Sample Paper (CBSE) - smartlearning.comd. Indifference curves are drawn under the ordinal approach to consumer equilibrium. OR A consumer has total money income of 250 to be spent

Sample Paper (CBSE)

Series SC/SP/017 Code No. SP/017

CBSE-12- Economics - SP ©Educomp Solutions Ltd. 2017

ECONOMICS

Time Allowed: 3 hours Maximum : 100

General Instructions:

(i) All the questions are compulsory.

(ii) Q. No. 1 to 5 and 16 to 20 are very short answer type, carrying 1mark each.

(iii) Q. No. 6 to 8 and 21 to 23 are short answer type, carrying 3 marks each.

(iv) Q.No.9 to 11 and 24 to 26 is a value based question carrying 4 marks.

(v) Q. No. 12 to 15 and 27 to 30 are long answer type, carrying 6 marks each.

(vi) Use of calculators is not allowed, use log tables wherever required.

1 When is a consumer said to be rational?

2 Define normative economics, with a suitable example.

3 State the meaning of `quantity demanded of a commodity`.

4 If a firm‟s production department data says that the total variable

cost for producing 8 units and 10 units of output is 2,500 and

3,000 respectively, marginal cost of 10th unit will be

a. 100 b. 150 c. 500 d. 250

5 State any one assumption for the construction of the curve that

shows the possibilities of potential production of two goods in an

economy.


6 State the behavior of Marginal Physical Product, under Returns to a

Factor.

7 Using appropriate schedules, briefly describe the determination of

market equilibrium.

8 “In a hypothetical market of mobile phones, the brand AWAAZ

was leading the market share. Its nearest competitor VAARTA

suddenly changed its strategy by bringing in a new model of

the mobile phone at a relatively lesser price. In response,

AWAAZ too slashed its price.”

Based on the above information, identify the form of market

represented and discuss any one feature of the market.

OR

Discuss the primary reason for „indeterminateness of demand curve‟

under the oligopoly form of market.

9 a. Arrange the following coefficients of price elasticity of demand in

ascending order: -0.7, -0.3, -1.1, -0.8

b. Comment upon the degree of elasticity of demand for Good X,

using the total outlay method, if the price of X falls from 18

per unit to 13 per unit and its quantity demanded rises from

50 units to 100 units.

10 Identify which of the following is not true for the Indifference Curves.

Give valid reasons for choice of your answer:

a. Lower indifference curve represents lower level of satisfaction.

b. Two regular convex to origin indifference curves can intersect

each other.

c. Indifference curve must be convex to origin at the point of


tangency with the budget line at the consumer‟s equilibrium.

d. Indifference curves are drawn under the ordinal approach to

consumer equilibrium.

OR

A consumer has total money income of 250 to be spent on two goods

X and Y with prices of 25 and 10 per unit respectively. On the

basis of the information given, answer the following questions:

a. Give the equation of the budget line for the consumer.

b. What is the value of slope of the budget line?

c. How many units can the consumer buy if he is to spend all his

money income on good X?

d. How does the budget line change if there is a fall in price of good

Y?

11 Explain the concept of marginal opportunity cost using a numerical

example.

12 Define Price Floor. What is the common purpose of fixation of floor

price by the government? Explain any one likely consequence of this

nature of intervention by the government.

OR

Define Price Ceiling. What is the common purpose for the price

ceiling imposed by the government? Explain any one likely

consequence of this nature of intervention by the government in the

price determination process.


13

a) Apply the geometric method to determine the elasticity of supply

at point L on the supply curve SS given above.

b) Justify the statement, „In economics, normal profits are always a

part of total cost‟.

14 A consumer, Mr. Aman is in state of equilibrium consuming two

goods X and Y, with given prices Px and Py. Explain what will

happen if :

a. MUx / Px is greater than MUy / Py.

b. Py falls

15 State, with valid reasons, which of the following statement are true

or false:

a. Average Revenue curve under the Perfect Competition is a

downward sloping curve.

b. AFC curve is a rectangular hyperbola curve.

c. When MR is falling but positive, TR will also be falling and

positive.

16 Supply of money refers to quantity of money

a. As on 31st March

b. During any specified period of time

c. As on any point of time

d. During a fiscal year


17 Define nominal flow.

18 Primary deficit is equal to:

i) Fiscal Deficit less Interest Payments

ii) Revenue Deficit less borrowings

iii) Borrowings less interest payments

iv) Borrowings less Fiscal Deficit.

