CBSE Sample Papers for Class 12 Economics Paper 1

CBSE Sample Papers for Class 12 Economics Paper 1 are part of CBSE Sample Papers for Class 12 Economics. Here we have given CBSE Sample Papers for Class 12 Economics Paper 1.

CBSE Sample Papers for Class 12 Economics Paper 1

Board	CBSE
Class	XII
Subject	Economics
Sample Paper Set	Paper 1
Category	CBSE Sample Papers

Students who are going to appear for CBSE Class 12 Examinations are advised to practice the CBSE sample papers given here which is designed as per the latest Syllabus and marking scheme, as prescribed by the CBSE, is given here. Paper 1 of Solved CBSE Sample Paper for Class 12 Economics is given below with free PDF download solutions.

Time : 3 hrs
M.M.: 80

General Instructions

• All questions in both the sections A and B are compulsory. However, there is internal choice in questions of 3,4 and 6 marks.
• Question Nos. 1-4 and 13-16 are very short answer type questions, carrying 1 mark each.
  They are required to be answered in one sentence each.
• Question Nos. 5-6 and 17-18 are short answer I type questions, carrying 3 marks each.
  Answers to them should not normally exceed 60 words each.
• Question Nos. 7-9 and 19-21 are short answer II type questions, carrying 4 marks each.
  Answers to them should not normally exceed 70 words each.
• Question Nos. 10-12 and 22-24 are long answer type questions, carrying 6 marks each.
  Answers to them should not normally exceed 100 words each.
• Answers should be brief and to the point and the above word limit be adhered to as far as possible.

Section – A

Question 1.
Define an economy.

Question 2.
What is the behaviour of average fixed cost as output is decreased?

Question 3.
Suppose total revenue is. rising at a constant rate as more and more units of a commodity are sold. Marginal revenue would be
(a) greater than average revenue
(b) equal to average revenue
(c) less than average revenue
(d) rising

Question 4.
Slope of supply curve is indicated by

Question 5.
With the help of a diagram, explain this property of Indifference Curve (IC) ‘High IC offers higher level of satisfaction’.
Or
Differentiate between substitute goods and complementary goods.

Question 6.
What is meant by an economic problem? Explain how scarcity and choice go together.

Question 7.
Distinguish between change in quantity supplied and change in supply.

Question 8.
Differentiate between price discrimination and product differentiation.

Question 9.
‘During economic depression, consumer’s equilibrium shifts leftward’. Explain.
Or
Explain the impact of fall in price of good X on consumer’s equilibrium, when a consumer-consumes only two goods, i.e. X and Y, using indifference curve approach.

Question 10.
What will be the effect of following changes on the demand for a commodity? Explain with diagram.
(i) A fall in the price of substitute goods.
(ii) A fall in the income of its buyer.
Or
Explain any six exceptions to the law of demand.

Question 11.
Firm X operates in a perfectly competitive market. Will it be a price taker or price maker? Explain using schedule and diagram.

Question 12.
Answer the following questions:
(i) Complete the following table:

Output (units)	Total Cost (TC) (₹)	Total Variable Cost (TVC) (₹)	Marginal Cost (MC) (₹)
0	12	……	…..
1	18	…..	…..
2	21	…..	…..

(ii) Calculate total product and marginal product of a firm, if its average product is as under:

Labour	’ 1	2	3	4	5	6
Average Product	10	12	14	12	10	8

Section B

Question 13.
What is meant by cash reserve ratio?
(a) Fraction of total deposit kept with banks
(b) Fraction of time deposit kept with banks
(c) Fraction of demand deposit kept with banks
(d) None of the above

Question 14.
What do you understand by a deficit budget?

Question 15.
Name any two specific instruments of monetary policy.

Question 16.
State one measure by which government can promote the production of socially desirable good, such as LPG.

Question 17.
Differentiate between autonomous investment and induced investment.

Question 18.
Giving reasons state whether the following statements are true or false.
(i) If the ratio of MPC and MPS is 4 : 1, the value of investment multiplier will be 4.
(ii) Sum of APC and MPC is always equal to 1.
Or
Giving reasons state whether the following statements are true or false.
(i) When MPC is zero, the value of investment multiplier will also be zero.
(ii) Value of APS can never be less than zero.

