2nd PUC - ECONOMICS PASSING PACKAGE QUESTIONS

I. Choose the correct answer. (Each question carries 1 mark)

The scarce resources of an economy have
Competing usages b) Single usage
c) Unlimited usages d) Limited Usages
Central problems of an economy include
What to produce b) How to produce
c) For whom to produce d) All of the above
Which of the following is an example of micro economics?
National income b) Consumer behavior
c) Unemployment d) Foreign trade
Traditionally, the subject matter of economics has been studied under the
following branches.
Micro and Macro Economics b) Positive and Normative economics
c) Deductive and Inductive method d) Market and Mixed Economy
Utility is
Objective b) Subjective c) Active d) Passive
When TU is constant MU becomes
Zero b) Maximum c) Negative d) Positive
Ordinal utility analysis expresses utility in
Numbers b) Returns c) Ranks d) Ratios
The shape of an indifference curve is normal
Convex to origin b) Concave to origin
c) Horizontal d) Vertical
The consumption bundles that are available to the consumer’s income depend on
Colour and shape b) Price and income
c) Income and quality d) Price and demand
The equation of budget line is
px + p1x1 = M b) M = p0x0 + px c) p1x 1 + p2x 2 = M d) Y= Mx +
The demand for these goods increase as income of the consumer increases
Inferior goods b) Normal goods
c) Giffen goods d) Substitute goods
 A vertical demand curve represents
Perfect elasticity b) Perfect inelasticity
c) Unitary elasticity d) More elasticity
At the midpoint of the demand curve, the elasticity is
Equal to one b) Less than one c) More than one d) Equal to zero
The value of Elasticity of demand at different points on a linear demand
curve lies between
0 and ∞ b) 1 and 10 c) 10 and 100 d) 5 and 10
The functional relationship between inputs and output is called as
Consumption Function b) Production Function
c) Savings Function d) Investment Function
The formula of production function is
q = f (L, K) b) q = d (p) c) y = f (x) d) q = a - bp
In the short run, a firm
Can change all inputs b) Cannot vary any inputs
c) Can change any one input d) All inputs remain constant
The change in output per unit of change in the input is called
Marginal Product b) Average Product
c) Total Product d) Maximum Product
The Long run production analysis is explained by
Law of demand b) Law of supply
c) Law of returns to scale d) Law of variable proportions
Cobb-Douglas production function is
q = (x, x) b) q = (x1, x2) c) q = (x1α, 2x β) d) q = (x0, x1)
21 Find the Total cost where TFC is 100 and TVC is
25 b) 125 c) 175 d) 225
22. The shape of the Average fixed cost curve is
Rectangular hyperbola b) ‘U’ shaped
c) Inversely ‘U’ shaped d) Horizontal
23. The products in a Perfectly competitive market are
Heterogeneous products b) Homogeneous products
c) Luxury goods d) Necessary goods
24. The increase in Total revenue for a unit increase in the output is
Marginal Revenue b) Average Revenue
c) Total Revenue d) Fixed Revenue
25. A book seller sells 30 books at the price of Rs 10 each. The Total Revenue

of the seller is.

