Studymate Solutions to CBSE Board Examination 2015-2016

Series : ONS/1 Code No. 58/1/1

Candidates must write the Code on

Roll No. the title page of the answer-book.

4 Please check that this question paper contains 12 printed pages.

4 Code number given on the right hand side of the question paper should be written on the title
page of the answer-book by the candidate.
4 Please check that this question paper contains 30 questions.
4 Please write down the Serial Number of the question before attempting it.
4 15 minute time has been allotted to read this question paper. The question paper will be
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paper only and will not write any answer on the answer-book during this period.

ECONOMICS
[Time allowed : 3 hours] [Maximum marks : 100]

General Instructions:

(i) All questions in both the sections are compulsory.

(ii) Marks for questions are indicated against each question.

(iii) Question number 1 to 5 and 16 to 20 are very short answer type questions carrying 1 mark each.
They are required to be answered in one sentence.

(iv) Question number 6 to 8 and 21 to 23 are short answer type questions carrying 3 marks each.
Answers to them should not normally exceed 60 words each.

(v) Question number 9 to 11 and 24 to 26 are also short answer type questions carrying 4 marks
each. Answers to them should not normally exceed 70 words each.

(vi) Question number 12 to 15 and 27 to 30 are also long answer type questions carrying 6 marks
each. Answers to them should not normally exceed 100 words each.

(vii) Answer should be brief and to the point and the above word limit be adhered to as far as possible.
STUDYmate

Section A
1. What is the relation between marginal cost and average variable cost when marginal cost is
rising and average variable cost is falling?
Ans. MC is less than AVC
2. Suppose total revenue is rising at a constant rate as more and more units of a commodity are
sold, marginal revenue would be (choose the correct alternative)
(a) Greater than average revenue (b) Equal to average revenue
(c) Less than average revenue (d) Rising
Ans. (b) Equal to average revenue
3. When does increase in demand take place?
Ans. When there is an increase in price of substitute good (Write any other factor than the price).
4. Homogenous products is a characteristic of : (choose the correct alternative)
(a) Perfect competition only (b) Perfect oligopoly only
(c) Both (a) and (b) (d) None of the above
Ans. (c) Both (a) and (b)
5. There is inverse relation between price and demand for the product of a firm under: (choose the
correct alternative)
(a) Monopoly only
(b) Monopolistic competition only
(c) Both under monopoly and monopolistic competition
(d) Perfect competition only
Ans. (c) Both under monopoly and monopolistic competition
6. A consumer consumes only two goods X and Y. Marginal utilities of X and Y are 5 and 4
respectively. The prices of X and Y are Rs. 4 per unit and Rs. 5 per unit respectively. Is the
consumer in equilibrium? What will be the further reaction of the consumer? Explain.
Ans. Conditions of consumer equilibrium in two commodities are
1. Marginal utility of the last rupee of expenditure on each good is the same.
2. Marginal utility of a good falls as more of it is consumed.
MU x MU y
First condition implies = (Equi-marginal utility)
Px Py

In the given question MUx = 5; MUy = 4; Px = 4; Py = 5

MU x 5 MU y 4
Thus, = = 1.25 and = = 0.8
Px 4 Py 5
MU x MU y
>
Px Py
MU x MU y
If >
Px Py , he will consume more of X and less of Y. When he consumes more of X,marginal
MU x MU y
utility derived from X will fall. He will keep on consuming more of X, till = .
Px Py
7. Price elasticity of demand of good X is 2 and of good Y is 3. Which of the two goods is more
price elastic and why?
Ans. exD = (2); ed = (3)
The coefficient of price elasticity of demand is always negative due to the law of demand which
states that there is an inverse relation between price and quantity demanded. We always take
the absolute value of coefficient of ed i.e. ignoring the ve signs. Thus in the given case when
we ignore the signs edx = 2 and edy = 3 edy > edx so therefore edy is more elastic. It implies
that proportionate change in quantity demanded of y with the change in price is more than the
proportionate change in the quantity demanded of x.
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8. What is maximum price ceiling? Explain its implications.