Question 19.
Explain the flow variables of injections and leakages along with suitable examples.
Or
Give the meaning of real flow and money flow.
Explain the following qualitative methods of credit control used by the Central Bank,
(i) Margin requirements
(ii) Moral suasion

Question 20.
Explain any two objectives of Government Budget.
(i) Give three points of difference between intermediate goods and final goods.
(ii) Classify the following as intermediate good or final good:
(a) Car purchased by a taxi-operator for business use.
(b) Pen purchased by a retail dealer for selling in shop.
(c) Milk purchased by a sweet-maker for making sweets.
Or
From the following data, calculate national income by income method and expenditure method.

Question 23.
Find equilibrium level of Savings (S) and Investments (I), when Income (y) = ₹ 4,400, Marginal Propensity to Consume (MPC) = 0.75 and Autonomous Consumption (C) = ₹ 100. Do you think that the concept of autonomous consumption is valid in real life?

Question 24.
Answer the following questions:
(i) What do you mean by fixed exchange rate system? Explain any two advantages of the system.
(ii) Explain accommodating items of BoP.

Answers

Answer 1.
An economy is a system in which and by which people get a living to satisfy their wants through the processes of production, consumption, exchange and investment.

Answer 2.
As output decreases, average fixed cost tends to rise.

Answer 3.
(b) Equal to Average Revenue

Answer 4.
(c) \(\frac { \triangle P }{ \triangle Q } \)

Answer 5.
The property ‘Higher IC offers higher level of satisfaction’ can be explained with the given figure below:

At both the points A (on lower IC₁) and B (on higher IC₂), consumer has on level of Good Y. But at point A, consumer has OD level of Good X and at point B, consumer has OD₁ level of Good X i.e. at point D, consumer has DD₁ (OD₁-OD) more of Good X.
By monotonic preferences, we know that more of a good gives more satisfaction i.e. in graph, at point B, consumer get more satisfaction. Hence, we can conclude that ‘Higher IC offers higher level of satisfaction’.
Or
Difference between substitute goods and complementary goods are:

Basis	Substitute Goods	Complementary Goods
Meaning	Substitute goods may be used in place of each other.	Complementary goods are used together.
Relation with price	If the price of a commodity increases, quantity demanded of its substitute commodity will increase and vice-versa.	If the price of a conmmodity increases, demand for its complementary commodity will decrease and vice-versa.
Example	Tea and coffee, coke and cold drink are the best examples of substitute goods.	Car and petrol, sugar and milk are the best examples of complementary goods.

Answer 6.
Economic problem basically means a problem of choice. It arises because human wants are unlimited and the resources to satisfy these wants are not only scarce but have alternative uses as well. Scarcity means excess of wants over the available resources and choice refers to selecting the best alternative. As we are aware of the fact that resources are scarce and wants are unlimited, therefore choice has to be exercised to ensure the optimum utilisation of such resources. Also, if there is no scarcity of resources, there would be no need to choose as human would have satisfied all his wants due to unlimited resources.

So, the problem of choice arises because of scarcity of resources. Therefore, it can be said that scarcity and choice go together.

Answer 7.
Difference between change in quantity supplied and change in supply are:

Basis	Change in Quantity Supplied	Change in Supply
Reason	Change in quantity supplied is caused by change in the price of commodity.	Change in supply is caused by factors other than price of commodity.
Effect on supply curve	Change in quantity supplied causes movement in supply curve.	Change in supply causes shift in supply curve
Constant factor	All the factors, other than price, are constant.	Price is assumed to be constant, while all othur factors may change.
Example	When price of salt rises from ₹ 18 per kg to ₹ 20 per kg, quantity supplied rises from 4 tonnes to 7 tonnes.	When prices of input of salt rises from ₹ 4 to ₹ 6, quantity supplied falls from 7 tonnes to 5 tonnes even at same price of salt.

Answer 8.
Difference between price discrimination and product differentiation are:

Basis	Price Discrimination	Product Differentiation
Meaning	It is a situation when a monopolist charges different price from different buyers of the same product.	It is a situation when different producers under monopolistic competition try to differentiate their product in terms of its shape, size, packaging, trademark or brand name.
Motive	This is generally done to maximise profits.	This is done to attract the buyers from the rival firms in the market.
Form of market where observed	It is observed in monopoly.	It is observed in monopolistic competition and oligopoly.
Impact on elasticity of demand	It is price inelastic.	It is price elastic.