i. Rs.100 b) Rs. 200 c) Rs. 300 d) Rs. 400

26. A firm’s profit is denoted by

∑ b) Δ c) Ø d) π
27. In Perfect competition buyers and sellers are
Price makers b) Price takers c) Price analysts d) Price givers
28. The situation where plans of all consumers and firms in the market match
Disequilibrium situation b) Equilibrium situation
Maximum profit situation d) Super normal profit situation
29. As a result of increase in the number of firms there is an increase in
supply, then supply curve
Shifts towards left b) Shifts towards right
c) Shifts towards both sides d) Shifts horizontally
30. The firms earn super normal profit as long as the price is greater than the minimum of
Marginal cost b) Total cost c) Average cost d) Fixed cost
31. The government imposing upper limit on the price of goods & services
is called
Price ceiling b) Selling price c) Price floor d)
Market price
32. The government imposing lower limit on the price of goods and services is called
Minimum price b) Maximum price c) Price floor d) Equilibrium price
33. The individuals or institutions which take economic decisions are
Economic variables b) Economists
c) Economic agents d) Economic thinkers
34. ‘All the labourers who are ready to work will find employment and all the
factories will be working at their full capacity’, this school of thought is known as
Modern thought b) Contemporary thought
c) Classical thought d) Colonial thought
35. In 1936 British economist J.M. Keynes published his celebrated book
Wealth of Nations b) General theory of employment, interest and money
c) Theory of Population d) Principles of Economics
36. The year of Great Depression
1920 b) 1889 c) 1929 d) 2018
37. In a Capitalist country production activities are mainly carried out by
Private enterprises b) Government authority
c) Planning authority d) Public enterprises
38. The study of National Income is related to
Micro economics b) Macro economics
c) Behavioral economics d) Normative economics
39. Counting of intermediate goods separately will lead to error of
Black marketing b) Double counting c) Accumulation d) Tax evasion
40. Measuring the sum total of all factor payments will be called
Product method b) Expenditure method
c) Income method d) Value added method
41. In India, the institution which reports GDP is
NSSO b) RBI c) SEBI d) CSO
42.NNP = GNP –
a) Deduction b) Depreciation c) Investment d) Net expenditure
43. Net National Product at factor cost is also known as
a) National Income b) Per capita Income
c) Domestic Income d) Personal Income
44. Deduction of undistributed profit from national income gives
Personal Disposable Income b) Personal Income
c) Private Income d) Net Income
45. GVA at Market prices is equal to
GNP at Market prices b) GNP at Factor cost
c) GDP at Market prices d) GDP at Factor cost
46. The value of GDP at the current prevailing prices is
Real GDP b) GDP at factor cost c) Nominal GDP d) NDP
47. The year used to calculate the real GDP is
Current year b) Financial year c) Base year d) Fiscal year
48. The main function of money is
Saving b) Expenditure c) Medium of exchange d) Investment
49. RBI was established in the year
1935 b) 1947 c) 1948 d) 1950
 50. RBI does not directly deal with
b) Central Government b) Commercial Banks
c) General Public d) State Government

5151.The banks which are a part of the money creating system of an economy are
Exchange Banks b) Commercial Banks
c) Reserve Bank India d) World Bank
52 The rate at which the RBI lends money to commercial banks against

Securities is called as
a) Bank rate b) Repo rate c) Reverse repo rate d) Interest rate
53. The important tool by which RBI influences money supply is
a) Open market operations b) Closed market operation
c) Money operation d) Goods market operation
54. Aggregate monetary resources are also known as
M1 b) M2 c) M3 d) M4
55. The 2016 Demonetization of currency included denominations of
Rs.500 and Rs.1000 b) Rs.1000 and Rs.2000
c) Rs.200 and Rs.500 d) Rs.500 and Rs.2000
56. The point where ex-ante aggregate demand is equal to ex-ante aggregate supply
will be
Equilibrium b) Disequilibrium
c) Excess demand d) Excess supply
57. Consumption which is independent of income is
Induced consumption b) Autonomous consumption
c) Wasteful consumption d) Initial consumption
58. Value of MPC lies between
1 and 2 b) 0 and 1 c) 2 and 4 d) 0 and 0.5
59. Easy availability of credit encourages
Savings b) Investment c) Rate of interest d) Disinvestment
60. In the situation of excess demand
Demand is less than equilibrium output b) Supply is less than equilibrium output
c)Demand is more than equilibrium output d) Supply is more than equilibrium output
61. The taxes on individuals and firms are
Direct taxes b) Indirect taxes c) Fixed taxes d) Service taxes
62. The tax levied on goods produced within the country is called
Service tax b) Estate duty c) Excise tax d) Customs duty

