CBSE Sample Papers for Class 12 Economics Paper 5 are part of CBSE Sample Papers for Class 12 Economics. Here we have given CBSE Sample Papers for Class 12 Economics Paper 5.
CBSE Sample Papers for Class 12 Economics Paper 5
|Sample Paper Set||Paper 5|
|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 5 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
When the total fixed cost of producing 100 units is ₹ 30 and the average variable cost ₹ 3, total cost is
(a)₹ 3 (b) ₹ 30 (c) ₹ 270 (d) ₹ 330
State one example of positive economics.
Define fixed cost.
When the Average Product (AP) is maximum, the Marginal Product (MP) is
(a) equal to AP
(b) less than AP
(c) more than AP
(d) can be any one of the above
What is meant by inelastic demand? Compare it with perfectly inelastic demand.
Explain the central problem of ‘for whom to produce’.
Explain the central problem of ‘choice of technique’.
What is meant by price ceiling? Explain its implications.
Given the price of a good, how will a consumer decide as to how much quantity to buy of that good? Explain.
What is indifference curve? State three properties of indifference curves.
When the price of a commodity changes from ₹ 4 per unit to ₹ 5 per unit, its market supply rises from 100 units to 120 units. Calculate the price elasticity of supply. Is supply elastic? Give reason.
Explain the conditions of producer’s equilibrium in terms of marginal revenue and marginal cost.
Explain the relationship between Marginal Product (MP) and Total Product (TP) with the help of a diagram.
State three characteristics of monopolistic competition. Which of the characteristics separates it from perfect competition and why?
Explain the implications of the following:
(i) Freedom of entry and exist of firms under perfect competition
(ii) Non-price competition under oligopoly
Explain the conditions of consumer’s equilibrium using indifference curve analysis.
Why does consumption curve not start from the origin?
The Central Bank can increase availability of credit by
(a) raising repo rate
(b) raising reverse repo rate
(c) buying government securities
(d) selling government securities
Define money supply.
Which of the following affects national income?
(a) Goods and services tax
(b) Corporation tax
(d) None of the above
Define multiplier. What is the relation between marginal propensity to consume and multiplier? Calculate the marginal propensity to consume if the value of multiplier is 4.
Which among the following are final goods and which are intermediate goods? Give reasons.
(i) Milk purchased by a tea stall
(ii) Bus purchased by a school
(iii) Juice purchased by a student from the school canteen
Given nominal income, how can we find real income? Explain.
The value of marginal propensity to consume is 0.6 and initial income in the economy is ₹ 100 crore. Prepare a schedule showing income, consumption and saving. Also show the equilibrium level of income by assuming autonomous investment of ₹ 80 crore.
Explain the role of the Reserve Bank of India as the ‘Lender of last resort’.
What is meant by inflationary gap? State three measures to reduce this gap.
What is meant by aggregate demand? State its components.
Calculate (a) Net National Product at market price, and (b) Gross Domestic Product at factor cost:
|Particulars||( ₹ in crores)|
|(i)||Rent and Interest||6,000|
|(ii)||Wages and Salaries||1,800|
|(iv)||Net Indirect Taxes||100|
|(vii)||Net Factor Income to Abroad||70|
|(ix)||Consumption of Fixed Capital||50|
|(X)||Social Security Contribution by Employers||200|
Explain the meaning of the following:
(i) Revenue deficit
(ii) Fiscal deficit
(iii) Primary deficit
Explain the following objectives of government budget:
(i) Allocation of resources
(ii) Reducing income inequalities
(i) Explain the impact of rise in exchange rate on national income.
(ii) Explain the concept of ‘deficit’ in balance of payments.
(d) ₹ 330
‘India is overpopulated’ is an example of positive economics
Fixed Cost (FC) It is the sum total of expenditure incurred by the producer on the purchase or hiring of fixed factors of production. These are also called supplementary costs or overhead costs or indirect costs, e.g. rent of the factory, insurance premium, salaries of the permanent employees, etc
(a) Equal to AP
* AP is at its maximum when AP = MP.
