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PART- I (40 Marks) Attempt all questions from this Part. (a) How does the division of labour affect the scale and quality of production?
Answer: MODEL ANSWER from SYVUM Division of labour affects the scale and quality of production positively. 1. It increases production of goods and efficiency of workers. 2. Quality of production increases as the worker acquires greater skills.
(b) To whom does the phrase Lender of the Last resort refer? Justify your answer.
Answer: MODEL ANSWER from SYVUM The phrase Lender of the Last resort refers to the Central Bank of our country. 1. It provides financial aid to Commercial banks in times of emergency. 2. It either grants loan or purchases the securities of the commercial bank.
(c) When the price of a commodity falls by 80%, the quantity demanded increases by 100%. Find out its Price Elasticity of Demand.
Answer: MODEL ANSWER from SYVUM where ΔQ/Q = 100 and ΔP/P = 80.
(d) How is the supply of labour different from the supply of other goods?
Answer: MODEL ANSWER from SYVUM Supply of labour is backward sloping curve where as supply of goods is directly proportional to price. (e) Draw a negatively sloped straight line demand curve joining the two axes. Mark three points on this curve showing Price Elasticity equal to:- (i) zero
Answer: (e) Draw a negatively sloped straight line demand curve joining the two axes. Mark three points on this curve showing Price Elasticity equal to:- (ii) Infinity
Answer: (e) Draw a negatively sloped straight line demand curve joining the two axes. Mark three points on this curve showing Price Elasticity equal to:- (iii) one.
Answer:
(a) Identify the market forms for the two sellers of goods 'A' and 'B', given the following information. Give reasons for your answers. Output sold Units | Price of A Rs. | Price of B Rs. | 10 | 5 | 5 | 20 | 5 | 4 | 30 | 5 | 3 | | [2] |
Answer: MODEL ANSWER from SYVUM 1. In case of 'A', the price is fixed and still the demand is increasing, It is a form of monopoly market. 2. In case of 'B' the quantity sold increases as the price decreases. It is a form of perfect competitive market. (b) Differentiate between Fiscal and Monetary Policy. | [2] |
Answer: MODEL ANSWER from SYVUM Distinction between Monetary and Fiscal Policy. Monetary Policy | Fiscal Policy | 1. It is a policy of the RBI to regulate supply of money and rate of interest. | 1. It is a policy in which government uses its revenue and expenditure tools to produce desired effects in the economy. | 2. It affects the producing sector of the economy. | 2. It affects the entire economy. |
(c) Study the graph given below. Explain, for which type of commodity the graph is relevant. Give suitable reasons for your answer.
| [2] |
Answer: MODEL ANSWER from SYVUM The given curve has positive slope of demand curve. This type of curve is relevant for giffen goods.it is an exception to the law of demand.
(Contributed by : mtilwani) (d) How is free entry and exit of firms possible under perfect competition? | [2] |
Answer: MODEL ANSWER from SYVUM Free entry and exit is possible under perfect competition: 1. There are large number of buyers and sellers. 2. The product is Homogeneous.
(e) Which section of the society gains the most due to inflation? Give reasons for your answer? | [2] |
Answer: MODEL ANSWER from SYVUM Rich class of the society gains most due to inflation. 1. They can buy the goods at any cost. 2. They use black money.
(a) Give two examples each of a pair of commodities that are:- (i) Substitutes of each other. | [1] |
Answer: MODEL ANSWER from SYVUM (i) Tea & Coffee
(a)Give two examples each of a pair of commodities that are:- (ii) Complementary to each other. | [1] |
Answer: MODEL ANSWER from SYVUM (ii) Coca Cola & Pepsi
(b) How is land as a factor of production, different from labour? | [2] |
Answer: MODEL ANSWER from SYVUM Land as a factor of production is different from labour. 1. Land is immobile whereas labour is mobile. 2. Supply of land is fixed whereas supply of labour is not.
(c) Differentiate between an entrepreneur and an organizer. | [2] |
Answer: MODEL ANSWER from SYVUM 1. Entrepreneur sets up the business while an Organizer credits and provides capital. 2. Entrepreneur bears loss and profit of the business, while an Organizer gets interest for his capital in both the cases.
