CBSE Sample Papers for Class 12 Economics Paper 4

CBSE Sample Papers for Class 12 Economics Paper 4 are part of CBSE Sample Papers for Class 12 Economics. Here we have given CBSE Sample Papers for Class 12 Economics Paper 4.

CBSE Sample Papers for Class 12 Economics Paper 4

Board	CBSE
Class	XII
Subject	Economics
Sample Paper Set	Paper 4
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 4 of Solved CBSE Sample Paper for Class 12 Economics is given below with free PDF download solutions.

Time : 3 hrs
Maximum Marks : 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

Questions:
Question 1.
The sovereignity of a consumer is maintained in
(a) free economy
(b) mixed economy
(c) controlled economy
(d) Both (a) and (b)

Question 2.
A firm can sell any number of quantities of commodity Z at the prevailing market price. What will be the shape of average revenue curve of this firm?

Question 3.
Average cost falls only when marginal cost falls. The given statement is
(a) true
(b) false
(c) partially true
(d) None of these

Question 4.
Let production function of firm Z be Q = 6L^1/3 K^2/3. Find out maximum possible output that the firm can produce with 1,000 units of labour and 729 units of K.

Question 5.
Given below is the utility schedule of a consumer for commodity X. The price of the commodity is ₹ 3 per unit. How many units should the consumer consume to maximise satisfaction? Assume that utility is expressed in utils and 1 util = ₹1. Give reasons for your answer.

Consumption (units)	1	2	3	4	5
Total Utility (utils)	8	15	20	23	25

Question 6.
Explain the likely impact of Sarva Shiksha Abhiyan on transformation line in India. Given reason in support of your answer.
Or
Explain the central problem of what to produce.

Question 7.
Let there be four firms in a perfectly competitive market. All these firms have similar supply. Calculate the market supply.

Price (₹)	10	20	30	40	50	60	70	80
Supply of Individual Firm (kg)	0	5	10	15	20	25	30	35

Question 8.
A consumer’s budget is ₹50. He is buying good 1 and good 2. The price of good 1 is  ₹ 2 per unit and of good 2 is  ₹ 5 per unit. Draw a budget on basis of information given and also explain the concept of Marginal Rate of Substitution (MRS).
Or
Differentiate between increase in demand and expansion in demand.

Question 9.
How is the equilibrium price of a good determined? Explain with the help of a diagram a situation when both demand and supply curves shift to the right but equilibrium price remains the same.

Question 10.
Explain the relationship using diagrams, between
(i) Marginal Revenue (MR) and Total Revenue (TR)
(ii) Marginal Revenue (MR) and Average Revenue (AR).
Or
Explain the relationship between Marginal Product (MP) and Total Product (TP) with the help of a diagram.

Question 11.
(i) Explain the concept of price elasticity of demand.
(ii) When price of a good falls by 10%, its quantity demanded riges from 40 to 50 units. Calculate Price Elasticity of Demand by percentage method

Question 12.
Indian Railways has the largest network of railways in Asia. It is owned, managed and operated by the Government of India through the Ministry of Railways. Give reasons in support of your answer that Indian Railways is a monopoly of Government of India. Also explain the characteristics of a monopoly.

Section B

Question 13.
Expenditure on relief of earthquake victims is
(a) plan expenditure
(b) non-plan expenditure
(c) Both (a) and (b)
(d) None of these

Question 14.
Give two examples of public goods.

Question 15.
What are the other names by which CRR is known as?

Question 16.
…………….involves discounting or purchasing of commercial bills arising out of credit
sales.
(a) Cash Credit
(b) Bill Financing
(c) Overdraft
(d) None of these

Question 17.
Explain the meaning of equilibrium level of income and output with the help of saving and investment curves. If planned expenditure is less than planned output in country ‘R’, then what changes will take place in the economy? Which value stands affected?

Question 18.
Give the differences between ex-ante savings and ex-post savings.
Or
What do you understand by frictional unemployment and structural unemployment? Explain briefly.

Question 19.
The value of nominal GNP of an economy in a particular year is ₹ 2,800 crore. The value of GNP of that country during the same year evaluated at the prices of the base year was ₹ 3,200 crore. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year under consideration?

Question 20.
Differentiate between Central Bank and commercial bank.

