Kendriya Vidyala Sangthan,Jabalpur Region

KENDRIYA VIDYALA SANGTHAN,JABALPUR REGION

At K.V. No.1 GCF Jabalpur from 28.11.2017 to 30.11.2017

3-Days workshop “Improving the result in Economics Class 12 CBSE board Exam-2018”

Micro Economics

Chapter-1 (Introduction)

Q. -1 / Why does economic problem arise?
Ans. / Economic problems are problem of choice which arises manly because of huge gap between unlimited human wants and the limited resources available for achieving same.
Q. -2 / Define production possibility Curve.
Ans. / PPC shows all possible combinations of two goods which an economy can produce with full and efficient use of its given resources and available technology.
Q. -3 / What is marginal opportunity cost or ‘marginal rate of transformation’ (MRT)?
Ans. / Marginal opportunity cost of any good (Say A) is the quantity of some other goods (Say B) that has to be sacrificed in order to produce just one more unit of goods A.
Q. -4 / Explain the central problem “What to produce”.
Ans. / It is the problem of deciding what goods and services should be produced and in what quantities.
Q. -5 / Explain the central problem “How to produce”.
Ans. / Choosing best possible technique or technology of production.
Q. -6 / Explain the central problem “For whom to produce”.
OR
State the problems relating to allocation of resources in an economy.
Ans. / It means deciding a careful allotment of available resources for producing desired goods and services.
Q. -7 / Draw a PPC curve and show the following:-
a)Growth of resources.
b)Underutilization of resources.
c)Fuller utilization of resources

Ans. / A)With economic growth i.e. growth of resources or advancement of technology the economy will be in a position to produce more of wheat as well as more of maize which will shift the PPC to the right. As shown in the above diagram the original PPC shifts to the right and PP becomes the new i.e. P’P’.
B)The point R lying below the PPC shows underutilization of resources since with the given resources economy can produce either MN more of maize or QT more of wheat with its given resources.
C)In the diagram PP is the production Possibility curve. The point “S” on PPC shows full employment of resources. By definition all point on PC show various combinations of two goods which the economy can produce by utilizing all its resources fully and efficiently.
Q. -8 / Why does production possibility curve is concave to the origin?
Ans. / PPC will be concave to the origin when marginal opportunity cost is increasing and download sloping.
Q. -9 / What factors lead to a rightward shift of PPC?
Ans. / The PPC will shift to the right if there is growth of resources and /or advancement in technology or increase in production capacity.
Q. 10 / What is opportunity cost? Explain with the help of an example.
Ans. / Opportunity cost is the next best alternative foregone in choosing a given alternative.
Q.11 / Explain the properties of Production Possibility Curve.
Ans. / 1. PPC slopes down wards from left to right because from the given resources production
of both the goods cannot be increased. More of goods X can be produced only by producing less of goods Y. It is because resources are fixed.
2. A concave download sloping curve has an increasing slop i.e. increasing marginal opportunity cost or increasing MRT. It implies that for producing an additional unit X commodity scarifies units of commodity goes an increasing.
Q.12 / Giving reasons, state whether the following statements are true or false.
1)If the economy operates inside PPC, it shows fuller utilization of resources.
2)Because of destruction caused by war, a country’s PPC will shift to the left.
3)A job guarantee scheme will lead to a rightward shift of PPC.
Ans. / 1. False- If there is underutilization or in efficient utilization of resources the economy will produce at any point inside the PPC.
2. True- due to decrease in resources PPC will shift to the left.
3. True- If given resources are fully and efficiently utilized.
Chapter-2 (Consumer Behaviour & Demand)
Q. -1 / Define Utility.
Ans. / Utility is the power or capacity of a commodity to satisfy the human wants.
Q. -2 / What is consumer’s equilibrium?
Ans. / Consumer’s equilibrium is the situation when a consumer gets maximum satisfaction from consumption of one or more goods with his income and price and feels no urge to change.
Q. -3 / Define marginal utility.
Ans. / Marginal utility of a commodity is the additional satisfaction derived by consuming one or more unit of the commodity
Q. -4 / Explain the relationship between marginal utility and total utility.
Ans. / The relationship between total utility and marginal utility is as under:-

1. Total Utility increases as long as Marginal Utility is positive.
2. When Marginal Utility is zero, Total Utility is maximum.
3. Total Utility also starts falling when Marginal Utility becomes negative.