Answer 9.
Yes, during economic depression, the income of the consumer falls due to fall in production, demand, etc. Due to this, consumer’s budget line shifts leftward and hence, consumer’s equilibrium shifts-towards the left.

As it can be seen from the above diagram that, due to depression consumer’s budget line shifts to the left to b₁l₁, from bl. As a result, equilibrium point shifts to the left to E₂ from E₁.
Or
Under Indifference Curve (IC) approach, when a consumer consumes only two goods X and Y, he is said to be in equilibrium when, the following conditions get satisfied:
(i) Slope of IC = Slope of budget line, i.e. Marginal Rate of Substitution \(\left( MRS \right) =\frac { Price\quad of\quad X\left( { P }_{ X } \right) }{ Price\quad of\quad Y\left( { P }_{ Y } \right) } \)
(ii) MRS must be diminishing, i.e. IC is convex to the point of origin. Now suppose, Price of good X falls, leading to fall in price ratio, hence, budget line will rotate outwards on X-axis and new equilibrium will be attained at a higher Indifference Curve.

As shown in the given diagram, AB is budget line and IC₁, is initial Indifference Curve, attaining equilibrium at E, with bundles (X₁, Y₁). Now, as price of good X falls, new budget line is AB’ and new equilibrium is attain at point E₂ on higher Indifference Curve, with bundles (X₂, Y₂).

Answer 10.
(i) Demand for a commodity will decrease when there is a fall in the price of substitute goods, implying that demand curve would shift backwards. Less will be purchased at the same price. Demand for commodity falls from 00 to0QV So, fall in the price of one substitute will cause demand for other substitute to fall.
The given figure illustrates this situation:

(ii) Demand for a commodity will decrease when there is a fall in the income of the consumer (assuming that the commodity demanded is a normal good). Less will be purchased at the same price. Demend curve would shift backwards i.e. demand for commodity falls from OQ to OQ₁. So, decrease in consumer’s income will cause his demand for pure ghee to fall.
The given figure illustrates this situation:

Exceptions to the law of demand are:

1. Giffen Goods Giffen goods are highly inferior goods, showing a very high negative income effect. As a result, when their prices fall, demand also falls and vice-versa. This is known as ‘Giffen Paradox’.
2. Conspicuous Consumption These are known as Veblen goods. These goods are demanded only because their prices are very high. If their prices fall, they will be no longer considered as ‘article of distinction’ and their demand will shrink, e.g. demand for diamonds.
3. Conspicuous Necessities Goods which are necessity in modern life defy law of demand as consumers have to purchase those goods in spite of their price, e.g. television sets.
4. Necessities The law of demand does not hold true for necessities of life such as salt, medicines, etc.
   They maintain a constant demand, irrespective of their price.
5. Ignorance Effect Sometimes, consumers are not aware of the competitive price of commodity, then they may purchase more of commodity even at higher price. So, law of demand is not followed here.
6. Future Expectations In certain circumstances, when price of a good is falling, consumer may expect to fall it further and may not purchase at current falling price. This process defies law of demand.

Answer 11.
Firm ‘X’ is a price taker because of the following reasons:

1. A firm under perfect competition is contributing such a small fragment to the market supply that total supply schedule remains unaffected by any change in individual firm’s supply.
2. All firms are selling homogeneous product. Accordingly, even partial control over price is not possible. If any firm tries to fix its own price, it won’t succeed. Higher price would drive the buyers to a large number of other sellers. Lower price would bring so many buyers to a firm that it cannot cope with the demand.
3. Moreover, buyers under perfect competition are fully aware about the market conditions and therefore the firms cannot charge a higher price from the buyers even on the grounds of buyer’s ignorance.

Therefore, in perfect competition, price of a commodity is determined by the equilibrium between demand and supply of the whole industry. Demand and supply represent total demand and total supply of the industry respefctively.
Explanation Through an Imaginary Schedule

Industry			Firm
Price	Demand	Supply	Price	Quantity	TR	AR	MR
1	50	10	3	1	3	3	3
2	40	20	3	2	6	3	3
3	30	30	3	3	9	3	3
4	20	40	3	4	12	3	3
5	10	50	3	5	15	3	3

In the above figure, market forces of equilibrium demand and equilibrium supply have determined the equilibrium point E. At E, the price is ₹ 3.
Therefore, every individual firm can sell its commodity at this price of ₹ 3 only, whatever quantity it may sell. Hence, price fixed by industry is ₹ 3 which has to be followed by every individual firm.

