CBSE Previous Year Question Papers Class 12 Economics 2018<\/h3>\n
SECTION \u2014 A<\/strong><\/p>\n Question 1. Question 2. Question 3. Question 4. Question 5. OR Question 6. Question 7. Question 8. Question 9. Question 10. (2) Less Mobility : Under monopolistic competition, both the factors of production as well as goods and services are not perfectly mobile.<\/p>\n (3) More Elastic Demand: Under monopolistic competition, demand curve is more elastic. In order to sell more, the firms must reduce its price. (2) Nature of Price and Output: Under perfect competition, price is equal to marginal cost as well as marginal revenue whereas under imperfect competition it is not so. Although, under monopolistic competition marginal cost and marginal revenue are equal yet not equalising the price.<\/p>\n (3) Nature of Product: Under perfect competition, firms produce homogeneous products. The cross elasticity of demand among the goods is infinite. Under imperfect competition, all the firms produce differentiated products and the cross elasticity of demand among them is very small. (b) Non-price competition under oligopoly: In an oligopoly market, firms do not compete with each other for changes in the price. If the firm increases the price, rival firms may not increase it, so it will lead to a loss of the market. Consumers will shift to rival firms. On the other hand, if the firm decreases the price, the rival firms may decrease it, so it will lead to a loss of total revenue. There will not be an increase in the demand for the product. They take into consideration the decisions of rival firms, and hence, the price does not move freely and it leads to non-price competition. High selling cost prevails in the market, resources are not fully used and welfare is not maximised.<\/p>\n Question 11. Question 12. SECTION\u2014B<\/strong><\/p>\n Question 13. Question 14. Question 15. Question 16. Question 17. Question 18. Relationship between marginal propensity to consume and multiplier Question 19. 2. Monetary Policy: Monetary policy of the central bank of a country is to control the money supply and credit in the economy. Therefore, it is also called Central Bank’s Credit Control Policy. Money broadly refers to currency notes and coins whereas credit generally means loans, i.e., finance provided to others at a certain rate of interest. Monetary measures (instruments) affect the cost of credit (i.e., rate of interest) and availability of credit. Thus, it helps in checking excess demand when credit availability is restricted and credit is made costlier.<\/p>\n 3. Miscellaneous: Other anti-inflationary measures are import promotion, wage freeze, control and blocking of liquid assets, compulsory savings scheme for households, increase in production by utilising idle capacities, etc. 2. Investment: Investment, second of the four components of aggregate demand, refers to the spending by firms not households. However, investment is also the most volatile component of AD. An increase in investment shifts AD to the right in the short rim and helps to improve the quality and quantity of factors of production in the long run.<\/p>\n 3. Government: Government spending forms a large total of aggregate damand, and an increase in government spending shifts aggregate demand to the right. This spending is categorized into transfer payments and capital spending. Transfer payments include pensions and unemployment benefits and capital spending is on things like roads, schools and hospitals. Government spends to increase the consumption of health services, education and to redistribute income. They may also spend to increase aggregate demand.<\/p>\n 4. Net Exports: Imports are foreign goods bought by consumers domestically, and exports are domestic goods bought abroad. Net exports is the difference between exports and imports, and this component can be net imports too if imports are greater than exports. An increase in net exports shifts aggregates demand to the right. The exchange rate and trade policy affects net exports.<\/p>\n Question 20.
\nWhen the total fixed cost of producing 100 units is \u20b9 30 and the average variable cost \u20b9 3, total cost is : (Choose the correct alternative) [1]
\n(a) \u20b9 3
\n(b) \u20b9 30
\n(c) \u20b9 270
\n(d) \u20b9 330
\nAnswer:
\n(d) \u20b9 330.<\/p>\n
\nWhen the Average Product (AP) is maximum, the Marginal Product (MP) is : (Choose the correct alternative) [1]
\n(a) Equal to AP
\n(b) Less than AP
\n(c) More than AP
\n(d) Can be any one of the above
\nAnswer:
\n(a) Equal to AP<\/p>\n
\nState one example of positive economics. [1]
\nAnswer:
\nIncreasing the interest rate to encourage people to save is an example of positive economics.<\/p>\n
\nDefine fixed cost. [1]
\nAnswer:
\nFixed costs are those costs which do not vary with the level of output. For e.g. Rent of factory.<\/p>\n
\nExplain the central problem of “choice of technique”.
