CBSE Sample Papers for Class 12 Economics Paper 6 are part of CBSE Sample Papers for Class 12 Economics. Here we have given CBSE Sample Papers for Class 12 Economics Paper 6.
CBSE Sample Papers for Class 12 Economics Paper 6
Board | CBSE |
Class | XII |
Subject | Economics |
Sample Paper Set | Paper 6 |
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 6 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
Question 1.
Which of the following measures of price elasticity shows elastic supply?
(a) 0
(b) 0.5
(c) 1.0
(d) 1.5
Question 2.
Define opportunity cost.
Question 3.
At what level of production is total cost equal to total fixed cost?
Question 4.
Which of the following does not cause shift of supply curve of a good?
(a) Price of input
(b) Price of the good
(c) Goods and service tax
(d) Subsidy
Question 5.
A consumer buys 200 units of a good at a price of ₹ 20 per unit. Price elasticity of demand is (–) 2. At what price will he be willing to purchase 300 units? Calculate.
Question 6.
Explain the central problem of “What is produced and in what quantities.”
Or
In what circumstances may the production possibility frontier shift away from the origin? Explain.
Question 7.
Explain the implications of ‘freedom of entry and exit of firms’ under perfect competition.
Question 8.
Write a budget line equation of a consumer if the two goods purchased by the consumer, Good X and Good Y are priced at ₹ 10 and ₹ 5 respectively and the consumer income is ₹ 100
Or
Define marginal rate of substitution. Explain its behaviour along an indifference curve.
Question 9.
Explain the conditions of producer’s equilibrium under perfect competition.
Question 10.
Draw Average Variable Cost (AVC), Average Total Cost (ATC) and Marginal Cost (MC) curves in a single diagram. State the relation between MC, AVC and ATC curves.
Question 11.
Define price floor. Explain the implications of price floor.
Or
Market of a good is in equilibrium. Demand for the good decreases. Explain the chain of effects of this change.
Question 12.
A consumer consumes only two goods X and Y. Explain the conditions of consumer’s equilibrium using utility analysis.
Section B
Question 13.
Define aggregate supply.
Question 14.
State the two components of M measure of money supply.
Question 15.
Credit creation by commercial banks is determined by
(a) Cash Reserve Ratio (CRR)
(b) Statutory Liquidity Ratio (SLR)
(c) Initial deposits
(d) All of these
Question 16.
Give one example of negative externalities.
Question 17.
Define investment multiplier. How is it related to marginal propensity to consume?
Question 18.
Distinguish between stock and flow Variables with suitable examples.
Or
What are capital goods? How are they different from consumption goods?
Question 19.
What is ex-ante consumption? Distinguish between autonomous consumption and induced consumption.
Question 20.
What is monetary policy? State any three instruments of monetary policy.
Question 21.
Define full employment in an economy. Discuss the situation when aggregate demand is more than aggregate supply at full employment income level.
Or
What are two alternative ways of determining equilibrium level of income? How are these related?
Question 22.
Discuss briefly the meanings of
(i) Fixed Exchange Rate
(ii) Flexible Exchange Rate
(iii) Managed Floating Exchange Rate
Question 23.
What is government budget? Explain its major components.
Or
Explain
(i) Allocation of resources
(ii) Economic stability as objectives of government budget.
Question 24.
Calculate
(i) Operating surplus, and
(ii) Domestic income.
Particulars | ( ₹ in crores) | |
(i) | Compensation of Employees | 2,000 |
(ii) | Rent and Interest | 800 |
(iii) | Indirect Taxes | 120 |
(iv) | Corporation Tax | 460 |
(v) | Consumption of Fixed Capital | 100 |
(Vi) | Subsidies | 20 |
(vii) | Dividend | 940 |
(viii) | Undistributed Profits | 300 |
(ix) | Net Factor Income to Abroad | 150 |
(x) | Mixed Income | 200 |
Answers.
Answer 1.
(d) 1.5, i.e. it shows elasticity of supply is more than one.
Answer 2.
Opportunity cost is the cost of a decision in terms of the best alternative given up to achieve it. It is the best alternative foregone.
Answer 3.
At zero level of production, TC = TFC because TVC is zero.
Answer 4.
