HSC Class 12 Economics June/July 2026 Board Paper Solutions (J-320)

Prepare effectively for your upcoming board examinations with the complete, step-by-step HSC Class 12 Economics June/July 2026 Board Paper Solutions (Subject Code: J-320). Conducted by the Maharashtra State Board (MSBSHSE) on 1st July 2026, this 80-mark Board Question Paper is solved strictly according to the official textbook and board marking scheme, featuring neat comparison tables, point-wise explanations, and exam-scoring tips.

HSC Economics June/July 2026 Board Paper Solutions (Subject Code: J-320)

Subject: Economics (49) | Date: 01/07/2026 | Time: 3 Hours | Total Marks: 80

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Q. 1. (A) Complete the following statements : (5 Marks)

1. \(E_d = 0\) in case of Necessary goods.

   • (a) Luxury goods
   • (b) Normal goods
   • (c) Necessary goods
   • (d) Durable goods

   Answer: (c) Necessary goods

2. Balance of trade is also referred to as International trade balance.

   • (a) National trade balance
   • (b) International trade balance
   • (c) Balance of payment
   • (d) Systematic record of all international economic transactions

   Answer: (b) International trade balance

3. The famous book "General Theory of Employment, Interest and Money" was published by Lord J.M. Keynes.

   • (a) Prof. Alfred Marshall
   • (b) David Ricardo
   • (c) Lord J.M. Keynes
   • (d) Adam Smith

   Answer: (c) Lord J.M. Keynes

4. When a government borrows from its citizens, banks, central bank, industries, etc. it is known as Internal Debt.

   • (a) Internal Debt
   • (b) Personal Debt
   • (c) External Debt
   • (d) International Debt

   Answer: (a) Internal Debt

5. A period of time in which all factors of production and costs are variable is known as Long period.

   • (a) Very short period
   • (b) Short period
   • (c) Long period
   • (d) Very long period

   Answer: (c) Long period

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Q. 1. (B) Complete the correlation : (5 Marks)

1. Service utility : Teacher : : Form utility : Toys made of clay

2. Perfect competition : Large number of sellers : : Oligopoly : Few sellers

3. Theoretical difficulty : Unpaid services : : Practical difficulty (Statistical difficulty) : Valuation of inventories

4. Pen and ink : Complementary goods : : Tea and coffee : Substitutes

5. Trends in exports : Petroleum products : : Trends in imports : Gold

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Q. 1. (C) Give economic terms : (5 Marks)

1. A market for long term funds, both equity and debt raised within and outside the country.

   Answer: Capital Market

2. Demand for a commodity which can be put to several uses.

   Answer: Composite Demand

3. The total quantity of commodity available for sale with a seller at a particular point of time.

   Answer: Stock

4. Index number which is constructed with some specific purpose.

   Answer: Special Purpose Index Number

5. Budget in which the estimated revenue and expenditure of the government are equal.

   Answer: Balanced Budget

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Q. 1. (D) Find the odd word : (5 Marks)

1. Scope of macro economics : Theory of income and employment, Theory of product pricing, Theory of general price level and inflation, Macro theory of distribution

   Odd word: Theory of product pricing (It falls under the scope of microeconomics.)

2. Methods of measurement of national income : Output method, Income method, Expenditure method, Ratio method

   Odd word: Ratio method (It is a method of measuring price elasticity of demand.)

3. Reasons for downward sloping demand curve : Law of supply, Income effect, Substitution effect, New consumers

   Odd word: Law of supply (It explains the upward-sloping supply curve.)

4. Exceptions to the law of supply : Agricultural goods, Perishable goods, Rare goods, Giffen's paradox

   Odd word: Giffen's paradox (It is an exception to the law of demand.)

5. Types of utility : Form utility, Total utility, Time utility, Place utility

   Odd word: Total utility (It is a concept of measuring utility, not a type of utility.)

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Q. 2. (A) Identify and explain the following concepts from the given illustrations (Any THREE) : (6 Marks)

Exam Tip: In Q. 2 (A), the board marking scheme awards 1 mark for correctly identifying the economic concept and 1 mark for writing its crisp textbook explanation. Always write both clearly under separate headings.

1. Illustration: Arnav sells 80 dozens of mangoes daily at ₹ 500/- per dozen.

   Concept: Individual Supply (or Supply)

   Explanation: Individual supply refers to the quantity of a commodity that an individual producer or seller is willing and able to offer for sale at a given price during a specific period of time. Here, Arnav's daily sale of 80 dozens of mangoes at ₹ 500/- per dozen represents individual supply.

