## CBSE Sample Papers for Class 12 Economics Outside Delhi – 2009

Time allowed : 3    hours                                                                                         Maximum marks 100

GENERAL INSTRUCTIONS
(i) All questions in both the sections are compulsory.
(ii) Marks for questions are indicated against each.
(iii) 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.
(iv) 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.
(v) 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.
(vi) 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.
(vii) Answers should be brief and to the point and the above word limit should be adhered to as far as possible.

### SET I

SECTION A

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

Question.2. What is meant by inferior good in economics?
Answer. Inferior good is that good whose demand decreases with an increase in the income of the buyer.

Question.3. Define marginal cost.
Answer. Marginal cost is defined as addition to the total cost for producing one more unit of output

Question.4. Give one reason for a rightward shift in supply Curve.
Answer. Decrease in input prices can lead to a rightward shift in supply curve.

Question.5. Why is average total cos| greater than average variable cost?
Answer. Average total cost is the sum of average fixed cost and average variable cost, therefore, average total cost is greater than average variable cost (ATC = AFC + AVC).

Question.6. State the law of demand and show it with the help of a schedule.
Answer. According to the law of demand, “Other things being constant, quantity demanded of a commodity is inversely related to the price of the commodity.”
It can be explained with the help of a demand schedule given below:
The above schedule shows an increase in quantity demanded from 2 kg to 3 kg and then 4 kg when price reduces from Rs. 20/kg to Rs. 16/kg and then to Rs. 12/kg respectively.

Question.7. ‘Explain the geometric method of measuring price elasticity of demand.
Answer. Geometric method (or point method) is used when elasticity is to be measured at different points on the straight line demand curve. According to this method, elasticity. can be measured using the following formula:
${ E }_{ d }=\ frac { Lower Section of the demand curve }{ Upper Section of the demand curve }$
This can also be explained by a diagram.

AE is the straight line demand curve which is extended to both sides so as to touch X-axis and Y-axis. According to this method,

Question.8. Why do problems related to allocation of resources in an economy arise? Explain.
Answer. Problems relating to allocation of resources arise because of the problem of choice. This happens because the resources are scarce.
There are three mam causes of this economic problem:
(0 Unlimited wantsâ€”Human wants are unlimited and differ in intensity. This fact enables a man to arrange his wants in order of preference and make a choice among different wants in order of urgency.
(ii) Limited resourcesâ€”Resources, generally called as factors of production (land, labour, capital and enterprise) are scarce in relation to need for them. In view of resources being limited, there is great need for economising of resources.
(iii) Alternative uses of resources–This means that resources can be put to different uses. But the same resource cannot be used for more than one purpose. This makes a resource all the more scarce because when it is used for one purpose, it cannot be used for other purposes.
Or
Explain the problem of ‘for whom to produce.
Answer. The problem ‘for whom to produce’ is a central problem which refers to the problem of distribution of income among income earners. It is the problem of how goods and services produced in the economy be distributed. Goods and services are produced for those who have the capacity to buy them. Capacity to buy depends on income or purchasing power. Incomes are distributed in the form of wages, rent, interest and profits. Thus, the question ‘for whom to produce’ actually boils down to the distribution of income generated from production of output.

Question.9. Complete the following table:

Question.10. Explain the effect of fall in prices of other goods on the supply of a given good.
Answer. Besides its own price, supply of a good also depends upon prices of other goods! Increase in the prices of other goods makes them more profitable in comparison to the given commodity. As a result, the firm shifts its limited resources from production of the given commodity to production of other goods, e.g., increase in the price of other good (wheat) will induce the farmer to use land for cultivation of wheat in place of the given commodity (rice).

Question.11. Explain two points of distinction between monopoly and monopolistic competition.

Explain any two main features of perfect competition.
Two main features of perfect competition are:
(i) Large number of buyers and sellers. The number of sellers is so large that output by an industrial seller is an insignificant proportion of the total output of the industry; As such, change in the output of a single seller has negligible effect on the total output and hence no influence on the market price.
(ii) Homogeneous product. All sellers sell identical units of a product. Accordingly, buyers have no reason to prefer the product of one seller compared to that of the other. Also, no producer is in a position to charge a different price for (he product it produces.