Q. -5 / Explain the law of diminishing marginal utility.
Ans. / The law of diminishing marginal utility states that as more and more units of a commodity are consumed by a consumer the marginal utility derived from each successive unit tends to diminish.
Q. - 6 / Explain consumer’s equilibrium in single commodity case.
OR
Given the market price of a good, how does a consumer decide as to how many units of that good to buy? Explain. (Hint: Explain consumer’s equilibrium in single commodity case.)
OR
How does a consumer reach equilibrium position when he is buying only one commodity? Explain with the help of a marginal utility schedule.
Ans. / Consumer’s equilibrium refers to a situation when a consumer maximizes his satisfaction, spending his given income across different goods and services at given price.
In case of a single commodity, consumer attains equilibrium when:
(i)MUx/Px = MU of Money.
Where, MUx is marginal utility of commodity-X and Px is price of commodity-X. It implies that in a state of equilibrium , rupee worth of satisfaction actually derived from the commodity should equal to rupee worth of satisfaction expected by the consumer (MUm)
(ii)Marginal utility of money remain constant.
(iii)Law of diminishing utility holds good. Implying that marginal utility must decline as more of a commodity is consumed.
Q. - 7 / Explain consumer’s equilibrium in two commodity case.
Ans. / Consumer consuming only two goods, say X and Y, will attain equilibrium when the following conditions are satisfied:
(i)Marginal utility per rupee (MUx/Px) must be same between both the goods purchased by the consumer. Thus,
MUx/Px = MUy/Py
(ii)Marginal utility of money remains constant. That is, MUx/Px or MUy/Py should be equal to MUm, which implies that utility per rupee obtained by the consumer from Good-X or Good-Y should be equal to marginal utility of money. Thus,
MUx/Px = MUy/Py = Mum
(iii)Law of diminishing marginal utility must hold good. Implying that marginal utility declines as more and more of a commodity is consumed.
Q. - 8 / Define indifference curve.
Ans. / It is a locus that shows all possible combinations of two commodities which give the consumers equal satisfaction.
Q. - 9 / Define Budget set.
Ans. / A set of all bundles of two commodities that a consumer can buy with his given income at the given market prices is called the Budget set.
Q. - 10 / Define Budget line.
Ans. / It is the line which shows all the possible combinations of two goods can be purchased by spending the entire income of the consumer on each combination.
Q. - 11 / Why does Indifference curve slope downwards?
Ans. / In order to maintain the same level of satisfaction along a curve if consumers increase consumption of commodity X then the consumption of commodity Y has to be reduced. Hence the IC are downward sloping
Q. - 12 / How many chocolates, will a consumer buy, if they are available free of cost?
Ans. / As per law of diminishing marginal utility consumer consumes the units of a commodity till he gets maximum satisfaction. Though the chocolates are free of cost a consumer will consume up to that unit which will give him minimum positive utility and he becomes fully satisfied.
Q. – 13 / Briefly explain the properties of indifference curve.
Ans. / 1. Indifference curve slopes downwards:
As the units of consumption of one commodity is increased, the units of the consumption of another commodity has to be decreased therefore indifference curve slopes downward.
2. Indifference curve is convex to the origin:
Indifference curve is convex to the origin because of decreasing marginal opportunity cost.
3. Higher indifference curve gives more satisfaction:
Higher indifference curve gives more satisfaction because any point on higher indifference curve shows more units of at least any one commodity which gives more satisfaction.
4.Two Indifference curves never intersect each other:
Each Indifference curve gives different satisfaction, if two curves intersect means at
intersection point both the curves will give equal satisfaction but it is not possible.
Q. – 14 / Explain consumer’s equilibrium through indifference curve approach.
Ans. / Consumer equilibrium is a state in which a consumer gets maximum satisfaction by spending his income on particular commodities. As per Indifference curve approach consumer is in equilibrium where the slop of budget line and the slop of indifference curve equal to each other, where budget line is tangent to the indifference curve. Which is shown in the following diagram:

Consumer’s Equilibrium

In the above diagram consumer’s equilibrium is at point ‘E’ where AB budget line is tangent to the IC2. Consumer will not be in equilibrium at any point on IC1because this curve gives less satisfaction. Consumer will also not be in equilibrium at any point on IC3 because at this curve consumer cannot reach due to limitation of resources.
Q. – 15 / Explain the law of demand with the help of a schedule and diagram.
Ans. / The law of demand states that other things remaining the same the demand for a commodity expands with fall in its price & contracts with a rise in its price.
Price / Demand in Kg.
5 / 100
4 / 200
3 / 300
2 / 400

Q. - 16 / Explain the four factors responsible for increase in demand.
Ans. /

1. Increase in price of substitute goods: If there is rise in the price of substitute good, the demand curve shifts to the right which shows increase in demand at given price of the commodity.
2. Decrease in price of complimentary goods: If there is fall in the price of complimentary good,the demand curve shifts to the right which shows increase in the demand at a given price of the commodity.
3. Increase in income of consumer: Demand for normal good increases with the rise in consumer’s income & decrease s with the fall in consumer’s income.
4. Favourable change in taste of consumer: If because of changes in taste, consumer starts purchasing more of a commodity at a given price. It is called favourable change,in this case the demand curve shifts to the right. It indicates that the demand for a commodity increases.

