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Title: Micro Economics Whole Book 12
Description: Micro Economics Whole Book (Hindi) prepared by KVS and Delhi Schools for CBSE class 12 students. CBSE class 12 Micro Economics key notes and important Questions as per latest CBSE syllabus for Economics.
Description: Micro Economics Whole Book (Hindi) prepared by KVS and Delhi Schools for CBSE class 12 students. CBSE class 12 Micro Economics key notes and important Questions as per latest CBSE syllabus for Economics.
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Sl
...
Name
Designation
1
...
Neelam Vinayak
(Team Leader)
V
...
G
...
S
...
Dr
...
P
...
V
...
Mr
...
P
...
V
...
Mr
...
B
...
S
...
, BL-Block
Shalimar Bagh, Delhi-110088
5
...
Daisy Gupta (EM)
Lecturer (Economics)
G
...
S
...
S
...
Mr
...
S
...
Delhi
1
Class XII : Economics
Paper 1
100 Marks
S
...
Periods
Part A : Introductory Micro Economics
I
...
Consumer Equilibrium and Demand
III
...
Forms of Market and Price Determination
Under Perfect Competition with Simple Applications
Part B : INTRODUCTORY MACROECONOMICS
V
...
Money and Banking
VII
...
Government Budget and the Economy
IX
...
What is an economy? Central problems of an economy: what, how and for
whom to produce; concepts of production possibility frontier and opportunity
cost
...
Indifference curve analysis of consumer’s equilibrium–the
consumer’s budget (budget set and budget line), preference of the
consumer (indifference curve, indifference map) and conditions of
consumer’s equilibrium
...
Unit III:
PRODUCER BEHAVIOUR AND SUPPLY
(34 Periods)
Production function : Total Product, Average Product and Marginal Product
...
Cost and Revenue: Short run costs–total cost, total fixed cost, total variable
cost; Average fixed cost, average variable cost and marginal cost–meaning
and their relationship
...
Producer’s equilibrium–meaning and its conditions in terms of marginal
revenue-marginal cost
...
Unit IV:
FORMS OF MARKET AND PRICE DETERMINA
TION UNDER PERFECT
COMPETITION WITH SIMPLE APPLICATIONS
(31 Periods)
Perfect Competition–Features; Determination of market equilibrium and
effects of shifts in demand and supply
...
Simple Applications of tools of Demand and Supply: Price ceiling, price
floor
...
Circular flow of income; Methods of calculating National Income–Value
Added or Product Method, Expenditure Method, Income Method
...
GDP and Welfare
Unit VI:
MONEY AND BANKING
(18 Periods)
Money–its meaning and functions
...
Money creation by the commercial banking
system
...
Bank, Banker’s Bank, Controller of Credit through
CRR, SLR, Reverse Repo, Open Market Operations, Margin requirement
...
Propensity to consumer and propensity to save (average and marginal)
...
Meaning of full employment and involuntary unemployment
...
Unit VIII:
GOVERNMENT BUDGET AND THE ECONOMY
(17 Periods)
Government budget–meaning, objectives and components
...
Measures of government deficit-revenue deficit, fiscal deficit, primary deficit
their meaning
...
Determination of exchange rate in a free market
...
No
...
Introduction
7
2
...
Producer Behaviour and Supply
26
4
...
National Income and Related Aggregates
51
6
...
Determinations of Income & Employment
78
8
...
Balance of Payment
98
10
...
Model Test Paper 1 & 2
113
12
...
CBSE Board Paper 2014 with Solution
161
5
Class XII : Economics
ECONOMICS
Time : 3 hours
Sl
...
Typology of Questions
Marks 100
VSA MCQ
(1M)
SA-II
(3M)
SA-I
(4M)
(LA)
(6M)
Marks
%
1
...
Understanding – (Comprehensionto be familiar with meaning and to
understand conceptually, interpret,
compare, contrast, explain,
paraphrase, or interpret information)
3
2
1
2
25
25
3
...
High Order Thinking Skills –
(Analysis & Synthesis classify,
compare, contrast, or differentiate
between different pieces of
information; organise and/or
integrate unique pieces of
information from a variety of
sources)
2
2
-
2
20
20
5
...
Macro economics studies the behaviour of the economy as a whole
...
Economic problem is the problem of allocation of limited resources available
in the economy
...
Central Problems of an Economy
What to produce?
How to produce?
For whom to produce?
For the selection of an opportunity, the sacrifice of next best alternative
use is called opportunity cost
...
7
Class XII : Economics
Good X
Straight line
PPC
because
MOC Constant
Good Y
Good Y
Concave PPC
because
MOC
increasing
Good X
Good Y
Economising of resources means use of resources in best possible manner
...
(b)
Concave to the origin because of increasing marginal opportunity
cost or (MRT)
Rightward shift of PPC indicates increase in resources and improvement
in technology
...
Marginal Rate of Transformation (MRT) is the ratio of number of units of
a good sacrificed to increase one more unit of the other good
...
It is defined as the
additional cost in terms of number of units of a good sacrificed to produce
an additional unit of the other good
...
Which of the following subject matter studies in Micro Economics
...
Budget
(d)
National Income
Class XII : Economics
8
2
...
(a)
(b) Aggregate demand & Supply
(c)
3
...
Resources are scare
(b) wants are unlimited
above all
Which problem is not a central problem of an Economy?
(a)
(b) How to produce
(c)
5
...
under utilisation of Resource
None of these
In which situation PPC shifts towards right
(a)
(c)
7
...
Slope downward
Slope upward
(d|) Above all
An Economy produces two goods Wheat and Cloth
...
4
(b)
10
(d)
...
1
...
(d); 3
...
(d); 5
...
(a); 7
...
(b)
...
Distinguish between microeconomics and macroeconomics
...
2
...
Explain the problem of 'What to Produce' with the help of an example
...
‘For whom to produce’ is a central problem of an economy
...
5
...
What is ‘Marginal Rate of Transformation’? Explain with the help of an
example
...
Why is a production possibility curve concave? Explain
...
What is PP Frontier? Explain it with the help of an imaginary schedule and
diagram
...
Show the following situation with PPF (PPC)
(a)
Fuller utilisation of resources
(c)
(b)
Growth of resources
...
10
...
Defend or refute
...
A lot of people die and many factories were destroyed because of a severe
earthquake in a country
...
Calculate MRT from following table
...
95
C
25
5
Why PPC is also called opportunity cost curve?
12
...
A farmer can earn Rs
...
30,000
by producing Wheat
...
If an Economy is not able to utilise its available resources efficiently, what
will be the effect on PPC? What will you suggest for economic growth?
11
Class XII : Economics
UNIT II
Consumer : is an economic agent who consumes final goods and services
...
Marginal Utility : It is a net increase in total utility by consuming an
additional unit of a commodity
...
The Marginal utility derived from the last each
successive units goes on declining
...
Budget set : It is quantitative combination of those bundles which a
consumer can purchase his from given income at prevailing market prices
...
Budget Line : Shows those combinations of two goods which a consumer
can buy from limited income on same curve
...
Change in Budget Line : There can be parallel shift (leftwards or
rightwards) due to change in income of the consumer and change in price
of goods
...
MRS
Loss of Good Y
Y
or
Gain of Good X
X
Indifference Curve : is a curve showing different combination of two
goods, each combinations offering the same level of satisfaction to the
consumer
...
Indifference curves are negatively sloped
...
Indifference curves are convex to the point of origin
...
Indifference curves never touch or intersect each other
...
Higher indifference curve represents higher level of satisfaction
...
Condition of Consumer’s Equilibrium
(a)
Cardinal approach (Utility Analysis) : According to this approach
utility can be measured
...
Condition
(i)
In case of one community
MUm
Where,
Mux
If MUm 1, MUx Px
Px
MUm = Marginal utility of money
MUx = Marginal utility of ‘x’, Px = Price of ‘x’
(ii)
In case of two commodity
...
Condition of Equilibrium:
(i)
MRSxy
Px
Py
Px Price of 'x'
Py Price of 'y'
or budget line must be tangent to indifference curve
(ii)
MRS must be decreasing or,
Indifference curve must be convex to the origin
...
Class XII : Economics
14
Market Demand : It is the total quantity purchased by all the consumers
in the market at given price and in a given period of time
...
Change in Demand : When demand changes due to change in any one
of its determinants other than the price
...
Price Elasticity of Demand : Price Elasticity of Demand is a measurement
of change in quantity demanded in response to a change in price of the
commodity
...
15
Class XII : Economics
There are three conditions :
1
...
If the total expenditure on the commodity remains the same as
before and after change in price, then demand is said to be unitary
elastic (ed = 1)
3
...
The value of ed is unity at mid point of any linear demand curve
...
Ed
Lower segment of the demand curve
Upper segment of the demand curve
D is mid point of the demand curve
...
(d)
Part of income to be spent on the commodity
(e)
Number of close substitute
(f)
Alternative uses of commodity
(g)
Income of the consumer
Y
D
Price
10
A
B
5
D
O
5
10
X
Quantity demanded
17
Class XII : Economics
1
...
Increase in Demand
Extension of Demand
(d) Contraction of Demand
According by utility analysis, ‘Utility is_______________
...
catrdinal concept
(b) ordinal concept
None of these
It is _______ derived from the consumption of all the units of a commodity
(a)
(b) total utility
(c)
4
...
(a)
(b) average utility
(c)
5
...
TU starts increasing
TU becomes zero
(d) TU becomes negative
“As more and more units a commodity are consumed marginal utility derived
from every additional unit must decline”, The name of law is _________
...
Law of diminishing marginal utility
consumer equilibrium
Which of the following condition implies in consumer equilibrium in case
of one commodity?
(a)
MUm
Px
MUx
Class XII : Economics
(b)
18
MUx
MUm
Px
(c)
8
...
(a)
(b) increases
(c)
9
...
increase in consumption of X & Y
increase in consumption of X and decrease in consumption of Y
...
MUx MUy
MUm
Px
Py
MUx MUy
Px
Py
(d)
Px
Py
MUx MUy
This shows different combinations of two goods which a consumer can
attain by given his income and market prices of the goods
...
Budget set
indifference curve
(d) marginal rate of substitution
Which of the following is not a characteristic of indifference curve
(a)
IC is convex to the origin
(b)
Higher IC indicates higher level of satisfaction
(c)
ICs do not intersect each other
(d)
Concave to the origin
19
Class XII : Economics
13
...
Price (Rs
...
Prices
(Rs
...
)
16
200
3200
20
160
3200
Answer about Elasticity by Expenditure method
(a)
greater than unitary
(b) less than unitary elasticity
(c)
unitary elastic demand
(d)
Infinite
1
...
(a); 3
...
(c); 5
...
(a); 7
...
(a); 9
...
(a); 11
...
(d);
13
...
(c); 15
...
Explain the relation between total utility and marginal utility with the help
of schedule?
2
...
Class XII : Economics
20
3
...
Explain the relationship between total utility and marginal utility with the
help of schedule
...
5
...
6
...
Under what situations there will be parallel shift in budget line?
8
...
9
...
Explain following factors effecting Price Elasticity of Demand
(a)
Nature of commodity
(b)
Availability of substitutes
(c)
Postponement of the use
11
...
12
...
(b)
Demand curve intercepting y-axis
(c)
Demand curve intercepting x-axis
...
Distinguish between change in demand and change in quantity demanded
...
What will be the effect of following on elasticity of demand
...
Income level of buyers
(b) Habit of the consumer
What will be the slope of demand curve under following situations
...
16
...
Explain any one
...
State the factors of leftward shift of demand curve
...
18
...
19
...
(b)
Total expenditure increases due to fall in price
...
When price of a good is Rs
...
When
price falls to Rs
...
72 on the goods, Calculate price
elasticity of demand by using the percentage method
...
21
...
10 per unit
...
09 per unit he buys 10 units
...
22
...
5 per unit
...
120 when he buys 24 units
...
Comment on the likely
shape of demand curve based on this information
...
Price elastically of good X is known to be thrice that of Good Y
...
24
...
The demand of X rises from
100 units to 250 units due to a 20 percent fall in its price
...
Class XII : Economics
22
25
...
26
...
MRS
ed
= TUn – ?
Q
P
?
Q
Differentiate between :
(i)
Normal goods and Inferior goods
(ii)
Complimentary goods and substitute goods
...
Why should the budget line be tangent to the indifference curve at the
point of consumer’s equilibrium
...
Why does consumer stop consumption in case where marginal utility is
less than price of a good?
