Time : 3 Hours Maximum Marks : 100

Transcription

1 SOLUTIONS SAMPLE QUESTION PAPER - 6 Self Assessment Time : 3 Hours Maximum Marks : 00 SECTION A. (a) Shift to the right.. When percentage change in quantity demanded is less than the percentage change in price then the demand is said to be inelastic. 3. Budget line is the locus of different combinations of the two goods which the consumer can afford by spending the whole of his income. [CBSE Marking Scheme, 0]. It will remain constant.. Monopolistic competition. 6. Consumer purchases upto the point where MU = Price. So long as MU>P, he keeps on purchasing. As he makes purchases, MU falls and at a particular quantity of the good MU becomes equal to price. Consumer purchases upto this point. [CBSE Marking Scheme, 0] 3 Substitute goods are those goods which can be used in place of each other such as tea and coffee, ball-pen and ink pen, etc. In case of such goods, increase in the price of one causes increase in demand for the other and vice-versa. ½ Complementary goods are those which cannot be used separately. Such goods complete the demand for each other and are, therefore, demanded together. Pen and ink or bread and butter are some examples. In case of such goods, a fall in the price causes increase in the demand of the other and vice-versa. ½ 7. Economic problem arises due to following reasons : (a) Limited or scarce resources : Resources are scarce in relation to our wants and economy cannot produce all what people want. It is the principal reason for existence of economic problems in all economies. (b) Alternative uses : Resources can be put to alternative uses. For example, land is used not only for the production of crops but also for constructing buildings and factories. As a result, economy has to make choice between the alternative uses of the given resources. (c) Unlimited wants : Human wants are unlimited. They are never ending and can never be fully satisfied. 3 = 3 ECONOMICS Oswaal CBSE Class -, Examination Sample Question Paper

2 OSWAAL CBSE Sample Question Paper Economics, Class XII 8. PPC is the locus of points representing different combinations of the two goods which the economy can produce from the given resources assumed to be employed fully and efficiently. ½ A PPC is downward sloping because to produce more quantity of one good, the economy must produce less quantity of the other good. It is because resources are fixed. ½ [CBSE Marking Scheme, 0] 9. E d = Q P P Q Given E d = ( ), P = ` 0, Q = 00, P =?, Q = increase by 0% Q = ` 00 Q = 0% of ` 00 or ` 00 + ` 00 = ` 600 Q = ` 600 ` 00 = ` 00. ` 00 0 Now () = P ` 00 or () 00 P = ` 000 or () 00 P = ` 000 or P = New price = P + P = ` ( ) + ` 0 = ` 8 0. The Law of Variable Proportions states that as only one input is increased, others remaining unchanged, Total Product (TP) changes in three phases : (i) Phase I : TP rises at an increasing rate (ii) Phase II : TP rises at decreasing rate (iii) Phase III : TP falls. Reasons : Phase I TP rises at an increasing rate because in the beginning as the quantity of the variable input is increased efficient ulitization of fixed input takes places due to specialization. This raises efficiency of the variable input. Phase II TP now rises at a decreasing rate because as the variable input is increased, there is pressure on fixed inputs leading to decline inefficiency. Phase III TP starts falling because the quantity of the variable inputs becomes too much in relation to the fixed input. [CBSE Marking Scheme, 0] Output Price (`) TR MR 3 The above table is drawn on the assumption that the given price is ` per unit.. The implication is that the proportion of total output produced by a single seller is so insignificant that the seller cannot influence the market price by his own actions by changing the quantity of output it produces. He has no option but to sell at the price determined at the industry level. 0 0 [CBSE Marking Scheme, 03]. Few Firms : The implication is that the number of firms is manageable enough to make a guess of the likely reactions of rivals by a firm. There are few sellers of the commdity and each seller, has a substantial position of the market. Each firm is aware that it possesses a large degree of monopoly power. 3

3 Solutions 3 Barriers to the entry of firms : Barriers to the entry of the firms can be natural like requirement of huge capital, operating at the minimum average cost, etc., which prevents entry of new firms in the industry. [CBSE Marking Scheme, 00] 3 3. Difference between Cardinal Utility and Ordinal Utility Basis Cardinal Utility Ordinal Utility Meaning It means satisfaction that can be measured in numbers such as,, 3, etc. It refers to satisfaction that cannot be measured in numbers. Concept This concept was given by Marshall. This concept was given by J.R. Hicks. Realistic It is less realistic. It is more realistic. Example Cup of tea offers you untis of utility Cup of tea offers you greater satisfaction than a cup of coffee. ½ = 6 The Law of Demand states that, other things remaining constant, the quantity demanded of a commodity decreases with rise in its price and increases with a fall in its price. So, there is an inverse relationship between price and quantity demanded of a commodity. This is explained with the help of a table and Fig. Both demand schedule and following demand curve are showing an inverse relation between price and quantity demanded. Demand Schedule and Demand Curve showing inverse relation between Price and Quantity Demanded Price per unit (`) Quantity Demanded Exceptions to the Law : The law will not hold under following circumstances : (i) Goods of conspicuous consumption : In such D cases, higher price means more consumption. O (ii) Giffen goods : When price of a giffen good falls, QUANTITY DEMANDED X its quantity demanded also falls. (iii) Consumer s ignorance : The law breaks down when consumers judge quality of the commodity by its price.. Total revenue is the sum of marginal revenues at different levels of output. It can also be found by multiplying price (AR) with the quantity of output. From the TR schedule, we can derive the AR and MR as under : PRICE Y D Demand Curve Units of Output (Q) TR (`) AR = TR Q (`) MR = TR Q (`)