2. Illustration: Demand for sugar falls by 10% when the price of sugar rises by 10%.

   Concept: Unitary Elastic Demand \((E_d = 1)\)

   Explanation: When a percentage change in price leads to an exactly equal (proportionate) percentage change in quantity demanded, the demand is said to be unitary elastic. Here, a 10% rise in the price of sugar brings about an equal 10% fall in its demand.

3. Illustration: Reena deposited a lumpsum amount of ₹ 50,000 in the bank for a period of one year.

   Concept: Fixed Deposit (Time Deposit)

   Explanation: A fixed deposit is a type of bank deposit in which a saver deposits a lump sum amount for a specified fixed period of time. It carries a higher rate of interest compared to a savings account, and the amount cannot normally be withdrawn before the maturity period without a penalty.

4. Illustration: Shabana paid wages to workers in her factory and interest on her bank loan.

   Concept: Theory of Factor Pricing (or Factor Payment)

   Explanation: In microeconomics, the theory of factor pricing explains how factor rewards are determined for the factors of production (land, labour, capital, and entrepreneur) in the form of rent, wages, interest, and profit. Here, Shabana is making factor payments by paying wages to labour and interest on capital.

5. Illustration: Vrinda receives monthly pension of ₹ 5000/- from the state government.

   Concept: Transfer Income (Transfer Payment)

   Explanation: Transfer income refers to a one-sided payment received by an individual without rendering any productive service in return during the current period. Grants, scholarships, and old-age or retirement pensions are transfer payments and are excluded from national income.

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Q. 2. (B) Distinguish between (Any THREE) : (6 Marks)

Exam Tip: Each distinction carries 2 marks. Always write at least two clear points of distinction (Meaning + 1 specific point or Formula/Example) in a neat two-column table to secure full marks.

(i) Direct Demand and Indirect Demand

Points	Direct Demand	Indirect Demand
1. Meaning	Direct demand is the demand for goods and services by consumers which satisfy their wants directly.	Indirect demand (also known as derived demand) is the demand for goods which are needed for the further production of other goods.
2. Nature of Goods	All consumer goods (consumption goods) have direct demand.	All producer goods (capital goods and factors of production) have indirect demand.
3. Dependence	It depends directly on the utility, habits, and preferences of the consumer.	It is derived from the demand for the final consumption goods that it helps to produce.
4. Example	Demand for food, clothes, books, house, etc.	Demand for workers, machinery, raw materials, land, etc.

(ii) Laspeyre's Price Index Number and Paasche's Price Index Number

Points	Laspeyre's Price Index Number	Paasche's Price Index Number
1. Meaning	Laspeyre's Index Number is a weighted index number formulated by Etienne Laspeyre in 1871 using base year quantities as weights.	Paasche's Index Number is a weighted index number formulated by Hermann Paasche in 1874 using current year quantities as weights.
2. Weights Used	In this method, the base year quantities \((q_0)\) are taken as weights.	In this method, the current year quantities \((q_1)\) are taken as weights.
3. Formula	\(P_{01}(L) = \frac{\sum p_1 q_0}{\sum p_0 q_0} \times 100\)	\(P_{01}(P) = \frac{\sum p_1 q_1}{\sum p_0 q_1} \times 100\)

(iii) Direct Tax and Indirect Tax

Points	Direct Tax	Indirect Tax
1. Meaning	Direct tax refers to a tax that is paid directly by the person on whom it is legally imposed.	Indirect tax refers to a tax that is imposed on one person (producer or seller) but paid partly or wholly by another person (consumer).
2. Impact and Incidence	The impact (initial burden) and incidence (ultimate burden) of the tax fall on the same person.	The impact and incidence of the tax fall on different persons.
3. Shifting of Burden	The taxpayer cannot shift the burden of this tax to others.	The tax burden can be shifted by the producer or seller to the final consumer.
4. Example	Personal Income Tax, Wealth Tax, Property Tax.	Goods and Services Tax (GST), Custom Duty.

