CBSE Sample Papers for Class 12 Economics Paper 2 are part of CBSE Sample Papers for Class 12 Economics. Here we have given CBSE Sample Papers for Class 12 Economics Paper 2.
CBSE Sample Papers for Class 12 Economics Paper 2
|Sample Paper Set||Paper 2|
|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 2 of Solved CBSE Sample Paper for Class 12 Economics is given below with free PDF download solutions.
Time : 3 hrs
- 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
China keeps on inventing new and further advanced technologies. Do you agree that if they keep on doing so, one day will come when there will be no central economic problems in China?
State one assumption for producer’s equilibrium.
What is the name of cost that is related to the use of variable factors of products?
(a) Prime Cost
(b) Variable cost
(c) Direct cost
(d) All of these
In the process of production, fixed factors and variable factors are combined in a particular ratio, which gives equilibrium output. This ratio is referred to as
(a) Factor Output Ratio
(b) Capital Output Ratio
(c) Ideal Factor Ratio
(d) None of these
Show the impact of simultaneous change in technology of both the goods on the transformation curve.
Explain the concept of microeconomics and macroeconomics.
Latest techniques and innovative products affect the tastes and preferences of a consumer. A housewife prefers microwave ovens instead of burners or chulah. What is the impact of tastes and preferences on demand for a commodity?
Complete the following table:
|Units of labour||Average Product (AP)||Marginal Product (MP)||Total Product (TP)|
Complete the following table:
|Output (Q) (units)||Price (₹) (P)||Total Revenue (TR) (₹)||Marginal Revenue (MR) (₹)|
What do you mean by homogeneous products? Also, explain the implications of ‘homogeneous products’ in perfect competition.
Explain any four factors determining Price Elasticity of Demand Ed.
Define Price Elasticity of Supply Es. Briefly explain the methods of measuring it.
Briefly explain the various degrees of Price Elasticity of Supply and draw the diagram of unitary elastic supply curve.
How is the equilibrium price of a commodity affected by a rise in the price of its substitutes? Explain the chain of effects.
What is budget set? Explain what can lead to a change in budget set.
Section – B
Money is a
(a) static factor
(b) dynamic factor
(c) contingent factor
(d) All of these
Write two features of public goods.
Expenditure on maintenance of hospital by government already constructed some time ago is a part of
(a) plan expenditure
(b) non-plan expenditure
(c) can’t be determined
(d) None of these
If the reserve ratio is reduced then what will be its effect on money supply?
Explain the role of open market operations in correcting the problem of deflationary gap.
Explain using diagram, under employment equilibrium.
In an economy, S = – 80 + 0.6 Y is the saving function (where, S = Savings and Y = National Income) and investment expenditure is ? 4,000. Calculate equilibrium level of National Income (F).
Elaborate the concept of ‘consumption of fixed capital’ and ‘capital loss’.
What precautions are taken while measuring national income by income method?
Money serves as a common denomination of value. Explain how it has changed human lives.
Define government budget. Explain the objectives of the government budget.
(i) Gross domestic product at market price and
(ii) Factor income to abroad from the following data:
|S.No.||Contents||(₹) in crores|
|(i)||Compensation of Employees||1,000|
|(ii)||Net Exports||(-) 50|
|(Vi)||Gross National Product at Factor Cost||1,850|
|(vii)||Gross Domestic Capital Formation||220|
|(viii)||Net Fixed Capital Formation||150|
|(ix)||Change in Stock||20|
|(x)||Factor Income from Abroad||30|
|(xi)||Net Indirect Taxes||100|
Will the following factor incomes be included in domestic factor income of India? Give reasons for your answer.
(i) Profits earned by a branch of State Bank of India in England.
(ii) Salary of Indian residents working in Russian Embassy in India.
(iii) Compensation of employees to the residents of Japan working in Indian embassy in Japan.
When is an economy in equilibrium? Explain with the help of saving and investment functions. Also explain the changes that take place when the economy is not in equilibrium. Use diagram.
India’s balance of payments is in disequilibrium. Enumerate some of the factors, which according to you, can be the causes of disequilibrium. What value is affected if the economy is not in equilibrium?
No, I do not agree. Even if China keeps on inventing new and further advanced technologies, then also it will have to face central economic problems, as resources are
always scarce in relation to wants.
Rational behaviour of producer is an assumption of producer’s equilibrium.
(b) Variable cost
(a) Factor Output Ratio
Due to simultaneous change in the technology of both the goods, the transformation or the production possibility curve will shift either leftwards or rightwards as is explained below.