30
...
A consumer consumes only two goods x & y state & explain the conditions
of consumer’s equilibrium with the help of utility analysis
...
Explain the conditions determining how many units of a good the consumer
will buy at a given price
...
Define marginal rate of substitution
...
Explain the conditions of consumer’s equilibrium with the help of the
indifference curve analysis
...
2
...
23
Class XII : Economics
3
...
Explain the determinants of price elasticity of demand
...
With the help of diagrams, explain the effect of following changes on the
demand of a commodity
...
(b)
A rise in price of complementary good
...
What are the conditions of consumer’s equilibrium under the indifference
curve approach? What changes will take place if the conditions are not
fulfilled to reach equilibrium?
7
...
8
...
Demand falls when price is constant
...
Whether the following statements are true or false? Give reasons
...
(ii)
Income effect of inferior good is positive
...
10
...
What happens to MRS when consumer moves downwards along
the indifference curve ? Give reasons for you answer
...
Following statements are true or false give reasons :
(i)
Increase in number of consumers shifts the demand curve rightward
...
(iii)
The price elasticity of demand is equal to unity at a point situated
in the middle of a straight line demand curve
...
The demand for electricity is not falling inspite of regular hike in the price
of electricity
...
Explain
giving suitable reason in support of your answer ?
2
...
Average production is the per unit output of variable factor (labour) employed
...
MP
L
Relation between Total, Average and Marginal Product
1
...
2
...
3
...
4
...
After this
average product starts falling and is more than marginal product in
this stage
...
Returns to a factor shows the changes in total products, of a good when
Class XII : Economics
26
only the quantity of one input is increased, while that of other inputs kept
content
...
According to this law, change in TP
and MP are classify into three shares
...
Phase II : TP increases at decreasing rate : As more and more
units of variable factors are employed with fixed factors then total
product increases at diminishing rate, MP decreases but is positive
...
Phase III : TP falls : As more and more units of variable factors
are employed with given fixed factors, total production starts
decreasing and marginal product becomes negative
...
Economic cost : Explicit cost + implicit cost + Normal Profit
...
It is also called explicit cost
...
Or estimated value of inputs supplied by owner itself
...
Total cost is the sum of total fixed cost and total variable cost
...
It is not zero even
at zero output level
...
TFC = TC – TVC or TFC = AFC × Q
Total variable cost is the cost which vary with the quantity of output
produced
...
TVC curve is parallel to TC curve
...
It is the sum of
average fixed cost and average variable cost
...
TFC
AFC = Q
or AFC = AC – AVC
Per unit of variable of production of a commodity is called average variable
cost
...
MC = TC/Q or MCn = TCn – TCn–1
...
MCn TVCn – TCn–1 or MC
Class XII : Economics
28
TVC
Q
Relation Between Short-Term Costs
Total cost curve and total variable cost curve remains parallel to each
other
...
TFC curve remains parallel to X-axis and TVC curve remains parallel to
TC curve
...
On contrary the vertical distance between
AC curve and AVC curve goes on decreasing but these two curves never
intersect because average fixed cost is never zero
...
After the point of intersection with
increase in output, AC curve and AVC curve starts rising
...
When these two costs are less than marginal cost, in that situation
both (AC and AVC) rise
...
Total revenue is the total amount of money received by a firm from the sale
of given units of a commodity at a market price
...
Price
...
Average revenue is equal to price
...
AR =
TR
Q
or
P Q
Q
P Price
...
MR =
TR
Or Mrn TRn – TRn –1
Q
29
Class XII : Economics
Behaviour of TR, AR and MR when per unit price remains constant or firm
can sell additional quantity of goods at same price
...
AR=
MR
(b)
Total revenue increases at constant rate and TR curve is positively
sloped straight line passing through the origin
...
(a)
Average revenue and marginal revenue curves have negative slope
...
AR > MR
(b)
Marginal revenue falls, twice the rate of average revenue
...
When marginal revenue is zero, total
revenue is maximum and when marginal revenue becomes negative,
TR starts falling
...
(A)
MR and MC Approach : Conditions of producers equilibrium according to
this approach are :
(a)
MC = MR
(b)
MC curve should cut the MR curve from below at the point of
equilibrium
...
Supply : Refers to the amount of the commodity that a firm or seller is
willing to offer or to sell at a certain price and in a given period of time
...
Market supply: It is the sum total of quantity supplied of a commodity by
all sellers or all firms in the market at a certain price and in a given period
of time
...
Supply Schedule : Refers to a tabular presentation which shows various
quantities of a commodity that a producer is willing to supply at different
prices, during a given period of time
...
Law of Supply : States the direct relationship between price and quantity
supplied, keeping other factors constant
...
It is always positive due to direct relationship between price
and quantity supplied
...
Percentage Method
Es
% change in a quantity supplied
% change in price
Or Es
Q P
P Q
31
Class XII : Economics
2
...
(b)
If a straight line supply curve passes through left side of point of
origin and interest X-axis in its negative range, Es will be greater
than one at any point
...
Change in Q
...
(iii) Obsolete tech
...
(iv) decrease in no
...
The cause of upward movement along a supply curve is
(a)
(b) Increase in Income
(c)
2
...
Decrease in Income
(d) Increase in Price
When Total Revenue is maximum, marginal Revenue is :(a)
(b) Maximum
(c)
3
...
Es > 1
Es < 1
(d) Es = 0
The behaviour of Average Revenue when Total Revenue increases at
constant rate is
(a)
(b) Increasing
(c)
5
...
Minimum
Constant
(d) Zero
Which cost curve is parallel to X-axis :(a)
(b) TVC
(c)
7
...
Es = o
Es = 1
(d) Es > 1
When per unit price remain constant
(a)
AR > MR
(b) AR < MR
(c)
AR = MR
(d) non of above
33
Class XII : Economics
9
...
MP is maximum
MP becomes negative
(d) MP is falling
When Average Product is maximum then
(a)
AP > MP
(b) AP = MR
(c)
AP < MP
(d) non of above
1
...
2
...
Briefly explain the causes of increasing returns to a factor with the help of
marginal product
...
Explain the likely behaviour of total product
...
Use numeric example
...
Distinguish between total fixed cost and total variable cost
...
Explain with the help of a diagram the relationship between Average cost,
Average variable cost and Marginal cost
...
Why is short run average cost curve ‘U’ shaped?
8
...
9
...
(b)
Marginal revenue is zero
...
10
...
Explain the relationship between average and
marginal revenue when price is constant at all levels of output
...
How does marginal revenue effect total revenue when price decreases to
increase sale
...
Class XII : Economics
34
12
...
13
...
14
...
Explain
...
Complete the following table :
Units of
Variable input
TP
(Units)
AP
(Units)
MP
(Units)
0
0
–
–
1
–
–
20
2
–
–
26
3
66
–
–
4
–
19
–
5
–
–
4
16
...
If the total fixed cost of a firm is Rs
...
)
1
50
2
40
3
TVC
(Rs
...
)
45
18
...
Explain its two determinants
...
Distinguish between ‘Change in Supply’ and change in quantity supplied
...
Explain briefly two causes of a rightward shift of supply curve
...
Differentiate between contraction in supply and decrease in supply
...
How does change in price of inputs affect the supply of a good
...
Calculate the economic cost
Rs
...
A firm produces 200 units of goods A
...
5350 cr
...
550 cr
...
The economic cost
turned out to be Rs
...
How do you account for difference?
25
...
)
MR (Rs
...
)
1
–
–
10
2
–
4
–
3
–
–
15
4
–
(–) 3
–
Class XII : Economics
36
26
...
If its price elasticity of supply is 2
...
27
...
28
...
29
...
Explain with the
help of schedule and diagram
...
What is a supply schedule? Explain how does change in technology of
producing a good affect the supply of that good
...
Following statements are true or false
...
At the stage of producer’s equilibrium, marginal cost will be
decreasing
...
Whether following statements are true or false
...
(a)
(b)
33
...
Average cost starts increasing when rising portion of marginal cost
intersects
...
Give reasons :
(a)
Diminishing returns to a factor is applicable only when average
product starts falling
...
Distinguish between leftward shift to supply curve and downward movement
along a supply curve
...
“The change in quantity supplied is explanation of law of supply”
...
36
...
Give reasons
...
37
Class XII : Economics
(b)
Future expectation to increase in price increases the market supply
of a commodity
...
Explain the geometric method of measuring price elasticity of supply with
the help of diagram
...
Explain diagrammatically the effect on total output when units of one factor
is increased and all other inputs are held constant
...
On the basis of following information identity level of output a producer will
be in equilibrium using MR-MC appeared and also give reasons :
Output (Units) :
1
2
3
4
5
6
AR (Rs
...
)
8
15
21
26
33
41
3
...
Use diagram
...
State whether true or false
...
(a)
(b)
When marginal product falls, average product always falls
...
Total product is the area under the marginal product curve
...
State whether True or False
...
(a)
(b)
As soon as marginal cost rises, average variable cost also starts
rising
...
When marginal revenue is constant and not equal to zero, then
total revenue will also be constant
...
State whether the following statements are true or false
...
(a)
When total revenue is constant average revenue will also be
constant
...
(c)
When marginal product falls, average product will also fall
...
How can the reduce the smoking through market? Explain use diagram
...
Suppose a firm is producing under 3rd phase of law of variable production
and it is facing heavy loss
...
15
...
39
First Phase
Second Phase
Third Phase
Class XII : Economics
17
...
)
MC
(Rs
...
AVC
(Rs
...
1240
24
...
100 Cr
...
Output
Price (Rs
...
)
TR (Rs
...
Price (Rs
...
Supplied (Units)
10
Q
11
Q1
P = 11 – 10 = Q = Q1 – Q = 100, Es = 2
Quantity supplied at increased price = Q1 – Q = 100
= Q1 – 500 = 100
= Q1 – 600 units
...
)
TR (Rs
...
)
MC (Rs
...
)
1
7
7
8
8
7
2
7
14
15
7
7
3
7
21
21
6
7
4
7
28
26
5
7
5
7
35
33
7
7
6
7
42
41
8
7
The producer will be in equilibrium at 5th units of output because here all
conditions of producer’s equilibrium is satisfied i
...
, (i) MR = MC and
(ii) MC > MR after MR = MC level of output
...
MARKET–STRUCTURE
Perfect Competition
Imperfect Competition
Monopoly
Monopolistic
competition
Oligopoly
Perfect competition is that type of market in which there are very large no
...
Sellers sell homogenous product at constant price
...
P
Y
An Industry
A Firm
S
Price (Rs)
D
Price
S
D
O
X
Quantity
Class XII : Economics
AR = MR
X
O
Quantity
42
Under perfect competition price is determined by an industry with the
forces of demand and supply
...
So industry is price maker and firm is price taker
...
of buyers and sellers
...
(c)
Free entry and exit of firms in the market
...
Monopoly is that type of market where there is a single seller, selling a
product which does not have close substitutes
...
(c)
No close substitute products
(d)
Full control over price
(e)
Price discrimination
AR or MR Curve in Monopoly market :
AR (Demand) Curve is left to right downward sleeping curve and less
elastic than that of monopolistic competition
...
He can’t decides both at a
time
...
Sellers sell differentiated product to the consumer who have
imperfect knowledge about the product
...
of buyers and sellers
(b)
Product Differentiation : In this feature every firms make
it product that rivals an the basis of colour, taste, packing,
size and shape
...
(d)
Freedom of entry and exit of new firm
...
AR = 2MR
Revenue
Y
AR
MR
O
Output
x
Oligopoly is the form of market in which there are few sellers or few large
firms, mutually dependent for taking price and output decisions
...
(c)
Under oligopoly demand curve is undefined
...
On the basis of production, oligopoly can be categorised in two categories
...
(ii)
Non-collusive oligopoly is that form of oligopoly is which all the
firms determine the price and quantity of output according to the
action and reaction of the firms
...
Number of Large
sellers
Homogeneous
2
...
Entry/Exit
|| to x-axis
of firms
Single
Large
Few
No
...
Firm's
Demand
Curve
down ward
sloping
O
X O
Free entry and
exit
Difficult entry of
new firms
down ward
sloping
Undefined
Oligopoly
Indeterminate
Y
AR > MR
MR AR
6
...
Degree of
price control
price
No
...
45
Price
Y
AR = MR
Price
Price
5
...
(iv)
Imperfect Oligopoly: If firms produce heterogenous product it is
called imperfect Oligopoly
...