19 Which of the following is not a Quantitative Method of credit control?

i) Open Market Operation

ii) Margin Requirements

iii) Variable Reserve Ratio

iv) Bank Rate Policy

20 What are „subsidies‟?

21 Explain how „Depreciation of currency‟ promotes exports of a

country?

22 If in an economy:

a) Consumption function is given by C = 100 + 0.75 Y, and

b) Autonomous investment is 150 crores.

Estimate

(i) Equilibrium level of income and

(ii) Consumption and Savings at the equilibrium level of income.

OR

Explain how the economy achieves equilibrium level of income using

Consumption + Investment (C+I) approach.


23 State under what conditions in the following statements may be true:

a. GNDI is equal to GNP at market prices.

b. Domestic Income is greater than National Income

c. Value of output is equal to Value Added

24 `GDP as an index of welfare may understate or overstate welfare`.

Explain the statement using examples of a positive and a negative

externality

25 Define Balance of Payments. Discuss briefly the components of

current account.

26 Explain the concepts of Real GDP and Nominal GDP, using a

suitable numerical example.

OR

State the various precautions of Product Method that should be kept

in mind while estimating national income.

27 a) “Fiscal deficit is necessarily inflationary in nature”. Do you

agree? Support your answer with valid reasons.

b) Elaborate „Economic Growth‟ as an objective of government

budget.

28 What is the range of values of investment multiplier? Clarify the

relation of investment multiplier with marginal propensity to

consume (MPC) and with marginal propensity to save (MPS).

29 Discuss how the central bank plays the role of `controller of credit` in

an economy?

OR

Using a numerical example elaborate the credit creation process as


handled by the commercial banks.

30 Compute (a) National Income and (b) Personal Disposable Income.


Answer key

1 A consumer is said to be „rational‟ when he aims at maximizing his utility

from the consumption of the given commodity, within his money income.

2 Economics as a „normative science‟ deals with situations of value

judgments or condition of „what ought to be‟.

Eg. India should create more employment opportunities.

3 Quantity demanded is that quantity of a commodity which a consumer is

willing and able to buy at a particular price and a given point of time

4 (d) 250

5 Increasing marginal opportunity cost or any other valid assumption.

6 i. MPP initially rises to its maximum

ii. MPP then decreases (stays positive) to become zero

iii. MPP becomes negative

7

8

The market in the question is „Oligopoly‟.

Answer Key


Explanation of any one Feature, say Price Rigidity.

Price rigidity is the tendency of oligopolistic firms to stick to the ongoing

price of the product, with a view to avoid any sort of price war.

OR

Indeterminateness of Demand Curve: In an Oligopoly form of market no

single firm can predict its prospective sales with perfection. This is because

any given change in the price/output decision by a rival firm would initiate

a series of actions, reactions and counter actions by others. Therefore there

is no certain nature and position of demand curve under this form of

market for a firm.

9

a.) Ascending order: -0.3, -0.7,-0.8,-1.1.

(minus sign only represents the inverse relation between price and

quantitydemanded)

b.)

10 Out of the given options, (B) is incorrect. Indifference Curves have a

property that two ICs cannot intersect.

Suppose, there are any two ICs intersecting each other. As per the

figure

A =C ( on IC1)

D= E (on IC2)

But if we see the peculiarity of point B (the point of intersection), this

would result into absurd situation of A=C=B & D=C=B, which is not

possible, as they are violating the basic definition of the Indifference

Curves.


OR

(a) PxQx + PyQy = M

25Qx + 10Qy = 250

(b) Slope of Budget Line = (-) Px/Py = (-) 25/10 = (-) 2.5

(c) If Qy is to be Zero

25Qx + 10Qy = 250

25Qx + 10(0) = 250

Qx = 250/25 = 10 units

(d) If Py falls the consumer will be able to buy more of good Y in the

same money income pushing the Y-intercept of the Budget Line

away from origin, keeping the X-intercept constant. (shifts

outwards)

11 The marginal opportunity cost can be defined as the ratio of number

of units of a good sacrificed to produce an additional unit of another

good. It is also known as Marginal Rate of Transformation (MRT).