4 OSWAAL CBSE Sample Question Paper Economics, Class XII. The table shows that : (i) TR increases at a decreasing rate, because MR is decreasing. (ii) TR is maximum (= ` 300) when MR = 0. (iii) TR starts declining when MR is negative. (iv) Declining AR implies that MR should be declining faster than AR. 6 Output (Units) TR (`) TC(`) MR (`) MC (`) The producer is in equilibrium at 3 units of output Reasons : (i) MR = MC (ii) MC > MR after equilibrium Profit = TR TC = ` ` 9 Profit = `. [CBSE Marking Scheme, 00] 6 SECTION B 6. Capital goods are the goods which are used for producing other goods. 7. It is a system of exchange, where goods are exchanged for goods. This is also called commodity for commodity exchange economy. 8. MPS = MPC MPS = S ½ = Y 9. When at the full employment level of income aggregate demand (AD) exceeds aggregate supply (AS), the difference is called Excess demand. 0. Exports and foreign tourism. ½ =. Rise in foreign exchange rate means that one unit of foreign currency is worth more rupees than earlier. So one unit of foreign currency can now buy more goods and services from India. It makes Indian exports cheaper to the foreign buyers. This is likely to increase exports.. Components : [CBSE Marking Scheme, 0] 3 (i) Borrowing and lending to and from abroad. (ii) Investment to and from abroad. (iii) Changes in foreign exchange reserves. [CBSE Marking Scheme, 0] 3. Aggregate Demand : It refers to total value of final goods and services which all the sectors of an economy are planning to buy at a given level of income during a period of an accounting year. ½ Aggregate Supply : It refers to money value of goods and services that all the producers are willing to supply in an economy in a given time period. ½ [CBSE Marking Scheme, 03] Deflationary gap refers to Aggregate Demand falling short of Aggregate Supply at the full employment level of income. It is called deflationary because it brings in deflationary tendencies.

5 Solutions Y AD/AS E Y Deflationary Gap F AD FE AD IU O P Income AD FE = Aggregate Demand at full employment level AD IU = AD at involuntary unemployment level. Point E is equilibrium point, where AD = AS. But at the current deficient demand due to involuntary unemployment of AD IU, the aggregate demand FP is less than actual supply in the economy. Hence, EF is deflationary gap.. Non-Monetary Exchanges refer mainly to the own account or self consumed goods and services like services of family members to each other which are left out of GDP on account of non-availability of data. But these do contribute to welfare. as such GDP under estimates welfare. X [CBSE Marking Scheme, 0]. Sales = (v + ii iv + i) iii Factor Payment = ` ` 80 ` 60 + ` 700 ` ( 0) ½ = ` 070 lakh ½ [CBSE Marking Scheme, 0] Production Units Households Final Expenditure 6. Income are first generated in production units due to joint efforts of factor owners from households. These incomes are distributed to the factor owners who in turn spend the income on purchasing goods and services produced in production units. This makes the circular flow of income complete. S. No. Fiscal Deficit Primary Deficit. It is an excess of all anticipated government expenditure over the anticipated government receipts in the year.. It increases the liability of the government in the form of repayment of loans with interest. 3. Fiscal Deficit = Total expenditure Revenue receipts Capital receipts excluding borrowing. [CBSE Marking Scheme, 03] It is the difference between fiscal deficit and interest payments. It indicates the borrowing requirements of the government to meet fiscal deficit excluding interest payments. (a) Gross Primary Deficit = Fiscal Deficit Interest payment. (b) Net Primary Deficit = Gross Primary deficit Interest receipt. [CBSE Marking Scheme, 03]

6 6 OSWAAL CBSE Sample Question Paper Economics, Class XII 7. (a) (i) Direct Tax : A tax which is paid by the same person on whom it has been levied is termed as direct tax. In case of direct tax, burden cannot be shifted on other party eg. income tax. (ii) Indirect Tax : It is a tax which is paid by one person and levied on other person. In case of indirect tax, burden is generally shifted on other party eg. excise duty. 3 (b) (i) Revenue Expenditure It is that expenditure which neither creates any asset nor reduces any liability. Examples are payment of salary, pension, subsidies, etc. (ii) Capital Expenditure It is that expenditure which either creates assets or reduces liability. Examples Construction of Roads, expenditure on machinery, etc. 8. Deflationary gap refers to Aggregate Demand falling short of Aggregate Supply at the full employment level of income. It is called deflationary because it brings in deflationary tendencies. 3 Margin requirements refer to the discount on the security mortgaged by the borrower. It is determined by the Central Bank. In case of deflationary gap the Central Bank reduces the discount so that the capacity to borrow is increased. This raises AD. 3 [CBSE Marking Scheme, 0] Investment Multiplier refer to increase in national income as a multiple of a given increase in investment. Its value is determined by MPC. The value equals: Multiplier = MPC or MPS Suppose increase in investment is ` 000 and MPC = 0.8. The increase in National Income is in the following sequence : (a) Increase in investment raises income of those who supply investment goods by ` 000. This is the first round increase. (b) Since MPC = 0.8, the income earners spend ` 800 on consumption. This raises the income of the suppliers of consumption goods by ` 800. This is second round increase. (c) In the similar way the third round increase is ` 60 = ` In this way national income goes on increasing round after round. (d) The total increase in income is ` 000 which equals DY = DI MPC DY = ` = ` National Income = (iv) + (ii) + (i) + (vi) + (iii) (vii) [CBSE Marking Scheme, 03] = Private final consumption Expenditure + Govt. final consumption expenditure + Net domestic Capital formation + Net exports + [Net factor income from abroad Net indirect taxes] 3 = ` ` ` 0 + ` 0 ` ( 0) ` 90 = ` 00 + ` 0 ` 90 N.I. = `,030 crore. [CBSE Marking Scheme, 0] 30. Use of money overcomes the drawbacks of barter system of exchange in the following manner : (i) With the introduction of money, double coincidence of wants is no longer needed. (ii) Money facilitates storage of value which is difficult in barter system. (iii) Money facilitates satisfaction of wants even in smaller units which is not possible in barter system. (iv) Money serve as a medium of exchange. Accordingly scope of exchange has greatly widened. ½ = 6 qqq