63. The tax which acts as an automatic stabilizer

Goods and service tax b) Wealth tax
c) Quantitative tax d) Proportional Income tax
64. Which of the following is an example for ‘Paper tax’?
Income tax b) Excise tax c) Wealth tax d) Customs duty
65. When demand exceeds the available output under
conditions full employment level, this may give rise to
Inflation b) Deflation c) Stabilization d) Stagflation
66. The single largest component of non-plan revenue expenditure is
Defense b) Subsidies c) Salaries d) Interest payments
67. To meet budget deficit the Government relies more on
Borrowing b) Taxation
c) Printing of money d) Foreign Aid
68. The consumers and producers can choose between domestic and foreign goods,
this market linkage is called
Financial market linkage b) Output market linkage
c) Labour market linkage d) Exchange market linkage
69. The price of one country’s currency in terms of foreign currency is called
Foreign exchange control b) Interest rate differential
c) Foreign exchange rate d) Purchasing power parity
70. The Balance of payments record these transactions between residents and with
the rest of the world
Goods b) Services c) Assets d) All of the above
71. The market in which national currencies are traded is called
Goods market b) Gold market
c) Foreign exchange market d) Financial market
 72. The exchange rate determined by the market forces of demand and supply is called
Fixed exchange rate b) Dirty floating exchange rate
c) Flexible exchange rate d) Goods exchange rate
73. When the supply curve is vertical, the elasticity of supply is as follows
es = 1 b) es >1 c) es = 0 d) es = ∞

Fill in the blanks Micro and macro economics

(Government, Mixed economy, intersect each other, leftwards, iso-quant,
problem of choice, utility, opposite, horizontal summation, market)
Scarcity of resources gives rise to
In a centrally planned economy all important decisions are made by
3 is a set of arrangements where economic agents can freely exchange
their endowments or products with each other.
In reality, all economies are
Want satisfying capacity of a commodity is
Two indifference curves never each other.
As the consumer’s income increases, the demand curve for inferior goods shifts
towards
The demand for a good moves in the direction of its price.
Method of adding two individual demand curves is called
is the set of all possible combinations of two inputs that yield the
same maximum possible level of output.

(Opportunity cost, minimum, perfect competitive market, inverse U, variable,

Average Product, Market price, unit tax, shout down point, equal)
In the long run all inputs are
12 is defined as output per unit of variable input.
13.Marginal product and Average product curves are in shape.

14 SMC curve cuts AVC curve at the point of AVC curve from below.
15 Price taking behaviour is the distinguishing characteristic of market.
16 For a price taking firm marginal revenue is equal to
 17. The minimum point of AVC where the SMC curve cuts the AVC curve is

called
18. cost of some activity is the gain foregone from the second best activity.
19 is a tax that the Government imposes per unit sale of output
In a Perfectly competitive market, equilibrium occurs when market
Demand market supply.

Wage, decreasing, invisible hand, households, micro economics, rent, Macro economics,
production unit, macroeconomics, stocks)

It is assumed that, in a perfect competitive market an is at play.

In labour market are the suppliers of labour.
is determined at the point where the demand for labour and
supply of labour curves intersect.
If the demand curve shifts leftward and supply curve shifts rightward,
equilibrium price will be
Tries to address situations facing the economy as a
whole. 26.Macroeconomics has its deep roots in
27. Policies are pursued by the state itself or statutory bodies like RBI, SEBI
etc.
28. A part of the revenue is paid as for the service rendered by land.
29. will be called as firms.
30 are defined at a particular point of time.

(Negative, percentage, product method, inventory, value added, RBI, barter

system, Narrow money, Bank deposits, Transactions, Government
of India)

31 is a stock variable.
32. The net contribution made by a firm is called its
33. Value added method is the alternative name of method.
34. Consumer Price Index is generally expressed in terms of
35.Environmental Pollution is an example for externalities
36.Economic exchanges without the use of money are referred to as
37. is the only institution which can issue currency in
India. 38 issues coins in India.
39. The principal motive for holding money is to carry out
40. In a modern economy, money comprises cash and
41. M1 and M2 are known as

Investment, Autonomous, marginal Propensity to consume, Not consumed, Income,

Customs duties, free riders, financial, revenue receipts, balanced budget)

41 cY shows the dependence of consumption on

42. Savings is that part of income that is

43 is defined as addition to the stock of physical capital.

