
boundary line of production.
2. values to be added in these goods
3. these are not included in national
income
OR

Ans. Appreciation of currency means a rise in external value of domestic currency under fixed
exchange rate system. An increase in price of India domestic currency in terms of foreign currency
makes domestic good and services costlier to foreigners. As a result, foreign demand for Indian goods
and services declines. Thus Indias export will fall.
25.
Autonomous items

Accommodating Items
76

1. Which are related to such transactions


as are determined by the motive of
profit maximization
2. Which do not considered the BOP
status of the country.
3. Above the line items
26.

Rate of
Exchange

1. Which are not related to such


transaction as are determined by the
motive of profit maximization
2. Which considered positive or
negative status of country
3. Below the line items

s
e

D&S of foreign exchange

27.

AD &AS

Y ADe

ADf

Income /output
It is a situation of inflationary gap ie AD rises beyond full employment level of AS
28
Revenue Expenditure
1. TTheseExpenditure do not create any
liability for the govt.
2. TtheseExpendituredont cause any
reduction in the assets of the govt.

Capital Expenditure
1. TTheseExpenditure creates a liability
to the govt.
2. TtheseExpenditure cause the
reduction in the assets of the govt.

29.

1. Redistribution of income and wealth


2. Reallocation of resources
3. Economic stability
4. Managing public enterprises
30. Clearing house: if there is transaction of cheques b/w two banks then central bank avoids
transfer of cash.
Banker to the govt. Central bank is a banker agent and financial adviser to the govt.
77

31.K=Y/I
Round
1
2
3
.
.
TOTAL

I
100

100

Y
100
50
25
.
.
200

MPC=0.5
50
25
12.5
.
.
100

S
50
25
12.5
.
100

OR
S+I Concept, Diagram and Numerical Example.
32.
Income method:
NDPfc= COE+OS+MIXED INCOME
250+50+350=650
NNPfc= NDPfc+NFIA
650+20=670
Expenditure method:
GDP mp= C+G+I+(X-M)
550+60+(120+20)+(10-20)
740
NNPfc= GDPmp-Dep-NIT+NFIA
740-10-(100-20)+20
670 ANS
=================================================
====================
Group -4
QUESTION PAPER SET -3
CLASS-XII
ECONOMICS

State two features of resources that give rise to an economic problem?

Give the meaning of Ordinal approach.

What causes downward movement along the demand curve of a


commodity?

Define price elasticity of demand ?

When is a firm called a price taker ?

Give the reason Why will PPC shift to the rightward.

78

The quantity supplied of a commodity at a price of Rs. 8 per unit is 200


units. If price elasticity of supply is 2. Calculate the price at which quantity
supplied will be 600 units.

Price elasticity of supply for a product is Unity. A firm supplies 25 units


of this product at a price of Rs. 5 per unit. If the Price of product rises to Rs.
6 per unit, how much quantity of the product will be supplied by the firm?

What is the likely effect on supply of a good, when prices of inputs used in
the production of that good increases? Explain.

10

State three features of monopolistic competition?

OR
State three features of monopoly
11

Explain any two properties of an indifference curve?


OR
A Firms average fixed cost is Rs. 10 when output is 2. Calculate average
variable cost and marginal cost for each given level of output.
Output

Total Cost

25

30

32

36

12

Is excess capacity under monopolistic competition always wasteful?

13

What is elasticity of demand which measured by total expenditure


method ? Explain.

14

What are the effects of simultaneous decrease in both demand and supply of
a commodity on its equilibrium price and quantity? Use diagram.

U&S

15

Explain the reasons for (i) increasing returns to factor and (ii) diminishing
returns to factor?

U&S

OR
State different phases of law of variable proportion in terms of behavior of
TPP and MPP. Use diagram.
16

Using MR, MC approach explain producers equilibrium?


PART B

17

What is meant by balance of trade?

18

Why are subsidies treated as revenue expenditure?

19

Define 'Aggregate Supply?

79

20

What do you mean by involuntary unemployment?

21

If average propensity to consume is .85. What is the value of average


propensity to save?

22

From the following data about firm 'X', calculate gross value added at factor
cost.

Rs. (in thousands)


(i)
(ii)
(iii)
(iv)
(v)

Sales
Opening Stock
Closing Stock
Excise duty
Purchase of intermediate

800
40
35
10
350

Product
(vi)
(vii)

Subsidy
Import of raw
material

30
15

23

Subsidy on diesel oil is a wasteful expenditure by the government. Write


one point in support of this observation and one against it.

24

Give the meaning of revenue deficit and explain its implications?

OR
Explain the Medium of exchange' function of money.
25

Give three reasons why people desire to have foreign exchange?

26

Distinguish between current account and capital account of balance of


payment. Give one example of each.

27

In an economy increase in investment leads to increase in national income


which is twice the increase in investment. Calculate marginal propensity to
consume?

28

What is meant by open market operations? Briefly describe their effect on


credit creation by commercial banks?

29

Categories the following receipts into revenue receipts and capital


receipts.Give reason for your answer.

30

a.

Receipt from sale of shares of a public sector undertaking.

b.

Borrowings

c.

Profit of public sector undertaking

d.

Interest received on loan given to other counties.

30.

How will you treat the following while estimating domestic product
of India? Give reasons.

80

31

(i)

Salary to Indians working in American Embassy in India.

(ii)

Expenditure by Government on providing free education.

(iii)

Free water provided by Delhi Government to the Public.

Explain the concept of underemployment equilibrium with help of a


diagram. Show in the same diagram how additional investment expenditure
will help in reaching full employment equilibrium ?

OR
Explain the situation of 'deficient demand' in an economy using a diagram.
Suggest one fiscal measure to correct it.
32

Calculate 'National Income' and 'Private Income?


(Rs.
Crores)
(i)Net current transfers to rest of the world. =100
(ii)

Private final consumption expenditure

=6000

(iii)

National debt interest

=1500

(iv)

Net export

=(-100)

(v)

Current transfer from Government

=50

(vi)

Net domestic product at factor cost accruing


to government

=2500

(vii)

Government final consumption expenditure =1000

(viii)

Net Indirect tax

=300

(ix)

Net domestic capital formation

=500

(x)

Net factor income from abroad

=10

MARKING SCHEME SET 3


1.

(i) Resources have alternative uses, (ii) Resources are scares

(1)

2.

MR=TRn-TRn-1.

(1)

3.

Decrease in price.

(1)

4.

Degree of responsiveness of quality demanded to change in price of a commodity.


(1)

5.

When it sells at a price determined by the market.

81

(1)

6.

With discovery of new stock of resources or an advancement in technology, the productive


capacity of an economy increases. The economy can produce better X or better Y or more of
both goods X and Y. The effect of economic growth shifts the production possibility curve to
left or right.
PPC will shift to the right when:
a) New Stocks of resources are discovered.
b) There is advancement in technology.
PPC will shift to the left when:
I.
II.

7.

Resources are destroyed because of natural calamity like earthquake, fire, war, etc.
There is use of outdated technology.

P0 = 8

q0 = 200

P1 = x

q1 = 600

P = x 8

q = 400

Es = 2
Es = q P0
pq0

2 = 400 8

x8

x8=8

x = 16

(1)
Calculation

(1)

200

so at Rs. 16 per unit Qs. will be too units.


8.
Price (Rs.)
5
4
Ed=1
10.

11.

Demand (Units)
100
125

Total Expenditure (Rs.)


500
500

Features of monopolistic completion


(1)

Large no. of buyers and sellers

(2)

Free entry & exit

(3)

Product differentiation

(4)

Selling cost etc.

Any three

(13=3)

Properties of indifference curve


82

(1)

Downward slope

(2)

Convex to origin

(3)

Do not intersect each other

(4)

Higher TC gives higher level of satisfaction etc.

-Any two with brief explanation.

(22=4)
OR

AFC at 2nd unit = 10


TFC = 102 = 20
Output TC

TFC

TVC

AVC

MC

25

20

30

20

10

32

20

12

36

20

16

For each value of AVC & MC


12.

No. even if firms produce less at a highest cost, it has its own advantages because:
(i)

A variety of products will better satisfy consumers satisfaction.

(ii)

Consumers want freedom of choice and they are prepared to pay a high price for it.

13.

In total expenditure method we compare direction of change in price and total expenditure to
determine elasticity of demand.
(1)
Here three situations are possible.
(1)
(2)
(3)

14.

(8=4)

(13=3)

When price and total expenditure change in same direction Ed<1.


When price and total expenditure change in opposite direction Ed>2.
When total expenditure doesn't change with change in price Ed=1.
(A)

When both demand and supply decrease proportionately.


D

DI

SI

When decrease in demand is equal to decrease in supply of the commodity, e.g. price remains
constant, equilibrium quantity decreases.
(B)

When decrease in demand is


83

more than decrease in supply

SI S

D1 D
P
P1

When decrease in demand is more than decrease in supply,


e.g. price and e.g. quantity both decrease
(C)

When decrease in demand is less than decrease in supply.


When decrease in demand is less than decrease in supply there is decrease in equilibrium
quantity, but increase in equilibrium price.
(23=6)

15.

Increasing Returns to factor


-- Better use of fixed factor
-- ideal combination of fixed and variable factor
-- Division of labour
Diminishing Returns to factor
-- Use of fixed factor beyond optimum level.
-- Lack of substitution between factors
-- Unsuitable ratio of variable and fixed factor
-- Any four with brief explanation

(14=6)

Conditions of producers equilibrium.


1)

MR = MC, maximum profit

(2)

2)

MC> MR after point of equilibrium and profits decline Explanation

Explanation:
- Disequilibrium at output levels where
(a)

MC>MR

as there are losses

(b)

MC<MR

Profits occur but are less than maximum

(c)

MC=MR,

but on increasing output profits starts as MC<MR

C/R

MC

84

(3)

MR

OUTPUT
Section-B
17.

Balance of trade in the difference between value of exports and


(1)

value of imports.

18.

Subsidies do not lead to increase in asset or decrease in liability of government.


(1)

19.
Aggregate supply refers to total supply of all goods and services in an
accounting year.

economy

in

an

20. It refers to a situation of unemployment against the wishes of people. When people voluntarily
decide do not to work even though suitable work is available for them.
21.

APS = 1-0.85 = .15

22.
(i) GVAfc = sales + changes in stock purchase of intermediate
duty + subsidy

product

excise

= (i) + (iii) (ii) (v) (iv) + (vi)


= 800 + 35 + 40 350 10 + 30 = 435

(3)

23.
Ans. It is wasteful expenditure:
Because the benefit of subsidy (on diesel oil) is unduly repaid by a richer section of the
societies who get cheaper oil to run their luxury cars.
It is not wasteful expenditure:

24.
Revenue deficit is the amount by which revenue expenditure of the
its revenue receipts.
(1)

government exceeds

Implication:
(i)
(ii)
(iii)

Fewer resources are left for development of expenses.


The govt has to borrow to finance the deficit.
Leads to inflation in the economy.

(1)
(1)

OR
Its mean that money acts as an intermediary for the exchange of goods and services
Refer Notes: Money & Banking
85

25.
(a)
To import goods and services from foreign countries/ ROW (b)
from rest of the world
(c)

To send gifts to ROW

(d)

To speculate in foreign currency

To purchase assets

(3)

Any three

(13=3)

26.
Current account of balance of payment includes those transactions which do not affect asset or
liability position of the economy.
(12)
Ex. Export and Import of goods. Unilateral transfer Capital account
of
balance
payment includes those transactions. Which affect asset or liability position of the economy?

of

Ex. Sale Purchase of asset in ROW by residents of home country


Any other suitable ex.
27.

Y = 2I
Y = 2
I
Multiplier K = 2 =

1
1 MPC

1-MPC =
MPC = = 0.5
28.
Open market operations refer to sale and purchase of govt. security in open market. When
commercial banks purchase security from RBI, their credit creation capacity decreases. When
commercial banks sell securities their credit creation capacity
increases.
(12=3)
29.

(a)

Capital receipts as it decreases assets of the government.

(b)

Borrowings Capital receipts as it increases liability of the govt. (1)

(c)
the govt.

30.