7 SOLUTIONS SAMPLE QUESTION PAPER - 7 Self Assessment Time : 3 Hours Maximum Marks : 00 SECTION A. (i) Theory of Consumer Behaviour. (ii) Theory of Producer Behaviour. ½ =. PPC will be convex to the origin if MRT is decreasing. 3. Equation of Budget Line The budget line shows all the different combinations of the two commodities that a consumer can purchase, given his money income and the price of the two commodities. The equation of Budget line is : ½ M > P x. Q x + P y. Q y Where, M = Money income of the consumer; P x = Price of good-x; P y = Price of good-y, Q x = Quantity of good-x; Q y = Quantity of Good-y. ½. Returns to a factor refers to change in output when only one input is changed, other inputs remaining unchanged. [CBSE Marking Scheme, 0]. Increase in price of factor inputs causes decrease in supply of a commodity. 6. Interdependence of firms in an oligopoly market In an oligopoly market, there is a high degree of mutual interdependence. Implying that, price and output policy of one firm has a significant impact on the price and output policy of the rival firms in the market. When one firm lowers its price the rival firms may also lower the price and when one firm raises its price, the rival firms may not do so. It is because of the interdependence that it becomes very difficult to estimate change in firm's sales caused by a change in price. Implying that a precise relationship between price and sales cannot be established or that the firm's demand curve cannot be drawn Consumer s equilibrium refers to a situation when a consumer maximises his satisfaction, spending his given income across different goods and services at a given price. In case of single commodity, consumer attains equilibrium when : ½ (i) MU x = MU of Money. Px It implies that in a state of equilibrium, rupee worth of satisfaction actually dervied from the commodity should be equal to rupee worth of satisfaction expected by the consumer. ½ (ii) Marginal Utility of money remains constant. ½ ECONOMICS Oswaal CBSE Class -, Examination Sample Question Paper

8 8 OSWAAL CBSE Sample Question Paper Economics, Class XII (iii) Law of diminishing marginal utility holds good. Implying that MU must decline as more of a commodity is consumed. ½ Substitute goods are those goods which can be substituted for each other. If the price of a commodity-y (i.e. coffee) falls, consumers switch over from X to Y and hence demand for X (tea) falls True. Because when the prevailing market price is higher than the equilibrium price there will be excess supply, and since the sellers will not be able to sell all they want to sell, there will be competition among sellers. [CBSE Marking Scheme, 03] + 9. Given P = ` 0, P = ` 9 P = ` 9 ` 0 = ` TR = ` 00 Q = ` 00 ` 0 = ` 0 ½ ` 98 TR = ` 98 Q = ` 9 = ` 0 ½ Q = Q Q = ` 0 ` 0 = ` ( 8) E s = Q P P Q E s = or E s = or E s = `( 8) `0 `( ) `0 `8 `0 ` `0 ` 80 ` 0 or E s =.. 0. Market supply : It is the quantity of a good supplied by all the firms taken together at a given price during a period of time. Imposition of Tax : It raises cost. Price remaining unchanged, profit falls. This leads to decrease in supply. [CBSE Marking Scheme, 0] 3 Price = TR Q or Output = TR Price TR = AR Q or MR MR n = TR n TR n-, AR = TR Q Price (`) Output (Units) (Q) Total Revenue (TR in `) Marginal Revenue (MR in `) ( ) 3

9 Solutions 9. Microeconomics studies economic relationships or economic problems at the level of an individual an individual firm, an individual household or an individual consumer. Micro economics is concerned with determination of output and price for an individual firm or industry. Examples : Consumption and saving pattern of the households, distribution of income and wealth. Macroeconomics studies economic relationships or economic problems or economic issues at the level of the economy as a whole. Macroeconomics is concerned with determination of aggregate output and a general price level in the economy as a whole. Examples : Aggregate saving, Aggregate investment, general price level. [CBSE Marking Scheme, 00] (½ + ½ + Example). (i) Perfect knowledge about market means both buyers and sellers are fully informed about the market price. Therefore, no firm is in a position to charge a different price and buyers will not pay a higher price. As a result a uniform price prevails in the market. 3 (ii) Perfect knowledge about input used Due to homogeneous product or identical in every respect like quantity, colour, size and shape, etc. the producers are perfect substitutes of one another. As a result both buyers and sellers have perfect knowledge about the inputs used in production. [CBSE Marking Scheme, 00] 3 Collusive oligopoly is one in which the firms cooperate with each other in deciding price and output. Non-Collusive oligopoly is one in which the firms compete with each other. The firms are interdependent because each firm takes into consideration the likely reactions of its rival firms when deciding its output and price policy. It makes the firm dependent on other firms. The firm may have to reconsider the change in the light of the likely reactions. [CBSE Marking Scheme, 0] 3. Main causes of increase in demand or rightward shift in demand curve of a commodity are as under : (i) Income of the consumer : With increase in income of the consumer, the demand curve for normal goods shifts to the right. (ii) Price of Related Goods : In case of substitute goods, demand for a commodity rises (or demand curve shifts to the right) with rise in price of the substitute commodity. In case of complementary goods, demand for the commodity rises with a fall in the price of complementary commodity. (iii) Taste and Preferences : If consumer's tastes and preferences change in favour of the commodity, the quantity demanded of the commodity rises (and demand curve shifts to the right). (iv) Expectations : If the consumers expects that price in the near future will rise, he will buy more quantity at the prevailing price and hence demand curve will shift to the right. ½ = 6. The relationship between AP and MP can be explained with the help of the following diagram : In the diagram : Y (a) The AP increases when MP is greater than AP. (b) The AP is at its maximum when both MP and AP are equal. This is shown at point E. (c) The AP decreases when MP in less than AP. (d) MP can be positive, zero or negative, but AP is always positive. AP and MP O MP > AP. Market demand for a commodity is affected by the following factors: AP = NP MP < AP Units of labour M AP MP is zero ve MP (i) Price of the Commodity : When price of the commodity increases in the market, its quantity decreases and vice-versa. MP X

