On 31.07.2018, the Government has released Model Question ... · The macr oeconomic thinking was revolutionized by _____ a)Ricardo David b) J.M.Keynes c) Adam smith d) Malthus 4.ency

www.sura

book

s.com

12thSTD.

Time : 2.30 Hours Economics Marks : 90

Govt. Model Question PaPer - 1(With Answer Key)

PART - INote : (i) Each questions carries one mark. (ii) Answer all questions.I. Choose the Correct Answer: [20 × 1 = 20]1. The author of wealth definition is _________

a) Alfred Marshall b) Lionel Robbinsc) Adam smith d) Samuelson

2. A successful entrepreneur is one who is ready to accept ______a) Innovations b) Risksc) Deciding the Location of the Production Unitd) None

3. The macroeconomic thinking was revolutionized by ________a) David Ricardo b) J.M.Keynesc) Adam smith d) Malthus

4. Currency with the public is known as _____a) M1 b) M2 c) M3 d) M4

5. Law of demand establishes ______a) Inverse relationship between price and quantityb) Positive relationship between price and quantityc) Bothd) None

6. A firm can achieve equilibrium when itsa) MC=MR b) MC=AC c) MR=AR d) MR=AC

7. The author of the concept of quasi –rent isa) Adam smith b) Marshallc) Ricardo d) Samuelson

8. Single commodity consumption mode is ______a) Production possibility curveb) Law of equi – marginal utilityc) Law of supplyd) Law of Diminishing marginal utility

9. The initial supply price of land is ______a) Zero b) Greater than onec) Less than one d) Equal to one

10. ______means using up of goods and servicesa) Consumption b) Distributionc) Supply d) Demand

11. The author of liquidity preference theory is _____a) Lionel Robbins b) J.M.Keynesc) Alfred Marshall d) Adam smith

12. An example for cosmopolitan wealth is _____a) Tables b) Ocean c) Chair d) Building

13. Production refers to_____a) Destruction of utility b) Creation of utilityc) Exchange value d) None

14. Envelope curve is otherwise known as _____a) Planning curve b) Long run average cost curvec) Group of short run average cost curved) All of the above

15. The perfect competitive firms are _____a) Price maker b) Price takerc) Both d) None of these

16. The marginal propensity to save is _____

a) SY

∆∆

b) cy

c) PQ

∆∆

d) CY

∆∆

17. The world wide depression of 1930s was also caused by a ______a) Fall in investment b) Income and consumptionc) Income and employment d) Interest and money

18. Production possibility curve is also known as ______a) Demand curve b) Supply curvec) Indifference curve d) Production possibility frontier

19. _______is an example for free goodsa) Tea b) Coffee c) Sun d) Chair

20. Mixed economy is followed by______a) India b) America c) China d) Russia

PART - IIAnswer any 7 questions : [7 × 2 = 14]21. What are the causes of wants?22. Name the types of utility23. State Alfred Marshall’s definition of economics24. What is the classification of goods?25. What is equilibrium price?26. Classify the time periods given by Alfred Marshall27. What are the characteristics of a market?28. What are the classifications of market according to area?29. What is standard of living theory of wages?30. What are the instruments of quantitative credit control?

PART - IIIAnswer any 7 questions : [7 × 3 = 21]31. Draw a suitable diagram and table for production possibility

curve32. Draw and explain the diagram for Indifference map33. Draw the table of total outlay method in measuring price elasticity

of demand.34. Write any three functions of entrepreneur.35. Draw the short run average cost curve36. What are the assumptions of marginal productivity theory of

distribution?37. What are the types of inflation?38. Explain the relationship between SAC and SMC. Draw the

diagram.39. What is meant by division of labour? Give example.40. Write a short note on Veblen effect

PART - IVAnswer all the questions: [7 × 5 = 35]41. a) Examine Lionel Robbin’s definition of economics (or) b) Discuss the relationship between economics and other social

sciences42. a) Explain the advantages and disadvantages of monopoly(or) b) Draw the flow chart to depict the essence of Keyne’s theory.43. a) Explain the canons of taxation (or) b) Explain the shift in supply with a diagram44. a) Explain the types of elasticity of demand (or) b) Give a note on long run average cost curve45. a) Explain the factors determining supply (or) b) Describe consumer’s equilibrium with the help of indifference

map.46. a) Explain the merits of socialist economy (or) b) Explain the types of internal economies of scale47. a) Differentiate the perfect competition from monopoly (or) b) Describe Loanable funds theory of interest.

[1]

On 31.07.2018, the Government has released Model Question Papers - 3 Nos. We have given these Govt. Model Question Papers along with Answer Key.

www.surabooks.com

[email protected] PH : 96001 75757 / 81242 01000

Namma Kalviwww.nammakalvi.org

www.sura

book

s.com

2 +12 Std - Economics Govt. Model Question PaPers - 2018 - 19

Answers PART - I

1. c) Adam smith2. b) Risks3. b) J.M.Keynes4. a) M15. a) Inverse relationship between price and quantity6. a) MC=MR7. b) Marshall8. d) Law of Diminishing marginal utility9. a) Zero10. a) Consumption

PART - II

21. (i) Wants may arise due to elementary and psychological causes(ii) Wants may arise due to social causes.(iii) Wants may arise due to customs and habits.(iv) Wants may arise due to advertisements.

22. (i) Form Utility(ii) Place Utility(iii) Time Utility(iv) Possession Utility

23. Alfred Marshall defines economics as "a study of mankind in the ordinary business of life". An altered form of this definition is "Economics is a study of Man's actions in the ordinary business of lie".

24. (i) Necessaries(ii) Comforts(iii) Luxuries

25. (i) There is only one price at which the preference of sellers and buyers meet together

(ii) At the point of intersection of the demand and supply curve(iii) Demand is equal to supply(iv) Price is stable

26. Alfred Marshall introduced time element in the determination of equilibrium and divided them into,(i) Very short period (Market period)(ii) Short period and (iii) Long period

27. (i) Existence of buyers and sellers of the commodity.(ii) The establishment of contact between the buyers and sellers.

Distance is of no consideration if buyers and sellers could contact each other through the available communication system like telephone, agents, letter correspondence and Internet.

(iii) Buyers and sellers deal with the same commodity or variety. (iv) There should be a price for the commodity bought and sold

in the market.28. Market according to Area :

(i) Local market(ii) National market(iii) Regional market(iv) Global market

29. This theory tells that wages depend upon the standard of living of workers. The standard of living of workers in a country depends upon the real wages.

30. (i) Bank Rate Policy(ii) Variation of Cash Reserve Ratios, and(iii) Open Market Operations

11. b) J.M.Keynes12. b) Ocean13. b) Creation of utility14. b) Long run average cost curve15. b) Price taker

16. a) SY

∆∆

17. a) Fall in investment18. d) Production possibility frontier19. c) Sun20. a) India

PART - III31. Production possibility table

Production possibility schedule possibilities

Quantity of apples

Quantity of oranges

A 4 0

B 3 2

C 2 4

D 1 6

E 0 8

Production possibility curve

O

1

B

App

les

A

OrangesX

Y

C

D

E

2

3

4

2 4 6 8

L

32. (i) Indifference map is group of indifference curve for two commodities showing different level of satisfaction.

(ii) In this indifference map, a higher indifference curve denotes higher level of satisfaction and a lower indifference curve represents lower level of satisfaction.

33. Total outlay method :(i) Demand is elastic, if total

outlay (or) expenditure increase for a fall in price (ep > 1).

(ii) Demand is in elastic, if total outlay (or) Expenditure fall for a fall in price (ep < 1).

(iii) Elasticity of demand is unitary, if total Expenditure does not change for a fall in price (ep = 1).

