IMPORTANT MODEL PAPER 2026
ECONOMICS (49)
(i) Method adopted in micro economic analysis.
(ii) National income is a/an _____ concept.
(iii) When the supply curve is sloping upward, then its slope is _____.
(iv) Commercial banks act as intermediaries in the financial system to _____.
(v) Theoretically, the functional relationship between demand and price is expressed as:
(i) Money market : Short term funds :: ______ : Long term funds.
(ii) Output method : ______ :: Income method : Factor cost method.
(iii) Perfect competition : Free entry and exit :: Monopoly : ______.
(iv) Expansion of supply : Price rises :: Contraction of supply : ______.
(v) ______ : Base year price :: \(P_1\) : Current year price.
(i) Types of Utility: Form utility, Place utility, Marginal utility, Service utility.
(ii) Features of Perfect Competition: Large number of buyers, Selling cost, Homogeneous product, Single price.
(iii) Quantitative Tools of Credit Control: Bank Rate, Open Market Operations, Cash Reserve Ratio, Publicity.
(iv) Tax Revenue: Income tax, GST, Wealth tax, Fees.
(v) Methods of National Income: Income Method, Expenditure Method, Import-Export Method, Output Method.
(i) Micro economics is also known as ______.
(ii) When Total Utility is maximum, Marginal Utility is ______.
(iii) The demand curve is parallel to the Y-axis in case of ______.
(iv) Index number is a ______ average.
(v) In India, National Income is estimated by ______.
(i) Saloni purchased a sweater for her father in the winter season.
Concept: Time Utility.
Explanation: When the utility of a commodity increases with a change in its time of utilization, it is called time utility. Woolen clothes (sweater) have more utility in winter than in summer.
(ii) Rise in price by 20% of commodity 'X' leads to a fall in demand by 20%.
Concept: Unitary Elastic Demand.
Explanation: When a percentage change in price leads to a proportionately equal percentage change in quantity demanded, it is called Unitary Elastic Demand (Ed = 1).
(iii) Raghu's father invested his money in a market for long-term funds.
Concept: Capital Market.
Explanation: Capital market is a market for lending and borrowing of long-term funds for a period of more than one year. It deals in equity shares, debentures, and bonds.
(iv) A firm produces and sells a homogeneous product at a single price.
Concept: Perfect Competition.
Explanation: Perfect competition is a market structure where there are a large number of buyers and sellers producing homogeneous products, and the price is determined by market forces of demand and supply.
(i) Slicing Method and Lumping Method
| Slicing Method | Lumping Method |
|---|---|
| 1. It splits the economy into small individual units and studies each unit in detail. | 1. It lumps or groups the economic units together and studies the economy as a whole. |
| 2. This method is adopted in Micro Economics. | 2. This method is adopted in Macro Economics. |
(ii) Expansion of Demand and Increase in Demand
| Expansion of Demand | Increase in Demand |
|---|---|
| 1. It refers to a rise in quantity demanded due to a fall in price alone, other factors remaining constant. | 1. It refers to a rise in quantity demanded due to favorable changes in other factors (income, taste, etc.), price remaining constant. |
| 2. It involves a downward movement along the same demand curve. | 2. It involves a rightward shift of the demand curve. |
(iii) Public Finance and Private Finance
| Public Finance | Private Finance |
|---|---|
| 1. The government first determines expenditure and then finds sources of revenue. | 1. Individuals first determine their income and then plan their expenditure. |
| 2. The objective is social welfare. | 2. The objective is self-interest or profit maximization. |
(i) Explain any four features of Micro Economics.
Features of Micro Economics:
- Study of Individual Units: It studies the behavior of small individual economic units like an individual consumer, individual firm, or price of a particular commodity.
- Price Theory: It is primarily concerned with the determination of prices of goods and services as well as factors of production. Hence, it is known as Price Theory.