(1)

Profit Revenue receipt as it neither increases liability nor


(1)

decreases assets of

(d)

Revenue receipt neither decrease asset nor increase liability.

(1)

(i)

Not included, as income is generator in domestic territory of America.(1)

(ii)

Included as part of govt. final consumption expenditure.

(iii)

Not included, as income is part of transfer payment. (2 marks each 23=6)

31.
Under employment equilibrium is a situation when AD of the
economy at a level of output lessthan full employment output.
(1)
86

economy is equal AS of the

AD/AS

AS
AD
AD1

Explanation
32.

(3)

National Income

(3)

= (ii) + (vii) + (ix) + (iv) (viii) + (x)


= 6000 + 1000 + 500 + (-100) 300 + 100
= 7, 200
Private Income

(3)

= National Income (vi) (i) + (iii) + (v)


= 7, 200 2500 100 + 1500 + 50
= 6, 150
=====================================================
==============================

Group -5
QUESTION PAPER Set -1
CLASS-XII
ECONOMICS

Section A
Q.1 What does a rightward or an outward shift of production possibility curve indicate.(U)
Q.2 In which form of market product are homogenous?(K)
Q.3 What is meant by average product?(K)
Q.4 Give Meaning marginal utility curve?(K)
Q.5 Give the meaning of budget constraint? (K)
Q.6 Explain the central problem How to produce. ( U)
Q.7 From the following table, calculate average variable cost at each given level of output: (A)
Output(units)
1
2
3
4
Marginal Cost
40
30
35
39
87

Q.8 Why does the demand curve slope downward? (U)


Or
A 5% fall in the price of X leads to a 10% rise in demand for X. A 2% rise in the price of Y leads to a
6% fall in demand for Y . Calculate price elasticity of demand of X and Y and compare them. (S)
Q.9 If a good can be used for many purposes, the demand for it will be elastic. Why? (U)
Q.10 How the equilibrium price and quantity affected when income of the consumers: (U)
1) Increases 2) decreases
Q.11 Total fixed cost of a firm is 100. Its average cost at different levels of output is given. Calculate
total cost and marginal cost at each level of output. (A)
Output(units)
AVC

1
60

2
56

3
60

4
64

Q.12 Explain the relationship between marginal product and total product. (A&S)
Q.13 How is price elasticity of demand measured at a given point on the demand curve. (S)
Or
Show the effect of change in income on the budget line. (S)
Q.14 Explain Producer Equilibrium By MR=MC Approach (U)
Q.15 Show with the help of a diagram, the effect on the equilibrium price: (U&S)
1) When demand decreases and supply is perfectly elastic
2) When demand decreases and supply is perfectly inelastic
Q.16 Explain six factors that affect market demand for a commodity. (K)
Or
State the total expenditure method of measuring price elasticity of demand. (K&S)
SECTION -B
Q.17 What is money supply. (K)
Q.18 Define budget receipts.(K)
Q.19 Define budget Expenditure. (K)
Q.20 Give the meaning of aggregate supply. (K)
Q.21 What is involuntary unemployment? (K)
Q.22 Mention contigent function of money (K)
Q.23 Give measures to correct different deficits.( U)
Q.24 Find the value of output and GVA at MP from the following data. (A)
Sl.no.
1
2
3
4
5
6
7
8
9
10

Items
Purchase of intermediate inputs
Consumption of fixed capital
Indirect Taxes
subsidy
Wages and salaries
Rent
Interest
Profits
Sales
Change in stock

In crores
200
50
75
25
400
60
40
100
800
100

Or
What are the difficulties involved in calculating national income by value added method?( U)
Q.25 Give three demerits of fixed exchange rate. ( K)
Q.26 What are the different impacts of budget. (U)
Q.27 Explain varying reserve ratio as a monetary instrument used by the central bank. (U)
Q.28 What are economic transaction in BOP. (A)
Q.29 What are the effects of excess demand ? (U)
Or
88

Define marginal propensity to consume . What are its features? (K)


Q.30 Are the following included in the estimation of national income of a country? Give reasons.
(U)
1) Expenditure incurred by a foreign tourist in the country.
2) Expenditure of the Government on the construction of a new bridge.
3) Expenditure incurred by a household on feeding of beggars.
Q.31 Explain the equilibrium level of income with the help of consumption and investment( C+I)
approach. If AD is greater than AS, what adjustment will bring about equality between two? (U&A)
Q.32 Using the income method calculate (a) domestic income (b) National income (A)
Sl.no.
1
2
3
4
5
6
7
8
9
10
11

Wages
Direct tax
NFIA
Social Security Contribution
Rent
Interest
Corporation Tax
Dividend

Items

Rs (in crores)
50
500
1000
60
10
20
30
35

Undistributed profit
Transfer payments
Mixed income

40
120
200

MARKING SCHEME SET-1


Q.NO.
1
2
3
4
5
6

ANSWERS
Leftward shift of PPC shows decline of resources or obsolete technology
Under perfect competition
AP =TP/ NO. OF INPUTS
MU curves slopes downward from left to right.
The budget constraint shows that a consumer can choose any bundle as long as it cost lesser or
equal to the income of the consumer at prevailing market price.
Explanation of the two technique of production
1) Labour intensive Technique
2) Capital intensive Technique

MARKS
1
1
1
1
1
3 (1.5+1.5)

3
Output(units)
Marginal Cost(RS.)
TVC
1
40
40
2
30
70
3
35
105
4
39
144
Three points
1) Income effect
2) Substitution effect
3) Law of diminishing marginal utility
Or
Ed for X = % change in quantity demanded / % change in price

AVC
40
35
35
36
(1+1+1)

= 10% / 5% = 2
Ed for Y = = % change in quantity demanded / % change in price /
6% / 2% = 3
9

Demand for Y is more elastic than for X


Because such goods have composite demand.
Explanation

89

10

1.5+1.5
D1

D
P
D1
S

Quantity
D

D1
P
D
S

D1

Quantity
11

1.5 marks for each diagram and explanation


Output(units)
AVC
TVC
1
60
60
2
56
120
3
60
180
4
64
256

TFC
100
100
100
100

12

Any four points of relationship between MP and TP with diagram.

13

Explain Geometric method of calculating price elasticity of demand

TC
160
212
280
356

MC
60
52
68
76

1+1+1+1+1
4

Ed = Lower segment of the curve / Upper segment of the curve


Draw diagram:-

14

Or
If income increases the budget line shifts rightward and if income decreases the budget line
shifts leftward.
Explain the TR and TC approach of producer equilibrium when following condition are
fulfilled.

6(3+3)

1) Slope of TR = TC
2) The vertical difference between TR and TC is maximum ( use diagram)
15

(s3+3)
P
D
D1
O
Q1 Q
Price remains constant quantity decreases from OQ to OQ1
S
D
D1
90

P
P1

D
D1

O
16

Q
QUANTITY
Quantity remains constant price decreases from OP to OP1
Explain any six factors. One mark for each point.
1) Price of the commodity
2) Price of related goods
3) Income of consumer
4) Taste and preferences
5) Size of population
6) Expectation of price rise in future\
OR
Explain the total expenditure method of measuring price elasticity of demand with the help of
a table and diagram
Price
Demand
Total expenditure
Remark
6
1
6
Ed>1
5
2
10
4
3
12
Ed=1
3
4
12
2
5
10
1
6
6
Ed<1

6
(1+1+1+1+1+1)

Use diagram also.


17
18
19
20
21
22

23

24

Money supply refers to the stock of money held by the public at a point of time in an
economy.
Budget receipt are estimated money receipts of the government from all sources during the
fiscal year
Budget expenditure are the expense which the government incurs for its own maintenance as
also for the society and the economy as a whole.
AS is the money value of total supply of goods and services available for purchase by an
economy during a given period.
Involuntary unemployment occurs when those who are willing to work at the going wage rate
do not get work.
Contingent function of money:
1) Basis of credit
2) Basis of distribution of income
3) Equalisation of marginal utility and productivity.
4) Guarantor of solvency
5) Best utilization of resources.
6) Liquidity.
A deficit may be financed by the following ways:
1) Monetary expansion or deficit financing.
2) Borrowing for the public
3) Disinvestment
4) Lowering Government Expenditure.
5) Raising Government revenue.
(Any Three)
Value of output = Sales + change in stock
= 800 + 100 = 900 Cr.

91

1
1
1
1
1
1
(Any Three)

1+1+1

3(1.5+1.5)

GVAmp

= Value of output - Purchase of intermediate inputs


=
900 200 = 700 Cr.

Or
Write any three difficulties :
Example
1) Value of intermediate goods should not be counted
2) Net Value added should be calculated.
25
26

Write any three demerits. One mark for each.


Write any three points. One mark for each point.
1)Aggregate fiscal discipline level.
2) Allocation of resources
3) Effective and efficient provision of programmes.

3(1+1+1)
3(1+1+1)

27

4
Instruments
Bank rate
CRR
SLR
OMO

28

29

In case of Excess money supply


Raise
Raise
Raise
Central Bank sells government
securities to commercial bank.

In case of deficient money supply


Reduce(fall)
Reduce(fall)
Reduce(fall)
Central Bank purchases
government securities from
commercial bank

Economic transaction in balance of payment :


1) Visible items
2) Invisible items
3) Capital Transfers
Write any four points. One mark for each point.

Or
MPC definition.
Any Three features
30
31
32

1
1+1+1

Yes. It is Expenditure on goods purchased in our economy.


Yes. It involves production of goods in the economy.
No. It is a transfer payment.
C+I Approach of finding equilibrium level of income
For the second point
a)Domestic income = COE + OPERATING SURPLUS+ MIXED INCOME
= (WAGES + SOCIAL SECURITY CONTRIBUTION)+
(RENT +INTEREST+ CORPORATION TAXES+DIVIDEND+ UNDISTRIBUTED PROFIT)
+ MIXED INCOME
= (50+60) + (10+20+30+35+40)+200
= 110 +35+200
= 445 Crore
b) National Income = Domestic income + NFIA
= 445 + 1000
= 1445 Crore
Group -5
QUESTION PAPER Set -2
92

6(2+2+2)
6(4+2)

CLASS-XII
ECONOMICS

Section A
Q.No.
Q.1
Q.2
Q.3
Q.4
Q.5
Q.6
Q.7
Q.8
Q.9

Q.10
Q.11
Q.12
Q.13

Q.14
Q.15
Q.16

QUESTIONS
Write two features of resources that give rise to an economic problem (K)
What causes an upward movement along a demand curve of a commodity (K)
What happens to equilibrium price of a commodity if there is an increase in its demand and
dsupply Remains Constant (U)
Give the meaning of marginal cost. (K)
Give the meaning of oligopoly. (K)
Explain the inverse relationship between the price of a commodity and its demand. (U&S)
State the law of supply. What is meant by the assumptions other things remaining same on
which the law is based. (K)
Explain the slope of a production possibility frontier. (S&A)
Or
Explain the meaning of market economy and the centrally planned economy. (K)
The price elasticity of supply of good X is half the price elasticity of good Y. A 10% rise in
the price of good Y result in a rise in its supply from 400 units to 520 units. Calculate the
percentage change in quantity supplied of good X when its price falls from rupees 10 to
rupees 8 per unit. (A)
Explain the implication of product differentiation feature of monopolistic competition. (U)
Explain the changes that will take place in the market for a commodity if the prevailing
market price is less than equilibrium price. (U)
Distinguish between : (U)
a) Microeconomics and Macroeconomics
On the basis of information given below determine the producer equilibrium. Use the MC
and MR approach. Give reasons for your answer. (A)
Output(units)
AR (Rs.)
TC (Rs.)
1
7
8
2
7
15
3
7
21
4
7
26
5
7
33
6
7
41
Explain the law of variable proportion with the help of schedule and diagrams. (U&A&S)
Explain the implications of following features of perfect competition: (U)
a) Large number of buyers and sellers.
b) Freedom of entry and exit of firms.
Using Indifference curve approach explain the conditions of consumer equilibrium. (S&U)
OR
State whether the following statements are true or false. Give reason for your answer. (A)
1) When MR is constant and not equal to zero, than TR will also be constant.
2) As soon as MC starts rising AVC also starts rising
3) TP also increases whether there is increasing returns or diminishing returns to factor.