Changes in price

Types of elasticity of demand

ep = 1 ep< 1 ep> 1

Fall in price Total outlay remains constant

Total outlay falls

Total outlay rises

Rise in price Total outlay remains constant

Total outlay rises

Total outlay falls

34. (i) Conceiving a new and most promising and profitable idea

(or) capturing a new idea available in the market.(ii) An entrepreneur has to decide the size of unit.(iii) Basically, an entrepreneur is an innovator of new markets and

new technique of production.35. Short run average cost curves

AVC =T CV

Q

O

Y

X

AVC

Cos

t

Output

MCAC (or) ATC

AFC

AC = TC/Q, AFC =TFC

QMc = TC - TCn-1n n

,

Goo

dY

Good XO

Y

41C

3

2

1

1C <1C <C1 2 3

Y

1C

1C

1C

www.surabooks.com


www.sura

book

s.com

+12 Std - Economics Govt. Model Question PaPers - 2018 - 19 3

36. (i) There is perfect competition(ii) All units of a factor are homogeneous(iii) Factors can be substituted for each other(iv) The theory is based on the Law of Diminishing returns as

applied to business.37. (i) Demand – Pull inflation

(ii) Creeping or persistent inflation(iii) Runaway or galloping or hyper – inflation (iv) Cost - Push inflation(v) Bottle neck inflation(vi) Profit – push inflation

38. The relationship between the marginal and average cost is more a mathematical one rather than economic. The Relationship can be given as

follows :-(i) When marginal cost is less

than average lost, average cost is falling.

(ii) When marginal cost is greater than the average cost, average cost is rising.

(iii) The marginal cost curve must cut the average cost curve AC's minimum point from below. Thus at the minimum point of AC, MC is equal to AC.

39. (i) Division of labour was introduced by Adam Smith.(ii) It means dividing process of production into distinct and

several component.(iii) Processes and assigning each component in the hands of

Labour or a set of Labourers who are specialists in the particular process.

(iv) Division of Labour is limited by the extent of market. For example, a tailor stitches a shirt in full. In the case of

garment exporters, cutting of cloth, stitching of hands, body, collars, holes for buttons, stiching of buttons, etc.

40. (i) Veblen has pointed out that there are some goods demanded by very rich people for their social prestige.

(ii) When price of such goods rise, their use becomes more attractive and they are purchased in larger quantities.

(iii) Demand for Diamonds from the richer class will go up if there is increase in price.

PART - IV

41. (a) Introduction :Lionel Robbins – scarcity definitionBook – "An essay on the nature and significance of Economic science".

Definition : Lionel Robbins has defind economics as follows : "Economics is the science which studies human behavior as a relationship between ends and scare means which have alternative uses".

Basic Assumptions :(i) Ends are various, 'ends' mean wants, wants are

unlimited.(ii) Means are limited, means like time, money etc.(iii) We can put time and money to alternative uses. Eg.

We can use time for earning (or) enjoy it as leisure.(iv) All wants are not equal importance.

Scarcity and choice are central problems in economics :(i) Many things which we want are scare in relation to

our wants.

SAC & SMC

O

Y

X

SACA

C a

nd M

C

Output

SMC

(ii) So that we study in economics how the prices of scarce goods are determined.

(iii) Economics is the science of choice, choice, a between alternatives is the basic principle underlying in all economic activity. This is applicable in all economic system like, capitalist, socialist and mixed economy.

(iv) That is why scarcity and choice are central problems in economics.

Criticism :(i) Marshall classified human behavior into economic

and non economic activity but Robbins definition covers both.

(ii) Moral aspects are not considered. Economics only as the science of pricing process but in general economics is more than a theory of value (or) resource allocation. Another merit of Robbin's definition is that it makes economics a scientific study. but ethical aspects of economic problem are not taken into account.

Conclusion :(i) It is true that there have been improvements in the

method of production because of technological advancements.

(ii) Even though technological advancement scarcities are always with us.

(iii) That is why we say "economics is the science of scarcity".

(Or) (b) Introduction :

(i) Economics is a social science which deals with human wants and their satisfaction.

(ii) We shall discuss economics in its relation to other science.

I. Economics in relation to other social science : Economics is related to other social science like

sociology, politics, history ethics, jurisprudence and psychology.

II. Economics and Sociology :(i) Social science like political and economics are the

branches of sociology(ii) Sociology deals with all aspects of a society but

economics deals only with the economic aspects.(iii) Sociology is a general social science which discussion

facts and laws of society as a whole.III. Economics and politics :

(i) There is a close connection between economics and politics.

(ii) It may be related to a government policy but planning is a economic policy.

(iii) Some important questions like nationalization, privatization and prohibition are all economic as well as political questions.

IV. Economics and History :(i) Economics and history are closely related.(ii) For student of economics, things like taxation, other

sources of revenue and standard of living in the past is important subjects.

(iii) Economics without history has no root. History without economics has no fruits.

V. Economics and ethics :(i) Ethics deals with moral questions.(ii) According to Marshall Economics and ethics are

closely related at promoting moral welfare.(iii) Marshall considered economics as a handmaid of

ethics.

www.surabooks.com


www.sura

book

s.com


42. (a) Advantages of monopoly :(i) Monopoly firms have large scale production

possibilities and also can enjoy both internal and external economies.

(ii) It reduces cost of production.(iii) Output can be sold at low price. This is beneficial to

the consumer.(iv) The firms have vast financial resources which could

be used for research and development.(v) There are number of weak firms in an Industry. These

firms can combine together in the form of monopoly to meet competition.

Disadvantages of Monopoly :(i) It charges always high price than the competitive price.(ii) It interested in getting maximum profit so it restricts

the output and rise prices.(iii) It creates artificial scarcity.(iv) It charges different prices for the same product from

different consumers.(v) A country dominated by monopolies, wealth is

concentrated in the hands of few. It leads to inequality of incomes.

(Or)

(b) Essence of Keynesian theory of employment and income:

Effective Demand = Output = Income = Employment

Aggregate SupplyFunction (ASF)

Aggregate DemandFunction (ADF)

Consumption function Investment function

Size ofincome

Propensity to consume(MPC)

Marginal Efficiency of

Capital (MEC)

Rate ofInterest

Supply priceof capital

Prospectiveyield from capital

Liquidity preference of

the public

Supply of money in the economy

TransactionMotive

SpeculativeMotive

PrecautionaryMotive

43. (a) (a) Cannon of Equity :(i) This cannon is also called the 'ability' to pay principle

of taxation.(ii) It means that taxes should be imposed according to

the capacity of the tax payer.(iii) Poor should be taxed less and rich should be taxed

more. (iv) This canon involves the principles of justice.

(b) Canon of certainty : Every tax payer should know the amount of tax to

be paid, when to be paid, and where to be paid and also should be certain about the rate of tax to make investment decisions.

(c) Canon of convenience : Tax payment should be convenient and less burden

some to the tax payer. E.g. income tax collected at sources, sales tax collected at the time of sales.

(d) Canon of economy : This canon signifies that the cost of collection the

revenue should be kept at the maximum possible level. The tax laws and procedure should be made simple.

(Or) (b) (i) The supply curve shows the relationship between the

price and quantity supplied keeping the 'other things' constant.

(ii) The other things which affect supply include number of sellers in the market, factor price etc.

Explanation:(i) X – axis represents Quantity(ii) Y – axis represents price(iii) The shift of supply curve from

its original level of S to near level of S1.

(iv) An increase in factor price will increase the cost of production and supply curve will shift from S to S2

(v) Equilibrium point also moves from E to E1 or E2 respectively.

44. (a) There are three types of elasticity of demand. They are:(i) Price elasticity demand(ii) Income elasticity of demand(iii) Cross elasticity of demand

1. Price elasticity of demand:(i) “The degree of responsiveness of quantity demanded

to a change in price is called price elasticity of demand”.

(ii) p

Percentage change in quantity demandede

Percentage change in price=

2. Income elasticity of demand :(i) Income elasticity of demand is the degree of

responsiveness of demand to the change in income.

(ii) y

Percentage change in quantity demandede

Percentage change in income=

3. Cross elasticity of demand :(i) The responsiveness of demand due to changes in

prices of related goods is called cross elasticity of demand.

(ii) c

Percentage change in quantity demanded of commodity Xe

Percentage change in the price of commodity Y=

(Or) (b) Long run average cost curve:

(i) In the long run all factors are variable(ii) Therefore the firm can change the size of the plant

(Capital equipment, machinery etc) to meet the changes in demand.

0 X

P

E2

Quantity

Pric

e

P2

P1

Q1 Q2

D

Y

Q

D

E1

E

S2

S1

S

Shift in supply

www.surabooks.com


www.sura

book

s.com


(iii) A long-run average cost curve depicts the functional relationship between output and the long run cost of production.

