Pre Mock Examination 2014

PRE MOCK EXAMINATION 2014

ECONOMICS

CLASS XII

MARKING SCHEME

1)The government’s effort to promote foreign capital will lead to increase in production in the country. It generates more employment . The proper utilization of resources will help in raising efficiency and productivity. Any point on inside PPF will now move outwards towards the PPF.

2)C.

3)Input price means the cost of input. Increase in input price will increase the cost of production of a commodity and reduce profit and supply of a firm and vice versa for decrease in input price. Or.

Technological progress indicates updated technology. Improvement in technology will reduce the cost of production and increase the profit and supply of a firm.

4)A Normal good is one whose demand rises with rise in income of the consumer. Whereas an inferior good is a good whose demand falls with increase in income.For example reaching office by bus is an inferior good for rich people. And for poor reaching office by bus is an example of normal good

Normal good Inferior good

Y Dd Y Dd

1000 50 1000 40

5000 100 3000 30

7 False. The monopolist cannot sell any quantity he likes at a price. He can sell more at a lower price. He controls only the supply and not the demand.

True. When the equilibrium price of a good is less than the market price, there will be competition among the sellers because of excess supply prevailing in the market as result of higher price. This competition among the sellers will reduce the price. Which will settle down once again at equilibrium price.

..s

8.Rationing is a system of distributing the commodity in limited quantities at controlled price. 1

Adverse effect of rationing.

1. consumers have to stand in long queues to buy the goods from the ration shops. 1.5

2. It results in black marketing. 1.5

9. outputTVCAVCMC

1 12 12 12

2 20 10 8

3 30 10 10

4 4 0 10 108 .5=4

10.If an economy is producing below its potential due to unemployment it will be producing inside its ppc. Depticting underutilization of its production potential. The economy will be producing at point c, due to the unemployment. But if thegovt. Starts employment generation schemes then as a result more people will get employment and thus the economy willnow start producing more. It will shift ppc from point ‘c’ towards to point on ppc. (4)

11.outputARTRTCMCMRProfit

16 6 7 7 6 -1

26 121366 -1

36 18 1746 1

46 24 2366 1 (3)

56 303186 6

MC=MR at 4th unit level of output.and at 5th unit level of output MC >MR after the equilibrium level of output. (2)

Profit = TR –TC 24 -23 =1(1)

12. Consumer equilibrium means consumer gets maximum satisfaction with his given income and he has no tendency to change his position.. (1)

Condition.

1. M.Ux\Px = M.Uy\Py

2. M.U falls as more is consumed.(2)

M.U.x\Px>M.Uy\Py the consumer will not be in equilibrium because per rupee M.Ux\Px this will rather induce the consumer to buy more of x by reducing expenditure on y. This will lead to fall in M.U xand rise in M.Uy. This will continue till M.U X\Px =M.U.\Py.

Unless Mu falls as more of a good is consumed the consumer will not reach equilibrium. (2+1)

PRE MOCK EXAMINATION 2014

ECONOMICS

CLASS XII

MARKING SCHEME

5)The government’s effort to promote foreign capital will lead to increase in production in the country.

It generates more employment . The proper utilization of resources will help in raising efficiency and productivity. Any point on inside PPF will now move outwards towards the PPF. (1)

6)C. (1)

7)B (1)

4) C (1)

5 )Input price means the cost of input. Increase in input price will increase the cost of production of a commodity and reduce profit and supply of a firm and vice versa for decrease in input price.

Or.

Technological progress indicates updated technology. Improvement in technology will reduce the cost of production and increase the profit and supply of a firm. (3)

6) A Normal good is one whose demand rises with rise in income of the consumer. Whereas an inferior good is a good whose demand falls with increase in income.For example reaching office by bus is an inferior good for rich people. And for poor reaching office by (bus is an example of normal good (2)

Normal good Inferior good

Y Dd Y Dd

1000 50 1000 40

5000 100 3000 30 (1)

7 ). True.Because the monopolist is the price maker. Themonopolist cannot sell any quantity he likes at a price. He can sell more at a lower price. He controls only the supply and not the demand. (2)

False. Under monopolistic competition the demand curve is more elastic.He sells more at a lower price.

(2)

8.Rationing is a system of distributing the commodity in limited quantities at controlled price. (1)

Adverse effect of rationing.

1. consumers have to stand in long queues to buy the goods from the ration shops. (1.5)

2. It results in black marketing. (1.5)

9. outputTVCAVCMC

1 12 12 12

2 20 10 8

3 30 10 10

4 4 0 10 108 x .5=4

11.outputARTRTCMCMRProfit

16 6 7 7 6 -1

26 121366 -1

36 18 1746 1

46 24 2366 1 (3)

56 303186 1

MC=MR at 4th unit level of output.and this is the equilibrium level of output ,at 5th unit level of output MC >MR after the equilibrium level of output. (2)

Profit = TR –TC 24 -23 =1 (1)

12. Consumer equilibrium means consumer gets maximum satisfaction with his given income and he has no tendency to change his position.. (1)

Condition.

1. M.Ux\Px = M.Uy\Py

2. M.U falls as more is consumed. (2)

Unless Mu falls as more of a good is consumed the consumer will not reach equilibrium. (2+1)

(or)

Consumer equilibrium means consumer gets maximum satisfaction with his given income and he has no tendency to change his position.

Condition.

M.R.S,xy= Px/Py

^ y/^ x = Px/Py

Indifference curve should tangent to the budget line. (2)

M.R.S. falls as more is consumed of one good in place of another.

The consumer will continue to transact so long as MRS is higher than MRE. As he buys more of x MRS goes on falling and at some stage becomes equal to MRE. When MRS becomes equal to to MRE he stops purchasing more. (1)

In the diagram x and y axes represent good x and good y.AB is the budget lineand IC is the indifference curve. At point E IC is tangent to the budget line.

