Passage Based Questions: Introduction | Economics Class 12 - Commerce PDF Download

Passage - 1

Direction: Read the following Passage and Answer the Questions.

While moving away from different goods and focusing on a representative good may be convenient, in the process, we may be overlooking some vital distinctive characteristics of individual goods. For example, production conditions of agricultural and industrial commodities are of a different nature. Or, if we treat a single category of labour as a representative of all kinds of labours, we may be unable to distinguish the labour of the manager of a firm from the labour of the accountant of the firm. So, in many cases, instead of a single representative category of good (or labour, or production technology), we may take a handful of different kinds of goods. For example, three general kinds of commodities may be taken as a representative of all commodities being produced within the economy: agricultural goods, industrial goods and services.

Q1: Why might focusing on a single representative good or category overlook important distinctions among individual goods?
Ans:

• Focusing on a single representative good or category can lead to the oversight of vital, distinctive characteristics of individual goods.
• For example, agricultural and industrial commodities have different production conditions, and treating them as the same representative category may ignore these differences.

Q2: What potential issue arises when treating a single category of labor as representative of all types of labor?
Ans:

• Treating a single category of labor as representative may make it challenging to distinguish between different types of labor, such as the labor of a firm's manager and the labor of the firm's accountant.

Q3: How does the passage suggest an alternative approach to representing different types of goods within an economy?
Ans:

• Instead of a single representative category, the passage recommends using a handful of different kinds of goods to represent the diversity of goods produced within the economy, such as agricultural goods, industrial goods, and services.

Passage - 2

Direction: Read the following Passage and Answer the Questions.

To recapitulate briefly, in microeconomics, you came across individual ‘economic agents’ (see box) and the nature of the motivations that drive them. They were ‘micro’ (meaning ‘small’) agents – consumers choosing their respective optimum combinations of goods to buy, given their tastes and incomes; and producers trying to make maximum profit out of producing their goods keeping their costs as low as possible and selling at a price as high as they could get in the markets. 

Q1: Who are the "microeconomic agents" described in the passage, and what are their primary motivations?
Ans:

• The microeconomic agents are individual economic actors or participants.
• Consumers are motivated to select the optimal combinations of goods based on their preferences and income, while producers aim to maximize profits by minimizing costs and selling their products at the highest market price.

Q2: What characterizes the behavior of consumers in microeconomics?
Ans:

• Consumers in microeconomics seek to make choices that align with their preferences and available income, aiming to find the most favorable combinations of goods to purchase.

Q3: What are the key objectives of producers in the context of microeconomics?
Ans:

• Producers in microeconomics strive to maximize their profits through efficient production methods that minimize costs, and they aim to sell their products at the highest possible prices within the market.

Passage - 3

Direction: Read the following Passage and Answer the Questions.

Macroeconomics tries to address situations facing the economy as a whole. Adam Smith, the founding father of modern economics, had suggested that if the buyers and sellers in each market take their decisions following only their own self-interest, economists will not need to think of the wealth and welfare of the country as a whole separately. But economists gradually discovered that they had to look further. Economists found that first, in some cases, the markets did not or could not exist. 

Q1: What is the primary focus of macroeconomics, as described in the passage?
Ans:

• Macroeconomics aims to address situations and issues that concern the entire economy as a whole.

Q2: What idea did Adam Smith propose in the context of individual decision-making in markets, and what implication did this have for the role of economists?
Ans:

• Adam Smith suggested that if buyers and sellers in each market make decisions based on their own self-interest, economists wouldn't need to separately consider the overall wealth and welfare of the country.
• This implied that markets operating based on self-interest would naturally lead to the well-being of the entire nation.

Q3: What important realization did economists come to over time, and how did it challenge the initial notion proposed by Adam Smith?
Ans:

• Economists gradually discovered that, in some cases, markets either did not exist or could not function effectively.
• This realization challenged the initial idea that individual self-interest alone could guarantee the well-being of the entire country, prompting economists to delve deeper into addressing broader economic issues.

Passage - 4

Direction: Read the following Passage and Answer the Questions.

First, who are the macroeconomic decision makers (or ‘players’)? Macroeconomic policies are pursued by the State itself or statutory bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and similar institutions. Typically, each such body will have one or more public goals to pursue as defined by law or the Constitution of India itself. These goals are not those of individual economic agents maximising their private profit or welfare. Thus the macroeconomic agents are basically different from the individual decision-makers.

Q1: Who are the primary macroeconomic decision-makers as described in the passage?
Ans:

• The primary macroeconomic decision-makers are the State (government) and statutory bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and similar institutions.