10 0 OSWAAL CBSE Sample Question Paper Economics, Class XII (ii) Income of the consumer : Market demand for a commodity is directly related to income of the consumer. Increase in income of consumer causes increase in market demand for the commodity. (iii) Prices of Related goods : In case of substitute goods, demand for a commodity falls with fall in price of the substitute commodity. In case of complementary goods, market demand for the commodity rises with a fall in the price of complementary commodity. (iv) Tastes and Preferences : If consumer s tastes and preferences change, quantity demanded of the commodity will also change. (v) Income Distribution : If income distribution is even, market demand for the commodity will be more than otherwise. (vi) Size of Population : Higher population implies greater market demand for goods and services and vice-versa. 6 = 6 SECTION B 6. Two examples of Macroeconomics studies are : (a) Theory of National Income. (b) Theory of Employment. ½ = 7. (b) To earn profits. 8. The fraction of deposits of Commercial Banks that they have to keep with Central Bank is cash reserve ratio. 9. (i) Excise tax (ii) VAT (value added tax) [CBSE Marking Scheme, 0] ½ = 0. When anticipated income exceeds expenditure it is called surplus budget.. (i) Appreciation of Domestic Currency Domestic currency appreciates when there is a fall in foreign exchange rate. (ii) Depreciation of Domestic Currecny Domestic currency depreciates when there is a rise in foreign exchange rate. ½ = 3 Deficit in the BOP occurs when autonomous foregin exchange receipts fall short of autonomous foreign exchange payments. Autonomous transactions are those which are not influenced by other transactions in the BOP. [CBSE Marking Scheme, 0] 3. K = Y I or K = 0 0 or K = We know, K = or = or MPC = or MPC MPC = MPC or MPC = or MPC = = 0..

11 Solutions 3. Steps : (i) CC is the given consumption curve on OY axis. Take OS equal to OC. ½ (ii) Draw a line from the point of origin. It intersects CC at B. ½ (iii) From point B draw a perpendicular on OX which cut OX at B. ½ C & S Y C O S B B Income (iv) Join S and B, by a straight line and extend it to S, SS the saving curve. ½. It is true that there is an inverse relationship between price of foreign currency and its demand. Suppose foreign exchange rate falls, it means that imports, etc have become cheaper because people now have to pay less for imports. As a result demand for imports will rise. This leads to increase in demand for foreign exchange. Similarly, if exchange rate rises, the demand for foreign exchange falls.. Stocks are variables measured at a point of time whereas, flows are variables measured over a period of time. Example Stock : Wealth and Capital ½ = Flow : Income Savings ½ = [CBSE Marking Scheme, 03] Increase in gross domestic product is due to increased economic activities like industrialization and urbanization. With increase in 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 accidents, etc. 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. 6. Sales = (vii) [(iii) (ii)] + (iv) + (v) (i) = ` 000 [` 600 ` 00] + ` ` 700 ` 00 ½ = ` 000 lakh ½ [CBSE Marking Scheme, 03] 7. (a) (i) Direct Tax A tax which is paid by the same person on whom it has been levied is termed as Direct tax. In case of direct tax, burden cannot be shifted on other party e.g. income tax. ½ (ii) Indirect Tax It is a tax which is paid by one person and levied on other person. In case of indirect tax, burden is generally shifted on other party. e.g., excise duty. ½ (b) (i) Primary Deficit The difference between the fiscal deficit and interest payment is termed as primary deficit. Primary Deficit = Fiscal Deficit Interest payments. ½ (ii) Revenue Deficit When revenue receipts are less than the revenue expenditures in a government budget, this shortfall is termed as Revenue Deficit. Revenue Deficit = Revenue Expenditure Revenue Receipts. ½ 8. (i) Legal reserves refer to a minimum percentage of deposits which Commercial Banks have to keep as cash either with themselves or with the Central Bank. The Central Bank has the power to change it. When there is inflationary gap the Central Bank can raise the minimum limit of these reserves so that less funds are available to the banks for lending. This will reduce AD. 3 (ii) Bank rate is that rate of interest at which the Central Bank lends to Commercial Banks. To correct inflationary gap Central Bank can raise the bank rate. This forces Commercial Banks to increase lending rates. This reduces demand for borrowings by the public for investment and consumption. Aggregate demand falls. [CBSE Marking Scheme, 0] 3 C S X