Long-run average cost curve

Figure - 1 Figure - 2

(iv) SAC, is relevant for a small size plant, SAC2 for a medium size plant and SAC3 for a large size plant.

(v) In the short period, when the output demanded is OA, the firm will chose the smallest size plant.

(vi) Output beyond OB, the firm will choose medium size plant as the average cost of small size plant is higher for the same output (JC > KC)

(vii) For output beyond OD, the firm will choose large size plant SAC3.

(viii) The long-run cost of production is the least possible cost of production of any given level of output.

(ix) The long run average cost curve is called 'planning curve', or 'envelope curve' or 'group of short-run average cost curve'.

45. (a) Factors determining supply :1. Production technology :

(i) State of production technology affects the supply function.

(ii) If advanced technology is used in the country, large scale production is possible.

(iii) Hence supply will increase. Old technology will not increase the supply.

2. Prices of factors :(i) When the prices of factors rise, cost of production will

increase.(ii) This will result in a decrease in supply.

3. Prices of other products :(i) Any change in the prices of other products will

influence the supply. (ii) An increase in the price of other products will

influence the producer to shift the production in favour of that product.

(iii) Supply of the original product will be reduced.4. Number of producers of firms : In the number of producers producing the product

increases, the supply of the product will increase in the market.

5. Future price expectations : If producers expect that there will be a rise in the prices of

products in future, they will not supply their products at present.

(Or) (b) Consumer's Equilibrium

(i) When a consumer has limited income, he spends it in such a manner so as to obtain maximum level of satisfaction.

(ii) A consumer gets maximum satisfaction when marginal utilities from his different purchase are equal.

Y

L

H

JE

X

Q

K

O DCBA

SAC2

SAC1

SAC3

Aver

age

Cost

Output

XO

O T

Y

WV QNM

B C

SAC1 SAC

3

SAC

SAC

SAC

LAC

SAC

SAC2

Aver

age

Cost

Output

(iii) The consumer gets the maximum possible satisfaction from his given income at point 'C' on the indifference curve - IC3

(iv) At the point of equilibrium (point c) the price line LM is tangential to the indifference curve I3.

(v) The slope of the indifference curve represents the marginal rate of substitutions

(vi) The budget line show the ratio of prices between the two goods.

(vii) The indifference curve I3 shows the ratio of prices between the two goods as indicated by the price line LM are equal

(viii) This point indicated the ideal combination between the two commodities, giving highest satisfaction with limited income.

(ix) At this point, therefore the consumer is in equilibrium

(x) Condit ion for consumer equilibrium is MRSXY = Px/Py

46. (a) 1. Efficient use of resources: The resources are utilized efficiently to produce socially useful goods without taking the profit margin into account. Production is increased by avoiding wastes of competition.

2. Economic Stability: Economy is free from business fluctuations. Government plans well and everything is well coordinated to avoid over-production or unemployment. There is stability because the production and consumption of goods and services are well regulated.

3. Maximisation of Social Welfare: All citizens work for the welfare of the State. Everybody receives his or her remuneration. The State concentrates on the production of basic necessaries instead of luxury goods. The State provides free education, cheap and congenial housing, public health amenities and social security for the people.

4. Absence of Monopoly: The elements of corporation and monopoly are eliminated since there is absence of private ownership. The state is a monopoly but produces quality goods at reasonable price.

5. Basic needs are met: In socialist economies, basic human needs like water, education, health, social security, etc, are provided. Human development is more in socialist countries.

6. No extreme inequality: As social welfare is the ultimate goal, there is no concentration of wealth. Extreme inequality is prevented in socialist system.

(Or) (b) 1. Technical Economies :

(i) As the size of the firm is large, the availability of capital is more.

(ii) Due to this, a firm can introduce up- to-date technologies; thereby the increase in the productivity becomes possible.

2. Financial Economies :(i) It is possible for big firms to float shares in the market

for capital formation. (ii) Small firms have to borrow capital whereas large

firms can buy capital.

O

Y

XX1

Y1

L

50

I1

I2

I3

I4

A

B

C

D

E

40M

GoodX

Good

Y

Consumer'sEquilibrium

www.surabooks.com


www.sura

book

s.com


3. Managerial Economies : (i) Division of labour is the result of large scale

production. (ii) Right person can be employed in the right department

only if there is division of labour. 4. Labour Economies :

(i) Large Scale production paves the way for division of labour. This is also known as specialisation of labour.

(ii) The specialisation will increase the quality and ability of the labour.

5. Marketing Economies: (i) In production, the first buyer is the producer who

buys the raw materials. (ii) As the size is large, the quantity bought is larger. (iii) This gives the producer a better bargaining power.

Also he can enjoy credit facilities.47. (a)

SI. No. Perfect competition Monopoly

1. Perfect competition is a market where there are large number of buyers and sellers in the market.

Monopoly is a market where there is a single seller in the market.

2. There must be homogeneous and identical product.

There are no close substitutes for the product.

3. Average revenue and marginal revenue curve is horizontal straight line parallel to x-axis.

Average revenue and marginal revenue are downward falling curves. Marginal revenue less than AR and price.

4. At the equilibrium MC = MR = AR, that is price changed equal to MC.

At the equilibrium, MC = MR < AR that is price changed above MC.

5. Price will be lower and the output is larger.

Price is higher and the output will be smaller.

6. The firm can earn only normal profit in the long run and super normal profit in the short run.

It earns super normal profit both in short and long run.

(Or) (b) Loanable Funds Theory (Neo-classical Theory) of interest:

(i) The Loanable funds theory was developed by Knut Wicksell, Dennis Robertson and others.

(ii) The Loanable funds theory is wide in its scope than the classical theory of interest.

(iii) The term "Loanable funds" includes not only saving out of current income but also bank credit, dishoarding and disinvestment.

(iv) The classical economists referred only to saving out of current income.

(v) The credit is an important source of funds for investment in modern days.

Diagrammatic Illustration of Loanable Funds Theory of Interest

y

rm

rn

M M1

L

M

S

S+M

I+L

I

Inte

rest

r = rate of interestI = InterestS = SavingM = Bank credit

Demand and supply of loanable fundsExplanation :

(i) The curve 'S' represents saving, the curve 'M' represents bank credit

(ii) The curve S + M represents total loanable funds at different rate of interest.

Demand side :(i) The curve I represent demand for investment.

(ii) L represents demand for idle cash balances or to hoard money.

(iii) The curve I + L represents the total demand for loanable funds at different rates of interest.

(iv) The market rate of interest rm is determined by the intersection of S + M curve and I + L curve.

(v) The aggregate demand for loanable funds is equal to the aggregate supply of loanable funds at this rate of interest.

www.surabooks.com


www.sura

book

s.com

12thSTD.



PART - INote : (i) Each questions carries one mark. (ii) Answer all questions.I. Choose the Correct Answer: [20 × 1 = 20]1. Polis in Greek means a ________.

a) State b) Man c) Economics d) None2. Our wants are ________

a) Limited b) Unlimited c) Necessity d) None.3. Indifference curves are _________ to the origin.

a) Convex b) Concave c) Straight line d) Horizontal line

4. _________ are the advantages enjoyed within the firm.a) Internal economies of scaleb) External economies of scaleb) Technical economiesd) Labour economies

5. Price rigidity is an important feature of _________a) Perfect competitionb) Monopolyc) Monopolistic competitiond) Oligopoly

6. Exceptional demand curve slopes __________a) Downward b) Upwardc) Horizontal d) Vertical

7. The author of the rent theory of Profit ___________.a) Prof. Walker b) Prof. Clarkc) Schumpeter d) Prof. Knight

8. Liquidity preference was given by _____________a) J.M. Keynes b) Marshallc) Samuelson d) Knight

9. Currency notes in circulation are normally referred to as _________a) Reserve Money b) Post office savings depositsc) Time deposits d) Fiat Money

10. Bank rate is raised during ________a) Deflation b) Inflationc) Stable prices d) Unemployment

11. VAT refersa) Property tax b) House taxc) Value Added Tax d) None

12. Land and Labours are called ________ factors.a) Primary factors b) Derived factorsc) Both of the above d) None of the above

13. Which of the following statement is correct to denote inflation?a) The price level will riseb) Supply of goods will decreasec) Value of money is increasingd) None of these

14. Monopolistic competition was introduced by __________a) E.H. Chamberlin b) Marshallc) J.M. Keynes d) David Ricardo

15. Canon of equity is also called _________ principle of taxation.a) Ability to pay b) Canon of certaintyc) Canon of Convenience d) Canon of economy

16. Which one of the following is levied by central government ________a) Land Revenue b) Taxes on Consumption of Electricityc) Entertainment taxd) Customs duties

17. Bank rate is reduced during _________a) Deflation b) Inflationc) Stable Price d) Disguised unemployment

18. The proportion of income not spent on consumption is _________a) Investment b) Marginal propensity to savec) Consumption function d) Saving

19. Most important form of selling cost is _________a) Advertisement b) Salesc) Homogeneous product d) None

20. If a want can be satisfied by two or more goods, it is calleda) Substitutes b) Economic goodc) free goods d) None

PART - IIAnswer any 7 questions : [7 × 2 = 14]21. Name the important general Economic systems.22. Define ‘Consumer’s Surplus ’.23. What is Elasticity of Demand?24. Write a short note on market period.25. Define Labour.26. Give two examples of Money Cost.27. What is Average Revenue?28. What is Monopoly?29. Define Public Finance.30. What are the kinds of Budget?