Answer 12.
(i)

Output (units)	Total Cost (TC) (₹)	Total Variable Cost (TVC) (₹)	Total Fixed Cost (TFC) (₹)	Marginal Cost (MC) (₹)
0	12	0	12	—
1	18	18 – 12 = 6	12	6 – 0 = 6
2	21	21 – 12 = 9	12	9 – 6 = 3

Formulae Used
Total Variable Cost (TVC) = Total Cost (TC) – Total Fixed Cost (TFC)
Marginal Cost (MC) = TVC_n – TVC_n-1
(ii)

Units of Labour (L)	Average Product (AP)	Total Product (TP)	Marginal Product (MP)
1	10	10	10
2	12	24	14
3	14	42	18
4	12	48	6
5	10	50	2
6	8	48	-2

Formulae Used
Total Product (TP) = Average Product (AP) x Units of Labour (L)
Marginal Product (MP) =TP_n – TP_n-1

Answer 13.
(d) None of the above

Answer 14.
Deficit budget refers to that government budget in which government’s estimated expenditure is more than the government’s estimated revenue during the fiscal year.

Answer 15.
Two specific instruments of monetary policy are:

1. Margin requirement
2. Rationing of credit

Answer 16.
Government can promote the production of socially desirable good such as LPG by giving subsidy on it.

Answer 17.
Difference between autonomous investment and Induced investment are:

Basis	Autonomous Investment	Induced Investment
Motive	Social welfare of people.	Profit motive is dominant.
Done by	Autonomous investment is done by government.	Induced investment is done by private sector.
Elasticity of income	It is income inelastic.	It is income elastic.

Answer 18.
(i) No, the statement is false.
If the ratio of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) is 4 : 1, then the value of investment multiplier is 5 and not 4.
Here, \(MPC=\frac { 4 }{ 4+1 } =\frac { 4 }{ 5 } =0.8\) as \(\frac { MPC }{ MPS } =\frac { 4 }{ 1 } \)
\(K=\frac { 1 }{ 1-0.8 } =\frac { 1 }{ 0.2 } =5\)

(ii) No, the statement is false.
The sum of Average Propensity to Consume (APC) and Marginal Propensity to Consume (MPC) is not necessarily 1.
Consider the following schedule :

Income (Y)	Consumption (C)	Change in Income (A/)	Change in Consumption (AC)	Average Propensity to Consume (C/Y)	Marginal Propensity to Consume (AC/AV)
1,000	800	—	—	0.8	—
1,500	1,200	500	400	0.8	0.8

In the given schedule, APC = 0.8 and MPC = 0.8
and 0.8 + 0.8 ≠ 1
Therefore, the sum of APC and MPC is not 1.
i. e. APC + MPC ≠ 1

(iii) No, the statement is false.
No, the statement is false.
When Marginal Propensity to Consume (MPC) is zero, the value of investment multiplier will be 1 (not zero).
\(K=\frac { 1 }{ 1-MPC } \quad or\quad K=\frac { 1 }{ 1-0 } =\frac { 1 }{ 1 } =1\)

(iv) No, the statement is false.
Average Propensity to Save (APS) represents the ratio between savings and income. When consumption expenditure is more than income, then it gives rise to negative savings or dis-savings. In this case, APS will be negative.

Answer 19.
Injections These are the flow variables which cause an expansion or increase in the process of circular flow (or the process of income generation) in the economy.
Following are the examples of injections:

1. Investments
2. Exports
3. Consumption expenditures by the household or the government

Leakages These are the flow variables which cause a contraction or decrease in the process of circular flow in the economy. All these variables reduce the flow of income in economy and are also called withdrawals. Following are the examples of leakages:

1. Savings
2. Imports
3. Taxes by the government

Or
Real Flow It refers to the flow of goods and services across different sectors of the economy, e.g. Flow of factor services from the household sector to the producing sector and flow of goods and services from producing sector to household sector.

Money Flow It refers to the flow of money, in terms of ‘payments and receipts’ across different sectors of the economy, e.g. Flow of money from the household sector to the producing sector in terms of payments for the purchase of goods’and services and flow of money by the producing sector to household sector in terms of factor payments.

Answer 20.

