CBSE Sample Papers for Class 12 Economics Compartment Delhi -2012

Time allowed : 3    hours                                                                                         Maximum marks 100


  1.  All questions in both the sections are compulsory.
  2. Marks for questions are indicated against each.
  3. Questions No. 1-5 and 17-21 are very short-answer questions carrying 1 nick each. They are required to be answered in one sentence each.
  4.  Questions No. 6-10 and 22-26 are? short-answer questions carrying 3 marks each. Answers to them should normally not exceed 60 words each.
  5.  Questions No. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
  6.  Questions No. 14-16 and 30-32 are long-answers questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
  7.  Answers should be brief and to the point and the above word limit should be adhered to as far as possible.


Question.1. Give the meaning of opportunity cost.
Answer. Opportunity cost is defined as the value of..the benefit that is foregone by choosing one alternative rather than the other. .

Question.2. In economics what is an inferior good?
Answer. An inferior good is one whose demand falls with a rise in the income of the consumer, i.e., it has a negative income effect.

Question.3. When is the demand for a good said to be inelastic?
Answer. When the proportionate change in quantity demanded is less than the proportionate change in price, the demand for a commodity is said to be inelastic.

Question.4. Define market supply.
Answer. The total supply of a good by all the sellers (producers) at a given price and during a given period is market supply.

Question.5. When does a supply curve shift?
Answer. If the supply curve of a good changes due to a factor other than its own price it is termed as a shift in supply curve. For example, technological changes, change in price of factor input etc.

Question.6. Define an economy. Why does it face the problem of ‘what to produce’?
Answer. An economy is a system which provides people with a means to work and earn their living. It faces the problem of ‘What to produce?’ because resources are scarce and they have alternate uses. This is the problem of what goods should be produced and in what quantities. We have to see whether we have to produce consumer goods or producer goods or defense goods or all the goods in some quantity combination.

Question.7. Give three causes of a leftward shift in demand curve.
Answer. There can be a leftward shift in demand curve when the demand for a good falls because of the following reasons:

  1. In the case of a normal good, the income of a consumer may fall thereby reducing the demand for a good.
  2. There may be a fall in the price of substitute goods, leading to a fall in the demand for the good.
  3. There may be increase in the price of complementary good thereby reducing the demand of the particular good.

State three properties of indifference curves.
Answer. See Q. 15, 2011 (I Delhi).

Question.8. The price elasticity of demand of X is (-) 1.25. Its price falls from ? 10 to ? 8 per unit. Calculate the percentage change in its demand.

Question.9. Explain the relationship between marginal product and average product.
Answer. Average product CAP). It is per unit product of a variable factor.
Marginal product (MP). It is an addition to the total product when an additional unit of a variable factor is employed.
The relationship between marginal product and average product is as follows:

  1. When MP is greater than AP, AP increases.
  2. When MP is equal to AP, AP is constant and maximum.
  3. When MP is less than AP, AP falls/
  4. MP can be zero and negative but AP is never zero.

Question.10. When the price of a commodity rises by 10 percent, its supply rises by 40 units. Its elasticity of supply is 1. Calculate its supply at the original price.

Question.11. Define a budget line. Explain why is it a straight line.
Answer. A budget line graphically shows all the bundles of two goods (i.e., all possible combinations of two goods) that can be bought by spending the entire income (M) at the prevailing prices. { P }_{ 1 }{ x }_{ 1 } is the money spent on good{ x }_{ 1} and { P }_{ 2 }{ x }_{ 2 }is the money spent on good { x }_{ 2}. Thus the total money spent is { P }_{ 1 }{ x }_{ 1 }+{ P }_{ 2 }{ x }_{ 2 } which is equal to the income M.
By joining,, different points representing various combinations of two goods, we get a straight line. It is a straight lin$ because each point on it shows ratio of prices which, is Constant.

Question.12. Complete the following table:
Explain the conditions of producer’s equilibrium with the help of a marginal cost and marginal revenue schedule.
Answer. According to the marginal cost and marginal revenue approach, the producer’s equilibrium will take a point\where marginal cost = marginal revenue. Marginal cost is the cost of producing ah additional unit and marginal revenue is the revenue available from the sale of an addition^l unit.
In this case Ute following two conditions should be fulfilled:

  1. A producer will go on producing as long as MR > MC, but stops at a point where MC and MR are equal. If he goes beyond that point, MC exceeds MR, a position which cannot be sustained.
  2. Secondly, if MC cuts MR (MC = MR), the point of equilibrium will be only where MC curve cuts rising MR curve, i.e., where MC cuts MR from below. We can explain the phenomenon of producer’s equilibrium with the help of a cost revenue schedule:
    Producer is in equilibrium at 5 units of output. At this output MC = MR. Beyond this output MC > MR and producer will incur losses.