Question 21.
Briefly discuss about the impact of budget.
Or
Categorise the following government receipts into revenue and capital receipts. Give reasons for your answer.
(i) Receipts from sale of shares of public sector undertaking.
(ii) Borrowings from public.
(iii) Profits of public sector undertaking.
(iv) Income tax received by government.

Question 22.
Why are exports included in the estimation of domestic product by the expenditure method? Can Gross Domestic Product (GDP) be greater than Gross National Product (GNP)? Explain.
Or
From the following data, calculate National Income by income method and expenditure method

S.No.	Items	(₹) in crores
(i)	Government Final Consumption Expenditure	100
(ii)	Subsidies	10
(iii)	Rent	200
(iv)	Wages and Salaries	600
(v)	Indirect Tax	60
(Vi)	Private Final Consumption Expenditure	800
(vii)	Gross Domestic Capital Formation	120
(viii)	Social Security Contributions by Employer	55
(ix)	Royalty	25
(x)	Net Factor Income Paid to Abroad	30
(xi)	Interest	20
(xii)	Net Domestic Capital Formation	110
(xiii)	Profits	130
(xiv)	Net Export	70

Question 23.
An increase of ₹ 250 crore in investment in an economy resulted in total increase in income of ₹1,000 crore. Calculate the following:
(i) Value of Multiplier (K)
(ii) Marginal Propensity to Consume (MPC)
(iii) Change in Consumption Expenditure (AC)
(iv) Change in Saving (AS)

Question 24.
(i) Explain the effect of depreciation of domestic currency on exports.
(ii) Explain the effect of appreciation of domestic currency on imports.

Answers.

Answer 1.
(d) Both (a) and (b)

Answer 2.
The shape of the Average Revenue Curve of the firm selling commodity ‘Z’ will be a horizontal straight line parallel to the X-axis.

Answer 3.
(b) False

Answer 4.
Given, Q = 6L^1/3k^2/3 ⇒ 6(1,000)^1/3  (729)^2/3 ⇒ 6 × (10)¹ × (9)² ⇒ 6 × 10 × 81 ⇒ Q = 4,860
So, the maximum output that firm ‘Z’ can produce with 1,000 units of L and 729 units of K is 4,860.

Answer 5.
Total Utility and Marginal Utility Schedule for Commodity X

Consumption (units)	Total Utility (utils)	Marginal Utility (utils)
1	8	8
2	15	7
3	20	5
4	23	3
5	25	2

Now we know that a consumer consuming one commodity is at equilibrium when
\(\frac { M{ U }_{ X } }{ M{ U }_{ X } } ={ P }_{ X }\)
The given condition will be fulfilled when the consumer is consuming 4th unit, because at this level of consumption, \(\frac { 3 }{ 1 } =3\) i.e. 3 = 3
So, consumer should consume 4 units of commdity X to maximise satisfaction.

Answer 6.
Sarva Shiksha Abhiyan will improve the level of education in India. Consequently, skilled labour force will emerge in the country. Resource-pool of the country is expected to rise with this change. As a result, PPC is likely to shift to right.

Problem of what to produce arises as the economy has limited resources. Because of scarcity of resources, producers are unable to produce everything in desired quantity, so they have to make a choice as to which product or service is important as a whole, so that limited resources can be rationally managed.
Problem of what to produce involves two-fold decisions:

1. Kinds of goods to be produced
2. Quantity of goods to be produced

Answer 7.
Individual and Market Supply Schedule

Price (₹)	Supply of Individual Firm (kg)(X)	Market Supply 4xX (kgs)
10	0	0
20	5	20
30	10	40
40	15	60
50	20	80
60	25	100
70	30	120
80	35	140

Since the firms have identical supply, so supply of individual firm has been multiplied by 4 to find the market supply.

Answer 8.
A consumer with his given income of ₹ 50 can buy 25 units of good 1 or 10 units of good 2. So, the required co-ordinates are (0, 10) and (25 , 0) and ab is the required budget line. The coordinates are computed as follows: Assuming that the consumer spends his total income to purchase good 1 then he can purchase 25 units (50 ÷ 2)of good 1. His consumption bundle = (25 , 0)
Assuming that the consumer spends his total income to purchase Good 2, then he can purchase 10 units (50 ÷ 5) of Good 2. His consumption bundle = (0 , 10).
Each point on the line ab indicates different combinations of good 1 and good 2 which a consumer can buy with his given income.