\nOR
\nExplain the central problem of “for whom to produce”. [3]
\nAnswer:
\nThe problem of “choice of technique” is the second major central problem faced by the economy ever. Basically, there are two choices of techniques i.e.,<\/p>\n\n
\nAn economy faces a major central problem
\ni. e., for whom the production is to be done? Production\/Income is distributed either on the basis of the purchasing powers of the consumers or on the basis of requirements of the individuals.
\nTwo types of distribution are:<\/p>\n\n
\nWhat is meant by inelastic demand ? Compare it with perfectly inelastic demand. [3]
\nAnswer:
\nElasticity is a measure of the responsiveness of the quantity demanded to a change in its price. Inelastic demand means that the demand for a product does not increase or decrease corresponding to the fall or rise in its price. In this case elasticity is less than 1, as percentage change in quantity demanded is less than the percentage change in price.
\nFor Ex.\u2014Percentage change in quantity demanded is 10%
\nwhereas percentage change in price = 20%
\nSo, Elasticity (Ed < 1) = 0.5
\nOn the other hand, when increase or decrease in price does not affect the quantity demanded, it is known as perfectly inelastic demand.
\nFor Ex.\u2014Price is changed by 10% but quantity demanded remains the same i.e.,
\nPercentage change in quantity demand = 0
\nPercentage change in price = 20%
\nSo, elasticity is 0.<\/p>\n
\nWhen the price of a commodity changes from ? 4 per unit to ? 5 per unit, its market supply rises from 100 units to 120 units. Calculate the price elasticity of supply. Give reason. [4]
\nAnswer:
\n![\"CBSE](\"https:\/\/i1.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-1.png?resize=150%2C123&ssl=1\")
\nIt is inelastic, as elasticity is less than one.<\/p>\n
\nWhat is meant by price ceiling? Explain its implications. [4]
\nAnswer:
\nPrice ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. It has been found that higher price ceilings are ineffective. Price ceiling has been found to be of great importance in the house rent market.
\n![\"CBSE](\"https:\/\/i1.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-2.png?resize=294%2C277&ssl=1\")
\nImplications of Trice Ceiling’<\/p>\n\n
\nGiven the price of a good, how will a consumer decide as to how much quantity to buy of that good ? Explain.
\nOR
\nWhat is Indifference Curve? State three properties of indifference curves. [4]
\nAnswer:
\nConsumer equilibrium refers to the situation when consumer gets maximum satisfaction\/utility from the goods it consumes. It is the situation through which a consumer decides how many units of the goods to consume.
\n![\"CBSE](\"https:\/\/i2.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-3.png?resize=309%2C263&ssl=1\")
\nPrice remains constant when MU of goods is more than its price, and it that case, consumer will decide not to purchase that good.
\nAlso, when MU is less than its price, then also consumer will give up its consumptions. As a consumer will consume only when, MU is equal to price.
\nMUx = Px
\nIn the figure,
\nX-axis = Consumption
\nY-axis = Price
\nE = Consumer Equilibrium
\nOR
\nA curve on a graph (the axis of which represent quantities of two commodities) linking those combinations of quantities which the consumer regards as of equal value.
\n![\"CBSE](\"https:\/\/i0.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-4.png?resize=282%2C280&ssl=1\")
\nIC\u2014Indifference Curve.
\nX-axis = Goodx
\nY-axis’= Goody
\nProperties:<\/p>\n\n
\nState three characteristics of monopolistic competition. Which of the characteristics separates it from perfect competition and why ?
\nOR
\nExplain the implications of the following :
\n(a) Freedom of entry and exit of firms under perfect competition.