- Slicing Method: It uses the slicing method to split the whole economy into small units and studies each unit separately in detail.
- Based on Certain Assumptions: It is based on the assumption of "Ceteris Paribus" (Other things remaining constant), such as perfect competition, laissez-faire policy, and full employment.
(ii) Explain any four functions of the Reserve Bank of India (RBI).
- Issue of Currency Notes: The RBI has the sole right to issue currency notes of all denominations (except one rupee note and coins) in India.
- Banker to the Government: It acts as a banker, agent, and advisor to the Central and State Governments. It manages government accounts and public debt.
- Banker's Bank: It exercises statutory control over commercial banks. All scheduled banks must maintain a certain Cash Reserve Ratio (CRR) with the RBI.
- Controller of Credit: The RBI controls the volume of credit created by commercial banks to maintain price stability using quantitative (Bank Rate, OMO) and qualitative tools.
(iii) Explain the types of Demand.
- Direct Demand: Demand for goods that satisfy wants directly (e.g., Food, Clothes).
- Indirect (Derived) Demand: Demand for factors of production needed to produce finished goods (e.g., Demand for labor).
- Complementary (Joint) Demand: When two or more goods are demanded together to satisfy a single want (e.g., Car and Fuel).
- Composite Demand: Demand for a commodity that has several uses (e.g., Electricity, Milk).
- Competitive Demand: Demand for goods that are substitutes for each other (e.g., Tea and Coffee).
(iv) Explain the theoretical difficulties in measuring National Income.
- Transfer Payments: Pensions, unemployment allowances, etc., are not incomes earned for current productive services, so they are excluded, creating confusion.
- Illegal Income: Income from gambling, smuggling, etc., is not included in national income.
- Unpaid Services: Services of housewives or doing one's own gardening are not included as they are not paid for, though they add value.
- Production for Self-Consumption: Goods kept by farmers for self-consumption are often undervalued or guessed, leading to inaccuracy.
(i) There are no exceptions to the Law of Diminishing Marginal Utility.
I Disagree.
Reasons:
- Hobbies: In the case of hobbies like collecting stamps or coins, the MU may increase with every additional unit because the person gets more pleasure.
- Miser: A miser gets more satisfaction with every additional rupee he accumulates.
- Addiction: For a drunkard, the level of intoxication and utility increases with every additional unit of liquor consumed.
- Music/Reading: Repeated listening to a good song or reading a poem may increase utility initially.
(ii) The supply curve slopes upward from left to right.
I Agree.
Reasons:
- Direct Relationship: According to the Law of Supply, there is a direct relationship between price and quantity supplied.
- Profit Motive: When the price rises, producers are willing to supply more to maximize profits.
- New Entrants: Higher prices attract new firms to the market, increasing the total supply.
- Therefore, the supply curve is a positively sloped curve moving upwards from left to right.
(iii) Index numbers can be constructed without a base year.
I Disagree.
Reasons:
- Comparison: Index numbers are devices for measuring changes in an economic variable over time. To measure change, a reference point is required.
- Definition of Base Year: The year against which comparisons are made is called the base year. Without it, the current year's data has no benchmark.
- Calculation: Formulas for index numbers (like \( \frac{\Sigma P_1}{\Sigma P_0} \times 100 \)) require base year values (\(P_0\)).
(iv) Macro Economics is different from Micro Economics.
I Agree.
Reasons:
- Scope: Micro economics studies individual units (tree), while Macro economics studies the aggregate economy (forest).
- Method: Micro uses the Slicing method; Macro uses the Lumping method.
- Theory: Micro is known as Price Theory; Macro is known as Income and Employment Theory.
- Tools: Micro uses individual demand/supply; Macro uses aggregate demand/supply.
