Class 12 Economics Solved Paper (2017 Delhi Set-I) | Economics for Grade 12 PDF Download

Ques 1: The demand of commodity when measured through the expenditure approach is inelastic. A fall in its price will result in: (Choose the correct alternative)
(a) no change in expenditure on it.
(b) increase in expenditure on it.
(c) decrease in expenditure on it.
(d) any one of the above.
Ans: (c) decrease in expenditure on it.

Ques 2: As we move along a downward sloping straight line demand curve from left to right, price elasticity of demand: (Choose the correct alternative)
(a) remain unchanged
(b) goes on falling
(c) goes on rising
(d) falls initially then rises
Ans: (d) Falls initially then rises.

Ques 3: Define market demand.
Ans: Market demand refers to the sum total of individual demand.

Ques 4: Average revenue and price are always equal under: (choose the correct alternative
(a) perfect competition only
(b) monopolistic competition only
(c) monopoly only
(d) all market forms
Ans: (d) all market forms.

Ques 5: State any one feature of oligopoly.
Ans: Oligopoly has few but large majority of market share.

Ques 6: Distinguish between microeconomics and macroeconomics.
Ans: 

Ques 7: State the meaning and properties of production possibilities frontier.
Ans: Production possibilities Frontier refers to the frontier which shows the production combination of commodities by available resources and techniques.
Properties of production possibilities frontier:
(a) Concave to the origin: PPF is concave to the origin as to increase one additional unit of output, more and more units of another good is sacrificed.
(b) Downward sloping from left to right: PPF is downward sloping from left to right because more and more units of good are sacrificed to gain one additional unit of another good.

Ques 8: Show that demand of a commodity is inversely related to its price. Explain with the help of utility analysis.
or
Why an indifference curve is negatively sloped? Explain.
Ans: Demand refers to the quantity which a consumer is willing to purchase through the given income of the consumer during a specific period of time. The demand of a commodity is inversely related to its price. If the price of commodity increases then the demand of the commodity decreases. On the contrary, if the price of commodity decreases then the demand of the commodity increases.
This happens because of law of marginal utility. As more and more units of a good are consumed then MU driven from that commodity tends to diminesh. As a result, demand of a commodity is inversely related to its price.
or
Indifference curve refers to the curve showing consumption combinations of two commodities which yield the same level of satisfaction to the consumer.
An indifference curve is negatively sloped because:
If the quantity of one good is decreased then the quantity of other good will increase. It means that with the additional consumption of one commodity, a consumer has to sacrifice less and less units of other commodity. This slope of indifference curve is also called Marginal Rate of Substitution of Good X and Good Y, denoted as


Ques 9: State different phases of the law of variable proportions on the basis of total product. Use diagram.
or
Explain the geometric method of measuring price elasticity of supply. Use diagram.
Ans: Law of Variable Proportion is enforced during short?run. It states that as more and more variable factors are used with the fixed factors. So, a stage must ultimately come when MP of variable factors starts declining.

According to the schedule and figure from origin to point K, TP is increasing at increasing rate and MP is also increasing.
From point K to T, MP is diminishing while TP is increasing at diministing rate.
At point T, MP is zero and TP is optimum.
Beyond point T, TP starts falling while MP becomes negative.
or
Price elasticity of supply refers to the proportionate relationship between the percentage change in quantity supplied and percentage change in price.
According to Geometric Method elasticity of supply depend on the origin of supply curve.
Therefore, elasticity of supply should have three situations:
(a) Es = 1
(b) Es > 1
(c) Es < 1
(a) Es = 1 ⇒ When a straight line positively sloped supply curve starts from the point of origin.

(b) Es > 1 ⇒ when a straight line positively sloped supply curve starts from Y-axis.

(c) Es < 1⇒when a straight line positively sloped supply curve starts from X-axis.


Ques 10: Explain the 'free entry and exit of firms' feature of monopolistic competition.
Ans: Monopolistic competition is a form of market in which large number of sellers sell different kind of product.
There is a difference in their Trade. Mark, Brand Name, packaging, etc. the commodities produced by firms are close substitute of one another.

The new firms to enter into a market and the existing firms can leave the market as per their own willingness but sometimes, they face a monopolist restriction i.e., Cartel. 