(2)

MRS . > Px/Py- It means that to obtain one more unit of x.consumer is willing to sacrifice more unit of y as compared to what is required in the market. The consumer buys more of x.MRS falls and continues to fall till it is equal to Px/Py and the consumer is in equilibrium. (1)

13 The law of variable proportion states that as we increase the quantity of only one variable input keeping other inputs fixed the total product increases at an increasing rate in the beginning. Then increases at decreasing rate after a level of output and ultimately falls. (1)

Phase 1. TP increases at an increasing rate MP increases. i.e. upto A on TP curve.and K on MP curve.

Phase 2. TP increases at decreasing rate.MP decreases and is positive. i.e. upto Bon TP curve and L on MP curve

Phase 3. TP falls MP becomes negative.i.e. after B on TP curve and after L on MP curve. (3)

(2)

14. Point x in the diagram shows the original point of equilibrium because original DD and SS curve intersect at this point. Here op is the equilibrium price and oq is the equilibrium quantity.

(1)

(2)

When demand increases the demand curve shifts to the right as D1D1

*This creates an ‘excess demand’ XA at the existing price.op.(1)

*it creates competition between the buyers .causing the price to rise.

*Rise in price leads to fall in demand and rise in supply as indicated by the arrows in the diagram.

*This trend continues till the market reaches new equilibrium point at X1, with a higher equilibrium price OP1 and higher equilibrium quantity OQ1. (2)

SECTION B.

15.c. (1)

16.b. (1)

17.b. (1)

18.a. (1)

19. NDPfc =sales +change in stock-intermediate cost-depriciation-indirect tax-subsidies (1)

==140+( -10)-90-5-(-5) (1)

= RS40 . (1)

(OR)

NNDI =NDFfc+NFIA+NIT+Net current transfer from R/W (1)

=500+(-20)+50+40 (1)

=RS570. (1)

20. 1. Money as a medium of exchange (.75)

2. Money as a store of value. (.75)

3. Money as a unit of account (.75)

4. Money as a standard of deferred of payment (.75)

21. Bank rate is the interest rate at which the commercial bank can borrow from the central bank to meet their long term needs.During the time of inflation the Central bank raises the interest rate.Borrowings from banks become costly leadingto decline in demand for borrowings from the banks,since borrowings decline spending capacity of the people declines leading to fall in demand for goods and services. And controls inflation and vice versa for deflation situation (3)

22. The receipts which neithercreates any liability nor lead to any reduction in assets are called as revenue receipts. Ex. Receipts from income tax (1.5)

Raising of funds by Govt. either by incurring a liability or by disposing of assets held by it is called a capital receipt. Ex. (1.5)

23. Economic stability means absence of large scale fluctuation in prices. Such fluctuations create uncertainties in the economy. Govt. can exercise control over these fluctuations through taxes and expenditure. For example , in inflationary situation , Govt, can reduce its own expenditure. In case of depressed conditions Govt, can encourage spending by giving tax concessions . subsidies .

(3)

24. Autonomous transaction refer to those international economic transaction which take place due to some economic motive. Such transactions are independent of the state of BOP account. Export and import transactions,foreign investments with a view to earn profit,are all examples of auitonomoustransactions. (1.5)

Accomodating transactions refer to those that are under taken in order to maintain the balance in the BOP account. These are compensating capital transactions which are meant to correct deficit or surplus in the BOP. External assistance from abroad,use of foreign exchange reserves are all examples of accommodating transactions. ( 1.5)

25. Recently doubling of the import duty on gold by the Govt. will make the imports of gold costly. This will reduce the demand for gold and consequently ,the demand for foreign exchange.,With supply of foreign exchange remaining the same or unchanged,prices of foreign exchange rate is likely to fall. (4)

26. National income is determined at the point where aggregate demand is equal to aggregate supply.The component of aggregate demand is the sum of private consumption expenditure and investment expenditure. C+I (1)

Aggregate supply is the same as national income.The component is consumption expenditure and saving. C+S

AD =AS (1)

C+I =C+S

In the diagram x and y axes represent income and aggregate demand. National income is determined at the point where aggregate demand equals aggregate supply at point E.

(2)

AD>AS when the economy is not in equilibrium as when AD is not equal to AS

i.e. AD>AS the buyers are planning to buy more than the sellers are planning to produce , and it will lead to a fall in inventories with the producers and as a result they will fall below the desired level .To bring back to the desired level, producers will expand production. This will in turn raise the income level which will continue to raise till AD = AS The economy will come back to equilibrium and vice versa for the situation of AD<AS. (2)

(OR)

On the basis of the diagram the following steps are involved in deriving the saving curve from the given consumption curve.

1. cc is the given consumption curve on oy axis. Take os equal to oc.

2. Draw a 45 degree line from the point of origin. It intersects cc at point B.

3. From point B draw a perpendicular on ox which cuts ox at B1.

4. Join S1B1 by a straight line and extend it to S.

5. Thus S1 S is the saving curve derived from the consumption curve cc. (4) (2)

27. Y=C+I

Y=400+.75 Y+2000

Y-.75Y=2400

.25Y=2400

Y=2400/.25

Y =RS 9600

I =2000 S=I Therefore saving =2000. (4+2)

28.NNP fc =b+c+g+j-h (3)

=6000+400 +600+500-(-80) (2)

=RS 7,580. (1)

29.NNP fc =b+d+j-f-e-c-I (1)

=600+100+110 -20-(120-20)-5 (1)

=RS . 685 (1)

GNDI=GNPmp-Net current transfer to abroad (1)

=NI +h+e-c-a (1)

=685+35+120-20-(15)

=RS 835. (1)