OR
Explain the chain effects, if the prevailing market price is below the equilibrium price.
Ans. Price ceiling or maximum price: It refers to fixing of the maximum price of a commodity at
a level lower than the equilibrium price. Government imposes price ceiling in case of essential
commodities (Wheat, Sugar, Kerosene etc.) when the equilibrium price determined by free
market forces of demand and supply is high.
Implications if Price ceiling
(a) Shortage (excess demand): At this controlled price quantity demanded is more than
quantity supplied. It creates a shortage and to overcome this shortage government may
enforce the rationing system.
(b) Black marketing: If rationing is not administered by the government effectively it results
in black marketing. Due to excess demand buyers will compete and they would be willing
to buy a commodity at a higher price than the price fixed by the government.
OR
Ans. When market price is less than the equilibrium price excess demand is created, i.e., quantity
demanded is more than the quantity supplied at the prevailing market price. If the prevailing
market price, say OP1 is less than equilibrium price OP then market demand of OQ1 will be
greater than market supply of OQ2.

(a)
The excess demand of Q1Q2 results in competition amongst the buyers as each buyer
wants to have the commodity. It leads to increase in market price.
(b) Increase in price results in contraction along the demand curve and expansion along the
supply curve.
(c) The market price will continue to rise till excess demand is wiped out.
Conclusion: Eventually price will increase to a level where market demand is equal to
market supply at OQ and equilibrium price of OP will be attained.
9. Explain the effect of change in prices of the related goods on demand for the given good.
Ans. Change in price of substitute goods: There is positive or direct relationship between the price
of substitute commodity and demand for a good. If price of substitute rises the demand for a
commodity also rises and vice versa. For example, if price of coffee increases people will switch
over from coffee to tea and the demand for tea rises as shown in the figure.
Increase in price of substitute goods. Decrease in price of substitute goods.

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Change in price of complementary goods: There is negative or indirect relationship between

the price of complementary commodity and demand for a good. If price of complement rises the
demand for a commodity also falls and vice versa. For example, if price of petrol increases it will
become expensive to drive a car. So demand for car falls as shown in the figure.
Increase in price of complementary Decrease in price of complementary
goods. goods.

10. Define production function. Distinguish between short run and long run production functions.
OR
Define cost. Distinguish between fixed and variable cost. Give one example of each.
Ans. A production function is a technological relationship between physical inputs and physical
output of a good which shows the maximum output that can be produced with combination of
inputs.
Mathematically, the production function can be written as:
QX = f (F1, F2, F3 ... Fn)
where QX is the physical output of commodity X and F1 ... Fn are the physical inputs required
in the production of output X.
Any three differences.

Long Period Production Function Short Period Production Function

It is a constant proportions type production It is a variable proportion type production
function in which factor ratio remains function in which factor ratio changes with
constant, no matter what the level of output change in the level of output.
is.
Output is sought to be increased by increasing Output is sought to be increased by increasing
the application of all factors. the application of one variable factor only.
Scale of production tends to change with the Scale of production remains constant, even
change in the level of output. when the level of output changes.
Long period production function is studied Short period production function is studied
with reference to Returns to Scale. with reference to Returns to a Factor
OR
Ans. Economic cost is the sum of actual money expenditure on inputs (explicit cost), estimated value
of the inputs provided by the owners (implicit cost) and normal profit.

Variable Cost Fixed cost

Variable costs refer to those costs which vary Fixed costs refer to those costs which do not
directly with the level of output. vary directly with the level of output.
Variable cost can be changed in the short Fixed cost cannot be changed in the short
run. run.
Variable cost is zero when there is no Fixed cost can never be zero even if there is no
production. production.
Variable cost is incurred on variable factors Fixed cost is incurred on fixed factors like
like labour, raw material etc. land, building etc.

