# 12th Economics Paper Solutions Set 1 : CBSE All India Previous Year 2011

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 :

What is a planned economy?

Planned economy is a form of economy in which the central authority or state (government) plans, organises and regulates all the important economic activities. The process of production and distribution is regulated and controlled by the state.

Q2 :

When is a firm called price maker?

A firm is called a price maker when it enjoys full control over the price decisions. In other words, a firm is said to be a price maker when it has the total freedom to fix the price level at which it maximises his profit.

Q3 :

Define a budget line.

Budget line is a line that represents different combinations of two goods that are affordable and are available to a consumer given his/her level of income and the market prices of the goods, if the consumer spends the entire income on the two goods. Algebraically, a budget line is represented as follows.

P1x1+ P2x2= M

where,

P1x1 represents the amount spent on good 1

P2x2 represents the amount spent on good 2

M represents the income of the consumer

Q4 :

What is “decrease”™ in supply?

Q5 :

Define Production Function.

Q6 :

How is production possibility curve affected by unemployment in the economy? Explain.

Q7 :

When price of a good is Rs 13 per unit, the consumer buys 11 units of that good. When price rises to Rs 15 per unit, the consumer continues to buy 11 units. Calculate price elasticity of demand.

Q8 :

Distinguish between explicit cost and implicit cost and give examples.

Q9 :

Draw in a single diagram the average revenue and marginal revenue curves of a firm which can sell any quantity of the good at a given price. Explain.

Q10 :

Explain the implications of the feature “large number of buyers”™ in a perfectly competitive market.

OR

Explain the implications of the feature “homogeneous products”™ in a perfectly competitive market.

Q11 :

A consumer consumes only two goods X and Y. At a consumption level of these two goods, he finds that the ratio of marginal utility to price in case of X is higher than in case of Y. Explain the reaction of the consumer.

Q12 :

Explain how rise in income of a consumer affects the demand of a good. Give examples.

Q13 :

Define marginal cost. Explain its relation with average cost

OR

Define variable cost explain the behaviour of total variable cost as output increases.

Q14 :

What is producer”™s equilibrium? Explain the conditions of producer”™s equilibrium through the “marginal cost and marginal revenue”™ approach. Use diagram.

Q15 :

Explain the conditions of consumer”™s equilibrium with the help of the Indifference Curve Analysis.

Q16 :

Market for a good is in equilibrium. There is “increase”™ in supply of the good. Explain the chain of effect of this change. Use diagram.

OR

Distinguish between “non-collusive”™ and “collusive”™ oligopoly. Explain the following features of oligopoly:

(i) Few firms

(ii) Non-price competition

Q17 :

What are stock variables?

Q18 :

Define “Depreciation”™.

Q19 :

Define “Statutory Liquidity Ratio”™.

Q20 :

Define Money.

Q21 :

What is foreign exchange?

Q22 :

Which transactions determine the balance of trade? When is balance of trade in surplus?

Q23 :

Explain how “non-monetary exchanges”™ are a limitation in taking gross domestic product as an index of welfare.

Q24 :

In an economy the marginal propensity to consume is 0.75. investment expenditure in the economy increases by Rs 75 crore. Calculate the total increase in national income.

Q25 :

Explain the distinction between voluntary and involuntary unemployment.

Q26 :

When price of a foreign currency falls, the demand for that foreign currency rises. Explain why.

OR

When price of a foreign currency falls, the supply of that foreign currency also falls. Explain, why.

Q27 :

Explain the “redistribution of income”™ objective of a government budget.

OR

Explain the “economy stability objective of a government budget.

Q28 :

From the following data about a government budget find (a) revenue deficit, (b) fiscal deficit and (c) primary deficit:

 S. No. Items (Rs Arab) (i) Tax revenue 47 (ii) Capital receipts 34 (iii) Non-tax revenue 10 (iv) Borrowings 32

Q29 :

Giving reasons, explain the treatment assigned to the following while estimating national income:

(i) Family members working free on the farm owned by the family.

(ii) Payment of interest on borrowings by general government.

Q30 :

Explain the role of the following in correcting the inflationary gap in an economy:

(i) Legal reserves

(ii) Bank rate

OR

Explain the role of the following in correcting the deflationary gap in an economy:

(i) Open market operations

(ii) Margin requirements

Q31 :

Explain the following functions of the central bank:

(i) Bank of issue

(ii) Banker”™s bank