Marks
1
1
1
1
1
3
3
3
3

3
4
4
4

6
6
6

SECTION B
Q.17
Q.18
Q.19
Q.20
Q.21
Q.22

Give the meaning of money. (K)


What is meant by revenue deficit. (K)
Give the meaning of inflationary gap. (K)
State two sources of demand for foreign exchange. (K)
Can APS be Negative ? Give Reasons. (K)
From the following data relating to a firm calculate its NVA at Factor cost. (A)
93

1
1
1
1
1

Sl.no.
ITEMS
1) Subsidies
2) Sales
3) Depreciation
4) Exports
5) Closing stock
6) Opening stock
7) Intermediate purchases
8) Purchase of machines for own use
9) Import of raw material
Q.23
Q.24
Q.25
Q.26

Q.27
Q.28

Q.29
Q.30

Q.31

Rs. In Cr.
40
800
30
100
20
50
500
200
60

Give the meaning of nominal GDP and real GDP. Which of these is the indicator of
economic welfare. (K&U)
Machine purchased is always a final good. Do you agree . Give reasons for your answer. (U)
Explain the effect of depreciation of domestic currency on exports. (U)
OR
Explain the effect of appreciation of domestic currency on imports. (U)
Distinguish between the Current account and Capital account of BOP account. Is imports of
machinery recorded in current account or in capital account. Give reason for your answer.
(U)
What is government budget. Give the meaning of : (K)
a) Revenue deficit
b) Fiscal deficit
Categorise the following government receipts into revenue and capital receipts. Give reason
for your answers: (U)
a) Receipts from sale of shares of public sector undertakings
b) Borrowing from public.
c) Profit of public sector undertakings.
d) Income tax received by the government.
Explain the function of a Central bank as a banker to the government. (K)
Or
Explain the open market operations method of credit control used by a central bank. (U)
State whether the following statements are true or false. Give reasons for your answer. (U)
a) Capital formation is a flow.
b) Bread is always a consumer good.
c) Nominal GDP can never be less than real GDP.
d) Gross domestic capital formation is always greater than gross fixed capital
formation
Given below is the consumption function in an economy (SA)
C = 100 + 0.5Y
With the help of a numerical example show that in this economy as income increases APC
will decreases.
Or
The saving function of an economy is S = -200 + 0.25Y . The economy is in equilibrium
when income is equal to 2000. Calculate
a) Investment expenditure at equilibrium level of income
b) Autonomous consumption
c) Investment multiplier

Q.32

Calculate GNP at factor cost from the following data by (A)


a) Income method
b) Expenditure method
Sl.No.
ITEMS
94

Rs. In Crore

3
3
3
3

4
4

4
6

1
2
3
4
5
6
7
8
9
10
11
12

Private final consumption expenditure


Net domestic capital formation
Profits
Compensation of employees
Rent
Government final consumption expenditure
Consumption of fixed capital
Interest
Net current transfers from the rest of world
NFIA
Net exports
Net indirect taxes

MARKING SCHEMESET-2

95

1000
200
400
800
250
500
60
150
(-) 80
(-)10
(-)20
80

Q.No
.
Q.1
Q.2
Q.3
Q.4
Q.5
Q.6

Q.7

Q.8

QUESTIONS

MARKS

The two features of resources that give rise to an economic problem are:
1) Resources are limited
2) They have alternative uses
Rise in the price of the good .
Equilibrium price will increase
Marginal cost is the addition to the total cost on producing one more unit of
output.
It is the form of market in which there are a few firms, or a few large firms.
A consumer purchases that much quantity of a good at which its marginal utility
equals its price. Given this situation suppose price falls. It makes marginal utility
greater than price and induces the consumer to buy more of the good. This
establishes inverse relationship between price and demand.
According to the law there is the direct relation between the price of the good and
its supply, other things remaining the same. Other things include all factors, other
than the own price, which can influence supply, like prices of inputs, taxes on
production, price of other goods etc.
Production possibility frontier is a downward sloping concave curve. It shows
increasing Marginal Rate of Transformation (MRT) as more quantity of one good
is produced by reducing quantity of the other good. This behavior of MRT is
based on the assumption that all resources are not equally efficient in production
of all goods. As more of one good is produced less and less efficient resources
have to be transferred to the production of other good which raise MRT.

1
1
1
1
1
3

OR
Ina market economy resources are privately owned. The central problem in such
an economy are solved by the price mechanism and the objective of production is
to earn profit.
Ina centrally planned economy the resources are owned by the state. All
economic activities are planned by the government or a central authority. The
objective of production is social welfare./
Q.9

Es of good Y = % change in supply of Y / % change in price of Y


= 30/10
=3
Since Es of X is half of the Es of Y therefore Es of X = 3/2 = 1.5
Substituting value to find supply of X

Q.10

Q.11
Q.12

Q.13

.5

.5
1

1.5 = % CHANGE IN SUPPLY OF Y/ -20


% change in Sx = 1.5* -20 = -30
1
Product differentiation means that the buyer of a product differentiate between
the same product produced by the different firms. Therefore they are also willing
to pay different prices for the same product produced by different firms. This
gives an individual firm some monopoly power to influence market price of its
product.
Ed = percentage change in demand/ percentage change in price
= 0.8
a)Positive economics deals with what is, or what is likely to be. It is based on
cause and effect relationship. Normative economics deals with what should be or
what is desirable based on the value judgments.
b) Microeconomic deals with individual economic units. Macroeconomics deals
with the economy as whole.
OUTPUT(Un
AR(Rs.)
TC(Rs.)
MC(Rs.)
MR(Rs.)
its)
1
7
8
8
7
2
7
15
7
7
3
7
21
6
7
4
7
26
5
7
96
5
7
33
7
7
6
7
41
8
7
The producer achieve equilibrium at 5 unit of output. It is because this level of

4(1+2+1)
4(2+2)

4(3+1)

Group -5
QUESTION PAPER Set -3
CLASS-XII
ECONOMICS
Part - A
1.
What does a leftward shift of PPC indicate? (u)
1
2.
When the price of good X rises, the demand for good Y also rises. State the relationship
between good X and Y. (U)
1
3.
Define Budget Line. (k)
1
4.
How will increase in price of inputs effect supply curve? (u)
1
5.
When is the firm called Price maker? (a)
1
6.
Do all the economies face similar economic problems? Why? (U)
3
7.
Prove that indifference curve is convex to the origin.(a)
3
8.
8 units of a good are demanded at a price of Rs7 per unit. Price elasticity of demand is
(-)1.How many units will be demanded if price rises to Rs8 per unit? Use expenditure method
of price elasticity of demand to answer the question. (s)
3
9.
Explain the meaning of increase in supply and increase in quantity supplied with the help of
schedule.(s)
3
10.
Explain the implication of Homogenous products feature of perfect competition.(u)
OR
Explain the implication of Product differentiation feature of monopolistic competition.(u)
11.
Why consumers equilibrium is attained when marginal utility of a product in term of money is
equal to its price? Explain. (a)
4
12.
Complete the following table:- (a)
4
Output
AVC (Rs.)
TC (Rs.)
MC (Rs.)
(units)
1
---60
20
2
18
----3
-----18
4
20
120
--5
22
----13.
From the following schedule find out the level of output which the producer is in equilibrium.
Give reason for your answer. (a)
4
Quantity Sold
Price (Rs.)
Total Cost (Rs.)
1
5
7
2
5
10
3
5
12
4
5
15
5
5
20
6
5
35
OR
Explain Producers equilibrium for a competitive firm in term of MR and MC Curves.
14.
Explain how do the following influence demand for a good: (u)
6
(i)
Rise in income of the consumer.
(ii)
Fall in prices of related goods.
15.
Market for a good is in equilibrium. There is simultaneous increase both in demand &
Supply of good. Explain its effect on market price. (s)
6
16.
Explain the Law of variable proportions with the help of total product and marginal product
curves. (U&S)
6
SectionB
17.

Define depreciation. (K)

1
97

18.
19.
20.
21.
22.

When does national income become equal to domestic income? (K)


1
What is meant by Cash Reserve Ratio (CRR)? (K)
1
Why are subsidies treated as revenue expenditure? (U)
1
What is fixed exchange rate? (K)
1
Giving reasons, explain the treatment assigned to the following while estimating national
income.
(U)
Family members working free on the farm owned by the family.
(i)
Payment of interest on borrowing by general government.
OR
Explain the basis of classifying goods into intermediate and final goods. Give suitable two examples
of each. (S)
23.
How does a central bank control credit creation by commercial banks by changing the bank
rate? (U&S)
3
24.
State the meaning and components of aggregate demand? K
3
25.
An increase of Rs. 250 crore in investment in an economy resulted in total increase
in income of Rs. 1000 crore. (A)
Calculate the following:3
(a)
Marginal Propensity to consume.
(b)
Change in saving
(c)
Change in consumption expenditure
26.
Distinguish between Revenue expenditure and capital expenditure in a Government budget.
Give examples one each. (U)
3
27.
Define Following Types of Money.
Fiduciary money
Fiat Money
Full Bodied Money
Creadit Money.
K&U)
4
28.

Explain Revenue deficit in a Government budget? What does it indicate? (K&U)


4
OR
Give Four main objectives of government budget. (K)
29.
Will the following be included in the national income of country? Give reasons. (U)
4
(i)
Profit earned by the Branch of Indian bank in London.
(ii)
Wages received by the Indian employees working in Pakistan Embassy.
(iii)
Expanses on electricity by a factory.
(iv)
Capital Loss
30.
Can there be underemployment equilibrium in the economy? Explain with diagram. Explain
one measure to correct it and reach full employment level. (U&S)
6
OR
Explain the equilibrium level of income with the help of C+I curve. If planned saving is greater
then Planned investment, what adjustment will bring equality between the two? (U&S)
32.
Give the meaning of Foreign exchange and Foreign exchange rate Giving reason, explain
the relation between foreign exchange rate and demand for foreign exchange.(K&U) 6
32.

Calculate National Income and Personal Disposable Income from the following: (A)
6
Items
Rs (Crore)
(i)
Compensation of employees
1200
98

(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)

Rent
Profit
Conumption of fixed capital
Mixed Income of self employed
Private Income
Net factor Income from Abroad
Net retained earnings of private enterprises
Interest
Net Indirect tax
Net Exports
Direct taxes paid by houses
Corporate Tax

400
800
300
1000
3600
(-)50
200
250
350
(-)60
150
100

=======================================================

1.
2.
3.
4.
5.
6.
7.

MARKING SCHEME SET -3


Reduction in resources
Substitute goods
1 Ma
A budget line graphically represents different combinations of two goods which a
consumer can actually by with his entire income at the prevailing market prices.
1
Supply decreases, So Supply curve shifts upward to left.
1
When the firm can influence the market price of the product produced by it, e.g.
monopoly firm.
1
Yes, all the economies face similar economic problems. Reasons (1) Wants are
unlimited (2) resources to fulfill these wants are limited (3) They have alternative uses.
3
(i) Its slope is based on MRS
1
(ii)
MRS is the rate at which a consumer is willing to give up the amount of good Y
for extra unit of X without affecting total utility
1
MRSxy

y
x

(iii) MRS is always diminishing as with every increase in the quantity of x, the
consumers will be willing to sacrifice lesser quantity of y
1
8.

