CBSE Sample Papers for Class 12 Economics Paper 3 are part of CBSE Sample Papers for Class 12 Economics. Here we have given CBSE Sample Papers for Class 12 Economics Paper 3.
CBSE Sample Papers for Class 12 Economics Paper 3
|Sample Paper Set||Paper 3|
|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 9 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
What is meant by positive economics?
The production function of Tata Motors is given as
QX = F(L,K) where, L = 50,000 labourers and K = ₹ 5,00,000 crore .
Identify whether the function relates to short-run or long-run.
Licence fees is a
(a) fixed cost
(b) variable cost
(c) Both (a) and (b)
(d) semi variable cost
When 5 units of a goods are sold, Total Revenue is ₹ 100. When 6 units are sold, Marginal Revenue is ₹ 8. At what price are 6 units sold?
(a) ₹ 28 per unit
(b) ₹ 20 per unit
(c) ₹ 18 per unit
(d) ₹ 12 per unit
Explain any three factors affecting the ‘Price elasticity of demand’.
What do you understand by price elasticity of demand? How does the level of price of a good affect its Elasticity of Demand (Ed)?
Production in an economy is below its potential due to unemployment. What will be the effect of employment generation schemes on Production Possibility Curve (PPC)?
Distinguish between contraction of demand and decrease in demand.
Complete the following table:
Output (units) (Q)
|Total Revenue (JR) (₹)||Marginal Revenue (MR) (₹)||
Average Revenue (AR)( ₹)
A firm’s Average Fixed Cost (AFC) of producing 2 units of a good is ₹ 9 and given below is its Total Cost (TC) schedule. Calculate its Average Variable Cost (AVC) and Marginal Cost (MC) for each of the given level of output.
|Output (Units)||Total Cost (₹)|
Distinguish between collusive and non-collusive oligopoly.
When price of commodity ‘sigma’ falls from ₹ 50 per unit to ₹ 35 per unit, its demand rises from 10,000 units to 25,000 units. Discuss any three factors which are responsible for such a behaviour.
Explain the concept of break-even point and shut down point with the help of a diagram.
With the help of a demand and supply schedule, explain the concepts of excess demand and excess supply of a commodity. Also, explain their effect on the price of a commodity.
Explain the sequence of effects of a fall in the price of X on the equilibrium price and quantity of Y.
(i) If X and Y are complementary goods.
(ii) If X and Y are substitute goods.
Section – B
If Legal Reserve Ratio is 0.1. What is the value of deposit multiplier?
The Government of India launched GST on the mid-night of 30th June, 2017. Is it a direct tax or indirect tax? Also state its economic value.
Fiscal deficit is equal to
(a) revenue deficit
(b) primary deficit
(c) revenue deficit plus primary deficit
Who regulates money supply?
(a) Government of India
(b) Reserve Bank of India
(c) Commercial Bank
(d) Planning Commission
Complete the following table:
|Income (V)||Consumption (C)||Marginal Propensity to Save (MPS)||Average Propensity to Consume (APC)|
Differentiate between aggregate demand and aggregate supply.
The government of XYZ country is facing the problem of excess demand. The finance minister is comtemplating the option to increase the rate of taxation in the country. Will this help in solving the problem of excess demand?
Find out the Net Value Added at Factor Cost of a producing unit from the following data.
What is meant by C-C economy? Explain its three major limitations.
Explain the following functions of the Central Bank.
(i) Banker to the government
(ii) Controller of money supply using the instrument of open market operations.
The government of a country is operating on ‘zero primary deficit’ and also follows ‘Re-allocation of resources as an objective of budget’. Explain the above two concepts.
Name and explain the various types of factor incomes.
From the following data, calculate the Net National Product at Market Price (NNPMP) by
(i) Expenditure method
(ii) Income method
Given below is the consumption function of an economy.