Question.13. How is equilibrium price of a commodity determined under perfect competition? Explain with the help of a numerical example.
Answer. Under perfect competition, equilibrium price of a commodity is determined at a point where supply and ‘demand of the commodity are equal. If any price is fixed other than this equilibrium price, either there will be a situation of excess demand or a situation of excess supply. This can be explained with the help of a demand-supply schedule.
The equilibrium price, according to the schedule is Rs 6. If Rs 5 is fixed as price, demand will be more than supply. On the other hand, if the price is fixed at Rs 7, supply will be more than demand. Therefore, the price will be Rs 6 only, where demand and supply are equal.

Question.14. Explain any three causes of “Increase” in supply of a commodity.
Answer. Supply of a commodity may increase due to the following factors:

  1. Fall in the price of other goods. If there is no change in the price Of the commodity
    concerned and the prices of other Competing commodities fall, tire demand of the commodity concerned will fall because those who are using this commodity will switch over to the use of other commodities, thereby increasing its supply.
  2. Fall in the prices of inputs. Fall in the prices of factors of production leads to a fall in the cost of production which positively affects the supply of a commodity, e.g., when the prices of inputs fall, cost of production also falls, with the result the supply of a commodity will be more at a given price.
  3. Reduction in taxes etc. Government levies tax on every unit of commodity sold or bought. Due to levy of tax, cost of production increases and by reduction in the value of tax, cost of production declines. Therefore, if taxes are reduced Cost of production falls and this leads to an increase in the supply of the commodity at the same price.

Explain the law of variable proportions with the help of a total product schedule.
Answer. See Q. 15, 2008 (I Delhi).

Question.15. Explain the conditions of consumer’s equilibrium using marginal utility analysis.
Answer. See Q. 14(0), 2009 (I Delhi).

Question.16. Giving reasons, state whether the following statements are true or false.
(i) A monopolist can fix both, the price of his product and the quantity to be sold at that price.
(ii) Excess supply of a commodity exists when its market price is greater than its equilibrium price.
(iii) Under monopolistic competition, a firm faces a perfectly elastic demand curve.
Answer. (i) The statement is false. A monopolist pan fix either the price of the commodity or the quantity of the commodity he wants to sell. If he wants to sell more he can do so only by lowering its price.
(ii) The statement is true. If market price is greater than the equilibrium price, supply will be more than the demand.
(iii) The statement is false. Under monopolistic competition, a firm faces downward- sloping demand curve as it can sell more only by lowering the price of the product.

Question.17. What is bank rate?
Answer. Bank rate is the interest rate at which Central bank lends to commercial banks.

Question.18. What is included in money supply?
Answer. Currency with public and demand deposits with commercial banks are included in money supply.

Question.19. What can be the minimum value of investment multiplier?
Answer. The minimum value of investment multiplier is 1.

Question.20. How is the value of marginal propensity to save calculated?
Answer. Marginal Propensity to Save is the ratio of change in saving to change in income. It is calculated by dividing change in saving; with the corresponding change in income.
Marginal Propensity to Save (MPS) =\frac { \Delta S }{ \Delta Y } .
Where  \Delta S =Change in Saving , \Delta Y =Change in Income.

Question.21. What is primary deficit?
Answer. It refers to the difference between fiscal deficit of the current year and interest payments on the previous borrowings.
Primary deficit = Fiscal deficit minus Interest payments.

Question.22. Explain the circular flow of income.
Answer. In a simple economy, money flows from production units to households in lieu of factor services provided by the households to the production units and then money flows from households to production units in the form of payments for goods and services. This flow of . money is known as circular flow of income.
Why are net exports included in national income? Explain.
Answer. Net exports are made out of domestic product. This means net exports are part of domestic product. In national income, value of domestic product produced by the residents is included. The^fore net exports are included in national income.

Question.23. In an economy a 20 per cent increase in investment results in a 100 per cent increase in income.

Question.24. Explain the meaning of deflationary gap With the help of a diagram.
Answer. When equilibrium takes place before the stage of full employment level of output, at this level aggregate demand is less then aggregate supply. This is known as deflationary gap. This happens when aggregate demand in the economy is not sufficient to ensure that level of output which can give employment to all those who are willing to work. In other words, this is called deficiency in demand. Because of this given resources of an economy are not full utilized.
The concept of deflationary gap can be explained with the help of a diagram. In the diagram given, the equilibrium level of output is OQ but the full employment level of output is OZ. At this level aggregate demand falls short of aggregate supply = EF. This the deflationary gap.
Note: The following question is for the Blind Candidates only, in lieu of Q1 No. 24.
Explain the meaning of deflationary gap. State any one way of correcting it.
Answer. Meaning of deflationary gap. See Q- 24 (above).
One way of correcting it In such a situation, bank rate should be reduced so that interest rate falls and demand increases. In this way aggregate demand and aggregate supply will be equal at full employment level.