- The production possibility curve will shift rightwards if there is improvement in the technology of production for both the goods.
- The production possibility curve will shift leftward if there is degradation in the technology of production for both the goods.
- Microeconomics It refers to the branch of economics which deals with economic issues at the level of an individual. Microeconomics focuses on the action of individuals and firms like the interaction between buyers and sellers, borrowers and lenders etc. Examples of microeconomic study are :
- Theory of consumer behaviour
- Theory of price, etc
- Macroeconomics It refers to the branch of economics which deals with economic issues at the level of an economy as a whole. Macroeconomics takes a broader view by analysing economic activity of an entire country. Examples of macroeconomic study are:
- Theory of equilibrium level of output and employment
- Theory of investment multiplier
Demand of a consumer is affected by his/her tastes and preferences. The consumer’s taste and preferences are influenced by advertisement, change in fashion, climate, new inventions etc. Other things being equal, demand for those goods increases for which consumers develop favourable tastes and preferences and vice-versa.
So, a housewife prefers microwave ovens over burners or chulah because it is a latest invention and it helps to reduce her burden.
Average, Marginal and Total Product Schedule
|Units of Labours||Average Product (AP)||Marginal Product (MP)||Total Product (TP)|
TP AP x Units of Labour
AP TP+ Units of Labour
MP TPn – TPn-1
|Output (Units)||Price (₹)||Total Revenue (TR)||Marginal Revenue (MR)|
TR = Price x output
Price = TR ÷ output
MR = TRn – TRn-1
‘Homogeneous products’ are those products which are identical in size, shape, colour, weight or in any other respect i.e. products are completely same.
In perfectly competitive market, implications of ‘homogeneous products’ are as follows:
- Only one price prevail in the market as the buyers find the product as homogeneous.
- Firms cannot charge higher price for the product. Therefore, exploitation of consumer is ruled out.
- Since, there is no control over price, firm’s demand curve becomes a horizontal straight line i.e. perfectly elastic.
Four factors affecting elasticity of demand are as follows :
- Nature of the Commodity Nature of the commodity is-en important determinant of the Price Elasticity of Demand. Necessities like food items and prestige goods have an inelastic demand, while luxuries and comforts have comparatively elastic demand.
- Availability of Substitutes The demand for commodities having close substitutes is very elastic because if there is an increase in the price of the commodity, then people will start using substitute commodities.
- Postponement of Consumption The demand for commodities is elastic, whose .consumption can be postponed for sometime such as the demand of television, otherwise it is inelastic for commodities whose demand cannot be postponed as in the case of medicines.
- Different Uses of the Commodity A commodity which has several uses will have an elastic demand. On the other hand, a commodity having only one use will have inelastic demand, e.g. milk, steel, etc have elastic demand because they can be put to several uses.
Price elasticity supply is the degree of responsiveness in quantity supplied due to change in the price of the product.
Price elasticity of supply can be measured by using the following methods:
1. Percentage Method (or Proportional Method) By this method,
Elasticity of supply (Es)
P and Q = Original price and original quantity respectively
∆P and ∆Q = Change in price and change in quantity respectively
2. Geometric Method By this method, elasticity of supply depends upon the ‘origin’ or ‘starting’ of supply curve. Following conclusions can be drawn from this method:
- If supply curve is positively sloped upward curve arising from origin, then elasticity of supply is equal to 1.
- If supply curve is positively sloped upward curve arising from Y-axis, then elasticity of supply is greater than 1.
- If supply curve is positively sloped upward curve arising from X-axis, then elasticity of supply is less than 1.
Various degrees of price elasticity of supply are as follows :
- Perfectly Inelastic Supply (Es = 0) When supply of a commodity does not change, irrespective of any change in its price, it is called perfectly inelastic supply. In this condition, supply curve will be a straight line parallel to Y-axis.
- Perfectly Elastic Supply (Es = ∞) Supply of a commodity is said to be perfectly elastic when its supply expands or contracts to any extent without any change in the price. In this condition, supply curve will be a straight line parallel to X-axis.
- Unit Elastic Supply (Es =1) If percentage change in supply is equal to percentage change in price, it is called unit elastic supply. In this condition, supply curve is a straight line passing through the origin. This curve can be shown as follows :
- Inelastic or Less than Unit Elastic Supply (Es < 1) When percentage change in quantity supplied is less than percentage change in price, it is called inelastic supply. In this condition, the straight line supply curve
intersects the X-axis in its positive range.