Price Rs.
7
8

Demand units
8
7 (568)

T.Exp
56
56

Ed.
Ed=1

So Qty will be 7 at Rs. 8,


1
9. (i) Increase in supply meaning relation with other factors then the price of
the commodity
1
(ii) Increase in Qty supplied meaning relation with price of the commodity / other
factors remaining constant
1
(iii)Give table showing increase in supply & increase in Qty supplied 1
10.
Homogenous products mean that the buyers treat Product of all the firms in the
industry as identical. Therefore, the buyers are willing to pay only the same price for the
99

product of all the firms in the industry. It also implies that no firm is in a position to
change a higher price for its products. It ensures uniform prices in the market.
OR
Differentiated products are variants of a given commodity. They are
closely related but not identical .They are different on the basis of brand name, shape,
colour etc. Each firm becomes known for its product and can influence the price of its
commodity to same extent. It becomes possible because customers think that quality of
commodity of a particular brand or firm is better and is ready to pay higher price for the
same product differentiation gives rise to monopoly power of a firm.
3
11.
Explanation of consumers equilibrium
1
MU x Px

Explain the condition to show consumers equilibrium at this particular point only.
3
1+3 = 4
12.
0.58=4
Output

AVC

TC

MC

TVC

TFC

1
2
3
4
5

20
18
18
20
22

60
76
94
120
150

20
16
18
26
30

20
36
54
80
110

40
40
40
40
40

13.Calculate MC
1
Equilibrium level
1
Reasons
2
At output level 5 units, producer is in equilibrium because at this
level MC= MR and MC is increasing at this point.
Or
Two condition for producers equilibrium
2
Brief explanation with Diagram
2
14. (i) Rise in income of the consumer
3
(a) Normal goods
Y D
(b) Inferior goods YD
(ii) Fall in prices of related goods P of substitute (tea) good 3
D for given good (like coffee)
15.
When both demand and supply increase simultaneously
23 = 6
(a) Both increases in same proportion Market Price remains same
2
(b) When increase in demand is more then the increase in supply increase in
Market Price
2

100

(c) When increase in demand is less then the increase in supply Market price
decreases.
2
16. Diagram showing TP& MP Meaning and explanation
3
Phase I MP and TP at increasing rate
1
Phase II MP but is positive and TP increases at diminishing rate show in diagram
1
Phase III MP but is negative and TP falls after a point show in diagram
1
Section B
17. Fall in the value of fixed capital goods due to normal wear and tear. And foreseen
obsoluescence.
1
18. When net factor income from abroad is zero.
1
19. CRR refers to the minimum percentage of a banks total deposits which requires to
be kept with central bank.
1
20. Neither creates assets nor reduces government liabilities.
1
21. Fixed exchanged rate is the rate which is officially fixed by the government or
monetary authority and not determined by market forces
1
22. (i) Imputed value of their salary will be included in national income as family
members are not paid salaries for their services
1.5
(ii) Not be included
loan taken by government is conventionally treated as loan for
consumption.
1.5
Or
(i) Meaning of intermediate goods and example.
1.5
(ii) Meaning of final goods and example.
1.5
23. If central bank wants to reduce credit creation by commercial banks, it revises
bank rate rise in interest rate discourages borrowings / loans and vice-versa.
3
24. Meaning of AD
1
Components :0.54=2
(i)
Consumption demand ( C )
(ii) Private investment demand ( I )
(iii) Demand for goods and services ( G )
(iv) Net Export demand ( X-M)
y
25.(a) k
(b)
(c)
x
s y MPS
c y MPC
1000cr
4
MPS 1 MPC
1000 .75
250cr
25 1 .75
750cr
1
k
1 Mark for each
1000 .25 250cr
1 MPC
Part
4=1000/25
1
26.
Difference
between the two on the basis of creation
/ 3
reduction
4
Total
Marks of assets
1

MPC
and reduction / creation of liabilities. Give example one each. (2+1= 3 )
4 4four
MPC
1
27.
State
functions
of money
0.54= 2

4 MPC 3
3
MPC .75
4

101

Explain any one of them


2
28. Meaning of revenue deficit Excess of total revenue expenditure of the government
over its total revenue receipts.
1
Three points which indicate like:3
(i)
Dissavings on government account.
(ii) Increasing govt. liabilities or reduction of govt. assets.
(iii) Increasing debt burden due to repayment liability and interest payment etc.
1+3= 4
Or
Four objectives of the Govt. Budget.
14=4
29. (i) Yes, it is a factor income.
1
(ii) Yes, it is a factor income.
(iii) No, its an intermediate consumption.
(iv) No it does not contribute to increase in the flow of goods and services.
14=4
30. Yes, there can be under employment equilibrium
6
(i) Show in diagram
2
(ii) Explanation
2
(iii) One measure for correction
2
Or
Explain the equilibrium level of income and show in diagram with C+I curve.
3
If planned saving is more than planned investment Shows consumption
expenditure decreased. AD is less than AS. There will be piling of unsold stock.
Producers will cut down employment and produce less. National income decrease as a
result planned supply start falling till becomes equal to planned investment
3
31. Meaning of foreign exchange & Foreign exchange rate
1+1
Relation between foreign exchange rate & demand for foreign exchange.
4
32. National income = (i)+(ii)+(iii)+(v)+(vii)+(ix)= 3600cr
1.5+1.5=3
Personal disposable income = NY-(vi)-(viii)-(xiii)-(xii) = 3150cr
1.5+1.5=3
Ans: Ep= % change in Qd/ % change in P
-2= 50%/% change in P
% change in P= 50/-2= -25 %
New p=P+% change in P
=8 + (-25% change of 8)
=8-2= Rs.6 per unit.
102

16. On the basis of the following schedule, calculate price elasticity of demand by the percentage
method:
Ans: Price Per Unit (Rs.)

Total Expenditure (Rs.)

10

180

162

17. When price of a good is Rs. 13 per unit, the consumer buys 11 units of that good. When price
rises to Rs. 15 per unit, the consumer continues to buy 11 units. Calculate price elasticity of demand.
Ans: Ep= P/Q X Q/P = 13/11X 0/2 =0
18. From the following data, calculate price elasticity of demand.
Price (Rs)

Demand (Units)

100

150

Ans: Ep= P/Q X Q =9/100 x 50/0

= infinity

19. When price of a good is Rs. 7 per unit a consumer buys 12 units. When price fails to Rs. 6
per unit he spends Rs. 72 on the good. Calculate price elasticity of demand by using percentage
method. Comment on the likely shape of demand curve based on this measure of elasticity.
Ans:

EP= P/Q x Q/P

Price

Demand

12

72/6

12

=7/12 x0/-1 = 0

20. A consumer buys 10 units of a good at of Rs. 9 per unit. At price of Rs. 10 per unit he buys 9
units. What is price elasticity of demand? Use expenditure approach. Comment on the likely shape
of demand curve on the basis of this measure of elasticity.
Ans:

Price(Rs)

Qty.

Total Expenditure (Rs)

10

90

10

90

LIST OF NUMERICAL QUESTIONS ON COSTS AND REVENUE


Q.1The following table shows the total cost schedule of a firm. What is the total fixed cost schedule of
this firm?Calculate the TVC, AFC, AVC, SAC and SMCschedules of the firm.
Q
0

TC
10
103

1
2
3
4
5
6

30
45
55
70
90
120

Q.2The following table gives the total cost schedule ofa firm. It is also given that the average fixed
cost at4 units of output is Rs 5. Find the TVC, TFC, AVC, AFC, SAC and SMC schedules of the firm
for thecorresponding values of output.
Q
1
2
3
4
5
6

TC
50
65
75
95
130
185

Q.3A firms SMC schedule is shown in the followingtable. The total fixed cost of the firm is Rs 100.
Findthe TVC, TC, AVC and SAC schedules of the firm.
Q
TC
0
1
500
2
300
3
200
4
300
5
500
6
800
Q.4Complete the following table:
Output
Average Variable
Total Cost
Marginal Cost
(Units)
Cost (Rs.)
(Rs.)
(Rs.)
4
9
36
.
5
.
.
4
6
.
42
.
7
6
.
.
8
.
40
..
Q.5From the following schedule find out the level of output at which the producer is in equilibrium.
Give reasons for your answer.
Output
(Units)
1
2
3
4
5
6
7

Price
(Rs.)
24
24
24
24
24
24
24

Total Cost
(Rs.)
26
50
72
92
115
139
165
104

Q.6On the basis of the information given below, determine the level of output at whichthe producer
will be in equilibrium. Use the marginal cost marginal revenueapproach. Give reasons for your
answer.
Q
AR
TC
1
7
8
2
7
15
3
7
21
4
7
26
5
7
33
6
7
41
Q.7Calculate total variable cost and total cost from the following cost scheduleof a firm whose
fixed costs are Rs. 10.
Q
MC
1
6
2
5
3
4
4
6
Q.8Complete the following table:
P
4
1

Q
1
3
-

TR
6
6
-

MR
2
(-2)

Q.8Given below is the cost schedule of a firm. Its average fixed .cost is Rs. 20 when it produces 3
units
Q
AVC
1
30
2
28
3
32
Calculate its MC and AC at each given level of output.
Q.9 The total fixed cost of a firm is Rs. 12. Given below is its marginal cost schedule. Calculate total
cost and average variable cost for each given level of output.
Q
MC

1
9

2
7

3
2

4
4

5
8

6
12

Q.10Calculate Marginal Cost and Total Cost from the following Cost Schedule of a firm whose Total
Fixed Costs are Rs. 15:
Q
TVC
1
10
2
19
3
29
4
40
Q.11Complete the following table:
Q
AVC
1
-

TC
60
105

MC
20

2
3
4
5

18
20
22

120
-

18
-

Q
2
3
-

TR
7
10
-

MR
-1
-5

Q.12Complete the following table:


P
7
1

IMPORTANT CONCEPTS RELATED TO AD/ AS


KEY CONCEPTS OF AGGREGATE DEMAND AND AGGREGATE SUPPLY
Q1) define aggregate demand.
A1) AD refers to the sum total of expenditure on the domestically produced goods and services during
the period of an accounting year.
Q2) Write components of AD.
A2) a) private consumption expenditure(c)
b) private investment expenditure (I)
c) Government expenditure (G)
d) net exports (X-M)
Q3) Define aggregate supply.
A3) AS refers to the desired level of output in the economy during an accounting year.
Q4) Write two components of AS.
A4) a) consumption (C)
b) saving (S)
Q5) What is consumption function?
A5) The functional relationship between C and Y is called consumption function. i.e. C=f(Y)
Q6) What is meant by saving function?
A6) the functional relationship between Sand Y is called saving function. i.e. S=f(Y)
Q7) What is the relationship between MPC and MPS?
106

A7) MPS+MPS =1
Q8) What is the value of MPC when value of MPS is 0?
A8) MPC = 1
Q9) Why can the value of MPC be not greater than 1?
A9) MPC is always less than 1 because the change in consumption is always less than change in
income, as some part of income is always saved.
Q10) What is the maximum value of multiplier?
A10) K = because the maximum value of MPC is 1.
Q11) Can APS ever be negative?
A11) Yes, APS can be negative in the situation when saving is negative.
Q12) What is autonomous consumption?
A12) The consumption at the zero level of income is called autonomous consumption.
Q13) What is autonomous investment?
A13) Autonomous investment is the investment which is not affected by the level of income and rate
of interest.
Q14) What do you mean by underemployment?
A14) It is the equilibrium where AD=AS before full employment.
Q15) What is meant by Ex-ante saving?
A15) It refers to desired saving or planned saving during the accounting year.
Q16) What is Ex-ante investment?
A16) It refers to desired investment or planned investment during the accounting year.
Q17) What is the relationship between multiplier and MPC?
A17) There is a direct relationship between multiplier and MPC
K=1/1-MPC
Q18) What is meant by full employment?
A18) It refer to a situation when all those who are able to work and are willing to work at the existing
wage rate are getting work.
Q19) Define involuntary unemployment.

107

A19) It occurs when some people are not getting work even when they are willing to work at the
existing wage rate.
Q20) Define voluntary unemployment.
A20) It occurs when some people are not willing to work at all, or are not willing to work at the
existing wage rate.
Q21) Define excess demand or inflationary gap?
A21) It refers to a situation when AD is more than AS corresponding to full employment level.
Q22) Define deficit demand or deflationary gap?
A22) It refers to a situation when AD is less than AS corresponding to full employment level.
Q23) If investment multiplier is 1, what will be the value of MPC?
A23)

K=1/1-MPC
MPC=0

Q24) Find the value of multiplier when MPS=MPC?