PART - IIIAnswer any 7 questions : [7 × 3 = 21]31. Write a note on traditional Economy.32. Distinguish between micro economics and macro economics.33. What are the assumptions of Law of Diminishing Marginal

Utility?34. What are the characteristics of Physical Capital?35. What are economic costs?36. Write about the classification of market according to competition.37. Write any 3 criticisms of Say’s Law.38. Write any five tax revenue of the state government.39. Write a note on Giffen paradox. Give example.40. What are the three phases of returns to scale?

PART - IVAnswer all the questions: [7 × 5 = 35]41. a) Explain any five characteristics of human wants. (Or) b) Explain the shift in demand with the help of a diagram.42. a) Write any five functions of an entrepreneur. (Or) b) Define Monopoly. Explain the advantages of Monopoly.43. a) Critically examine Ricardian Theory of Rent. (Or) b) Describe the consumption function with a diagram.44. a) Discuss the causes and remedies for Inflation. (Or) b) What are the assumptions of Keynes’s simple income

determination?45. a) Explain the point method of measurement of price elasticity

of demand with a diagram and formula. (Or) b) Explain the indifference curve approach.46. a) Explain Consumer’s surplus assumptions, importance and

criticism. (Or) b) What are the main divisions of Economics? Explain.47. a) What are the merits and demerits of a mixed economy?(Or) b) What are the peculiarities of Land?

[7]

www.surabooks.com


www.sura

book

s.com


Answers PART - I1. a) State2. b) Unlimited3. a) Convex4. a) Internal economies of scale5. d) Oligopoly6. a) Downward7. a) Prof. Walker8. a) J.M. Keynes9. d) Fiat Money10. b) Inflation

PART - II21. The most important general economic systems are

(i) Traditional Economy.(ii) Capitalist Economy.(iii) Socialist Economy.(iv) Mixed Economy.

22. Marshall defines, The excess of price which a person would be willing to pay rather

than go without the thing, over that which he actually does pay is the economic measure of this surplus of satisfaction. It may be called Consumer's Surplus.

Consumer Surplus = Potential Price – Actual Price

23. “The elasticity (or responsiveness) of demand in a market is great (or) small according as the amount demanded increase much or little for a given fall in price, and diminishes much (or) little for a given rise in price”.

24. (i) Market period is otherwise known as very short period.(ii) Supply is fixed.(iii) It is a period of one hour one day or a month.(iv) Perishable goods like flowers, fruits and vegetables are good

example for market period.25. Marshall defines Labour as “the use or exertion of body or mind,

partly or wholly with a view to secure an income apart, from the pleasure derived from the work.”

26. (i) Cost of raw materials (ii) Wages and Salaries of labour27. Average Revenue is the revenue per unit of the commodity sold.

It is calculated by dividing the total revenue by the number of units sold.

AR = TR / Q Where AR = Average Revenue TR = Total Revenue Q = Quantity sold

Eg: Average Revenue = Rs. ,

,10 0001 000

Rs.100/-

Thus average revenue means price of the product.28. (i) Monopoly is a market structure in which there is a single seller.

(ii) These are no close substitutes for the commodity it produces.(iii) There are barriers to entry.

29. According to Dalton, "Public finance is concerned with the income and expenditure of public authorities and with the adjustment of the one with the other."

30. Kinds of Budgets :(a) Balanced Budget(b) Unbalanced Budget(c) Revenue Budget(d) Capital Budget(e) Performance Budgeting(f) Zero Based Budgeting

11. c) Value Added Tax12. a) Primary factors13. a) The price level will rise14. a) E.H. Chamberlin15. a) Ability to pay16. d) Customs duties17. a) Deflation18. d) Saving19. a) Advertisement20. a) Substitutes

PART - III31. (i) Traditional economy is also known as subsistence economy.

(ii) In traditional economy these two rules were used to understand the aspect of behaviour.

(iii) It produces exactly to its consumption requirements.(iv) There is less sales.(v) Small scale production were only possible here.(vi) Same products will be produced by every generation.(vii)Production techniques are also traditional.

32. S. No Micro Economics Macro Economics

1. Small micro scalar were analysed

Large macro economics were analysed.

2. Deals with single firm or industry or household output

Deals with whole process of industry to get complete picture.

3. Focus on single process in narrow spectrum

Focus on multidimensional analysis with broad spectrum

4. Price theory General theory5. Studied under

the title of factor alliance

Studied under the title of income and employment analysis

33. (i) The consumption must be in standard units. E.g. a cup of tea.(ii) The units of commodity must be identical in all aspects like

taste, quality, colour and size.(iii) The process of consumption continues without any time gap.(iv) The consumer's taste remain the same.(v) The income of the consumer remains constant.(vi) Utility is measurable.

34. Characteristics of physical capital : (a) It is an asset which has a specific life period. (b) Physical capital asset can be used in production again and

again. As a result, it undergoes wear and tear or depreciation. (c) When used in production, it gives a series of annual income

flows called annuities, during its life period.35. (i) The economic cost includes both explicit and implicit cost.

(ii) The money rewards for the own services of the entrepreneur and the factors owned by himself and employed in production are known as implicit costs or imputed cost.

Economic cost = implicit cost + explicit cost36. Market according to competition :

(i) Perfect competition(ii) Imperfect competition• Monopoly (single seller)• Duopoly (2 - sellers)• Oligopoly (few - sellers)• Monopolistic competition (large no. of sellers)

37. Criticism of say's law :(i) Great Depression made say's law unpopular.(ii) All incomes earned are not always spend on

consumption.(iii) Similarly whatever is saved is not automatically

invested.38. (i) Taxes on the sale and purchase of goods except newspaper.

(ii) Taxes on agricultural income.(iii) Taxes on land and building(iv) Taxes on the entry of goods into at a local area.(v) Taxes on mineral rights.

39. (i) Sir Robert Giffen discovered that the poor people will demand more of inferior goods, if their prices rise and demand less if their prices fall.

www.surabooks.com


www.sura

book

s.com


(ii) For example, poor people spend more of their income on coarse grains (Ragi) and only a small part on Rice.

(iii) This is known as Giffen Paradox.40. The three phases are,

(i) Increasing returns to scale(ii) Constant returns to scale (iii) Decreasing returns to scale

PART - IV41. (a) Characteristics of wants : a) Wants are unlimited :

(i) Man is a bundle of desires so.(ii) There is no limit to human wants.

b) Every want is satiable :Single or a particular want is satiable we can completely satisfy a single want.

c) Wants are complementary :(i) Wants are complementary in nature, though they are

single we require many commodities to satisfy all wants.

(ii) For eg. Paper, pen, ink.d) Wants are competitive :

(i) Wants are unlimited whereas resources are limited. So the wants will be competing to get satisfied.

(ii) Wants will be chosen by the need of time.e) Wants are Alternative :

A want can be satisfied by two or more goods or two or more methods

f) Wants vary with time, place and person :(i) Wants are not static in nature it varies with time,

place and person.(ii) For eg. We require hot drink in winter and cool drinks

in summer.(Or)

(b) (i) The "other things” that effect demand are also called as the determinants of demand.