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Wages of casual labour, payment for raw Salary of permanent staff, insurance premium,
material, etc. building rent, etc.
11. A producer supplies 80 units of a good at a price of Rs. 10 per unit. Price elasticity of supply is
4. How much will he supply at Rs. 9 per unit ?
Ans. P = Rs. 10 Q = 80 units
P1 = Rs. 9 Q1 = ?
ES = 4
let the DQ be x
x 10 Q P
4= ES =
1 80 P Q

4 80
x =
10
x = 32 units
DQ = Q Q1
32 = 80 Q1
Q1 = 80 32
Q1 = 48 units
12. Assuming that no resource is equally efficient in production of all goods, name the curve which
shows production potential of the economy. Explain, giving reasons, its properties.
Ans. The curve is called production possibility curve.
Production Possibility Curve (PPC) is the locus of various
combination of two goods that an economy can produce
when the resources are fully and efficiently employed at a
given level of technology.
Properties of PPC
(i) PPC is downward sloping which means that if the
country wants to produce more of one good it has to
produce less of the other good since resources are
limited.
(ii) PPC is a concave shaped curve because of
increasing MOC. This is explained below:
We know that resources are not equally efficient in the production of both the goods guns
and butter. If initially all the resources are being used for the production of guns, then
we are at point A on the PPC. If the producer now wants to shift some resources from
the production of guns to butter, he would shift the least efficient resources. Thus the
amount of butter sacrificed will be less.
If the producer wants to shift some more resources from the production of guns to butter ,
more efficient resources will then be shifted. \ the amount sacrificed of guns will be more.
This implies that MOC will increase.
13. Explain the conditions of consumers equilibrium using indifference curve analysis.
Ans. Consumers Equilibrium through Indifference Curve Approach
According to indifference curve approach, consumers equilibrium is determined if the following
two conditions are satisfied:
(i) MRSxy = MRE = Px / Py (ii) MRSxy is declining.
MRSxy is the rate at which the consumer is willing to sacrifice Y to obtain one more unit of X.
MRE is the rate at which market requires a consumer to sacrifice units of Y to buy one more
unit of X which is equal to ratio of prices of X and Y good. MRE = Px/Py.

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Thus we can say that, A consumer is in equilibrium at a point where budget line is
tangent to indifference curve.
Slope of indifference curve = Slope of budget line i.e.
MRSXY = PX/PY.
In the diagram, equilibrium is at point E, where the budget line touches the highest attainable
indifference curve IC2 within consumers budget.
Bundles on the indifference curve IC3 are not affordable within budget.
Bundles on the indifference curve IC1 (i.e., points F and G) are lying on a lower indifference
curve i.e. will have lower utility levels as compared to the tangency point E. Therefore, the
consumer will choose only the tangency point on the budget line.
Therefore, E is a point of consumers equilibrium where he maximizes his satisfaction. Point E
is also called the Optimum Consumption Point where he consumes OX1 of X and OY1 of Y.
If MRSXY > MRE it implies that the consumer is willing to sacrifice more unit of Y than what
market requires. This induces the consumer to buy more of X. When he buys more of X, utility
derived from X falls and he is willing to sacrifice less of Y. Thus MRSxy starts declining. He
continues to consume more of X, till MRSXY = MRE = Px/PY.
If MRSXY < MRE, it implies consumer is willing to sacrifice less units of Y than what the market
requires. He decreases the consumption of X. Due to this MRSXY began to rise, he continues to
decrease the consumption of X till MRSXY = MRE.
14. Explain the distinction betwen change in quantity supplied and change in supply. Use
diagram.
Ans.
Basis Change in quantity supplied Change in supply
When the quantity supplied changes When the supply changes due to any
due to change in price keeping other change in the other factors, at the same
Meaning
factors constant, it leads to a movement price, it leads to a shift in supply curve.
along the supply curve.
The movement is along the same The shift in the supply curve is either
Effect on
supply curve either upward (known rightward (known as Increase in
supply
as Expansion in supply) or downward supply) or leftward (known as Decrease
curve
(known as Contraction in supply). in supply).
It occurs due to change (increase or It occurs due to a change in other
decrease) in the price of the given factors like change in the price of inputs,
Reason
commodity. change in taxes, change in technology
etc.