12 OSWAAL CBSE Sample Question Paper Economics, Class XII The two Alternative Approaches of National Income Y determination are : (i) AD = AS which is on E in the upper part of the diagram when AD curve intersects the line with equilibrium income OM. ½ AD O º E M S AD(C + I) Income X (ii) S = I which is at E ' in the lower part of the diagram, when saving curve intersects the investment curve at E' with OM, as the equilibrium income level. ½ S = I I O S E' M' I Income 3 [CBSE Marking Scheme, 0] 9. Repo rate is the rate at which the Central Bank offers loans to the Commercial Banks. To control credit creation in the economy, Central Bank increases repo rate. Increase in repo rate makes borrowings by Commercial Banks from the Central Bank costlier than before. Accordingly, their liquidity reduces. This reduces credit creation capacity of the Commercial Banks. Also, increase in repo rate causes increase in market interest rate (rate of interest charged by the Commercial Banks from the general public). Owing to increase in market rate of interest, borrowings from Commercial Banks tend to shrink. This further restricts credit creation capacity of the Commercial Banks. 30. (i) It is factor income to abroad, so it will be deducted from NDP to get NNP. (ii) It is a factor income from abroad, so it is included in National Income. (iii) It is a transfer payment. So, it is not included in National Income. [CBSE Marking Scheme, 00] qqq

13 SOLUTIONS SAMPLE QUESTION PAPER - 8 Self Assessment Time : 3 Hours Maximum Marks : 00 SECTION A. Budget set is the attainable combination of a set of two goods, given the prices of goods and income of the consumer.. Maginal Product should be decreasing. 3. (C) Perfect competition.. Product differentiation makes monopolistic competition different from perfect competition.. Oligopoly is an economic condition in which a small number of sellers exert control over the market of a commodity. 6. A product being perfectly homogeneous implies that all units of a commodity are identical in size, quality, shape, colour, weight, etc. In a state of perfect competition, a perfectly homogeneous product is sold in the market at a uniform price. If even an individual firm tries to charge higher price, it would lose all its buyers to a large number of other sellers in the market. In a perfectly competitive environment, homogeneous product does not allow a firm any control over its price. Accordingly, firm's demand curve (under perfect competition) becomes a horizontal straight line The PP curve shows the maximum quantities of the two goods the economy can produce subject to full and efficient utilization of resources. When there is unemployment, the maximum that an economy can produce does not change. So, there is no effect on the position of the PP curve. The only thing is that economy produces somewhere below the curve. [CBSE Marking Scheme, 0] 3 PPC is drawn on the assumption that the given resources are fully and efficiently utilized, along with the given technology. If resources are inefficiently employed in an economy, it implies that the economy is not maximizing its output with the given resources. It is a situation when the economy is not operating on the PPC, but is somewhere inside the PPC. Following figures indicates this situation : Y A Good Y O G E Good X Fully and efficiently utilization of resources B Inefficiently utilization of resources X ECONOMICS Oswaal CBSE Class -, Examination Sample Question Paper

14 OSWAAL CBSE Sample Question Paper Economics, Class XII 8. The consumer is in equilibrium when MUx/Px = MUy/Py Given that Px falls, therefore MUx/Px > MUy/Py Now since, per rupee MU from consumption of X is higher than Y, the consumer will transfer expenditure from Y to X. The consumer will buy more of X. [CBSE Marking Scheme, 0] 3 9. A supply schedule is a schedule that shows the quantity supplied of a commodity at different prices during a period of time. When government grants subsidy, it raises revenue. Cost remaining unchanged it raises the profits. As a result supply increases. 3 [CBSE Marking Scheme, 0] 0. Production below the potential means that total production in the economy is somewhere below the production possibility curve PP, for example at point U in the diagram. Y P When government starts employment generation schemes, and since the below potential production is due to unemployment, the economy moves forward in its attempt to remove unemployment and reach the potential. The movement forward is towards the PP curve. Good Y O U Good X P' X + + [CBSE Marking Scheme, 03]. It means that at some consumption level MU MU x y > P P x y In this case the consumer is getting more marginal utility per rupee in case of good X as compared to Y. Therefore, he will buy more of X and less of Y. This will lead to a fall in MU x and rise in MU y. This consumer will continue to buy more of X till Mu x /P x becomes equal to MUy/Py. [CBSE Marking Scheme, 0] Demand by an individual refers to the quantity of a good the consumer is willing to buy at a price during a period of time, while market demand refers to the quantity of a good the consumers of that good are willing to buy at a price during a period of time. The factors leading to fall in demand by an individual consumer are : () Rise in own price of the normal good. () Fall in the price of substitute good. (3) Rise in the price of complementary good. () Fall in the income of the consumers in case of normal good. () Rise in income of the consumers in case of an inferior good. (6) Decline in taste for the good. [CBSE Marking Scheme, 0] (½ ). Large number of buyers The large number of buyers is assumed to be so large that an individual buyer's share in total purchases is so negligible that he cannot influence the market price on its own by purchasing less or more. The outcome is that price remains unchanged. 3 Large number of Sellers The implication is that the proportion of total output produced by a single seller is so insignificant that the seller cannot influence the market price by his own actions by changing the quantity of output it produces. He has no option but to sell at the price determined by the industry level. [CBSE Marking Scheme, 00] 3