A24) MPC+MPS=1
It means MPC=MPS=0.5
Hence K=1/MPS
K= 1/0.5=2
Q25) If the disposable income is Rs. 1200 and level of consumption is Rs. 800. Calculate APC.
A25) APC= C/Y
= 800/1200

IMPORTANT CONCEPTS RELATED TO NATIONAL


INCOME ACCOUNTING

108

CLASSIFY THE FOLLOWING ITEMS INTO INTERMEDIATE PRODUCTS AND FINAL


PRODUCTS
ITEMS
Furniture purchased by a
school

INTERMEDIATE/ FINAL
Final Product

Chalks, duster etc.


purchased by a school
Computers installed in an
office

Intermediate Product

Mobile set purchased by a


mobile dealer

Intermediate good

Expenditure on
maintenance of an office
building
Expenditure on
improvement of a machine
in a factory
Purchase of ticket for train
journey by an individual

Intermediate good

Purchase of eatable by a
firm.

Intermediate Product

Purchase of a car by an
employer for office use by
his employer

Intermediate Product

Machine purchased by a
dealer of machines
A car purchased by a
household
Expenditure on fertilizers
by a farmer.

Intermediate good.

Purchase of a tractor by a
farmer

Final good.

Final Product

Final Product
Final Product

Final good.

REASON
It is ready to be used
and it directly satisfies
the need of school
students.
They remain in the
production boundary
They have crossed the
boundary line of
production and are
ready for used by their
final users.
Because he has
purchased the mobile
set for resale.
It is a part of
depreciation and will be
incurred every year.
Improvement increases
the capital value of
machine.
It is the final
consumption
expenditure by a
household
It is expenditure on
purchase of non durable
goods.
It is expenditure on
goods supplied by an
employer to its
employees during
production process
As it is for resale.
As it used by household
as final consumption.
It is the expenditure on
purchase of non durable
goods.

Intermediate good

It has crossed the


boundary line of
production and ready
for use by its final user
or it is the final
investment expenditure
109

Purchase of furniture by a
firm
Expenditure on
maintenance by a firm.

Final good.

It is the final investment


expenditure
Because it is an
expenditure on single
use producer goods

Intermediate good

CLASSIFY THE FOLLOWING ITEMS INTO REVENUE RECEIPTS AND CAPITAL


RECEIPTS, REVENUE EXPENDITURE AND CAPITAL EXPENDITURE
Sl. No.
ITEMS
1
Salaries to the government employees.

CATEGORY
Revenue Expenditure

Pension

Revenue Expenditure

Grants

Revenue Expenditure

Subsidies

Revenue Expenditure

Interest Payment

Revenue Receipts

Direct Taxes

Revenue Receipts

Indirect Taxes

Revenue Receipts

Dividend

Revenue Receipts

Profits

Revenue Receipts

10

External grants

Revenue Receipts

11

Commercial Revenue

Revenue Receipts

12

Borrowing of the government from


RBI
Disinvestment of public sector
Recovery of loans
Borrowings and other liabilities from
foreign government
Receipts from sale of shares of Public
Sector Undertaking
Borrowings from Publics
Corporation Tax

Capital Receipts

REASON
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
It create liability

Capital Receipts
Capital Receipts
Capital Receipts

It reduces assets
It reduces assets
It create liability

Capital Receipts

It reduces assets

Capital Receipts
Revenue Receipts

Dividend on investment made by


government
Sale of Public Sector Undertaking
Grants given to state govt.

Revenue Receipts

It create liability
Neither reduces liability nor
create assets
Neither reduces liability nor
create assets
It reduces assets
Neither create assets nor
leads to reduction of

13
14
15
16
17
18
19
20
21

Capital Receipts
Revenue Expenditure

110

22
23
24
25
26
27
28

Repayments of loans
Construction of school building
Expenditure on subsidies of food and
fertilizers
Expenditure on Power generation
Purchase of defence equipments

Capital Expenditure
Capital Expenditure
Revenue Expenditure
Capital Expenditure
Revenue Expenditure

Receipts from sale of shares of a public Capital Receipts


sector Undertaking.
Loan to state government
Capital Expenditure

liabilities.
It reduces the liabilities.
It leads to creation of assets
Neither reduces liability nor
create assets
It leads to creation of assets
Neither reduces liability nor
create assets
It reduces assets
It leads to creation of assets

BY : KARL MARX GROUP

DOMESTIC INCOME AND NATIONAL INCOME


Whether the following are included in National income of a country or not?
Profit earned by branch of a foreign bank in India.
Interest paid by an individual on a loan taken to buy a car.
Expenditure on machines installation in a factory.
Expenditure incurred by a foreign tourist in the country.
Expenditure of the Government on the construction of new bridge.
Expenditure incurred by a household on feeding of beggars.
Contribution to the provident fund by employer.
Production for self consumption by farmer.
Income from smuggling.
Expenditure on purchase of old house.
Brokerage on sale of shares.
Meals given to the beggars.
Salary paid to Americans working in Indian Embassy in America.
Dividend received by an Indian from his investment.
Money received by a family in India from relatives working abroad.
Interest received on loan given to a friend for purchasing a car.
Dividend received by a foreign firm investment in shares of an Indian company.
Profit earned by a branch of an Indian bank in Canada.
Scholarship given to Indian students studying in India by a foreign company.
Value of bonus shares received by shareholders of a company.
Fee received from students.
Interest received on loan given to a foreign company in Indi

ANSWERS
Yes it is included. Profits are a part of the domestic factor income of India.
Included:- Interest paid is the part of factor payment.
Included:- It results in the flow of income through productive activities.
Included:- It is a part of production of goods and services.
Included:-it is the part of production of goods and services during the year.
111

No. It is a transfer payment.


Yes. It is a part of compensation of employees.
Yes. It results in production of final goods.
No. It is illegal income.
No. It has no relation with the production of goods and services.
Yes. It is the income of the agent for his services.
No. Expenditure without any productive return.
Yes.
Yes. It is a factor income received from abroad.
No. It is remittance from abroad.
Yes. It is a facto receipt.
Yes. It is a factor income received by the investors.
Yes. It is income received from abroad.
No. It is a transfer payment.
No. It is only a transfer of paper claims over ownership.
Yes, services are rendered by the school.
Yes, it is a factor income received by the investor.

HOW WILL YOU TREAT THE FOLLOWING WHILE ESTIMATING


DOMESTIC FACTOR INCOME OF INDIA ? GIVE REASON FOR YOUR
ANSWER.
Q. No.

QUESTIONS

Remittances from Nonresident Indians to their families in India.

Rent paid by Embassy of Japan in India to an Indian resident.

Profit earned by branches of foreign bank in India.

Old age pension given by government.

Factor income from abroad

Salaries paid to The Indian residents working in Russian Embassy in India.

Profit earned by a company in India which is owned by a non resident.

Profit earned by a foreign bank from its branches in India.

Scholarship given by government of India.

10

Profit earned by a resident of India from his company in Singapore.

11

Salaries received by an Indians working in American embassy in India.

12

Compensation of employees to the resident of Japan working in Indian Embassy in Japan.

13

Rent received by an Indian resident from Russian Embassy in India.

14

Free meals given to employees.

15

Expenses of a firm on medical treatment of families of employees.

112

ANSWERS
Q.No.

INCLUDED/NOT INCLUDED

Not included. Because it has not generated in the domestic territory of India.

Not included. As Embassy of Japan though located in India is treated as a part of domestic territory of
Japan.

Included. Because they are earned in domestic territory of India.

No. Because pension is paid on account of old age of a person and not for his productive services.

No. Because it is not earned within domestic territory of India.

Not included. Because Russian Embassy is not a part of domestic territory of India.

Yes. Because profits are earned by the company within Indian domestic territory irrespective of ownersh
of the company.

Yes. Because profits are earned within domestic territory of India irrespective of ownership of the
Bank.

No. It is a transfer payment.

10

No. Because profits are earned outside Indias domestic territory.

11

No. Because American Embassy in India is not a part of domestic territory of India.

12

Yes. Because Indian Embassy in Japan is a part of domestic territory of India.

13

No. Because it is not a part of domestic territory of India.

14

Yes. Because it is a part of compensation of employees.

15

Yes. Because it is a part of compensation of employee.

Numerical
NATIONAL INCOME NUMERICALS
1.
Calculate Net Value Added at factor cost from the following.
ITEMS
Rs. CRORES
a.
Purchase of raw materials
30
b.
Current replacement cost
12
c.
Sales
200
d.
Indirect tax
20
e.
Opening stock
15
f.
Intermediate consumption
48
g.
Closing stock
10
113

h.
Ans:

Excise duty
15
Value of Output =Sales + in stock
= 200 + (closing stock opening stock)
= 200 + (10 -15)
= 200 5=195
GVA mp
= Value of output intermediate consumption
=195-48 = 147
NVA fc
GVA mp
=
Net indirect tax-Current replacement cost
=147 20-12
=115 crores

2.
a.
b.
c.
d.
e.
f.
g.
h.
i.
Ans:

Calculate (a) Net National Product at MP, and (b) Gross National Disposable Income
ITEMS
Rs. CRORES
Private final Consumption expenditure
200
Net indirect taxes
20
Change in stocks
(-) 15
Net current transfers from abroad
(-) 10
Govt. final consumption expenditure
50
Consumption of fixed capital
15
Net domestic capital formation
30
Net factor income from abroad
5
Net imports
10
NDPmp
= (Private final Consumption expenditure) + (Govt. final consumption expenditure)

+ Net domestic capital formation+ (Net imports)


=200 + 50+ 30 -10
=280 -10 = 270 crores
NNPmp
NDPmp
=
+ NFIFA
=270 + 5
NNPmp

= 275 crores

GNDI =

NNPmp

+ Net current transfers from abroad + Consumption of fixed capital

= 275+ (-10) +15 =255 crores


GNDI = 280 crores.
3.
a.

b.

c.

Calculate Gross Domestic Product at Market Price by


(a) Production Method and (b) Income Method
ITEMS
Rs. CRORES
Intermediate consumption by
i) Primary sector
500
ii) Secondary sector
400
iii) Tertiary sector
400
Value of output by
i) Primary sector
1000
ii) Secondary sector
900
iii) Tertiary sector
700
Rent
10
114

d.
e.
f.
h.
i.
j.
k.
Ans:

Compensation of employees
Mixed income
Operating surplus
Net factor income from abroad
Interest
Consumption of fixed capital
Net indirect taxes
GVA mp
by production method

400
650
300
(-)20
5
40
10

(b) Value of Output= (Primary sector) + (Secondary sector) + (Tertiary sector)


=1000+ 900 + 700 =2600
Intermediate consumption = (Primary sector) + (Secondary sector) + (Tertiary sector)
=500 -400-400=1300
GVA mp = (1000+ 900 + 700) (500 -400-400)
=2600 1300 = 1300 crores
Income method
NDPfc = Compensation of employees + operating surplus + mixed income
= 400 + 300 + 650 = 1350 crores
GDPmp
NDPfc
=
+ Consumption of fixed capital+ Net indirect taxes
= 1350 - 40 + 10

GDPmp =1400
4.

ESTIMATE NATIONAL INCOME BY


(a) EXPENDITURE METHOD (b) INCOME METHOD FROM THE FOLLOWING
DATA
Rupees in crores
1. Private final consumption expenditure
210
2. Govt. final consumption expenditure
50
3. Net domestic capital formation
40
4. Net exports
(-) 5
5. Wages& Salaries
170
6. Employers contribution in social security Scheme
10
7. Profit after tax
45
8. Interest
20
9. Indirect taxes
30
10. Subsidies
05
11. Rent
10
12. Factor income from abroad
03
13. Consumption of fixed capital
25
14. Royalty
15
NNPfc
Ans: National Income (
)
Expenditure Method
NDPmp = (Private final consumption expenditure) + (Govt. final consumption
Expenditure) + (Net domestic capital formation) + (Net exports)
= 210 + 50 + 40 + (-5) = 295 crores
NNPfc
NDPmp
=
+ factor Income from abroad (Indirect tax subsidy)
= 295 + 3 (30 -5)
115

= 298 25 = 273
NNPfc
= 273 crores
Income method:
NDPfc (Wages& Salaries) + (Employers contribution in social security Scheme) +
(Profit after tax) + (Interest) + (Rent) + (Royalty)
= 170 + 10 + 45 + 20 + 10 + 15
= 270 crores
NNPfc
NDPfc
=
+ FIFA
= 270 + 3= 273 crores
(5)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Ans:

FROM THE FOLLING DATA CALCULATE


(a) NATIONAL INCOME (b) PERSENAL DISPASABLE INCOME.
Items
Rupees in crores
Profit before Tax
500
Rent
200
Private income
2000
Mixed income of self employed
800
Compensation of employees
1000
Consumption of fixed capital
100
Net factor income from abroad
-(50)
Net retained earnings of private employees
150
Interest
250
Net exports
200
Co-operation tax
100
Net indirect tax
160
Direct taxes paid by houses holds
120
Employers contribution to social security scheme. 60
NNPfc
= (Compensation of employees) + (Interest + Rent + Profit Before Tax +

Co-operation tax) + (Mixed income of self employed)


=1000 + (250+ 200+500 +100)+800
NDPfc
= 2850 crores
NNPfc

NDPfc

+ (Net factor income from abroad)

= 2850 + (-50) = 2800 crores


PDI = (Private income) (Net retained earnings of private employees) (Co-operation
Tax) (Direct taxes paid by houses holds)
= 2000 150 100 -120
PDI = 2000 370 = 1630 crores
(6)
.

