Economics (318) - April' 2017 | NIOS SENIOR SECONDARY Solved Papers

ECONOMICS (April’ 2017)
Time: 3 Hours
Maximum Marks: 100

1. The coefficient of correlation cannot be
 (A) 0 (B) 1 (C) greater than 1 (D) -1                 1
2. Central problems arise
 (A) only in underdeveloped economies
(B) only in mixed economies
(C) only in developing economies
 (D) in all economies                         1
3. Demand curve of a commodity shifts to the left when (A) its price rises (B) its price falls (C) price of substitute goods falls (D) price of complementary goods falls 1
4. As output is increased, the difference between average total cost and average variable cost (A) decreases (B) increases (C) remains constant (D) first increases and then decreases 1
5. Which of the following can have a negative value? (A) Marginal physical product (B) Average physical product (C) Total physical product (D) None of the above 1
6. Average revenue and marginal revenue are always equal under (A) perfect competition (B) monopoly (C) monopolistic competition (D) all forms of market 1
7. Compensation of employees does not include (A) bonus (B) employer’s contribution to social security (C) gifts (D) free accommodation 1
8. Which of the following is a factor income? (A) Taxes (B) Fines (C) Profits (D) Donations 1
9. Change in bank rate is made by (A) Central Bank (B) Government (C) Commercial Banks (D) Prime Minister 1
10. Which of the following is not a function of money? (A) Medium of exchange (B) Control rising prices (C) Store of value (D) Measure of value 1
11. Explain any three main properties of arithmetic mean.                    3
Ans.:- Following are the properties of arithmetic mean:-
a. The sum of the deviations of the items in a series form their arithmetic mean is zero.
b.The sum of the square of the deviations of the items from their A.M. is minimum.
c. If each value of the series is replaced by the mean, the sum of their substitutions equals the sum of individual values.

12. Describe the problem of ‘how to produce’.   3
Ans.:- The problem of ‘how to produce’ is a problem relating to choice of techniques. Broadly, it is the problem of deciding the techniques of production which are to be used.
Which are to be used.
There are two types of techniques of production, which are as follows:
(i)      Labour intensive technique it is that technique in which labour is used more than capital.
(ii)    Capital intensive technique it is that technique in which capital is used more than labour.

13. Give the meanings of micro- and macro-economics.      3
Ans.:- Micro Economics talks about the actions of an individuals unit, i.e. an individual, firm, household, market, industry, etc. on the other hand,, the 
Macro Economics studies the economy as a whole, i.e. it assesses not a single unit but the combination of all i.e. firms, households, nation, industries, market, etc.

14. State the law of demand and its two exceptions.  3
Ans.:- The law of demand states that, other ting remaining the same, the quantity demanded of a commodity is inversely related to its price.
Exceptions of law of demand are
a.       Inferior goods
b.      Giffen goods.

15. State any three properties of indifference curve.  3
Ans.:- Three properties of indifference curve are:-
a. Indifference curves are downward sloping,
b.Higher Indifference curve are preferred to lower ones,
c. Indifference curves cannot intersect.

16. Explain the effect of improvement in the technology of production of a commodity on its supply.   3
Ans.:- Effect of improvement in the technology of production  of a commodity on its supply:- Technology changes influence the supply of a commodity. Advanced and improved technology reduces the cost of production, which raises the profit margin. It induces the seller to increase the supply. However, technology degradation or complex and out-dated technology will increase the cost of production and it will lead to decrease in supply.

17. At a price of R10 per unit the demand of a commodity is 200 units. Its price elasticity of demand is  (-)1 5. At what price will the demand be 250 units?    3
                Given P = 10, Q = 200, ∆Q = ?, ∆Q = 50 and price elasticity =  -1.5
Here P = Price, Q = Quantity, ∆P= Change in price, ∆Q= Change in quantity
Let the Change in price be A.

                ep =   ∆Q/∆Q  X P/Q

                -1.5 = 50/A x 10/200
                1-.5 = 500/200A
                -350A = 500
                A = 500/-300
                A = -1.67
Therefore the price will be 10 + - 1.67 = 8

18. Distinguish between real and nominal gross domestic products.                                                       3
Ans.:- The following are the differences between real and nominal gross domestic products:-
Nominal GDP
Real GDP
1.       Meaning
The aggregate market value of the economic output produced in a year within the boundaries of the country is known as Nominal GDP.
Real GDP refers to the value of economic output produced in a given period, adjusted according to the changes in the general price level.
2.       What is it?
GDP without the effect of inflation.
Inflation adjusted GDP
3.       Expressed in
Current year prices
Base year prices or constant prices.

19. Calculate consumption expenditure from the following data :   3
 Income 3000 Marginal propensity to consume 0·8 Autonomous consumption 200

20. Which of the following can have a negative value? Give reasons for your answers :   3

21. Calculate arithmetic mean from the following data :

Class  :- 0 – 20, 20 – 40, 40 – 60, 60 - 80

Frequency :-  10,  12,  8,  10

22. Explain the effect of change in the price of related goods on the demand of a Given goods.

Ans.:- Demand for a commodity in relation to price of the substitute good when the price of one good falls, it becomes cheaper in relation to another good. As a result, one good is substituted for the other good such as coffee and tea.

Decrease in price of substitute good:

When there is a decrease in the price of the substitute good coffee, the demand curve for tea shifts to the left even when its price is constant.