Q2: What distinguishes the goals of these macroeconomic decision-makers from the objectives of individual economic agents in the economy?
Ans:

• The goals pursued by macroeconomic decision-makers, such as the government and regulatory bodies, are not focused on individual profit or private welfare maximization.
• Instead, these macroeconomic agents have one or more public goals as defined by law or the Constitution of India itself.

Q3: How does the passage emphasize the distinction between macroeconomic agents and individual decision-makers in the context of economic decision-making?
Ans:

• The passage underscores that macroeconomic agents, such as the State and statutory bodies, pursue public goals defined by law, setting them apart from individual economic agents who primarily seek to maximize their private profits or welfare.

Passage - 5

Direction: Read the following Passage and Answer the Questions.

However, the Great Depression of 1929 and the subsequent years saw the output and employment levels in the countries of Europe and North America fall by huge amounts. It affected other countries of the world as well. Demand for goods in the market was low, many factories were lying idle, workers were thrown out of jobs. In USA, from 1929 to 1933, unemployment rate rose from 3 per cent to 25 per cent (unemployment rate may be defined as the number of people who are not working and are looking for jobs divided by the total number of people who are working or looking for jobs). Over the same period aggregate output in USA fell by about 33 per cent. These events made economists think about the functioning of the economy in a new way.

Q1: What were the significant economic consequences of the Great Depression of 1929 in the countries of Europe and North America, as mentioned in the passage?
Ans:

• The Great Depression led to a substantial decrease in output and employment levels in Europe and North America.
• It also had a global impact, affecting other countries around the world.
• The Depression resulted in low market demand, factory closures, and a sharp rise in unemployment rates, particularly in the USA.

Q2: How did the unemployment rate change in the USA from 1929 to 1933, and what does the unemployment rate measure?
Ans:

• In the USA, the unemployment rate increased from 3 percent in 1929 to 25 percent in 1933.
• The unemployment rate measures the ratio of people not working and actively seeking employment to the total number of people who are either employed or searching for jobs.

Q3: What impact did the events of the Great Depression have on the field of economics, as stated in the passage?
Ans:

• The economic turmoil of the Great Depression led economists to reevaluate their understanding of how the economy functions, prompting them to develop new perspectives on economic theory and policy.

Passage - 6

Direction: Read the following Passage and Answer the Questions.

Production activities are mainly carried out by capitalist enterprises. A typical capitalist enterprise has one or several entrepreneurs (people who exercise control over major decisions and bear a large part of the risk associated with the firm/enterprise). They may themselves supply the capital needed to run the enterprise, or they may borrow the capital. To carry out production they also need natural resources – a part consumed in the process of production (e.g. raw materials) and a part fixed (e.g. plots of land). And they need the most important element of human labour to carry out production.

Q1: Who typically carries out production activities in the context of capitalist enterprises, and what role do entrepreneurs play in these enterprises?
Ans:

• Capitalist enterprises are primarily responsible for production activities.
• Entrepreneurs, who exercise control over major decisions and bear a substantial portion of the risks associated with the enterprise, are typically at the helm of these enterprises.

Q2: How do entrepreneurs typically secure the capital needed to operate a capitalist enterprise, as mentioned in the passage?
Ans:

• Entrepreneurs may either provide the required capital themselves or borrow it from external sources to run the enterprise.

Q3: What are the essential elements needed for production within capitalist enterprises, according to the passage?
Ans:

• For production, capitalist enterprises require natural resources, which consist of consumable elements like raw materials and fixed components like land.
• Additionally, human labor is identified as the most crucial element necessary for carrying out production activities within these enterprises.

Passage - 7

Direction: Read the following Passage and Answer the Questions.

The money that is earned is called revenue. Part of the revenue is paid out as rent for the service rendered by land, part of it is paid to capital as interest and part of it goes to labour as wages. The rest of the revenue is the earning of the entrepreneurs and it is called profit. Profits are often used by the producers in the next period to buy new machinery or to build new factories, so that production can be expanded. These expenses which raise productive capacity are examples of investment expenditure.

Q1: What is the term used to describe the money earned in an economic context, and how is it divided among different factors of production?
Ans:

• The money earned is referred to as revenue.
• Revenue is divided into several components: rent for land, interest for capital, wages for labor, and profit for entrepreneurs.

Q2: How are profits typically utilized by producers, and what purpose do these expenses serve?
Ans:

• Producers often use profits to purchase new machinery or establish new factories in subsequent periods.
• These expenses aimed at expanding productive capacity are considered examples of investment expenditure.

Q3: What does the passage indicate about the significance of investment expenditure in the context of production and economic growth?
Ans:

• Investment expenditure, which involves using profits to enhance production capacity, is crucial for economic growth as it enables producers to expand their operations, acquire new equipment, and build additional factories, thereby contributing to increased production in the future.

Passage - 8

Direction: Read the following Passage and Answer the Questions.

Wage labour is seldom used and most of the labour is performed by the family members themselves. Production is not solely for the market; a great part of it is consumed by the family. Neither do many peasant farms experience significant rise in capital stock over time. In many tribal societies the ownership of land does not exist; the land may belong to the whole tribe. In such societies the analysis that we shall present in this book will not be applicable. It is, however, true that many developing countries have a significant presence of production units which are organised according to capitalist principles.

Q1: What is the primary source of labor in the production processes described in the passage, and how does this differ from wage labor?
Ans:

• Most of the labor in these production processes is performed by family members themselves, and wage labor is seldom used.
• Family members are actively engaged in production, contrasting with wage labor where individuals are compensated for their work.

Q2: What is the dual nature of production in these settings, and how is it different from a sole market-oriented approach?
Ans:

• Production in these settings is not solely aimed at the market; a significant portion of it is consumed by the family.
• This dual nature of production involves producing for both household consumption and the market, in contrast to a purely market-oriented production model.

Q3: In what circumstances would the analysis presented in the book not be applicable, as mentioned in the passage?
Ans:

• The analysis in the book may not be applicable in tribal societies where the ownership of land is communal, and land is collectively owned by the entire tribe.
• In such cases, the economic principles and analysis presented in the book may not align with the communal land ownership and production practices of these societies.

Passage - 9

Direction: Read the following Passage and Answer the Questions.

The state, in many instances, undertakes production – apart from imposing taxes and spending money on building public infrastructure, running schools, colleges, providing health services etc. These economic functions of the state have to be taken into account when we want to describe the economy of the country. For convenience we shall use the term “Government” to denote state. Apart from the firms and the government, there is another major sector in an economy which is called the household sector. By a household we mean a single individual who takes decisions relating to her own consumption, or a group of individuals for whom decisions relating to consumption are jointly determined. Households also save and pay taxes.

Q1: What are some of the economic functions performed by the state, as described in the passage, and how do they impact the country's economy?
Ans:

• The state undertakes economic functions like building public infrastructure, running educational institutions, and providing healthcare services.
• These functions have a significant impact on the country's economy, and they are funded through taxation and government spending.

Q2: How does the passage define the term "household," and what key economic decisions and activities are associated with households?
Ans:

• A household is defined as either an individual making decisions about their own consumption or a group of individuals jointly determining consumption choices.
• Households make decisions related to consumption, savings, and tax payments as part of their economic activities.

Q3: What terms are used in the passage to represent the different sectors of an economy, and what are their primary functions?
Ans:

• The terms used are "firms," representing private enterprises engaged in production, "Government" representing the state undertaking various economic functions, and "household sector."
• Firms engage in production, the Government performs economic functions and provides public services, and households make decisions related to consumption, savings, and taxation within the economy.

Passage - 10

Direction: Read the following Passage and Answer the Questions.

So far we have described the major players in the domestic economy. But all the countries of the world are also engaged in external trade. The external sector is the fourth important sector in our study. Trade with the external sector can be of two kinds 1. The domestic country may sell goods to the rest of the world. These are called exports. 2. The economy may also buy goods from the rest of the world. These are called imports. Besides exports and imports, the rest of the world affects the domestic economy in other ways as well. 3. Capital from foreign countries may flow into the domestic country, or the domestic country may be exporting capital to foreign countries.

Q1: What is the external sector in the study, and what are the two primary types of trade associated with it?
Ans: The external sector refers to the international trade activities of a country.
The two main types of trade with the external sector are:

• Exports: Goods sold by the domestic country to the rest of the world.
• Imports: Goods purchased by the domestic economy from the rest of the world.

Q2: Apart from exports and imports, how else does the rest of the world influence the domestic economy?
Ans:

• Besides exports and imports, the rest of the world impacts the domestic economy in other ways.
• This influence includes the flow of capital, where capital may come into the domestic country from foreign countries, or the domestic country may export capital to foreign countries.

Q3: What are the primary categories of economic activities that define the roles of the major players in the domestic economy as mentioned in the passage?
Ans: The major players in the domestic economy are categorized into three primary sectors:

• Firms: Engaged in production and economic activities.
• Government: Undertaking economic functions, providing public services, and collecting taxes.
• Households: Making decisions related to consumption, savings, and taxation.
• External sector: Involving international trade, including exports and imports, and the flow of capital with the rest of the world.