CALCULATE PRIVATE INCOME AND PERSONAL DISPOSABLE INCOME


FROM THE FOLLOWING DATA
Items
Rupees in crores
1. National income
5050
2. Income from property and entrepreneurship to govt.
Administrative department
500
3. Saving of non department public enterprises
100
116

Ans:

4. Corporation tax
80
5. Current transfer from govt. administrative depart
200
6. Net factor income from abroad
-50
7. Direct personal tax
150
8. Indirect taxes
220
9. Current transfer from Rest of the world
80
10. Savings of private corporate sector
500
NNPfc
Private Income =
Income from property and entrepreneurship to govt.

administrative department - Saving of non department public enterprises + Current transfer from govt.
administrative depart. + Current transfer from Rest of the world
= 5050 500 100 + 200 + 80
= 5430 500
Private Income = 4930 crores
PDI = Private Income Corporation tax - Savings of private corporate sector Direct
Personal tax
= 4930 -80 -500 -150
PDI = 4200 crores
(7)

CALCULATE NET NATIONAL DISPOSABLE INCOME AND PERSONAL


INCOME FROM THE FOLLOWING DATA
ITEMS
Rupees in crores
1. Net indirect taxes
90
2. Compensation of employers
400
3. Personal taxes
100
4. Operating surplus
200
5. Corporation profit tax
80
6. Mixed income of self employed
500
7. National debt interest
70
8. Saving of non departmental enterprises
40
9. Current transfer from govt.
60
10. Income from property and entrepreneurship to govt.
Administrative Department
30
11. Net current transfer from RAW
20
12. Net factor income from abroad
-50
13. saving of private corporate sector
20
NNPfc
Ans:
= Compensation of employers + Operating surplus + Mixed income of self
employed
= 400 + 200 + 500 = 1100 crores
NNPfc
NNDI =
+ 12 + 1 + 11
=1100 + (-50) + 90 + 20
NNDI = 1210 50= 1160 crores
Personal Income
Private Income =

NDPfc

8 10

=1160 -40 30=1090 crores


=1090 + 7 + 9 +11 +12
=1090 + 70 + 60 + 20 + (-50) = 1190 crores
Personal income = Private Income Corporation Profit Tax Savings of private
117

Corporate sectors
1190 80 20= 1090 crores
(8)
CALCULATE FROM THE FOLLOWING DATA (A) PRIVATE INCOME (B)
PERSONAL INCOME (C) PERSONAL DISPOSABLE INCOME.
ITEMS
RS IN CRORES
NDPfc
1.
Accruing to private sector
300

Ans

2. Income from entrepreneurship and property


Accruing to govt. administrative departmental
70
3. Savings of non departmental enterprises
60
4. Factor income from abroad
20
5. Consumption of fixed capital
35
6. Current transfer from rest of the world
15
7. Corporation taxes
25
8. Factor income to abroad
30
9. Current transfer from governmental adm. depart
40
10. Direct taxes paid by house hold
20
11. National dept interest
05
12. saving of private corporate sector
80
NDPfc
Private Income =
accruing to private sector + Factor income from abroad + Current

transfer from rest of the world - Factor income to abroad + Current transfer from governmental adm.
depart + National dept interest
= 300 + 20 + 15 -30 + 40 + 05
Private Income = 350 crores
Personal Income = Private income Corporation taxes Saving of private corporate
Sector
= 350 25 80= 245 crores
PDI = Personal Income - Direct taxes paid by house hold
=245 20
PDI = 225 crores

9.

From the following data, calculate:


(a) Gross national Disposable Income
(b) Private Income
(c) Personal Disposable Income
Items
(1) Net national product at factor cost
(2) Indirect taxes
(3) Subsidies
(4) Consumption of fixed capital
(5)Income from property and entrepreneurship
Accruing to government administrative departments
(6) Current transfers from rest of the world
(7) Profits
(8) Direct tax paid by households
(9) Savings of private corporate sector
(10) Saving of non-departmental enterprises
(11) Current transfer from govt. administrative departments
118

(Rs. In Crores)
700
60
10
40
50
45
100
50
60
25
70

(12) A factor income abroad


20
(13) Factor income to abroad
30
(14) Corporation tax
35
NNPfc
Ans GNDI =
+ Indirect taxes - Subsidies + Current transfers from rest of the world +
Consumption of fixed capital
= 700 + 60 10 + 45 + 40
= 845 -10 = 835 crores
NNPfc
b) Private Income =
Income from property and entrepreneurship Accruing to
government administrative departments - Saving of non-departmental enterprises +
Current transfers from rest of the world + Current transfer from govt. administrative
departments
= 700 50 -25 + 45 +70
Private Income = 740 crores
c) PDI = Private Income Corporation tax Savings of private corporate sector Direct
Tax paid by households
= 740 35 60 50
PDI = 594 crores

Unsolved questions:
1.

Calculate (a) Personal Income (b) Personal Disposable Income from following data:
Items
(Rs. In Crores)
(i) Income from property and entrepreneurship accruing to
Government administrative department
500
(ii) Savings of non-departmental public enterprises
100
(iii) Corporation tax
80
(iv) Income from Domestic product accruing to the private sector 4,500
(v) Current transfer from government administrative departments 200
(vi) Net factor income from abroad
(-) 50
(vii) Direct Personal tax
150
(Viii) Indirect taxes
220
(ix) Current transfers from rest of the world
80
(x) Savings of private cooperate scooter
500

2.

From the following data, calculate Gross national product at Market Price by
(i) Income method. (ii) Expenditure method:
Items
(Rs. In Crores)
(i) Mixed income of self-employed
400
(ii) Compensation of employees
500
(iii) Private final consumption expenditure
900
(iv) Net factor income from abroad
(-) 20
(V) Net indirect taxes
100
(vi) Consumption of fixed capital
120
(vii) Net domestic capital formation
280
(viii) Net exports
(-) 30
(ix) Profits
350
(x) Rent
100
(xi) Interest
150
119

(xii) Government final consumption expenditure

450

3.

From the following data, calculate gross value added at factor cost
Items
(Rs. In Crores)
(i) Sales
500
(ii) Change in stock
30
(iii) Subsidies
40
(iv) Consumption of fixed capital
60
(v) Purchases of intermediate products
350
(vi) Profit
70
4.

From the following data, calculate:


(a) National income, and (b) Personal disposable income
Items
(Rs. In Crores)
(i) Compensation of employees
1,200
(ii) Rent
400
(iii) Profit
800
(iv) Consumption of fixed capital
300
(v) Mixed income of self- employed
1,000
(vi) Private income
3,600
(vii) Net factor income from abroad
(-) 50
(viii) Net trained earnings of private enterprises
200
(ix) Interest
250
(x) Net indirect taxes
350
(xi) Net exports
(-)60
(xii) Direct taxes paid by households
150
(Xiii) corporation tax
100
5. From the following date calculate national income by
(a) Income method and (b) Expenditure method.
Items
(i) Private final consumption expenditure
(ii) Net capital formation
(iii) Change in stock
(iv) Compensation of employees
(v)Rent
(vi) Interest
(vii) Operating surplus
(viii) Net indirect tax
(x) Employers contribution to social security schemes
(xi)Net exports
(xii) Net factor income from aboard
(xii) Government final consumption expenditure
(xvi) Consumption of fixed capital
6.

(Rs. In cores)
2,000
400
50
1,900
200
150
720
400
100
20
(-) 20
600
100

Find gross national product at market price by income method and expenditure method.

ITEMS
a. Mixed income of the self employed
b. Compensation of employees
c. Private final consumption expenditure

Rs. CRORES
400
500
900
120

d. Net factor income from abroad


e. Net indirect taxes
f. Consumption of fixed capital
g. Net domestic capital formation
h. Net exports
i. Rent
j. Interest
k. Government final consumption expenditure

(-) 20
100
120
280
(-) 30
100
150
450

IMPORTANT CONCEPT RELTED TO GOVERNMENT BUDGET AND THE


ECONOMY
Numericals
1. In a government budget if revenue receipts are Rs. 100 lakh, capital receipts is
Rs. 50 lakh and revenue deficit Rs.25 lakh how much is the revenue expenditure?
Ans. revenue deficit = Revenue expenditure - Revenue Receipt
Rs25lakh = Revenue expenditure Rs.100lakh
Revenue expenditure =Rs125lakh
2. Find budget deficit from the following data:
S.N
o.
1
2
3
4

Items

Rs.crore

Revenue Receipt
Revenue expenditure
Capital receipts
Capital expenditure

Rs.40000crores
Rs.30000crores
Rs.30000crores
Rs.50000crores

Ans.
Budget Deficit= (Revenue expenditure + Capital expenditure )-( Revenue
Receipt+ Capital
receipts )
=(30000+50000)-(40000+30000)
=Rs.10000crores
3. Find fiscal deficit?
Estimated total expenditure of the govt.= Rs.1,50,000
Revenue Receipt = 1,20,000
Non-debt capital Receipt =Rs.10,000
Ans.
Fiscal deficit = Total expenditure of govt. (Revenue Receipt + Non-debt capital
Receipt)
= Rs.1,50,000-Rs.(1,20,000+10,000)
= Rs.20,000
4. Payment of interest by the govt. during the year is estimated to be Rs.75,000
while the excess
of budgetary expenditure over budgetary Receipt (net of
borrowing) is estimated to be Rs.1,15,000.Find Primary Deficit?
Ans.
Fiscal deficit = Rs.1,15,000
Interest Payment = Rs.75,000
Primary Deficit = Fiscal deficit- Interest Payment
= Rs.1,15,000 - Rs.75,000
121

= Rs.40,000
5. Calculate total expenditure of the govt.?
S.No.
1
2
3

ITEMS
Borrowing and other liabilities
Revenue Receipt
Non-debt capital Receipt

AMOUNT IN Rs.
Rs.10,000
Rs.60,000
Rs.5,000

Ans.
Total expenditure of the govt.= Rs.(10,000+60,000+5,000)=Rs.75,000
6. Total expenditure of the govt. budget is Rs.75,000 and Total Receipt is
Rs.45,000.
How much is the Budget deficit?
Ans.
Budget deficit = Rs.(75,000-45,000)
= Rs.30,000
7. . Calculate Primary Deficit?
Fiscal deficit = Rs.9,000
Interest payment by the govt.= Rs.900
Ans.
Primary Deficit = Fiscal deficit- Interest payment by the govt
= Rs.9,000- Rs.900
= Rs.8,100
8. In a government budget, revenue deficit is Rs.60,000crores and borrowings are
Rs.75,000crores. How much is the Fiscal deficit?
Ans.
Fiscal deficit = Rs.75,000crores
9. In a government budget, Primary Deficit is Rs. 10,000crores and Interest
payment is
Rs.8000 crores.How much is the Fiscal deficit?
Ans.
Primary Deficit = Fiscal deficit - Interest payment
Rs. 10,000crores = Fiscal deficit- Rs.8000 crores
Fiscal deficit = Rs.2,000crores
10. From the following data about a government budget, find out
a) Revenue deficit
b) Fiscal deficit
c) Primary Deficit
1
2
3
4
5

Items
Capital receipts net of borrowings
Revenue expenditure
Interest payment
Revenue Receipt
Capital expenditure

Ans.
a)Revenue deficit = Revenue expenditure - Revenue Receipt
=100 80 = Rs.20 arab
b) Fiscal deficit = 100+110-80-95 = Rs.35arab
c) Primary Deficit = Fiscal deficit - Interest payment
=35 10 = Rs.25arab
122

Rs. (Arab)
95
100
10
80
110

11. From the budget estimates of govt. of India, calculate:


a) Revenue deficit b) Fiscal deficit c) Primary Deficit
s.n
o.
1
2
3
4
5
6
7

items

Rs. In crore

Revenue Receipt
Revenue expenditure
capital receipts
Capital expenditure
Recoveries of loans and other receipts
Borrowings and other liabilities
Interest Payment

2037
2811
1324
550
240
1084
1020

Ans.
a)Revenue deficit = Revenue expenditure - Revenue Receipt
=2811-2037 = Rs.774crore
b) ) Fiscal deficit = Total Expenditure Total Receipt(excludind borrowings)
=(2811+550) (2037+240) = Rs.1084crore
c) Primary Deficit= Fiscal deficit - Interest Payment
= 1084-1020 = Rs.64crore

HOTS
MICRO ECONOMICS (PART-1)
INTRODUCTIOIN
Q.1
Q.2
Q.3
Q.4
Q.5
Q.6
Q.7
Q.8
Q.9
Q.10

Name the central Problems of an economy.