(iv) Micro Economics and Macro Economics

Points	Micro Economics	Macro Economics
1. Meaning	Micro economics studies the economic behaviour of small individual units such as an individual consumer, firm, or household.	Macro economics studies the behaviour of the economy as a whole, focusing on large aggregates.
2. Method of Study	It uses the slicing method, splitting the whole economy into small individual units for intensive study.	It uses the lumping method, grouping the entire economy into big aggregates for broad analysis.
3. Basic Tools	Individual demand and individual supply are its primary tools.	Aggregate demand and aggregate supply are its primary tools.
4. Alternative Name	It is also known as Price Theory.	It is also known as Income and Employment Theory.

(v) Total Cost and Total Revenue

Points	Total Cost (TC)	Total Revenue (TR)
1. Meaning	Total cost is the total expenditure incurred by a firm on the factors of production required to produce a given level of output.	Total revenue is the total sales proceeds (receipts) earned by a firm from selling a given quantity of a commodity at a given price.
2. Formula	\(\text{TC} = \text{TFC} + \text{TVC}\) (Total Fixed Cost + Total Variable Cost)	\(\text{TR} = P \times Q\) (Price \(\times\) Quantity Sold)
3. Nature of Flow	It represents the outflow of money (expenses) for the producer.	It represents the inflow of money (income) for the producer.

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Q. 3. Answer the following (Any THREE) : (12 Marks)

(i) Explain any four features of utility.

Answer: Utility is the capacity of a commodity to satisfy human wants. The main features of utility are as follows:

1. Relative Concept: Utility is related to time and place. It varies from time to time and place to place. For example, woollen clothes have a greater utility in the winter season or in cold regions like Kashmir than in summer or in Mumbai.

2. Subjective Concept: Utility is a psychological concept. It differs from person to person due to differences in tastes, preferences, likes, dislikes, natures, and habits. For example, a stethoscope has immense utility to a doctor, but it has no utility to a layman.

3. Ethically Neutral Concept: The concept of utility has no ethical or moral considerations. It is a morally colourless concept. A commodity may satisfy any want of a person without considering whether it is good or bad. For example, a knife has utility to cut fruits and vegetables for a homemaker, and it can also be used by a criminal to harm someone. In economics, both possess utility.

4. Utility Differs from Usefulness: Utility is the capacity of a commodity to satisfy a human want, whereas usefulness indicates the benefit or value in use of the commodity. A commodity may possess utility even if it is not useful. For example, liquor or cigarettes have utility to an addict, even though they are injurious to health and have no usefulness.

5. Utility Differs from Pleasure: A commodity may possess utility, yet it may not give any pleasure to the consumer. For example, a bitter medicine or an injection has utility for a sick patient because it cures the illness, although taking it hardly gives any pleasure.

(ii) Explain any four roles of foreign trade.

Answer: Foreign trade is the trade across the boundaries of a nation, consisting of imports and exports of goods and services. The roles of foreign trade are explained below:

1. To Earn Foreign Exchange: Foreign trade plays a very important role in earning foreign exchange. The foreign exchange earned through exports can be utilized to import advanced capital goods, raw materials, and technical know-how, which accelerates the pace of economic development.

2. Encourages Investment: Foreign trade creates an opportunity for producers to reach beyond the domestic markets and sell their products in international markets. This encourages them to produce more goods for export, leading to an increase in total investment in the country.

3. Division of Labour and Specialization: Foreign trade leads to the division of labour and specialization at the global level. Some countries have abundant natural resources, while others have advanced technology or skilled labour. Foreign trade enables each country to specialize in the production of those goods in which it has a comparative cost advantage.

4. Optimum Allocation and Utilization of Resources: Due to specialization, resources are channelized into the production of only those goods which yield the highest returns. Thus, there is rational allocation and optimum utilization of scarce resources at both national and international levels.

5. Stability in Price Level: Foreign trade helps to keep the demand and supply position stable. Whenever there is a shortage of goods in the domestic market, imports can be made to arrest rising prices, and surplus output can be exported to prevent a sharp fall in prices, thereby maintaining stability in the price level.

(iii) Explain any four features of micro economics.

Answer: Micro economics is a branch of economics that studies the economic behaviour of small individual units. Its key features are:

1. Study of Individual Units: Micro economics is the study of the behaviour of small individual economic units, like an individual firm, an individual price, an individual household, etc.

2. Price Theory: Micro economics deals with the determination of the prices of goods and services as well as the prices of factors of production (rent, wages, interest, and profit). Hence, it is also known as Price Theory.

3. Partial Equilibrium: Equilibrium is the balance between two factors. Micro economic analysis is a partial equilibrium analysis as it isolates an individual unit from other forces and studies its equilibrium independently, neglecting the interdependence between economic variables.