Equilibirium quantity which correspondence to the equilibrium price in the
market
...
There is no excess demand and excess supply in the market
...
O
q
Quantity
D
x
Application of Demand of Supply
(a)
Maximum Price Ceiling: It mean the maximum price the produces are
allowed to charge less than equilibrium price
...
That is, when consumers are facing shortages and equilibrium
price is too high
...
Y
D
Excess Supply
PMin
...
S Excess Demand
O
Class XII : Economics
Q
Quantity
46
Maximum Price ceiling
D
x
(b)
1
...
fixed a price ceiling
higher than equilibrium price to prevent the possible loss of the producers
...
In which market AR = |MR
(a)
(b) Perfect Market
(c)
2
...
Perfect Market
Monopoly
(D) None of the above
...
Perfect Market
Monopolistic Market
(d) Oligopoly
Under Oligopoly
(a)
(b) Few sellers
(c)
5
...
A price of which a consumer is willing to buy and a seller is willing to sell
the commodity is called
...
Minimum Price
equilibrium price
(d) None of the above
...
Quantity of a commodity which is bought and sold at the equilibrium price
is called
...
Maximum quantity
Both (a) and (b)
(d) Equilibrium quantity
At a given price, when demand for commodity is more then supply of the
commodity then it is called excess demand or shortage
...
(d)
9
...
More than or equal to equilibrium price
...
price the buyer is willing to pay
(c)
Max
...
(d)
10
...
retail price
Max
...
Fixation of minimum wage below the equilibrium wage rate leads to :
(a)
Unemployment
(b) Over employment
(c)
Neither (a) nor (b)
(d) Either (a) or (b)
1
...
Explain?
2
...
Why is a firm under perfect competition a price taker? Explain
...
Explain three features of perfect competition
...
Explain the implication of large number of seller feature of perfect
competition
...
What will happen if the price prevailing in the market is above the equilibrium
price
...
Distinguish between monopoly and oligopoly
...
Explain the concept of excess demand with the help of diagram
...
Differentiate between ‘Collusive and non-collusive oligopoly
...
Explain the determination of equilibrium price under perfect competition
with the help of schedule
...
Explain why is the equilibrium price determined only at the output level at
which market demand and market supply are equal
...
MR = AR in perfect competition but MR < AR in monopoly and monopolistic
competition why?
13
...
Explain how firms are interdependent in an oligopoly market
...
In which competition the availability of close substitutes is present? How
does it effect the price?
16
...
1
...
2
...
There is ‘increase’ in supply of that
good
...
Use a numerical example
3
...
Explain the series of changes that will
take place if market price is higher than the equilibrium price
...
How will a fall in the price of tea affect the equilibrium price of coffee?
Explain the chain of effects
...
Explain the following features of perfect competition
...
6
...
7
...
8
...
9
...
Suppose under a competitive market equilibrium price is too high for an
average consumer in case of essential items
...
2
...
What is the likely to be impact of those on the market of a
product
...
Multiple choice questions : (1 Mark)
1
...
(c) 3
...
(b) 5
...
(c) 7
...
(a) 9
...
(c)
Class XII : Economics
50
UNIT V
Good : In economics a good is defined as any physical object, man-made,
that could command a price in the market
...
Capital Goods : Those final goods which help in production
...
Final Goods are those goods which are used either for final consumption
or for investment
...
These goods do not fulfil needs of
mankind directly
...
It is also called capital formation
...
Gross Investment : Total addition made to physical stock of capital during
a period of time
...
Net Investment : Net addition mate to the real stock of capital during a
period of time
...
Net Investment = Gross investment – Depreciation
...
Eg
...
Flows : Variables whose magnitude is measured over a period of time are
called flow variable
...
National income, change in stock etc
...
It is circular
in nature
...
Leakage : It is the amount of money which is withdrawn from circular flow
of income
...
Taxes, Savings and Import
...
For e
...
Govt
...
, investment and exports
...
Scope of Economic Territory :
(a)
(b)
Embassies, consulates, military bases etc
...
(c)
Ships and aircraft operated by the residents between two or more
countries
...
Fishing vessels, oil and natural gas rigs operated by residents in the
international waters
...
Domestic Aggregates
•
Gross domestic Product at Market Price (GDPMP) is the market value
of all the final goods and services produced by all producing units located
in the domestic territory of a country during an Accounting year
...
Class XII : Economics
52
•
Gross National Product at Market Price (GNPMP) is the market value of
all the final goods and services produced by all producing units (in the
domestic territory and abroad) of a country during an accounting year
...
rent,
interest and profit during an accounting year
...
=
National Income at Current Prices : It is also called nominal National
income
...
e
...
53
Class XII : Economics
National Income at Constant Prices : It is also called as real income
...
e
...
Value of Output : Market value of all goods and services produced by an
enterprise during an accounting year
...
Double Counting : Counting the value of a commodity more than once
while estimating national income is called double counting
...
So, it is called problem of double counting
...
(a)
By taking the value of only final goods
...
1
...
Wages and
salaries
(Cash/or
kinds)
2
...
Employers
Rent
Contribution in
Social security
Schemes
3
...
1
...
Net Income from
Property and
entrepreneurship
3
...
NFIA : Factor Income Received from Abroad
...
OR
NFIA = Net compensation of Employees
+ Net income from property and entrepreneurship
...
National Disposable Income (NDI) : It is defined as net national product
at Market price (NNPMP) plus net current transfer from rest of the world
...
OR
55
Class XII : Economics
= National income + net indirect tax + net current transfers from the rest
of the world
...
Net National Disposable Income (Net NDI)
= NNPMP + Net current Transfers from rest of the world
...
Personal Consumption + Personal saving
or
Personal Disposable Income (PDI)
+ Direct personal tax
+ Misc fees and fines paid by households / Misc
Receipts of the Govt
...
– Current transfers from R
...
W
...
administrative department
+ Savings of non departmental enterprises
Domestic Income (NDP )
+ NFIA
National Income (NNP )
Class XII : Economics
56
Concept of Value Added of One Sector or One Firm
1
...
or value of output = price
× qty
...
2
...
3
...
4
...
Note: By adding up NVAFC of all the sectors, we get NDPFC or Domestic Income
...
administrative department
(–) Savings of non departmental enterprises
Domestic Factor Income Accruing to Private Sector
(+) NFIA
(+) Interest on National debt
(+) Current transfers from Govt
...
O
...
Private Income
(–) Corporate Profit tax
(–) Undistributed Corporate profit
Personal Income
(–) Direct personal tax
(–) Misc
...
administrative deptt
...
Personal Income : It refers to income received by house hold from all
sources
...
Personal Disposable Income : It is that part of Personal income which
is available to the households for disposal as they like
...
Which one of the following is final expenditure :
(a)
(b)
Purchased scooter by scooter dealer
...
(d)
2
...
Purchased milk by tea shop
...
(a)
(b) Change in inventory
(c)
3
...
When goods and services are produced in a year valued at current years
prices is called
(a)
(b) GDP at constant prices
(c)
4
...
Which is correct?
(a)
(b)
GNPmp > GDPmP when NFIA = 0
...
(d)
5
...
GNPmp > GDPmp when NFIA > 0
...
Scholarship
(d) None of the above
...
As a result national income is :
(a)
(b) Over-estimated
(c)
7
...
Which is not a component of NFIA?
(a)
(b)
Net income from property and entrepreneurship
...
(d)
8
...
Net export
...
Gross Public Investment
Gross business fixed investment
Which one of the following leakage?
(a)
(b) import
(c)
10
...
Non-resident
Both (a) and (b)
(d) None of the above
...
59
Class XII : Economics
2
...
Give suitable examples
...
Distinguish between consumer goods and capital goods with examples?
4
...
D
...
is its limitation as a measure of economic
welfare
...
Explain the meaning of “Domestic Territory of a country”
...
Distinguish between ‘factor income’ and ‘transfer income’
...
Classify the following into stock and flow :
(i)
Money supply
(ii) Depreciation
(iii)
Investment
(iv) Pocket money
(v)
Vedio and Vedio camera (vi) Deposits in saving account of bank
...
Why does exports include in GDPMP?
9
...
10
...
(ii)
A car purchased by a house hold
...
Distinguish between stock and flows
...
12
...
(i)
(ii)
13
...
Indian working in U
...
A
...
Which of the following is factor income from abroad for an Indian resident
and why?
(a)
Interest income received by Indian resident on the bonds of
companies operating in USA
...
Class XII : Economics
60
Giving reason explain how should the following be treated in estimating
national income :
(i)
Expenditure on fertilizers by a farmer
(ii)
Purchases of tractor by a farmer
...
Explain why subsidies are added to and indirect taxes deducted from
domestic product at market price to arrive at domestic product at factor
cost
...
Giving reasons, explain how are the following treated in estimating national
Income by the income method
...
owned company
...
Why do we include the imputed value of goods but not services while
estimating production for self consumption?
17
...
, write its components
...
Distinguish between domestic product and national product
...
1
...
(a)
(b)
Money received by a family in India from relatives working abroad
...
Dividend received by an Indian from his investment in shares of a
foreign company
...
How will you treat the following while estimating national income of India?
Give reason for your answer?
(a)
Dividend received by a foreigner from investment in shares of an
Indian Company
...
(c)
Interest received on loan given to a Friend for purchasing a car
...
Explain the problem of double counting in estimating national income, with
the help of an example
...
4
...
Can gross domestic product be used as an index of
welfare of the people? Give two reasons
...
How will you treat the following in estimating national income of India?
Give reasons for your answer
...
(b)
Fees received from students
...
6
...
7
...
(a)
(b)
Old age pension
...
financial help gives to flood victims
Imputed rent
...
(Crore)
(i)
National interest
10
(ii)
Corporate Profit Tax
25
(iv)
Personal Taxes
50
(v)
9
...
(i)
Profit earned by a branch of foreign bank in India
...
Payment of salaries to its staff by an embassy located in New
Delhi
...
How will you treat the following while estimating national income
...
(i)
(ii)
Prize won is lottery
...
Capital gain on sale of house
...
While estimating national income
...
Give
reason for your answer
...
(iii)
1
...
Financial help received by flood victims
...
Crore)
(i)
Purchases by firm X from firm Y
100
(ii)
Purchases by firm Y from firm X
150
(ii)
Sales by firm X
200
(iv)
Sales by firm Y
300
(v)
Exports by firm Y
(vi)
Change in stock of firm X
–20
(vii)
Change in stock of firm Y
10
63
Class XII : Economics
30
2
...
Crore)
(i)
Subsidy
(ii)
Sales
(iii)
Depreciation
(iv)
Exports
(v)
Closing stock
20
(vi)
Opening stock
50
(vii)
Intermediate purchases
500
(viii)
Purchases of machinery for own use
200
(ix)
3
...
(Rs
...
Domestic Sales
Change in stock
60
50
Calculate Gross National Disposable Income and Personal income from
the given data
(Rs
...
Net factor income from abroad
5
Share of government in national income
80
Calculate (a) NDPFc by expenditure method and (b) NNPFC, by value
added method :
(Rs
...
From the following data calculate National Income by income and
expenditure method :
(Rs
...
A farmer purchases Rs
...
3000 worth of fertilizers
and pays Rs
...
He produces100
quintals of wheat and sells the same at Rs
...
Calculate
value added by the farmer
...
Calculate Personal Disposable Income from the following data :
(Rs
...
Miscellaneous receipts of govt
...
crore)
(i)
NNPFC
1000
(ii)
Direct taxes paid by the households
(iii)
Income from property and entrepreneurship according to
the government administrative departments
70
100
(iv)
(v)
Savings of non-departmental enterprises
(vi)
Retained earnings of private corporate sector
40
(vii)
Current transfers from the government
20
(viii)
National debt interest
50
(ix)
Net current transfers from row
10
(x)
Net factor income from abroad
(-) 5
(xi)
10
...
crore)
150
(i)
National income
4000
(ii)
Income from property and entrepreneurship accruing
to the government administrative departments
80
(iii)
National debt interest
10
(iv)
Net factor income from abroad
(v)
Savings of non-departmental enterprises
50
(vi)
Current transfers from the government
30
67
(-) 20
Class XII : Economics
11
...
(Rs
...
administrative Dept
...
corporate sector
65
(vi)
Direct taxes paid by house hold
20
(vii)
Current transfers from Govt
...