Why do economic problem arise?
What do you mean by economizing of resources?
If the marginal opportunity costs are constant, what would be the shape of PPC?
What does increasing marginal opportunity cost along PPC mean?
Why do growth of resources and technological advancement lead to the rightward
shift of PPC?
If there is mass unemployment in the economy, show its impact on PPC.
What do the point inside the PPC and outside the PPC show?
Why do we call PPC as a Transformation Curve?
How can the problem of How to produce be solved in the centrally planned
economy?

ANSWERS
Q.1

Q.2

What to produce?
How to produce?
For whom to produce?
It arises due to: Limited resources.
Unlimited human wants.
Alternative use of resources.

Q.3
Q.4

Using the resources judicially and wisely.


PPC would be a straight line down ward slope.
123

Q.5
Q.6
Q.7
Q.8

Q.9
Q.10

It means PPC is concave.


Because both lead to increase in the economies capacity to produce more.
There will be no change in PPC but the resources will be underutilized.
Points inside the PPC shows underutilization of resources and
Points outside the PPC shows unattainable combination of production with given
resources.
Because we transfer the resources from one commoditys production to another
commoditys production.
This problem is related with the problem of choice of technique i.e. labour intensive
and capital intensive. So the government requires if there is massive unemployment in
the economy labour intensive technique is better than capital intensive technique.
If there is abundance of capital than capital intensive technique is better.

CONSUMER EQUILIBRIUM AND DEMAND


Q.1
Q.2

Q.3
Q.4
Q.5
Q.6
Q.7
Q.8
Q.9

Q.
10
Q.11

The prices of two goods are and 5 respectively. The consumer income is 40.
Write down the equation of budget line.
How the following change will affect the market demand curve for a product:
In order to encourage tourism tom Goa, the government of India suggested
Indian Airlines to reduce air fare to Goa. How will this affect the market
demand curve for air travel to Goa?
A new steel plant comes up in Jharkhand. Many people who were previously
unemployed in the area are now employed. How will this affect the demand
curve for colour T Vs. in the region?
The demand function of a commodity X is given by Qx = 30-4 Pxthe value of Px is
given as 6,5,4,3,2 find the individual demand schedule.
What does the area under marginal curve shows?
Which of the following commodities have inelastic demand :
Salt, Medicines, A particular brand of shoes, Mobile phone and school uniform.
If two supply curves intersect, which one does have higher price elasticity of supply?
At a particular level of output a producer finds that MC < MR, what will a producer
do to maximize his profit?
Show that the rising portion of the MC curve is the supply of a competitive firm.
Demand and supply curve of salt are given by
Qd = 1000 P, Qs = 700 + 2P
Find the equilibrium price and quantity
Can the average cost be less than the marginal cost, when the average cost is rising?

Why does the difference between ATC and AVC decrease with increase in the level of
output?
Q.12 Does increase or decrease in the income of the consumer has same effect on every
type of commodity?
Q.13 Identify implicit cost and explicit cost from the given information.
(i)
An individual is both the owner and manager of a shop taken on rent.
(ii)
A producer starts a business by investing his own saving and hiring the labour.
124

Q.14
Q.15
Q.16
Q.17

The government in India keeps raising taxes on cigarettes and liquor. Yet their demand
continuous to be high. How do you explain this phenomenon?
A consumer consumes only two goods x and y and is in equilibrium. Price of x falls.
Explain the reaction of the consumer through utility analysis.
At a particular level of output, a producer finds that MC is greater than MR. What will
he do for maximization of his profit?
State the relation between good X and good Y in each case if with a use in price of X,
demand for Y (i) falls and (ii) Rises give reason.

ANSWERS:
CONSUMER EQUILIBRIUM AND DEMAND
Q.1
Q.2

Q.3

The equation of budget line is:- 4 X1 + 5 X2 = 20.


(i) with many people getting employed in new steel plant, we will find an increase in
income hence t6he demand for colour T.Vs will increase, therefore their market
demand curve would shift to the right.
(ii) With reduction in air fare to Goa, the number of people travelling by air would
increase. Therefore the market demand curve for air travel to Goa would shift to the
right.
Px= 6
Qx = 30 - 4 * 6 = 6
Px= 5

Qx = 30 - 4 * 5 = 10

Px= 4

Qx = 30 - 4 * 4 = 14

Px= 3

Qx = 30 - 4 * 3 = 18

Px= 2

Qx = 30 - 4 * 2 = 22

Demand schedule is : Price

Quantity demanded
6
5
4
3
2

Q. 4
Q.5
Q.6
Q.7
Q.8

6
10
14
18
22

TVC is equal to the area under marginal the cost curve.


Salt, Medicine, and school uniform have inelastic demand.
Flatter supply curve has higher price elasticity than steeper curve at the point of
intersection.
If MC < MR the producer will increase his production to increase his profit.
Profit maximizing conditions are P = MC and MC must be increasing with output.
Each point on the MC curve shows the output the producer would supply different
125

Q.9

Q10
Q.11

Q.12

Q.13

Q.14

Q.15

Q.16
Q.17

quantity at different price level and hence the rising part of the MC curve can be
considered the supply curve of a competitive firm.
At equilibrium D = S
Hence, at equilibrium
Qd = Qs
1000 P = 700 + 2P
3P = 300
P = 100
Equilibrium price is 100
Put the value of equilibrium price in any of the equations:
Qd = 1000 100 = 900
Equilibrium Quantity is 900.
Yes.
Since total fixed cost remains constant at all levels of output therefore AFC declines
when level of output increases. As a result difference between ATC and AVC
decreases with increase in the level of output.
No, because,
Increase in income increases the demand for normal goods and reduces demand for
inferior goods.
Decrease in income reduces demand for normal goods and increases demand for
inferior goods.
(i) The efforts of an individual as owner and manager are implicit cost whereas the
rent paid is explicit cost.
(ii) Investment of own saving is implicit cost and hiring the labour is explicit cost.
This is because elasticity of demand for these products (Cigarettes and Liquor) is very
low, owing to the fact that (i) There is no close substitute of these products (ii) These
are habit faming goods.
The consumer is in equilibrium when MUx/Px>MUy/Py. It means per rupee MU from
consumption of X is higher than from Y. In such situation consumer will transfer
expenditure from Y to X. Thus consumer will buy more of X.
The producer will decrease his production.
(i) Good X is complementary. (ii) Good Y is substitute of good X.

FORMS OF MARKET
Q.1
Q.2
Q.3
Q.4

Under which form of market the firm is a price taker?


Why is there a higher interdependency among firms under oligopoly?
Why are there few numbers of sellers in an oligopoly?
What are the implications of the following features of perfect competition?
Very large numbers of sellers and buyers.
Homogeneous product.

Q.5
Q.6

Draw the demand curve under monopoly and monopolistic competition.


What will happen to the profits in the long run, if there is freedom to enter the new
firms?
Why the demand curve of a firm under monopolistic competition is negatively sloped?
What are the features of MPC?
Can APS be negative? When?
What Is the impact of deficient demand?
What is the relation between K & MPC and K & MPS?

Q.7
Q.8
Q.9
Q.10
Q.11

126

Q.12
Q.13

What happens when planned savings are not equal to planned investment in the
economy? How equilibrium level of output is determined? Use diagrams.
How will you correct the inflationary and deflationary gap?

ANSWERS
FORMS OF MARKET
Q.1
Q.2
Q.3
Q.4

Perfect competition market.


(i) Because there are few big firms under oligopoly.
(ii) Ones firm decision is taken by expecting another firms reaction.
Because in this form of market firm requires huge capital, costly raw material etc.
(i) Very large numbers of buyers & sellers: each buyer & seller has so insignificant
share in the market that individual buyer & seller cannot influence the price of the
commodity
(ii) Homogeneous product: Product is identical in terms of shape, size, colour and
quality. So no individual buyer will be ready to pay more prices for the same product.
Hence NO control over the price.

Q.5
Price

Price

MR AR

MR

Outpu
t

Outpu
t

AR

The demand curve of Monopoly is less elastic than Monopolistic Competition.


Q.16

Q.17

Q.18
Q.19
Q.20
.21

Suppose the existing firms are earning super normal profits . Now the firms are free to
entre in the industry. If the number of firms increase the supply of that product will
increase, which leads to fall in the price that results in fall in profit in long run.
Because under this market form number of close substitute are available and as the
firm is not price taker, It is having partial control over the price and can sale the
oroduct at lower orice.
1.value of MPC ranges between 0 to 1.
2. MPC of poor section is more than MPC of richer section.
Yes, When C>Y.
It cause fall in prices and fall in output and employment level.
Inverse relationship between Multipliar and MPS and Positive relationship between
Multiplier and MPC.

NATIONAL INCOME AND RELATED AGGREGATES


Q. 1

GDP may be a good indicator of economic growth but not economic welfare. Why?

Q. 2
Q. 3

How can externalities be a limitation of using GDP as an index of welfare?


GNP is the estimated value of the total worth of production of goods & services
earned by the normal residents of a country. But to find out NNP, GNP deducts
depreciation. Why should be depreciation deducted from GNP?
127

3
Marks

Q.4

Q.5
Q.6

Q.7

The value of the nominal GNP of an economy was 2500 crores in a particular year.
The value of GNP of that country during the same year evaluated at the prices of the
same base year was 3000 crores. Calculate the value of the GNP deflator of the year
in percentage term. Has the price level risen between the base year and the year under
consideration?
Why adding of a value twice in measurement of National Income is called a problem?
Write down the three identities of calculating the GDP of a country by the three
methods. Also briefly explain why each of these should give us the same value of
GDP?
Why should the aggregate final expenditure of an economy be equal to the aggregate
factor payments? Explain.

ANSWERS:
NATIONAL INCOME AND RELATED AGGREGATE
Q. 1

GDP is not appropriate indicator for welfare because:


Ignorance of distribution of income among population.
Welfare is not a component of GDP calculation.
Non-monetary transactions are ignored.
Externalities (good & bad impact of activities).

