BOARD QUESTION PAPER : OCTOBER 2021 ECONOMICS
Time: 3 Hrs. | Max. Marks: 80
(i) The branch of Economics that deals with the allocation of resources.
Options: (1) a, b, c (2) a, b (3) only ‘a’ (4) None of these
(ii) Two or more goods demanded jointly to satisfy a single want.
Options: (1) a, d (2) a, b, c (3) a, c (4) only ‘c’
(iii) Homogeneous product is a feature of this market.
Options: (1) only ‘c’ (2) a, b, c (3) a, b, d (4) c, d
(iv) Economist who is of the view that public finance is one of those subjects which are on the borderline between economics and politics.
Options: (1) only ‘a’ (2) only ‘b’ (3) only ‘c’ (4) only ‘d’
(v) Role of foreign trade.
Options: (1) a, b, c (2) a, b, c, d (3) a, b, d (4) None of these
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(i) Micro Economics : Tree : : Macro Economics : _________
(ii) Single consumer : Individual demand : : Many consumers : _________
(iii) _________ : Downward sloping curve : : Supply curve : Upward sloping curve.
(iv) Price index : Inflation : : _________ : Agricultural production.
(v) _________ : Central bank : : State Bank of India : Commercial bank.
(i) Utility of a commodity increases with a change in its time of utilization.
(ii) The demand for a commodity which can be put to several uses.
(iii) The market where there are a few sellers.
(iv) Financial statement showing the expected receipts and proposed expenditure of the government in the coming financial year.
(v) Deposits withdrawable on demand.
(i) When Marginal Utility (MU) is negative, Total Utility (TU) is _________.
(ii) When less units are demanded at high price it shows __________.
(iii) Revenue per unit of output sold is ________.
(iv) Organised sector of money market in India includes _________.
(v) Purchase of goods and services by one country from another country is ________.
(i) Madhav collected information about monthly expenditure of a family.
Concept: Micro Economics / Study of Individual Unit
Explanation: Micro Economics is the study of the economic behavior of individual units like a household, a firm, or a specific industry. Here, Madhav is studying the expenditure of a single family, which is a microscopic component of the economy.
(ii) Pooja satisfied her need of writing an essay by using pen and notebook.
Concept: Joint Demand / Complementary Demand
Explanation: When two or more goods are demanded jointly to satisfy a single want, it is known as joint or complementary demand. Here, both pen and notebook are required together to satisfy the want of writing an essay.
(iii) There are many firms producing soaps in India.
Concept: Monopolistic Competition
Explanation: Monopolistic competition is a market structure where there are many sellers selling differentiated products. Soaps (like Lux, Dove, Hamam) are produced by many firms and are close substitutes but not identical (product differentiation), which is a characteristic of monopolistic competition.
(iv) Ramesh prepared share price index number.
Concept: Special Purpose Index Number
Explanation: Index numbers constructed for a specific purpose are called special purpose index numbers. A share price index helps in measuring changes in the prices of shares in the stock market.
(v) Fall in price of sugar by 50% results in 50% rise in demand.
Concept: Unitary Elastic Demand
Explanation: When the percentage change in quantity demanded is exactly equal to the percentage change in price, it is called unitary elastic demand ($Ed = 1$). Here, 50% fall in price leads to exactly 50% rise in demand.
