Class 12 Economics Solved Paper (2013 Delhi Set-I) | Additional Study Material for Commerce PDF Download

Ques 1: Give two examples of fixed costs.
Ans: Insurance premiums, and loan payments.

Ques 2: Define marginal cost.
Ans: Marginal cost may be defined as the change in total cost that takes place by producing an additional unit.

Ques 3: When is the demand for a good said to be inelastic?
Ans: The demand for a good is inelastic when the percentage change in the demand of a product is less than the percentage change in the price of the good.

Ques 4: Give the meaning of market demand.
Ans: Market demand is the sum total demand of all the buyers of a good at a point of time at a given price.

Ques 5: Under which market form a firms marginal revenue is always equal to price.
Ans: Under perfect competition marginal revenue is always equal to price.

Ques 6: Explain the difference between an inferior good and a normal good.
Ans: Normal Good
1. A normal good is one whose demand increases with an increase in the money income of the consumer.
2. Normal goods have positive income effect, e.g. if a consumer buys more of milk for his family as his income rises, then milk will be called a normal good as shown in Diagram 1.
 
Inferior Good
1. An inferior good is one whose demand falls with a rise in income of the consumer because he can now afford to buy a normal (superior) good.
2. Inferior goods have negative income effect; e.g. if a consumer reduces the consumption of toned milk when his income rises, then toned milk is an inferior good for that toned milk is an inferior good for that consumer, as shown in Diagram 2.

Ques 7: Explain the law of diminishing marginal utility with the help of a total utility schedule.

Or

Explain the condition of consumer's equilibrium with the help of utility analysis.
Ans: Law of Diminishing Marginal Utility states that as a consumer consumes more and more units of a commodity at succession, then the Marginal Utility derived from the consumption of each additional unit of the commodity falls.

From the above schedule, it can be observed that for two unit of consumption, marginal utility is 80. For the third unit, the marginal utility falls to 60. For the fourth unit, the marginal utility further falls to 50 and so on. Thus, as more and more units of a commodity are consumed, the marginal utility derived from the consumption of each additional unit falls.
Or
Consumer's equilibrium will be attained at a point where marginal utility of a commodity is equal to its price. However, MU is expressed in terms of utils and price is expressed in money form. Therefore, equality of MU in utils and price cannot be the basis of consumer's equilibrium. Hence, marginal utility also needs to be expressed in money form.

Marginal utility in money form can be obtained by dividing it (MU) by marginal utility of one rupee. Marginal utility of 1 is the extra utility when an additional rupee is spent on other available goods in general. Suppose that for an additional rupee we get two units of some other commodity, then marginal utility of rupee is 2 (utils). Knowing marginal utility (MU) of a commodity and marginal utility of a rupee, we can find out marginal utility of a commodity in money terms in the following way:
Marginal Utility in Money terms =

Ques 8: When the price of a good rises from Rs. 20 per unit to Rs. 30 per unit, the revenue of the firm producing this good rises from Rs. 100 to Rs. 300. Calculate the price elasticity of supply.
Ans: 

Price,    P = Rs. 20,            

TR = Rs. 100

∴      Quantity demanded,  

Price,    P₁=Rs 30,    

      TR = Rs 300
Quantity demanded,  

ΔP=P1−P=Rs30−Rs20=Rs10

or         ΔQ=Q1−Q=10−5=5units

 

Ques 9:

Ans:

Ques 10: Explain 'large number of buyers and sellers' feature of a perfectly competitive market.
Ans: There are very large number of buyers in perfect competition. No individual buyer can influence the mart, price because of its large number. Every buyer buys only fraction from the total sale of the product.
Buyers like firms have to accept the price which is fixed by the supply and demand of the whole industry. Buyers can buy any quantity of product at this price. Similarly sellers are also very large in number having very small share in the marker Sellers cannot influence the market price and can sell any quantity on the prevailing price. That is why firms are called price-takers in perfectly competitive industry.

Ques 11: Either Question is not complete or Answer is extra.
Ans: Unemployment in economy leads to underutilization of resources which compels an economy to remain on less efficient PPC. Hence the AD should be raised to increase employment.
So the government should start some schemes through which can be generated. As a result the point of actual operation will move to or move nearer to the situation where there is a no unemployment. We can see in the diagram, P is the point of operation due to unemployment. The point of operation will move on to the right side of Production Possibility curve when the new employment schemes will be introduced. The point of operation shifts from point P to point M or T or any other point on the production possibility curve AB.