Question.12. The price elasticity of supply of commodity Y is half the price elasticity of supply of commodity X. 16 per cent rise in the price of X results in a 40 per cent rise in its supply. If the price of Y falls hf 8 per cent, calculate the percentage fall in its supply.

Question.13. Given below is a cost and revenue schedule of a produce. At what level of output is the producer in equilibrium? Give reasons for your answer.

Producer is in equilibrium at the 6th unit of output. Profit is maximum at both 5th and 6th unit of output. But it is only at the 6th unit that MR = MC = 10.
Therefore, producer is in equilibrium at 6th unit of output.

Question.14. With the help of a demand and supply schedule, explain the meaning of excess demand and its effect on price of a commodity.
Answer. Equilibrium price of a product is determined at the point where market demand equals market supply. This can be better explained with the help of a supply schedule.

In the schedule given above, equilibrium price is Rs. 3 and equilibrium quantity is 300 units. At prices Rs. 1 and Rs. 2. demand is greater than supply, creating a situation of excess demand, i. e., a situation where demand is greater than price. As a result, the consumer will not be able to get the required quantity. Hence, the consumers will start offering a higher price to producers. Therefore, the price will rise and ultimately settle at Rs.3.
Thus equilibrium will be restored through expansion of supply and contraction of demand as a result of increase in price.
Or
Define equilibrium price of a commodity. How is it determined? Explain with the help of a schedule.
Answer. Equilibrium price of a good is the price at which the market supply of the good equals the market demand for that good. Market supply is the total supply by all the producers of a good taken together. Market demand represents the total demand by all the consumers of that good taken together.
This can be better explained with the help of the following schedule and Diagram 2 .

In the above table, equilibrium price is Rs. 3 and equilibrium quantity is 30 units. At any other price, market demand and market supply are not equal.
This equilibrium is also represented by Diagram 2. Equilibrium price OP and quantity OQ are determined at the intersection point of demand curve (DD) and supply curve (SS) i.e. at point E.

Question.15. Giving reasons, state whether the following statements are true or false:
(i) Average cost falls only when marginal cost falls.
(ii) The difference between average total cost and average variable cost is constant
(iii) When total revenue is maximum, marginal revenue is also maximum.
Answer. (i) False. AC can fall even when MC is rising. This is shown in the diagram (i) Eor MN level of output, AC is falling and MC is rising.
(ii) False. The difference between ATC and AVC is AFC and AFC declines with increase in output. Therefore, the difference between ATC and AVC must reduce as output increases. See diagram (ii).
(iii). False. Because MR is zero when TR is maximum. See diagram (iii).

Question.16. Explain the effect of the following on the market demand of a commodity:
(i) Change in price of related goods
(ii) Change in the number of its buyers
Answer. (i) Change in price of related goods. Related goods are Y of two types:

(a) Substitute goods. These are those goods which can be used in place of one another, e.g., tea and g p coffee. Increase in the price of tea will lead to an increase in the demand of coffee as coffee will now become cheaper in comparison to its substitute (tea).
This will lead to a rightward shift in demand curve signifying that more coffee is
(b) Complementary goodsâ€”:these are those goods which are used together to satisfy a given want, e.g. scooter and petrol. A fall in the price of a complementary good (here petrbl) causes an increase in the demand for the other good (here scooter) and shifts the demand curve for the good to the right.
(ii) Change in the number of buyers. Demand will increase with the increase in the number of buyers and vice versa. Other things remaining constant, mote buyers would mean more demand and less buyers would mean less demand for a commodity.

SECTION B
Question.17. Give meaning of aggregate supply.
Answers. Aggregate supply means the total value of final goods and services available for purchase by the economy during a given period.

Question.18. Why are taxes received by the government not capital receipts?
Answer. Taxes are not considered capital receipts because these neither create a liability nor do they lead to a reduction in the assets of the government.

Question.19. Give die meaning of excess demand in an economy.
Answer. It is a situation when aggregate demand is in excess of aggregate supply at the full employment level in the economy.