(1) Form Utility and Knowledge Utility
| Form Utility | Knowledge Utility |
|---|---|
| 1. It is created when the shape or structure of existing material is changed. | 1. It is created when a consumer acquires knowledge about a particular product. |
| 2. Example: Making furniture from wood or toys from clay. | 2. Example: Knowing the functions of a computer or mobile phone increases its utility. |
(2) Perfect competition and Monopolistic competition
| Perfect Competition | Monopolistic Competition |
|---|---|
| 1. Products are homogeneous (identical in all respects). | 1. Products are differentiated (similar but not identical). |
| 2. There is no selling cost involved as products are identical. | 2. Selling costs (advertisement) are heavy to differentiate products. |
(3) Partial equilibrium and General equilibrium
| Partial Equilibrium | General Equilibrium |
|---|---|
| 1. It studies the equilibrium position of an individual unit (e.g., a single consumer or firm) in isolation. | 1. It studies the equilibrium of the economy as a whole, considering interrelationships between all variables. |
| 2. It assumes "Ceteris Paribus" (other things remaining constant). | 2. It does not assume other things constant; it assumes "everything depends on everything else". |
(4) Direct tax and Indirect tax
| Direct Tax | Indirect Tax |
|---|---|
| 1. It is paid by the person on whom it is levied. The burden cannot be shifted to others. | 1. It is levied on goods and services. The burden can be shifted to others (consumers). |
| 2. Examples: Income Tax, Wealth Tax. | 2. Examples: GST (Goods and Services Tax), Excise Duty. |
(5) Perfectly elastic demand and Perfectly inelastic demand
| Perfectly Elastic Demand | Perfectly Inelastic Demand |
|---|---|
| 1. When a slight or zero change in price brings about an infinite change in quantity demanded. | 1. When a change in price brings no change in quantity demanded. |
| 2. Elasticity (Ed) = $\infty$. The demand curve is a horizontal line parallel to the X-axis. | 2. Elasticity (Ed) = 0. The demand curve is a vertical line parallel to the Y-axis. |
(i) Explain any four features of perfect competition.
Features of Perfect Competition:
- Large number of sellers and buyers: There are so many sellers and buyers that no single individual can influence the market price. The price is determined by market forces.
- Homogeneous Product: Products sold by all firms are identical in size, shape, color, taste, etc. They are perfect substitutes for each other.
- Free Entry and Exit: There are no barriers for new firms to enter the market or existing firms to leave the market.
- Perfect Knowledge: Both buyers and sellers have perfect knowledge about the market conditions, especially the price and quality of products.
- Single Price: A single uniform price prevails in the market, determined by the interaction of demand and supply.
(ii) Calculate Quantity Index Number from the given data:
| Commodity | Qty in 2010 ($q_0$) | Qty in 2011 ($q_1$) |
|---|---|---|
| A | 20 | 55 |
| B | 35 | 60 |
| C | 75 | 110 |
| D | 70 | 75 |
Solution:
Formula for Quantity Index Number: $Q_{01} = \frac{\sum q_1}{\sum q_0} \times 100$
Step 1: Calculate $\sum q_0$ (Total Quantity of Base Year)
$\sum q_0 = 20 + 35 + 75 + 70 = 200$
Step 2: Calculate $\sum q_1$ (Total Quantity of Current Year)
$\sum q_1 = 55 + 60 + 110 + 75 = 300$
Step 3: Apply Formula
$Q_{01} = \frac{300}{200} \times 100$
$Q_{01} = 1.5 \times 100 = 150$
Ans: Quantity Index Number is 150.
(iii) Explain any four sources of non-tax revenue of the government.
- Fees: A fee is paid by persons in return for specific services rendered by the government, e.g., education fees, registration fees.
- Prices of Public Goods and Services: The government sells various goods and services (like railway services, postal services) to citizens. The price charged for these is a source of revenue.
- Special Assessment: This is a payment made by citizens of a particular locality in exchange for some special facilities provided by the government, like roads or street lights, which increase property value.
- Fines and Penalties: These are imposed on people who violate the laws of the country. The objective is to curb crimes, but it also generates revenue.
- Gifts, Grants, and Donations: The government may receive gifts and grants from foreign governments or international organizations, especially during crises.
(iv) Explain the function of acceptance of deposits of commercial bank.
Accepting deposits constitutes the primary function of commercial banks. Banks accept deposits from the public in various forms:
- Demand Deposits: These are deposits that can be withdrawn on demand by the depositor. They include:
- Current Account: Usually opened by businessmen; allows unlimited withdrawals; no interest is paid (overdraft facility available).
- Savings Account: Opened by individuals to encourage savings; limited withdrawals allowed; earns nominal interest.
- Time Deposits: These are deposits made for a fixed period. They include:
- Fixed Deposits: Lump sum amount deposited for a fixed period; carries a higher rate of interest.
- Recurring Deposits: Regular monthly deposits for a specific period; encourages regular savings.
(v) Explain any four features of National Income.
- Macroeconomic Concept: National income represents the income of the economy as a whole, not of an individual. It is an aggregate concept.