44 𝐼 is a positive constant which represents the investment.
45 Size of the Multiplier depends on the value of
46 year uns from 1st April to 31st March in India.
47 Non-paying users of public goods are known as
48 Taxes imposed on goods imported into and exported from India are called
The Government may spend an amount equal to the revenue it collects. This is
known as

Revenue deficit = Revenue expenditure minus

(Depreciation, Omissions, Capital, Current Account, Managed floating exchange rate)

51 is the record of trade in goods and services and transfer payments.
52 account records all international transactions of assets.
53 Errors and are the third element of Balance of payments.
54. An increase in the price of foreign currency in terms of domestic currency is
called of domestic currency.
55 _____________is a mixture of a flexible and fixed exchange rate system
Match the following micro and macro economics

A B
1) Market economy a) Government
2) Service of Teachers b) Private ownership
3) Centrally planned economy c) Skill
4) Positive economics d) Evaluation of Mechanism
5) Normative economics e) Functioning of Mechanism
A B
1) Demand curve a) d(p) = a – bp
2) Liner demand curve b) Downward sloping
3) Unitary elasticity of demand c) Pen and Ink
4) Complementary goods d) A family of indifference curves
5) Indifference Map e) |eD|= 1
A B
1) CRS a) TC/ Q
2) SAC b) TPL- TPL-1
3) MPL c) Short run average cost
4) TFC+TVC d) Constant returns to scale
5) SMC e) TC
A B
1) MR = a) Perfect information
2) π = b) Zero profit
3) AR = c) ΔTR/ΔQ
4) Normal profit d) TR-TC
5) Perfect competition e) TR/Q
A B
1) Adam smith a) Attraction of new firms
2) Excess supply b) Operation of invisible hand
3) Market equilibrium c) VMPL
4) Possibility of super-normal d) QS > QD
profit
5) Wage rate e) QD = QS
A B
 1) GDP b) Personal disposable income
2) Inventory c) Gross domestic product
3) PDI d) Stock variable
4) Domestic service e) Wage
5) Labour a) Non-monetary exchange
1) SLR a) Deposits
2) Liabilities b) Statutory Liquidity Ratio
3) Qualitative tool c) Broad Money
4) M3 and M4 d) Repo
5) Repurchase agreement e) Margin requirement
A B
1) Savings a) Average propensity to consume
2) Raw material b) 𝐶 + 𝐼 + cY
3) Consumption per unit of c) Intermediate good
income
4) Aggregate demand for final d) Leads to rise in the prices in the
goods long run
5) Excess demand e) Y – C
A B
1) Investment a) Dirty floating
2) Balance of payments b) Flexible exchange rate
3) Balance of trade c) Capital account
4) Floating exchange rate d) Trade in goods
5) Managed floating e) Trade in goods and services

1 MRS – MARGINAL RATE OF SUBSTITUTION.

2 GNPMP – GROSS NATIONAL PRODUCT AT MARKET PRICE.
3 CPI – CONSUMER PRICE INDEX
4 FRBMA – FISCAL RESPONSIBILITY AND BUDGET
MANAGEMENT ACT
5 EXPAND -GST- GOODS AND SERVICE TAX
 2 marks questions