: (a) 520 Crore (b) 425 Crore (c) 405 Crore]
12
...
crore)
(i)
(ii)
Intermediate consumption
75
(iii)
Excise duty
20
(iv)
Subsidy
(v)
13
...
crore)
300
1000
68
–20
(iv)
Rent
100
(v)
Interest on public debit
(vi)
Interest paid by production unit
(vii)
Corporation Tax
50
(viii)
Current transfer by government
40
30
130
(ix)
200
(x)
Dividends
100
(xi)
Undistributed profit
(xii)
14
...
crore)
(i)
Compensation of employees
800
(ii)
Profit
(iii)
Dividends
(iv)
Gross National Product at market price
(v)
Rent
150
(vi)
Interest
100
(vii)
Gross Domestic fixed capital formation
200
(viii)
Net domestic capital formation
200
2000
50
1400
(ix)
50
(x)
Factor income from abroad
60
(xi)
1
...
What should be the status of these services
in National income? Explain
...
7
...
Critically examine this statement in the light of adequacy
of GDP as an indicator of welfare
...
(a)
Not include as paid for consumption expd
...
(b)
(e)
15
...
(a)
Included as paid for production expd
...
80 cr
...
240 cr
...
NVAFC
= Sales + S - I C- NIT - Dep
...
280 lakh
...
GVAMP
= (i) + (ii) + (iii) + (vii) - (iv) - (v) - (vi)
= Rs
...
4
...
PI
= (iv) - (iii) — (xi) + (vii) + (ix) + (x)
Rs 910 crore
...
NDPFC, (Exp
...
1110 crore
...
1110
crore
...
National Income
(Income method)
= (iv) + (viii) + (iii) + (x) + (xii) +
(xiv) + (xi)
= 600 + 55 + 200 + 25 + 20+130 + (-30)
= Rs
...
National income (Exp
...
1000 crore
...
Value of output
= Price × qty
...
Intermediate
consumption
= 2000 +3000 +1500 = Rs
...
Value added by farmer
Value of output - intermediate consumption
= 20000 -6500 = Rs
...
8
...
9
...
830 lakh
...
(c) Personal disposable income= Personal income - (ii) - (xi)
= 760 - 70 - 10
= 760 - 80 = Rs 680 lakh
...
NDPFC accruing to the
(i) - (iv) - (ii) - (v)
private sector
= 4000 - (-20) - 80 - 50
= 4000 + 20 - 130 = Rs
...
(a) Private Income
= Rs
...
I
...
425 crore(c) P
...
I
...
405 crore
12
...
O
...
200 cr
...
NDPFC
= Rs
...
; Private Income = 1380 Cr
...
GDPFC
= Rs
...
Factor Income to abroad
= Rs
...
Class XII : Economics
72
UNIT VI
Money : Money may be defined as anything which is generally acceptable
as a medium of exchange and does the function of ‘unit of account’ and
measures of value
...
Difficulties involved in the Barter Exchange
1
...
2
...
Lacks of any satisfactory units to engage in contracts involving
future payments
...
Does not provide for any method of storing generalised purchasing
power
...
Lack of divisibility
...
Measures of Money Supply = Currency held by Public + Demand
Deposit of a Bank
Commercial Banks : Commercial Banks is a financial institution who
accepts deposits from the general public and provide loans facilities for
investment with the aim of earning profit
...
It makes monetary policy of the country in
public interest
...
73
Class XII : Economics
Functions of Money
Primary Functions
Medium of
exchange
Measure
of value
Secondary Functions
Standard of
Deferred Payment
Store of
value
Transfer of
value
Bank
Central Bank
Is the apex institution of monetary
and banking system of account
Commercial Bank
Is a financial institution which accepts
deposits from the general public and
giving loans for investment
Functions of Central Banks
1
...
Banker of the Government
3
...
4
...
Commercial bank’s demand deposits are a part of money supply
...
The borrowers are free to use this money by writing cheques
...
Therefore, by creating
additional demand deposits bank create money
...
Deposit Multiplier
= 1/LRR Total Deposit creation = Initial deposit X 1/LRR
...
Reverse repo rate : It is the rate of interest at which the central bank of a
country borrows money from commercial banks
...
The merit of issuing notes with RBI can be seen in
(a)
(c)
2
...
Money supply consists of
(a)
(c)
Both currency & Deposits
(d)
3
...
Which are is qualitative instrument of RBI?
(a)
(b) Repo rate
(c)
4
...
Cheque
Rupees
(d) Demand Draft
There is inflationary situation in India, what step RBI should take?
(a)
Issuing more currency
(b) Increase in Bank rate
(c)
Decrease in CRR
(d) Decrease in SLR
Answer (MCQ)
1
...
(c) 3
...
(c) 5
...
Explain the function of money as ‘Unit of value’
...
How does money solve the problem of double coincidence of wants?
3
...
4
...
Explain the ‘lender of last resort’ function of central bank
...
Distinguish between SLR and CRR
...
7
...
8
...
9
...
10
...
11
...
Explain how does followings helps to control the credit creation
...
What is meant by statutory liquidity ratio (SLR)? State the effect of rise in
rate of SLR on creation of credit
...
Explain ‘currency authority’ and ‘controller of credit’ functions of central
bank
...
Explain effect of increase in bank rate on credit creation by commercial
banks
...
Define Central Bank
...
Explain any four functions of money
...
How does a central bank influence credit creation by commercial banks
through ‘open market operation’
...
4
...
77
Class XII : Economics
UNIT VII
•
AD refers to total value of all final goods and services that are planned to
buy by all the sectors of the economy at a given level of income during a
period of time
...
•
Components of Aggregate demand are :
(i)
Household consumption expenditure (C)
...
(iii)
Govt
...
(iv)
Net export (X – M)
...
•
AS refers to total value of all final goods and services that are planned to
be produced by all the producing units in the economy during a given
period of time
...
AS = C + S
•
Aggregate supply represents the national income of the country
...
C = f(Y)
Class XII : Economics
78
where C = Consumption
Y = National Income
f = Functional relationship
...
Y
C = Autonomous consumption
...
Consumption expenditure
at zero level of income is called autonomous consumption
...
Induced consumption is the expenditure which is affected by change in income
...
•
Consumption function (propensity to consume) is of two types:
(a)
(b)
•
Average propensity to consume (APC)
Marginal propensity to consume (MPC)
Average propensity to Consume (APC) : It refers to the ratio of
consumption expenditure to the corresponding level of income
...
(ii)
APC = 1, at the break-even point, consumption is equal to national income
...
Consumption is less
than national income
...
(v)
APC can never be zero : because even at zero level of national income,
there is autonomous consumption
...
79
Class XII : Economics
MPC
Change in Consumption C
Change in Income
Y
Important Points about MPC
(1)
Value of MPC varies between O and 1 : If the entire additional income
is consumed, then C = Y, making MPC = 1
...
S = f (y)
Equation of Saving function
S = C MPS
...
•
Saving function (Propensity to Save) is of two types
...
APS
•
Savings S
Income Y
Important Point about APS
(1)
APS can never be 1 or more than 1 : As saving can never be
equal to or more than income
...
Class XII : Economics
80
(4)
•
APS rises with increase in income
...
MPS =
•
Change in Savings S
Change in Income Y
MPS varies between 0 and 1
(i)
(ii)
•
MPS = 1 if the entire additional income is saved
...
In such a
case, S = 0, then MPS = 0
Relationship between APC and APS
The sum of APC and APS is equal to one
...
•
Relationship between MPC and MPS
The sum of MPC and MPS is equal to one
...
•
Investment refers to the expenditure incurred on creation of new capital
assets
...
•
Induced Investment : Induced investment refers to the investment which
depends on the profit expectations and is directly influenced by income
level (only for reference)
...
It is income inelastic
...
It is also known as planned savings
...
It is also known as planned investment
...
•
Ex-Post Investment : Ex-post investment refers to the actual or realised
investment in an economy during a financial year at the end of the period
...
But it cannot always be at full employment level also as it can be
at less than full employment
...
Class XII : Economics
82
•
Voluntary unemployment is a situation where person is able to work but
not willing to work at prevailing wage rate
...
•
Under employment is a situation where AD is less than required AS at full
employment level
...
K=
Y
I
or
K
1
1– MPC
or
K
1
MPS
•
Value of investment multiplier lies b/w 1 to infinitive
...
•
Inflationary gap is the gap by which actual aggregate demand exceeds the
level of aggregate demand required to establish full employment
...
•
Deflationary gap is the gap by which actual aggregate supply is less than
the level of aggregate demand required to establish full employment
...
•
Deflationary gap is the gap by which actual aggregate demand is less than
the level of aggregate demand required to establish full employment
...
1
...
Voluntary Unemployment (b) Involuntary unemployment
Under employment
(d) None of the above
Which of the following can become negative
(a)
APC
(b) APS
(c)
MPC
(d) MPS
83
Class XII : Economics
3
...
income and saving
income, saving and consumption
Value of investment multiplier directly related with MPC but universally
related with
(a)
(b) MPS
(c)
5
...
Excess demand leads to inflationary pressure in the economy because
(a)
(b)
rise in unintended inventory
(c)
fall in national income
(d)
6
...
Repo rate
all of the above
...
excess demand
inflationary gap
(d) all of the above
When value of MPC is 0
...
At the break event point
(a)
(b) C = 4
(c)
10
...
Define aggregate demand
...
2
...
3
...
4
...
State briefly the effect of excess demand on output, employment and price
...
Explain the concept of inflationary gap with the help of a diagram?
7
...
8
...
9
...
10
...
11
...
12
...
85
Class XII : Economics
13
...
14
...
15
...
16
...
(ii)
Value of average propensity to save can never be less than zero
...
Can an economy be in equilibrium when there is unemployment in the
economy? Explain
...
How does change in marginal requirement controls the situations of excess
and deficient demand?
19
...
Does an excess of AD over AS always imply a situation of inflationary
gap? Explain
...
What happens if AD > AS prior to the full employment level of output?
22
...
Give reasons for
your answer
(a)
(b)
23
...
The value of average propensity to save can never be greater than 1
...
When marginal propensity to consumer is zero, the value of
investment multiplier will also be zero
...
Find national income from the following : autonomous consumption = Rs
...
80 investment = Rs
...
Calculate APS and MPS from the following table:
Income (Rs
...
000):
Expenditure
26
...
) MPC (Rs
...
)
APS (Rs
...
6
-
-
200
0
...
6
-
-
1
...
Explain the equilibrium level of income with the help of saving and
investment curves
...
Explain the working of multiplier with the help of a numerical example
...
When planned investment is more than planned savings, what will be its
impact on income and employment
...
5
...
Can there be equilibrium in case of underemployment
...
Distinguish between excess demand and deficient demand
...
In an economy S = –50 + 0
...
Calculate
...
Equilibrium level of national income
Consumption expenditure at equilibrium level of national income
...
9y and investment
expenditure is Rs
...
Calculate :
87
Class XII : Economics
(i)
(ii)
10
...
Saving at equilibrium level of national income
...
C = 100 + 0
...
11
...
Show a point on the consumption curve at which
APC is equal to 1
...
How increase in investment will effect income level of an economy? Explain
with the help of an example and diagram
...
Briefly explain the concept of under employment equilibrium with the help
of diagram
...
What is ‘deficient demand’ in macroeconomics? Explain the role of open
market operations in correcting it
...
Explain the step taken in derivation of the saving curve from the consumption
curve use
...
16
...
25 Y and investment
of Rs
...
17
...
8
...
)
(Y)
Consumption
(Rs
...
)
(S)
Investment
(Rs
...
19
...
50 and MPS
is 0
...
Equilibrium level of income is Rs
...
When investment multiplier is 1, the value of MPC is zero
...
Giving reasons, state whether the following statements are true or false :
(i)
When marginal propensity to consumer is zero, the value of
investment multiplier will also be zero
...
21
...
100 crore, national income
rises by Rs
...
Find out marginal propensity to consume and value
of investment multiplier
...
We know that value of investment multiplier directly depends upon MPC
...
It leads to more
generation of national income Why does under developed economy
underdeveloped even though there is more MPC? Explain
...
‘Inflation is unjust, deflation is inexpedient but out of these two deflation is
worst
...
Answers : 1
...
(b), 3
...
(b) 5
...
(d) 7
...
(a) 9
...
(c)
...
K
1
1
1
5
1 MPC 1 0
...
2
Y K
...
250 crore
89
Class XII : Economics
25
...
1000)
MPC
(C/Y)
APS
(S/Y)
0
40
–
–
100
120
0
...