15 Solutions Excess demand for a good in a market occurs when actual price of the good is lower than the equilibrium price. As in the diagram at the actual price OP, excess demand is S D. At this price the consumer will not be able to buy all that they want to buy at OP. Its chain of effects are : () There will be competition among the buyers leading to rise in price. () Rise in price will increase supply along the S-curve and reduce demand along the D-curve as indicated by the arrows. The trend will continue till the market reaches equilibrium at E. [CBSE Marking Scheme, 0] 3. Effect of decrease in demand for a commodity on equilibrium price and equilibrium quantity is discussed as follow :. In Fig., D D is the initial demand curve, crossing supply curve SS at point E, the point of initial equilibrium. Owing to decrease in demand, demand curve shifts to left, from D D to D D. And at the existing price (OP ), quantity demanded falls from point E to point F. As an immediate impact of decrease in demand, there is excess supply in the market equal to EF (at the existing price). Due to the excess supply (and sluggish demand) price of the commodity tends to be lower than the equilibrium price. Owing to lowering price, quantity demanded tends to extend. Extension of demand occurs from point F towards point K. Price P P Y S D E O Q Q Quantity However, at lowering price, quantity supplied tends to contact. The contration of supply occurs from point E towards point K. The process of extension of demand and contraction of supply (triggered by the lowering price) continues till excess supply is fully exhausted and the market clears itself once again K is the point of new equilibrium, where quantity supplied is equal to quantity demanded. Corresponding to the new equilibrium, quantity demanded/supplied is equal to OQ and equilibrium price is OP. Thus, the net effect of decrease in demand is : (a) decrease in equilibrium price from OP to OP and (b) decrease in equilibrium quantity from OQ to OQ. Output (Units) MR (`) MC (`) Producer s equilibrium refer to a situation, where a producer is producing that level of output, at which its profits are maximum. In other words, it is a situation of profit maximization. Following are the two conditions of producer s equilibrium: (i) MR = MC (ii) MC must be rising at the point of equilibrium or MC curve must cut MR curve from below 3 These conditions are satisfied when units of output are produced in the given schedule. Price P P Y O S Excess Demand D Q E D K S D D [CBSE Marking Scheme, 0] D S Quantity X X

16 6 OSWAAL CBSE Sample Question Paper Economics, Class XII. Following table shows the distinction between them : Basis Chagne in Quantity Supplied Change in Supply Meaning When the quantity supplied changes due to change in price, keeping other factor constant, it is known as Change in Quantity Supplied. Effect on Supply It leads to either expansion in supply or contraction in supply. Schedule Expansion in supply : Price () ` Quantity (Units) When the supply changes due to change in any factor other than the own price of the commodity, it is known as Change in Supply. It leads to either increase in supply or decrease in supply. Increase in supply : Price () ` 0 0 Quantity (Units) 00 0 Contraction in supply : Price () ` Quantity (Units) Decrease in supply : Price () ` 0 0 Quantity (Units) Reason It occurs due to an increase or decrease in the price of the given commodity. SECTION B It occurs due to a change in any other factor, like change in the price of inputs, change in taxes, change in technology, etc. ½ = 6 6. Individual units are studied in microeconomics whereas macroeconomics studies the aggregates of the economy. 7. (i) Nature or Accountability. ½ (ii) Legal or General Acceptability. ½ 8. Bank rate is the rate at which Central Bank gives loans to the Commercial Banks. 9. Devaluation is said to occur when the exchange rate is increased by the official action (government) under the fixed exchange rate system. 0. (i) Commercial Revenue ½ (ii) Earning from PSU. [CBSE Marking Scheme, 0] ½. When price of foreign currency falls, imports are cheaper. So, more demand for foreign exchange by importors. Tourism abroad is promoted as it becomes cheaper. So demand for foreign currency rises. [CBSE Marking Scheme, 03] 3 Autonomous transactions are those which are not influenced by other transactions in Balance of Payment Account. Accommodating transactions are those which are undertaken to cover deficit / Surplus in BOP. [CBSE Marking Scheme, 0] 3. Average Propensity to Save (AVS) It is the ratio of saving and income i.e., APS = Saving Income ½ Relation with Average Propensity to Consume The sum of Average Propensity to Save (APS) and Average Propensity to Consume (APC) is one. ½ APS + APC =

17 Solutions 7 3. Higher rates of taxes can be levied on higher incomes and lower rates of taxes can be levied on lower incomes. More expenditure can be incurred on providing free services like education, health, etc. to the poor. [CBSE Marking Scheme, 03] (3). There is a direct relation between foreign exchange rate and supply of foreign exchange. When price of foreign exchange rises its supply also rises as the exports from domestic market become cheaper for them but imports become expensive for us. (i) False. Difference between the value of exports and imports of goods and services is called balance of payment not balance of trade. (ii) False. It is a part of Balance of Payments or external assistance is recorded in Balance of Payments Accounts.. Government can influence allocation of resources through : (i) Tax Concessions, Subsidies, etc. (ii) Directly producing goods and services. To encourge investment, government can give tax concessions, subsidies, etc. to the producers. If private sector does not take interest, government can directly undertake the production. 6. MPC = 0 K = MPC = 0 = or K = and K = Y I Therefore, change in income is `,000 crore. Y = ` 000 or Y = `, Private Income = NDP FC accuring to private sector + Net factor income paid to abroad + current transfers from government + National debt Interest NFIA + Net current transfers to abroad = ` ` ( 0) + ` 70 + ` 0 + ` 0 = ` 930. Personal Income = Private Income Corporate tax undistributed profit = ` 930 ` 0 ` 00 = ` 690. Personal disposable Income = Personal Income personal direct tax Fees and fines. = ` 690 ` 30 NIL = ` 660 crores. [CBSE Marking Scheme, 0] (a) National Income = (iii) + (vi) + (ii) + (v) (i) (vii) (ix) = ` ` 00 + ` 00 + ` ( 0) ` ( 0) ` 0 ` 70 ½ = ` 770 crore ½