1. Mention two different approaches which explain consumer behavior.

Ans: Cardinal Utility Analysis
Ordinal Utility Analysis
2. What is monotonic preference?
Ans: Monotonic preferences imply that between any two indifference
curves, the bundles on the one which lies above are preferred to the
bundles on the one which lies below.
3. State the law of demand?
Ans: The law of demand states that, when price of the commodity
increases, demand for it falls and when price of the commodity
decreases, demand for it rises, other factors remaining the constant.
4. What do you mean by price elasticity of demand? Write its formula.
Ans: Price elasticity of demand is a measure of the responsiveness of the
demand for a good to changes in its price.
It is measured by using the following formula.
PED = Percentage change in demand for the good Percentage change in
price of the good PED = ΔQ/ ΔP x P/Q
5. Mention the types of returns to scale.
Ans: The types of returns to scale are
(a) Constant Returns to Scale b) Increasing Returns to Scale c) Decreasing
Returns to Scale
6. Name any two short run costs.
Ans: Total Fixed cost,
Total Variable cost,
Average Fixed Cost,
Average Variable Cost
7. State the conditions needed for profit by a firm under perfect
competition.
Ans: The following conditions needed for profit by a firm under
perfect
competition:
 The Price P must be equal to MC

 Marginal cost must be non-decreasing at q0

 The firm to continue to produce, in the short run, price must be

greater than the average variable cost and in the long run, price
must be greater than the average cost.
8.Write the meaning of opportunity cost with an example.
Ans: Opportunity cost of some activity is the gain foregone from the second
best alternative activity. In other words, it is the cost of next best activity
which is measured in terms of revenue or benefit sacrificed.
For example, you have Rs.10000 which you decide to invest in your family
business. What is the opportunity cost of your action? If you do not invest this
money, you can either keep it in the house safe which will give you zero
return or you can deposit it in either bank A or bank B in which case you get
an interest at the rate of 20 percent or 10 percent respectively. So the
maximum benefit that you may get from other alternative activities is the
interest from the bank A. But this opportunity will no longer be there once
you invest the money in your family business. The opportunity cost of
investing the money in your family business is therefore the amount of
forgone interest from the bank A.
9.Mention the two determinants of a firm’s supply curve.
Ans: The two determinants of a firm’s supply curve are as follows:
(a) Technological progress

(b) Input prices.

10 Give the meaning of price elasticity of supply and write its formula.
Ans: The price elasticity of supply refers to the proportionate
change in quantity supplied to a proportionate change in price of a
commodity.
PES= Percentage change in quantity supplied Percentage change in price
= Δq/Δp x p/q
11. Distinguish between excess demand and excess supply.
Excess Demand Excess Supply
 It is situation where market  It is a situation where the market
demand exceeds the market supply exceeds the market
supply. demand.
 Here the price of the product  Here the price of the product
increases. decreases.

12.How wage is determined in the labour market?

Ans: The wage rate is determined at the point where the demand for labour
and supply of labour curves intersect. That means, the wage rate is determined
at that point where the labour that the households wish to supply is equal to
the labour that the firms wish to hire.
This is shown in the following diagram: Y
Wage SL

w E
DL
O L Labour (Hrs) X
13. What is the difference between consumer goods and capital goods?
Ans:
Consumer Goods Capital Goods
 These are the goods which  These are the durable
are purchased for goods which are used to
consumption by ultimate produce other goods in the
consumers. production process.
 Example food, clothes,  Examples are machinery,
services like recreation. tools, implements etc.
14.Distinguish between stock and flow. Give example.
Ans
Stock Flow
 It is that quantity of  It refers to that quantity of
economic variable which is economic variable measured
measured at a particular over a period of time.
point of time.
 Example net investment,
 Example capital, inventory, salary, National Income etc.
wealth, foreign exchange
reserves etc.

15.State 3 methods of measuring GDP (national income).