(ii) The other determinants like income of the consumer, taste, prices, of substitute changes then the demand curve will shift.

(iii) If income of the consumer increases they will buy more irrespective of the price similarly, fall in income will bring a fall in demand even if there is no change in price.

Explanation:(i) X – axis represent Quantity demand.(ii) Y – axis represent price.(iii) A fall in the income of consumer shifts the demand

curve D to D1.(iv) The shift in demand curve D to D1 new equilibrium

point occur E to E1.42. (a) Functions of an Entrepreneur :

1. Identifying Profitable Investible Opportunities :(i) Conceiving a new and most promising and profitable

idea or capturing a new idea available in the market is the foremost function of an entrepreneur.

(ii) This is known as identifying profitable investible opportunities.

2. Deciding the size of unit of production : An entrepreneur has to decide the size of the unit

– whether big or small depending upon the nature of the product and the level of competition in the market.

0Quantity

Q Q2

Pric

e

Q1

P2

S

S

P1

P

D

D2

D1

E

E2

E1

y

x

Shift in Demand

3. Deciding the location of the production unit :(i) A rational entrepreneur will always locate his unit of

production nearer to both factor market and the end-use market.

(ii) This is to be done in order to bring down the delay in production and distribution of products and to reduce the storage and transportation cost.

4. Identifying the optimum combination of factors of pro-duction :

(i) The entrepreneur, after having decided to start a new venture, takes up the task of hiring factors of production.

(ii) Further, he decides in what combinations he should combine these factors so that maximum output is produced at minimum cost.

5. Making innovations :(i) According to Schumpeter, basically an entrepreneur

is an innovator of new markets and new techniques of production.

(ii) A new market increases the sales volume whereas a new cost cutting production technique will make the product cheaper.

(Or) (b) (i) Monopoly is a market structure in which there is a

single seller.(ii) These are no close substitutes for the commodity it

produces.(iii) There are barriers to entry.

Advantages of monopoly :(i) Monopoly firms have large scale production

possibilities and also can enjoy both internal and external economies.

(ii) It reduces cost of production.(iii) Output can be sold at low price. This is beneficial to

the consumer.(iv) The firms have vast financial resources which could

be used for research and development.(v) There are number of weak firms in an Industry. These

firms can combine together in the form of monopoly to meet competition.

43. (a) (i) Ricardian theory of rent is one of the earliest theory of rent.

(ii) According to Ricardo, "rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.

(iii) Rent is payment made for the use of land for its original powers.

(iv) Rent is a differential surplus.

(v) The producer can save a lot of transport costs. Explanation :

(i) Grades of land are shown along the x-axis.(ii) Output are shown along the y-axis.(iii) The shaded area in the diagram indicates rent.(iv) In this case, grade I and grade II land gets rent.(v) The grade III land will not get rent.(vi) First grade lands will get more rent but the third grade

land will not get rent. It is known as no-rent land. Criticism of the Ricardian Theory of Rent :

(i) According to Ricardo, land has "original and indestructible powers". But the fertility of land may decline after some time because of continuous cultivation.

y

No Rent Landor

Marginal Land

200

x0 I

50

100

II III

Out

put

Grades of Land

Rent

Ricardian theory of Rent

www.surabooks.com


www.sura

book

s.com


(ii) Ricardo believed that rent is peculiar to land alone. But many modern economists argue that the rent aspect can be seen in other factors like labour and capital.

(iii) This theory does not take not of scarcity rent. Conclusion :

Thought there are some criticism against the Ricardian theory, we may note it tells that because of increasing pressure on land, we have to cultivate inferior lands.

(Or) (b) Consumption function :

(i) The term 'consumption f u n c t i o n ' e x p l a i n s t h e r e l a t i o n s h i p between income and consumption.

(ii) A function is the link between two or more variables.

(iii) T h e p ro p o r t i o n o f income spent on actual consumption at different levels of income is called propensity to consume.

(iv) The vertical axis shows the spending on consumption indicated by C.

(v) The horizontal axis shows income or output indicated by Y.

(vi) The straight line consumption function C is defined in terms of equation C = 4 + 0.8Y.

(vii) Keynes made it clear that there is a direct relation between income and consumption• C = a + by

1• C = 4 + 0.8y 2

(viii) Thus a consumption function is general ly described in terms of the l inear equation Y = a + by where the constant 'a' is the amount of autonomous consumption and slope 'b' is MPC.

(ix) In equation (2) 0.8 indicates that 80 percent of additional income is spent on consumption and it is called as marginal propensity to consume (MPC).

MPC =Change in consumptionChange in income

(x) In our case 0.8 indicates that out of every additional income earned eighty percent will be spent for consumption keeping the rest for saving.

(xi) when the income of an economy rises, consumption also rises and vice versa.

(xii) Suppose people spend more in an economy in relation to their income, their MPC will be more.

44. (a) According to crowther, "Inflation is a state in which the value of money is falling i.e. price are rising.

Causes of inflation :(i) During the time of war, the income of the people

increase but there will be shortage of goods so hence rise in price.

(ii) Modern wars are so expensive, the government has to depend upon created money to finance war. This leads to inflation.

(iii) Inflation breeds inflation. During the time of inflation, prices will be high. Since the prices are high workers will demand high wages. High wages result in high cost. High cost in turn lead to high prices.

(iv) Thus it form a various circle wages force up prices, prices force up wages. This is the inflationary spiral.

(v) Deficit financing is another cause of inflation.

y

0x

Expe

nditu

re

Income

2 -4 -6-8-

10 -12 -14 -16 -18 -20 -22 -24 -26 -28 -

C = 4+0.8y

C=a+by

Consumption functionConsumption function

Remedies :(i) Increase taxation(ii) By reducing government expenditure on capital

projects.(iii) Restriction on imports(iv) Rationing and(v) Price controls.

(Or) (b) Simple Income Determination : Assumptions :

(i) There are only two sectors viz Consumers (C) and firms (I).

(ii) Government influences on the economy is nil so government expenditure (G) is zero.

(iii) There is a closed economy so foreign trade is zero.(iv) Wages and prices remain constant.(v) There is no variation in the rate of interest(vi) Investment is autonomous and it has no effect on price

level or rate of interest.(vii) There are unemployed resources and hence less than

full employment equilibrium prevails.(viii) The consumption expenditure is stable. The basic

equation Y = C + I + G + (X – M) has been reduced to Y = C + I.

45. (a) Point method:-(i) We can calculate the price

elasticity of demand at a point on the linear demand curve.

(ii) Formula, ep =

Lower segment of the demand curveUpper segment of thedemandcurrve

For example, let as assume that the length of the demand curve AB is 4 cm Exactly at middle point of AB demand curve.

ep at point e EB

EA=(i) ep = = 1

22

ep = 1

ep at point D DBDA

=(ii) ep = = 0.313

ep <

>

1

1

ep at point C CBCA

=(iii) ee

e

pp

p

= = 331

ep at point B 0

AB=(iv) ep = = 0

04

ep = 0

ep at point A AB0

=(v) ep = =40

e ∞p =

∞

(Or) (b) (i) Indifference curve approach based on ordinal Ranking.

(ii) Two noted economists prof. J. R. Hicks and prof R. G. D. Allen provided a refined version of indifference curve.

Indifference schedule :(i) An Indifference schedule is a statement of various

combinations of two commodities such as banana and biscuits that will equally be accepted by the consumer.

(ii) The Indifference schedule of Banana and Biscuits are as follows.

AC

E

D

Pric

e

0 BQuantity

AE = Upper SegmentEB = Lower Segment

ep = 1

ep = 0

AE = Upper segmentEP = Lower segment

www.surabooks.com


www.sura

book

s.com


Combination Biscuits (good X) Banana (Good Y)A 1 12B 2 8C 3 5D 4 3E 5 2

Indifference curve :(i) X axis represents Biscuits.(ii) Y axis represents Bananas.(iii) IC is an Indifference curve.(iv) The various combinations of

two commodities are plotted and join to form a curve called Indifference curve.

Conclusion :All lthe points on this curve give equal level of satisfaction to the consumer Indifferent curve is otherwise called iso utility curve.

46. (a) Assumptions 1. Cardinal utility, that is, utility of a commodity is

measured in money terms. 2. Marshall assumes that there is definite relationship

between expected satisfaction (utility) and realized satisfaction (actual).