Ques 11: When price of a commodity X falls by 10 percent, its demand rises from 150 units to 180 units. Calculate its price elasticity of demand. How much should be the percentage fall in its price so that its demand rises from 150 to 210 units?
Ans:
Percentage change in Price = (−)10
Q = 150 units
Q1 = 180 units.
Ed =(−)
Ed = 20/10
Thus, price elasticity = Z0
And, if Ed = 2,
Q = 150 units, Q1 = 210 units

% change in quantity demanded =

2x=(−)40
x=−20
Therefore percentage fall in price will be 20%.

Ques 12: 

Ans:

Ques 13:  Good Y is a substitute of good X. The price of Y falls Explain the chain of effects of this change in the market of X.
or
Explain the chain of effects of excess supply of a good on its equilibrium price.
Ans: Good Y is a substitute of Good X. If the price of Y falls, then the markert of X will change in the maner that people will diminish its demand. They will consume Good X which is the substitute of Good Y.
For Eg: Tea and Coffee both are the substitutes of each other. If the price of tea falls then the demand for tea will rise and demand for coffee will diminish.
The Chain of effect is shown below:

 Let us suppose that the initial equilibrium is at point E₁, where the equilibrium price is OP₁ and the equilibrium output is Oq₁.
 
Now, let us suppose that market supply increases (say, due to a fall in the input prices). This shifts the curve parallel rightwards to S₂S₂ from S₁S, with no change in demand at the initial price OP₁, there exist excess supply equals to (Oq,,−Oq₁)units of output. This excess supply will increase competition among the producers and consequently they would be willing to sell their output at a lower price. The price will continue to fall until it reaches OP₂, where, the new supply curve S₂S₂ intersect the initial demand D₁D,. The new equilibrium is established at point E₂, where the equilibrium output is Oq₂ and the equilibrium price is OP₂ Thus, at the new equilibrium, the equilibrium quantity has risen whereas, the equilibrium price has fallen.

Ques 14: Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of output is Rs 12. Using marginal cost and marginal revenue approach, find out the level of equilibrium output. Give reasons for your answer:

Ans: 

At 5^th unit of output, the producer will be in equilibrium because at this unit, MR is equal to MC and MC curve cuts MR from below.

Ques 15: The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called, (choose the correct alternative)
(a) Statutory liquidity ratio
(b) Deposit ratio
(c) Cash reserve ratio
(d) Legal reserve ratio
Ans: (c) Cash Reserve ratio.

Ques 16: Aggregate demand can be increased by: (choose the correct alternative)
(a) Increasing bank rate
(b) Selling government securities by Reserve Bank of India
(c) Increasing cash reserve ratio
(d) None of the above
Ans: (d) None of the above.

Ques 17: Give the meaning of involuntary unemployment
Ans: Involuntary unemployment refers to the situation of unemployment when a person is willing to work but does not get any work.

Ques 18: Primary deficit indicate the amount of borrowings requinal by the government to meet the expenditure other than trtrest payment.
Primary deficit =
Fiscal deficit  trterest payment
Ans: (c) Cash Reserve Ratio.

Ques 19: Give the meaning of balance of payments.
Ans: Balance of Payments refers to the accounting statement that provides a systematic record of all the economic transactions between residents of a country and the rest of the world in a given period of time.

Ques 20: Distinguish between final goods and intermediate goods, Give an example of each.
Ans: Final Goods
(a) These are those goods which are either used for consumption or for investment purpose.
(b) They are included in both national and domestic income.
(c) For e.g., milk purchased by households.
Intermediate Goods
(a) These goods are those goods which are used either for resale or for further production in the same year.
(b) They are neither included in national income nor in domestic income.
(c) For Eg. milk used in dairy for resale.

Ques 21: State the meaning and components of money supply.
Ans: Money supply refers to the total value of money held by public at a particular point of time.
Components of Money Supply
(a) M1= It is the first and basic measure of money supply.
M1 = Currency and coins with Public + Demand deposits of commercial banks + other deposits.
(b) M2 = It is the broader concept.
M2 = mi + saving deposits with Post Office Saving Bank
(c) M3 = Broader concept
M3 = M1 + Net time deposits with banks.
(d) M4 = M3 + Total deposits with post office saving bank (Excluding NSC)

Ques 22: Explain the basis of classifying taxes into direct and indirect tax. Give examples.
Ans: Direct Taxes are those taxes that are imposed on property and income of individuals and companies and are paid directly by them to govt.
For Eg. Income Tax, Corporate tax, etc.
Indirect Taxes are those taxes that affect the income and property of individuals and companies through their consumption.
For Eg. Sales Tax, Service Tax.