Ans: The three methods of measuring GDP are
a) Product or Value Added Method (b) Expenditure Method and (c)Income
Method.
16.Write the difference between nominal and real GDP.
Ans:
Nominal GDP Real GDP
 It is the value of  It is evaluated at
GDP at current constant set of
prevailing prices. prices i.e., by
 It is not reliable
keeping base year’s
price index.
 It does not give real
 It is reliable.
picture of
economic  It gives real picture
development of a of economic
country. development of a
country.
17. What do you mean by externalities? Mention its two types.
Ans: Externalities refer to the benefits or harms a firm or an individual causes
to another for which they are not paid or penalized. They do not have any
market in which they can be bought and sold.
The two types of externalities are Positive Externalities and Negative
Externalities.
18. What role of RBI is known as ‘Lender of Last Resort’?
Ans: When commercial banks need more funds in order to be able to create
more credit, they may go to market for raising such funds or go to the RBI.
The RBI provides them funds through various instruments. This role of RBI,
that of being ready to lend to banks at all times is said to be the lender of last
resort.
19.Mention the two motives of demand for money.
Ans: The two motives of demand for money are as follows:
 The transaction Motive

 The Speculative Motive.

20 What role of RBI is known as ‘Lender of Last Resort’?
Ans: When commercial banks need more funds in order to be able to create
more credit, they may go to market for raising such funds or go to the RBI.
The RBI provides them funds through various instruments. This role of RBI,
that of being ready to lend to banks at all times is said to be the lender of last
resort.

21 Mention the two motives of demand for money.

Ans: The two motives of demand for money are as follows:
 The transaction Motive

 The Speculative Motive.

22 With the given Consumption function C=100+0.8Y When autonomous

consumption changes to 200 find the new consumption function and identify
the value of MPC.
Ans: The new consumption function is C=200+0.8Y. The value of MPC is 0.8
(C=Ĉ+cY where, Ĉ is autonomous consumption, c=MPC and Y = income)

23.Give the meaning of investment multiplier. Write its formula.

Ans: Investment multiplier is the ratio of the total increment in equilibrium
value of final goods output to the initial increment in autonomous expenditure.
Its formula is
Investment Multiplier = ∆Y/∆A = 1/1-c.
Where ∆Y is the total increment in final goods output, ∆A is initial increment
in autonomous expenditure; c is size of the multiplier

24 Give the meaning of paradox of thrift.

Ans: If all the people of the economy increase the proportion of income they
save, total value of savings in the economy will not increase – it will either
decrease or remain unchanged. This result is known as the Paradox of Thrift.

25. Write any two main objectives of Government Budget.

Ans: (a) Allocation function of Government Budget
(c)Redistribution function of Government Budget.
26 State the differences between Public goods and Private goods.
Public goods Private goods
 The goods supplied  The goods supplied
by the Government. by the Private sector.
 Benefits of these  Benefits of these
goods are available to goods are restricted to
all and no exclusion. the individuals.
 Example- public  Example- cars,
transport, parks. clothes, food etc.
 27 Why public goods must be provided by the Government?
Ans: In order to understand why public goods need to be provided by the government,
we must understand the difference between private goods and public goods. Viz.,
 The benefits of public goods are available to all and are not restricted to one
consumer. Example public goods like, park or measures of air pollution, the
benefits will accrue to all whereas private goods, say, chocolates, will not be
available to others.
 In case of private goods anyone who does not pay for the goods can be excluded
from enjoying its benefits. But, in pubic goods, there is no feasibility way of
excluding anyone from enjoying the benefits of the good.
28.State any two non-tax revenues of the central government.
Ans: The non-tax revenues of the central government mainly consists of the following:
 Interest receipts on account of loans by the central government.

 Dividends and profits on investments made by the government.

 Fees and other receipts for services rendered by the government.
29. When do surplus and deficit arises in capital account?
Ans: Surplus in capital account arises when capital inflows are greater than capital
outflows.
Deficit in capital account arises when capital inflows are lesser than capital outflows
 4 MARKS

1. Briefly explain, how the Family Farm, Weaver, Teacher can use their resources to fulfil their
needs in a simple economy.
2. What are the three Central problems of an economy? Explain.
3. Explain the Production Possibility Frontier.
4. Write about Centrally planned economy.
5. How does the Market economy works?
6. Write the differences between Total utility and Marginal utility.
7. Explain the Indifference map with a diagram.
8. Briefly explain the Budget set with the help of a diagram.
9. Present the derivation of slope of Budget line.
10. List out the differences between Normal goods and Inferior goods with examples.
11. Write the differences between Substitute goods and Complementary goods.
12. Suppose an individual buys 15 apples at the price Rs.5 per apple, and if the price increases to
Rs.7 per apple, she reduces her demand to 12 apples. Find out the Price elasticity of demand.
13. Consider a market where there are two consumers and their demand for the goods at different
price level is given as follows: Calculate the market demand for the good.