3. Marginal utility of money is constant. 4. Absence of differences in income, tastes, fashion etc. 5. Independent goods and independent utilities. Criticism Two major criticisms against the Marshallian concept

of Consumer’s Surplus are (a) Marshall assumed that utility is measurable, but utility

is immeasurable, because it is psychological in nature; (b) The Marshallian assumption of marginal utility of

money remaining constant is unrealistic. Marshall assumed that utility is measurable. But J.R.Hicks says that utility is not measurable, because it is a psychological phenomenon.

1. Marshall assumed that there’s no interpersonal differences. But it will change with regard to tastes, preferences, status etc.

2. Marshall assumed that there is constancy of marginal utility of money. But it is unrealistic. Marginal utility of money increases with the fall in the stock of money.

Importance of Consumer’s Surplus 1. Consumer’s Surplus is useful to the Finance Minister in

formulating taxation policies. It is also helpful in fixing a higher price by a monopolist in the market, based on the extent of consumer’s surplus enjoyed by consumers.

2. Consumer’s Surplus enables comparison of the standard of living of people of different regions or countries.

(Or) (b) There are four main divisions of Economics they are

Consumption, Production, Exchange and Distribution, now a days economists add one more division that is Public Finance. In public finance, we study about the economics of government. The economic functions of a modern state have increased to a great extent, so public finance plays a important role in economics

(a) Consumptions :(i) It deals with the satisfactions of human wants.(ii) A satisfied want is called as consumption.(iii) Generally the word consumption means usage but in

economics, just as we speak of the consumption of food.

(b) Production :(i) Production refers to the creation of wealth and

utilities.(ii) Utilities refers to the ability of a good to satisfy a

want.

X0 3

12

5

2

1 4 5

Y

Bana

nas

Biscuits

3

8

2

Indifference Curve

IC

(iii) Utilities are classified into 3 kinds• Form utility• Place utility• Time utility

(c) Exchange :(i) In exchange, we give one thing and take another

goods may be exchanged for money.(ii) We study in economics about the functions of money,

• The role of banks and we also study how prices are determined.

• Discuss the various aspects of International trade(d) Distribution :

(i) Wealth is produced by the combination of land, labour, capital and organization

(ii) It includes the distribution of,• Rent• Wages• Interest and profits.

(e) Public finance :(i) Public finance deals with the economics of the

government.(ii) It studies about the income and expenditure of the

government.(iii) We have to study about different aspects

• Relating to taxation• Public expenditure• Public debt

47. (a) Merits :(i) The resources are utilized efficiently as good features

of both capitalism and socialism coexist.(ii) Misallocation resources controlled and regulated by

the state government.(iii) Which are scarce the prices are administered by the

government.(iv) Inequalities of income and wealth are reduced.(v) Workers are getting incentives and rewards for any

innovation.(vi) So there is overall welfare due to centralized planning.

Demerits :(i) Lack of co-ordination is due to the private sector

which dislikes any restriction imposed on it by the government.

(ii) There is too much of red-tapism and corruptions leading to delays in decision making and project implementation.

(iii) The lack of policy co-ordination between private and public sector results in economic fluctuations.

(Or) (b) Introduction :

(i) Land as a factor of production refers to all those natural resources of gifts of nature which are provided free to man.

(ii) It includes several things such as land surface air, water minerals, forests, rivers, lakes, seas, mountains, climate and weather.

(iii) Thus, 'Land' includes all things that are not made by man.

Characteristics of peculiarities of land :(i) Land is a free gift of nature.(ii) Land is fixed (inelastic) in supply.(iii) Land is imperishable.(iv) Land is immobile.(v) Land differs in fertility and situation(vi) Land is a passive factor of production

Conclusion:As a gift of nature, the initial supply price of land is zero. However, when used in production, it becomes scarce. Therefore, it fetches a price accordingly.

www.surabooks.com


www.sura

book

s.com

12thSTD.



PART - INote : (i) Each questions carries one mark. (ii) Answer all questions.I. Choose the Correct Answer: [20 × 1 = 20]1. The term ‘micro’ means __________

a) Big b) small c) both d) none.2. Traditional economy is a ___________

a) Subsistence economy b) Market economyc) Command economy d) Monetary economy

3. Consumer surplus is _____________a) Potential price – Actual Priceb) Actual Price – Potential Pricec) Demand = Supplyd) None

4. There are __________ types of Elasticity of demand.a) 3 b) 2 c) 4 d) 5

5. In the long period _________a) All factors changeb) Only variable factor changesc) Only fixed factor changesd) Variable and fixed factor remain constant.

6) Air and Sunlight are ____________ goods.a) Economic goods b) Free goodsc) Scarcity d) Value-in-Exchange.

7) The basic assumption of economic theory ______________a) Other things being equalb) Only when price changesc) Only when change in income d) none.

8) Equilibrium price is _____________a) S=D b) S>D c) D<S d) None

9) _________ introduced the concept of “Division of labour”.a) Adam Smith b) Alfred Marshallc) J.M. Keynes d) J.B. Say

10) Average cost is __________a) TC/Q b) TVC+TFC C) Marginal cost d) None

11. The year MRTP Act was passed __________a) 1969 b) 1989 c) 2000 d) 1959

12. ‘Supply creates its own demand’ propounded by ___________a) J.M. Keynes b) Adam Smithc) David Ricardo d) J.B. Say

13. Formula for multiplier ___________

a) K =−

11 mpc

b) K =+1

1 mpcc) K = C + S d) None

14. Monetary policy is controlled by ___________a) Central government b) State governmentc) Central Bank d) Private sector

15. The equation of exchange ____________ given by Irving Fishera) MV=PT b) MR=AR c) C+I+G+(X-M) d) None

16. __________ is known as the father of political economy.a) Adam smith b) Alfred Marshallc) Robbins d) Samuelson

17. The compulsory charge levied by the government is __________a) License fees b) Gifts and grantsc) Loan d) Tax

18. Cobb-Douglas production function ___________

a) Q=bLaCb b) ppxy c)

∆∆cy

d) y = c + s

19. In ZBB every year is considered as a _________a) Base year b) Financial yearc) New year d) Academic year

20. An example for direct tax is ____________a) Income tax b) Excise dutyc ) Sales tax d) none .

PART - IIAnswer any 7 questions : [7 × 2 = 14]

21. What are the main divisions of Economics?22. What are the basic issues of any society?23. Define Utility.24. Why does the demand curve slope downwards?25. What are the factors of Production?26. What are the economies of scale?27. How does the government control monopoly?28. What are the three motives of liquidity preference theory?29. Give the two factors on which the aggregate demand depends.30. Define Money.

PART - IIIAnswer any 7 questions : [7 × 3 = 21]31. Distinguish between free goods and economic goods.32. What is opportunity cost?33. What are the properties of Indifference curve?34. Explain the types of Elasticity of supply with a diagram.35. Mention any three benefits of perfect competition.36. Bring out the distinction between short run and long run.37. What is marginal cost?38. What is Price discrimination?39. What are the kinds of tax?40. What are the four components of money supply?

PART - IVAnswer all the questions: [7 × 5 = 35]41. a) Explain the salient features of Capitalism (Or) b) Discuss the nature and importance of economic laws.42. a) Describe the law of diminishing marginal utility with a

diagram (Or) b) Explain the merits and demerits of division of labour.43. a) What are the methods of Controlling Monopoly? (Or) b) Discuss the Keynesian theory of interest.44. a) What are the determinants of consumption other than

income? (Or) b) Describe the functions of Money.45. a) Differentiate between the Direct and Indirect Taxes. (Or) b) Distinguish between total and marginal utility.46. a) Explain the relationship between AR and MR. (Or) b) How is the Price and output determined in the short run

under perfect competition?47. a) Describe the Law of demand with a diagram (Or) b) Describe the characteristics of Capital.

[12]

www.surabooks.com


www.sura

book

s.com


Answers PART - I

1. b) small2. a) Subsistence economy3. a) Potential price – Actual Price4. a) 35. a) All factors change6. b) Free goods7. a) Other things being equal8. b) S>D9. a) Adam Smith10. a) TC/Q

PART - II21. (i) Production

(ii) Consumption (iii) Exchange (iv) Distribution and (v) public finance

22. (i) What to produce and in what quantities?(ii) How shall goods be produced?(iii) For whom shall the goods be produced?