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Figure

15. Explain the implications of the competitive market:

(a) Large number of buyers (b) Freedom of entry and exit to firms
OR
Explain the implications of the following in an oligopoly market:
(a) Inter-dependence between firms (b) Non-price competition
Ans. (a) Large number of buyers: Under perfect competition there are so many buyers and sellers
that no individual buyer or seller can influence the price of the commodity in the market.
Any change in the output supplied by a single firm will not affect the total output of the
industry. No individual buyer can influence the price of the commodity by his decision
to vary the amount that he would like to buy, i.e., price of the commodity is given to the
buyer. He is a price-taker having no bargaining power in the market.
Market Firm
D S

P AR = MR = p
P
Price

Price

S D

O X Output O Output
Implication: The perfectly competitive firm is then a price-taker and can sell any amount
of the commodity at the established price.
(b) Freedom of entry and exit to firms: The industry is characterised by freedom of entry
and exit of firms. In a perfectly competitive market, there are no barriers to entry or exit
of firms.
Implication: The implication of this assumption is that given sufficient time, all firms in
the industry will be earning just normal profit.
Suppose the existing firms are earning super normal profits. Attracted by the positive
profits, the new firms enter the industry. The industrys output, i.e., market supply goes
up. The price comes down. New firms continue to enter till economic profits are reduced
to zero.
Now suppose the existing firms are incurring losses. The firms start leaving the industry.
The industrys output starts falling and price starts going up. All this continues till losses
are wiped out. The remaining firms in the industry once again earn just the normal
profits.
OR
Ans. (a) Inter-dependence between firms:
(i) The most important characteristic feature of oligopoly is interdependence among
its firms. The number of sellers is small in this market and each of these firms
contribute a significant proportion in the total sales.

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(ii)
As a result when any one of them undertakes any measure to promote its sale it
directly affects other firms and they also immediately react.
(iii) Hence every firm decides its policy after taking into consideration the possible
reactions of its rival firms. Thus every firm is affected by the activities of other firms
and it affects others also.
(b) Non-price competition: When there are only a few firms they are normally afraid of
competing with each other by lowering the price. It may start a price war and firm who
starts the price war may ultimately lose. Thus, firms indulge in non-price competition
in order to increase their shares in sales and profit. Under non-price competition they
mainly utilise publicity and selling techniques for increasing the sales of their product.
Firms under oligopoly follow the policy of rigidity. Price regidity refers to a situation in
which price tends to stay fixed irrespective of charges in demand & supply conditions.

Section B
16. Define stocks.
Ans. Variables whose magnitude is measured at a particular point of time are called stock variables.
For example, stock of goods in the godown as on 31st March, 2009.
17. Depreciation of fixed capital assets refers to : (choose the alternative)
(a) Normal wear and tear
(b) Foreseen obsolescence
(c) Normal wear and tear and foreseen obsolescence
(d) Unforeseen obsolescence
Ans. (c) Normal wear and tear and foreseen obsolescence
18. What is revenue expenditure?
Ans. Revenue expenditure refers to the expenditure which neither creates any asset nor causes
reduction in any liability of the government. Some examples of revenue expenditures are:
Payment of salaries, pensions, interests, expenditure on administrative services etc.
19. Fiscal deficit equals: (choose the correct alternative)
(a) Interest payments (b) Borrowings
(c) Interest payments less borrowing (d) Borrowings less interest payments
Ans. (b) Borrowings
20. Foreign exchange transactions dependent on other foreign exchange transactions are called :
(choose the correct alternative)
(a) Current account transactions (b) Capital account transactions
(c) Autonomous transactions (d) Accommodating transaction
Ans. (d) Accommodating transaction
21. Find net value added at factor cost:
(Rs. Lakh)
(i) Durable use producer goods with a life span of 10 years 10
(ii) Single use producer goods 5
(iii) Sales 20
(iv) Unsold output produced during the year 2
(v) Taxes on production 1
Ans. Gross value of output at MP = Sales + Unsold output produced during year = 20 + 2 = 22
Total value of capital goods 10
Depreciation per year = = =1
Total life span 10

Net value added at FC = Govt at MP (ii) (v) Depreciation

= 22 5 1 1 = Rs. 15 lakh.