4. Slicing Method: Micro economics uses the slicing method. It splits or divides the whole economy into small individual units and then studies each unit separately in detail, such as studying individual income out of national income.

5. Based on Certain Assumptions: Micro economics begins with the fundamental assumption of "Other things remaining constant" (Ceteris Paribus), such as full employment, pure capitalism, perfect competition, and laissez-faire policy. These assumptions make the analysis simpler.

(iv) Explain any four factors influencing elasticity of demand.

Answer: Elasticity of demand refers to the responsiveness of quantity demanded to a change in price. The main factors influencing the elasticity of demand are:

1. Nature of Commodity: By nature, we can classify commodities as necessaries, comforts, and luxuries. Demand for necessaries like foodgrains, salt, and medicines is relatively inelastic because they are essential for survival. On the other hand, demand for comfort and luxury goods like cars, perfumes, and air conditioners is relatively elastic.

2. Availability of Substitutes: Demand for a commodity will be more elastic if its close substitutes are easily available in the market (for example, lemon juice, sugarcane juice, and cold drinks). If the price of one rises, consumers shift to its substitute. Conversely, commodities having no close substitutes, like salt, have inelastic demand.

3. Number of Uses: Single-use goods have a less elastic demand. Multi-use (composite) goods have more elastic demand. For example, coal or electricity can be used for cooking, heating, lighting, and industrial purposes. A fall in the price of electricity will lead to a substantial increase in its demand across various uses.

4. Habits: Habits make the demand for certain goods relatively inelastic. Even if the prices of habitual goods rise, consumers continue to purchase almost the same quantity. For example, a smoker's demand for cigarettes or an addict's demand for liquor will not fall significantly when prices increase.

5. Durability: The demand for durable goods such as furniture, washing machines, and televisions is relatively elastic, as their purchase can be postponed when prices are high. Conversely, the demand for perishable goods such as milk, vegetables, and fruits is relatively inelastic.

(v) Explain any four types of monopoly.

Answer: Monopoly is a market structure in which there is only a single seller who controls the entire market supply of a product that has no close substitute. The main types of monopoly are:

1. Private Monopoly: When an individual or a private body controls a monopoly firm, it is known as a private monopoly. The primary motive of a private monopoly is profit maximization. For example, Tata Group or Reliance Industries operating a sole enterprise in a specialized sector.

2. Public Monopoly: When the production is solely owned, controlled, and operated by the Government, it is known as a public or social monopoly. It is usually welfare-oriented and not profit-oriented. For example, Indian Railways.

3. Legal Monopoly: This monopoly emerges on account of legal provisions like patents, trademarks, copyrights, etc. The law forbids potential competitors from imitating the design or form of the product registered under a given brand name. For example, Amul's products or patented pharmaceutical drugs.

4. Natural Monopoly: The monopoly created on the basis of natural conditions like climate, rainfall, specific location, or mineral reserves is known as a natural monopoly. For example, gold mines in South Africa or crude oil reserves in Gulf countries.

5. Simple and Discriminating Monopoly: In a simple monopoly, the seller or a firm charges a uniform price for its product to all buyers. In a discriminating monopoly, the firm charges different prices to different buyers for the same product or service (for example, a doctor charging different fees to rich and poor patients).

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Q. 4. State with reasons whether you agree or disagree with the following statements (Any THREE) : (12 Marks)

Exam Tip: In Q. 4, clearly stating "Yes, I agree with the above statement" or "No, I disagree with the above statement" carries 1 mark, and the supporting reasons carry 3 marks. Never skip the opening agreement/disagreement line!

(i) There are many assumptions to the law of supply.

Answer: Yes, I agree with the above statement.

Reasons: The law of supply states that "Other things being constant, the higher the price of a commodity, more is the quantity supplied; and lower the price of a commodity, less is the quantity supplied." The validity of this law rests upon the following assumptions:

1. Constant Cost of Production: It is assumed that there is no change in the cost of production. A change in the prices of factors of production would alter the cost and affect supply even at the same price.

2. Constant Technique of Production: It is assumed that the technique of production does not change. Improved technology increases production and supply at the same price.

3. No Change in Weather Conditions: It is assumed that natural conditions like rainfall, temperature, floods, or droughts remain normal and unchanged, especially for agricultural commodities.

4. No Change in Government Policy: It is assumed that government policies regarding taxation, subsidies, and trade regulations remain unchanged.