(d) Explain the term Monopsony-market. | [2] |
Answer: MODEL ANSWER from SYVUM Monopsony - market is a market where there are number of sellers but only one buyer. (e) Give two important points of distinction between the Private Sector and the Public Sector. | [2] |
Answer: MODEL ANSWER from SYVUM Difference between Private and Public Sector. Private Sector | Public Sector | 1. It is owned, controlled and managed by the private people. 2. Profit maximization is the aim. | 1. It is controlled and managed by the government. 2. Public welfare is the main aim. |
(a) There are three Firms A, B and C in the market. The supply schedule for the market and for Firms A and B is given below. Prepare the supply schedule for Firm C. Price | Firm A | Firm B | Firm C | Market Supply | 10 | 0 | 25 | | 35 | 20 | 10 | 30 | | 60 | 30 | 20 | 35 | | 85 | 40 | 30 | 40 | | 110 |
| [2] |
Answer: MODEL ANSWER from SYVUM Supply schedule of firm C
(b) Which form of capital, Money Capital or Real Capital has a greater impact on the national output? Give reasons to justify your answer. | [2] |
Answer: MODEL ANSWER from SYVUM Real Capital has a greater impact on the national output. 1. Money Capital is used to purchase real capital. 2. Real Capital refers to the assets which help in production of output.
(c) The area of cultivable land is more or less fixed in a country. Under such conditions, suggest two ways to increase the productivity of land. | [2] |
Answer: MODEL ANSWER from SYVUM The productivity of land can be increased by multi-cropping, proper use of land, better irrigational facilities (d) What is meant by the term wage policy? | [2] |
Answer: MODEL ANSWER from SYVUM Wage policy is the policy of the government with regard to the payment of wages to the workers. It is a determinant of the shares of the rival claimants of the product of the industry and national dividend. (e) Give two reasons for the low efficiency of labour in India. | [2] |
Answer: MODEL ANSWER from SYVUM Causes of Low Efficiency of Workers in India: 1. Hot Climate: this climate reduces the stamina of the workers. 2. Low Wages: wage structure in India is low.
PART- II (60 Marks) Attempt any four questions from this Part.
(a) Define Price elasticity of demand. With the help of suitable diagrams explain the Arc or Point Elasticity method of measuring it. | [7] |
Answer: MODEL ANSWER from SYVUM Price Elasticity of demand: It is that attribute according to which the demand contracts or extends under the pressure of changes in prices of a commodity. Point Method of Measuring Elasticity: This method was given by Dr. Marshall. Following formula can be used to measure elasticity of demand: ep = | Lower Segment of Demand Curve | Upper Segment of Demand Curve | Following figure explains this In the diagram AB of 12 cm is drawn in such a way that it meets the Y axis at A and X axis at point B. P is the the midle point of AB such that AP = PB = 6 cm and AP1 = P1P = PP2 = P2B = 3 cm at point P, the price elasticity Y ep = 1 (i) ep at point A = AB/0 = ∞ (infinity) (ii) ep at point P1 = P1B/AP1 = 9/3 = 3 (iii) ep at point P = PB/AP = 6/6 = 1 (iv) ep at point P2 = P2B/AP2 = 3/9 = 1/3 (v) ep at point B = 0/AB = 0/12 = 0. Price elasticity in case of non - linear demand curve. ep = | Lower Segment of Tangent Line | | Upper Segment of Tangent Line | Consider two points P and P1 on the non - linear curve CD. The line AB is tangent to the curve CD at point P. At point P Elasticity of Demand will be = PB/PA ⇒ep > 1.
(b) Distinguish between fixed and circulating capital. A list of goods is given below. For each of these, state whether it is fixed or circulating capital. Give suitable reasons for your answer:- | [8] |
(b) (i) Machines
Answer: MODEL ANSWER from SYVUM Fixed capital can be used again and again for further production of goods. Circulating capital can be used for several things. (i) Machines - Fixed capital
(b) (ii) Office furniture
Answer: MODEL ANSWER from SYVUM Fixed capital can be used again and again for further production of goods. Circulating capital can be used for several things.
(ii) Office Furniture - Fixed capital
(b) (iii) Raw material
Answer: MODEL ANSWER from SYVUM Fixed capital can be used again and again for further production of goods. Circulating capital can be used for several things.
(iii) Raw Materials - Circulating capital
(b) (iv) Fuel.
Answer: MODEL ANSWER from SYVUM Fixed capital can be used again and again for further production of goods. Circulating capital can be used for several things. (iv) Fuel - Circulating capital
(a) Read the extract given below and answer the questions that follow:- The Times of India, New Delhi, February 2l, 2004. Inflation rises to 5.9% : Beating the expectations of the Reserve Bank and the Government, inflation rose by 0.11 per cent 5.91 per cent for the week ending February 7, mainly due to costlier food products, textiles and fuels used as inputs for manufacturing. The point-to-point wholesale price index(WPI) inflation rose from 5.8 per cent in the previous week, notwithstanding the sharp fall in the prices of vegetables, and it was 5.35 per cent in the year-ago period. [PTI] (i) What is meant by the term inflation?