Marginal Rate of Substitution (MRS) It refers to the rate at which the consumer is willing to substitute good X for good Y. It is expressed as \( \frac { Units\quad of\quad Good\quad Y\quad Sacrificed\quad (\triangle Y) }{ Units\quad of\quad Good\quad X\quad Gained\quad (\triangle X) } \)
Or
Differences between increase in demand and expansion in demand are :

Basis	Increase in Demand	Expansion in Demand
Reason	This is caused by change in determinants, other than own price of the commodity.	This is caused only by change in own price of the commodity.
Impact	This happens when at the same price, more is being demanded.	This happens when at a lower price, more is being demanded.
Effect on demand curve	It results in rightward shift in demand curve.	It results in rightward movement on the same demand curve.

Answer 9.
Equilibrium price is determined by the forces of market demand and market supply. Considering market demand schedule on the one hand and market supply schedule on the other hand, we identify equilibrium ; price as the one where market demand is equal to market supply i.e. where market demand curve and market supply curve intersect each other.

The equilibrium price will remain the same even when demand and supply curves shift rightwards when the percentage increase in quantity demanded is same as the percentage increase in quantity supplied.
From the figure, it is clear that the rightward shift in demand curve from DD to D₁D₁ is proportionately equal to the rightward shift in supply curve from SS to S₁S₁ The new equilibrium point is E₁ Equilibrium price remains the same at OP, but equilibrium quantity rises from OQ to OQ₁

Diagram showing Increase in Equilibrium Output when Increase in Demand is Equal to Increase in Supply.

Answer 10.
(i) Relationship between Marginal Revenue (MR) and Total Revenue (TR) is explained below:

• When MR is positive (i.e., greater than zero), TR rises.
• When MR becomes zero, TR is maximum.
• When MR becomes negative, TR starts to fall.

(ii) Relationship between Marginal Revenue (MR) and Average Revenue (AR) is explained below:

• When both AR and MR are falling, MR falls at a greater rate than AR. In other words, if AR and MR are downward sloping curves, MR curve always remain below the AR curve. This is the case under monopoly or monopolistic competition market.
• MR can be negative but AR is always positive (i.e., greater than zero). That is why, AR curve always remains above the X-axis while MR curve can go below the X-axis.
• If AR becomes constant, MR also becomes equal to AR. In this situation, AR and MR are the same curves and parallel to the X-axis. This is the case in perfect competition

The following relationship is observed between total product and marginal product:

From the above curves, following observations are made on the relationship between TP and MP :

1. When TP increases at an increasing rate, MP also increases.
2. When TP increases at a diminishing rate, MP declines.
3. When TP reaches its maximum, MP becomes zero.
4. When TP begins to decline, MP becomes negative.

Answer 11.
Price elasticity of demand measures the responsiveness in quantity demanded when price of the
commodity changes. It can be computed in the following manner:
Price Elasticity of Demand(E_d) = \(\frac { Percentage\quad Change\quad in\quad Quantity\quad Demanded }{ Percentage\quad Change\quad in\quad Price } \)
(ii)Fall in price of good = 10%
Original quantity demanded (Q) = 40 units
Change in quantity demanded (∆Q) = 50 – 40 = 10 units
Percentage change in quantity demanded = \(\frac { \triangle Q }{ Q } \times 100\)
\(\frac { 10 }{ 40 } \times 100\) = 25%

Elasticity of Demand = \(\frac { Percentage\quad Change\quad in\quad Quantity\quad Demanded }{ Percentage\quad Change\quad in\quad Price } \)
= (–)\(\frac { 25 }{ 10 } \) = (–) 2.5

Answer 12.
A monopoly market is characterised by a single seller of a product or service which has no close substitutes available and the entry of new firms is restricted in the market by some statutory laws or patent rights. On the basis of the above discussion, it can be concluded that Railways is a monopoly of the government of India because :
(i) It provides rail transport which is not provided by any other operator.
(ii) Rail transport has no close substitutes.
(iii) Private firms cannot enter this market because rail transport in India is reserved only for the public sector.
The characteristics of monopoly market are explained below: (any four)

1. One Seller and Large Number of Buyers Under monopoly, there is a single producer of a commodity. Fie may be alone or there may be a group of partners or a joint stock company or a state. However, there are a large number of. buyers of the product.
2. Restrictions on the Entry of New Firms Under monopoly, there are some restrictions on the entry of new firms into the monopoly industry. Generally, there are patent rights or exclusive control over a technique or raw material which prevents other firms to enter into the market.
3. No Close Substitutes A monopoly firm produces a commodity that has no close substitutes, e.g. there is no close substitute of operating systems made by Microsoft. They have monopoly in this segment.
4. Full Control over Price Being a single seller of the product, a monopolist has full control over its price. A monopolist thus, is a price maker. He can fix whatever price he wishes to fix for his product. Therefore, a monopolist is referred to as price maker.
5. Price Discrimination A monopolist may charge different prices from different buyers. It is called price discrimination, e.g. electricity boards charge higher tariff for commercial use than domestic use.