- Value of Final Goods and Services: Only the value of final goods and services produced in the economy is included to avoid double counting. Intermediate goods are excluded.
- Net Aggregate Value: It includes the net value of goods and services, meaning depreciation cost of capital assets is deducted (Net National Product).
- Flow Concept: National income is a flow concept measured over a specific period of time, usually a financial year (1st April to 31st March in India).
- Monetary Valuation: National income is always expressed in monetary terms (money value).
(i) There are exceptions to the law of supply.
I Agree with this statement.
Reasons:
- Supply of Labour: The supply curve of labour bends backwards. At very high wage rates, workers prefer leisure over work, so supply of labour decreases as wages rise.
- Agricultural Goods: The supply of agricultural goods depends on weather conditions, not just price. Even if prices are high, supply cannot be increased immediately if production is low due to bad weather.
- Urgent Need for Cash: If a seller needs cash urgently, they may sell more goods even at a lower price, violating the law.
- Perishable Goods: Sellers of perishable goods (like fish, milk) cannot store them for long and must sell them even at lower prices.
- Rare Articles: The supply of rare goods (like antiques) is fixed and cannot be increased even if prices rise.
(ii) The scope of Macro Economics is unlimited.
I Disagree with this statement.
Reasons:
- While the scope of Macro Economics is vast, it is not "unlimited". It is defined by specific fields of study.
- Subject Matter: It is limited to the study of aggregates like National Income, General Price Level, Employment, and Economic Growth.
- Exclusion of Individual Units: It does not study individual behavior or individual prices (which is the scope of Micro Economics).
- Defined Theories: Its scope is specifically categorized into: Theory of Income and Employment, Theory of General Price Level, Theory of Growth and Development, and Macro Theory of Distribution.
(iii) Price Index number is the only type of Index number.
I Disagree with this statement.
Reasons:
- Price Index Number measures changes in the general price level, but it is not the only type.
- Quantity Index Number: This measures changes in the level of output or physical volume of production (e.g., agricultural or industrial production).
- Value Index Number: This measures changes in the value of a variable (Value = Price × Quantity).
- Special Purpose Index Number: These are constructed for specific purposes, such as Import-Export Index, Share Price Index, or Labour Productivity Index.
(iv) Reserve Bank of India performs various functions.
I Agree with this statement.
Reasons:
- Issue of Currency: RBI has the monopoly to issue currency notes (except one rupee notes and coins).
- Banker to the Government: It acts as a banker, agent, and advisor to the Central and State governments.
- Banker's Bank: It supervises and controls commercial banks and acts as a lender of last resort.
- Custodian of Foreign Exchange: It maintains the country's foreign exchange reserves.
- Controller of Credit: It controls the money supply and credit in the economy using quantitative and qualitative tools.
(v) Obligatory function is the only function of the government.
I Disagree with this statement.
Reasons:
- The government performs two types of functions: Obligatory and Optional.
- Obligatory Functions: These are compulsory functions like protection from external attack, maintaining internal law and order, etc.
- Optional Functions: In a modern welfare state, the government also performs optional functions for social welfare, such as providing education, health services, social security pensions, and infrastructure development.
- Therefore, obligatory functions are not the only functions.
(i) Study the following table:
| Units of x | Total Utility | Marginal Utility |
|---|---|---|
| 1 | 10 | 10 |
| 2 | 18 | 8 |
| 3 | 24 | 6 |
| 4 | 28 | 4 |
| 5 | 30 | 2 |
| 6 | 30 | 0 |
| 7 | 28 | –2 |
(1) With the help of above schedule draw total utility and marginal utility curve. (2 Marks)
(Note: Students should draw a graph with Units on X-axis and Utility on Y-axis. Plot TU points rising, flattening at 30, then falling. Plot MU points falling continuously, crossing X-axis at 6th unit, and going negative at 7th.)
