ECONOMICS (April’ 2018)
(318)
NIOS SENIOR SECONDARY Solved Papers
Time: 3 Hours
Maximum Marks: 100
11. Using step deviation method, calculate arithmetic mean from the data give
below : 3
Age (in years) 20–30 30–40 40–50 50–60
No. of Employees 20 30 40 10
Solution:-
∑f= 100 ∑fd'= 40
Mean = A + ∑fd' X i
∑f
= 35 + 40 X 10
100
= 35 +4
= 39
12. What is meant by positive and normative economics? Give one example of
each. 3
ans.:- Positive Economics is based on facts and purely objective. That means, it describes economic topics and issues without judging them. Because of this, positive economics is sometimes also referred to as the “economics of what is”.
Normative economics is based on values and therefore inherently subjective. That means, it does not only describe economic issues but it judges them as well. Therefore, normative economics is sometimes also called the ‘economics of what ought to be”.
Example of a positive economic statement: “ Government – provided healthcare increases public expenditures.”
Example of a normative economic statement is “The government should provide basic healthcare to all citizens.”
13. How is the demand for a commodity affected by an increase in price of
related goods? Explain. 3
ans.:- The supply of a commodity affected by increase in price of other goods, as resources have alternative uses, the quantity supplied of a commodity depends mot only on its price, but also on the prices of other commodities. Increase in the prices of other goods makes them more profitable in comparison to the given commodity. As a result, the firm shifts its limited resources from production of the given commodity to production of other goods. For example, increase in the price of other good (say, wheat) will induce the farmer to use land for cultivation of wheat in place of the given commodity (say, rice).
14. Coefficient of price elasticity of supply of a good is 2. A producer supplies
200 units of this good when its price is R 10 per unit. Calculate the quantity
supplied of this good when its price rises to R 12 per unit. 3
Solution:-
Given es= 2, P= 10, ∆P= 12, Q= 200, ∆Q= ?
P = price , ∆P = change in price, Q = quantity supplied, ∆Q = change in quantity
Let ∆Q = A
es = ∆Q X P
∆P Q
\2 = A X 10
2 200
2 = 10A
400
10A = 800
A = 800
10
A = 80
Hence the quantity supplied of this good when its price rises to Rs 12 per unit.
Is = 200-80
= 120 units
15. Describe any three main characteristics of monopolistic competition. 3
Ans.:- Three main characteristics of Monopolistic Competition are:-
Large number of sellers:- In a market with monopolistic competition, there are a large number of sellers who have a small share of the market.
Product differentiation:- In monopolistic competition, all brands try to create product differentiation to add an element of monopoly over the completion products. This ensures that the product offered by the brand does not have a perfect substitute.
Freedom of entry or exit:- Like in perfect competition, firms can enter and exit the market freely.
16. Calculate gross value added at factor cost from the data given below : 3
R (in lakhs)
(i) Sales 3,000
(ii) Subsidies 30
(iii) Indirect taxes 100
(iv) Intermediate consumption expenditure 1,500
(v) Consumption of fixed capital 200
(vi) Opening stock 20
(vii) Closing stock 10
17. Explain the meaning of ‘normal residents’ of a country. 3
Ans.:- A resident is said to be a person (or institution ) who ordinarily resides in a country and whose centre of economic interest lies in that country. He is called a normal resident since he normally lives in the country of his economic interest. The period of stay should be at least one year or more. Thus , (i) staying for more than a year and (ii) having economic interest (e.g. earning, spending, accumulation) are the two normal conditions for becoming a normal resident.
18. Describe any two factors which determine propensity to consume in an
economy. 3
Ans.:- The principal objective factors which affect the propensity to consume are the following:
Distribution of Income:- The pattern of income distribution has a great influence on the propensity to consume. The propensity to consume is higher for people with low income. They spend almost everything they earn for their subsistence. Every additional rupee they get is used to satisfy their unfulfilled desires. In contrast, affluent people inspite of their extravagant wasteful expenditure are able to save a lot.
Availability of Goods:- The availability of goods influences the level of consumption. When the goods are in shortage, the people are forced to save. If on the other hand, some new goods are introduced, the purchase of such goods will increase the consumption expenditure.
19. What is meant by revenue receipts and capital receipts in a government
budget? Give one example of each. 3
Ans.:- Revenue Receipts are the income generated from the operating activities of the business.
Capital Receipts are the income generated from investment and financing activities of the business.
Example of capital receipts:- a sale of fixed assets.
Example of Revenue receipts:- interest received.
20. Calculate (a) revenue deficit, (b) fiscal deficit and (c) primary deficit from the
following data : 3
R (in billion)
(i) Revenue expenditure 40
(ii) Revenue receipts 30
(iii) Borrowings 15
(iv) Interest payments 5
(v) Capital receipts 20
21. What is a Lorenz curve? Explain the steps involved in drawing a Lorenz
curve. 4
Ans.:- A Lorenz curve is a graph used in economics to show inequality in income spread or wealth. It was developed by Max Lorenz in 1905, and is primarily used in economics.