\n(b) Non-price competition under oligopoly. [6]
\nAnswer:
\nThe main features of monopolistic competition are as under:
\n(1) Large Number of Buyers and Sellers : There are large numbers of firms but not as large as under perfect competition. That means each firm can control its price- output policy to some extent. It is assumed that any price-output policy of a firm will not get reaction from other firms so each firm follows the independent price policy.<\/p>\n
\nThe characteristics which separates monopo\u00aclistic competition from perfect competition are :
\n(1) Nature of Firms: Under perfect competition, an industry consists of a large number of firms. Each firm in the industry has a very little share in the total output. The firms have to accept the price determined by the industry. On the other hand, under monopolistic competition the number of firms is limited. The firms can influence the market price by their individual actions.<\/p>\n
\nOR
\n(a) Freedom of entry and exit of firms under perfect competition : There is freedom of entry and exit of firms in perfect competition. This implies that under perfect competition, in long-run, firms earn only normal profits, so new firms does not enter or exit the market in long-run. The firms in this competition do not earn supernormal profits or losses in long-run. It is only in short-run that the firms enter or exit the market.<\/p>\n
\nExplain the conditions of consumer’s equilibrium using Indifference Curve Analysis. [6]
\nAnswer:
\nAccording to indifference curve analysis, a consumer attains equilibrium at a point where budget line is tangent to an indifference curve. Consumer equilibrium is achieved where slope of indifference curve (MRS) = slope of budget line (Px\/Py).
\nMRS = Px \u00f7 Py (Ratio of prices of two goods) Given the indifference map (preference schedule) of the consumer and budget or price line, we can find out the combination which gives the consumer maximum satisfaction. The aim of the consumer is to obtain highest combination on his indifference map and for this, he tries to go to the highest indifference curve with his given budget line. He would be in equilibrium only at such point which is common between a budget line and the highest attainable indifference curve. A consumer is in equilibrium at a point where budget line is tangent to indifference curve. At this point, slope of indifference curve (called MRS) is equal to slope of budget line.
\n![\"CBSE](\"https:\/\/i1.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-5.png?resize=345%2C269&ssl=1\")
\nIn the above fig, P is the equilibrium point at which budget line M just touches the highest attainable indifference curve IC2<\/sub> within consumer budget. Combinations on IC3<\/sub> are not affordable because his income does not permit whereas combinations on IC1<\/sub> gives lower satisfaction than IC2<\/sub>. Hence, best combination is at point P where budget line is tangent to the indifference curve IC2<\/sub>. It is at this point that consumer attains the maximum satisfaction at the state of equilibrium.
\nFor consumer’s equilibrium, two conditions are necessary:
\n(a) Budget line should be tangent to indifference curve (MRS = Px\/Py).
\n(b) Indifference curve should be convex to the point of origin (i.e., MRS should be diminishing at a point of equilibrium.)<\/p>\n
\nExplain the conditions of producer’s equilibrium in terms of marginal revenue and marginal cost. [6]
\nAnswer:
\nProducer’s equilibrium refers to the state in which a producer earns his maximum profit or minimise its losses. According to MR- MC approach, the producer is at equilibrium, when the Marginal Revenue (MR) is equal to the Marginal Cost (MC) and Marginal Cost curve cuts the Marginal Revenve curve from below.
\nTwo conditions under this approach are :
\n(i) MR = MC
\n(ii) MC curve should cut the MR curve from below, or MC should be rising.
\nMR is the addition to TR from the sale of one more unit of output and MC is the addition to TC for increasing the production by one unit. In order to maximise profits, firms compare its MR with its MC.
\nAs long as the addition to revenue is greater than the addition to cost, it is profitable for a firm to continue producing more units of output. In the diagram, output is shown on the X-axis, revenue and cost on the Y-axis. The Marginal Cost (MC) curve is U-shaped and P = MR = AR, is a horizontal line parallel to X-axis.
\n![\"CBSE](\"https:\/\/i1.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-6.png?resize=318%2C256&ssl=1\")
\nMC = MR at two points R and K in the diagram, but profits are maximised at point K, corresponding to OQ level of output. Between OQ and Q1<\/sub> levels of output, MR exceeds MC. Therefore, firm will not stop at point R but will continue to produce to take advantage of additional profit. Thus, equilibrium will be at point K, where both the conditions are satisfied.
