# 12th Economics Paper Solutions Set 1 : CBSE All India Previous Year 2008

General Instructions:
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each.
(iii) Questions Nos. 1-5 and 17-21 are very short-answer questions carrying 1 mark each. They are required to be answered in one sentence each
(iv) Questions Nos. 6-10 and 22-26 are short-answer questions carrying 3 marks each. Answers to them should normally not exceed 60 words each.
(v) Questions Nos. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
(vi) Questions Nos. 14-16 and 30-32 are long-answer questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
(vii) Answers should be brief and to the point and the above word limits should be adhered to as far as possible.
Q1 :

Define “Marginal Rate of Transformation”™.

Marginal Rate of Transformation (MRT) implies that for the production of every additional unit of one good, more and more units of the other good have to be sacrificed. MRT for the two goods, X and Y is represented as follows. Q2 :

What is a demand schedule?

A demand schedule is a tabular presentation of the relationship between the price of a commodity and the quantity demanded of the commodity at a particular point of time.

Q3 :

Define “production function”™.

The production function of a firm depicts the relationship between the inputs used in the production process and the final output produced. Algebraically, a production function is represented as follows.

Qx = f (L, K)

where,

L represents units of labour used (input one)

K represents units of capital used (input two)

Qx represents units of output x produced (output)

Q4 :

What is “market supply”™?

Q5 :

Define “equilibrium price”™.

Q6 :

Explain the central problem of “choice of technique”™.

Q7 :

Price elasticity of demand of a good is (−) 1. At a given price the consumer buys 60 units of the good. How many units will the consumer buy if the price falls by 10 per cent?

Q8 :

Given the market price of a good, how does a consumer decide as to how many units of that good to buy? Explain.

Q9 :

What is the likely effect on the supply of a good if the prices of the inputs used in production of that good fall? Explain.

Q10 :

Explain what happens to the profits in the long run if the firms are free to enter the industry.

OR

Explain what happens to losses in the long run if the firms are free to leave the industry.

Q11 :

Explain producer”™s equilibrium using a schedule. Use total cost and total revenue approach.

OR

Distinguish between (i) fixed cost and variable cost giving examples and (ii) average cost and marginal cost giving an example.

Q12 :

Draw supply curves with price elasticity of supply throughout equal to (i) zero, (ii) one, (iii) infinity and (iv) less than one.

Q13 :

Complete the following table:

 Price (Rs) Output (Units) Total Revenue (Rs) Marginal Revenue (Rs) – 1 6 – 4 – – 2

Q14 :

Explain the effect of the following on demand for a good:

(i) Rise in income.

(ii) Rise in prices of related goods.

Q15 :

Explain, with the help of numerical examples, the effect on total output of a good when all the inputs used in production of that good are increased simultaneously and in the same proportion.

Q16 :

Given market equilibrium of a good, what are the effects of simultaneous increase in both demand and supply of that good on its equilibrium price and quantity.

OR

Explain the implications of the following:

(i) The feature differentiated products”™ under monopolistic competition.

(ii) The feature large number of seller”™s under perfect competition.

Q17 :

Define “aggregate supply”™.

Q18 :

Give meaning of deficient demand.

Q19 :

What is a commercial bank?

Q20 :

Define government budget.

Q21 :

What is fixed exchange rate system?

Q22 :

Calculate Net Value Added at factor cost from the following data:

 S. No. Items (Rs lakhs) (i) Depreciation 20 (ii) Intermediate cost 90 (iii) Subsidy 5 (iv) Sales

Q23 :

When exchange rate of foreign currency falls, its demand rises. Explain, how?

Q24 :

Distinguish between balance of trade and balance on current account.

Q25 :

Explain the “medium of exchange”™ function of money.

OR

Explain the evolution of money.

Q26 :

Give meaning of capital expenditure and revenue expenditure in a government budget.

Q27 :

In an economy an increase in investment leads to increase in national income which is three times more than the increase in investment. Calculate marginal propensity of consume.

Q28 :

Explain the lending function of commercial banks.

OR

Explain “banker to the government”™ function of central bank.

Q29 :

What is revenue deficit? What are its implications?

Q30 :

Calculate “National Income”™ and Private Income”™ from the following data:

 S. No. Items (Rs in crore) (i) Net current transfers to the rest of the world 10 (ii) Private final consumption expenditure 600 (iii) National debt interest 15 (iv) Net exports (–) 20

Q31 :

Explain consumption function with the help of a schedule and diagram.

OR

Explain “saving function”™ with the help of a schedule and diagram.

Q32 :

Giving reasons, explain how the following are treated in estimating national income:

(i) Wheat grown by a farmer but used entirely for family”™s consumption.

(ii) Earnings of the shareholders from the sale of shares.

(iii) Expenditure by government on providing free education.