Answer 13.
(b) Non-plan expenditure

Answer 14.
Examples of public goods are:
(i) Street lights
(ii) Defence of country

Answer 15.
Cash Reserve Ratio (CRR) is also known as sterlised reserve or non-operative cash reserves.

Answer 16.
(b) Bill Financing

Answer 17.
Equilibrium level of income and employment is determined at a point where ex-ante savings is equal to ex-ante investment. This is because, at the point of equilibrium,
Aggregate Demand = Aggregate Supply or
C + S = C + l, or
i.e. S = / i.e. Saving = Investments

In the given diagram, E is the point of equilibrium, at which S=l. (1)
If planned expenditure is less than planned output in country R, then the economy will be facing the problem of deficient demand. Due to this, prices will fall. With fall in price level, aggregate demand will rise upto the level at which planned expenditure equals planned output.
The value that stands affected is the economy has over utilised its resources.

Answer 18.
Differences between Ex-ante and Ex-post savings are :

Basis	Ex-ante (Planned) Savings	Ex-post (Actural) Savings
Meaning	It refers to the desired level of savings.	It refers to the realised level of savings.
Reaction with investments	In an accounting year, planned savings may or may not be equal to planned investment.	In an’accounting year, actual savings is always equal to actual investment. (This is according to the principle of National Income Accounting).
Determination of income	Equilibrium level of income is determined where planned savings is equal to planned investment.	Actual savings has no relevance in the determination of equilibrium level of income.

or

1. Frictional Unemployment It is that unemployment which arises due to immobility of labour, shortage of raw material, power, wear and tear of machinery, search of jobs. It is generally associated with changing jobs in the economy.
2. Structural Unemployment It is that unemployment which results from long-term decline of certain industries. It arises when there is change in production technique. It also arises when labourers are trained in old and decaying industries and are not adequately equipped for new industries.

Answer 19.
GNP of an economy valued at current year prices = ₹2,800
crore GNP of an economy valued at base year prices = ₹3,200 crore
GNP Deflator = \(\frac { GNP\quad Valued\quad at\quad current\quad Year\quad prices }{ GNP\quad Valued\quad at\quad base\quad Year\quad Prices } \times 100\)
\(\frac { 2,800 }{ 3,200 } \times 100\) = 87.5%
No, the price level has not risen between the base year and the year under consideration. Rather, it has fallen by 12.5%.

Answer 20.

Basis	Central Bank	Commercial Bank
Status	Central Bank is the banker of all the banks. It is an apex body.	Commercial banks operate under the control of Central Bank.
Credit flow	It controls the flow of credit within the economy.	It creates credit within the economy.
Objective	The objective of Central Bank is social welfare.	The objective of commercial banks is profit maximisation.
Banker	It is the banker to the government and commerical banks.	It is banker of the common public.
Custody of foreign exchange	It is the custodian of nation’s foreign reserve.	It is not the custodian of foreign reserve.
Currency issue	It has the authority to issue currency.	It does not have the authority to issue currency.

Answer 21.
Government’budget is a statement of 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 31st March.
In India, Article 112 of the Constitution requires the Central Government to prepare ‘Annual Financial Statement’ for the country as a whole. This is called ‘Budget of the Central Government’. Article 202 of the Constitution requires every State Government to prepare ‘Annual Financial Statement’ for the concerned state. This is called ’Budget of the State Government’.
Budget impacts an economy at three levels:
(i) It brings aggregate fiscal discipline level, i.e. budget tries to maintain an ideal balance between revenues and expenditures of the government.
(ii) It brings better allocation of resources, i.e. government, through its budget, will allocate resources to those areas where it is socially desirable.
(iii) Through budget, government can effectively and efficiently plan and implement its social welfare
programmes.
Or

1. Receipts from Sale of Shares of Public Sector Undertaking It is a capital receipt because it results in a reduction of assets.
2. Borrowings from Public It is a capital receipt because borrowings create a liability.
3. Profits of Public Sector Undertaking It is a revenue receipt because it neither creates a liability nor reduces any asset.
4. Income Tax Received by the Government It is a revenue receipt as it neither creates a liability nor reduces any asset.