C = 100 + 0.5P
With the help of a numerical example, show that in this economy as income increases, Average Propensity to Consume (APC) will decrease. Also, find the equilibrium level of income, when investment expenditure is ₹ 400.
Why does the demand for foreign currency fall and supply rises when its price rises? Explain.
Positive economics is concerned with the facts and figures as they exist. It does not pass any value judgement regarding what is right or wrong.
The above production function relates to long run, as both labour and capital are variable.
(a) Fixed cost
(c) ₹ 18 per unit
Hint: Total Revenue at 6 units = ₹ 108 (100+8)
∴Price or Average Revenue = =₹ 18
Factors affecting price elasticity of demand are:
- Availability of Substitutes Demand for goods which have close substitutes is relatively more elastic, as when price of such good rises, consumers have the option of shifting to its substitute, e.g. Tea and coffee.
- Habit of Consumers Goods to which consumers become habitual will have inelastic demand, as consumers are addicted to these goods, e.g. Cigarettes and liquor.
- Time Period Demand is inelastic in short period and elastic in long period as long period is long enough for a consumer to change his consumption habits.
Price elasticity of demand measures the responsiveness in demand when price of a commodity changes. Highly priced commodities like diamonds and low priced commodities such as pencils have low price elasticity, since a change in their prices have very little effect on their demand. But commodities having price in middle range exhibit elastic demand, e.g. coolers, fans, cycles, etc.
When the economy is operating below its potential due to unemployment, the economy operates below the PPC. When the government starts employment generation scheme, it enables the economy to utilise its existing resources in the optimum manner. The resources which were sitting idle now get job and the economy functions at its maximum capacity and moves from inside the PPC to points on the PPC.
Thus, economy moves from point ‘a’ below the PPC to any point on PPC as shown in the diagram.
Difference between contraction of demand and decrease in demand are
|Output (units) (Q)||Total Revenue (TR) (₹)||Marginal Revenue (MR) (₹)||Average Revenue (AR) (₹)|
Total Revenue (TR) = Average Revenue (AR) x Output (0)
Marginal Revenue (MR) = TRn – TRn-1
Average Revenue (AR) =
|Output (units)||TC (₹)||TFC (₹)||TVC (₹)||AVC (₹)||
Total Variable Cost (TVC) = Total Cost (TC) – Total Fixed Cost (TFC)
Total Fixed Cost (TFC) = Average Fixed Cost x Output, i.e. 9 x 2
Average Variable Cost (AVC) =
Marginal Cost = TVCn – TVCn-1
Collusive Oligopoly It is a form of the market in which there are few firms and all decide to avoid competition through a formal agreement. They collude to form a cartel and fix for themselves output quotas and market price. Sometimes a leading firm in the market is accepted by the cartel as a price leader. Members of the cartel accept the price as fixed by the price leader.
Non-collusive Oligopoly It is a form of the market in which there are few firms and each firm pursues its price and output policy independent of the rival firms. Each firm tries to increase its market share through competition. Competition is preferred over collusion as a means of profit maximisation.
Following factors are responsible for the inverse relationship between price of a commodity and its demand:
(i) Law of Diminishing Marginal Utility This law states that “with the continuous consumption of additional units of a commodity, the utility from each successive unit goes on diminishing and can even become zero or negative.” e.g. utility derived from first chapati by a hungry man is maximum, utility from second chapati is lesser, from third still lesser and so on.
As a result, the consumer will buy additional chapati at a lower price only, since utility derived from additional unit is lower. Therefore, the consumer buys more only at lower price.
(ii) Income Effect Real income is that income which is measured in terms of goods and services. A change in the quantity demanded is a result of change in real income caused by change in price of the commodity which is called income effect. When price of a commodity falls, less money has to be spent on purchase of that commodity, thus, with saved income, a consumer can buy more quantity of that good.
A fall in price increases the real income of a consumer and therefore, he buys more when price falls.