Answer: MODEL ANSWER from SYVUM Inflation means a general rise in prices of goods and commodities. (ii) Give any three reasons for the rise in inflation in the economy at any point of time.
Answer: MODEL ANSWER from SYVUM Reasons for rise in inflation : (i) slow growth rate of agricultural production (ii) increase in wages (iii) population pressure (iv) huge government expenditure.
(iii) How can mild inflation generate a good effect on the economy of a country?
Answer: MODEL ANSWER from SYVUM (iii) Mild inflation generates a good effect on the economy. Prices do not fluctuate rapidly during the time of mild inflation. Demand and supply factors are somewhat balanced. (b) (i) State two relevant differences between qualitative and quantitative methods of credit control adopted by the Reserve Bank of India.
Answer: MODEL ANSWER from SYVUM (i) Qualitative Methods | Quantitative Method | 1. Through qualitative methods credit rationing is done. 2. It requests and persuades banks not to grant credit for certain activities. | 1. Through quantitative methods bank rate is fixed. 2. It can employ the method of cash reserve ratio | (ii) Quantitative credit control methods practised by the Central Bank in the developing countries are: 1. Bank Rate: Increase or decrease in bank rate to control or expand credit respectively 2. Cash Reserve Ratio: Commercial banks have to keep with the Central Bank a minimum percentage of their deposits as cash reserve.
(b) (ii) Elucidate the quantitative credit control methods practised by the Central Bank in the developing countries.
Answer: MODEL ANSWER from SYVUM (ii) Quantitative credit control methods practised by the Central Bank in the developing countries are: 1. Bank Rate: Increase or decrease in bank rate to control or expand credit respectively 2. Cash Reserve Ratio: Commercial banks have to keep with the Central Bank a minimum percentage of their deposits as cash reserve.
(a) Discuss the assumptions of the law of supply. Explain with the help of appropriate diagrams, the difference between movement and shifting of the supply curve. | [7] |
Answer: MODEL ANSWER from SYVUM Assumptions of Law of Supply: (i) Price of related goods remains constant. (ii) The state of technology remains constant. (iii) The goals of the firm remain constant (iv) Factors of production remain constant. (v) no expectation of change in price of the commodity in near future. (vi) Incomes of the buyers are constant. (vii) Incomes of the sellers are constant. Movement along the Same Supply Curve When the supply of a commodity changes due to price changes, movement is along the same supply curve. There are two types of movements: 1. Extension of Supply When the supply of a commodity expands due to rise in price (all the other things remaining equal). Price per Unit (Rs) | Quantity supplied (Units) | 10 | 50 | 15 | 75 | In the above case, the price of a commodity rises from Rs.10 to Rs.15 (i.e. Rs.5) and supply increases from 50 units to 75 units (i. e. 25 units). The supply expands by 25 units and this is called Extension of Supply. In the figure(i) above as the price increases from P to P1, the Supply increases from OS to OS1. SS1 is extension of supply. In the figure (ii) above the price falls from OP to OP1 and supply decreases from OS to OS1, SS1 is contraction of supply. 2. Contraction of Supply When the supply of a commodity falls due to fall in price (all the other things remaining equal). Price per Unit (Rs) | Quantity supplied (Units) | 10 | 50 | 8 | 30 | In the above case, the price of a commodity falls from Rs.10 to Rs.8 and supply decreases from 50 to 30 units. The supply contracts by 20 units and this is called contraction of supply. Shift in Supply Curve When the supply of a commodity changes due to factors other than price, it is called increase or decrease in of supply. These changes (increase or decrease) in supply are represented by shifts in supply curve. Downward right shift means increase in supply and upward left shift means decrease in supply. 1. Increase in Supply (i) When the suppliers are willing to supply more at the same price. (ii) When the suppliers are prepared to supply original quantity at a lower price. In the above diagram OP is the original price and OS is the supply of a commodity. Under the influence of other factors (price remaining the same), the supply has increased from OS to OS1 and supply curve has shifted rightwards down. 2. Decrease in Supply (i) There may be two cases of increase in supply. (ii) Same price but more supply. It is clear that the price of the commodity has remained the same but the supply has decreased (under the influence of other factors). The supply curve will shift upwards. In second case the price of the commodity has increased but the supply has remained the same. The supply curve here will shift upwards.