- Inelastic Demand It is the one in which the percentage change in quantity dem ,ded is less than that of percentage change in its price.
- Perfectly Inelastic Demand A perfectly inelastic demand is the one in which the change in the price causes no change in the quantity demanded.
Comparison between Inelastic Demand and Perfectly Ineleastic Demand
|Basis||Inelastic Demand||Perfectly Inelastic Demand|
|Elasticity Quotient||Less than 1||Equal to 0|
|Demand Curve||Demand curve is steeper||Demand curve is vertical|
Central Problem ‘For Whom to Produce’
It is the problem which is concerned with the distribution of income among all the factors of production like wages to the labour, rent to the land, interest to the capital and profit to the entrepreneur.
e.g. in a country like India where disparity of income is high, the government employs its resources for production of those goods which are socially desirable like railways, rather than on the production of high-end cars like Ferrari.
Central Problem of Choice of Technique’
The problem of ‘how to produce’ is a problem relating to choice of techniques. Broadly, it is the problem of deciding the techniques of production which are to be used.
There are two types of techniques of production, which are as follows:
- Labour Intensive Technique It is that technique in which labour is used more than capital.
- Capital Intensive Technique It is that technique in which capital is used more than labour.
Price ceiling means maximum price of a commodity that the sellers can charge from the buyers.
Often the government fixes this price much below the equilibrium market price of the commodity, so that, it becomes within the reach of the poorer sections of the society. (2)
Implications of price ceiling are :
- It enables to increase the welfare of the poor.
- It creates an excess demand for the good.
- A consumer receives only a limited quantity of good because of the fixed quota system i.e. Rationing.
- End result of price ceiling is black marketing in market.
Given price of a good, a consumer decides how much quantity of that good to buy, on the basis of the following conditions:
MU = Price, i.e. = Px
Total gains fall if more is purchased after equilibrium. If, MUx (in terms of money) > Px
Consumer keeps on consuming more units. When he consumes more units, the additional utility derived from consuming X keeps on falling. He keeps on consuming till MUx = Px.
If, MUx (in terms of money) < Px
He will decrease the consumption of X, when he decreases the consumption of X, the Marginal Utility of X will increase. He will keep on decreasing consumption of X till MUx = Px .
Thus, MUx (in terms of money) = Px is the condition for consumer’s equilibrium in a single commodity case.
An indifference curve is the curve, which represents all those combinations of two commodities, which give same level of satisfaction to a consumer. It is the locus of all the bundles of two goods, which gives consumer equal level of satisfaction, i.e. he is indifferent between the bundles.
Properties of indifference curve are given below:
- Indifference curves slope downward to the right or are negatively sloped, as consumption of both the goods cannot be increased at once.
- Indifference curve is convex to the point of origin, due to diminishing Marginal Rate of Substitution.
- It is often assumed that a consumer buys a combination of two goods. Hence, an indifference
curve touches neither X-axis nor Y-axis.
Change in quantity supplied = 120 — 100 = 20 units
Percentage change in Quantity Supplied = = = 20%
Change in price = 5 — 1 = ₹ 4
Percentage change in Price = = = 25%
Price Elasticity of Supply (Es) = = = 0.8
Es =0.8, Supply is not elastic. Supply will be elastic, when percentage change in supply is more than the percentage change in price. Here, percentage change in price is more than percentage change in Qutyitity supplied.
According to this approach, the producer is in equilibrium when the Marginal Revenue (MR) is equal to the Marginal Cost (MC) and Marginal Cost curve cuts the Marginal Revenue curve from below. Two conditions under this approach are :
- MC = MR
- MC curve should cut the MR curve from below or MC should be rising beyond the point of equilibrium.
MR is the addition to Total Revenue from the sale of one more unit of output and MC is the addition to Total Cost for increasing the production by one unit. The basic aim of every producer is to maximise the profit. For this, a firm compares its MR with its MC.
As long as the addition to revenue is greater than the addition to cost, it is profitable for a firm to continue producing more units of output.