Answer 22.
According to Expenditure method, National Income is measured in terms of expenditure on purchase of final goods and services in the economy during an accounting year. Net exports is the difference between exports and imports during an accounting year. If goods exported exceed the goods imported, then this will result in increase in the income of the country. With increased income, the expenditure will also increase, because of this reason exports are included in the estimation of domestic product by expenditure method.
Gross Domestic Product (GDP) can be greater than Gross National Product (GNP) if net factor income from abroad is negative. Net Factor income from abroad will be negative if factor payments from abroad are less than factor payments to abroad.
 Or
National Income by Income Method .
Net National Product at Factor Cost (NNP_FC) = Rent + Wages and salaries + Social security contribution by Employer + Royalty + Interest + Profits – Net Factor Income paid to Abroad
= 200 + 600 + 55 + 25 + 20 +130 – 30
= ₹ 1,000 crore
National Income by Expenditure Method
Net National Product at Factor Cost (NNPFC) = Private Final consumption Expenditure + Government Final consumption Expenditure + Gross Domestic Capital Formation + Net Exports – Depreciation – Net Factor Income to Abroad – Net Indirect Taxes
= 800 + 100 + 120 + 70-10 – 30 – 50
=₹ 1,000 crore
Note: (i) Depreciation = Gross Domestic Capital Formation – Net Domestic Capital Formation
Depreciation = 120 – 110 =  ₹10crore
(ii) Net Indirect Taxes = Indirect Tax-Subsidy
∴ Net Indirect Taxes = 60 – 10 = ₹ 50 crore

Answer 23.
(i) Calculation of Multiplier Increase in Investment (∆/) = ₹ 250 crore
Increase in Income (∆Y) = ₹ 1,000 crore
Value of multiplier (k) = \( \frac { Increase\quad in\quad Income\quad (\triangle Y) }{ Increase\quad In\quad Investment(\triangle l) } \)
= \( \frac { 1000 }{ 250 } \)

(ii) Calculation of Marginal Propensity to Consume
Multiplier (k) = \( \frac { 1 }{ 1-MPC } \)
4  = \( \frac { 1 }{ 1-MPC } \)
4(1-MPC)  = 1
4-4MPC  = 1
4 – 1    = 4MPC
\( \frac { 3 }{ 4 } \) = 0.75 = MPC
i.e. Marginal propensity to consume = 0.75

(iii) Calculation of Change in Consumption Expenditure
Marginal Propensity to Consume (MPC) = \(\frac { Change\quad in\quad Consumption\quad \triangle C }{ Change\quad in\quad Income\quad \triangle Y } \): 0.75 = \(\frac { \triangle C }{ 1000 } \)

∴ Change in consumption expenditure = ₹ 750 crore.

(iv) Calculation of Change in Savings
Marginal Propensity to Save (MPS) = 1 – MPC = 1 – 0.75 = 0.25
Now, MPS = \(\frac { Change\quad in\quad Saving\quad \triangle S }{ Change\quad in\quad Income\quad \triangle Y } \) ; 0.25 = \(\frac { \triangle S }{ 1000 } \)

∴ Change in Savings = ₹ 250 crore

Answer 24.
(i) Depreciation of the domestic currency occurs when the value of our currency decreases in relation to the value of other currencies.
e.g., if US $ exchanges for ₹ 55, instead of ₹ 50 earlier, the domestic currency (Indian rupee) has shown depreciation. It means one dollar can be exchanged for more rupees. So, with the same amount of dollars, more of goods can be purchased from India. It means exports to USA have become cheaper. This may result in increase in export to USA. (3)
(ii) Appreciation of domestic currency occurs when the value of our currency increases in relation to the value of other currencies.
e.g., if US $ exchanges for ₹ 45 instead of  ₹ 50 earlier, the domestic currency (Indian rupee) has shown appreciation. It means one rupee can be exchanged for more $. So, with the same amount of money (rupees), more goods can be purchased from USA. It means imports from USA have become cheaper. This may result in increase in imports from USA.

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