## CBSE Sample Papers for Class 12 Economics  Delhi -2013

Time allowed : 3    hours                                                                                         Maximum marks 100

GENERAL INSTRUCTIONS

1.  All questions in both the sections are compulsory.
2. Marks for questions are indicated against each.
3. Questions No. 1-5 and 17-21 are very short-answer questions carrying 1 nick each. They are required to be answered in one sentence each.
4.  Questions No. 6-10 and 22-26 are? short-answer questions carrying 3 marks each. Answers to them should normally not exceed 60 words each.
5.  Questions No. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
6.  Questions No. 14-16 and 30-32 are long-answers questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
7.  Answers should be brief and to the point and the above word limit should be adhered to as far as possible.

### SET I

SECTION A
Question.1. Give two examples of fixed costs.
Answer. Rent of the building and Salary of the manager.

Question.2. Define marginal cost.
Answer. Marginal cost may be defined as the change in total cost that takes place by producing an additional unit.

Question.3. When is the demand for a good said to be inelastic?
Answer. When the percentage change in the demand of a product is less than the percentage change in its price, the demand is said to be inelastic.

Question.4. Give the meaning of market demand.
Answer. Market demand is the sum total demand of all the buyers of a good at a point of time at a given price.

Question.5. Under which market form a firm s marginal revenue is always equal to price?
Answer. Under perfect competition marginal revenue is always equal to price.

Question.6. Explain the difference between an inferior good and a normal good.
Answer. See Q. 7, 2009 (I Delhi).

Question.7. Explain the law of diminishing marginal utility with the help of a total utility schedule.
Answer. See Q. 11,2011 (HI Outside Delhi).
Or
Explain the conditions of consumer’s equilibrium with the help of utility analysis.
Answer. Consumer’s equilibrium will be attained at a point where marginal utility of a commodity is equal to its price. However, MU is expressed in terms of utils and price is expressed in money form. Therefore, equality of MU it utils and price cannot be the basis of consumer’s equilibrium. Hence, marginal utility also needs to be expressed in money form.
Marginal utility in money form can be obtained by dividing it (MU) by marginal utility of one rupe6T’ Marginal utility of ?1 is the extra utility when an additional rupee is spent on other available goods in general. Suppose that for an additional rupee we get two units of some other commodity, then marginal utility of rupee is 2 (utils). Knowing marginal utility (MU) of a commodity and marginal utility of a rupee, we can find out marginal utility of a commodity in money terms in the following way:
Marginal Utility in Money terms = $\frac { MarginalUtility(inutils) }{ MarginalUtilityofRs1 }$

Question.8. When the price of a good rises from Rs 20 per unit to Rs 30 per unit, the revenue of the firm producing this good rises from Rs 100 to Rs 300. Calculate the price elasticity of supply. Question.9. Complete/the following table: Question.10. Explain “large number of buyers and sellers” feature of a perfectly competitive market.
Answer. Under perfect competition, the number of buyers is very large. The number is so large that no individual buyer can influence the market price. Every buyer buys only a fraction out of the total sale of the product. .
It is an important characteristic of perfect competition because of which every buyer, like a firm, has to accept the price which is fixed by the supply and demand of the whole industry. At this price a buyer can buy any quantity of the product.

Question.11. Production in an economy is below its,potential due to unemployment. Government starts employment generation schemes. Explain its effect using production possibilities curve.
Answer. In the given case because of the unemployment in the economy, the given resources are not being fully utilized. To reduce unemployment, demand should be generated. For solving this problem government starts such schemes which generate employment. As a result of which the point of actual operation will move to or move nearer to the situation where there is no unemployment. This situation , can be explained with the help of a production possibility curve. As shown in the diagram the point of operation due to unemployment will be P. When new employment generation schemes are introduced, the point of operation will move on to the right side of production possibility curve, where there is no unemployment. In short, the point of operation shifts from point P to point M or T or any other point on the Production Possibility curve AB. Note: The following question is for the blind candidates only in lieu of Q. No. 11.
Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effects using production possibilities schedule.
Answer. Due to lack of demand given resources are not being fully employed.This means there is unemployment of resources. For solving this problem government starts many employment generating schemes. As a result of this, given resources are better of fully utilized. We can explain this with the help of a production possibility schedule. Two tables are being given below. Table-I indicates the production possibilities which can be sought by fully utilizing the given resources. In Table-II, the production possibilities which are actually available, are indicated; these possibilities show unemployment of resources. Therefore, government can start employment generating schemes with the help of which we can move from Table- II to Table-I. Question.12. Explain the conditions of producer’s equilibrium with the help of a numerical example.
Answer. Producer’s equilibrium refers to a combination of price and quantity of output which yields the producer the maximum profit. For achieving this combination two conditions need to be fulfilled:
(i) The difference between total cost and total revenue must be the maximum.
(ii) At the point where the difference between TC and TR is maximum MR and MC and should also be equal, Any departure from this position will not ensure maximum profit.
In the Table, the difference between TR and TC is maximum at 3 unity as well as at 4 units but the point of equilibrium is 4 units because at this point MC = MR. These two conditions can be explained with the help of a table given below: The above position can be graphically shown in the diagram given below: Question.13. The price elasticity of demand for a good is -0.4. If its price increases by 5 per cent, by what percentage will its demand fall? Calculate. Or
Explain any two factors that affect the price elasticity of demand. Give suitable examples.
Answer. See Q. 7,2009 (III Outside Delhi).