- Elastic or More than Unit Elastic Supply (Es > 1) When percentage change in supply is more than the percentage change in price, it is called more than unit elastic supply. In this condition, the straight line supply curve intersects the Y-axis in its positive range.
With a rise in the price of substitute good (coffee), the demand for the concerned good (tea) increases. As a result, the demand curve of the concerned good shifts to the right. Accordingly, the equilibrium price would tend to increase and equilibrium quantity also increases.
In the given diagram, initial demand and supply curves intersect at point ‘E’. With increase in the price of substitute goods, the demand of the concerned good increases and because of this demand curve DD shifts rightwards to D1D1 Because of this, the equilibrium point shifts to E1 Corresponding to this point, the equilibrium price has risen to OP1 and equilibrium quantity has risen to OQ1.
Budget Set It refers to the set of all possible combinations of two goods which a consumer can afford, at his given income and prices in the market. Equation of budget set is PX.QX + PY.QY ≤ Y
The following factors can lead to a change in the budget set:
- When the Level of Income Changes With the increase or decrease in the income of the consumer, new combinations of a set of two goods can be attained.
- When Price of One Good Changes If the price of one good changes, the consumer can increase or decrease the consumption of other good depending on the nature of changes.
- When Price of Both Goods Changes If the price of both goods changes, the consumer can increase or decrease the consumption of both the goods and new combinations of a set of two goods will be attained.
(b) Money is a dynamic factor.
Two features of public goods are as follows :
- These goods are non-rivalrous in consumption.
- These goods are non-excludable in consumption.
(b) Non-plan expenditure
If the reserve ratio is reduced then money supply will increase.
Open market operations refers to the sale and purchase of securities by the Central Bank to the commercial bank or general public.
Deflationary gap refers to Aggregate Demand (AD) falling short of Aggregate Supply (AS) at full employment level. In this situation, the Central Bank buys securities in the open market and makes payment to the sellers. The money flows out of the Central Bank and ultimately reaches the commercial banks as deposits. This raises the lending capacity of the banks. People can borrow more. This will raise the level of Aggregate Demand in the economy.
Therefore, due to open market operations deflationary gap will be controlled.
Under Employment Equilibrium Under employment refers to a situation, when gll those who are able to work at existing wage rates, are not getting jobs.
It refers to that situation in the economy where AS = AD or S = /, but without fuller utilisation of labour force. It leads to deflation in the economy.
Saving Function of an economy
(S) = -80 + 0.6y
Investment Expenditure in the
Economy (/) = ₹ 4,000
We know that at equilibrium level of income,
Savings = Investment
∴ 4,000 = -80 + 0.6 Y
4,000 + 80 = 0.6 Y
= ₹ 6,800
Hence, Equilibrium level of income = ₹ 6,800
Consumption of Fixed Capital It refers to the depreciation of fixed assets as they are being used in the production process.
The various causes of consumption of fixed capital includes :
- Normal wear and tear
- Accidental damages
- Expected obsolescence
Capital Loss refers to the loss in value of fixed assets when these are not being used. The various causes of capital loss includes:
- Natural calamities
- Fall in the market price of assets
The following precautions are to be taken while measuring National Income by income method:
- Income from illegal activities like smuggling, theft, gambling, etc should not be included.
- Commission paid on the sale and purchase of second hand goods are to be included.
- Transfer earnings like old age pensions, unemployment allowances, scholarships, pocket expenses, etc should not be included.
- Imputed rent of owner occupied houses is to be treated along with rent as a component of factor incomes.
In barter system of exchange, there was a lack of common measure of value. In the absence of a common unit, proper valuation was not possible, e.g cloth is measured in metre while milk is measured in litre. Hence, under barter system these commodities were not measurable in a common unit which complicated the process of exchange.
But with the evolution of money, this problem has been solved. Now, each and every commodity can be expressed in terms of money, e.g one metre of cloth costs ₹ 50 and one litre of milk cost ₹ 45.
Therefore, it has changed human lives in the following ways:
- People’s standard of living has improved.
- It has facilitated the exchange process.
Government Budget is a statement of the estimates of the government’s expected receipts and government’s expected expenditure during the financial year or fiscal year which runs from 1st April to 31 st March.
Following are the objectives of government budget (any three):
(i) Re-distribution of Income and Wealth Government through fiscal tools of taxation and transfer payments, brings fair distribution of income. Equitable distribution of income and wealth is a way to bring social justice. For this purpose, progressive tax structure is followed in India, in which burden of tax increases with increase in income. It is also known as distribution function.