Marginal opportunity cost of a good in terms of the other good can be

estimated as:

MOC = Δ loss of output of good Y = Δ Y = Y2-Y1

(MRT) Δ gain of output of good X Δ X X2-X1

Marginal opportunity signifies the rate of sacrifice of good Y


Example: In t h e gi ve n s ch e dul e , if we want to move from

combination A to combination B, we will produce one additional

unit of X, but we will have to forgo 2 units of Y. The marginal

opportunity cost of X in terms of Y at this stage is 2 units, similarly

for other combinations too can be worked out.

12 PRICE FLOOR:

A price floor is the lowest legal price of a commodity at which it can be

sold, fixed by the government. Price floors are used by the government to

prevent prices from being too low.

The main reason for imposing the price floor policy is the welfare of the

producers / farmers.

Eg the minimum wages, minimum support price.

Consequence:

Buffer Stock: In order to maintain the minimum support price, the

government may have to build buffer stocks to enable producers to dispose

of their surplus stocks. The government purchases the surplus stocks

available with the farmers / producers; these stocks are released in case

the production of the supported commodity suffers.

OR

PRICE CEILING

Price ceiling means the maximum limit that the government imposes on

the price of a commodity. Price ceilings are used by the government to

prevent prices from being too high.

The main reason for imposing price ceilings is to protect the interests of the

consumers in situations in which they are not able to afford needed

commodities. For example, during the recent rise in the prices of pulses.

Consequence:

Shortages of the commodity and Rationing: In case of price ceiling the

quantity actually supplied in the market will shrink; as a result, a

large chunk of consumer‟s demand will go unsatisfied. To deal with such


a situation the government may resort to rationing of the commodity.

13

a.) Es at point L = Supply Curve intercept on X axis Supply at point L

Draw a perpendicular from point L on the axis, say at OQ,

The intercept of the supply curve coincide with the origin.

b.)Therefore, Es at point L = OQ/OQ = 1

The given statement is correct.

Normal profit is defined as the minimum reward that is just sufficient to

keep the entrepreneur supplying his factor service Since total cost includes

payment made to primary inputs: land, labour, capital and enterprise, total

cost includes rent, wages, interest and (normal) profits.

14

a.) If MUx/Px > MUy/Py, then it means that satisfaction of Mr. Aman,

derived

from spending a rupee on Good X is greater than the satisfaction derived

from spending a rupee on Good Y.

Mr. Aman, will reallocate his income by substituting Good X for Good Y.

b.) As the consumption of Good X increases the marginal utility derived

from it goes on diminishing and reverse proposition occurs for Good Y, this

process will continue till MUx/Px becomes equal to MUy/Py.

If Py falls, MUx/Px < MUy/Py, then it means that satisfaction derived from

spending a rupee on Good X is lesser than the satisfaction derived from

spending a rupee on Good Y.

Mr. Aman will reallocate his income by substituting Good Y for Good X.

As the consumption of Good Y increases the marginal utility derived from

it goes on diminishing and reverse proposition occurs for Good X, this

process will continue till MUx/Px becomes equal to MUy/Py.

15 a) False: Since the firm under Perfect Competition is a price taker, AR

curve will be a straight line parallel to X-axis.

b) True: Since TFC remains unchanged / constant.


c) False: When MR is falling but positive, TR will be rising.

(brief explanation of each)

16 (c) as on any point of time

17 Nominal Flow/Money Flow is the flow of factor payments and payments

for goods and services between households & firms.

18 (i) Fiscal deficit less interest payments

19 (iii) Margin Requirements

20 Subsidies are the „economic assistance‟ given by the government to the

firms and households, with a motive of general welfare.

21 When price of foreign currency in terms of domestic currency rises in the

foreign exchange market it is termed as depreciation of domestic currency.

Any depreciation of home currency results in increase in exports of the

country since it increases the global competitiveness of the goods ie

foreign countries can purchase more quantity of goods and services with

the same amount of foreign currency from the domestic country. As a result

exports of the domestic country rise.

22 C= 100+0.75Y

I = 150

(i) At equilibrium level of income:

Y = C + I

Y=100+0.75Y + 150

Y - 0.75Y = 250

Y = 250/0.25 = 1,000(in crores)

(ii) C =100+0.75Y = 100+0.75(1000) = 100 + 750 = 850 (in crores)

Y = C + S or S= Y-C = 1,000-850 = 150 (in crores)


OR

C+I approach

Aggregate demand, given by C+I, is the planned demand by the various

sectors of the economy. Whether this planned demand is realized or not

depends on amount of goods and services (aggregate output or Y) produced

in the economy. Thus it is only when planned expenditure is equal to the

aggregate output does the economy achieve equilibrium.

ie AD=Y

If AD>Y, inventory level with producers falls and they increase output.