2
200
200
0
...
8
0
...
8
0
...
6
150
–0
...
6
210
–0
...
Income
(Rs
...
6
270
–0
...
(a) Y = Rs
...
800
9
...
4750
(b)
S = Rs
...
Consumption
(C)
Saving
(S)
Investment
(I)
AD
(C+1)
AS
(C+S)
0
60
–60
40
100
0
100
140
–40
40
180
100
200
220
–20
40
260
200
300
300
0
40
340
300
400
380
20
40
420
400
500
460
40
40
500
500
600
540
60
40
580
600
700
18
...
2
Class XII : Economics
90
MPC = 0
...
84
AD = C + 1
Given
= C + 0
...
84
AD = 50 + 0
...
8 × 4000
4000 = 50 + 3200
4000 3250
An economy will not be in equilibrium because AD is not equal to AS
...
K
Y 500
5
I 100
K = 5
K
1
1– MPC
5
1
1– MPC
5 – 5 MPC = 1
5 = 1 + 5 MPC
5 – 1 = 5 MPC
4 = 5 MPC
MPC
4
0
...
8
91
Class XII : Economics
UNIT VIII
•
Budget is a financial statement showing the expected receipt and
expenditure of Govt
...
•
Main objectives of budget are :
(i)
Reallocation of resources
...
Economic Growth
There are two components of budget :
(a)
Revenue budget
(b) Capital budget
•
Revenue Budget consists of revenue receipts of Govt
...
•
Capital budget consists of capital receipts and capital expenditure
...
Its burden cannot be shifted to others
...
Its burden can be
shifted to others
...
Nor causes any reduction in assets
...
Construction of school building
* Repayment of loans etc
...
•
Revenue Expenditure :
(i)
•
Neither creates assets
(ii) Nor reduces liabilities
Capital Expenditure :
(i)
It creates assets
(ii) It reduces liabilities
...
•
Implications of Revenue Deficit are :
(i)
(ii)
It shows wasteful expenditures of Govt
...
(iii)
•
It leads to repayment burden in future without investment
...
Fiscal Deficit : Total expenditures > Total Receipts excluding borrowing
...
•
Implications of Fiscal Deficits are :
(i)
It leads to inflationary pressure
...
(iii)
It reduces future growth + development
...
•
Primary Deficit : By deducting Interest payment from fiscal deficit we get
primary deficit
...
1
...
(a)
(b) Political statement
(c)
2
...
Service tax
Corporation tax
(d) Entertainment tax
If budgetary deficit is nil and borrowings and other liabilities are 70 crore,
what is the amount of fiscal deficit?
(a)
(b) 30 crore
(c)
4
...
If in a budget, Revenue deficit is Rs
...
75,000 crore
...
50,000 crore
25,000 crore
(d) 1,25,000 crore
If borrowing and other liabilities are added to the budget deficit, we get
...
Revenue deficit
Primary deficit
(d) Fiscal deficit
Which is the example of Administrative non-tax Revenue of Central
Government?
(a)
(b) Disinvestment
(c)
8
...
Market borrowing
Recoveries of loan
(d) All the above
Which are is capital expenditure of govt
...
Salaries of Staff
(b) Payment of Interest
Purchase of machinery (d) Purchase of Shares
Fiscal Deficit always leads to
(a)
Increase in borrowings
(b) Inflationary Pressure
(c)
Crowding out
(d) All the above
Answers (MCQ)
1
...
(c) 3
...
(a) 5
...
(d) 7
...
(d) 9
...
(d)
1
...
budget
...
What is the difference between revenue budget and capital budget?
95
Class XII : Economics
3
...
4
...
5
...
Give the meaning of revenue deficit and fiscal deficit
...
What is fiscal deficit? What are its implications?
8
...
9
...
budget
...
Explain the ‘Economic stability’ objective of Govt
...
11
...
12
...
13
...
14
...
15
...
(i)
(iii)
16
...
From the following data about a government budget find (a) revenue deficit,
(b) fiscal deficit and (c) primary deficit
...
arab)
(i)
Plan capital expenditure
120
(ii)
Revenue expenditure
100
(iii)
Non-plan capital expenditure
Class XII : Economics
96
80
(iv)
(v)
Capital receipts net of borrowing
(vi)
17
...
15
...
Why the Fiscal Deficit equal to borrowings
...
The current account records
exports and imports of goods
and services and unilateral transfers
...
Components of
Current Account
Components of
Capital Account
1
...
Foreign Direct investment
...
Invisible items (import and
export of services
...
Loans
3
...
3
...
4
...
• The components of current
account do not cause a change
in assets or Liabilities status of
the residents of a country or its
Government
...
98
•
Balance of trade is the net difference of Import and export of all visible
items between the normal residents of a country and rest of the world
...
These items are
generally called ‘Above the Line items’ in balance of payment
...
Then transactions are meant to restore
the Balance of Payment identity
...
•
Deficit of Bop Account : When total inflows of foreign exchange on
account of autonomous transactions are less than total outflows on account
such transaction then there is a deficit in Bop
...
SYSTEM OF EXCHANGE RATE
Fixed exchange rate
Flexible exchange rate
...
•
Merit of Fixed Exchange Rate
(i)
(ii)
Promotes capital movement and international trade
...
Demerits of Fixed Exchange Rate
(i)
Need to hold foreign exchange reserves
...
’
(iii)
Enhance dependence on external sources
...
•
The demand of foreign exchange have inverse relation with flexible exchange
rate
...
Vice versa
...
(b)
To purchase financial assets (i
...
, to invest in bonds and equity
shares) in a foreign country
...
(d)
To send gifts and grants to abroad
...
(f)
To undertake foreign tours
...
If foreign exchange rate rise the supply of foreign exchange rate also
rise and vice versa
...
(iii)
Remittances by non-residents living abroad
...
R
...
(v)
•
Direct purchase by foreigners in domestic market
...
Merits of Flexible Exchange Rate
(i)
No need to hold foreign exchange reserves
(ii)
Leads to automatic adjustment in the ‘balance of payments’
...
Class XII : Economics
100
(iv)
•
To remove obstacles in the transfer of capital and trade
...
(iii)
•
Fluctuations in future exchange rate
...
Determination of Equilibrium Foreign Exchange Rate : Equilibrium FER
is the rate at which demand for and supply of foreign exchange are equal
...
e
...
There is inverse relation between
demand for foreign exchange and exchange rate
...
Due to above reasons
demand curve downward sloping and supply curve is upward sloping curve
Graphically intersection of D
...
curve determines the equilibrium
foreign exchange rate (i
...
or)
ER
S
D
E
r
D
O
Q
F
...
X
•
Devaluation of a currency : When government or monetary authority of
a country official lowers the external value of its domestic currency (in
respect of all other foreign currency) is called devaluation of a currency
...
•
Revaluation of a currency : When government or monetary authority of
a country officially raises the external value of its domestic currency is
called revaluation
...
•
In currency depreciation there is a fall in the value of domestic currency,
in term of foreign currency due to change in demand and supply of the
currency under flexible exchange rate system
...
101
Class XII : Economics
•
1
...
When central bank finds the rate is too high,
it starts selling foreign exchange from its reserve to bring down it
...
It starts buying to raise the rate
...
Export of food grains
Import of steel by steel industry
Which one is deals with debts and claims of a country?
(a)
(c)
3
...
Private capital
Official Capital
(d) All the above
Current account of BOP records transactions is relating to
(a)
(b) Exchange of services
(c)
5
...
Class XII : Economics
102
6
...
International transfer of foreign currency
All of the above
Buyers and Sellers of foreign exchange are
(a)
(b) Commercial Bank
(c)
8
...
Managed floating
Wide band
(d) Crawling peg
...
Increases
Remain constant
(d) None of the above
Increase in the value of domestic currency by the govt
...
(c) 2
...
(d) 4
...
(a) 6
...
(d) 8
...
(a) 10
...
Write any three points of difference between BOT and BOP
...
Distinguish between current account and capital account of BOP
...
How can deficit in BOP be financed?
103
Class XII : Economics
4
...
5
...
6
...
Give an example each
...
Give three reasons why people desire to have foreign exchange
...
Give any three/four sources of supply of foreign exchange
...
Explain the relationship between foreign exchange rate and demand for it
...
Explain the relationship between foreign exchange rate and supply of foreign
exchange
...
Explain the terms ‘appreciation and depreciation of currency
...
Explain the merit and demerits of fixed exchange rate
...
Explain the merits and demerits of flexible exchange rate
...
How is flexible exchange rate determined in a free market economy?
Explain with the help of diagram
...
Higher the foreign exchange rate, lower the demand fore foreign exchange
...
Lower the foreign exchange rate, higher the demand for foreign exchange
...
Explain the impact of Devaluation of domestic currency on the export and
imports of an economy
...
Give the meaning of fixed flexible and managed floating exchange rate
...
Why the demand for foreign exchange falls when the foreign exchange
rate rise explain with the help of an example
...
Explain the distinction between Autonomous and Accommodating
transactions in balance of payments
...
2
...
3
...
20
...
What is the impact of appreciation of currency on the supply of foreign
exchange?
22
...
What is the impact of depreciation of currency on the supply of foreign
exchange?
24
...
25
...
(ii)
Export and import of machines are recorded in capital account of
the balance of payments account
...
Marks : 100
General Instructions :
(1)
Q
...
1 to 4 and 6 to 9 are multiple choice questions carries one mark
each
...
No
...
Answer to them not normally exceed 60 words each
...
No
...
Answer to them should not normally exceed 70 words each
...
No
...
Answer to them should not normally exceed 100 words each
...
1
...
TVC
MC
(d) AC
In which form of market producer has maximum control over price?
(a)
(b) Monopoly
(c)
3
...
Shoes
Land
(d) Bike
Which statement is false?
(a)
Increase in income shifts budget line rightward
...
(c)
Ordinal approach utility cann’t be measured but less be expressed
in ranking
...
5
...
Explain the conditions of consumer
equilibrium with the help of utility analysis
...
State any three assumptions as vehicle
7
...
7 per unit to Rs
...
Calculate price dasticity of demand of the good
...
Draw a TVC and TC curves in a single diagram
...
Explain the effect of following are supply of a price of good
...
(b)
Technological advancement
...
What is market demand? State two factors causing increase in market
demand
...
Why is the indifference curve complex towards the origin? Explain
...
Explain the conditions of equilibrium of a firm based on marginal cost and
marginal revenue approach
...
13
...
Explain the chain of reactions in its
market if the price is higher than equilibrium price
...
Explain three features of oligopoly market
...
Explain the relation between TP and MP with the help of diagram
...
Find the odd one out
...
(b)
No
...
107
Class XII : Economics
(c)
(d)
17
...
of your friend on facebook as of today
...
of your visit in mall last month
...
When depreciation is zero
When NFIA is zero
If you were to be appointed as the Finance Minister of India, which taxes
would you prefer
...
Direct tax
Regressive taxation
(d) Proportional taxation
Payment of Interest is
(a)
Revenue Expenditure
(b) Capital expenditure
(c)
Primary Deficit
(d) Fiscal deficit
20
...
21
...
22
...
in lakhs)
(i)
30
(ii)
Depreciation
12
(iii)
Sale
(iv)
Excise tax
20
(v)
Opening Stock
15
(vi)
23
...
9 and increase in investment is Rs
...
Find out the increase
in national income
...
There is fixed exchange rate system in an economy and there deficit in
BOP of that economy
...
short out the deficit through managing
exchange rate of the currency
...
Explain the issue of currency function of a Central Bank
...
Explain the Primary functions of money
...
Explain the role of CRR and Bank rate in reducing aggregate demand in
an economy
...
Define multiplier? How process of multiplier works, explain with numerical
example
...
Find out National Income and Gross National Disposable Income
...
in Crore
(i)
Private Fiscal Consumption exp
...
final consumption expenditure
100
(vi)
Depreciation
(vii)
Subsidies
(viii)
Exports
20
5
30
(ix)
Net factor income from abroad
(x)
Imports
–10
40
1
...
b
1 mark
3
...
d
1 mark
109
Class XII : Economics
5
...
MUx
MUy
Px
Py
M
...
must decreases
1½
Any three assumptions
1×3=3
(No need of explanation)
7
...
7, New price = Rs
...
2
Let Q = 100, q 0
ed
q p
p 9
0
7
2 100
1 mark
0
= 0
200
1 mark
ed = 0
1 mark
Y
TC
TVC
Cost
8
...