MC = MR at two points, R and Km the diagram but profits are maximised at point K, corresponding to OQ level of output. Between OQ1 and OQ levels of output, MR exceeds MC. Therefore, firm will not stop at point R but will continue to take advantage of additional profit. Thus, equilibrium will be at point A-where both the conditions are satisfied.
Three characteristics of monopolistic competition are as follows:
- Large Number of Buyers and Sellers As under perfect competition, in this form also, there are a • large number of buyers and sellers. Each firm has a limited share of the market.
- Product Differentiation It is a distinct feature of monopolistic competition. A product is often differentiated by way of trademarks and brand names. The differentiated products are close substitutes of each other, like Colgate and Closeup toothpaste. Because of product differentiation, each firm can decide its price policy independently, so that each firm has a partial control over price of its product.
- Selling Cost Each firm has to incur selling costs (expenditure on advertisement, etc) to promote its sales. This is because there are a large number of close substitutes available in the market.
Monopolistic competition is different from perfect competition because in monopolistic competition, each firm can decide its price policy independently due to product differentiation while in perfect competition firm can not charge different price due to homogeneous product.
- A firm can enter or leave the industry any time. In Perfect competition because of free entry and exit, firms in the long-run can earn only normal profits (TR = TC or AR = AC). In case extra normal profits are earned in the short-run, new firms will join the industry and supply will increase due to which price will fall causing wiping-off of extra normal profits. In case of losses, some existing firms will leave the industry and supply will decrease due to which price will rise causing wiping-off of losses.
- Oligopoly is a form of market in which there are only a few firms operating in the market and each firm is very large in size. This leads to huge interdependence among the firms. They generally avoid price competition as a price-cut by one firm may lead to price war, leading to loss of revenue for both firms. Due to this interdependency only, firm’s demand curve in oligopoly is not determined.
According to indifference curve analysis, consumer is in equilibrium at a point, where the slope of indifference curve is equal to the slope of budget line or price line.
The condition of the consumers equilibrium can be written as,
At the point of equilibrium, Indifference Curve is convex to the origin. It implies that at the point of equilibrium, MRS must be diminishing.
In given diagram, P is the equilibrium point at which budget line touches the higher Indifference Curve IC2 within the consumer budget and IC3 is not an affordable curve and IC1, gives lower level of satisfaction (due to monotonic preferences).
Consumption curve does not start from origin due to autonomous consumption which is minimum level of consumption even when income is zero.
(c) Buying government securities.
The total stock of money in circulation among the public at a particular point of time is called money supply
(b) Corporation tax
Multiplier It is measured as the ratio between change in national income and change in investment.
Relation between Marginal Propensity to Consume and Multiplier There is direct or positive relationship between MPC (Marginal Propensity to Consume) and multiplier. Higher the MPC, higher will be the value of multiplier and vice-versa.
If multiplier is 4
K = ⇒ 4 =
MPS = = 0.25
MPC MPS= 1
MPC + 0.25 = 1
MPC = 1-0.25
MPC = 0.75
- ‘Milk purchased by a tea stall’ is intermediate goods.
Reason It will be used for making tea as a raw material and involves value addition.
- ‘Bus purchased by a school’ is final good.
Reason School purchase bus as long term durable product and make investment for school i.e. not for re-sale.
- ‘Juice purchased by a student from school canteen’ is final good.
Reason Here juice is purchased for direct satisfaction of student’s need. i.e. juice is consumed by its end user.
Nominal Income measures income at current year prices with no adjustment for the effect of inflation while real income is measured on base year prices which show real growth of economy.
We can explain it with the (help of numeric example given below:
Assume, Nominal Income = ₹ 270 crore
Price Index = 135
Real Income = = = ₹ 200 crore
Given in question
MPC = 0.6
Initial income = ₹ 100 crore
= ₹ 80 crore
The equilibrium level of Income will be ₹ 200 crore. because we know that:
Y = C + I
200 = 120 + 80
200 = 200
It is assumed that autonomous consumption is zero which is unrealistic assumption in Macroeconomics theory.
