PRE BOARD EXAMINATION 2013-2014
ECONOMICS
Time 3hrs
M.M. 100
Marking scheme
S.No
Answers/value points
Break up
Marks
Section A
1.
Marginal utility is zero.
1
2.
By exploring new resources or by advancement in technology.
1
3.
It is the net addition to total revenue by selling one more unit of a good.
1
4.
These two goods are substitutes.
1
5.
When oligopolistic firms compete with each other while fixing price or output.
1
6.
What to produce is one of the central problem of an economy related with what types of goods are to be produced and in what quantities. the economy has to choose since the resources are scarce. The choice can be made between consumer goods or capital goods, between necessities or luxuries.
3
7.
The consumer attains equilibrium when marginal utility in terms of money of a good becomes equal to the price of that good. The consumer will buy that level of output where Mux in terms of money = price of that good.
Q Mux Px
1 4 3
2 3 3
3 2 3
The consumer will buy 2 units as at second unit Mux =Px
or
The consumer is in equilibrium in case of two commodities when utility derived from last rupee spent on both the goods become equal.
Mux/ Px =Muy/Py
If utility per rupee of good x is less than utility per rupee of good y it mean consumption of good x is giving less satisfaction while consumption of good y is giving more satisfaction. So the consumer will increase the consumption of good y and decrease the consumption of good x till utility per rupee of good x becomes equal to utility per rupee of good y.
Mux/ Px =Muy/Py.
8.
P=4 P1=? dP=?
Q=100 Q1= 75 dQ= 25
Ed= -dQ/dP *P/Q
-1= -25/dP*4/100
dP=1
new price will be Rs 5. As price rises quantity demanded falls.
9.
When AVC falls MC will lie below to it or MC
When AVC rises MC will lie above it or MC>AVC.
MC intersect AVC at its minimum point. (use diagram)
10. Basis Monopoly Monopolistic competition
No of sellers single many
Nature of substitute no close substitute close substitute
Entry and exit Restriction Free entry and exit
Or any three
11. There are two types of goods.
Normal and inferior goods.
In case of normal goods the demand will increase with increase in income of buyer. There is direct relationship between Income and demand for the good in case of normal good..
In case of inferior goods the demand will decrease with increase in income. There is inverse relationship between Income and demand for the good in case of inferior good.
Diagram
12. When the price of inputs such as cost of raw material, wages of labour etc increases the cost of production also increase. As the cost of production increases supply falls. The production becomes less profitable so producer decreases the supply.
or When the price of other good falls its supply will also falls and the supply of given good will rise. The resources from the production of other good will be shifted towards production of given good. Now to produce more of given good is profitable in comparison to other good.
13. A producer is said to be in equilibrium when he is maximizing his profit. The level of output where he maximizes his profits is determine where -:
MC=MR
And MC must rise after intersecting MR.
If MC < MR it means producer can increase his profits by producing more. As long as MC is less than price producer is having incentive to produce more as he can increase his profits.
If MC> MR it mean production of addition unit will cost him more and he will add less to revenue. So he will not be maximizing his profits.
14. At a given price there is excess supply. At this price quantity supplied is more than quantity demanded. This will lead to competition among sellers. As a result price will fall. When price falls quantity supplied will fall and quantity demanded will rise leading to equilibrium. The price will stop falling when the situation of Zero Excess supply sets in.
15. The consumer is in equilibrium when he is maximizing his maximizing his satisfaction.
According to indifference curve approach the consumer is in equilibrium when marginal rate of substitution between two goods becomes equal to ratio of prices of two goods or market rate of exchange.
It means the amount of one good the consumer is willing to give up for additional unit of other good is equal to the amount of one good the consumer has to give up for additional unit of other good.
If MRSxy > Px/Py means the consumer is willing to give up more but he has to give up less. He is in gains so he will increase his consumption.
If MRSxy < Px/Py means the consumer is willing to give up less but he has to give up more. He is in loss so he will decrease his consumption.
or The consumers choices are said to be monotonic when out of given two bundles he prefer the bundle in which more of one good and no less of other good is given.
Indifference curve is downward slopping it means in order to increase the consumption of one good he has to reduce the consumption of other good.
Indifference curve is convex to the origin because the marginal rate of substitution is diminishing along the Indifference curve. Marginal rate of substitution is amount of one good the consumer is willing to give up for one more unit of other good.
16. Law of variable proportion is short run phenomenon in which all the factor are fixed only one factor is variable. Output increases due to increase in only variable factor.
This law states when the ratio between fixed factor and variable factor is altered total product first increases at increasing rate then it increases at diminishing rate and finally it Starts falling down.
There are three stages of law of variable proportion.
Increasing returns to a factor-: during this stage MP increase and TP increases at increasing rate. This stage ends when MP is maximum.
Diminishing returns to a factor-: During this stage MP falls but remains positive and TP increases at diminishing rate. This stage ends when MP is zero and TP is maximum.
Negative returns to a factor-: During this stage MP becomes negative and TP starts falling down.