(ii) Re-allocation of Resources The government of a country, through its budgetary policy, directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare, e.g. there should be production of necessity goods as well as comfort and luxury goods.
(iii) Economic Growth The growth rate of a country depends on the rate of savings and investment. Therefore, the role that is assigned to budgetary policy in this regard is to create conditions which are conducive for increase in savings and investment.
(iv) Generation of Employment Government needs 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.
(v) 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. Economic stability is achieved by protecting the economy from harmful effects of various trade cycles and its phases, i.e. boom, recession, depression and recovery.
(vi) Management of Public Enterprises Public sector enterprises are owned and governed by the government and through its budgetary policy, it tries to manage the expenditure and revenue of public sector undertakings.
By Income Method
National Domestic Product at Factor Cost (NDPFC)
= Compensation of Employees + Profits + Interest + Rent
= 1,000 + 400 + 250 + 150
= ₹ 1,800 crore
Gross Domestic Product at Market Price (GDPMP) = NDPFC + Net Indirect Taxes + Consumption of Fixed Capital*
= 1,800 + 100 + 50 = ₹ 1,950 crore
Gross National Product at Market price (GNPMP)
= GNPFC + Net Indirect Taxes
= 1,850 + 100
= ₹ 1,950 crore
Net Factor Income from Abroad (NFIA)
= GNPMP – GDPMP = 1,950 – 1,950 = 0
Now we know that,
NFIA = Factor Income From Abroad – Factor Income to Abroad
0 = 30 – Factor Income to Abroad
∴ Factor Income to Abroad = ₹ 30 crores
‘Consumption of Fixed Capital = Gross Domestic Capital Formation – Change in Stock – Net Fixed Capital Formation
= 220 – 20 – 150 = 50
- Profits earned by a branch of State Bank of India in England is not a part of domestic factor income of India because the branch of State Bank of India in England is not a part of domestic territory of India.
- Salary of Indian residents working in Russian Embassy in India is not included in domestic factor income of India because Russian embassy is not a part of domestic territory of India.
- Compensation of employees to residents of Japan working in Indian Embassy in Japan is a part of domestic factor income of India because Indian embassy in Japan is a part of domestic territory of India.
The equilibrium level of income or output is that level at which the planned savings and planned investments are equal. It is derived from Aggregate Demand and Aggregate Supply approach.
Aggregate Demand (AD) in a two sector economy is defined as the sum of Consumption Expenditure (C) and Investment Expenditure (I) i. e. AD = C + /, whereas Aggregate Supply (AS) is defined as the sum of Consumption Expenditure (C) and Saving (S) i.e. AS = C + S.
Mathematically, at equilibrium level of output,
AD = AS or, C + / = C + S
or S = I
In the graph given, OP is the equilibrium level of income. E is the equilibrium point where Aggregate Demand equals Aggregate Supply. Equality between AS and AD implies the equality between S and /. When we extend the line EP vertically downward, it meets at point E with S and /.
It is the equilibrium point of saving and investment approach. OP represents the level of income at which the economy is in equilibrium.
India’s Balance of Payments (BoP) is in disequilibrium as payments on account of foreign transactions exceed the receipts on account of foreign transactions.
Some of the causes of disequilibrium are enumerated below:
(i) Economic Factors (any two)
- Inflation Changes in price and cost structure of a country’s export industries affect the volume of export and the Balance of Payments position. Increase in price due to higher wages and higher prices of raw material makes export costlier and results in deficit in Balance of Payments.
- Expenditure on Developing Relations Newly independent countries, in order to develop relations with other countries, have to spend huge amount of money on ambassadors, missions, etc. This has adverse relation on Balance of Payments.
- Import Services Underdeveloped countries import capital and other services from developed countries, his results in deficit in BoP
(ii) Social Fators (any two)
- Demonstration Effect People of underdeveloped countries imitate the consumption pattern of the people of developed countries leading to an increase in the level of imports. This increase results in a deficit balance in the BoP account.
- Change in Tastes, Preferences, Fashion and Trends An unfavourable change in tastes and preferences of consumers towards domestic goods lead to a deficit in the BoP account.
- Political Factors Political instability of a country has an adverse effect on Balance of Payments of a country. Further, partition or unification of a country also affects the Balance of Payments of a country.
Value affected is the value of ‘Economic growth’ and ‘Equality’.
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