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22. Distinguish between marginal propensity to consume and average propensity to consume. Give
a numerical example.
OR
Explain the role of taxation in reducing excess demand.
Ans.

Average Propensity of Consume Marginal Propensity of Consume

Average propensity to consume refers to Marginal propensity to consume refers to the
the ratio of consumption expenditure to the ratio of change in consumption expenditure
corresponding level of income. (C) to change in total income (Y).
Consumption (C) Change in consumption C)
APC = MPC =
Income (Y) Change in income (Y)
It can greater than 1, equal to 1 or less than Its value lies between 0 and 1.
1.
It can never be zero. Its value can be zero.
Supposing at a given level of income of 300 Suppose income increases by 100 crores and
crores consumption is 250 crores then APC consumption increases by 50 crores then
will be 250/300 which is equal to 0.83. MPC = 50/100 which is equal to 0.5.
23. In an economy investment is increased by Rs. 300 crore. If marginal propensity to consume is
2/3, calculate increase in national income.
Ans. DI = 300 crore
MPC = 2/3
2 1
MPS = 1 =
3 3
1 1
=K = =3
MPS 1 / 3
DY = k.DI
= 3 300 crore
= 900 crore
Hence, increase in national income = 900 crore
24. Government incurs expenditure to popularize yoga among the masses. Analyse its impact on
gross domestic product and welfare of the people.
Ans. GDP is considered as a index of welfare of the people. Welfare means sense of material well
being among the people.
Many activities in the economy are not evaluated in monetary terms. For example, leisure time
activities are not included in GDP but they result in welfare of people in the country. When
government incurs expenditure to popularize yoga among the masses it will result in good
health and well being of individuals. This will increase efficiency and lead to higher productivity
in future in the country. Thus, inspite of being an activity to which it is difficult to put monetary
value yoga will surely result in better mental and physical health of people in the country
resulting in overall welfare of the citizen of the country.
25. Explain the store of value function of money. How has it solved the related problem created by
barter?
OR
Explain the unit of account function of money. How has it solved the related problem created
by barter?
Ans. (a) We find that individuals dont spend their entire income. They may save a part of their
income to store it for use at later date.