Schedule
Section B
17. Money is something which facilitate the transaction of goods and services in the economy.
Or which is universally accepted as medium of exchange.
18. The value of K will be 2.5.
19. Inflationary gap is the difference between Actual aggregate demand and effective demand required to maintain full employment level of output.
20. It is an annual statement regarding estimated expenditure and estimated receipts of government over a fiscal year.
21. Time deposits are those deposits held by commercial banks which are repayable to depositor after maturity is over.
22. Final Goods Intermediate Goods
Final goods are available These are not available for direct
For direct consumption consumption. These are for resale.
These goods are not for
Resale.
The value of final goods are The value of intermediate goods are
Included in national income. Not included in national income.
These goods have crossed These goods are still inside production
production boundary. Boundary.
23. Revenue deficit is the difference between revenue expenditure and revenue receipts. It indicates that the expenditure of government towards unproductive activities is more.
Fiscal deficit-: It is the difference between total expenditure of government on one hand and total expenditure excluding borrowings on other hand.
It determine the actual level of borrowings in the economy.
or Direct tax -: The incidence and imposition lie on same person. This type of tax cannot be shifted. Direct taxes are generally levied upon income. For example Income tax.
indirect tax -: The incidence and imposition lie on different persons. This type of tax can be shifted. indirect taxes are generally levied upon goods and services. For example excise duty. 1.5
24. Equilibrium level of income, output and employment is determined where aggregate supply in the economy is equal to aggregate demand in the economy.
AS=AD
If Aggregate demand is more than Aggregate supply it means households and firms are consuming more than what economy is producing.
As a result there will be reduction in stocks with firms. The firms will respond to this situation by increasing output by increasing employment till aggregate supply becomes equal to aggregate demand. 1
25. At equilibrium S=I so
Y=C+I
Y= c+bY+I
Y=60+0.8Y+1000
Y-0.8Y=1060
0.2Y=1060
Y=10600/2
Y=5300
26. When foreign exchange rate in a country has risen it means foreign goods will become costlier for that country. The demand for costlier goods will fall. So the imports of that country will fall and the demand for foreign exchange will also fall. 3
27. Through budget government tries to reduce inequalities in income distribution. This is done through taxation and provision of subsidies. Taxes are imposed on the income of rich people as a result there purchasing power will reduce. Poor people are provided with subsidies as a result there purchasing power will increase. The gap between rich and poor is reduced through government budget. 4
28. Deficient demand is that level of aggregate demand which fall short of effective demand required to maintain full employment level of output. It means the aggregate demand is less than full employment level of output.
It will lead to deflationary gap.
Diagram
Explanation with diagram
29. Investment from abroad-
credit side
capital account
Transfer of fund to a relative abroad
Debit side
Current account
or Deficit in balance of payment means payment in debit site is more that payment in credit side. The outflow of foreign exchange is more than inflow of foreign exchange. The country has to pay more foreign exchange to rest of the world and the country has to receive less foreign exchange from rest of the world. This may be due to excess of imports over exports , excess of unilateral transfer paid over unilateral transfer received. 4
30. Nominal national income -: when the value of all the final goods and services produced in the economy plus net factor income received from abroad is measured at current price.
Real national income-: when the value of all the final goods and services produced in the economy plus net factor income from abroad is measured at base period price.
Real national income cannot be treated as true index of welfare on its own due to some of limitations.
It does not take in to account non monetary transactions in the economy.
It does not consider inflation, level of unemployment, income distribution etc.
31. Functions of central bank-:
Sole authority to issue currency notes-:
Banker to the government-: Government keeps its funds with central bank. Government can legally borrow from central bank against treasury bills. Central bank also advice government on various policy measure. It also monetize public debt.
Bankers bank-: Commercial bank keeps a fixed proportion of their deposits in central bank in the form of cash reserve. If commercial banks require fund they can borrow from central bank. Central bank comes forward to help commercial bank if there is any emergency. Central bank is also known as lender to last resort.
Controller of money supply
Explanations of any two
or Functions of money
Measure of value-: the value of all the goods and services can be expressed in terms of money. Each good is having only one price. It has removed the drawback of barter system.
Medium of exchange-: if we can express the value of all the goods and services in terms of money then money can also buy those goods and services. Money is universally accepted as medium of exchange. It has removed the drawback of barter system ‘Lack of double coincidence of wants’. It has also removed search cost associated with barter system.
Standard of deferred payments
Store of value
Explanation of any two
32. Income method-:
NDPfc = compensation of employees + operating surplus + mixed income of self employed
NDPfc= 600+(140+110+320)
NDPfc=Rs 1170
GNPfc= NDPfc+depriciation-NFITA
GNPfc= 1170+20-100
GNPfc= Rs 1090 cr
Expenditure method
GDPmp= private final consumption expenditure+government final consumption expenditure+gross domestic capital formation+net exports
= 800+400+160+(130-180)
=1360-50
=1310 cr
GNPfc= GDPmp-NFITA-NIT
=1310-100-120
GNPmp= Rs 1090 cr