5. Constant Transport Cost: It is assumed that there is no change in transport facilities and transport costs. Better transport facilities increase supply at the same price.

6. Prices of Other Goods Remain Constant: Prices of other related goods are assumed to remain constant so that producers do not shift their resources to other products.

(ii) Product differentiation is the only feature of monopolistic competition.

Answer: No, I disagree with the above statement.

Reasons: While product differentiation (making a product distinct through brand name, trademarks, packaging, quality, design, or colour) is an important feature of monopolistic competition, there are several other essential features of this market structure:

1. Fairly Large Number of Sellers: In monopolistic competition, the number of sellers is fairly large, though comparatively less than in perfect competition. Hence, no single seller can control a major share of the market supply.

2. Fairly Large Number of Buyers: There are a fairly large number of buyers in this market. Consequently, no single buyer can influence the price of the product by changing their individual demand.

3. Close Substitutes: Goods sold under monopolistic competition are not homogeneous, but they are close substitutes for one another. For example, different brands of soaps, toothpastes, or cold drinks.

4. Free Entry and Exit: Under monopolistic competition, there is freedom of entry and exit. New firms are free to enter the market if there is supernormal profit, and existing firms can leave the market if they incur losses.

5. Selling Cost: Selling cost is a peculiar feature of monopolistic competition. Firms incur heavy expenditures on advertisements, radio and television broadcasts, hoardings, exhibitions, window displays, and free gifts to create more demand for their product.

(iii) Marginal utility and total utility are the same.

Answer: No, I disagree with the above statement.

Reasons: Marginal Utility (MU) and Total Utility (TU) are two entirely different concepts in cardinal utility analysis:

1. Difference in Meaning: Total Utility (TU) refers to the aggregate of utilities derived by a consumer from all units of a commodity consumed at a point of time. On the other hand, Marginal Utility (MU) refers to the additional utility derived by a consumer from an additional unit of a commodity consumed.

2. Formula: Total Utility is the sum of marginal utilities: \(\text{TU}_n = \sum \text{MU}\) or \(\text{TU}_n = \text{MU}_1 + \text{MU}_2 + \dots + \text{MU}_n\). Marginal Utility is the net addition to Total Utility: \(\text{MU}_n = \text{TU}_n - \text{TU}_{n-1}\).

3. Behaviour During Consumption: As a consumer consumes more and more units of a commodity continuously, Total Utility increases at a diminishing rate, whereas Marginal Utility goes on diminishing continuously.

4. At the Point of Satiety: When the consumer reaches the point of maximum satisfaction (point of satiety), Total Utility reaches its maximum level and remains constant, whereas Marginal Utility becomes zero \((\text{MU} = 0)\).

5. Positive and Negative Values: Beyond the point of satiety, if consumption continues, Total Utility begins to decline (though it remains positive), whereas Marginal Utility becomes negative (disutility). Only on the consumption of the very first unit are TU and MU equal.

(iv) Index numbers have limitations.

Answer: Yes, I agree with the above statement.

Reasons: Index numbers are extremely useful statistical tools and economic barometers, but they are not completely reliable and suffer from the following limitations:

1. Based on Samples: Index numbers are generally based on samples. It is practically impossible to include all items in the construction of an index number. Hence, they are not free from sampling errors.

2. Bias in the Data: Index numbers are constructed from various types of data collected by individuals or agencies. There may be errors or deliberate bias in the collected data, which affects the accuracy of the results.

3. Misuse of Index Numbers: Index numbers can be misused. Sometimes a person or institution chooses a base year or commodities that yield a favourable result to prove a predetermined point of view.

4. Defects in Formulae: There is no perfect formula for the construction of an index number. It is only an average, and so it carries all the limitations of an average.

5. Changes in the Economy: The habits, tastes, and expectations of the people in a country are always changing over time. All these dynamic changes cannot be accurately included in the estimation of index numbers.

6. Qualitative Changes: The price or quantity index numbers may ignore the changes in the quality of the product. A higher price may be due to better quality, which is overlooked in simple index calculations.

(v) Public finance is different from private finance.

Answer: Yes, I agree with the above statement.

Reasons: Public finance is the study of the income and expenditure of the government, whereas private finance is the study of the income and expenditure of an individual or a private business. They differ in the following ways:

1. Objectives: The main objective of public finance is to offer maximum social advantage to society, whereas the primary motive of private finance is to fulfill private interests and maximize individual satisfaction or profit.