23. (i) In the ordinary language, utility means `usefulness'.(ii) In economics, utility is defined as the power of commodity or

a service to satisfy a human want (iii) Utility is a subjective or psychological concept.

24. (i) The demand curve slopes downwards mainly due to the Law of diminishing marginal utility.

(ii) The Law of DMU states that an additional unit of a commodity gives a lesser satisfaction.

(iii) Therefore, the consumer will buy more goods only at a lower price when price increases demand decline.

(iv) This effects is known as substitution effect.25. (i) Land

(ii) Labour(iii) Capital and (iv) organisation are the factors of production.

26. (i) 'Economies' mean advantages. Scale refers to the size of unit.(ii) 'Economies of scale' refers to the cost advantages due to the

larger size of production.(iii) As the volume of production increases the overhead cost will

come down.(iv) The bulk purchase of inputs will give a better bargaining

power to the producer which will reduce the average variable cost too.

27. (i) Government can control monopolies by legal actions. (ii) Taxation is another method by which the monopolistic power

can be prevented or restricted.28. (i) Transaction Motive

(ii) Precautionary Motive(iii) Speculative Motive

29. (i) In keynesian theory of employment depends on aggregate demand.

(ii) Aggregate demand depends on two factors.1. Propensity to consume. (Consumption function)2. Inducement to invest. (Investment function)

30. Walker has said "Money is that which money does".PART - III

31. S. No. Free Goods Economic Goods(i) Free gift of nature Goods which have

money value.(ii) Abundantly available in

natureScarce in nature

(iii) Has no market value Has market value(iv) Eg: Air, Sunshine etc. Table, chair etc.

11. a) 196912. d) J.B. Say

13. a) K =−

11 mpc

14. c) Central Bank15. a) MV=PT16. a) Adam smith17. d) Tax18. a) Q=bLaCb

19. c) New year20. a) Income tax

32. (i) The "opportunity cost" is the cost of something in terms of opportunity forgone.

(ii) The opportunity cost of an action is the value of next best alternative forgone.

(iii) It is a key difference between accounting cost and economic cost.

33. (i) Slope downwards to the right.(ii) Convex to the origin.(iii) No two Indifference curves can ever cut each other.

34. Types of elasticity supply :1. Perfectly elastic supply : The co-efficient of elasticity of

supply is infinity (es is ∝)2. Relatively elastic supply : T h e c o - e f f i c i e n t o f e l a s t i c

of supply is greater than 1 (es >1)

3. Unitary elastic supply : The coefficient of elastic of supply

is equal to 1(es = 1)4. Relatively inelastic supply : The coefficient of elastic supply is less than 1 (es < 1)5. Perfectly inelastic supply : The coefficient of elasticity is equal to zero (es = 0)

35. (i) There is consumer Sovereignty.(ii) The price is equal to the minimum average cost.(iii) Firms are price takers and the products are homogeneous.(iv) Firm is functioning at the optimum level.

36. Short run Long runi) Period of one year Period of more than one yearii) At least one of the

input is fixedAll the inputs are variable

iii) Demand is the main determinant in fixing the price.

Supply is main determinant in fixing the price.

37. (i) Marginal cost is defined as the addition made to the total cost by the production of one additional unit of output.

MCn = TCn − TCn − 1

(ii) MCn = Marginal cost, TCn = Total cost of producing n units(iii) Marginal cost curve is 'U' shaped.

38. Price discrimination may be defined as "the sale of technically similar products at prices which are not proportional to marginal cost". For example, all cinema theatres charge different prices for different classes of people.

39. (i) Direct and Indirect taxes(ii) Proportional, Progressive, Regressive and digressive taxes(iii) Specific and advalorem taxes(iv) Value Added Tax (VAT)(v) Single and multiple taxes

40. (i) M1 = Currency with the public. (M1 = is also known as narrow money)

(ii) M2 = M1 + Post office saving deposits.(iii) M3 = M2 + Time deposits of the public with the banks. M3 is

also known as broad money.(iv) M4 = M3 + total post office deposits.

PART - IV41. (a) 1. Right to private property :

(i) Individual have the right to buy a own property.(ii) There is no limit to have the property.(iii) They are also have the legal rights to use their

property. 2. Profit - motive :

(i) Production decision involving high risks are taken by individual only for profit motive.

(ii) Profit is the only motive of capitalist economy.

Quantity supplied

Pric

e

S3

S4

S1

5

S2

es =α

y

x

0ee

s

e s

e s

e s

www.surabooks.com


www.sura

book

s.com


3. Freedom of choice :(i) What to produce? will be determined by the

producers. They have freedom to decide. (ii) Consumers have the freedom to buy anything

they need. 4. Market forces :

(i) Demand supply and price are the signals to direct the system.

(ii) Most of the economic activities are centred on price mechanism.

5. Minimum Role of the government : The role of the government will be limited to some

important functions like defence foreign policy, Currency regulation of market etc.

(or) (b) Economic laws :

(i) Like other science, economic has its own laws.(ii) A law is a statement of what must happen in certain

given conditions.(iii) The law of physical science area exact but economics

are not as exact as physical science.(iv) Because economics laws deals with human behavior.(v) We study about average human behaviour in

economics.(vi) Many economic law are not verified by experiment.

That is why we say sometimes the economic laws are hypothetical.

(vii) All the economic law are based on certain assumption. A law of demand is based on the assumption of "other things being equal".

(viii) The law of economics are statement of tendencies.(ix) Economic law also indicate probable trends.(x) The law of diminishing return has universal

application. Importance of economic laws :

(i) The Malthusian theory of population tells that population increase at a faster rate than food supply.

(ii) Economic laws are of great importance in practical life.

(iii) Some economic law are applicable to all types of economic systems.

(iv) Some economists believe that the quantity theory of money is valid under all economic systems.

(v) The green revolution helped in increasing Agricultural productivity.

(vi) Progressive taxation is based on the law of diminishing utility.

(vii) The law of diminishing marginal returns has universal application.

(viii) In agriculture, it means that we cannot double the output by doubling labour and capital.

42. (a) Introduction :(i) The law of diminishing marginal utility explains an

ordinary experience of a consumer.(ii) If a consumer takes more and more units of

commodity the additional utility he derives from a extra unit of the commodity goes on falling.

(iii) This idea was first developed by Gossen, Bentham, Jevons, Karl Menger, so this law is also known as Gossen's first law.

(iv) But Alfred Marshall perfected these ideas and made it as a law.

Definition : According to Marshall "The additional benefit which a

person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has"

Assumptions of the law :(i) The consumption must

be in standard unit eg. a cup of coffee or cup of tea.

(ii) The units of commodity must be identical in all aspects like taste, quality, colour and size

(iii) The process of c o n s u m p t i o n continues without any time gap.

(iv) The consumer's taste remains the same.(v) The Income of the consumer remains constant(vi) The consumer is a rational economic man and he

wants to maximize the total utility(vii) Utility is measurable.

Units of apple Total utility Marginal utility 1 20 202 35 153 45 104 50 55 50 06 45 –57 35 –10

(or) (b) The concept 'Division of Labour' was introduced by Adam

Smith. Merits:

(i) It improves labour efficiency of labour when labour repeats doing the same tasks.

(ii) Time and Materials are efficiently used(iii) Facilitates the use of machinery in productions

resulting in inventions. e.g., More is telegraphic codes.

Demerits :(i) Kills the growth of handicrafts and the worker loses

the satisfaction of having made a commodity in full.(ii) Repetition of the same task makes labour to feel that

the work is monotonous and Stale.(iii) Narrow specialisation reduces the possibility of

labour to find alternative avenues of employment.43. (a) (a) Legislative method : Government can control monopolies by legal actions.

Anti-monopoly legislation has been enacted to check the growth of monopoly. The objective of this Act is to prevent the unwanted growth of private monopolies and concentration of economic power in the hands of a small number of individuals and families.

(b) Controlling price and output : This method can be applied in the case of natural

monopolies. Government would fix either price or output or both.

(c) Taxation : Taxation is another method by which the monopolistic

power can be prevented or restricted. Government can impose a lump-sum tax on a monopoly firm, irrespective of its level of output. Consequently, its total profit will fall.

