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# Board Paper of Class 12-Commerce 2011 Economics (SET 1) - Solutions

General Instructions
1) This question paper contains two sections: A and B.
2) There are 9 questions in total.

Section A
i. This section contains 1 question with fifteen sub-parts.
ii. Question No. 1 is compulsory.
iii. Attempt all the sub-parts of 2 marks each.
iv. This section is of 30 marks in total.

Section B
i. This section consists of 8 questions of 14 marks each.
ii. Attempt any 5 questions from question nos. 2 to 9.
iv. This whole section is of 70 marks in total.

• Question 1
 Answer briefly each of the questions (i) to (xv) :                                                  [15 × 2] = [30 Marks] (i) State any two assumption of Law of the Diminishing Marginal Utility. (ii) What is meant by macro economics ? (iii) If demand increases by 50% due to an increase in income by 75%, calculate the income elasticity of demand. (iv) Draw the supply curve of a perishable commodity. Give a reason for the shape of the supply curve. (v) What is meant by increasing returns to a variable factor ? (vi) What would be the elasticity of demand of a commodity when : (a) Price and total expenditure move in the same direction ? (b) Price and total expenditure move in the opposite direction ? (vii) Identify the type of market which has a characteristic of perfect substitutes. Give one reason for your answer. (viii) What is meant by super normal profit ? (ix) How is personal income calculated from private income ? (x) What is variable cost ? Give two examples. (xi) Differentiate between economic and non-economic services. (xii) Is deficit financing inflationary ? Justify your answer. (xiii) What is a trade union ?** (xiv) How can an increase in public expenditure create more employment in the country ?** (xv) What is meant by unfavourable balance of payment ?.
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• Question 2
(a) Discuss two reasons for the downward slope of the demand curve. [4]
(b) Complete the demand schedule for commodity X : [4]
 Price (Rs/unit) Quantity demanded by Individual A (dozens) Quantity demanded by Individual B (dozens) Market Demand (dozens) 15 50 85 ? 20 45 ? 105 25 ? 45 85 30 35 35 ?
Draw the market demand curve from the above schedule.
(c) In the graph alongside, DD is the demand curve and SS is the market supply curve. [6]
(i) On the y axis, mark any price P, showing excess demand.
(ii) How will equilibrium be restored from a situation of excess demand ?

(iii) Show how equilibrium price will be affected when the increase in demand is equal to the decrease in supply of a commodity.

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• Question 3
 (a) Explain the supply function. [4] (b) State the Law of Supply. Discuss how change of technology affects the supply of a commodity. [4] (c) Discuss the relationship between Average product and Marginal product with the help of a diagram. [6]
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• Question 4
(a) Explain one cause each for increasing and diminishing returns to scale. [4]
(b) A cost function is given below : [4]
 Output (units) 0 1 2 3 4 Total Cost (Rs) 100 160 212 280 365

Calculate :

(i) Total Fixed Cost
(ii) Total Variable Cost
(iii) Marginal Cost.
(c) Discuss four determinants of elasticity of demand. [6]
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• Question 5
 (a) Using diagrams, distinguish between the shapes of the Total Revenue curve under perfect and imperfect competition. [4] (b) Discuss the shape of the Average Fixed Cost Curve. [4] (c) Explain how a perfectly competitive firm in equilibrium incurs losses in short run. Show the same with the help of a diagram. [6]
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• Question 6
(a) With the help of a well labelled diagram, show the circular flow of income in a three-sector model. [4]
(b) Define compensation of employees and mention its components. [4]
(c) From the data given below, calculate Gross Domestic Product at market price and National Income (NNPFC) using the Value Added Method : [6]
Rs (in crores)
(i) Gross Value of output in primary sector (at factor cost) 950
(ii) Gross Value of output in secondary sector (at factor cost) 470
(iii) Gross Value of output in tertiary sector (at factor cost) 500
(iv) Value of intermediate product in primary sector 360
(v) Value of intermediate product in secondary sector 200
(vi) Value of intermediate product in tertiary sector 175
(vii) Depreciation 20
(viii) Indirect tax 35
(ix) Subsidy 10
(x) Net Factor Income from Abroad 4
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• Question 7
 (a) What is meant by selling cost? Which kind of market does not need selling cost and why ? [4] (b) Define interest. In calculating gross interest, what is payment for risk ?** [4] (c) Discuss how under perfect competition, a firm is a price taker and an industry a price maker. [6]
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• Question 8
 (a) Balance of Payment always balances in the accounting sense. Explain briefly.** [4] (b) Discuss two causes of disequilibrium of balance of payment. [4] (c) "A country which has an absolute disadvantage in production of any two goods can still have a comparative advantage in production of one of those goods, which it can produce efficiently and export." Explain the underlying theory with an example.** [6]
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• Question 9
 (a) What is a Performance Budget ? Differentiate between Revenue Expenditure and Capital Expenditure. [4] (b) In a situation of income inequality, give two ways in which Fiscal Policy can be used to bring about equity. [4] (c) Discuss four methods of repayment of public debt. [6]
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