(2) When total utility is maximum marginal utility is _______. (1 Mark)
(3) When total utility falls marginal utility becomes _______. (1 Mark)
(ii) Study the diagram:
(1) The above diagram shows direct relationship between quantity supplied and _______. (1 Mark)
(2) In above diagram, supply curve ‘SS’ has _______ slope. (1 Mark)
(3) Rise in price leads to upward movement of supply on the same supply curve from point ‘R’ to point ‘T’. This movement is known as _______. (1 Mark)
(4) Fall in price leads to downward movement of supply on the same supply curve from point ‘R’ to point ‘M’. The movement is known as _______. (1 Mark)
(iii) Read the passage (about India's economy) and answer:
(1) What is the prime source of livelihood for the majority of population in India? (1 Mark)
(2) Which sector is developing very fast in India in the recent years? (1 Mark)
(3) Give your opinion about India’s economy with reference to the above passage. (2 Marks)
(i) Explain the Law of Demand with its assumptions.
Introduction: The Law of Demand was propounded by Dr. Alfred Marshall in his book 'Principles of Economics' (1890). It establishes the functional relationship between price and quantity demanded.
Statement of the Law: "Other things being equal, higher the price of a commodity, smaller is the quantity demanded and lower the price of a commodity, larger is the quantity demanded."
Symbolically: $D_x = f(P_x)$ where D is Demand, P is Price, f is function.
Schedule & Diagram: (Description) The demand schedule shows an inverse relationship. As price falls (50, 40, 30...), demand rises (1, 2, 3...). The Demand Curve (DD) slopes downwards from left to right, indicating a negative relationship.
Assumptions: The law holds true only if "other things remain equal" (Ceteris Paribus). These are:
- Constant Level of Income: Consumer's income must remain constant. If income rises, demand may rise even at a higher price.
- No Change in Population: The size and composition of the population should remain unchanged.
- Prices of Substitute Goods Remain Constant: If the price of a substitute (e.g., coffee) rises, demand for the commodity (tea) may rise even if its price is constant.
- Prices of Complementary Goods Remain Constant: Change in price of complementary goods affects demand.
- No Expectation of Future Price Change: Consumers should not expect further price changes in the near future.
- No Change in Tastes and Preferences: Habits, tastes, and fashion should remain constant.
- No Change in Taxation Policy: Government tax policies regarding direct and indirect taxes should not change.
(ii) Explain the concept of price elasticity of demand and its types.
Concept: Price elasticity of demand refers to the degree of responsiveness of quantity demanded to a change in the price of the commodity.
Formula: $Ed = \frac{\% \Delta Q}{\% \Delta P}$
Types of Price Elasticity of Demand:
- Perfectly Elastic Demand ($Ed = \infty$): When a slight or zero change in price brings about an infinite change in quantity demanded. Curve: Horizontal straight line parallel to X-axis.
- Perfectly Inelastic Demand ($Ed = 0$): When a percentage change in price has no effect on the quantity demanded. Curve: Vertical straight line parallel to Y-axis.
- Unitary Elastic Demand ($Ed = 1$): When the percentage change in quantity demanded is exactly equal to the percentage change in price. Curve: Rectangular Hyperbola.
- Relatively Elastic Demand ($Ed > 1$): When the percentage change in quantity demanded is greater than the percentage change in price. Curve: Flatter slope.
- Relatively Inelastic Demand ($Ed < 1$): When the percentage change in quantity demanded is less than the percentage change in price. Curve: Steeper slope.
(iii) Explain Income and Expenditure method of measuring national income.
1. Income Method:
This method measures national income from the side of distribution. It is the sum total of all factor incomes (Rent, Wages, Interest, Profit) earned by the owners of factors of production during a year.
Formula: $NI = Rent + Wages + Interest + Profit + Mixed Income + Net Factor Income from Abroad (NFIA)$
Precautions: Transfer payments (pensions) are excluded. Illegal income is excluded. Imputed value of production for self-consumption is included.
2. Expenditure Method:
This method measures national income by aggregating all final expenditure incurred by the society in a year. It sums up Consumption, Investment, and Government expenditure.
Formula: $NI = C + I + G + (X - M) + (R - P)$
- C: Private Final Consumption Expenditure.
- I: Gross Domestic Private Investment.
- G: Government Final Consumption and Investment Expenditure.
- X-M: Net Exports (Exports - Imports).
- R-P: Net Receipts from abroad.
Precautions: Expenditure on intermediate goods is excluded. Expenditure on second-hand goods is excluded. Transfer payments are excluded.