Question.14. Giving reasons, state whether the following statements are true or false:
(i) A monopolist can sell any quantity he likes at a price.
(ii) When equilibrium price of a good is less than its market price, there will be competition among the sellers.
Answer. (i) The statement is false. The price is fixed at a point where marginal cost is equal to marginal revenue. If a monopolist fixes a price less or more than the price fixed at equilibrium point, the quantity will be more or less than the equilibrium quantity but not the quantity that a monopolist would like to sell.
(ii) The statement is true. In this situation, market price is higher than the equilibrium price. As a result of which supply will be more “than demand. As such there will be competition among the sellers. In other words, sellers would like to sell their entire . quantity to meet the demand which (supply) is much more than the demand.

Question.15. Explain the Law of Variable Proportions with the help of total product and marginal product curves. “
Answer. See Q, 15-2608 (I Delhi).
Note: The following question is for Blind Candidates only in lieu of Q. No. 15.
Explain the Law of Variable Proportions with the help of total product and marginal product schedule.
Answer. See Q. 15, 2008 (I Delhi).

Question.16. Explain consumer’s equilibrium with the help of Indifference Curve Analysis.
Answer. Consumer’s equilibrium refers to the optimum combination of the two goods which a consumer can afford (given his income and price of two commodities) and this combinations gives him maximum satisfaction that he possibly can get.
According to indifference curve analysis, consumer’s equilibrium is established at a point where budget line is tangent to the highest attainable indifference curve. At this point the Or
Explain the relationship between .
(i) Prices of other goods and demand for the given good.
(ii) Income of the buyers and demand for a good.
Answer. (i) Prices of other goods and demand for the given good. Prices of other goods may also affect the demand for a commodity. The other goods may be substitute goods or complimentary goods.

• Prices of substitute goods. Substitute goods are those goods which can be used in • , place of one another, such as tea and coffee, ff the price of tea goes up the demand
for coffee will increase because it now becomes relatively cheaper in comparison to tea. On the other hand, when the price of tea falls, its demand will increase because it is now relatively cheaper in.comparison to coffee.
• Prices of complementary goods. Complementary goods are those goods which
cannot be used without one another, such as car and petrol. If the price of car goes up, its demand will fall and this would lead to a fall in the demand for petrol also. The reverse will happen when the price of car falls. V

(ii) Income of the buyers and demand for-a good. Income of the consumer also affects the demand for a commodity. Generally with the increase in income, the demand for a commodity goes up and vice -versa. However, the effect of increase in income is not uniform on the demand of all the commodities. As a result of increase in income, the demand for normal goods goes up and that for inferior goods goes down. The reverse of it happens when income falls.

SECTION B
Question.17, How can increase in foreign direct investment affect the price of foreign exchange?
Answer. Increase in foreign direct investment will increase the supply’ of ‘foreign exchange and therefore it will reduce the price of foreign exchange.

Question.18. What are demand deposits?
Answer. Demand deposits are those deposits which a depositor can withdraw at any given time by writing a cheque.

Question.19. Give one example of “externality” which reduces welfare of the people.
Answer. Smoke emitted by factories is an example of an externality which is negative and reduces welfare of the people.

Question.20. Give two examples of indirect taxes.
Answer. Excise duty and Sales tax.