Ques 12: Explain the conditions of producer's equilibrium with the help of a numerical example.
Ans: Producers equilibrium refers to a combination of price and quantity of output which yields the producer the maximum profit. For achieving this combination two conditions need to be fulfilled.
(i) The difference between total cost and total revenue must be the maximum.
(ii) At the point where, the difference between TIC and TR is maximum, MR and MC should also be equal. Any departure from this position will not ensure maximum profit.
In the Table, the difference between TR and TC is maximum at 3 units as well as at 4 units but the point of equilibrium is 4 units because at this point MC = MR.  & MC must rise.
These two conditions can be explained with the help of a table given below:

Ques 13: The price elasticity of demand for a good is 0.4. If its price increase by 5 per cent, by what percentage will its demand fall? Calculate.
Ans:

2 = Percentage change in quantity demanded

∴      Quantity decreases by 2% or Demand falls by 2%

Ques 14: Giving reasons, state whether the following statements are true or false:
(i) A monopolist can sell any quantity he likes at a price.
(ii) When equilibrium price of a good is less than its market price, there will be competition among the sellers.
Ans:  (i) The statement is false. The price is fixed at a point where marginal cost is equal to marginal revenue. If a monopolist fixes a price less or more than the price fixed at equilibrium point, the quantity will be more or less than the equilibrium quantity but not the quantity that a monopolist would like to sell.
(ii) The statement is true. In this situation, market price is higher than the equilibrium price. As a result of which supply will be more than demand. As such there will be competition among the sellers. In other words, sellers would like to sell their entire quantity to meet the demand which (supply) is much more than the demand.

Ques 15: Explain the Law of Variable Proportions with the help of total product and marginal product curves.
Ans: The law of variable proportions explains the relationship between inputs and outputs in the short run. In the short run, some factors of production (inputs) are fixed and other factors input are variables. The quantity of output can be increased by increasing the use of variable input.

As more and more units of variable input are employed, the proportion between the fixed and variable factors keeps on changing. The output passes through three phases.

These three phases are identified with respect to the marginal product.

Phase I: TP increase at an increasing rate. In The first phase of production the marginal product rises and reaches its highest point. This is the phase of Increasing Returns to a factor and during this phase, total product increases at an increasing rate.

Phase II: TP increases at a diminishing rate. In this phase, Marginal Product is declining, but is positive. In this phase total product increases but at a diminishing rate. This phase ends when Marginal Product is zero and Total Product is at its maximum level. A producer always operates in this stage.

Phase III: TP is falling. In phase of production. Marginal Product is and negative. Here total product starts falling.

Units of Labour (Variable input)	Total Product	Marginal Product	Phase of Production
1	3		Phase I
2	7
3	12
4	16		Phase II
5	18
6	18
7	17		Phase III

These phases are shown graphically in Diagram.

The reasons for the Operation of the Law are:

1. Optimum combination of factors: The phase of increasing marginal product is due to optimum combination of factors that is required for any given technology, therefore fixed factors get better utilized.

2. However, when more and more units of variable factors are employed to a fixed factor, the fixed factor cannot absorb it and there is overcrowding of variable factors due to which the marginal product falls and becomes negative. This is the phase of diminishing marginal product.

Ques 16:  Explain consumer's equilibrium with the help of Indifference Curve Analysis.
Or
Explain the relationship between
(i) Prices of other goods and demand for the given good.
(ii) Income of the buyers and demand for a good.
Ans: Consumers equilibrium refers to the optimum combination of the two goods which a consumer can afford (given his income and price of two commodities) and this combination gives him maximum satisfaction that he possibly can get. 

According to indifference curve analysis, consumed equilibrium is established at a point where budget line is tangent to the highest attainable indifference curve. At this, point the slope of indifference curve i.e. MRS   is equal to the slope of Budget line, i.e., 

 At point of consumer equilibrium (E),

Conditions for consumer's equilibrium are:
(i) Budget line should be tangent to the indifference curve,
 i.e., Slope of Indifference curve, 
I_c= Slope of Budget line.
(ii) MRS is diminishing or Indifference curve is convex to the point of origin.
Or
(i) Price of other goods and demand for the given good. Demand for a commodity may be affected by the prices of other goods. The other goods may be substitute goods and complementary goods.

Prices of substitute goods. Those goods which can be used at the place of another are known as substitute goods like tea and coffee. If the price of tea increases then the demand of coffee will increases because now it is cheaper in comparison to tea on the other side, if the price of tea falls, the demand of tea will increases, because now it is cheaper than coffee.

Price of complementary goods. Those goods which we cannot use without one another are known as complementary goods. Such as car and petrol if the price of car rises then the demand for petrol falls down. The reverse will happen when the price of car falls.

(ii) Income of the buyers and demand for a good. Income of the buyers affect the demand of goods. Generally, we can see when the income of buyer increases the demand increases and vice versa. The effect of increase in income is not uniform on the demand of all goods. When income increases, the demand of normal goods increases and that for inferior goods decreases. The reverse of it happens when income falls.

Ques 17: How can increase in foreign direct investment affect the price of foreign exchange?
Ans: Increase in foreign direct investment will increase the supply of foreign exchange and therefore it will reduce the price of foreign exchange. 

Ques 18: What are demand deposits?
Ans: Demand deposits are those deposits which a depositor can withdraw at any given time by writing a cheque. 

Ques 19: Give one example of 'externality' which reduces welfare of the people.
Ans: Air pollution from motor vehicles is an example of a negative externality. The cost of the air pollution for the rest of the society is not compensated by the producers or by the users of motor vehicles. 