10
...
of market demand
1 marks
Two factors
½×2=1 marks
Correct explanation (No need diagram)
Class XII : Economics
110
1×2=2
11
...
Two conditions
2 marks
Diagram
2 marks
Explanation
2 marks
13
...
Any three features
3 marks
Explanations
3 marks
15
...
a – others are stock
1 mark
17
...
b
1 mark
19
...
Correct meaning of each
21
...
NVAfc = (iii) + (vii) + (vi) + (v) + (iv) + (ii)
= 200 + 10–48–15–20–12
2×1½=3
1×3=3
= 115 Crore
23
...
9
...
...
½ mark
Govt
...
It will increase
4 marks
the export on deficit will be shorted out
25
...
4 marks
Primary Functions
(a) Medium of Exchange
(b) Measure of value
Expansions
1×2=2 marks
Role of CRR
1×2=2 marks
Role of Bank rate
27
...
Definition
1 marks
29
...
N
...
= (i) – (iii) + (iv) + (v) + (vii) + (viii) + (ix) – (x)
1½ marks
= 400–65+120+100+5+30+(–10)–(40)
1 marks
=Rs
...
½ mark
GNDI = N
...
+ (ii) + (iii–vii) + (vi)
1½ mark
= 540 + (–5) + (60) + 20
1 mark
= 615 Cr
...
Marks : 100
General Instructions :
(1)
Q
...
1 to 4 and 16 to 19 are MCQs carrying 1 mark each
...
No
...
Answer to them in 60 words each
...
No
...
Answer to them in 70 words each
...
No
...
Answer to them in 100 words each
...
1
...
S3 curve
(d)
S2
S2 curve
(c)
S3
S1 curve
(b)
Y
None of them
S1
Price
2
...
(c)
Monopoly
(d) Perfect competition
113
Class XII : Economics
4
...
of sellers, availability of substitute goods and degree of free entry and
exits of firms in the market create competition among the sellers
...
(a)
(b) Monopolistic competition
(c)
5
...
Explain
...
6
...
7
...
Use numerical example
...
Why does the difference between ATC and AVC decrease as the level of
output increase? Give reason
...
Distinguish b/w change in quantity supplied and change in supply
...
A firm supplies 10 units of a good at a price of Rs
...
Price
elasticity of supply is 1
...
What quantity will the firm supply at a price of
Rs
...
11
...
12
...
13
...
(ii)
Population
...
Explain the law of variable proportion with the help of TPP and MPP
schedule
...
There is simultaneous ‘increase’ in demand and supply of a commodity
...
How will
equilibrium price reach? Explain
...
Which of the following function does not perform by Central Bank (RBI):
(a)
(b) Controller of credit
(c)
17
...
Which one of the following function is not a secondary function of money:
(a)
(b) Store of value
(c)
18
...
What is the value of K?
(a)
(b) K = 0
...
K = 4
K = 2
(d) K = 3/4
The consumption which does not affect by change in income is called
(a)
Final consumption
(b) Induced consumption
(c)
Zero consumption
(d) Autonomous consumption
20
...
Comment
...
How does fall in price of a domestic currency affect export of the country
concerned?
22
...
23
...
e
...
How can you make indirect tax
as progressive
...
24
...
Which one of them
show fiscal irresponsible behaviour of the government?
25
...
115
Class XII : Economics
26
...
Bank of issue
Credit controller
...
9Y / X and investment
expenditure is Rs
...
Find
(i)
(ii)
28
...
saving at equilibrium level of income
...
Final goods and Intermediate goods
National income and National disposable income
Calculate Gross National Disposable Income and Personal Income from
the given data :
(Rs
...
(Rs
...
Final Consumption expenditure
250
(v)
Net domestic fixed capital formation
200
(vi)
Net imports
–40
(vii)
Net factor income to abroad
–20
(viii)
Depreciation
50
Change in Stock
10
(ix)
117
1100
Class XII : Economics
Time : 3 hrs
Max
...
No
...
(ii)
Q
...
5 to 10 and 20 to 21 are short answer type questions carrying 3
marks each
...
(iii)
Q
...
11 and 22 to 25 are also short answer type questions carrying 4
marks each
...
(iv)
Q
...
12 to 15 and 26 to 29 are long answer type questions carrying 6
marks each
...
(v)
There is no words limitation for numerical questions
...
Expressing choices in terms of first preference, second preference, third
preference and so is expression in terms of :
(a)
(c)
2
...
MP is also rising
AP > MP
(d) MP < AP
A firm under perfect competition in the long run earns :
(a)
Normal profit
(b) Above normal profit
(c)
Below normal profit
(d) Any one of the above
Class XII : Economics
118
4
...
of sellers in the ascending
order as
(a)
(b) M, MC, PC, O
(c)
6
...
7
...
8
...
)
TR
(Rs
...
)
–
1
6
–
4
–
–
2
–
3
6
–
1
9
...
Wages to casual worker
Telephone bill
When price of a good rises by Rs
...
What was the original price, if
es = 1
...
Distinguish between monopoly and monopolistic competition on the basis
of following :
(i)
(ii)
12
...
Explain the consumer’s equilibrium in case of single commodity through
utility approach
...
13
...
(i)
No
...
14
...
Use diagram
...
Explain the implications of the following :
(i)
(ii)
16
...
mutual interdependence b/w firms under oligopoly
...
If requires less space
All the above
The value of money multiplier equals
(a)
1
SLR
Class XII : Economics
(b)
120
1
CRR
(c)
18
...
rise
rise initially then fall
(d) remain unchanged
Gap b/w AD and AS rises at full employment when :
(a)
AD = AS
(b) AD AS
(c)
AD > AS
(d) AD < AS
20
...
21
...
(i) exports (ii) lending to ROW
22
...
He also proposed to increase income
tax on individual earning more than Rs
...
Is the
objective only to earn revenue for the government ? What possible welfare
objective can you think of from these proposals? Explain
...
Distinguish between current a/c and capital a/c of BOP
...
What do you mean by revenue deficit? Explain its implications
...
25
...
26
...
75Y and prove that as
income increases APC decreases
...
Explain the money creation process by commercial banks with numerical
example
...
Find (a) National income and (b) GNDI
(i)
Net current transfers to abroad
121
(Rs
...
Consumption of fixed capital
Indirect tax
60
Will the following factors income be a part of domestic factor income of
India? Give reasons for your answer
...
(ii)
Salary received by Indian residents working in American Embassy
in India
...
(iv)
Compensation of employees given to residents of China working
in Indian Embassy in China
...
1 Why is a production possibilities curve concave? Explain
...
The production possibility curve being concave means that MRT increases
as we move downward along the curve
...
As resources are
transferred from one good to another, less and less efficient resources have to be
employed
...
Q
...
Ans
...
(1) Downward sloping : It is because as more quantity of one good is produced
some quantity of the other good must be sacrificed
...
Q
...
Ans
...
The problem is that, out of these different combinations,
which combination is produced
...
Q
...
Ans
...
Suppose an
economy produces only two goods X and Y
...
If the
123
Class XII : Economics
economy decides to produce 2X, it has to cut down production of Y by 2 units
...
Then 2Y: IX is the MRT
...
5 Explain the problem ‘How to produce’
...
Broadly, there are two techniques of production
...
(ii)
Capital Intensive Technique : Under this technique, production depends
more on the use of machines (called capital)
...
So that, cost per unit of output is minimised
...
1 Distinguish between ‘increase in demand and `increase in quantity demanded’
of a commodity
...
When demand increases at given price then it is called ‘increase in demand’
...
Q
...
Consumer purchases upto the point where marginal utility is equal to the
price (MU=P)
...
As he makes purchases MU falls and at a particular quantity of the
good MU becomes equal to price
...
Q
...
State and explain the conditions
of consumer’s equilibrium with the help of utility analysis
...
There are two conditions of consumer equilibrium
...
4 Explain how the demand for a good is affected by the price of its substitute
goods
...
Ans
...
Substitutes Goods : When price of a substitute falls, it becomes cheaper
than the given good
...
Similarly, a rise in the price of substitute will result in increase in the demand
for given good
...
Q
...
What do your mean by inferior goods
...
Ans
...
Thus, there is negative relationship between income and
demand or income effect is negative
...
Q
...
Ans
...
Nature of Commodity : Necessaries like Salt, Kerosene oil etc
...
2
...
3
...
4
...
Examples - Liquor and Cigarette
...
7 Explain relationship between total utility and marginal utility with help of a
schedule
...
Quantity (Units)
0
1
2
3
4
5
6
Class XII : Economics
Total Utility
0
8
14
18
20
20
18
126
Marginal Utility
8
6
4
2
0
-2
(1)
As long as MU is positive but decreases, TV increases at decreasing rate
...
(3)
When marginal utility is negative
...
Q
...
State the law of diminishing marginal utility
...
Marginal Utility : It is addition more to the total utility as consumption is
increased by one more unit of the commodity
...
According to this law TU increases at decreasing rate and
MU decreases
...
1 Explain the three properties of indifference curves
...
Three properties of
indifference curves are as follows :
1
...
2
...
3
...
Which means more utility because
of monotoric preference
...
2 Explain the conditions of consumer’s equilibrium using indifference curve
analysis
...
Ans
...
(i)
MRS = Px/Py
(ii)
MRS is continuously falling
...
the first condition of consumer’s
equilibrium is MRS
...
If MRS > Px/Py, it means consumer values X more than what market values
and willing to give more price than market price hf will purchase more of X this
cause fall in MRS and it will continue upto that when MRS
If MRC
Px
Py
Px
...
...
A
Goods Y
Y
Consumer's equilibrium point
E
IC3
IC2
IC1
O
X
B
Goods X
Consumer is inequilibrium at point E
...
Class XII : Economics
128
Q
...
Ans
...
When more and more units of a variable factor is combined with
fixed factor up to a certain level total physical product increases with
increasing rate
...
Total Physical Product
1
Q
...
Total Fixed Cost
Total Variable Cost
1
...
e
...
1
...
it increase
or decrease as the output change
...
it can not be zero when
output is zero
...
it is zero when output is zero
3
...
3
...
4
...
4
...
129
Class XII : Economics
Q
...
Ans
...
MC interests AC and AVC at their minimum level
...
AC and AVC decreases before the intersection by MC, but remain greater
than MC
...
AC and AVC starts to increase after the intersection by MC, and becomes
less than MC
...
As output increase, AC and AVC tends to be closer but the difference
between AC and AVC can never be zero
...
4
Draw average cost, average variable cost and average fixed cost curves
on a single diagram and explain their relation
...
AC is the vertical summation of AVC and AFC
...
The difference between AC and AVC falls as output increase but the
difference of AC and AFC increase
...
As output increases AC and AVC tends to be closer but their curves do
not intersect each other because AFC always remains more than zero
...
5
Explain the relation between average revenue and marginal revenue when
a firm can sell an additional unit or a good by lowering the price
...
1
...
2
...
Q
...
MR decrease at the rate of twice than AR
...
Change in Quantity Supplied
Change in Supply
1
...
it refer’s the change in supply
due to the change in the determinates of supply other than price
...
Determinants of supply
other than price remains
unchanged
2
...
Law of supply apply
...
Law of supply does not apply
...
There is upward and
4
...
Supply curve shifted to leftward or rightward under this supply
condition
Q
...
Ans
...
It will reduced the profit
...
Decrease in the good : Decrease in price of input is cause of increase
in supply because when the price of input decrease the production cost
of a good also decreases
...
It motivate to producer to increase the supply of the good
...
8
Explain how changes in prices of other products influence the supply of
a given product
...
The supply of a good is inversely influenced with the change in price of
other product which can explain as follows:
A
...
As a result the producer wil produce more
quantity of other product so the supply of given good will decrease
...
Fall in the Price of Other Product : When there is fall in the price
of other product the production of these product become less
profitable due to unchanged cost in comparison of the production
of given product
...
It cause an increase in supply of given good
...
9
Explain how technology advancement brings a positive impact in the supply
of a given product
...
Due to these reasons production of given
production becomes more profitable
...
1
Explain the law of variable proportion with the help of diagram/schedule
...
Ans
...
When more and more unit of a variable factor
combined with fixed factor then total product increases at increasing rate
in the beginning, then increases at decreasing rate and finally it starts
falling
...
Phase II
MP decreases and becomes zero
...