Question.25. How can government budget be helpful’ in altering the income distribution? Explain.
Answer. Through the budget the government may affect the pattern of redistribution of income. The government can change income distribution through fiscal measures such as taxation, subsidies, public expenditure etc. The government can levy more taxes on higher income group people thereby reducing their income and spending the same for the welfare activities relating to poor people. This will reduce income of the rich and raise the standard of living of the poor.

Question.26. Distinguish between balance of trade and balance on current account.
Answer. See Q. 24, 2008 (I Outside Delhi).

Question.27. Complete the following table:

Question.28. Classify the following into capital receipts and revenue receipted Give reasons for your answer.
(i) Recovery of loans
(ii) Interest received on loans
Answer. (i) Recovery of loans is a capital receipt as it leads to a reduction in assets.
(ii) Interest received on loans is a revenue receipt because it is an income, it neither creates a liability nor reduces any asset.
Explain the distinction between direct tax and indirect tax. Give one example of each.
Answer. Direct tax: A tax whose liability to. pay the tax and the incident of the tax is on the same person is a direct tax. Its examples are income tax, wealth tax etc.
Indirect tax: A tax whose liability to pay the tax and incidence of the tax are on different persons is an indirect tax.Its examples are: sales tax, excise duty etc.

Question.29. Explain the effect of a fall in the price of foreign currency on exports.
Answer. If there is a fall in the price of foreign currency, it has a negative effect on exports of the home country. This means when the price of a foreign currency falls, foreign buyers will have to pay more foreign currency for buying the same goods from home country. Therefore, the foreigners will buy less and exports of home country will reduce.

Question.30. Giving reasons, state whether the following statements are true or false.
(i) Real gross domestic product can be equal to nominal gross domestic product.
(ii) Savings are a stock.
(iii) Butter is only a final product.
Answer. (i) The statement is true. Real gross domestic product and nominal gross domestic product will be equal if price level remains constant.
(ii) The statement is false. Savings are always with reference to a time period. In other words, saving is a flow.
(iii) The statement is false. Butter is only a final product when purchased by households for consumption. Butter purchased by bakeries for making cakes and pastries is not a final product. Butter for them is an intermediate good as it is used as raw material for further production.

Question.31. Explain any two functions of central bank.
Answer. Two functions of central bank. See Q. 25, 2009 (III Outside Delhi).
Explain any two functions of money.
Answer. Two functions of money. See Q. 28, 2009 (II Delhi).

Question.32. Calculate Gross National Product at Factor Cost by (i) income method, and (ii) expenditure method, from the following data:


Note : Except for the following questions, all the remaining questions have been asked in Set-1.
Question.1. What is micro-economics?
Answer. Micro-economics is the study of behaviour of individual economic units such as a household, a firm etc.

Question.2. When is a good called a normal good?
Answer. When as a result of increasing income, the demand for a good also increases, such a good is a normal good.

Question.3. What is ‘change in supply’?
Answer. When supply of a good changes not because of change in its price but due to other factors, it is called change in supply. It results in an increase or decrease in supply.

Question.13. Explain the chain of effects of excess supply on equilibrium price.
Answer. If market price is more than the equilibrium price, this results into a situation of excess supply. In this situation there will be competition among the sellers. This competition will reduce the price. At the reduced price, the demand will increase and supply will fall. These changes will continue till the price falls to the one where demand and supply are equal. This can be explained with the help of a diagram.
In the diagram, equilibrium price is OP and market price is OP1 where there is an excess of supply. In this situation because of competition among the sellers, price is reduced to OP, where demand and supply are equal.

Question.16.Explain the conditions of consumers equilibrium under indifference curve analysis.
Answer. See Q. 14, 2010 (I Delhi).

Question.20. Define average propensity to consume.
Answer. The ratio of total consumption expenditure (C) to total income (Y) is called Average Propensity to Consumer (APC). In short,

Question. 21.What is fiscal deficit?
Answer. The excess of total budget expenditure over total budget receipts excluding borrowing requirements during a fiscal year is called fiscal deficit.
Fiscal deficit = Total budget expenditure – Total budget receipts excluding borrowings

Question. 23. In an economy, a 40 per cent increase in investment results in a 40 per cent increase in income. Calculate the marginal propensity to consume.

Question.25. How can a government budget help in reallocation of resources? Explain.
Answer. An important objective of the government budget is to allocate resources for accomplishing socioeconomic objectives of the government. Government budget can reallocate the resources through its taxation policy. Government through its budget may reduce taxes on goods whose production it wants to encourage and levy taxes on the goods whose production it wants to discourage, e.g., Government may reduce taxes on mass consumption goods and levy taxes on luxury goods. Resources may be allocated for increasing investment, reducing income inequalities, providing better health care and education facilities.

Question.27. Complete the following table:

Question.29. Explain the effect of a rise in the price of foreign currency on exports.
Answer. When price of foreign currency increases exports of home country increase.
For example, when the price of US $ increases against Indian ?, i.e., from Rs 50 it becomes Rs 55, the US citizen can buy more (Rs 55) with one US $ than he was able to buy earlier (Rs 50), Since the Indian goods have become cheaper for him, he would like to buy more goods from India and hence, Indian exports will increase.


Note: Except for the following questions, all the remaining questions have been asked in Set-I and Set-II.
Question.4. Define supply.
Answer. Supply is that part of stock of a commodity which is offered for sale at a given price during a given period of time.

Question.6. Explain the problem of ‘how to produce’.
Answer. It is a problem of the choice of technique of production. There are number of techniques available, for example, labour intensive or capital intensive techniques. This problem arises due to scarcity of resources which can be put to alternate uses. The decision of how goods should be produced depends on the price of factor inputs. For example, in India, labour intensive technology is adopted whereas in a country like Japan, capital intensive technique is used.

Question.9. Explain the relationship between marginal revenue and average revenue.
Answer. Average Revenue (AR) is the revenue per unit of the product sold.
Marginal Revenue (MR) is the addition to the total revenue from sale of an additional unit of a commodity.
Relationship between MR and AR:

  1. AR increases as long as MR is higher than AR, i.e., when MR > AR, AR increases.
  2. AR is maximum and constant when MR is equal to AR, i.e., MR = AR, AR is constant,
  3. AR falls when MR is less than AR, i.e., when MR < AR, AR falls Point (ii) relates to the relationship between MR and AR in perfect competition whereas point (iii) relates to monopoly and monopolistic competition.

Question.10. The price of a commodity falls by 15 per cent and its supply falls from 200 units to 155 units. Calculate its elasticity of supply.

Question.13. Explain the chain of effects of excess demand on equilibrium price.
Answer. Equilibrium price of a commodity is determined where quantity demanded and supplied are equal. If market price is fixed below the equilibrium price, it creates a situation of excess demand. In such a case, there is competition among buyers which results in more demand than the supply of goods. This will increase the price of goods and bring it back to the equilibrium price where the demand and supply are equal the situation of equilibrium price. This can be explained with the help of a diagram.
In the diagram, equilibrium price is OP, where demand and supply are equal. If market price is fixed at OP1 there will be excess demand equal to FG. In such a case, because of the competition among the buyers, the price will increase bringing it equal to OP, where the demand and supply are equal.

Question.15. Giving numerical examples, explain the following:
(i) Budget set
(ii) Marginal rate of substitution .
Answer. (i) Budget set. The set of bundles of two goods that are available to the consumer given his income at prevailing market prices is called the budget set. Using M as income, P, as price of good X and P2 as price of good Y, a consumer can buy any bundle which he can get by spending M (income) on good X and good Y in the following manner:
{ P }_{ 1 }X+{ P }_{ 2 }Y\le M
(ii) Marginal rate of substitution. Each bundle is different from other bundle so far the quantities of goods (X and Y) are concerned. The consumer substitutes one good for another. But the question is how much of good Y the consumer is willing to give up for getting an extra unit of good X. The rate at which the consumer can substitute good X for good Y is called the marginal rate of substitution. In other words, marginal rate of , substitution measures the consumer’s willingness to give up good X to get an additional unit of good Y without affecting total utility. Marginal rate of substitution is always declining. It can be measured in the following manner:

Question.20. Give the meaning of aggregate demand.
Answer. Aggregate demand is the value of total expected demand for all goods and services in the economy during a given period of time.

Question.21. What is a tax?
Answer. Tax is a payment, charged by the Government, which is to be paid legally by the people.

Question.27. Complete the following table:

Question.29. Explain the effect of a fall in the price of foreign currency on imports.
Answer. When price of foreign currency falls, imports become cheaper. As a result a citizen of home Country, say India, will get more goods from a foreign country for the same amount of Indian This will result in increase in imports.
For example, if the price of American dollar falls, home buyers will import more from America because their goods have become cheaper.

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