2. Determination of Expenditure: In public finance, the government first determines the volume and different ways of its expenditure and then finds out the ways to raise the necessary revenue. In private finance, an individual considers their income first and then determines the volume of expenditure.

3. Credit Status: The government enjoys a very high degree of credit in the market, both domestically and internationally. In contrast, the credit of a private individual is limited.

4. Right to Print Currency: The government has the legal authority to print currency notes through the Reserve Bank of India to meet its financial deficits. A private individual does not enjoy any such right.

5. Elasticity of Finance: Public finance is more elastic and flexible, as the government can make drastic changes in its revenue and expenditure policies. Private finance is relatively rigid, as an individual cannot easily make major changes in their income.

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Q. 5. Study the following table, figure, passage and answer the questions given below it (Any TWO) : (8 Marks)

(i) Observe the following table and answer the questions given below it : (4 Marks)

(a) Complete the above table. (1 Mark)

Commodities	Quantity in 2000 Base Year \((q_0)\)	Quantity in 2001 Current Year \((q_1)\)
A	20	45
B	40	70
C	60	105
D	20	60
Total	\(\sum q_0 = 140\)	\(\sum q_1 = 280\)

(b) Calculate the Quantity Index Number from the above table. (3 Marks)

Given:

• Sum of the quantities of the base year \(\left(\sum q_0\right) = 20 + 40 + 60 + 20 = 140\)
• Sum of the quantities of the current year \(\left(\sum q_1\right) = 45 + 70 + 105 + 60 = 280\)

Formula:

\[Q_{01} = \frac{\sum q_1}{\sum q_0} \times 100\]

Substitution & Calculation:

\[Q_{01} = \frac{280}{140} \times 100\]

\[Q_{01} = 2 \times 100\]

\[Q_{01} = 200\]

Final Answer: The Quantity Index Number \(\left(Q_{01}\right)\) is 200.

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(ii) Observe the following diagram and answer the questions given below it : (4 Marks)

In the given diagram, \(AE\) is the linear demand curve of a commodity plotted with Quantity Demanded on the X-axis and Price on the Y-axis. The points along the demand curve from top to bottom are: point \(A\) (on the Y-axis), point \(B\) (on the upper half), point \(D\) (at the exact midpoint), point \(C\) (on the lower half), and point \(E\) (on the X-axis). On the basis of the given diagram, state whether the following statements are true or false:

Key Formula (Point/Geometric Method): \(\text{Point Elasticity of Demand } (E_d) = \frac{\text{Lower segment of the demand curve below the given point}}{\text{Upper segment of the demand curve above the given point}}\)

1. Demand at point 'C' is relatively elastic demand. (1 Mark)

   Answer: False. (Demand at point 'C' is relatively inelastic demand \([E_d < 1]\) because it lies on the lower half of the linear demand curve where the lower segment \(CE\) is smaller than the upper segment \(CA\).)

2. Demand at point 'B' is unitary elastic demand. (1 Mark)

   Answer: False. (Demand at point 'B' is relatively elastic demand \([E_d > 1]\) because it lies on the upper half of the linear demand curve where the lower segment \(BE\) is greater than the upper segment \(BA\).)

3. Demand at point 'D' is perfectly inelastic. (1 Mark)

   Answer: False. (Demand at point 'D' is unitary elastic demand \([E_d = 1]\) because it is the mid-point of the linear demand curve where the lower segment \(DE\) is equal to the upper segment \(DA\).)

4. Demand at point 'A' is perfectly elastic demand. (1 Mark)

   Answer: True. (At point 'A' on the Y-axis, the upper segment is zero, so \(E_d = \infty\), which indicates perfectly elastic demand.)

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(iii) Read the following passage and answer the questions given below it : (4 Marks)

Passage: The Finance Ministry has proposed a two slab GST structure instead of multiple slabs. This reform will make the tax system simpler, benefiting micro, small and medium enterprises and also making goods cheaper for consumers. Apart from regular tax revenue, the central government earns a large share through Cess and Surcharge.

For the financial year 2025-26, the government expects 5.91 lakh crore from Cess and Surcharge which is a 9.43% increase compared to the previous year.

Recently, GST rates on several items were reduced. This gives relief to consumers, increases the purchasing power and boosts demand in the economy. However, such cuts reduce the government's revenue. According to officials, this loss can be managed through better tax collection and other fiscal measures.