\nSituation beyond OQ1<\/sub> level:
\nMR < MC when output level is more than OQ1 <\/sub>MR < MC, which implies that firm is making a loss on its last unit of output. Hence, in order to maximise profit a rational producer decreases output as long as MC > MR. Thus, the firm moves towards producing OQ units of output.<\/p>\n
\nDefine money supply. [1]
\nAnswer:
\nMoney supply is the total amont of money in circulation or in existence in a country at a specific time.<\/p>\n
\nWhich of the following affects national income? (Choose the correct alternative) [1]
\n(a) Goods and Services tax
\n(b) Corporation tax
\n(c) Subsidies
\n(d) None of the above
\nAnswer:
\n(c) Subsides<\/p>\n
\nWhy does the consumption curve not start from the origin? [1]
\nAnswer:
\nAs consumption includes autonomous consumption and autonomous consumption can never be zero.<\/p>\n
\nThe central bank can increase the availability of credit by: (Choose the correct alternative).[1]
\n(a) Raising the repo rate
\n(b) Raising reverse repo rate
\n(c) Buying government securities
\n(d) Selling government securities
\nAnswer:
\n(c) Buying government securities.<\/p>\n
\nGiven nominal income, how can we find real income? Explain.
\nOR
\nWhich among the following are final goods and which are intermediate goods ? Give reasons. [3]
\n(a) Milk purchased by a tea stall
\n(b) Bus purchased by a school
\n(c) Juice purchased by a student from the school canteen
\nAnswer:
\nReal income can be calculated by applying the following formula:
\nReal Income = \\(\\frac{\\text { Nominal Income }}{\\text { Price Index of current year }}\\) \u00d7 Price Index of base year
\nConsider price index of base year as 100 When nominal income is given, we can convert it into real income with the help of GDP deflator.
\n\u2234 Real Income = \\(\\frac{\\text { Nominal Income }}{\\text { GDP deflator }}\\) \u00d7 100
\nOR
\n(a) It is an intermediate good because it is used by producer during production process of making tea and not for final consumption.
\n(b) It is a final good as, it is purchased by school for final consumption.
\n(c) It is a final good as, it is purchased by a student for final consumption.<\/p>\n
\nDefine multiplier. What is the relation between marginal propensity to consume and multiplier ? Calculate the marginal propensity to consume if the value of multiplier is 4. [3]
\nAnswer:
\nIn economics, a multiplier is the factor by which gains in total output are greater than the change in spending that caused it. It is usually used in reference to the relationship between investment and total national income.<\/p>\n
\nThere is a direct relationship between MPC and Multiplier as, the higher the MPC, the higher the multiplier and vice versa.
\n![\"CBSE](\"https:\/\/i2.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-7.png?resize=270%2C153&ssl=1\")
<\/p>\n
\nWhat is meant by inflationary gap? State three measures to reduce this gap.
\nOR
\nWhat is meant by aggregate demand ? State its components. [4]
\nAnswer:
\nAn inflationary gap, is the amount by which the actual gross domestic product exceeds the potential full-employment GDP. Three measures to reduce this gap are:
\n1. Fiscal Policy: Fiscal policy is the expenditure and revenue (taxation) policy of the government to accomplish the desired objectives.
\nIn case of excess demand (when current demand is more than aggregate supply at full employment), the objective of fiscal policy is to reduce aggregate demand.<\/p>\n
\nOR
\nAggregate demand (AD) or Domestic Final demand (DFD) is the total demand for final goods and services in an economy at a given time. It specifies the amount of goods and services that will be purchased at all possible price levels.
\nComponents of aggregate demand are:
\nAD = C + I + G + (x + m)
\nWhere
\nC = Consumption
\nI = Investment
\nG = Government Spending
\nX – M = Net Exports
\n1. Consumption: This is made by households, and sometimes consumption accounts for the larger portion of aggregate demand. An increase in consumption shifts the AD curve to the right.<\/p>\n
\nThe value of marginal propensity to consume is 0.6 and initial income in the economy is \u20b9 100 crores. Prepare a schedule showing Income, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of \u20b9 80 crores. [4]
\nAnswer:
\nGiven that,
\nMarginal propensity to consume (MPC) = 0.6
\nInitial income = \u20b9 100 crores
\nAutonomous investment = \u20b9 80 crores
\nC = \\(\\overline{\\mathrm{C}}\\) + c(Y)
\nC = 0 + 0.6(Y)<\/p>\n
![\"CBSE](\"https:\/\/i0.wp.com\/www.cbselabs.com\/wp-content\/uploads\/2019\/08\/CBSE-Previous-Year-Question-Papers-Class-12-Economics-2018-8.png?resize=365%2C277&ssl=1\")