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(b) They do this as they know that money will be acceptable at any time in future for buying
any commodity which they desire.
(c) In the barter system it is difficult to store commodities as it involves costly storage/
reduction in quality or value of the stored commodity. Thus, money overcomes the problem
of storage that exist in barter system.
OR
Ans. (a) With the introduction of money, the value of each commodity can be estimated from its
price which is in terms of a common unit, say Rs.
(b) For e.g. we know that the value of one pen is Rs.10/- that of a notebook is Rs. 20/-.
Therefore, 2 pens are equivalent to 1 notebook. Therefore, the relative value of goods can
be determined.
(c) In barter system, if there are 10 goods the price of each good is measured in terms
of 9 other goods which makes the exchange more complex. Thus, there is no common
measure of value which gets overcome with the introduction of money.
26. Explain how open market operations are helpful in controlling credit creation.
Ans. (a) Open market operations refers to sale and purchase of securities (mainly government
securities) in the open market by the central bank.
(b) The sale of government securities to banks will have the effect of reducing their reserves.
When the bank gives the central bank a cheque for the securities, the central bank collects
the amounts by reducing the banks reserves by the particular amount. This directly
reduces the banks ability to give credit and therefore decrease the money supply in the
economy.
(c) When the central bank buys securities from the banks, it gives the banks a cheque drawn
on itself in payment for the securities. When the cheque clears the central bank increases
the reserves of the bank by a particular amount. This directly increases the banks ability
to give credit and thus increase the money supply.
27. What is government budget? Explain how taxes and subsidies can be used to influence
allocation of resources.
OR
Define revenue receipts in a government budget. Explain how government budget can be used
to bring in price stability in the economy.
Ans. Government budget is an annual statement, showing item-wise estimates of receipts and
expenditures during a fiscal year.
Reallocation of Resources:
(a) The government aims to reallocate resources according to economic and social priorities
through its budgetary policy.
(b) Government encourages the production of certain commodities by giving subsidies or tax
reliefs. For e.g. government encourages the use of khadi products by providing subsidies.
(c) Government can discourage the production of harmful goods like liquor or cigarettes, by
imposing heavy excise duties or taxes. In India we use progressive taxation, i.e., higher
taxes from rich people and distribute these receipts through various welfare activities.
OR
Ans. Revenue Receipts refer to those receipts which neither create any liability nor cause reduction
in the assets of the government.
Revenue Receipts are classified under two heads, (i) Tax Revenue (ii) Non Tax Revenue.
Government budget can be used to bring in price stability in the economy are
(a) Government budget is used to prevent business fluctuations and to maintain economic
stability.
(b) During excess demand, the government imposes higher taxes and reduces its expenditure
to correct excess demand. This implies that government follows the policy of surplus
budget during inflation.
(c) During deficient demand, the government increases its expenditure and reduces taxes.

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This implies that the government follows the policy of deficit budget during deflation.
Thus the government through its budgetary policy tries to achieve price stability in the economy.
28. Given consumption curve, derive saving curve and state the steps taken in the process of
derivation. Use diagram.
Ans. Consumption and Saving Curves are Complementary Curves. Consumption Curve
(a) We know that income (Y) is the sum total Y
of consumption (C) and savings (S) as

Consumption (` Crores)
Y
income is either consumed or saved. It
means, consumption and saving curves are C=Y
complementary curves. (Break-Even Point)
(Zero saving) C
(b) We can derive saving curve from the consumption
curve. In the diagram, CC is the consumption
curve and the 45 line (OY) represents income. E
Consumption, at zero level of income, is equal c
to OC (autonomous consumption. The amount 45
O X
of saving is indicated by vertical distance Income (`Crores)
between consumption curve and income line.
So savings, at zero level of income, will be OS Y
Saving Curve
(= OC). It means, the saving curve will start

Saving (` Crores)
from point S on the negative Y-axis.
(c) CC intersects OY at point E (Break-even point)
where savings are zero. Draw a perpendicular
on the X-axis (point K) at the income level where S=0
the consumption curve and 45 line intersect (Break-Even Point) S
each other. Join S & K to obtain saving curve.
(d) Beyond point E (Break even point) consumption
is less than income therefore savings are O X
K
positive is saving curve is above the x-axis. As
S
income increases, saving also increases. Income (`Crores)
29. (a) In which sub-account and on which side of balance of payments account will foreign
investments in India be recorded? Give reasons.
(b) What will be the effect of foreign investments in India on exchange rate? Explain.
Ans. (a) Foreign investments in India will be recorded in the capital account of balance of payment
account as it leads to decrease in the asset of the residents of the country to the rest of
the world.
It is recorded on the credit side of
balance of payment account as it
leads to inflow of foreign exchange.
(b) Foreign investment in India will lead
to increase in the supply of foreign
exchange.
If the supply of foreign exchange
increases in the foreign exchange
market, it will lead to a rightward
shift in the supply curve from SS to
S1S1 and exchange rate will fall to
OR1.
30. Find national income and private income :
(Rs. crores)
(i) Wages and salaries 1000
(i) Net current transfers to abroad 20
(iii) Net factor income paid to abroad 10
(iv) Profit 400

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(v) National debt interest 120