18 8 OSWAAL CBSE Sample Question Paper Economics, Class XII (b) NNDI = National Income + (ix) (viii) = ` ` 70 ` 30 ½ = ` 80 crore [CBSE Marking Scheme, 0] ½ 8. (a) By Income Method Net Domestic Product at Factor Cost (NDP FC ) = Wages and Salaries + Social Security Contribution by Employers + Corporation Tax + Retained Earning of Private Corporations + Dividend + Rent + Interest ½ (b) By Production Method = `,000 + ` 00 + ` 30 + ` 0 + ` 60 + ` ` 300 = `,800 crores. ½ Net Domestic Product at Factor Cost (NDP FC ) = Net value added by primary sector + Net value added by secondary sector + Net value added by tertiary sector Net Indirect Taxes ½ = `,000 + ` `,00 ` 00 = (` 3,000 ` 00) = `,800 crores. ½ 9. (i) Bank of issue : Refers to the legal right to issue currency. The Central Bank enjoys complete monopoly of note issue. This brings about uniformity in note circulation. At the same time it gives the Central Bank power to influence money supply because currency with public is a part of money supply. 3 (ii) Bankers bank : Commercial Banks have to keep a certain percentage of its deposits as cash reserves with the Central Bank. The Central Bank uses these reserves to meet the emergency cash needs of the Commercial Banks. The Central Banks in this way gives loans to these banks. It makes the Central Bank the banker s bank. [CBSE Marking Scheme, 0] (a) Autonomous Consumption The expenditure which is not influenced by income is called Autonomous Consumption. It refers to minimum level of consumption even when income is zero. It is indicated by C in consumption function : C = C + by (b) Induced Consumption The consumption expenditure which changes with change in income is called Induced Consumption. Y = C + I but C = C + b(y) \ Y = ` (Y) + ` 6000 ½ or Y 0. Y = ` 6300 or 0.Y = ` 6300 ` or Y = or Y = `,600 Ans. ½ [CBSE Marking Scheme, 0] qqq

19 SOLUTIONS SAMPLE QUESTION PAPER - 9 Self Assessment Time : 3 Hours Maximum Marks : 00 SECTION A. It is a situation when demand for a good exceeds its supply.. It will result in increase in efficiency leading to economic growth. 3. (a) Zero.. Demand curve under monopolistic competition is downward sloping.. When supply increases, equilibrium price will decrease, other things being equal. 6. It is true that measure of price elasticity of demand for a normal good carries minus sign because there is an inverse relationship between price and quantity demanded. While, price elasticity of supply carries plus sign because there is an positive relationship between price and quantity supplied L AP L TP L = AP L L MP L = TP L Relation between TP and MP of an input is as follows : (a) When MP increases, TP increases at an increasing rate. (b) When MP decreases, TP increases at a diminishing rate. (c) When MP is constant, TP increases at a constant rate. (d) When MP is zero, TP is maximum. (e) When MP is negative, TP declines. ½ 3 = 6 8. The large number of buyers is assumed to be so large that an individual buyer's share in total purchases is so negligible that he can not influence the market price on its own by purchasing more or less. The outcome is that price remains unchanged. 3 [CBSE Marking Scheme, 0] ECONOMICS Oswaal CBSE Class -, Examination Sample Question Paper

20 0 OSWAAL CBSE Sample Question Paper Economics, Class XII 9. Increasing marginal opportunity cost along a PPC means that loss of Y gain of X tends to increase as more and more of resources are shifted from Y to X, which is why PPC is concave to the origin. It occurs because of the law of diminishing returns. Increasing application of resources in X would mean less of additional output of X. And, increasing withdrawal of resources from Y would mean more and more of additional loss of output of Y. 0. The Law of diminishing marginal utility states that as more and more units of a commodity are (continuously) consumed, marginal utility derived from every additional unit must decline. This law can be explained with the help of the following schudule : Units consumed Total Utility Marginal Utility [CBSE Marking Scheme Delhi, 03] When with the rise in income of a consumer, the consumer buys less quantity of a good, than that good is an inferior good for that consumer. Suppose when the consumer's income rises, he buys less of coarse cloth and purchases five cloth. Then for that consumer specifically coarse cloth is an inferior good. [CBSE Marking Scheme Delhi, 0]. Output Price (AR) TR MR Excess Supply When supply is greater than demand, it is called Excess Supply. In this situation, price is to be cut down to reach equilibrium level. Effect of increase in supply of a good on equilibrium price and equilibrium quantity is discussed with reference to the following figure. In the figure, DD an SS are the initial demand curve and supply curve respectively. E is the initial equilibrium where supply and demand curve intersect each other. OQ is the equilibrium quantity and OP is the equilibrium price. Increase in supply implies a shift in the supply curve to the right. It is indicated by S S. This sets in motion the following chain of effects : Increase in supply implies that more is supplied at the existing price. Given the demand, price of the commodity will tend to decrease, from OP to OP : Same quantity (OQ) will now be supplied at the price OP or at the price of OP only OQ quantity will now be offered for sale. Price Y P P P O S D S E S E Q Q Q Quantity Fall in price will cause extension of demand and contraction of supply. This process of extension and contraction will continue till quantity demanded is equal to quantity supplied (OQ ). The equilibrium price is struck at OP. [CBSE Marking Scheme Delhi, 0] 3. When quantity demanded decreases as a result of change in other factors, other than price of the commodity, it is called decrease in demand. The following table illustrates this situation : S D X

21 Solutions Decrease in Demand Price (`) Quantity (Units) Price remaining constant at `, quantity demanded decreases from 00 to 7 units. Two possible causes of decrease in demand are: (i) Decrease in income of the consumer. (ii) Decrease in price of a substitute good. When quantity demanded decreases as a result of increase in the price of the concerned commodity, other factors remaining constant, it is called decrease in quantity demanded. The following table illustrates this situtation : Decrease in Quantity Demanded Price (`) Quantity (Units) When price increases from ` to ` 0, quantity demanded decreases from 00 to 0 units.. Effect of a increase in demand of a commodity on its equilibrium price and equilibrium quantity is discussed with reference to Fig. given below : In Fig., D D is the intial demand curve, crossing supply curve SS at point E which is the point of initial equilibrium. Y D Owing to a increase in demand, demand curve shifts to the D S right, from D K D to D D. And at the existing price (OP.), P quantity rises from point E to point F. An immediate impact E P of increase in demand, there is excess demand in the market equal to EF (at the existing price). Due to the pressure of D demand price of the commodity tends to be higher than the D S equilibrium price. Owing to rising price, quantity demanded tends to contract. Contraction of demand occurs from point E O Q Q X towards point K. However, at rising price, quantity supplied Quantity tends to extend. The extension of supply occurs from point E towards point K. The process of extension of supply and contraction of demand (triggered by the rising price) continues till excess demand is fully tackled and market clears itself once again. K is the point of new equilibrium where quantity supplied is equal to quantity demand. Corresponding to the new equilibrium, quantity demanded/ supplied, is equal to OQ and, equilibrium price is OP. 3 Thus, the net effect of decrease in demand is : (a) equilibrium price increase from OP to OP and ½ (b) equilibrium quantity increases from OQ to OQ. ½ 00 0 Price. Y A S Y B S S S F Price D E Price A B C S S S S O Quantity X O Quantity X