(b) Price of the good
Answer 5.
Let new price be ₹ x.
Price Elascity of Demand (Ed )= \( \frac { \triangle Q }{ \triangle P } \times \frac { P }{ Q } \)
⇒ (–) 2 = \( \frac { 300-200 }{ x-20 } \times \frac { 20 }{ 200 } \)
⇒ (–) 2 = \( \frac { 10 }{ x-20 } \)
–2x + 40 = 10 ⇒ 40–10 = 2x
30 = 2x ⇒ x = 15
Consumer will purchase 300 units at ₹ 15 price.
Answer 6.
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:
- Kinds of goods to be produced,
- Quantity of goods to be produced.
Or
PPC may shift rightwards from origin which shows economic growth in the sense that resources are utilised in a highly efficient manner. Rightward shift of PPC indicates higher productivity.
Causes of rightward shift of PPC are :
- Increase in the resources.
- Improvement in technology of production.
- Increase in foreign direct investment.
We can explain it with the help of following figure:
Answer 7.
There is freedom of entry and exit under perfect competition. Because of this feature, firms earn only normal profits in the long run. In situations of extra-normal profits, new firms will be induced to join the industry. This increases market supply and lowers market price to finally wipe out extra-normal profits.
In situations of extra-normal losses, marginal firms will quit the industry, lowering market supply and raising market price to finally wipe out extra-normal losses. So, firm cannot earn abnormal profit or losses under perfect competition in the long-run due to this feature.
Answer 8.
Given information
Income (M) = ₹ 100
Price of X = ₹ 10
Price of Y = ₹ 5
Budget line equation
M — Px x Qx + PY x QY
100 = 10 x Qx + 5 x QY
Further, we can draw the budget schedule and budget line using the X- intercept and Y-intercept.
\(\frac { 100 }{ 100 } \) = \(\frac { 10{ Q }_{ x } }{ 100 } +\frac { 5{ Q }_{ Y } }{ 100 } \)
1 = \(\frac { { Q }_{ x } }{ 10 } +\frac { { Q }_{ Y } }{ 20 } \)
Therefore, the co-ordinates to draw a budget line are (10, 0), (0 , 20)
Budget Schedule
Units X | Units Y | Budget Line Equation |
10 | 0 |
100 = 10×10+ 5×0 => He spends whole his income on good-X. |
5 | 10 | 100 = 10×5+ 5×10 |
8 | 4 | 100 = 10×8+ 5×4 |
0 | 20 |
100 = 10×0+ 5×20 => He spends whole his income on good-Y. |
Marginal Rate of Substitution (MRS) refers to the rate at which the consumer is willing to sacrifice one good to obtain one more unit of the other good. Symbolically,
MRSxy = \(\frac { Quantity\quad of\quad the\quad Good\quad Sacrificed\quad (\triangle Y) }{ Quantity\quad of\quad the\quad Good\quad Obtained\quad (\triangle X) } \)
Indifference Curve (IC) is convex to origin due to diminishing marginal rate of substituion. It means that a consumer is willing to sacrifice less and less units of a good to gain an additional unit of the other good because the utility that he gets from consuming an additional unit of a good goes on diminishing.
Answer 9.
Producer’s equilibrium is the state where a firm either maximises its profits or minimises its losses. A producer attains equilibrium when following two conditions are met:
- Marginal Cost (MC) = Marginal Revenue (MR)
MC must be rising after the point of equality.
The above diagram shows that price is constant hence MR is equal to Average Revenue (AR). We can see that MR is equal to MC at point E1 and at point E. However, point E1 is not the equilibrium point, as MC is falling after point E1, which shows that as producer increases output, profit level also increases.
Producer will continue to increase his production upto point E, where MC is equal to MR again and MC > MR thereafter. Hence, point E is equilibrium point where profit of the firm is maximised.
Answer 10.
The ATC, AVC and MC cqurve can be drawn as follows:
Relationship between ATC, AVC and MC are:
- MC intersects AC and AVC at their minimum level.
- ATC and AVC decreases before the intersection by MC, but remain greater than MC.
- ATC and AVC starts to increase after the intersection by MC and becomes less than MC.
- As output increases, ATC and AVC tends to be closer but the difference between ATC and AVC can never be zero due to AFC.
