Board Paper of Class 12-Science 2011 Economics (SET 3) - Solutions

General Instructions:
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each.
(iii) Questions Nos. 1-5 and 17-21 are very short-answer questions carrying 1 mark each. They are required to be answered in one sentence each
(iv) Questions Nos. 6-10 and 22-26 are short-answer questions carrying 3 marks each. Answers to them should normally not exceed 60 words each.
(v) Questions Nos. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
(vi) Questions Nos. 14-16 and 30-32 are long-answer questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
(vii) Answers should be brief and to the point and the above word limits should be adhered to as far as possible.

Question 1

What is normative economics?
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Question 2

When is a firm called ‘price-taker’?
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Question 3

Define budget set.
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Question 4

What is meant by ‘increase’ in supply?
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Question 5

Define supply.

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Question 6

Why is a production possibilities curve concave? Explain.

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Question 7

When the price of a good changes to Rs. 11 per unit, the consumer’s demand falls from 11 units to 7 units. The price elasticity of demand is (−) 1. What was the price before change? Use expenditure approach of price elasticity of demand to answer this question.
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Question 8

Giving examples, explain the meaning of cost in economics.
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Question 9

Draw average revenue and marginal revenue curves in a single diagram of a firm which can sell more units of a good only by lowering the price of that good. Explain.
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Question 10

Explain the implication of ‘freedom of entry and exit to the firms’ under perfect competition.

OR

Explain the implication of ‘perfect knowledge about market’ under perfect competition.
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Question 11

“A consumer consumes only two goods X and Y”. State and explain the conditions of consumer’s equilibrium with the help of utility analysis.
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Question 12

Explain how the demand for a good is affected by the prices of its related goods. Give examples.
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Question 13

Define ‘Market-supply’. What is the effect on the supply of a good when Government imposes a tax on the production of that good? Explain.

OR

What is a supply schedule? What is the effect on the supply of a good when Government gives a subsidy on the production of that good? Explain.
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Question 14

What is meant by producer’s equilibrium? Explain the conditions of producer’s equilibrium through the ‘total revenue and total cost’ approach. Use diagram.
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Question 15

What are monotonic preferences? Explain why is an indifference curve (i) Downward sloping from left to right and (ii) Convex.
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Question 16

Market for a good is in equilibrium. There is an ‘increase’ in demand for this good. Explain the chain of effects of this change. Use diagram.
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Question 17

What is nominal gross domestic product?
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Question 18

Define flow variables.
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Question 19

Define cash reserve ratio.
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Question 20

Define money supply.
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Question 21

Define foreign exchange rate.
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Question 22

What does balance of payments account show? Name the two parts of the balance of payments account.
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Question 23

Explain how ‘distribution of gross domestic product’ is a limitation in taking gross domestic product as an index of welfare.
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Question 24

If national income is Rs 90 crore and consumption expenditure Rs 81 crore, find out average propensity to save. When income rises to Rs. 100 crore and consumption expenditure to Rs 88 crore, what will be the marginal propensity to consume and marginal propensity to save.
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Question 25

Explain the relationship between investment multiplier and marginal propensity to consume.
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Question 26

When price of a foreign currency rises, its demand falls. Explain why.

OR

When price of a foreign currency rises, its supply also rises. Explain why.
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Question 27

Explain the ‘allocation of resources’ objective of Government budget.

OR

Explain the ‘redistribution of income’ objective of Government budget.
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Question 28

From the following data about a Government budget, find out (a) Revenue deficit, (b) Fiscal deficit and (c) Primary deficit:

S. No.	Items	(Rs Arab)
(i)	Capital receipts net of borrowings	95
(ii)	Revenue expenditure	100
(iii)	Interest payments	10
(iv)	Revenue receipts	80
(v)	Capital expenditure	110

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Question 29

Giving reasons identify whether the following are final expenditure or intermediate expenditure:

(i) Expenditure on maintenance of an office building.

(ii) Expenditure on improvement of a machine in a factory.
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Question 30

Explain the role of the following in correcting ‘deficient demand’ in an economy:

(i) Open market operations.

(ii) Bank rate.

OR

Explain the role of the following in correcting ‘excess demand’ in an economy:

(i) Bank rate.

(ii) Open market operations.
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Question 31

Explain the process of money creation by the commercial banks with the help of a numerical example.
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Question 32

Calculate Net National Product at market Price and Gorses National Disposable Income:

S. No.	Items	(Rs Arab)
(i)	Consumption of fixed capital	40
(ii)	Change in stocks	(–) 10
(iii)	Net imports	20
(iv)	Gross domestic fixed capital formation	100
(v)	Private final consumption expenditure	800
(vi)	Net current transfer to rest of the world	5
(vii)	Government final consumption expenditure	250
(viii)	Net factor income to abroad	40
(ix)	Net indirect tax	130

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