Q. - 17 / Explain the four factors responsible for decrease in demand.
Ans. /

1. Decrease in price of substitute goods: If there is fall in the price of substitute good, the demand curve shifts to the left which shows decrease in demand at given price of the commodity.
2. Increase in price of complimentary goods: If there is rise in the price of complimentary good,the demand curve shifts to the left which shows decrease in the demand at a given price of the commodity.
3. Decrease in income of consumer: Demand for normal good decreases with the fall in consumer’s income & increase s with the rise in consumer’s income.
4. Unfavorable change in taste of consumer: If because of changes in taste, consumer starts purchasing less of a commodity at a given price. It is called unfavourable change,in this case the demand curve shifts to the left. It indicates that the demand for a commodity decreases.

Q. – 18 / Why is Indifference curve generally convex to origin?
Ans. / Indifference curve is generally convex to origin because MRS (marginal rate of substitution) is decreasing. It means for every additional unit of good-x consumed less and less amount good-y is to be sacrificed.
Q. – 19 / Define demand, individual demand and market demand.
Ans. /

• DEMAND: demand refers to different quantity of a commodity which a consumer is willing to purchase at different prices
• INDIVIDUAL DEMAND-individual demand refers to different quantity of a commodity which a consumer is willing to purchase at different prices by a consumer.
• MARKET DEMAND-Market demand refers to different quantity of a commodity which all consumer is willing to purchase at different prices

Q. – 20 / Differentiate between substitute goods and complementary goods.
Ans. / SUBSTITUTE GOODS-These are those goods which can be used in place of each other with equal ease and satisfaction, such as- coffee-tea; pen-pencil etc.
COMPLIMENTRY GOODS-These goods are those goods which are used together. Such as- car-petrol, ink-pen.
Q. – 21 / What will be effect on the demand for a good when there is a rise in the price of substitute goods?
Ans. / The demand for own commodity will rise.
Q. – 22 / Distinguish between extension of demand and increase in demand.
Ans. / EXTENSION OF DEMAND / INCREASE OF DEMAND
i.)It is movement along with demand curve.
ii.)It happens due to decrease in price.
iii.)Other factor remains constant.
iv.)Downward movement of demand curve.

vi.) When demand increase due to decrease in price is called extension / i.)It is a part of shift of the demand curve.
ii.) It happens due to change in other factors.
iii.)price remain constant
iv.)rightward shift of demand curve

vi.) When demand increases due to change in other factors is known as increase in demand
Q. – 23 / Distinguish between contraction of demand and decrease in demand.
Ans. / CONTRACTION OF DEMAND / DECREASE IN DEMAND
It is a movement along with the demand curve.
ii.) It happens due to increase in price.
iii.) Other factors remains constant.
iv.) Upward movement of demand curve.
v.) when demand decreases due to increase in price is called contraction.
/ it is a part of shift of demand curve.
ii.)It happens due to change in other factors.
iii.)Price remains constant.
iv.)Leftward movement of demand curve.
v.)When demand decreases due to change in other factors it is called decrease in demand.

Q. – 24 / Draw demand curves showing price elasticity:
(a) Greater than one (b) Infinity (c) Zero, (d) Less than one.
Ans. / (a) Greater than one (b) Infinity