(vi) Social security contributions by employers 100
(vii) Current transfers from government 60
(viii) National income accruing to government 15
(ix) Rent 200
(x) Interest 300
(xi) Royalty 50
Ans. NDPFC = Compensation of employees + Operating surplus + Mixed income of self employed
= (i) + (vi) + [iv + ix + xi] + 0
= 1000 + 100 + [400 + 200 + 300 + 50]
= 1100 + 950
NDPFC = 2050
NNPFC = NDPFC NFTA
NNPFC = 2040 crores
Private Income = NNPFC NNPFC acuring to govt + all current transfer
= NNPFC (viii) + (v) + (vii) (ii)
Private Income = 2040 150 + 120 + 60 20 = 2050 Cr.

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Studymate Solutions to CBSE Board Examination 2015-2016

Series : ONS/1 Code No. 58/1/2

Uncommon Questions
4. When does increase in supply take place?
Ans. When price of inputs fall (or any other factor than the price).
5. What is the relation between marginal cost and average cost when average cost is constant?
Ans. MC = AC.
7. A consumer consumes only two goods X and Y. If marginal utilities of X and Y are 4 and 5
respectively, and if price of X is Rs. 5 per unit and that of Y is Rs. 4 per unit, is the consumer
in equilibrium? What will be further reaction of the consumer? Explain.
Ans. Conditions of consumer equilibrium in two commodities are
1. Marginal utility of the last rupee of expenditure on each good is the same.
2. Marginal utility of a good falls as more of it is consumed.
MU x MU y
First condition implies = (Equi-marginal utility)
Px Py

In the given question MUx = 4; MUy = 5; Px = 5; Py = 4

MU x 4 MU y 5
Thus, = = 0.8 and = = 1.25
Px 5 Py 4
MU x MU y
<
Px Py

MU x MU y
If < , he will consume more of Y and less of X. When he consumes more of Y,marginal
Px Py
MU x MU y
utility derived from Y will fall. He will keep on consuming more of Y, till = .
Px Py
9. Price elasticity of supply of a good is 2. A producer supplies 100 units of a good at a price of Rs.
20 per unit. At what price will he supply 80 units.
Ans. es = 2
Q P
es =
P Q
20 20
2=
P 20 100
4
2=
P 20
2P 40 = 4
2P = 36
P = 18

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10. Explain the effects of change in income on demand for a good.

Ans. Based on the effects of change in income on demand for a good there are two types of goods
(a) Normal goods: There is a direct relationship between income of the consumer and
demand for normal goods, i.e., if income increases demand increases or income decreases
demand decreases as shown in the diagram.
Increase in income of the consumer Decrease in income of the consumer

(b) Inferior goods: There is an inverse relationship between income of the consumer and
demand for inferior goods, i.e., if income increases demand decreases or income decreases
demand increases as shown in the diagram.
Increase in income of the consumer Decrease in income of the consumer

19. What are revenue receipts in a government budget?

Ans. Revenue Receipts refer to those receipts which neither create any liability nor cause reduction
in the assets of the government.
21. Suppose marginal propensity to consume is 0.8. How much increase in investment is required
to increase national income by Rs. 2000 crore? Calculate.
1
Ans. K = (i)
1 MPC
Y
K= (ii)
I
Equating (i) and (ii)
Y 1
=
I 1 MPC
2000 1
=
I 1 0.8
DI = Rs. 400 crores
22. Find net value added at factor cost:
(Rs. Lakh)
(i) Fixed capital good with a life span of 5 years 15
(ii) Raw materials 6
(iii) Sales 25
(iv) Net change in stock ()2
(v) Taxes on production 1
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Ans. Calculate NVAFC:

GVOMP = Sales + Net Change in stock
= 25 + (2)
GVOMP = Rs. 23 lacs
GVAMQ = GVOMP Raw materials
= 23 6
GVAMP = Rs. 17 lacs

NVAMP = GVAMP Depreciation Depreciation = fixed capital goods = 15 = Rs. 3 Lakh / year
No. of year 5