To draw a Lorenz Curve, follow these steps:
Gather the data (e.g. census data from two cities)
For each set of data, rank the categories and order them by rank in a table.
Convert each value in a % of the total.
Calculate the running totals (i.e. cumulative %, by adding the % of one line to the ones before)
22. What is an economic problem? Why does it arise? Explain. 4
Ans.:- All societies face the economic problem, which is the problem of how to make the best use of limited, or scarce, resources. The economic problem exists because, although the needs and wants of people are endless, the resources available to satisfy needs and wants are limited.
An economic problem is basically the problem of choice which arises because of scarcity of resources. Human wants are unlimited but means to satisfy them are limited. Therefore, all human wants cannot be satisfied with limited means. Wants differ in intensity and limited resources have alternative uses. In such a background, every consumer tries to satisfy his maximum wants. Therefore, one has to choose as to what goods one should consume and in what quantity. Economic problem arises the movement problem of choice arises. Actually speaking, economic problem is basically the problem of choice.
23. A household demands 20 units of a good when its price is R 5 per unit.
When its price falls to R 4 per unit, he demands 25 units of this good.
Calculate its price elasticity of demand . 4
Ans.:- Given ,
P = 5, ∆P = 1, Q= 20, ∆Q = 5
Here, P = price, ∆P = change in price, Q = quantity, ∆Q = change in quantity.
ed = ∆Q X P
∆P Q
= 5 X 5
20
= 25
20
= 1.25
Price elasticity of demand = 1.25
24. State the necessary conditions to maximize profit of a producer through—
(a) total revenue and total cost approach;
(b) marginal cost and marginal revenue approach. 4
Ans.:- (a) Total Revenue and Total cost Approach:- Profit becomes maximum irrespective of the market situation, when the difference between total revenue (TR) and total cost (TC) becomes the greatest. A TR curve for a perfectly competitive firm has been drawn. The TR curve starts from the origin and it rises in proportion to the rise in the volume of sales.
The TC curve starts from point E which lies above the origin. This means that costs are positive even if no output is produced. Such costs are called fixed costs of a firm. All these curves have been drawn in the upper panel of the figure. The bottom part of the figure shows various amounts of profit enjoyed by a firm at various volumes of output.
(b) Marginal cost and Marginal Revenue Approach:- Irrespective of the market conditions, a firm will stop production if total revenue falls short of total variable cost. Profit will be maximize at that point where MR and MC are equal to each other. For any output MR>MC, the firm will expand output. Doing so, it will add more to its revenues them to its costs, thereby increasing profit. On the other hand, for the output MR>MC means that there is no incentive on the part of the firm to raise its output. If it decides to increase output when MC>MR, it will add more to its costs than to its revenues, thus reducing profit. Hence the profit maximizing output occurs at that point when MR=MC.
25. What is meant by excess demand in macroeconomics? How is the bank rate
used as a tool to reduce excess demand in the economy? 4
Ans.:- Excess demand refers to the situation when aggregate demand (AD) is more than the aggregate supply (AS) corresponding to full employment level of output in the economy. It is the excess of anticipated expenditure over the value of full employment output.
The term ‘Bank Rate’ refers to the rate at which central bank lends money to commercial banks as the lender of last resort. During excess demand, central bank increases the bank rate, which raises the cost of borrowings from the central bank. It forces the commercial banks to increase their lending rates, which discourages borrowers from taking loans. It reduces the availability of credit in the economy an helps to correct excess demand.
26. What is meant by increase in supply? State any two factors which may lead
to increase in supply of a commodity. 4
Ans.:- Increase in supply when supply of a commodity increases due to favorable changes in factors other than price, it is called increase in supply. In this situation, supply curve shifts to the right side.
The following are the two factors which lead to increase in supply of a commodity:-
Fall in the price inputs: Supply of commodity directly effects by the prices of inputs. There is negative relation between them, falling in the price of inputs leads to the falling in the cost of production which further leads to increase in the production (supply).
Technology advancement:- if any upgradation in technology effect production process and increase productivity then supply will automatically increase. Most of the times technology upgradation decreases cost of production and increases the supply of a commodity.
27. Using assumed mean method, find out standard deviation from the
following frequency distribution : 6
Size 0–2 2–4 4–6 6–8 8–10 10–12
Frequency 2 4 6 4 2 6
Solution:-
∑f = 24 ∑fd'= 18 ∑fd'2= 388
Therefore S.D =
28. Describe any four issues to be kept in mind in the construction of index
numbers. 6
Ans.:- The following are the four issues to be kept in mind in the construction of index numbers:-
Difficulties in the selection of the Base year:- The first difficulty relates to the selection of the base year. The base year should be normal. But it is difficult to determine a truly normal year. Moreover, what may be the normal year today may become an abnormal year after some period.