(b) Explain the concept of Income Elasticity of Demand. Discuss its implication in the case of normal goods, inferior goods and luxury goods with the help of suitable diagrams. | [8] |
Answer: MODEL ANSWER from SYVUM According to Watson, "Income Elasticity of demand means the ratio of percentage change in the quantity demanded to the percentage change in income." Income Elasticity | = | Proportionate Change in Demand Proportionate Change in Income |
ei = Income Elasticity ΔQ = Change in Demand Q = Original Demand ΔY = Change in Income Y = Original Income.
(a) Discuss any two problems of Public Sector Enterprises. Explain the rationale of privatization of Public Enterprises in India. | [7] |
Answer: MODEL ANSWER from SYVUM (a) Problems of Public Sector (i) They are under - utilised in various processes and operations. (ii) Officials, take little interest in the growth of the organisation. Need For Privatisation (i) Privatisation can be helpful in controlling the drain on budgetary resources due to loss incurred by the loss - making public sector enterprises. (ii) Privatisation can help the profit making units to expand and diversify their business in different lines. (iii) It will also enable them to enter into collaboration with other companies. (iv) Privatisation will also help PSEs from political interference. (v) Privatisation is an effective remedy to revive the sick units in public sector.
(b) Differentiate between Capital and Capital Formation. Enumerate the factors that lead to capital formation in the developing countries of the world. | [8] |
Answer: MODEL ANSWER from SYVUM Capital consists of those kinds of wealth rather than free gifts of nature which yield income. Whereas the amount of a country that adds to its capital during a period, is known as capital formation during that period. Factors that lead to capital formation in the developing countries are: (i) Per capita income of people in developing nations is going high. (ii) A large number of financial institutions exist in developing countries to mobilise the savings of people. (iii) entrepreneurs invest the savings of the people properly for capital formation (iv) Techniques being used are modern.
(a) Define the term Economic Development. Mention six relevant functions of the State which accelerate economic development in a country. | [7] |
Answer: MODEL ANSWER from SYVUM Economic development implies that a country has a highly developed economic system. This constitutes - developed agriculture and industry, banking and credit system, transport and communication system. Functions of the State: (i) Improvement in the Standard of Living. (ii) Rapid Agricultural Development. (iii) Stability of Money Value. (iv) Sound Banking and Currency System. (v) Control on Monopoly. (vi) Better Terms and Conditions of Work.
(b) Define the term Market. Differentiate between Monopoly and Monopolistically Competitive Markets on the basis of the number of sellers, product differentiation, entry of new firms, price policy and importance of advertising expenses. | [8] |
Answer: MODEL ANSWER from SYVUM Market is an place or locality where goods and services are bought and sold. In Economics market means whole of the area where buyers and sellers keep in close touch with one another. | Monopoly | Monopolistic Market | No. of Sellers | Single seller or producer | Large number of sellers and buyers. | Product Differentiation | No product differentiation | Products are Slightly different from one another. | Entry of new firm | No entry for new firms | Free entry and exit of the firms. | Price policy | Single pricing policy | Each firm can adopt its own pricing policies. | Advertising Expenses | No advertising costs | High advertising costs. |
(a) Differentiate between Central and Commercial Banks. Explain any three important functions of the Commercial Banks. | [7] |
Answer: MODEL ANSWER from SYVUM Distinction between Central Bank and Commercial Bank Central Bank | Commercial Bank | l. Central Bank does not deal with public directly. | 1. Commercial Bank deals with public directly. | 2. It is owned by the Government. | 2. It is owned by shareholders | 3. Public welfare is the main aim of this bank | 3. Profit making is the main aim. | 4. It has the monopoly over note issues. | 4. A commercial bank cannot issue currency notes. | 5. It regulates the structure and working of commercial banks. | 5. It regulates the business transactions in money market. | Functions of Commercial Banks 1. To Receive Deposits. 2. Sanction of Loans and Advances. 3. Fund Transfer.
(b) Explain the law of demand with the help of a demand schedule and demand curve. State its two assumptions and two exceptions. | [8] |
Answer: MODEL ANSWER from SYVUM The law of demand states that there is an inverse relationship between the price of a commodity and quantity demanded. Demand Schedule for commodity 'X' Price (Rs.) | Quantity demanded | 60 | 6 | 80 | 3 | 100 | 1 | with the increase in price, demand of quantity of commodity 'X' decreases. Assumptions: (i) Consumer is a rational one. (ii) Tastes and preferences remain unchanged. Exceptions: (i) tastes and preferences change. (ii) income increases and quantity is demanded more.
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