Q.2

Increase in GDP is due to increased economic activities like industrialization and urbanization.
With increase industrialization certain problems for society also increase like pollution of air,
water and soil and deforestation. Urbanization also results in housing problems, increase in road
activities. On the whole welfare decreases and this decrease in welfare is ignored while
calculation of GDP, so we can say that externalities can be a limitation of using GDP as an index
of welfare.
The production is power of physical capital stock of a country diminish gradually because of the
normal wear and tear in the process of production. When the machine becomes totally
unproductive it can be replaced by the new machines so , a sum of money is set aside every year
in to depreciation account and a new machine can be purchased by utilizing this accumulated
sum. So depreciation is deducted from GNP in order to get more accurate measure of the
sustainable production of goods and services in a country in a given year.
Nominal GNP
100
GNP deflator =
Real GNP

Q.3

Q. 4

2500
= 3000

Q. 5
Q.6

* 100

= 83.3 %

No, the price level has not risen between the base year and the year under consideration, in fact,
it has fallen.
Adding of a value twice in the measurement of National Income is called double counting
problem because it leads to over estimation of the National Income.
Three identities of calculating GDP, National Product, National Income, National Expenditure.
GDP with production method is measured at production level.
GDP with income method is measured at distribution level.
GDP with expenditure method is measured at disposal level.
128

Q. 7

Therefore all three methods will give same value of GDP as production generates income,
income generates expenditure and expenditure calls forth production. Hence all three methods
will give same result.
Aggregate final expenditure ( excluding expenditure on intermediate goods) should be equal to
aggregate factor payments (i.e. total income received by all the factors of production) because
revenue earned by all the firms put together must be distributed among the factors of production
as salary & wages, rent , interest and profit.

MONY AND BANKING


Q. 1
Q.2
Q.3
Q. 4
Q.5
Q. 6

Why do people hold cash balance?


What is the difference between face value and intrinsic value of money?
Name the instrument through which the commercial banks remit money at distant places.
List general utility services provided by commercial banks.
Why businessmen mostly want to open current account in the bank?
What is the facility of drawing more money than actually lying in their account in the bank
called?

MONEY AND BANKING


Q.1

People hold cash balance for three motives:


Transaction motive: it is demand for money for day to day transactions.
There is positive relation between income and demand of money for transaction motive.
Precautionary motive: It is demand of cash balance to provide for unforeseen
contingencies like accidents, sickness, etc.
There is positive relation between income and demand of money for precautionary
motive.
Speculative motive: It is a demand of cash balance to invest in financial assets like
shares, bonds etc.
There is negative relation between rate of interest and demand of money for speculative
motive.

Q.2

Face value refers to the value which is written on the unit of money. E.g. face value of a 100
rupee note is equal to 100 rupees.
Whereas intrinsic value refers to the commodity or metallic value of the unit of money.
e.g. the value of silver coin during British Rule in India.
Demand Draft, Mail transfers, telegraphs, Transfers etc. are the instruments through which the
commercial banks remit money at distant places.
The general utility services provided by the commercial banks to the society are:
Provide lockers facilities.
Issuance of Travelers cheques and Gift cheques facilities.
Purchas and sale of foreign exchange.

Q.3
Q.4

Q.5

The businessmen mostly want to open current account in the bank because the deposits in
current account are payable on demand. They can be drawn upon by cheque without any
restriction. The banks offer Over Draft facility on these deposits to the businessmen.
129

Q.6

Over Draft facility.


HOTS FOR BUDGET AND BOP

1. Define govt. budget. Explain briefly any three of its objectives.


ANS. Govt. budget is an annual statement of the Govt. which shows the item wise estimates of
receipts and expenditure during a fiscal year.
Objectives of govt. budget:
(i)

Redistribution of income and wealth Govt. with the help of taxation, subsidies, and transfer
payments brings about fair distribution income.

(ii)

Reallocation of resources The govt. aims to reallocate

resources so that the social (public

welfare) and economic (profit maximization) objectives are met.


(iii)

Economic growth and stability Govt. tries to prevent business fluctuations and maintains
price and economic stability. The budget tries to raise the overall rate of saving s and
investments.

2. What is a tax? Explain with the help of suitable examples the basis of classifying taxes into direct
and indirect taxes
Tax is a legally compulsory payment imposed on the people by the govt. There are two types of
taxes
(a)

Direct taxes: When the liability to pay tax and the burden of that tax fall on the same person, it
is called direct tax. Examples are income tax, wealth tax, corporation tax, gift tax etc.

(b)

Indirect taxes: When the liability to pay tax is on one person and the burden of that tax falls on
other persons, it is called indirect tax. Examples are sales tax, excise duty, VAT, tax on
services etc.

3. Distinguish between revenue expenditure and capital expenditure with examples.


Ans. Revenue Expenditure:- Any expenditure that does not result in the creation of physical or
financial assets, or reduction in liability. It is financed out of revenue receipts. Examples:
expenditure on payment of salary, pension, interest on loans taken by the govt. etc.
Capital expenditure:- Any expenditure that will lead to creation of an asset or reduction in liability.
It is financed out of the capital receipts of the govt. Examples: Expenditure on construction of
roads, bridges, canals, grant of loans by the central govt. to the state govt.
4. What is meant by fiscal deficit? What are its implications?
Ans. Fiscal deficit is defined as the excess of total expenditure over total receipts, excluding
borrowings. Fiscal deficit = Total expenditure (Rev. Exp. + Cap. Exp.) Total Receipts (Rev. Rec.
.

+ Cap. Rec.)excluding borrowings.

Implications:
130

(i) High fiscal deficit implies a large amount of borrowings wherein the govt. takes more loans to
repay it. It increases the liability of the govt.
(ii) It leads to inflationary pressure in the economy.
(iii)

It creates a large burden of interest payments in the future.

(iv)It increases the dependence of the govt. on foreign countries.


(v) It hampers the future growth and development prospects of the country.
5. Explain how foreign exchange rate is determined under flexible exchange rate system. Use
diagram.
Ans. Under flexible exchange rate system, the equilibrium exchange rate is determined where
demand for foreign exchange is equal to the supply of foreign exchange.
Demand for foreign exchange = Supply of foreign exchange.
Demand for foreign exchange is made to:
(i)

Purchase goods and services,(imports),

(ii)

Send gifts and grants,

(iii)

Speculate on the value of foreign currencies,

(iv)

Invest and purchase financial assets


There is an inverse relation between exchange rate and demand for foreign exchange.
Supply of foreign exchange:

(i)

By exports of goods and services,

(ii)

Direct foreign investment in home country,

(iii)

For speculative purchases by non-residents in the home country,

(iv)

Remittances from abroad


There is a direct relationship between foreign exchange rate and demand for foreign exchange.

6. Give the meanings of (i) fixed exchange rate, (ii) Flexible exchange rate, (iii) managed floating.
Ans.
i.

Fixed exchange rate system (pegged exchange rate system): It is a system in which
exchange rate of a currency is fixed by the govt. This system ensures stability in foreign
trade and capital movement.

ii.

Flexible (Floating) exchange rate system: It is a system in which exchange rate is


determined by forces of demand and supply of foreign currencies concerned in the foreign
exchange market. There is no official intervention in the foreign exchange market.

iii.

Managed floating rate system: It is a system in which foreign exchange rate is determined
by market forces and central bank is a key participant to stabilize the currency in case of
extreme appreciation or depreciation.
131

7. Distinguish between current account and capital account of balance of payment

account. Mention

any two transactions of capital account.


Ans. A balance of payment account (BOP) account is a statement of all economic transactions that
take place between a nation and the rest of the world during a given period. BOP account broadly
comprises of (i) Current account and (ii) Capital account.
Current account:-It is that account which records imports and exports of goods and services and
unilateral transfers.
Capital account:-It is that account which records capital transactions such as foreign investments,
loans, banking, capital, rupee debt service, other capital and monetary movements.
Components of capital account: (a) foreign investment
(b) Foreign loans
(C) Banking capital and other capital
(d) Monetary movements.
8. Distinguish between visible and invisible items in the BOP. Give one example of each.
Visible items: All types of goods which are exported and imported are called visible items. These
are visible as these are made of some matter or material. The record of these items is available with
the ports.
Examples: Tea, Jute items, Petroleum etc.
Invisible items: All types of services which are rendered to or received from abroad are called
invisible items. These are invisible as these are not made of any matter or material. The record of
these items is not available with the ports.
Examples: Transport services, Insurance and banking schemes.
9. Discuss the fiscal measures taken by government to correct disequilibrium between AD and AS.
There is measure to correct disequilibrium between AD and AS. One is directly implemented
by the government known as fiscal policy measures
Fiscal policy measures:
1) Tax when AD>AS the economy will face inflation. To check inflationary trend in the economy
the government will raise the rate of tax, money will transfer from the society to government, AD
will be reduced and become equal to AS and thus disequilibrium is corrected. When AD<AS the
economy will face recession. To check deflationary trend in the economy the government will
lower the rate of tax, which will leave more money with the people. AD will be increased will
become equal to AS and thus disequilibrium is corrected.
2) Public Expenditure By increasing and decreasing public expenditure government correct
disequilibrium between AS and AD. When AD>AS, economy will experience inflation and to
check inflationary trend in the economy the government will reduce the public expenditure
132

programmes which will reduce employment opportunities and purchasing power of the people. In
short AD gets reduced and become equal to AS, disequilibrium is corrected. When AD < AS
reverse operation will take place.
10. Why is tax not a capital receipt?
Tax is not a capital receipt because it neither leads to creation of liability nor to reduction in assets.
In fact, a tax is a revenue receipt.
11. Why are the borrowings by the Government as capital receipts?
Borrowings by the Government are capital receipts because they create liabilities or reduce assets.
The Government is under obligation to return the amount along with interest.
12. Why is repayment of loan a capital expenditure?
Repayment of loan is treated as a capital expenditure because it reduces the liabilities of the
Government.
13. Why is recovery of loans treated as a capital receipt?
Recovery of loans is treated as a capital receipt because it leads to decline in financial assets of the
Government.
14. Why interest is received categorized as revenue receipt?
Interest received is a revenue receipt because it does not create any liability nor it leads to
reduction in assets.
15. Why are receipts from taxes categorized as revenue receipts?
Receipts from taxes are categorized as revenue receipts because they do not create liabilities nor
reduction in assets.
16. In a government budget, primary deficit is Rs. 10,000 crores and interest payment is Rs. 8,000
crores. How much is the fiscal deficit?
Primary deficit = Fiscal deficit interest payments
=>Fiscal deficit = Primary deficit + Interest payments.
= 10,000 + 8,000
= 18,000 crores.
17. Ten US dollars are exchanged for five hundred Indian rupees. What is the exchange rate for Indian
currency?
$1 = 500/10 = Rs.50, i.e., $1 = Rs. 50
18. If $9 are needed to buy 2, what is the exchange rate for USA dollar?
1 = 9/2 = $4.5, i.e., 1 = $4.5.
19. If the value of exports of goods of a country is Rs. 1,000 crores and the value of imports of goods
is Rs. 1,200 crores, how much will be the trade balance ( or balance of trade )?
Balance of trade = value of exports value of imports
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= 1,000 1,200.
= Rs. 200 crores
20. A countrys balance of trade is Rs. 75 crores. Value of imports of goods is Rs. 100 crores. How
much is the value of exports of goods?
Balance of trade = value of exports value of imports
75

= value of exports 100.

i.e., Value of exports = 100 + 75


= Rs. 175 crores.
21. A countrys balance of trade is Rs.500 crores . Value of exports of goods is Rs. 650 crores. How
much is the value of imports of goods?
Balance of trade = Value of exports Value of imports
500

= 650 - value of imports

Value of imports = 650 - 500


= Rs. 150 crores.
22. Differentiate between devaluation and depreciation?
Devaluation means reduction in the external value of a countrys currency as a conscious policy
measure adopted by the Government of a country. In other words, we make our currency cheaper
in terms of foreign currency. This makes our goods cheaper to foreign buyers and foreign goods
costlier to our buyers. Hence exports increase, imports fall and the gap in trade balance becomes
smaller. When a country suffers from continued deficit in its balance of payments, it may resort to
devaluation of its currency with a view to encouraging exports and restricting imports and thus
narrowing down or covering its trade gap and balance of payments deficit. It takes place in Fixed
Exchange Rate System.
Depreciation of a currency means fall in value of domestic currency in terms of foreign currency.
Example: if value of rupee in terms of US dollars falls, say from Rs. 45 to Rs. 50 per dollar, it will
be a case of depreciation of Indian rupee because more rupees are required now to buy one US
dollar. It occurs in Flexible Exchange Rate System.

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