Difficulties in the Selection of Commodities:- The selection of representative commodities for the index number is another difficulty. The choice of representative commodities is not an easy matter. They have to be selected from a wide range of commodities which the majority of people consume.
Difficulties in the Collection of Prices:- Another difficulty is that f collecting adequate and accurate prices. It is often not possible to get them from the same source or place. Further, the problem of choice between wholesale and retail price arises.
Arbitrary Assigning of Weights:- In calculation weighted price index, a number of difficulties arise. The problem is to give different weights to commodities. The selection of higher weight for none commodity and a lower weight for another is simply arbitrary. There is no set rule and it entirely depends on the investigator.
29. A consumer consumes two goods X and Y. Explain the conditions of his equilibrium using indifference curve approach. 6
ans.:- Consumer’s Equilibrium through indifference curve :- According to indifference curve approach, a consumer attains equilibrium under two conditions:
When marginal rate of substitution is equal to ratio of prices of two gods i.e., MRS XY = PX/PY.
MRS XY is continuously falling i.e., indifference curve should be convex to the origin.
The two goods X and Y as shown in the following Fig, E is the tangency point of budget line on indifference curve IC2. For this two basic tools – indifference Map (i.e., set of indifference curves representing scale of preferences) and Budget Line (representing money income and prices of two goods) are required.
In Fig, we superimpose budget (price) line M on consumer’s indifference map. Mind, indifference curves to the right represent progressively higher satisfaction. The aim of the consumer is to obtain the highest combination on his indifference map and, therefore, he tries to go to the highest indifference curve with his given budget line. He would be in equilibrium only on such point which is common to both the budget line and the highest attainable indifference curve.
30. State and explain the law of variable proportions. Use diagram or a
numerical example. 6
Ans.:- .:- “The law of variable proportion states that if the inputs of one resource is increased by equal increment per unit of time while the inputs of other resources are held constant, total output will increase, but beyond some point the resulting output increases will become smaller and smaller”.
Three stages of the law:
First stage:- First stage starts from point ‘O’ and sends up to point ‘F’. At point F average product is maximum and is equal to marginal product. In this stage, total product increases initially at increasing rate up to point E. Between ‘E’ and ‘F’ it increases at diminishing rate. Similarly marginal product also increases initially and reaches its maximum at point ‘H’. Later on, it begins to diminish and becomes equal to average product at point T. In this stage, marginal product exceeds average product (MP>AP).
Second stage:- It begins from the point F. In this stage, total product increases at diminishing rate and is at its maximum at point ‘G’ CORRESPONDINGLY MARGINAL PRODUCT DIMINISHES RAPIDLY AND BECOMES ‘Zero’ at point ‘C’. Average product is maximum at point ‘I’ and thereafter it begins to decrease. In this stage, marginal product is less than average product (MP<AP).
Third stage:- This stage begins beyond point ‘G’. Here total product starts diminishing. Average product also declines. Marginal product turns negative. Law of diminishing returns firmly manifests itself. In this stage, no firm will produce anything. This happens because marginal product of the labour becomes negative. The employer will suffer losses by employing more units of labourers. However, of the three stages, a firm will like to produce up to any given point in the second stage only.
31. Calculate gross domestic product at market price from the data given below : 6
R (in crores)
(i) Subsidies 40
(ii) Indirect taxes 140
(iii) Mixed income of self-employed 15,000
(iv) Compensation of employees 9,000
(v) Consumption of fixed capital 500
(vi) Net factor income to abroad 20
(vii) Profit 3,000
(viii) Interest 1,500
(ix) Rent 2,000
32. Describe the following functions of money : 6
(a) Medium of exchange
(b) Store of value
Ans.:- .:-(a) Medium of exchange:- Money’s most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by barter, which involves direct exchange of one god or service for another. The difficulty with a barter system is that in order to obtain a particular good or service from a supplier, one has to possess a good or service of equal value, which the suppler also desires. In other words, in a barter system, exchange can take place only if there is a double coincidence of wants between two transacting parties. The likelihood of a double coincidence of wants, however, is small and makes the exchange of goods and services rather difficult. Money effectively eliminates the double coincidence of wants problem by serving as a medium of exchange that is accepted in all transactions, by all parties, regardless of whether they desire each others’ goods and services.
(b) Measure of value:- Money acts as a unit of account or money is the measure of exchange value. This means that money is a sort of common denominator, through which the exchange value of all goods and services can be expressed without any difficulty. Innumerable exchange rates under the barter system earlier caused enormous trouble in the transactions of all kinds.
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