Question.20. What is meant by cash reserve ratio?
Answer. It refers to the percentage of deposits of the commercial banks which is required to be kept as cash reserve with the central bank.

Question.21. Define involuntary unemployment.
Answer. It is a situation in which a worker i § able and willing to work at the current wage rate but does not get work.

Question.22. Complete the following fable:

Question.23. Give the meai-ing of factor income to abroad and factor income from abroad. Also give an example of each.
Answer. Factor income to abroad is the factor income earned by non-residents who are temporarily residing in our country or are working within our domestic territory, e.g. salaries paid to residents of Japan working in Indian Embassy in Japan.
Factor income from abroad is the factor income earned by normal residents of our country who are temporarily residing abroad or are working outside our domestic territory, e.g. profits earned by an Indian bank from its branches abroad.
Or
Distinguish between domestic product and national product. When can domestic product be more than national product?

Domestic product can be more than national .product, when net factor income earned from abroad is negative.

Question.24. Distinguish between balance of trade account and balance of current account.

Question.25. Give three main functions of a commercial, bank. Explain any one of them.
Answer. The three main functions of a commercial bank are:
1. Accepting deposits
3. Agency functions like purchase and sale of securities and shares, transfer of funds, etc. Advancing of loans: Extending loans is another important function of commercial banks. The deposits received by banks are not allowed to remain idle. So, after keeping certain cash reserves, the balance is given to needy borrowers and interest is charged from them. Loans and advances can be made in different terms like cash-credit, short-term loans, etc.

Question.26. Give the meaning of revenue deficit, fiscal deficit and primary deficit.
Answer. Revenue deficijtâ€ž lt refers to the excess of the government’s revenue expenditure over its revenue receipts during the given fiscal year.

Revenue Deficit Revenue Expenditure â€” Revenue Receipts Fiscal deficit. It refers to the excess of the government’s total expenditure over its total receipts (excluding borrowings) during the given fiscal year.

Fiscal Deficit = Total Expenditure – Total Receipts excluding borrowings The extent of fiscal deficit is an indication of how far the government is spending beyond its means.
Primary Deficit. It refers to the difference between fiscal deficit of the current year and interest payments on the previous borrowings.

Primary Deficit reflects the extent to which interest commitments on earlier loans have compelled the government to borrow in the current period.

Question.27. Describe the evolution of money.
Answer. (Out of syllabus, for 2012 examination and onwords)
Or
Explain any two functions of money.
Answer. The two functions of money are as follows:
1. Medium of exchange. This means that it can be used to make- payments for all transactions of goods and services. Money has the quality of general acceptability. This function has removed the difficulty of double coincidence of wants.
2. Measure of Value. Since money has general acceptability, it works as a common denomination in.which values of all goods and services are expressed. After knowing the values of various commodities in tends of a single unit called price, it becomes very easy to find out the exchange ratios between them.

Question.28. Explain any two objectives of a government budget.
Answer. The two objectives of a government budget are:
1. Reallocation of resources. Through the budgetary policy, government aims to reallocate resources in accordance with the economic (profit maximisation) and Social (public welfare) priorities of the country. For example, government discourages the production of harmful goods like cigarettes, etc. through heavy taxes and encourages the use of khadi products by providing subsidies.
2. Management of public enterprises. There is a large number of public sector industries which are established and managed for social welfare of the public. Budget is prepared with the objective of jnakiftg various provisions for managing such enterprises and providing them financial help.

Question.29. Explain two merits each of flexible foreign exchange rate and fixed foreign exchange rate.
Answer. Two merits of flexible exchange rate:
1. It eliminates the need for the government to hold large foreign exchange reserves.
2. It enhances efficiency and resource allocation, and raises the level of efficiency in the economy
Two merits of fixed exchange rate are:
1. It creates conditions for smooth flow of foreign capital between nations. A stable exchange rate promotes international trade.
2. As exchange rate is fixed by the government it eliminates the possibility of speculative transactions in foreign exchange.