Question.21. What is a Government Budget?
Answer. A Government Budget is a statement of estimated public receipts and estimated public expenditure during a fiscal year.

Question.22. Explain the problem of double coincidence of wants faced under barter system. How has money solved it?
Answer. Under barter system goods were exchanged for goods. In other words, barter economy signifies the exchange of goods through the medium of goods. However, this system created many difficulties. The most important difficulty is the lack of double coincidence of wants. This means barter transactions can only be possible when two persons desiring exchange of commodities should have such commodities which are mutually needed by each other. For example, if Ram wants cloth, which Shyam has, then Ram should have such a commodity that Shyam wants. In the absence of such coincidence of wants, there will be no exchange. However, it is very difficult to find such a person where there is coincidence of wants.
Money acts as a medium of exchange and the consumer can exchange it for purchase of any goods or services which he needs.

Question.23. Distinguish between revenue expenditure and capital expenditure in Government budget. Give an example of each.
Answer. Revenue expenditure. An expenditure which does not result in the creation of assets or reduction of liability is called revenue expenditure. Expenditure incurred on payments of salaries, pensions etc. are die examples of revenue expenditure.
Capital expenditure. An expenditure which results in the creation of assets or reduction in liabilities is capital expenditure. Expenditure incurred on construction of buildings, roads, bridges etc. and buying land are the examples, of capital expenditure.
Or
Distinguish between revenue deficit and fiscal deficit.
Answer. Revenue deficit is equal to the excess of total revenue expenditure over the total revenue receipts. On the other hand, fiscal deficit is equal to the excess of total expenditure over the sum of revenue and capital receipts excluding borrowings. Thus, as is clear from the above statement, revenue deficit relates to total revenue receipts and total revenue expenditure, whereas, fiscal deficit relates to the difference in total expenditure (revenue and capital) and total receipts (revenue and capital) excluding borrowings. Question.24. Explain any one objective of Government Budget.
Answer. An important objective of government budget is to maintain economic stability. Economy of a country is affected by economic fluctuations such as conditions of boom and depression.
Such changes benefit some and harm others. In such a situation appropriate policy measures are required by the government to affect the levels of aggregate demand. Such measures are called stabilization measures. These measures aim at avoiding the situations of inflation and unemployment.

Question.25. Explain the effect of appreciation of domestic currency on imports.
Answer. Increase in the external value of domestic currency in the foreign exchange market is called appreciation of the domestic currency. As a result of the appreciation of the domestic currency, imports relatively become cheaper and hence they increase. On the other hand, as a result of appreciation exports decline.

Question.26. Distinguish between balance of trade and balance on current account.
Answer. Balance of trade is confined to the difference between Export of Goods and Import of Goods. On the other hand, the Balance on current account of a country includes payments and receipts relating to visible trade (export and import of goods), invisible (services) and unilateral transfers. Thus, Balance of trade is a restricted term in comparison to Current account balance.

Question.27. Calculate “Sales” from the following data: Question.28. Giving reasons categorise the following into stock and flow:
(i) Capital (ii) Saving
(iii) Gross domestic product (iv) Wealth
Answer. (i) Capital is a stock. Tins is so because Capital is measured at a point of time.
(ii) Saving is a flow. This is so because it relates to a period of time.
(iii) Gross domestic product is a flow-because it relates to a time period which is generally one fiscal year.
(iv) Wealth is a stock because it is measured at a point of time.
Or
Explain the circular flow of income.
Answer. See Q. 25,2009 (I Delhi).

Question.29. Explain “Banker to the Government” function of the central bank.
Answer. Banker to the Government. Central bank is the banker, agent and financial advisor to the government. As a banker to the government, it carries out all banking businesses of the government. The government keeps its cash balance in Current Account with the central bank.
As an agent to the government, it buys and sells securities on behalf of the government. As a financial advisor, the central bank advises the government from time to time on economic, financial and monetary matters.