Today, India's public finance system faces major challenges: Revenue shortfall with increasing expenditure. Need to reduce fiscal deficit while promoting investment. To address this, the government must focus on tax reforms, prioritizing expenditure and long term infrastructure and investment.

1. How much revenue does the government expect from Cess and Surcharge in F.Y. 2025-26? (1 Mark)

   Answer: For the financial year 2025-26, the government expects ₹ 5.91 lakh crore from Cess and Surcharge, which is a 9.43% increase compared to the previous year.

2. Mention the major challenges faced by India's public finance system today. (1 Mark)

   Answer: Today, India's public finance system faces two major challenges:

   • Revenue shortfall with increasing expenditure.
   • Need to reduce the fiscal deficit while promoting investment.

3. Express your opinion with reference to the given passage. (2 Marks)

   Answer: In my opinion, the proposal to simplify the Goods and Services Tax (GST) into a two-slab structure and reduce GST rates on essential items is a highly progressive step. It will ease the compliance burden on Micro, Small, and Medium Enterprises (MSMEs), make goods more affordable for common citizens, increase purchasing power, and boost aggregate demand in the economy. Although tax cuts may cause a temporary dip in government revenue, this shortfall can be effectively balanced by improving tax compliance, widening the tax base, prioritizing productive public expenditure, and focusing on long-term infrastructure investment to ensure sustainable economic growth.

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Q. 6. Answer the following questions in detail (Any TWO) : (16 Marks)

(i) State and explain the law of demand with its exceptions. (8 Marks)

1. Introduction:

The Law of Demand is one of the most important fundamental laws of consumption in economics. It was introduced by Prof. Alfred Marshall in his famous book, "Principles of Economics", published in 1890. The law explains the functional (inverse) relationship between the price of a commodity and its quantity demanded.

2. Statement of the Law:

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."

In other words, other factors remaining constant, if the price of a commodity rises, its demand falls; and if the price of a commodity falls, its demand rises. Thus, there is an inverse relationship between price and quantity demanded.

3. Symbolic Representation:

Symbolically, the functional relationship between demand and price is expressed as:

\[D_x = f(P_x)\]

Where:

• \(D\) = Demand for a commodity
• \(x\) = Commodity
• \(f\) = Function
• \(P_x\) = Price of a commodity

4. Key Assumptions (Ceteris Paribus):

The Law of Demand is based on the assumption that all other determinants of demand remain constant: constant level of consumer's income, no change in size of population, constant prices of substitute and complementary goods, no change in tastes and habits, and no expectations about future changes in prices.

5. Demand Schedule:

The Law of Demand can be explained with the help of the following individual demand schedule:

Price of Commodity 'x' (₹ per kg)	Quantity Demanded of Commodity 'x' (in kgs)
50	1
40	2
30	3
20	4
10	5

6. Explanation of the Schedule and Demand Curve:

• As shown in the table, when the price of commodity 'x' is ₹ 50 per kg, the quantity demanded is 1 kg.
• When the price falls from ₹ 50 to ₹ 40, ₹ 30, ₹ 20, and ₹ 10 per kg, the quantity demanded rises to 2 kgs, 3 kgs, 4 kgs, and 5 kgs respectively.
• When these price-quantity combinations are plotted on a graph with Quantity Demanded on the X-axis and Price on the Y-axis, we get the demand curve DD, which slopes downwards from left to right, indicating an inverse relationship between price and quantity demanded.

7. Exceptions to the Law of Demand:

There are certain exceptional cases where the Law of Demand does not apply. In these situations, a rise in price leads to a rise in demand and a fall in price leads to a fall in demand, resulting in an upward-sloping exceptional demand curve from left to right:

1. Giffen's Paradox: Inferior goods or low-quality goods are those goods whose demand does not rise even if their price falls. Sir Robert Giffen observed in England that when the price of bread declined, low-paid workers did not buy more bread; instead, they saved money and used their increased real income to purchase superior food like meat. Such inferior goods are known as Giffen goods.

2. Prestige Goods (Veblen Effect): Expensive goods like diamonds, gold, luxury cars, and antique paintings are status symbols. Rich people buy more of these goods when their prices are high to display their wealth and social prestige.

3. Speculation: The law of demand does not hold true when people expect prices to rise still further in the near future. In such cases, even though prices have risen today, consumers buy more now to avoid paying even higher prices later (e.g., shares in the stock market, or oil and sugar before festive seasons).