Question.30. While estimating National Income, how will you treat the following? Give reasons for your answer.
(i) Imputed rent of self occupied houses.
(iii)Financial help received by flood victims.
Answer. (i) Imputed rent of self-occupied house is included in the estimation of National Income.
This is because people who live in their own houses, do not pay rent but enjoy housing services similar to those people who stay in rented houses.
(ii) Interest received on debentures is included in national income because it is a part of factor income.
(iii) Financial help received by flood victims is a transfer income and therefore will not be included in the estimation of national income.

Question.31. In an economy S = -50 + 0.5 Y is the saving function (where S = saving and Y = National Income) and investment expenditure is 7,000. Calculate:
(i) Equilibrium level of National Income.
(ii) Consumption expenditure at equilibrium level of national income.

(or)
Consumption function: C = 200 + 0.9 Y (where C = Consumption expenditure and Y = National Income).
Investment expenditure: I = 3000

Question.32. Frorit the fdll&Wihg data, calculate “National Income” by (a) income method and (b) expenditure method:

Answer. (a) National Income by Income Method
= Compensation of employees + Interest + Rent + Profits – Net factor income to abroad = (vi) + (i) + (ii) + (v) – (vii)
= 1,000 + 150 + 250 + 640 – 30 = 2,040 – 30 = Rs. 2,010 crores
Answer. (b) National Income by Expenditure Method
= Private final consumption expenditure + .Government final consumption expenditure + Net domestic capital formation + Net exports – Net indirect.taxes – Net factor income to abroad
(iv) + (iii) + (xi) + (ix) – (viii) – (vii)
= 1,200 + 600 + 340 + (- 40) – 60 – 30 = 2140 – 130 = Rs. 2,010 crores

### SET II

Note : Except for the following questions, atl the remaining questions have been asked in Set I.
SECTION A
Question.3. Define fixed costs.
Answer. Fixed costs are those costs which remain constant, i.e., which do not change with a change in the volume of output, e.g., salary of-naanager.

Question.6. Distinguish between demand by an individual and market demand with the help of a schedule.
Answer. Individual demand is the demand for a commodity by an individual consumer in the market at different prices, whereas market demand shows demand for a commodity by all the consumers in the market at different prices. Market demand is the horizontal summation of individual demands as under:

The above schedule shows die individual demand of consumer A mid B along with the market demand, which is a horizontal summation of these two individual consumer demands, at different prices.

Question.9.Complete the following table:

Question.13. The price of commodity X is Rs. 20 per unit and it remains constant. Given below is the cost schedule of one of its producers. Find out the level of output at which this producer is in equilibrium. Give reasons for your answer.

At 5th and 6th units of output, the difference between total revenue and total cost, i.e., profit is the maximum. But MR = MC (20) only at the 6th unit of output. So, the producer will be in equilibrium at the 6th unit of output.

Question.15. Giving reasons, state Whether the following statements are true or false:
(i) When there are diminishing returns to a factor, marginal product and total product both always diminish.
(ii) When marginal revenue is positive and constant, average and total revenue will both increase at constant rate.
(iii) As output is increased^ the difference between average total cost and average variable cost falls and ultimately becomes zero.
Answer. (i)False, because when there are diminishing returns to a factor, then marginal product falls but total product increases at a diminishing rate,
(ii) False, because when Marginal Revenue is positive and constant, Total Revenue increase at constant rate but Average Revenue will not increase at all. Average Revenue will remain positive and constant just like Marginal Revenue.
(iii) False, because as output increases, the difference between average total cost and average variable cost (equal to average fixed cost) falls but remains positive. It can never be zero.
correct position of these statements is shown below in the diagrams:

Question.22. Complete the following table:

Question.29. How is foreign exchange rate determined in the market?
Answer. The equilibrium exchange rate is determined at a point when the demand for and supply of foreign currency is equal. As shown in the Diagram, demand curve DD and supply curve SS intersect at point E (equilibrium point) where exchange rate is OR. If the exchange rate rises to ORv it will lead to a situation of excess supply. As a result, exchange rate will fall till it again reaches the equilibrium level of OR. On the contrary, if the exchange rate falls to ${ OR }_{ 1 }$ it will lead to a situation of excess supply. As a result, exchange rate will fall till it again reaches the equilibrium level of OR. On the contrary, if the exchange rate falls to ${ OR }_{ 1 }$ , it will create a situation of excess demaqjd and will push , up the exchange rate till it reaches the equilibrium level of OR.