(iii) Substitution Effect It refers to the substitution of one commodity in place of other commodity when it becomes relatively cheaper, e.g. a rise in the price of tea means that relative price of coffee has fallen in relation to that of tea. The consumer wants to maximise his satisfaction, therefore, he will buy more of coffee and less of tea. This is called substitution effect, since tea has been substituted by coffee.
Break-even Point Break-even for a firm occurs when it is able to cover all its costs of production. Accordingly, break-even point is defined as a situation where TR = TC or TR/Q = TC/Q or AR = AC. Under this situatiqn, the firm earns only normal profits.
Break-even is said to occur, when,
In the diagram given above, break-even is struck at point Q where AR (Price) = AC. A firm is just covering its costs as price (OP) happens to be equal to AC (QL).
Here, TC-Total Cost; TR = Total Revenue
P = Price; Q = Quantity
AC = Average Cost; AR = Average Revenue
MR = Marginal Revenue
Shut Down Point It occurs when a firm is just covering its variable costs or it is a situation when,
TR = TVC
or or Ar = AVC
Here, the firm is incurring loss of Fixed Cost only.
In the diagram given above, shut down is struck at point Q where AR (Price) = AVC. A firm is operating with a price just covering its AVC.
Thus, Price = AVC
When AR = AVC. Its total loss is equal to Total Fixed Cost (TFC) for a given level of output.
Here, TR = Total Revenue TVC = Total Variable Cost
Q = Quantity AVC = Average Variable Cost
AR = Average Revenue MR = Marginal Revenue
Excess Demand It refers to a situation when Demand (DX) > Supply (SX) corresponding to a given price of X. Excess Supply It refers to a situation when DX < SX, corresponding to a given price of X.
Following demand and supply schedule illustrates the situations:
|‘PX (₹)||Supply (Sx)||Demand (DX)||Excess Supply (Units) (SX-DX)||Excess Demand (Units) (PX-SX)|
Effects of Excess Demand on Price of the Commodity In a situation of excess demand, consumers are willing to buy greater amount of a commodity than what the producers are willing to sell.
Accordingly, price of the commodity will be pushed up. This causes expansion of supply and contraction of demand. This process will continue till demand of a commodity equals its supply and the equilibrium is struck in the market. The market will reach the point of equilibrium at a higher price than that price at which there was excess demand. In the schedule given above, there is excess demand when price is ₹ 4. (DX = 80, SX = 40). Because of this, price will rise to ₹ 6, which is the equilibrium price. After equilibrium is struck (DX = SX = 60), Px = ₹ 6.
Effects of Excess Supply on Price of the Commodity In a situation of excess supply, producers are willing to sell greater amount of a commodity than what the consumers are willing to buy.
Accordingly, price of the commodity will be pushed down. This will cause contraction of supply and expansion of demand. This process will continue till demand of a commodity equals its supply, and the equilibrium is struck in the market. The market will reach the point of equilibrium at a lower price than that price at which there was excess supply. In the given schedule, there is excess supply when price is ₹ 8. (SX = 80, DX = 40). Because of excess supply, price falls to ₹ 6 which is the equilibrium price. After equilibrium is struck (SX = DX = 60),PX = ₹ 6.
- In case of complementary goods, when the price of X falls, demand for commodity Y increases. As a result, demand curve of commodity Y will shift towards right but supply curve remains constant.
Due to increase in demand of commodity Y, there will be excess demand at the original price. Therefore, supplier will be motivated to increase the price of commodity Y. The equilibrium price and quantity would tend to increase.
- In case of substitute goods, when the price of X falls, demand for commodity Y will also fall.
As a result, the demand curve of commodity Y will shift towards the left, but supply curve remains constant. Due to decrease in demand of commodity Y, there will be deficient demand at the original price. Therefore, suppliers will be forced to decrease the price of the commodity Y. The equilibrium price and quantity would tend to decrease.
Deposit multiplier =
∴ Deposit multiplier = 10
GST (Goods and Services Tax) is an indirect tax. It repealed all the indirect taxes and constitutes single tax only which reduces the complexity in taxation.