1. Margin Requirement It is the difference between the market value of securities provided by the borrower and the amount of loan granted to him. There will be reduction in margin requirement in a situation of deficient demand. It implies that borrowers will get more credit against their securities. It will encourage borrowings. Margin requirement is raised to correct the situations of excess demand. Higher margin requirement acts as a disincentive to borrow.
2. Moral Suasion Under this measure, Reserve Bank of India (RBI) issues directives to bank to follow rules and regulations. During deficient demand, the RBI issues instructions to member banks to increase the availability of credit to borrowers for non-essential purposes also. But, in case of excess demand, RBI imposes restrictions on commercial banks on granting loans.

Answer 21.
Two main objectives of a government budget are as follows:

1. Generation of Employment Government tries to promote labour intensive technology, public works programmes like construction of roads, dams, canals, bridges, etc to promote employment generation in the economy. Several programmes are initiated through budget to reduce the problem of poverty and unemployment.
2. Economic Stability Government tries to establish economic stability by its budgetary policies. Economic stability refers to a situation without fluctuations in price levels and stability of exchange rate in an economy. Ecenomic stability is achieved by protecting the economy from harmful effects of various trade cycles and its phases, i.e. boom, recession, depression and recovery.

Answer 22.
(i) Difference between intermediate goods and final goods are :

Basis	Intermediate Goods	Final Goods
Final use	These goods are not ready for use by their final users as they are still within the boundary line of production.	These goods are ready for use by final users as these goods have crossed the boundary line of production.
Value added	Value is yet to be added to those goods.	Value is not to be added to these goods.
Inclusion in national income	These goods are not included in estimation of national income.	These goods are included in the estimation of income.

(ii)

• Car purchased by a taxi-operator is a final good, as it is to be used by him as a fixed asset.
• Pen purchased by a retail dealer for resale purpose is an intermediate good as value is yet to be added in it.
• Milk purchased by a sweet-maker is intermediate good as it will be used as a raw material.

Or
Income Method
Net Domestic Product at Factor Cost (NDP_FC)
= Compensation of Employees + Operating Surplus+ Mixed Income
= 4,000 + (600 +1,000 + 2,560) + 0 = ₹ 8,160 crore
National Income (NNP_FC)= NDP_FC – Net Factor Income to Abroad ⇒ 8,160 – 120 = ₹ 8,040 crores

Expenditure Method
Gross Domestic Product at Market Price (GDP_MP)
= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports = 4,800 + 2,400 + (1,360 + 200) + (-160) = ₹ 8.600crore
National Income (NNP_FC) = GDP_MP – Depreciation – Net Factor Income to Abroad-Net Indirect Taxes
= 8600 – 200 – 120 – 240 = ₹ 8,040 crore

Answer 23.
It is given that,
Income (Y) = ₹ 4,400,
Marginal Propensity to Consume (MPC or b) = 0.75 and Autonomous Consumption (\(\overline { C } \)) = ₹ 100 We know that,
Income (Y) = Consumption (C) + Savings (S) … (i)
Also,
Consumption (C) = \(\overline { C } \) + bY, so,
⇒ Y = \(\overline { C } \) + bY + S …(ii)
On substituting the given variables in Eq (ii), we get
4,400 = 100 + 0.75 x 4,400 + S
or 4,400 = 3,400 + S
⇒ S= ₹ 1,000
At equilibrium level, Savings = Investments
∴ Investments = ₹ 1,000
i.e. Savings andJnvestments at equilibrium level of income = ₹ 1,000
Yes, I think that the concept of autonomous consumption is valid in real life because every individual needs a minimum consumption level to sustain himself, even if his income is zero.

Answer 24.

1. Fixed exchange rate system refers to the system under which the rate of exchange of a currency is fixed in terms of gold or in terms of another currency by the central authority of the country. The system of exchange rate in which exchange rate is officially declared and fixed by the government is called fixed exchange rate system.
   Advantages of fixed exchange rate system are as follows:
   • It contributes to the coordination of macro policies of countries in an interdependent world economy.
   • It ensures that major economic disturbances in the member countries do not occur.
2. Accommodating items refer to those transactions, which are undertaken to balance the state of BoP i.e. to cover deficit or surplus in autonomous items. These transactions are not undertaken for the motive of profit. These items are also known as ‘above the line’ transactions. These transactions only take place on capital account.
   The main accommodating items are as follows:
   • Financial assets sold by the Central Bank to finance the deficit in BoP account.
   • RBI purchases foreign currency from the surplus in BoP account.
   • Government borrows from IMF to recover from BoP deficit.

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