Machine
Unit of Labour
TPP (unit)
1
1
3
3
1
2
7
4
1
1
3
4
12
16
5
4
1
5
19
3
1
6
21
2
1
7
22
1
1
8
22
0
1
9
21
–1
133
MPP(unit)
Class XII : Economics
First Phase: TP increases with increasing rate upto A point
...
Second Phase : TPP increases with diminishing rate and it is maximum
on point B
...
Third phase : TPP starts to decline and MPP becomes negative
...
•
Do not use diagram for the explanation of this question if it is
instructed to use schedule and do not schedule if the explanation
of this question asked with the help of diagram
...
If their is instruction to explain only the
behaviour of total product
...
Q
...
Use diagram/schedule
...
Producer’s equilibrium refer’s the stage under which with the help of given
factor’s of production producer attain the level of production of which he
is getting maximum profit
...
1
...
2
...
Output
(units
MR
(Rs
...
)
1
4
5
2
4
4
3
4
3
4
4
4
5
4
5
Class XII : Economics
134
OR
Output
(units
MR
(Rs
...
)
1
10
5
2
8
4
3
6
3
4
4
4
5
2
5
Y
Y
E
MC
MC
MR
O
Q
X
O
X
Q
MR
Explanation of Conditions
(i)
So longs as MC is less than MR, it is profitable for the producer to go on
producing more because it adds to its profits
...
(ii)
When MC is greater than MR after equilibrium if means the profit will
decline if producer wil producer more units of the good
...
•
Do not use diagram for the explanation of this question if it is instructed
to use schedule and do not use schedule if the explanation of this questions
is asked with the help of diagram
...
1
Explain the implication of large number of buyers in a peifi competitive
market
...
The implication is that no single buyer is in a position to influence market
price on its own because an individual buyer’s purchase for negligible
proportion of the total purchase of the good in the market
...
2
Explain why are firms mutually interdependent in an oligopoly market
Ans
...
Q
...
Ans
...
Their entry raises output of the indL brings down the
market price and thus reduce profits
...
The firms start leaviyn; industry when they are facing
losses
...
The exit continues till the li are wiped out
...
4
Explain the implication of ‘perfect knowledge about market’ perfect
competition
...
Perfect knowledge means that both buyers and sellers are fully inf about
the market price
...
As a result a to: price prevails in the
market
...
5
Why is the demand curve more elastic under monopolistic cotr than under
monopoly
...
The elasticity 6f demand is high when the product has close sr and that
elasticity of demand tends to be low when the product have close ,substitutes as we know in monopolistic competitic large number of close
substitutes as we know in mo competition there is large number of close
substitutes while in there is no close substitutes hence the demand curve
under m( competition is more elastic than under monopoly
...
6
Why is a firm under perfect competition a price taken v monopoly a price
market? Explain in brief
...
A firm under perfect competition a price taken by the following reasons:
1
...
Hence, market price
remains unaffected
...
Homogeneous Product : All firms in a perfectly competitive
industry produce homogeneous product
...
3
...
Hence a uniform price prevails in the market
...
2
...
There are no close substitutes of the monopoly product, hence the
demand is less elastic or ‘inelastic
...
Q
...
Hence
it has full control over supply
...
Differentiate between price discrimination and product differentiation
...
This is
generally done to maximise profits
...
This is done to attract
buyers from the rival firms in the market
...
8
Distinguish between perfect competition and monopoly
...
Perfect Competition
Monopoly
1
...
One seller & large no
...
2
...
2
...
3
...
Barriers to entry
4
...
There is full control over market price
...
9
Differentiate between Monopoly and Monopolistic Competition
...
Monopoly
1
...
Large number of buyers and sellers
...
No
...
No
...
There is product differentiation
...
Products Barriers to entry
3
...
4
...
4
...
Q
...
Ans
...
There is a high degree of
interdependence among the sellers regarding their price and output policy
...
A few firms
2
...
3
...
4
...
5
...
Class XII : Economics
138
Q
...
Explain how the
oligopoly firms are interdependent in taking price and output decisions
...
Collusive oligopoly is one in which the firms cooperate with each other in
deciding price and output where as, non-collusive oligopoly is one in which
the firms compete with each other
...
It makes a firm dependent on other firms
...
Q
...
There is an ‘increase’ in demand for this
good
...
Use diagram
...
-
Since the consumers will not be able to buy all they want to buy at this
price, there will be competition among buyers leading rise in price
...
-
The quantity rises to OQ and price to OP2
Q
...
There is simultaneous ‘decrease’ both
in demand and supply of the good
...
139
Class XII : Economics
Ans
...
If the relative (percentage) decrease in demand is greater than the
decrease in supply, price will fall
...
2
...
3
...
The price will remain unchanged because there is neither excess
demand nor excess supply in the market
...
4
Explain why the equilibrium price of commodity is determined at that level
of output at which its demand equals its supply
...
Suppose demand is greater than supply
...
It
will have on upward influence on the price
...
It will go on till demand is equal to supply again
...
Since the sellers will not able to sell all what
they want, there will be competition among the sellers
...
As a result demand will start rising and
supply falling
...
Hence, the equilibrium price of a commodity is determined at that level of
output at which its demand equals its supply
...
1
...
2
...
GNP is:
(a)
(b)
inclusive of indirect tax
...
2
...
Video and Video Camera are:
(a)
(b)
both stocks variables
(c)
Video is stock and video camera is flow variable
...
4
...
If GDPMP Rs
...
(a)
Rs
...
200
(c)
Rs
...
230
141
Class XII : Economics
Q
...
Purchase of A/c by a restaurant is:
(a)
(b)
Consumption expenditure on non-durable goods
...
(d)
Q
...
Value added is
(a)
(b)
sales + Stock – Purchase
(c)
Sales + change in Stocks – Intermediate costs
(d)
Q
...
Sale price – Purchase price
Value of output – Purchases
...
8
...
(a)
(b) Secondary Sector
(c)
Q
...
Primary Sector
Territory Sector
(d) None of the above
...
10
...
1
Calculate gross value added of factor cost:
(i)
Units of output gold (units)
1000
(ii)
Price per unit of output (Rs
...
)
(iv)
Intermediate cost (Rs
...
)
3000
(vi)
Opening Stock (Rs
...
)
2500
(viii)
Sales Tax (Rs
...
GVAPC = (i × ii) + vi – iv – vii – viii
= (1000 × 30) + 3000 – 2000 – 12000 – 2500 – 3500 = Rs
...
2
...
)
600
(ii)
Import Duty (Rs
...
)
(v)
Net change in stock (Rs
...
)
(vii)
Subsidy (Rs
...
NVAPC = (iii × iv) + v – vi – ii + vii – i
= (2000 × 10) + (–50) – 10000 – 400 + 500 – 600
= Rs
...
Q
...
Find Net Value added at market price:
143
Class XII : Economics
(i)
Output sold(units)
(ii)
Price per unit of output
(iii)
Excise
(iv)
Import duty
(v)
Net Change in Stock
(vi)
Deficiation
1000
(vii)
Intermediate Cost
8000
Ans
...
6500
...
4
...
5
Cold drinks purchased by a school canteen
...
(ii)
Ans
...
These are intermediate products because these are taken to be
resale in the same year
...
(i)
(ii)
Q
...
(i)
Imputed salaries of these members will be included in national
income
...
Family members working free on the farm owned by the family
...
Giving reasons, explain the treatment assigned to the following which
estimating national income
...
(i)
Not included, as it is transfer payment from firm to government
...
Payment of pocket money by parents
...
Q
...
Explain the basis of classifying goods into intermediate and final goods
...
Ans
...
Goods which are purchased for consumption and investment are called
final goods for example : Purchase of machinery for installation in factory
...
8
...
(i)
Machine purchased by a dealer of machine
...
Ans
...
(ii)
Q
...
It is a final good because it is meant for final consumption
How will you treat the following in estimating rational income of India? Give
reasons for your answer
...
1
Interest received on loan given to a foreign company in India
...
(ii)
Ans
...
It is included in the national income as interest is a factor income
and a part of domestic income
...
145
Class XII : Economics
(a)
Divident received by an Indian from his investment in shares of a
foreign company
...
(c)
Interest received on loans given to a friend for purchasing a car
...
(e)
Profit earned by a branch of an Indian Bank in Canada
...
(g)
Fees received from students
...
(i)
Interest paid by an individual on a loan taken to buy a car
...
(k)
Profit earned by a branch of foreign bank in India
...
(m)
(n)
Salaries received by Indians working in branches of foreign abroad
...
(p)
Rent paid by embassy of Japan in India to an Indian resident
...
2
Interest received by an Indian resident from firms abroad
...
How will you treat the following which estimating domestic factor of India?
Give reasons
...
(ii)
Rent paid by the embassy of Japan in India to a resident Indian
...
(v)
Q
...
Profit earned by branches of Foreign Bank of India
...
Are the following part of a country’s net domestic product at market price?
Explain
...
1
Net Indirect Tax
NFIA
(d) Consumption of Fixed Capital
(a)
It is factor income from abroad so will be included in national
income
...
(c)
Not included in national income, because it is a non-factor receipt
as is not used for production for consumption
...
(e)
It is a part of NFIA and will be included in national income
...
(g)
It is included in national income because it is a part of the private/
final consumption expenditure of the house hold
...
(i)
Not included because it is a non-factor income as loan is not used
for production but for consumption
...
(k)
Included, because it is a part of domestic product of India
...
(m)
Included as it is the part of NFIA
...
147
Class XII : Economics
(o)
(p)
Included as a part of rent as it is payment to self for housing
services
...
(s)
Not included as it is a transfer payment
...
(iii)
Included because it falls with in the domestic territory of India
...
(v)
Not included in domestic product but it is the part of NFIA
...
(c)
No, because domestic means it excludes NFIA
...
3
...
It will be included in NFIA
...
2
...
No, net means consumption of fixed capital is excluded
...
1
Explain the significance of the ‘Store of Value’ function of money
...
Ans
...
2
Ans
...
3
Ans
...
4
Ans
...
But in what form?
Money fulfills this need of the people
...
This is the store of
value function of money
...
Money as a unit of account means a standard unit for
quoting prices
...
Explain the ‘Medium of Exchange’ function of money?
Money as a medium of exchange means money as a means of payment
for exchange of goods and services
...
Money is exchanged for goods and
services when people buy things
...
Explain the “Government’s Bank” function of a Central Bank
...
It performs the same banking functions for the government as Commercial
Bank performs for its customers
...
It also gives loans to the government
...
It manges
public debt
...
Q
...
Ans
...
The capacity of Commercial Bank to create depends on two factors :
1
...
Legal Reserve Ratio LRR
Money multiplier
1
LRR
Money Creation = Initial Deposit x Money multiplier
...
1000 (ii) LRR = 20%
As required, the bank keeps 20% i
...
Rs
...
800
...
As assumed those who receive these payments put the money
back into their bank accounts
...
800
...
e
...
160 and lend Rs
...
In this way the money
goes on multiplying leading to total money creation of Rs
...
Money creation = Initial Deposit
1000
Class XII : Economics
1
0
...
Theory of Determination of Income and Employment is based on:
(a)
(b) Ex-post
(c)
2
...
MPS equals:
(a)
(b)
C
Y
(c)
3
...
Disguised unemployment (b) Involuntary Unemployment
Voluntary Unemployment
(d) Seasonal Unemployment
The slope of AD curve is
(a)
(b) downward sloping
(c)
5
...
(b)
APC is falling and MPC is also falling
...
(d)
APC is constant and MPC is rising
...
Inflationary gap is corrected by Control bank by
(a)
(b) raising repo rate
(c)
7
...
Moral suasion
Public expenditure
(d) Direct action
When the equality occurs between AD and AS before full employment
equilibrium then it is called
(a)
(b)
under employment equilibrium
(c)
equilibrium remain unchanged
(d)
9
...
1000 in the economy, total
national raises by Rs
...
What is the value of investment multiplier?
(a)
(b) 3
(c)
10
...
Ans
...
(a); 2
...
(c); 4
...
(c); 6
...
(c); 8
...
(c); 10
...
1
Ans
...
75
...
75 crore
...
K = Y/1 = 1 – MPC
Y = 1 × 1/1 – MPC
Class XII : Economics
152
= 75 x 1/1-0
...
Q
...
An economy is in equilibrium
...
8Y
...
C = 300 + 0
...
8Y + 700 = Rs
...
3
Giving reasons, state whether the following statements are true or false
...
(4)
The value of M -S can never be negative
...
(6)
Ans
...
The value of APS can never be greater than 1
...