Ques 23: Explain 'banker to the government' function of the central bank.
or
Explain the role of reverse repo rate in controlling money supply.
Ans: The Reserve Bank of India acts as a Banker, agent and a financial advisor to the Central Govt.
As banker, it carries out all banking business of the Govt.
(a) It maintains a current account for keeping their Cash Balances.
(b) It accepts receipts and makes payments for the Govt. and carries out exchange and other banking operations.
(c) It also gives loans and advances to the Govt.
or
Reverse Repo Rate is the rate at which RBI borrows money from commercial banks.
(a) RBI makes use of this tool when it feels that there is excess money supply in the banking system.
(b) Banks are always happy to lend money to RBI as there money is in safe hands with a good interest.

Ques 24: Explain how government badger can be used to influence distribution of income?
Ans: Govt. budget is an annual statement, showing estimation of receipts and expenditure during a fiscal year. Govt. Budget would influence the distribution of income when, Govt. will spend less to control the level of income in the economy. On the contrary, will spend more to decrease the level of income in the economy.

Ques 25:  An economy is in equilibrium. From the following data about an economy calculate autonomous consumption.
(a) Income = 5000
(b) Marginal propensity to save = 0.2
(c) Investment expenditure = 800
Ans:  Given that,
Income (y) = 5000
Marginal Propensity to save (s) = 0.2
Therefore, marginal propensity to consume
=1MPS
=10.2=0.8
∴                  Y=C+by+I
⇒           5000=C+0.8×5000+800
⇒           5000=C+4000+800
⇒           5000=C+4800
⇒50004800=C
⇒              200 = C
∴ Autonomous Consumption = 200

Ques 26: Why does the demand for foreign currency fall and supply rises when its price rises? Explain.
Ans: Demand for foreign currency, comes from the people who need it to make payment in foreign currency.
Supply of foreign currency comes from the people who receive it due to following reasons:
(a) Exports of goods and services
(b) Foreign Investment
(c) Speculations
Reasons for rise in supply:
(i) When price of a foreign currency rises, domestic goods become relatively cheaper. It induces the foreign country to increase their imports from the domestic country. As a result, supply of foreign currency rises. For Eg., If price of U.S dollar rises from Rs. 45 to Rs. 50, then exports to USA will increase as Indian goods will become cheaper. It will raise the supply of U.S dollars.
(ii) When price of a foreign currency rises, supply of foreign currency rises as people want to make gains from speculative activities.


Ques 27: Explain 'non-monetary exchanges' as a limitation of using gross domestic product as an index of welfare of a country.
or
How will you treat the following while estimating domestic product of a country? Give reasons for your answer:
(a) Profits earned by branches of country's bank in other countries
(b) Gifts given by an employer to his employees on Independence Day
(c) Purchase of goods by foreign tourists
Ans: Many activities in an economy are not evaluated in monetary terms, for Eg. Non?market transactions like services of house wife, kitchen gardening, etc. are not included in GDP due to non?availability of data.
or
(a) Not included in domestic income as it?s earned outside the domestic territory of the country.
(b) Included as it?s a factor income.
(c) Included as the expenditure is done within the domestic territory.

Ques 28:

Ans:
GDP_MP⇒GFCE + PFCE + GDFCF +Consumption of fixed capital + Net Exports + Change stock
GDP_MP⇒= 11390
40 (dep)
+(80)(NFIA)
NNPmp = Rs. 11270 crore

Ques 29: Assuming that increase in investment is Rs. 1000 crore and marginal property to consume is 0.9. Explain the working of multiplier.
Ans: Increase in investment = Rs. 900 crore
Marginal propensity to consume =0.6
Multiplier (K) is the ratio of increase in national Income (ΔY) due to increase in investment (ΔI)

 Increase in consumption = 
= 540

= 374

 = 224.4