12th Economics Paper Solutions Set 1 : CBSE Delhi 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 market economy?


Answer :

Market economy is a form of economy where the capitalist or the private entrepreneurs have the major control over all the economic activities. They organise and undertake production with the sole motive of profit making.

Q2 :

When is a firm called “price-taker”™?


Answer :

A firm is said to be a price taker when it has no control over the existing market price and accepts the price as determined by the invisible hands of market”™, i.e. by demand for and supply of the commodities.

Q3 :

Define budget set.


Answer :

A budget set represents those combinations of consumption bundles that are available to the consumer given his/her income level and at the existing market prices. In other words, it represents those consumption bundles that the consumer can purchase using his/her money income (M). It is represented by the following inequality condition.

Q4 :

What is meant by “increase”™ in supply?


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Q5 :

Define supply.


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Q6 :

Why is a production possibilities curve concave? Explain.


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Q7 :

8 units of a good are demanded at a price of Rs 7 per unit. Price elasticity of demand is (−) 1. How many units will be demanded if the price rises to Rs 8 per unit? Use expenditure approach of price elasticity of demand to answer this question.


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Q8 :

Giving examples, explain the meaning of cost in economics.


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Q9 :

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


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Q10 :

Explain the implication of “freedom of entry and exit to the firms”™ under perfect competition.

OR

Explain the implication of “perfect knowledge about market”™ under perfect competition.


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Q11 :

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

 


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Q12 :

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


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Q13 :

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

OR

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


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Q14 :

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


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Q15 :

Explain the three properties of indifference curves.


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Q16 :

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


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Q17 :

What is nominal gross domestic product?


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Q18 :

Define flow variables.


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Q19 :

Define cash reserve ratio.


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Q20 :

Define money supply.


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Q21 :

Define foreign exchange rate.


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Q22 :

State the components of capital account of balance of payments.


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Q23 :

Explain how “distribution of gross domestic product”™ is a limitation in taking gross domestic product as an index of welfare.


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Q24 :

Given that national income is Rs 80 crore and consumption expenditure Rs 64 crore, find out average propensity of save. When income rises to Rs 100 crore and consumption expenditure to Rs 78 crore, what will be the average propensity to consume and the marginal propensity to consume?


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Q25 :

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


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Q26 :

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

OR

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


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Q27 :

Explain the “allocation of resources”™ objective of Government budget.

OR

Explain the “redistribution of income”™ objective of Government budget.


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Q28 :

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

S. No.

Items

(Rs Arab)

(i)

Capital receipts net of borrowings

95

(ii)

Revenue expenditure

100

(iii)

Interest payments

10

(iv)

Revenue receipts

80


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Q29 :

Giving reasons classify the following into intermediate products and final products:

(i) Furniture purchased by a school.

(ii) Chalks, dusters, etc, purchased by a school.


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Q30 :

Explain the role of the following in correcting “deficient demand”™ in an economy:

(i) Open market operations.

(ii) Bank rate.

OR

Explain the role of the following in correcting “excess demand”™ in an economy:

(i) Bank rate.

(ii) Open market operations.


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Q31 :

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


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Q32 :

Calculate National Income and Gross National Disposable Income from the following:

S. No.

Items

(Rs crore)

(i)

Net current transfers to the rest of the world

(–) 5

(ii)

Private final consumption expenditure

500

(iii)

Consumption of fixed capital

20

(iv)

Net factor income to abroad

(–) 10


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