4. Price Illusion: Consumers often have an illusion that high-priced goods are of better quality. Therefore, the demand for branded and high-priced products increases even when their prices rise.

5. Ignorance: Sometimes consumers buy more of a commodity at a higher price out of sheer ignorance because they are unaware of the lower prices of the same commodity prevailing elsewhere in the market.

6. Habitual Goods: Due to habit of consumption, certain goods like tea, coffee, cigarettes, or tobacco are purchased in required quantities even if their prices increase significantly.

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(ii) Define National Income and explain its features. (8 Marks)

1. Meaning of National Income:

National Income is one of the most important subject matters of macroeconomics. The total income of the nation is called National Income. In real terms, national income is the flow of goods and services produced in an economy during a year.

2. Definitions of National Income:

1. National Income Committee (NIC, 1949): "A national estimate measures the volume of commodities and services turned out during a given period counted without duplication."

2. Prof. A. C. Pigou: "National dividend is that part of objective income of the community including of course income derived from abroad which can be measured in money."

3. Prof. Irving Fisher: "National dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environments."

3. Features of National Income:

1. Macro Economic Concept: National income represents the income of the economy as a whole rather than that of an individual unit. Hence, it is a macroeconomic concept.

2. Value of Only Final Goods and Services: In order to avoid double counting in national income, the value of only final goods and services produced in the economy is considered. The value of intermediate goods or raw materials is not considered separately. For example, while estimating the production of shirts, the value of cotton is not counted separately as it is already included in the price of the shirt.

3. Net Aggregate Value: National income includes the net value of goods and services produced and does not include depreciation cost (i.e., wear and tear of capital assets used in the process of production).

4. Net Income from Abroad: National income includes net income from abroad, i.e., the difference between export value and import value \((X - M)\) and net difference between receipts from abroad and payments made abroad \((R - P)\).

5. Financial Year: National income is always expressed with reference to a specific time period. In India, the financial year runs from 1st April to 31st March.

6. Flow Concept: National income is a flow concept as it shows the continuous flow of goods and services produced in the economy during the course of a year.

7. Money Value: National income is always expressed in monetary terms. It represents only those goods and services which are exchanged for money.

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(iii) Explain the role of money market in India. (8 Marks)

1. Meaning of Money Market:

The money market is a financial market wherein lending and borrowing of short-term funds take place. It is a market for "near money", i.e., short-term instruments such as trade bills, government securities, promissory notes, treasury bills, etc. Such instruments are highly liquid, less risky, and easily marketable with a maturity period of one year or less than one year.

2. Role of Money Market in India:

The following points outline the vital role of the money market in India:

1. Short-Term Requirements of Borrowers: The money market provides reasonable access for meeting the short-term financial needs of borrowers (such as traders, industrialists, and farmers) at realistic prices.

2. Liquidity Management: The money market is a dynamic market. It facilitates better management of liquidity and money in the economy by the monetary authorities. This, in turn, leads to economic stability and development of the country.

3. Portfolio Management: The money market deals with different types of financial instruments that are designed to suit the risk and return preferences of investors. This enables the investors to hold a balanced portfolio of different financial assets, which helps in minimizing risk and maximizing returns.

4. Equilibrating Mechanism: Through the rational allocation of resources and mobilization of savings into investment channels, the money market helps to establish an equilibrium between the demand for and supply of short-term funds.

5. Financial Requirements of the Government: The money market helps the Government to fulfill its short-term financial requirements on the basis of Treasury Bills.

6. Implementation of Monetary Policy: Monetary policy is implemented by the central bank (Reserve Bank of India). It aims at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth. A well-developed money market ensures the successful implementation of the monetary policy and guides the central bank in developing an appropriate interest rate policy.

7. Economizes the Use of Cash: The money market deals with various financial instruments that are close substitutes for money and not actual money. Therefore, it economizes the use of cash in the economy.

8. Growth of Commerce, Industry and Trade: The money market facilitates discounting of bills of exchange to local and international traders who are in urgent need of short-term funds. It also provides working capital for agriculture and small-scale industries, thereby promoting the overall growth of commerce, industry, and trade.

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HSC Economics June/July 2026 Board Question Paper Images (Subject Code: J-320)

Below are the official question paper scans of the Maharashtra State Board HSC Class 12 Economics June/July 2026 Supplementary Exam (Paper Code: J-320, Subject Code: 49) held on 1st July 2026: