Board Paper of Class 12-Commerce 2012 Economics (SET 1) - Solutions

General Instructions:
Answer Question 1 (compulsory) from Part I and five questions from Part II. The intended marks for questions or parts of questions are given in brackets [].

Question 1

Answer briefly each of the questions (i) to (xv) : [15 × 2] = [30 Marks]
(i)	Name and explain the two main branches of economics.
(ii)	State the law of equi-marginal utility.
(iii)	Explain with on example, what kind of a commodity will have an inverse relationship between income and demand.
(iv)	Explain the meaning of indivisibility of a factor with an example.
(v)	What will be the price elasticity of demand of the points A, B, L and K in the diagram given below :
(vi)	State what causes a movement along the supply curve and show it diagrammatically.
(vii)	Define marginal cost. With the help of an example, show how marginal cost can be obtained from total cost.
(viii)	Give the modern definition of economics rent.**
(ix)	Which revenue concept is also called price ? Justify your answer by giving a reason.
(x)	Distinguish between national income at current prices and national income at constant prices.
(xi)	When does the equilibrium quantity in a market remain unchanged with a change in demand ? Show it with the help of a diagram.
(xii)	What is the significance of freedom of entry and exit of firms under perfect competition ?
(xiii)	Give one difference between flexible exchange rate and fixed exchange rate.
(xiv)	What is meant by zero base budget ?
(xv)	Explain two merits of direct tax.

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Question 2

(a)	Calculate the quantity demanded of commodity when its price increases from Rs 4 to Rs 6. The original quantity demanded was 40 units and the price elasticity of demand is 0.5.	[4]
(b)	Explain how the following phenomena are exceptions to the Law of Demand :
	(i) Expectations regarding future prices.
	(ii) Conspicuous consumption by a consumer.	[4]
(c)	Discuss four factors other than price, that affect demand of a commodity.	[6]

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Question 3

(a)	Define price elasticity of supply. Draw diagrams when price elasticity of supply is:
	(i) Equal to one.
	(ii) Greater than one.	[4]
(b)	Differentiate between returns to variable factor and returns to scale.	[4]
(c)	Explain with the help of diagram the relationship between total product and marginal product.	[6]

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Question 4

(a)	Explain diagrammatically how equilibrium price and equilibrium quantity are affected by changes in the demand for a commodity, with the supply remaining constant.	[4]
(b)	Define production function. Discuss two criticisms of the Law of Variable Proportions.	[4]
(c)	How does a perfectly competitive firm earn supernormal profits in the short run equilibrium ? Explain it with the help of a diagram	[6]

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Question 5

(a)	Distinguish between monopoly and perfect competition on the basis of :
	(i) AR curve.
	(ii) Control over the market price.	[4]
(b)	Explain the following concepts :**
	(i) Gross Profit.
	(ii) Transfer Earning of a factor.	[4]
(c)	Define economic cost. Explain the relationship between total cost, total fixed cost and total variable cost with the help of a diagram.	[6]

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Question 6

(a)	Discuss two differences between intermediate goods and final goods.**			[4]
(b)	Distinguish between :
	(i) Gross Domestic Product at market price and Net National Product at factor cost.
	(ii) Personal income and Personal disposable income.			[4]
(c)	Calculate National Income and Net Domestic Product at market price by Income method from the following data:			[6]
			Rs (in crores)
	(i)	Value of output	800
	(ii)	Value of intermediate consumption	400
	(iii)	Subsidies	10
	(iv)	Indirect taxes	60
	(v)	Factor income received from abroad	10
	(vi)	Factor income paid abroad	20
	(vii)	Mixed income of self-employed	120
	(viii)	Rent and royalty	40
	(ix)	Interest and profit	20
	(x)	Wages and salaries	110
	(xi)	Consumption of fixed capital	50
	(xii)	Employer's contribution to social security	10

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Question 7

(a)	Explain how the expenditure of the Indian government has risen with reference to : **
	(i) Increase in development activities.
	(ii) Increase in population.	[4]
(b)	How does the fiscal policy of the government control inflation with the following tools :
	(i) Public Expenditure.
	(ii) Taxation.	[4]
(c)	Discuss four reasons for the internal borrowing by the government.	[6]

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Question 8

(a)	Mention two merits and two demerits of international trade. Explain any one merit and any one demerit of international trade. **	[4]
(b)	How can the government correct an adverse balance of payments through the following measures :
	(i) Export promotion.
	(ii) Import control.	[4]
(c)	Explain the Absolute Cost Advantage Theory of international trade with an example.**	[6]

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Question 9

(a)

The following table shows the marginal utility derived from the purchase of books. The price of the book is Rs 500. Draw a diagram to explain consumer's equilibrium where MU = P.

[4]

Number of Books	M.U.
1	700
2	600
3	500
4	400
5	300

(b)

How is the elasticity of demand of a commodity affected by the following factors :

[4]

(i) Existence of substitutes of a commodity.

(ii) Nature of commodity.

(c)

The cost function of a firm is given below :

[6]

Output	0	1	2	3	4
Total Cost (Rs)	60	80	100	111	116

Find :

(i) Total Fixed Cost.

(ii) Total Variable Cost

(iii) Average Fixed Cost

(iv) Average Variable Cost

(v) Marginal Cost.

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