Demand for a commodity with large number of substitutes will be more elastic. The reason is that even a small rise in its prices will induce the buyers to go for its substitutes. For example, a rise in the price of Pepsi encourages buyers to buy Coke and vice-versa.

Thus, availability of close substitutes makes the demand sensitive to change in the prices. On the other hand, commodities with few or no substitutes like wheat and salt have less price elasticity of demand.

23. Complete the following table : 

Output (units) Marginal Product     Average Product

  1 10 ............... 

2   8               ............... 

3   6 ............... 

4   4 ...............


Output (units)

Marginal Product

Total Product

Average Product

















Average product = Total Product / output

24. Explain four main precautions that should be taken while estimating national income by expenditure method.

Ans.:- Precautions taken while estimating national by expenditure method are

  1. Expenditure on intermediate goods will not be included in the national income as it already included in the value of final expenditure. It if it is included again by mistake, it will lead to double counting of expenditures.

  2. Transfer payments are not included because such payments are not related with any productive activity and there is no value addition.

  3. Purchase of second-hand goods will not be included because such expenditures has already been included when they were originally purchased. Those goods do not affect the current flow of goods and services.

  4. Purchase and financial assets will not be included because those transactions do not contribute to the current flow of goods and services.

25. Explain any two determinants of propensity to consume.

Ans.:- The principal objective factors which affect the propensity to consume are the following:

  1. 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.

  2. 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.

26. How does the central bank use legal reserve ratio in controlling credit creation? Explain. 4

Ans.:- Legal reserve ratio in controlling credit creation:- Under this system the Central Bank controls credit by changing the cash Reserves Ratio. For example- if the commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit which is harmful for the larger interest of the economy. So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.

This activity of the Central Bank will force the Commercial Banks to curtail the creation of credit in the economy. In this way by raising the cash reserve ratio of the Commercial Banks the Central Bank will be able to put an effective check on the inflationary expansion of credit in the economy.

27. Explain the following characteristics of perfect competition :

(a) Homogeneous product (b) Free entry and exit

Ans.:- The following characteristics of perfect competition :

  1. Homogeneous product:- Each firm should produce and sell a homogeneous product so that no buyer has any preference for the product of any individual seller over others. If goods will be homogeneous then price will also be uniform everywhere.

  1. Free Entry and Exit:-  The firm should be free to enter or leave the firm. If there is hope of profit the firm will enter in business and if there is profitability of loss, the firm will leave the business.

28. Distinguish between the following: 6

 (a) Explicit costs and implicit costs (b) Private costs and social costs

Ans.:- The following are the difference between Explicit costs and  implicit costs:-


Explicit Costs

Implicit Costs

  1. Meaning

The costs which involve outflow of cash due to the use of factors of production is known as Explicit Cost.

The costs in which there is no cash outlay, is known as Implicit Cost.

  1. Alternatively known as

Out-of-pocket Costs

Imputed cost

  1. Example

Salaries, rent, advertisement, wages, etc.

Interest on owner’s capital, salary to owner, rent of owner’s building, etc. which is do not occur in reality.


The following are the difference between Private costs and social costs:-

The difference between these two is that private costs are only one part of overall social costs. Social costs take into account not only private costs, but also the externalities that come as a result of a given economic decision.

Private costs are the costs with which we are all familiar. These are the costs that we actually have to pay when we decide to do something. 

29. Explain any three main objectives of budgetary policy. 6

Ans.:- Three main objectives of budgetary policy are:-

  1. Reallocation of Resources:- Through the budgetary policy, Government aims to reallocate resources in accordance with the economic and social priorities of the country. Government can influence allocation of resources through: (i) Tax concessions or subsidies (ii) Directly producing goods and services. 

  2. Reducing inequalities in income and wealth:- Economic inequality is an inherent part of every economic system. Government aims to reduce such inequalities of income and wealth, through its budgetary policy. Government aims to influence distribution of income by imposing taxes on the rich and spending more on the welfare of the poor. It will reduce income of the rich and raise standard of living of the poor, thus reducing inequalities in the distribution of income.

  3. Economic Stability:- Government budget is used to prevent business fluctuations of inflation or deflation to achieve the objective of economic stability. The government aims to control the different phases of business fluctuations through its budgetary policy. Policies of surplus budget during inflation and deficit budget during deflation helps to maintain stability of prices in the economy.

30. From the following data, calculate the coefficient of correlation between advertising expenditure (X) and Profit (Y)

Advertising Expenses Profit

(X) (Y)

No. of items 8   8

Arithmetic Mean X=168 Y=169

Standard Deviation σx=9/2 σy=11/2


31. From the following data, compute Paasche’s Price Index Number for the current year:-

Item Base Year Current Year

Price Quantity Price Quantity

A   2     12   10       16

B   4     14     8       14

C   6     16     6       12

D   8     18     4       10

32. Calculate Gross Domestic Product at market price form the following data:-

          ( crore)

  1. Consumption of employees 1000

  2. Bonus   100

  3. Profit 500

  4. Rent 200

  5. Net factor income from abroad (-)50

  6. Dividend 80

  7. Depreciation 60

  8. Net indirect taxes 70

  9. Mixed income of self employed 4000

  10. Net exports 40

  11. Interest 90


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