(d) Nationalisation : Nationalising big companies is one of the solutions.

Government may take over such monopolistic companies, which are exploiting the consumers.

TUandMU

MUNo. of Apples

0

50

40

30

2010

1 2 3 54

TU

Zero

Law of diminishing marginal utility

www.surabooks.com


www.sura

book

s.com


(e) Consumer's association : The growth of monopoly power can also be controlled

by encouraging the formation of consumers associations to improve the bargaining power of consumers.

(Or) (b) Introduction :-

(i) Generally people prefer to hold a part of their assets in the form of cash.

(ii) Cash is a liquid assets.(iii) According to Keynes, interest is the reward for

parting with liquidity for a specified period of time. Three motives of liquidity preference :

(i) Transaction motive(ii) Precautionary motive(iii) Speculative motive

1. Transaction Motive : It refers to the money held to finance day to day

spending. 2. Precautionary Motive : Held to meet an unforeseen expenditure. 3. Speculative Motive : "The object of securing profit from knowing better than

the market what the future will bring forth". Explanation :

(i) Liquidity preference is shown by L and the supply of money is represented by M and the rate of interest is indicated by r1.

(ii) Rate of interest is determined by the inter section of C and M curves.

(iii) Increase in the rate of interest to r1.

(iv) Increase in demand for money to L1 (or) decrease in the supply of money to M1.

44. (a) Other Determinants of consumption :Though income is the most important factor that has greater influence on consumption, there are other factors which influence the propensity to consume. They are :

(i) Income distribution(ii) Size and nature of wealth distribution(iii) Age distribution of population(iv) Inflation or price level(v) Government policies(vi) Rate of interest(vii) Expectations about price, income, etc.(viii) Advertisements(ix) Improvement in the living standard(x) Changes in cultural values.

(Or) (b) (i) Money has over come the difficulties of barter. (ii) Walker said "Money is that which money does". By

this, he has referred to the function of money. Money performs many functions in a modern economy.

"Money is a matter of functions four, A medium, a measure, a standard, a store". (iii) Thus, money, is a medium of exchange, a measure

of value, a store of value and a standard of deferred payments.

1. Medium of exchange :(i) Money is accepted freely in exchange for all

other goods(ii) Barter system is very inconvenient.(iii) So the introduction of money has got over the

difficulty of barter.

y

L

xO

r1

rL1

MM1

MM1

Rat

e of

Inte

rest

Money

Liquidity preference theory of interest

2. Measure of value :(i) Money acts as a common measure of value.(ii) It is a unit of account and standard of

measurement.(iii) Whenever we buy a good in the market we pay a

price for it in money.(iv) Price is nothing but value expressed in terms of

money. 3. Store of value :

(i) A man who wants to store his wealth in some convenient form will find money admirably suitable for the purpose.

(ii) It acts as a store of value. 4. Standard of deferred payments :

(i) Money is used as a standard for future payments.(ii) It forms the basis for credit transaction.(iii) Business in modern times is based on credit to a

large extent.(iv) This is facilitated by the existence of money.(v) In credit, since payment is made at a future date

there must be some medium which will have as for as possible the same exchange power in the future as at present.

45. (a) Direct tax : 1. Taxes on income. 2. Taxes imposed on one person and called from the same

person. 3. Tax cannot be shifted. 4. This tax paid by the rich. 5. Examples :- Income tax, wealth tax, corporate tax, gift

tax, estate duty, expenditure tax etc., InDirect tax : 1. Taxes on commodities and services. 2. Taxes imposed on one person and collected from the

another person. 3. Tax can be shifted. 4. The burden of the tax is borne by ultimate consume 5. This tax paid by the poor. 6. Tax evation is possible. 7. Examples : Excise duty, custom duties, sales tax etc.

(Or) (b) S. No Marginal Utility Total Utility

i) Marginal Utility is the addition made to the total utility by consuming one more unit of a commodity.

Total utility refer to the sum of utilities of all units of a commodity consumed.

ii) It declines It increases.iii) It reaches zero It reaches maximum.iv) It becomes negative

formula of MU.MUn = TUn – Tun–1

It declines

46. (a) Relationship between AR and MR curves : When the average revenue (price) remains constant, the

marginal revenue will also remains constant and will coincide with the average revenue.

No of units sold

Price (or) AR (Rs) TR (Rs) MR (Rs)

1 10 10 102 10 20 103 10 30 104 10 40 105 10 50 106 10 60 10

www.surabooks.com


www.sura

book

s.com


(i) When AR Falls MR will also fall. But fall in MR will be more than the fall in the AR.

(ii) Hence, Marginal revenue curve will lie below the average revenue curve

(iii) This can be explained with the help of following table and diagram.

No. of units Sold

Price (or) AR (Rs)

TR (Rs) TR (Rs)

1 10 10 102 9 18 83 8 24 64 7 28 45 6 30 26 5 30 0

(Or) (b) (a) Perfect competition : Perfect competition is a market situation where there

are infinite number of sellers in the market. (b) Short run equilibrium price and output determination

under perfect competition : (i) Since a firm in perfectly competitive market is a

price-taker, it has to adjust its level of output to maximise its profit. The aim of any producer is to maximise his profit.

(ii) The short run is a period in which the number and plant size of firms are fixed.

(c) Super normal profit : When average revenue of the firm is greater than its

average cost, the firm is earning super-normal profit. Short – run equilibrium with Super Normal Profit (d) Explanation : 1. Output is measures

along the x - axis, Price revenue and cost along the y-axis.

2. Op is the prevailing p r i c e . P L i s t h e demand curve or a v e r a g e a n d t h e marginal revenue curve.

3. SAC and SMC are the short run average and marginal cost curve.

4. The firm is in equilibrium at point 'E' where MR = MC.

5. MC curve cuts MR curve from below at the point of equilibrium.

6. At OM level of output ME is AR and MF is average cost. The profit per unit of output is EF.

7. Thus the total profits will be equal to the area HEEP. 8. HEEP is the super normal profits earned by the firm.

O

Y

XQuantity

AR = MRPAR&MR

O

BA

MRM

D

X

Y

Quantity

AR

AR&MR

Q

C

O

Y

X

ARMR

Rev

enue

Pri

ce a

nd C

ost

Output

SMCSAC

F

EP

H

Profits

M

47. (a) Introduction :(i) Demand for a commodity refers to the desire

backed by ability to pay and willingness to buy it.

(ii) The law of demand status that there is a negative (or) inverse relationship between the price and quantity demanded of a commodity over a period of time.

Defi nition : Alfred Marshall stated that “The greater the amount

sold, The smaller must be the price at which it is offered, in order that it may find purchases, or in other words, the amount demanded increase with a fall in price and diminishes with rise in price”.

Assumptions of the law :(i) No change in the consumer’s income, tastes and

preferences, prices of other goods.(ii) No new substitutes for the goods have been

discovered.(iii) People do not feel that the present fall in price is

prelude to a further decline in price. Demand schedule: It is a tabular statement showing how much of a

commoditity is demanded at different prices.

Price (Rs) Quantity Demand units5 104 203 302 401 50

Demand curve: The demand schedule can be converted into a demand

curve by measuring price on vertical axis and quantity on horizontal axis.

(i) DD is the demand curve.

(ii) The curve slopes downwards from left to right showing that, when price rises, demand is less and vice versa.

The demand curve slope downwards:(i) The demand curve slopes downwards mainly

due to the law of diminishing marginal utility.(ii) The consumer will buy more goods only at a

lower price when price increase demand decline.(Or)

(b) (i) Capital is man-made (ii) Capital is a passive factor of production (iii) Capital is productive (iv) Capital lasts over time (v) Supply of capital is elastic (vi) Capital has the highest mobility (vii) Captal is not an indispensable factor of production,

i.e. production is possible even without capital. (viii) Capital involves present sacrifice to get future benefits.

0 X

Pric

e

Y

Quantity demand

5

4

3

2

1

10 20 30 40 50

D

D

www.surabooks.com


Documents

On 31.07.2018, the Government has released Model Question ... · The macr oeconomic thinking was revolutionized by _____ a)Ricardo David b) J.M.Keynes c) Adam smith d) Malthus 4.ency