(b) Reserve Bank of India
|Consumption (C)||Saving (S) (S = Y-C)||Change in Savings (∆S)||Change in Income (∆Y)||MPS||
|15||0-15 = (15)||—||—||—||15/0 = ~|
|50||50 – 50 =0||0 – (-15) = 15||50-0 = 50||15/50 = 0.3||50/50 = 1|
|100||85||100 – 85 = 15||15-0 = 15||100-50=50||15/50=0.3||
|150||120||150-120=30||30-15 = 15||150-100 = 50||15/50=0.3||
120/150 = 0.80
Difference between aggregate demand and aggregate supply are:
|Aggregate Demand (AD) refers to the total value of final goods and services that all sectors of the economy taken together are planning to ‘buy’ at a given level of income during a period of time.||Aggregate Supply (AS) means the value of final goods and services planned to be ‘produced’ by all the production units in the economy taken together during a period of time.|
|Components||Components of AD are private consumption expenditure, private investment expenditure, government expenditure and net exports.||Components of AS are consumption expenditure and savings.|
|Origin of the curve||AD curve originates from Y-axis.||
AS curve originates from origin.
Excess demand refers to the situation when Aggregate Demand (AD) is in excess of Aggregate Supply (AS), corresponding to full employment in the economy.
In a situation of excess demand, government raises the rates of all taxes. This reduces the purchasing power of the people and reduces both consumption and investment expenditures. A fall in consumption and investment expenditures reduces the level of aggregate demand and helps to check the problem of excess demand.
Gross Value Added at Market Price (GVAMP)
= Value of Output [Sales + Change in Stock (Closing Stock – Opening Stock)] – Intermediate Consumption
GVAMP = 8,000 + (1,400 – 1,000) – 2,000
GVAMP = 8,400 – 2,000 = ₹ 6,400 lakh
Net Value Added at Factor Cost (NVAFC)
=GVAMP – Depreciation – Net Indirect Tax (Indirect Tax – Subsidies)
= 6400 – 600 – (400 – 300)
= 6400 – 700 = ₹ 5,700 lakh
Before evolution of money, commodities were exchanged for commodities. This system of exchange was known as C-C economy or barter system.
The major limitations of the C-C economy are given below :
- Lack of Double Coincidence of Wants It is the major drawback of the barter system. It is very rare when the owner of some good or service could find someone who wanted his goods or services and also possessed the same goods or sen/ices that the first person wanted. No exchange was possible in the absence of double coincidence of wants.
- Lack of Common Measure of Value In barter system, there was absence of a common unit of measurement in which the value of goods and sen/ices could be measured. In the absence of a common unit, proper valuation was not possible.
- Lack of Standard for Deferred Payments Deferred payments means future payments. In barter
system of exchange. It was very difficult to make deferred payments in the form of goods as the quality of goods was subject to change.
- Banker to the Government The Central Bank acts as a banker to the Central Government and State Governments. It carries out all the banking business of the government. It accepts receipts and makes payments on behalf of the government. It provides short-term credit to the government. It also advises the government on banking and financial matters.
- Controller of Money Supply Using the Instrument of Open Market Operations Buying and selling of government securities in the open market by the central bank is called open market operations. When central bank buys securities, it makes payments to the sellers who deposit the same in commercial banks. This raises deposits with them and thus, directly increases banks’ ability to give credit. When central bank sells securities, the buyers make payments by cheques. As a result, the deposits with the commercial banks decline, reducing banks’ ability to give credit.
Zero Primary Deficit It means that the government has to resort to borrowing only to fulfil its earlier commitments of interest payments. It is not adding to the existing loans for the purpose other than meeting its existing obligation of interest payments. It is a sign of fiscal discipline or fiscal responsibility on the part of the government. High primary deficit, on the other hand, reflects fiscal irresponsibility of the government.