Question.30. C = 100 + 0.4 Y is the Consumption Function of an economy where C is Consumption Expenditure and Y is National Income. Investment expenditure is 1100. Calculate
(i) Equilibrium level of National Income.
(ii) Consumption expenditure at equilibrium level of National Income. Question.31. Complete the following table: Question.32. Calculate National Income from the following data: = Private final consumption expenditure + Government final consumption expenditure +
Gross domestic capital formation + Net factor income from abroad fixed capital – Net imports – Net indirect taxes
= (i) + (iii) + (v) + (vii) – (viii) – (ix) – (iv)
= 900 + 400 + 250 + (-40) – 20 – 30 – 100 = Rs 1,360 Crores
Or
Calculate net national disposable income from the following data: ### SET II

Note: Except for the following questions, all the remaining questions have been asked in Set I.
SECTION A
Question.1. Give two examples of variable costs.
Answer. (i) Cost of raw materials and (ii) Wages of labourers working on daily-wage rate.

Question.8. A firm’s revenue rises from Rs 400 to Rs 500 when the price of its product rises from Rs 20 per unit to Rs 25 per unit. Calculate the price elasticity of supply. Question.9. Complete the following table: Question.10. Explain any two features of monopoly market.
Answer. (i) Single seller. A monopoly market has a single seller of the commodity. This single person has complete control on the output of the commodity. In that sense it is also the price-maker.
(ii) No close substitutes. All the units of a commodity are similar and there are no close substitutes of that commodity.

Question.12. The demand for a good rises by 20 per cent as a result of fall in its price. Its price elasticity of demand is (-) 0.8. Calculate the percentage fall in price. Therefore percentage fall in the price will be 25%.
Or
How is price elasticity of demand affected by:
(i) Number of substitutes available for the good. (ii) Nature of the good.
Answer. (i) Number of substitutes available for the good. The demand for a commodity will be very elastic if some other commodities can be used for it. A small rise in the price of such a commodity will induce consumers to use its substitutes.
For example, gas, kerosene oil, coal etc. will be used more as fuel if the price of wood increases. On the other hand, the demand of such commodities is inelastic which have no substitutes such as salt.
(ii) Nature of the good. Generally, the demand for necessities is inelastic and that for comforts and luxuries of life, is elastic. This is so because certain goods, which are essential to life, will be demanded at any price, whereas goods meant for luxuries and comforts can be dispensed with easily, if they appear to be costly.

SECTION B
Question.28. How do commercial banks create deposits? Explain.
Answer. See Q. 31,2010 (Comptt. I Outside Delhi).

Question.30. In an economy, S = – 100 + 0.6 Y is the saving function, where S is Saving and Y is National Income. If investment expenditure is 1100, calculate:
(i) Equilibrium level of National Income
(ii) Consumption expenditure at equilibrium level of National Income. Question.32. Complete the following table: ### SET III

Note: Except for the following questions, all the remaining questions have been asked in Set I and SetII
SECTION A
Question.1. Give an example each of fixed cost and variable cost.
Answer. Example of fixed cost: Rent of a building
Example of Variable cost: Cost of raw materials

Question.8.The price elasticity of supply of a good is 0.8. Its price rises by 50 per cent. Calculate the percentage increase in its supply. Question.9. Complete the following table: Question.10. Explain “freedom of entry and exit to firms in industry” feature of monopolistic competition.
Answer. Freedom of exit and entry of the firm. Under monopolistic competition, old firms have the freedom to leave the competition and new firms have freedom to enter the industry. Because of this aspect of monopolistic competition a firm in the long run gets only normal profits, i.e., AR = AC. If a firm is getting abnormal profits, other firms enter the industry and the same disappear. Hence, the position of a firm under monopolistic competition in the long run with regard to profits is like that of a competitive firm and unlike that of a monopoly firm.

Question.12. Give the meaning of producer’s equilibrium. A producer produces that quantity of his product at which marginal cost and marginal revenue are equal. Is he earning maximum profits? Give reasons for your answer.
Answer. According to the MC and MR equality approach, the producer’s equilibrium is established at a point where MC = MR. Any deviation from this position will either reduce the profit of a firm or increase the losses.
By MC, we mean the change that takes place in the TC by producing an additional unit. MR (Marginal Revenue) means the change in TR (Total Revenue) that takes place by selling an additional unit. As long as the cost of production of an additional unit is less than the additional revenue available from its sale, the firm shall go on increasing its output. However, with the increase in the output MC keeps on increasing. With the result, the gap between MR and MC declines and a point comes where they are equal. This is the point of equilibrium. If a firm increases its output beyond this point, MC will be greater than MR resulting in decline in profit. Therefore, as shown in the diagram, the equilibrium output is OQ, where MR = MC (MR relates to perfect competition). SECTION B
Question.27. Calculate “sales” from the following data:
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