(i) Observe the given table and answer the questions:
| Unit of Commodity | Total Utility (TU) | Marginal Utility (MU) |
|---|---|---|
| 1 | 10 | 10 |
| 2 | 18 | 8 |
| 3 | 24 | [ A ] |
| 4 | 28 | 4 |
| 5 | 30 | 2 |
| 6 | [ B ] | 0 |
| 7 | 28 | -2 |
Questions & Answers:
1. Complete the table by finding values of A and B.
Ans:
A (MU at 3rd unit) = \(TU_3 - TU_2 = 24 - 18 = 6\).
B (TU at 6th unit) = \(TU_5 + MU_6 = 30 + 0 = 30\).
2. When Total Utility is maximum, Marginal Utility is _____.
Ans: Zero.
3. What happens to TU when MU becomes negative?
Ans: When MU becomes negative, Total Utility starts falling (diminishing).
(ii) Read the given passage and answer the questions:
Questions & Answers:
1. What is the on-demand economy sometimes referred to as?
Ans: It is sometimes referred to as the "Access Economy".
2. Give two examples of services in the on-demand economy mentioned in the passage.
Ans: Uber (Ride-sharing) and Big Basket (Grocery delivery).
3. Write your opinion on the growth of the on-demand economy.
Ans: The on-demand economy is growing rapidly because it prioritizes consumer convenience, speed, and simplicity. It creates employment opportunities for those with skills and provides immediate satisfaction of wants for consumers through technology.
(i) State and explain the Law of Demand with its assumptions.
Statement: According to Prof. Alfred Marshall, "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."
Formula: \( D_x = f(P_x) \)
Explanation: There is an inverse relationship between price and quantity demanded. When price rises, demand falls, and vice versa.
Assumptions:
- Constant Income: The income of the consumer must remain unchanged. If income rises, demand may rise even at higher prices.
- No Change in Population: Size and composition of the population should remain constant.
- Prices of Substitute Goods: Prices of substitutes (e.g., Tea and Coffee) should remain constant.
- Prices of Complementary Goods: Prices of joint goods (e.g., Car and Fuel) should not change.
- No Expectations about Future Price: Consumers should not expect further changes in price in the near future.
- Constant Tastes and Habits: The consumer's preferences, habits, and fashion should not change.
(Note: In the exam, draw a standard downward-sloping demand curve schedule and diagram here).
(ii) Explain the Law of Diminishing Marginal Utility (DMU) and its exceptions.
Statement: According to Prof. Alfred Marshall, "Other things being equal, the additional benefit which a person derives from a given increase in his stock of a thing, diminishes with every increase in the stock that he already has."
Explanation: As a consumer consumes more and more units of the same commodity in quick succession, the utility derived from each successive unit goes on diminishing.
Exceptions:
- Hobbies: Collection of stamps, coins, or rare paintings. The more one has, the more they want.
- Miser: Every additional rupee gives a miser more satisfaction. However, this ignores the rationality assumption.
- Addictions: For drunkards or drug addicts, the level of intoxication increases with consumption, seemingly increasing utility.
- Power: A person's lust for power increases as they acquire more power.
- Money: It is said that MU of money never becomes zero. However, for a rich person, MU of money is lower than for a poor person.
(iii) Explain the Output Method (Product Method) of measuring National Income.
Definition: The Output Method, also known as the Inventory or Product Method, estimates national income by calculating the total market value of all final goods and services produced in a country during a year.
approaches:
- Final Goods Approach:
Value of all final goods and services produced in primary, secondary, and tertiary sectors is added. Intermediate goods are excluded to avoid double counting. - Value Added Approach:
Instead of taking the total value of final goods, the value added at each stage of production is calculated.
Value Added = Value of Output - Value of Intermediate Inputs.
The sum of value added by all firms gives the Gross Domestic Product.
Precautions:
- To avoid double counting, only the value of final goods or value added should be counted.
- Self-consumption production should be valued and included.
- Indirect taxes should be deducted, and subsidies added to calculate NI at factor cost.
- Sale of second-hand goods should be excluded.
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