(c) Zero (d) Less than one

Q. – 25 / From the following table calculate price elasticity of demand by the percentage method.
Price of Good-X (Rs.) Total Expenditure (Rs.)
(Per unit)
4 600
5 525
Ans. / PRICE / QUANTITY / TOTAL EXPENDITURE
4
5 / 150
105 / 600
525
HERE,P1=5 P=4 P= P1-P=1
Q=150 UNITS Q1=105 UNITS; D=Q1-Q= (105-150)=45 UNITS
Ed= (-)
= (-)=1.2
Ed=1.2
Q. – 26 / Price elasticity of demand for a good is (-) 1. At a given price the consumer buys 60units of the good. How many units will the consumer buy if the price falls by 10%?
Ans. / (-) 1 implies negative relation, so if the price falls by 10% the consumer will buy more.
60/100*10=6.
New quantity = 66
Q. – 27 / A consumer buys 5 units of a good at a price of Rs 4 per unit. When the price falls to Rs 3 per unit he buys 10 units. Calculate price elasticity of demand.
Ans. / PRICE / QUANTITY
4 / 5
3 / 10
P=4 ; P1=3; Q=5 Q1=10
Ed=
= 4
Ed=4
Q. – 28 / A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose price elasticity of demand is -2. At what price will he buy 64 units?
Ans. / PRICE / QUANTITY
5 / 80
X / 64
P=5; P1=X
Q=80; Q1= 64
Ed=-2
Ed=
-2 =
-2 = x
P1= 5-2 =3
Q. – 29 / Price of a good rises from Rs. 10 per unit to Rs. 11 per unit. As a result, quantity demanded of that good falls by 10%. Calculate its price elasticity of demand.
Ans. / PRICE / QUANTITY
10 / ↓ 10%
11
=
Ed=1
Q. – 31 / Price of a commodity falls from Rs. 4 to Rs. 3 per unit. As a result total expenditure on it rises from Rs. 200 to Rs. 300. Find out price elasticity of demand by percentage method.
Ans. / PRICE / QUANTITY / EXPENDITURE
4 / 50 / 200
3 / 100 / 300
= = 4%
Chapter-3 (Production)
Q. – 1 / What is production function?
Ans. / Production function is a technological relationship between physical input and physical output of a commodity
Q. – 2 / What is marginal physical product (MPP) of an input?
Ans. / MPP of a product refers to the change in total product due to application of one extra unit of variable factors with fixed factor.
Q. – 3 / Explain the relationship between Total Physical Product (TPP) and Marginal Physical Product (MPP).
Ans. / Relationship between TP and MP :-
A.) When TP increases with increasing rate then MP increases.
B.) When TP increases with decreasing rate then MP is increasing.
C.) When TP becomes highest and constant then MP becomes 0
Q. – 4 / Explain the law of variable proportion with the help of total and marginal physical product.
OR
Explain the effect on output when only one input is increased and all others are held constant.
OR
Explain the “law of variable proportions” in terms of behaviour of total Product and marginal product.
Ans. / LAW OF VARIABLE PROPORATION:- It states that as more and more of the variable factor is combined with fixed factor MP will initially rise, but a situation will come when MP of variable factor will start declining, it can be zero and even negative.With the increase in variable factor and other factors remaining constant TP and MP change as follows :-
A.) When TP increases with increasing rate then MP increases.
B.) When TP increases with decreasing rate then MP is increasing.
C.)when TP becomes highest and constant then MP becomes 0
D.) When TP is decreasing then MP is negative.
Q. – 5 / Explain the reasons for increasing returns to a factor.
Ans. /

1. Greater application of the variable factor ensures fuller utilization of the fixed factor.
2. Greater application of the variable factor facilitates better division of labour which increases the marginal productivity of labour, and
3. Greater application of the variable factor improves coordination between the factors which gives increasing returns to a factor.

Q. – 6 / Explain the reasons for decreasing returns to a factor.
Ans. /

1. Fixity of the factors: As more and more units of a variable factor are combined with the fixed factor, the fixed factor gets over utilized. Hence, it gives diminishing returns.
2. Factors are imperfect substitute of each other: factors of production are imperfect substitutes of each other, accordingly, fixed factor cannot be replaced by other factors.
3. Poor coordination among different factors: The coordination among different factors is impaired as more and more of a variable factor is employed, other factors remaining constant so that marginal product of the variable factor declines.

Q. – 7 / Complete the following table:
Units of labour / 0 / 1 / 2 / 3 / 4 / 5 / 6
TPP / 0 / 20 / - / - / 88 / - / -
MPP / - / - / 22 / - / - / 17 / -
APP / 0 / - / - / 22 / - / - / 20
Ans. / Units of labour / 0 / 1 / 2 / 3 / 4 / 5 / 6
TPP / 0 / 20 / 42 / 66 / 88 / 105 / 120
MPP / 0 / 20 / 22 / 24 / 22 / 17 / 15
APP / 0 / 20 / 21 / 22 / 22 / 21 / 20
Chapter-4 (Concepts of Cost & Revenue)
Q. – 1 / What is meant by cost?
OR
What is meant by economic cost?
Ans. / Cost or economic cost means the expenditure incurred on the factors of production for producing a commodity.
Q. – 2 / Define marginal cost.