Reserve Bank of India as the ‘Lender of Last Resort’ means that if a commercial bank fails to get financial accommodation from anywhere, it approaches the Central Bank as a last resort. Central Bank advances loan to such banks against approved securities.
By offering loan to the commercial bank in situations of emergency, the Central Bank ensures that:
(i) The banking system of the country does not suffer from any setback.
(ii) Money market remains stable.
Inflationary Gap The extent to which current aggregate demand becomes higher than the ggregate demand required for full employment, is termed as inflationary gap.
Given below are measures to reduce inflationary gap :(any three)
- Reduction in government expenditure on public works, public welfare and defence, etc.
- Reduction in public expenditure on transfer payments and subsidies.
- Increase in taxes to lower the disposable income with the people.
- Restricted deficit financing to check the flow of money in the economy.
Aggregate demand is the value of total expenditure on all goods and services in an economy during a fiscal year.
(This AD is in a simple two sector economy)
AD = C + I
Where, AD = Aggregate Demand,
C = Consumption,
I = Investment
Components of aggregate demand in a four sector economy are as follows:
- Household consumption expenditure (C)
- Private investment expenditure (I) (Fixed capital formation + Change in stocks)
- Government expenditure (G)
- Net exports ( X – M ) So, AD = C + I + G +( X – M )
NNP MP = Compensation of Employees (Wages and Salaries + Social Security Contributions by Employers) + Operating Surplus (Rent and Wages + Undistributed Profits + Corporation Tax+ Dividends) + Mixed Income + NFIA + NET Indirect Tax
= (1,800+200)+(6,000+400+120+80) +(1,000)+(-70)+100
= ₹ 9,630 crore
GDP FC = Compensation of Employees+Operating Surplus + Mixed Income + Consumption of Fixed Capital
= ₹ 9,650 crores
- Revenue Deficit It is the excess of revenue expenditure over revenue receipts.
Revenue Deficit — Revenue Expenditure — Revenue Receipts
- Fiscal Deficit It is the difference between the government’s total expenditure and total receipts excluding borrowings.
Fiscal Deficit = Total Budget Expenditure — Total Budget Receipts (excluding borrowing)
- Primary Deficit It is the difference between fiscal deficit and interest payments by the government.
Primary Deficit = Fiscal Deficit — Interest Payments
- 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.The goods which cannot be provided through market mechanism and hence must be provided by the goverpment are called public goods, e.g. roads, parks street lights, etc.On the other hand, goods which can be provided, through transactions between consumers and producers are termed as private goods, e.g. food items, clothes, shoes, etc.These goods are rivalrous and excludable in nature. These aim at profit maximisation.
- Reducing Income Inequalities Even distribution of income, wealth and social welfare is one of the main objective of budgetary policy.The government uses progressive taxation policy to reduce the inequalities of income and wealth in the country.People with higher incomes are levied higher rate of tax and people with lower income are levied lower rate of tax.People with income below a certain limit are not levied any direct tax altogether.On the other hand, the government spends these tax receipts on granting subsidies and providing other public services such as health and education, to people of lower income groups.Thus, the wealth gets redistributed and reduction in inequalities is achieved.
- Impact of Rise in Exchange Rate on National Income Domestic currency depreciates when there is a rise in foreign exchange rate. The foreign countries can now purchase more quantity of goods and services from the same amount of foreign currency from the domestic country. As a result, exports will rise and imports will fall.
A rise in the export raises the level of aggregate demand which further raises the level of output and income. Hence, as the domestic currency depreciates an economy experiences trade surplus. This in turn boosts the national income.
- Deficit in Balance of Payment (BoP) refers to a situation when receipts of the country arising out of autonomous transactions are less than the corresponding payments to the rest of the world during the period of an accounting year. It highlights our net liabilities towards rest of the world. It may be due to high rate of inflation, huge development expenditure, political instability or change in tastes and preferences of people.
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