Ques 20: Give two examples of indirect taxes.
Ans: Custom tax and Entertainment tax.

Ques 21: What is a Government Budget?
Ans: Budget is prepared during the period of financial year. It is a statement which is made by government for showing the estimated receipts and expenditure. 

Ques 22: Distinguish between revenue expenditure and capital expenditure in Government budget. Give an example of each.
Or
Distinguish between revenue deficit and fiscal deficit.
Ans: Revenue expenditure: This expenditure relates to the day to day running of the business which does not result in the creation of assets or reduction of liability e.g. salaries and wages.

Capital expenditure: This expenditure spent by a business or a firm on acquiring or maintaining fixed assets, e.g. buildings, land etc.
Or
Revenue deficit is equal to the excess of total revenue expenditure over the total revenue receipts. On the other hand, fiscal deficit is equal to the excess of total expenditure over the sum of revenue and capital receipts excluding borrowings. Thus, it is clear from the above statement, revenue deficit relates to total revenue receipts and total revenue expenditure, whereas, fiscal deficit relates to the difference in total expenditure (revenue and capital) and total receipts (revenue and capital) excluding borrowings.

Revenue Deficit = Total Revenue Expenditure - Total Revenue Receipts

Fiscal Deficit = Total Budget Expenditure (-) (Revenue Receipts + Capital Receipts excluding borrowings)

Ques 23: Explain any one objective of Government Budget.
Ans: To maintain economic stability is an important objective of government budget. Some economic fluctuations like boom and depression affects the economy of a country. Because of these changes country faces some benefits and harms. In this situation, appropriate policy measure will be required by the government to affect the levels of aggregate demand. These measures are called stabilization measures. These are for avoiding unemployment and inflation. 

Ques 24: Explain the effect of appreciation of domestic currency on imports.
Ans: If the external value of domestic currency is increased in the foreign exchange market then it is known as appreciation of the domestic currency.  The imports will increase as they become cheaper because of the appreciation of domestic currency.

Ques 25: Distinguish between balance of trade and balance on current account.
Ans: Balance of trade is confined to the difference between Export of Goods and Imports of Goods. On the other hand, the Balance of current account of a country includes payments and receipts relating to visible trade (export and import of goods), invisibles (services) and unilateral transfers.
Thus, Balance of trade is a restricted term in comparison to Current account balance.

Ques 26:

Ans: Sales = Net value added at factor cost + Depreciation + Intermediate cost + Indirect taxes - Changes in stock
= (i) + (ii) + (iv) + (vi) - (iii)
=560+60+1000+60−(−30)= Rs. 1710 lakhs

Ques 27: Giving reasons categorise the following into stock and flow:
(i) Capital
(ii) Saving
(iii) Gross domestic product
(iv) Wealth
Or
Explain the circular flow of income.
Ans:
(i) Capital is a stock. This is so because capital is measured at a point of time.
(ii) Saving is a flow. This is so because it relates to a period of time.
(iii) Gross domestic product is a flow because it relates to a time period which is generally one fiscal year.
(iv) Wealth is a stock because it is measured at a point time.
Or
The flow of production, income generation and expenditure involving different sectors of the economy in the form of wages, rent and dividends, is known as circular flow of income (see diagram). Production gives rise to income (factor incomes), which in turn gives rise to demand for goods and services. This demand leads to expenditure by households on goods and services produced. In this way income generated by production units reaches back to production units and makes the circular flow complete.


Ques 28: Explain Banker to the Government function of the central bank.
Ans: The central bank works as a commercial bank for the government. Central bank provides all services and facilities to the government like ordinary banks provide services to public. Central bank manages all government departments undertaking and the funds of government. It provides loans to government when expenditure exceeds the revenue. This is called deficit financing through borrowing from RBI. It manages public debt also. It also accepts the payment of taxes from the public on behalf of the government and makes payment for the cheques issued by government.

Ques 29: C = 100 + 0.4Y is the Consumption Function of an economy where C is Consumption Expenditure and Y is National Income. Investment expenditure is 1100. Calculate
(i) Equilibrium level of National Income.
(ii) Consumption expenditure at equilibrium level of National Income.
Ans: 

Given, Y = National Income, Consumption Function, C=100+0.4Y, Investment Expenditure, I = 1,100

(i) Now, Y=C+I
∴      Y=100+0.4Y+1,100 or y−0.4y=1200 or 0.6Y=1,200
∴ Equilibrium level of National Income, Y == 2000
(ii) Now, C=100+0.4Y or C=100+0.4(2,000)
Consumption, C =100+800=900

Ques 30: 

Ans:

Ques 31:

Ans: National Income

= Private final consumption expenditure + Government final consumption expenditure + Gross domestic capital formation+ Net factor income from abroad - Consumption of fixed capital - Net imports - Net indirect taxes
= (i) + (iii) + (v) + (vii) + (viii) + (ix) + (iv)
=900+400+250+(−40)−20−30−100= Rs 1,360 Crores