8 or false if MPC > 0
...
8
...
4
Ans
...
True because K = 1/1 - MPC = 1/1 - 0 = 1 (6) True, because APC
+ APS =1
Explain the distinction between voluntary and involuntary employment
...
Involuntary unemployment is that part
153
Class XII : Economics
of labour force which is willing and able to work at the prevailing wage rate
but is out of work
...
5
Explain the relationship between investment multiplier and MPC?
Ans
...
Higher the proportion of increased income spend on consumption,
higher will be value of investment multiplier
...
Q
...
(1)
(2)
Q
...
The money
flows out of the Central Bank and reaches the Commercial Bank
as deposits
...
This will raise AD
...
Open Market Operation
Incase of deficient demand Central Bank decrease the bank rate
which the Central Bank charges on the loan given to commercial
bank
...
Since borrowing become cheaper and people borrow more Arises
...
(1)
Ans
...
This
forces Commercial Bank to increase lending rates
...
Aggregate demand falls
...
3
...
This
leads to flow of money out of the Commercial Banks to the Central
Bank when people make payment by cheques
...
Borrowing decline
...
Explain the role of following in correcting the deflationary gap in an economy
...
Expenditure
(2)
Legal Reserve Ratio
Ans
...
The govt
...
e
...
This will raise the level
of employment
...
Thus aggregate demand will rise
...
The result of
reducing CRR will be seen in the surplus cash reserves with the banks
which can be offered for credit
...
Q
...
Ans
...
It is called deficient demand
...
When margin is lower, the borrowing capacity of the borrower is
higher
...
This raise AD
...
5
In an economy 75% of the increase in income is spent on consumption
...
1000 crore
...
(1)
(2)
Ans
...
Ans
...
3000 Crore
Q
...
1200 crore
...
New Equilibrium income = Rs
...
25 = 4
1 = Y/K = 8000/4
= Rs
...
Class XII : Economics
156
Q
...
Or
Explain how the government budget can help in a fair distribution of income
in the economy
...
Budgetary policies are useful medium to reduce inequalities of income for
the fair distribution of income
...
Government can reduce the disposable income and
wealth of Rich by imposing heavy tax and can spend more on providing
free services to the poor
...
Q
...
Ans
...
Government can provide subsidy
and reduction in tax rate to motivate investment into areas where private
sector initiative is not coming
...
Q
...
Revenue Receipts
Capital Receipts
1
...
These receipts create liability for the
any liability for the government
...
2
...
2
...
3
...
Example : Loan by govt
...
157
Class XII : Economics
Q
...
These expenditure do not
cause increase in govt
...
These expenditure are cause
increase in govt
...
These expenditure do not
cause any reduction in govt
...
These expenditure are cause
reduction in govt
...
liability
3
...
-
3
...
Q
...
Distinguish between Direct and Indirect Tax :
Direct Tax
Indirect Tax
1
...
Lits incidence can not be shifted 2
...
other person
...
Example : Income Tax
Q
...
1
...
3
...
What is meant by fiscal deficit
...
Fiscal deficit is equal to excess of total expenditure over the sum of revenue
receipts and capital receipts excluding borrowings i
...
Fiscal deficit means
borrowing of the government
...
Implication of Fiscal Deficit :
1
...
2
...
3
...
Class XII : Economics
158
Q
...
Q
...
Q
...
Q
...
Q
...
Q
...
Foreign exchange rate is the price of a foreign currency in terms
of domestic currency
...
What is balance of payment accounts?
It is a systematic record of all economic transactions between the residents
of a country and the rest of the world in a given period
(one year) of time
...
Exports and Foreign Tourism
...
Import of goods and services and to get education in abroad
...
Ans
...
Q
...
What is fixed exchange rate?
Ans
...
8
Define flexible exchange rate
...
The rate of exchange in terms of other currencies are determined by
market forces of demand and supply
...
9
...
159
Class XII : Economics
Ans
...
Q
...
Ans
...
Borrowing and lending to and from abroad
...
Investment to and from abroad
...
Change in foreign exchange reserves
...
11
Which transactions determine the balance of trade? When is balance of
trade in surplus?
Ans
...
When the value
of exports of goods is greater than the value of imports of goods
...
12
...
(1)
Exports and imports of goods
(2)
Exports and imports of services
(3)
Unilateral transfers
Q
...
Ans
...
Q
...
Ans
...
The fall in market price
of domestic currency (due to demand supply in the market) in terms of a
foreign currency is called depreciation
...
15
When price of a foreign currency rises its supply also rises
...
If exchange rate increases, this will make domestic country’s goods cheaper
to foreigners
...
It implies more supply
of foreign exchange
...
(ii)
Marks for questions are indicated against each
...
5 and 7-2 are very short-answer questions carrying mark
each
...
(iv)
Question Nos
...
Answer to them should not normally exceed 60 words each
...
-3 and 27-29 are also short-answer questions carrying 4
marks each
...
(vi)
question Nos
...
Answer to them should not normally exceed 100 words each
...
(viii)
Answer should be brief and to the point and the above word limit should
be adhered to as far as possible
...
Unemployment is reduced due to the measures taken by the government
...
1
2
...
3
...
Give meaning of ‘returns to a factor’
...
What is perfect oligopoly?
6
...
7
...
9 per unit
...
How many units the consumer
will buy at a price of Rs
...
8
...
Or
State the relation between total cost and marginal cost
...
What is the behaviour of average fixed cost as output is increased? Why
is it so?
10
...
11
...
Explain consumers equilibrium
with the help of utility analysis
...
Show that
when price of good falls, demand for rises
...
12
...
13
...
Explain the causes of this behaviour
...
Explain the conditions of consumers equilibrium with the help of the
indifference curve analysis
...
15
...
give reasons
...
Class XII : Economics
162
Output
(Units)
Total Revenue
(Rs
...
)
1
8
2
14
15
3
21
21
4
28
28
5
16
...
Demand for the commodity
“increases”
...
Use diagram
...
16
...
Demand for the commodity
“increases”
...
Compare the prices at the old and new
equilibrium
...
What are demand deposits?
18
...
Define marginal propensity to consume
...
Define Government budget
...
Give meaning of balance of trade
...
Define externalities
...
What is its
impact on welfare?
23
...
Or
Explain the significance of ‘medium of exchange’ function of money
...
Is the following revenue expenditure or capital expenditure in the context
of government budget? Give reason
...
(ii)
Expenditure on purchasing computers
...
Explain the meaning of balance of payments deficit
...
Recently Government of India has doubled the import duty on gold
...
Define money supply and explain its components
...
28
...
25
Autonomous consumption expenditure = 200
*29
...
Which
economic value does it reflect? Explain
...
Calculate national income and gross national disposable income from the
following :
(Rs
...
Giving reason explain how should the following be treated in estimating
gross domestic product at market price?
(i)
Fees to a mechanic paid by a firm
...
Interest paid by an individual on a car loan taken from a bank
...
Explain national income equilibrium through aggregate demand and
aggregate supply
...
Also explain the changes that take place
in an economy when the economy is not in equilibrium
...
Use diagram
...
No
...
Define aggregate demand
...
Also explain the changes that
take place in an economy when the economy is not in equilibrium
...
165
Class XII : Economics
A1
Expected Answer/Value Points
Distribution of marks
1
...
Budget set consists of all the bundles of the goods which at given prices
cost less than or equal to the given income of the consumer
...
Receipts from sale of a good Or market value of the output produced is
called revenue
...
Returns to a factor refers to change in output when only one input is
changed, other inputs remaining unchanged
...
If in an oligopoly market firms produce homogeneous products, it is called
perfect oligopoly
...
For whom to produce means that who will buy the goods and services
produced
...
So, the
problem amounts to how the national income is distributed in an economy
...
Ep
P Q
Q P
–1
9
Q
18
1
9 Q –18
Q –2
Consumer will buy Q +
final answer is given)
8
...
When TC rises at an increasing rate MC rises
...
9
...
1
It is because, even when output is increased TFC remains unchanged
...
When there are only a few firms in the market, it is likely that each firm
has some knowledge as to how its rivals operate
...
Therefore, each firm in deciding price and
output, takes into account the expected reactions by the rival firms
...
3
11
...
The consumer will not be in
equilibrium because per rupee MU of X is greater than per rupee MU of
Y
...
It will lead to fall in MUx and rise in MUy
...
Explanation:(1) Suppose
x
y
(2) Unless MY falls as more of a good is consumed the consumer will not
reach equilibrium
...
So, when PB falls,
demand for B rises
...
The effect of change in income of the consumer on demand of a good
depends upon whether the good is inferior or normal
...
If the good is inferior for the consumer, its demand
is likely to decrease with an increase in income
...
There are three phases of change in MP:
1
...
This
raises efficiency of the variable input
...
MP falls but is positive: Because beyond a point increasing
variable input puts, pressure on fixed inputs leading to decline in
efficiency
...
MP continuous to fall and is negative: Because there is so
much pressure of the variable input on the fixed inputs that total
product starts declining
...
Diagram not required)
14
...
The two conditions of equilibrium are:
1
...
MRS falls as more of X is consumed in place of Y
...
Px
i
...
consumer is not in equilibrium
...
The consumer buys more
Suppose MRS
Px
of X
...
2
...
(Explanation based on MRS
Px
is also correct)
Py
Or
The three properties are
(i)
IC slopes downwards from left to right
...
(ii)
IC to the right has higher utility
...
2
...
Slopes downward because to consume more of good X, the consumer
must give up some quantity of good Y so that the consumer remains
on the same level of satisfaction
...
1
Output
TR
TC
MR
MC
1
7
8
7
8
2
14
15
7
7
3
21
21
7
6
4
28
28
7
7
Equilibrium
8
1
2
5
35
36
7
The producer is in equilibrium at 4 units of output
169
Class XII : Economics
Reasons (1) MC = MR
1
(2) MC > MR after equilibrium
1
Profit = TR – TC = 28 – 28 = 0
1
Y
Price
S
E
P
A
P
D
E
16
...
When demand
increases, the demand curve shifts to the right, D2 is new demand curve
...
•
The excess demand causes competition among buyers resulting in rise in
price
...
•
these changes continue till the market reaches new equilibrium at E 2 with
a higher price OP2 and higher quantity OQ2
...
•
It causes competition among buyers resulting in rise in price
•
Price rise reduces demand and increases supply
...
•
These changes continue till demand and supply are equal at new price
...
Class XII : Economics
170
6
17
...
1
18
...
1
19
...
1
20
...
1
21
...
22
...
1
Impact: Reduces welfare through negative effect on health
...
1
The significance of money as a store of value is that money can be stored
for use in future
...
3
Or
Medium of exchange function has solved the problem of double coincidence
of wants
...
Money facilitates the exchange
...
(i) Expenditure on collection of taxes is revenue expenditure because it
neither creates any asset nor reduces any liability
...
1½
25
...
Autonomous transactions
are those which are not influenced by other transactions in the BOP
...
Increasing import duty on gold will make imports of gold costly, it will
171
Class XII : Economics
reduce demand for import of gold and consequently of foreign exchange
...
3
27
...
It has two components
...
Demand deposits are deposits which can be
withdrawn by writing cheque
...
4
Lending of money by the Central Bank to commercial banks in items of
emergent need is referred to as the ‘lender of last resort’ function of the
central bank
...
Y = C + MPC (Y) + I
1½
1000 = 200 + (1 –
...
Increased expenditure by government on public goods like defence,
maintaining law and etc
...
For example more expenditure on maintaining law and order raises
the sense of security among the people
...
4
(To be marked as a whole)
30
...
685 Arab
...
I
...
835 Arab
31
...
2
Class XII : Economics
172
(ii) Interest paid by an individual is not included because the loan is
taken to meet consumption expenditure and therefore interest on such
a loan is not a factor payment
...
2
(No marks if the reason is not given)
Y
AD
AD
E
32
...
In the figure the
equilibrium is at E, the intersection of the AD curve and the 45° line
...
2
173
Class XII : Economics
Title: Micro Economics Whole Book 12
Description: Micro Economics Whole Book (Hindi) prepared by KVS and Delhi Schools for CBSE class 12 students. CBSE class 12 Micro Economics key notes and important Questions as per latest CBSE syllabus for Economics.
Description: Micro Economics Whole Book (Hindi) prepared by KVS and Delhi Schools for CBSE class 12 students. CBSE class 12 Micro Economics key notes and important Questions as per latest CBSE syllabus for Economics.