= 17 3
= Rs. 14 lacs
27. Find net domestic product at factor cost and personal income:
(Rs. crores)
(i) Rent 200
(i) Net current transfers to abroad 10
(iii) National debt interest 60
(iv) Corporate tax 100
(v) Compensation of employees 900
(vi) Current transfers from government 150
(vii) Interest 400
(viii) Undistributed profits 50
(ix) Dividend 250
(x) Net factor income to abroad ()10
(xi) Income accruing to government 120
Ans. NDPFC = COE + OS + MI
= (v) + [(i) + (vii) + (viii) + (ix) + (iv)] + 0
= 900 + 200 + 400 + 50 + 250 + 100
= Rs. 1900 crores
Private Income = NDPFC Income accruing to government NFITA
+ Current transfer by government Net current transfer to abroad
+ National debt interest
= NDPFC (xi) (x) + (vi) + (iii) (ii)
= 1900 120 (10) + 150 10 + 60
= Rs. 1990 crores
Personal Income = Private Income Corporate tax Undistributed profits
= Private Income (iv) (viii)
= 1990 100 50
= Rs. 1840 crores

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Studymate Solutions to CBSE Board Examination 2015-2016

Series : ONS/1 Code No. 58/1/3

Uncommon Questions
8. A consumer consumes only two goods X and Y. Marginal utility of each is 2. The price per unit
of X and Y is Re. 1 and Rs. 2 respectively. Is the consumer in equilibrium? What will be the
further reaction of the consumer? Explain.
Ans. MUx = 2 MUy = 2
Px = Rs.1 Py = Rs. 2
MU x MU y
Equilibrium condition is =
Px Py

However, MU x 2
= = 2
Px 1
MU y 2
= = 1
Py 2
MU x MU y
i.e., >
Px Py
\ Per rupee satisfaction derived from X is more than Y.
Hence, consumer will consume more of X till
MU x MU y
=
Px Py
10. When price of a good rises from Rs. 12 per unit to Rs. 15 per unit the producer supplies 50 per
cent more output. What is the price elasticity of supply? Calculate.
Ans. PI = Rs. 12 PF = Rs. 15
DP = 15 12
=3
P
% D in price = 100
PI
3
= 100
12
= 25%
% D in Q.S.
es =
% D in Price
50%
= = 2
25%
es = 2
22. In an economy an increase in investment by Rs. 100 crore led to increase in national income
by Rs. 1000 crore. Find marginal propensity to consume.
Ans. DI = 100 cr.

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DY = 1000 cr.
Y 1000
K= = = 10
I 100
1
= 10
MPS
MPS = 0.1
\ MPC = 1 MPS = 1 0.1 = 0.9
23. Find gross value added at market price:
(Rs. lacs)
(i) Depreciation 20
(ii) Domestic sales 200
(iii) Net change in stocks () 10
(iv) Exports 10
(v) Single use producer goods 120
Ans. GVAMP = Sales + D in stock IC
= [(ii) + (iv)] + (iii) (v)
= [200 + 10] + (10) 120
= 80 lacs
29. Find net national product at market price and personal disposable income:
(Rs. crores)
(i) Personal taxes 200
(ii) Wage and salaries 1200
(iii) Undistributed profit 50
(iv) Rent 300
(v) Corporation tax 200
(vi) Private income 2000
(vii) Interest 400
(viii) Net indirect tax 300
(ix) Net factor income to abroad 20
(x) Profit 500
(xi) Social security contributions by employers 250
Ans. NDPFC = COE + OS + MY
= [(ii) + (xi)] + [(iv) + (x) + (vii)] + 0
= 1200 + 250 + 300 + 500 + 400
= Rs. 2650 cr.
NNPMP = NDPFC + NIT NFTA
= 2650 + 300 20
= Rs. 2930 cr.
PDY = (vi) (v) (iii) (i)
= 2000 200 50 200
= Rs. 1550 cr.

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