22 OSWAAL CBSE Sample Question Paper Economics, Class XII Change in Quantity Supplied : It refers to the change in supply due to own price of the goods only. (Refer fig. A). It means movement along the same supply curve. It is called extension when supply rises from D to E and contraction when supply falls (from F to E). Change in Supply : It refers to change in supply due to factor other than the own price of the good like change in prices of inputs, etc., (Refer fig. B). This leads to shift of supply curve. It is called increase in supply, when supply rises (from A to B) and decreases when supply falls from (C to B). [CBSE Marking Scheme Delhi, 0] Producer's Equilibrium It refers to that level of output at which a producer gets maximum profit. Conditions of Producer's Equilibrium. TR TC should be maximum because TR TC equals profit (π). This condition is satisfied where the vertical distance between the TR curve and the TC curve is maximum (i.e., AB).. Profit falls when one more unit of output is produced beyond the output level where TR TC is maximum, or addition to total revenue is less than addition to total cost as more output is produced. SECTION B Y Cost/ Revenue O A B Q Output TC TR [CBSE Marking Scheme, 0] 6. "Aggregate supply" is the minimum sale proceeds which the producers must get, so as to continue production at any given level of employment. 7. (c) Dividends. 8. The price of one currency in terms of the other is called Foreign Exchange Rate. 9. The ratio of total consumption expenditure to total income is called APC. X APC = C Y 0. Components of money supply are currency with the public and demand deposits with the banks.. It with increase in GDP inequalities of income increases, poor become more poor while rich become more rich. This may lead to decline in welfare even though GDP has increased. [CBSE Marking Scheme, 00] 3 Money flows are opposite to real flows, because money flows are in response to the real flows. Example There is a real flow of goods and services from the producers to the households. It is in response to it, that the households makes payments to the producers. So, that money flows from the households to producers in terms of consumption expenditure. Likewise, there is a real flow of factor services from the households to the producers. It is in response to it, that the producers make payments to the households. So that, money flows from producers to the households in terms of factor payments.. Medium of exchange function has solved the problem of double coincidence of wants. The buyer can pay money to the seller and the seller in turn can buy what he wants to buy. Money facilitates the exchange. [CBSE Marking Scheme, 0] 3 3. Three Sources of Revenue Receipts (i) Direct Taxes, (ii) Indirect taxes, (iii) Dividend from public sector undertakings. Three Sources of Capital Receipts (i) Recovery of loans, (ii) Sale of Shares of public sector undertaking (iii) Market borrowings. ½ + ½ [CBSE Marking Scheme, 03]

23 Solutions 3. (a) Receipts which lead to either reduction in assets or increase in liabilities are called Capital Receipts. Receipts which neither reduce assets nor 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 different persons. [CBSE Marking Scheme, 00]. This will reduce the inequalities of income as the difference between disposable income of higher income and lower income groups will fall. This will also provide more resources to the government for spending on welfare of the poor. [CBSE Marking Scheme, 00] Imports of gold by commercial banks and jewellery exporters are called autonomous imports of gold. Restrictions on autonomous imports of goods will directly help in saving foreign exchange. Since the payment of imports is to be paid in terms of dollars, the savings will also be in terms of dollars, our dependency on World Bank will reduce. This savings of foreign exchange may be used to import the essential commodities as well as for capital equipments for economic development. [CBSE Marking Scheme, 0] 6. Commercial Banks are the important source of money supply in the ecomomy. They contribute to money supply by creating credit. They create credit in the form of demand deposits. Demand deposits of the Commercial Banks are many times more than their Cash Reserves. Money creation is determined by : (i) The amount of the initial fresh deposits. (ii) The Legel Reserve Ratio (LRR). It is the minimum ratio of deposits legally required to be kept as cash by the banks. Total money creation = Initial deposits Example : Let the LRR be 0% Fresh deposits = ` 0,000 LRR Amount required by the banks to keep = `,000 as cash Suppose the banks lend the remaining amount of ` 8,000 The Commercial Banks also know by way of their historical experience that all the depositors would not show up in the banks to withdraw all their deposits at a point of time. Those person who borrow, use this money for making payments. Further it is also assumed that, those who receive fresh deposits of ` 8,000, the banks again keep `,600 as cash and lend ` 6,00. In this way, the money goes on multiplying and ultimately total money creation is ` 0,000. As according to the formula. Total money creation = Initial deposits LRR 7. Foreign exchange refers to any currency other than the domestic currency. Foreign exhange rate is the rate at which one currency can be converted into another currency. Suppose foreign exchange rate falls, it means that imports, etc. have become cheaper because people now have to pay less for imports. As a result demand for imports, etc. rises. This leads to increase in demand for foreign exchange. Similarly, if exchange rate rises, the demand for foreign exchange falls. [CBSE Marking Scheme, 0]