- ATC is the sum total of AVC and AFC, hence ATC lies above AVC.
- AVC and MC both are derived from TVC and ATC and MC are both U-shaped due to law of
variable proportions.
Answer 11.
Price Floor Price floor (minimum price ceiling) or ‘support price’ refers to the minimum price at which a particular good would be available to the consumer. This is set by the government to protect the interest of the seller.
Price floor is set above the equilibrium price which creates ‘excess supply in the market as shown in the diagram given below:
In the above diagram, OP is equilibrium price and OP{ is the price floor which creates ‘excess supply’ equal to ab.
Implications of Price Floor
Following are the implications of price floor:
- Minimum Return Farmers/producers are ensured by government with the minimum returns, as their output are completely sold in the market at comparatively higher prices. It provides high income to farmers.
- Maximum Level of Output The government ensures to purchase the full production of the farmers which are not sold in the market at the price floor. So, they are able to produce maximum level of production.
- Burden on Consumers It provides additional burden on the consumers and the traders, as they need to buy the products at comparatively higher price instead of equilibrium price.
- Burden on Government It creates burden on government revenues. It becomes mandatory for the
government to buy the excess produce, even if it runs a sufficient volume of buffer stock.
Or
Market equilibrium refers to the situation in which demand and supply for a given commodity are equal to each other. According to the question, when demand for the commodity decreases (keeping supply constant), demand curve will shift to the left causing fall in equilibrium price and quantity, as shown in the diagram given below:
It can be seen from the diagram that, initial demand curve DD and initial supply curve SS intersect at point e, giving equilibrium price equal to OP and equilibrium quantity equal to OQ. Now due to decrease in demand (keeping supply constant), demand curve shifts to the left to D1D1, causing excess supply (at initial price OP), equal to ‘ef’. It creates competition among firms because they cannot sell all of their output at existing prices. So, this excess supply will cause a fall in price and lead to expansion in demand (by law of demand) and contraction in supply (by law of supply). This process will continue till the time new equilibrium is reached at point e1, with lower price OP1 and lesser quantity OQ1.
Answer 12.
Conditions of consumer’s equilibrium (using marginal utility analysis) when a consumer is consuming two goods is as follows:
\(\frac { M{ U }_{ x } }{ { P }_{ x } } =\frac { M{ U }_{ y } }{ { P }_{ y } } = M{ U }_{ m }\)
where,
MUx and MUy Marginal utilities of good X and good Y respectively Px
and P = Price of good X and good Y respectively
MUm = Marginal utility of money. If MUm =1, then the condition of equilibrium is reduced to
\(\frac { M{ U }_{ x } }{ { P }_{ x } } =\frac { M{ U }_{ y } }{ { P }_{ y } }\)
Or
\(\frac { M{ U }_{ x } }{ M{ U }_{ y } } =\frac { P_{ x } }{ { P }_{ y } } \)
The above conditions are based on the assumption that the law of diminishing marginal utility holds true. If MU does not fall as consumption increases, then consumer will never reach the equilibrium situation.
The given diagram depicts consumer’s equilibrium when he consumes two goods.
Answer 13.
Aggregate Supply is the money value of the final goods and services or national product produced
in an economy during an accounting year. It is equal to income generated.
Answer 14.
Mx includes:
- Currency held by public in form of notes and coins.
- Net demand deposit held by commercial banks.
- Other deposits held by RBI
Answer 15.
(d) Credit creation depends upon
- CRR
- SLR
- Initial deposits with commercial banks.
Answer 16.
“Environmental pollution caused by industrial plants” is an example of negative externalities.
Answer 17.
The ratio between change in income and the change in investment is termed as investment multiplier. It is denoted by ‘K’
Multiplier (K) = \(\frac { \triangle Y }{ \triangle I } \)
∆ Y = Change in Income
∆I = Change in Investment
MPC and Multiplier There is direct or positive relationship between Marginal Propensity to Consume (MPC) and Multiplier (K) Higher the MPC, higher will be the value of Multiplier and vice-versa.