Question.30. How will you treat the following while estimating National Income? Give reasons for your answer.
(i) Capital gain on sale of a house
(ii) Prize won in a lottery
(iii) Interest on public debt
Answer. (i) Capital gain on the sale of a house is not included in National lncome because it does not add to the flow of goods and services of the economy.
(ii) Prize won in a lottery is a transfer income and therefore riot included in National Income.
(iii) Interest on public debt is not included in National Income because interest on consumption5 loans is considered as a transfer payment.

### SET III

Note: Except for the following questions, all the remaining questions have been asked in Set I and Set II.
SECTION A
Question.7. Explain any two factors that affect the price elasticity of demand of a commodity.
Answer. Two factors affecting price elasticity of demand are as follows:
(i) Nature-of the commodity. The demand for necessities is generally inelastic because they will be demanded at any price, whereas the demand for luxury goods is generally elastic because they can be dispensed with easily if they appear to be costly.
(ii) Availability of close substitutes. The demand for a commodity will be elastic if some other commodity can be used in its place, whereas commodities with no close substitutes have inelastic demand. For example, salt.

Question.9. Complete the fallowing table:

Question.13. Explain the eruditions of producer’s equilibrium with the help of a total cost and total revenue schedule.
Answer. A producer will be at equilibrium at that level of output which gives him maximum profit. Total Profit is the excess of Total Revenue (TR) over Total Cost (TC). Equilibrium is at 4 units of output where profit (TR – TC) is maximised.

Question.14. State the causes of an ‘increase’ in demand. Explain any two of them.
Answer. The main causes of increase in demand of a commodity are:
(i) Increase in income of the consumer in case of normal good.
(ii) Decrease- in income of the consumer in case of inferior good.
(iii) Rise in prices of substitute goods.
(iv) Fall in prices of complementary goods.
(v) Favourable change in tastes and preferences of the consumer
(i) Income of the consumer. In case of normal goods, when income increases, there is an increase in demand leading to a rightward shift in the demand curve. On the other hand, in case of inferior goods, demand increases only when income of the consumer decreases.
(v) Favourable change in the tastes of consumer. Unless the consumer has a taste for a good, he is not likely to buy it, howsoever cheap it may be. Therefore, the demand for a commodity, towards which the consumer is favourably inclined, will increase.

Question.22. Complete the following table:

Question.25. Explain any two functions of a central bank.
Answer. Two functions of a central bank are as follows:
1. Bank of issue. This means that the Reserve Bank of India has the sole right to issue currency notes. The main reasons as to why the monopoly power of note issue is given to central banks is:
– It leads to uniformity in notes circulation.
– It gives the central bank direct control over the money supply.
– It ensures public faith in the currency system.
2. Banker to the government. Central bank is the banker, agent and financial advisor to die government. As a banker to the government, it carries out all banking business of the government. As an agent to the government, it buys and sells securities on behalf of the government. As a financial advisor, the central bank advises the government from time to time on economic, financial and monetary matters.

Question.27. What are the implications of revenue deficit? State two measures to reduce this deficit?
Answer. Revenue deficit refers to the excess of government revenue expenditure over its revenue receipts during the given fiscal year.
Revenue Deficit = Total Revenue Expenditure – Total Revenue Receipts Implications. Revenue deficit indicates that the government’s own revenue is insufficient to meet its regular and recurring expenditure on normal functioning of its departments and various services. It also implies that die government has to make up this deficit from capital receipts, i.e., through borrowings or disinvestments. It means revenue deficit either leads to increase in liabilities or reduces the assets.
Measure to reduce revenue deficit:
1. Reduce expenditure. Government should take steps to reduce and avoid unproductive . and unnecessary expenditure.
2. Increase revenue. Government should increase its receipts from various sources of tax and non-tax revenue