Reallocation of Resources Government budget can impact re-allocation of resources through its budgetary p’olicy of carrots and sticks. Carrots mean incentives while sticks mean punishment or penalties. In its budget, the government can decide to raise taxes (stick) on commodities, the production of which, it wants to discourage. On the other hand, it can offer subsidies (carrots) on commodities, the production of which it likes to encourage. Such a policy is expected to shift the allocation of resources in favour of socially desirable goods and services.
Factor incomes are broadly classified as under:
(i) Compensation of Employees It includes wages and salaries in cash and facilities such as free education to children, free medical facilities, housing, free uniform, etc, employer’s contribution to social security scheme and pension on retirement.
(ii) Operating Surplus It refers to income from one’s property and entrepreneurship.
It includes the following items :
Profit is further split into three components as under:
- Dividends That part of the profit which is distributed among the shareholders is called ’dividend’ or ’distributed profit’.
- Corporate Profit Tax It is that part of the profit which is paid to the government by way of ’profit tax’.
- Undistributed Profit It is that part of the profit which is retained by the firms for future use, particularly to meet some contingent expenses. It is also called as ‘corporate savings’.
(iii) Mixed Income It refers to the incomes of the self-employed persons using their own labour, land,
capital and entrepreneurship to produce goods and services. These incomes are a mixture of wages, rent, interest and profit. That is why, it is called mixed income. Separate estimation of rent, interest, profit and wages is not possible owing to the fact that factors of production are not hired/purchased from the market.
(i) Net National Product at Market Price by Expenditure Method
Gross Domestic Product at Market Price
= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation (Gross Business Fixed Investment + Gross Residential Construction Investment + Inventory Investment)
+ Net Exports
= ₹ 700 + 200 + (60 + 60 + 20) + 20 = ₹ 1,060 crore
NNPMP = GDPMP + Net Factor Income from Abroad – Depreciation
= ₹ 1,060 + (-10) – 20 = ₹ 1,060 – 30
= ₹ 1,030 crore
(ii) Net National Product at Market Price (NNPMP) by Income Method
Net Domestic Product at Factor Cost
= Compensation of Employees + Operating Surplus + Mixed Income
= ₹ 700 + (100 + 50 + 40) + 140
= ₹ 700+ 190+140
= ₹ 1,030 crore
NNPMP = NDPFC + Net Indirect Tax (Indirect Tax – Subsidies) + Net Factor Income from Abroad
= ₹ 1,030 + (20 – 10) +(-10)
= ₹ 1,030 + 10 – 10 = ₹ 1,030 crore
C =100 + 0.57, Substituting the values of 7as 400, 500 and 600, we get the schedule as below:
In the given schedule, we can observe that as income rises, APC declines from 0.75 to 0.67.
Thus, as income is increasing, APC is decreasing.
It is given that,
Investment Expenditure (/) = ₹ 400, and consumption (C) = 100 + 0.57 We know that,
Income (7) = C + /
On substituting the value of C and I, we get
Y = 100 + 0.57 + 400 ⇒ 7 – 0.5Y = 500
0.57 = 500 ⇒ Y = = 1,000
So, when investment is ₹ 400, Income is ₹ 1,000.
Foreign exchange rate shares an inverse relationship with the demand for the currency. With a fall in the price of foreign exchange, value of domestic currency increases (i.e. appreciation of domestic currency) and that means foreign goods become cheaper and their domestic demand (i.e. imports) increases.
The rising domestic demand for foreign goods implies higher demand for foreign exchanges which increases from OQ1 to OQ2 as shown in the figure.
The supply of foreign currency is directly proportional to the price of foreign exchanges. When the price of a foreign currency falls, it leads to cheaper imports because it leads to appreciation of domestic currency. The exporters are discouraged due to costlier exports. This results in lesser inflow or supply of foreign currency in the economy. As a result, supply of foreign exchange decreases from OQ2 to OQ1 as shown in the figure.
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