Multiplier (K) = \(\frac { 1 }{ 1-MPC } \)
e.g. If MPC = 0.5, then, K = \(\frac { 1 }{ 1-0.5 } \) = \(\frac { 1 }{ 0.5 } \) = 2
When MPC increase to 0.75, then
K = \(\frac { 1 }{ 1-0.75} \) = \(\frac { 1 }{ 0.75 } \) = 4
So, we observe that as MPC rises, K also rises.
Answer 18.
Difference between stock and flow are: (any three)
Basis | Stock | Flow |
Time elements | It relates to a point of time. | It relates to the period of time. |
Dimension | It is not time dimensional. | It is time dimensional as per hour, per month, per year. |
Impact | It influences the flow, greater the stock of capital greater is the flow of goods and services. | It influences the stock e.g. monthly increase in the supply of money leads to an increase in the quantity of money. |
Concept | Static concept | Dynamic concept |
Example | Money in bank account as on 31st March, 2016. | Number of births during the month of March 2016. |
Capital Goods The goods which are repeatedly used in the process of production are known as capital goods. They are the fixed assets of the producer, e.g. building, plant and machinery, etc. They help to convert intermediate goods into final goods.
Difference between consumer goods and capital goods are:
Basis | Consumer Goods | Capital Goods |
Meaning | These goods are purchased by consumers for the satisfaction of their wants and not for resale. | These goods are purchased by manufacturers and producers for the production of other goods. These goods are not meant for resale. |
Use | These are for own use. | These are used for production of goods and services. |
Demand | High | Comparatively less |
Examples | Bread, butter, jam, etc. | Machinery, equipment, etc. |
Answer 19.
Ex-ante consumption refers to planned (desired) consumption expenditure of households (in two sector economy). In other words, it is one which is expressed in terms of what the people had planned to consume in the same period.
Difference between autonomous consumption and induced consumption are: (any three)
Basis | Autonomous Consumption | Induced Consumption |
Meaning | It is defined as expenditure taking place when disposable income levels are at zero. | It refers to portion of consumption that varies with disposable income. |
Causes | It is arised due to basic needs such as food, rent, health expenses. | It is arised due to increase in the disposable income. This is related to all normal goods and services. |
Result | End result is dis-saving, borrowing or withdrawal from saving account. | End result is saving. It reduces the current income of consumer. |
Relation | No relation with disposable income. | Positive relation with disposable income. |
Answer 20.
Monetary Policy It is the policy of correcting excess or deficient demand in the economy by controlling the supply of credit. It regulates the cost of credit (i.e. rate of interest) and availability of credit (i.e. money supply).
The three instruments of monetary policy include:
- Open Market Operations It refers to sale and purchase of securities and bonds by the central bank in the open market. If central bank (i.e. RBI in India) wish to control credit and inflation, then it sells the securities while if it wish to control deficient demand, securities and bond will be purchased from open market.
- Cash Reserve Ratio (CRR) It refers to the ratio between “cash reserves of the commercial banks with RBI” and their total deposits.
To control the problem of inflation, the RBI increases the CRR, it reduces the supply of money and credit creation capabilities of commercial banks while CRR is lowered to correct the problem of deficient demand. - Margin Requirement It is the difference between the amount of loan granted and the current value
of security offered for loans. It is raised by RBI to correct excess demand problem while it is lowered to correct the deficient demand problem in the economy.
Answer 21.
Full Employment A situation when all those who are willing to or able to work are getting work, is termed as full employment in an economy.
Inflationary Gap Inflationary gap occurs when Aggregate Demand (AD) is greater than Aggregate Supply (AS) corresponding to full employment level. This inflationary gap i.e. excess of aggregate demand causes inflation in the economy and price levels tend to rise.
In the above figure,
ADFE = AD at full employment level
ADAE = AD above full employment level
The point E is the equilibrium point where AD = AS. But at this point, Aggregate Demand FP is more than the Aggregate Supply in the economy. This difference of actual Aggregate Demand and Aggregate Supply i.e. EF is the inflationary gap Inflationary Gap = Excess Demand
= ADAE – ADFE = EF
Or
The equilibrium level of income/output can be studied with the help of following two approach:
- AS = AD Approach Equilibrium level of output in an economy is determined at a point where planned spending (i.e. AD = C+ I) equals to planned output (i.e. Y/AS = C + S).