This happens till AD=Y

Opposite happens if AD<Y

23 (a) When net current transfer from abroad are zero

(b) When Net Factor Income from Abroad is negative

(c) When intermediate consumption is zero.

24 GDP doesn‟t account for externalities

Positive Externality: eg: saving commuting time due to construction of a

fly-over , increases welfare, GDP as an index understates welfare

Negative Externalities: eg: Pollution from factories, decreases welfare,

GDP overstates welfare

25 Balance of payments is defined as the statement of accounts of a country‟s

inflows and outflows of foreign exchange in a fiscal year.

Components of Current Account:

i) Visibles: refer to the merchandise/goods exported from or imported

by a country. Exports which results inflows for the country are

placed on the credit side whereas Imports are placed on the debit

side as they result into outflow of foreign exchange from the

country.

ii) Invisibles: refer to the different types of services and transfers that

take place between nations. They give rise to monetary receipts


and payments for the nation.

26 1. Real GDP: when GDP is measured at constant prices or the base

year‟s prices is known as Real GDP. GDP at constant prices will

only increase when there is an increase in the flow of goods and

services in the economy.

2. Nominal GDP: when GDP is measured at the prevailing or the

current year‟s prices is known as Nominal GDP. GDP at current

prices may increase even if there is no increase in flow of goods and

services in the economy.

Any suitable numerical example.

OR

Precautions of Product Method:

1. Avoid double counting

2. Production for self consumption should be included

3. Sale of second hand goods is not to be included

4. Production from illegal activities is not to be included

5. Value of services rendered by housewives/family members is not to

be included

( any four)

27 (a) The term fiscal deficit is the difference between the government's total

expenditure and its total receipts (excluding borrowing).

Such borrowings are generally financed by issuing new currency which

may lead to inflation. However, if the borrowings are for infrastructural

development this may lead to capacity building and may not be

inflationary.

(b) The term „Economic Growth‟ refers to a sustained increase in the real

GDP of the economy OR an absolute/net increase in the total volume of


goods and services produced by an economy. This is an essential objective

of the government budget as the budget can be a very effective instrument

for targeting the economic growth. Can be achieved by providing tax

rebates, infrastructural stimulation etc.

28 Range of Investment Multiplier = one to infinity.

Relation: if MPC rises, investment multiplier : positive relation,

whereas if MPS rises, investment multiplier falls: inverse relation.

(Relation to be supported by numerical examples or explanation)

29 This is the most crucial function played by any central bank in the modern

times. Central Banks are supposed to regulate and control the volume and

direction of the credit by using the:

i) Quantitative techniques – are those techniques which influence the

quantum of credit in the economy like open market operations,

bank rate policy, repo and reverse repo rate policy etc.

ii) Qualitative techniques - or selective credit control techniques are the

ones which influence the direction of credit in the economy like

margin requirements and moral suasion.

( brief explanation of each)

OR

Creation of credit is one of the crucial functions performed by a commercial

bank in modern times. The commercial bank is responsible for putting

money (produced/created by central bank) in circulation through the

process of credit creation or the lending process.

Numerical Illustration, may be based on the following assumptions:

i. There is only one bank in the economy.

ii. Initial deposits are say 10,000 crores and the legal reserve

requirement proposed by the central bank is 10%.

iii. Credit Creation = Initial deposits x 1 = 10,000 / 0.1

LRR

= 1,00,000 crores.


Students may provide a schedule for deriving the same

30 (i) National Income= (ix) + [(iii) + (xiii) +( vii)] + (i) +(ii)

=1600 + (500 + 500 + 300)+ 2500+ (-50)

= 5350 crores

(ii) Personal Disposal Income= (iv) - (vi) – (viii) – (xiv)

= 4000 - 700 – 500 – 300

= 2500 crores

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Sample Paper (CBSE) - smartlearning.comd. Indifference curves are drawn under the ordinal approach to consumer equilibrium. OR A consumer has total money income of 250 to be spent