- S = I Approach Equilibrium output /GDP is achieved, when S = I.
Both Approach are Interrelated
We know that AD = AS
C + I = C + S, I = S
In simple words, we can say that equality between AS and AD implies the equality between S and I. We can explain it with the help of following diagram:
There is one and only one equilibrium of GDP, when AS = AD (i.e Y = AD) or when S = I. In either case, the equilibrium of GDP = OQ.
In the above panel of diagram, the equilibrium is represented by AD and AS approach. The lower panel represents equilibrium using the S and I approach.
Answer 22.
- Fixed Exchange Rate Fixed exchange rate refers to the rate of exchange which is fixed by the central
authority of the country. It is not affected by change in demand or supply of foreign exchange. It discourages venture capital. - Flexible Exchange Rate Flexible exchange rate refers to the rate of exchange which is determined by the demand and supply of foreign exchange in the foreign exchange market, with no intervention from any central authority. It encourages venture capital.
- Managed Floating Exchange Rate Under this system the exchange rate is determined by the market forces of demand and supply. However, excessive fluctuation is checked by the Central Bank. It combines the features of fixed exchange rate and flexible exchange rate. Its regime determines the exchange rate through the market forces with intervention of the monetary authority as and when required.
Answer 23.
Government budget is a financial statement of estimated receipts and expenditure of the
government during a financial year (i.e. 1st April to 31st March).
Following are the components of government budget:
- Budget Receipts It refers to estimated money receipts of the government from all sources during the fiscal year.
These are classified as:- Revenue Receipts Government receipts which neither create liabilities nor reduce assets are known as revenue receipts.
Constituents of revenue receipts:
(a) Tax receipts, i.e. income tax, GST, etc.
(b) Non-tax receipts, i.e. fees, grants, fines, etc.
- Revenue Receipts Government receipts which neither create liabilities nor reduce assets are known as revenue receipts.
- Capital Receipts Government receipts which either create liabilities or reduce assets are called capital receipts.
Constituents of capital receipts:- Recovery of loan
- Borrowing
- Dis-investment
- Budget Payment/Expenditure It refers to estimated expenditure of the government during the fiscal year.
These are classified as:- Revenue Expenditure Government expenditure which does not create assets or causes a reduction in liabilities, e.g. interest payment, defence purchases, subsidies, etc.
- Capital Expenditure Governments expenditure which creates assets or causes a reduction in liabilities, e.g. purchase of machine, loans to State Government, etc.
- Plan and Non-plan Expenditure Government’s expenditure can be planned or non-planned.
(a)Planned expenditure refers to the expenditure on planned programmes.
(b)Non-planned expenditure refers to the expenditure which is not related to specific plan or programmes, e.g. relief funds given to rail accident victims.
Or
- 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 by ensuring that there should be production of necessity goods as well as comfort and luxury goods and the goods which cannot be provided through market mechanism e.g. roads, parks, street lights (public goods), etc are provided by the government.
So, the government levies tax on the richer sections of society. The money collected from taxes is spent on providing public goods and giving subsidies on necessary goods to the poorer section of society. So, the government re-allocates resources by collecting taxes from the rich and giving subsidies to the poor and tries to achieve equitable distribution of income. - Economic Stability Government budget can be helpful in bringing economic stabilisation in the economy by checking inflationary and deflationary tendencies.
To curb the inflationary tendency, the government can prepare a surplus budget. Such a budget reduces the money supply in the economy. With a fall in the money supply, the purchasing power of people also fall, leading to a fall in the level of aggregate demand. As aggregate demand falls, the price level or the rate of inflation also falls.
To curb the deflationary tendency, the government can prepare a deficit budget. Such a budget increases the money supply in the economy. With increase in money supply, the purchasing power of people also rise, leading to an increase in the level of aggregate demand. As aggregate demand rises, the price level also rises and rate of deflation begins to fall.
Answer 24.
- Operating Surplus = Rent and Interest + Corporation Tax + Dividend + Undistributed Profits
= 800 + 460 + 940 + 300= ₹ 2,500 crore - Domestic Income (NDPFC) = Compensation to Employees + Operating Surplus + Mixed Income = 2,000 + 2,500 + 200 = ₹ 4,700 crore
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