Market
P D1 D2
Demand
1 9 24
2 8 20
3 7 18
4 6 16
5 5 14
6 4 12
7 3 10
8 2 8
14. Consider the market for cotton, the demand curve for the cotton is q = 200 - p. Assume that
market consists of identical firms in which supply of single firm is q = 10 + p at the price 20.
Calculate the equilibrium number of firms.
15. Write a table to show the impact of simultaneous shifts in demand and supply on equilibrium.
16. What is the implication of free entry and exit of firm on Market equilibrium? Briefly explain.
17. What is Price ceiling? Explain with a diagram.
18.Discuss the concept of Price floor with the help of a diagram
19.Briefly explain in what way Macro Economics is different from Micro Economics.
20.Discuss the emergence of Macroeconomics.
21.Explain the working of the economy of a Capitalist country.
22 Discuss the role of the Government (State) and Household
sectors in both developed and developing countries.
23 Write about the concept of final good.
24 Illustrate the Circular flow of income of an economy with the help of
chart.
25 Explain planned accumulation and decumulation of Inventories with
example.
25 Elucidate unplanned accumulation and decumulation of Inventories
with example.
26 Calculate the aggregate value of Depreciation by using the following
data.
Values (Rs. in
Particulars
Crores)
GDP at market price 1100
Net Factor Income from Abroad 100
Net Indirect taxes 150
National Income 850

27 Write about Externalities.

28 Explain the three linkages of Open economy.
29 Explain the concept of Balance of trade.
29 Write the Current account components chart of Balance of
Payments.
30 Write the Capital account components chart of Balance of Payments.

31.How the Interest Rate differential determine the Exchange rate?

Explain.
32.How the Speculation and Income of consumers determine the
Exchange rate?
33. Suppose an individual buys 15 Apples at the price Rs.5 per Apple and if the price increases to
Rs.7 per apple, she reduces her demand to 12 apples. Find out the Price elasticity of demand.
Ans:
PED = Percentage change in quantity demanded (ΔQ/Q x 100)
Percentage change in price (ΔP/P x 100)
Price per Apple Quantity Demanded
Old Price P1 = 5 Old quantity Q1 = 15
New Price P2 = 7 New Demand Q2 = 12
 34Consider a market where there are just two consumers
and their demand for the goods at different price levels is
given as follows: Calculate the market demand for the
good.
P D1 D2 Market
Demand
1 9 24
2 8 20
3 7 18
4 6 16
5 5 14
6 4 12
7 3 10
8 2 8

Ans: We get Market Demand by adding D1 and D2

P D1 D2 Market
Demand
1 9 24 33
2 8 20 28
3 7 18 25
4 6 16 22
5 5 14 19
6 4 12 16
7 3 10 13
8 2 8 10
35.The following table gives the TVC schedule of a firm. TFC is Rs.10. Find out AFC and
AVC.

Q 0 1 2 3 4 5
TVC 0 15 26 33 40 55

Ans: AFC is obtained by dividing TFC by Quantity and AVC by dividing TVC from Quantity.

Q TVC TFC AFC AVC

0 0 10 0 0
1 15 10 10 15
2 26 10 5 14
3 22 10 3.33 7.33
 4 40 10 2.5 4
5 55 10 2 11

36 Draw Short run Average Cost (SAC) and Short run Marginal cost (SMC) curves by using the

following data in a diagram.

Q 1 2 3 4 5 6 7
SAC 60 45 25 15 20 30 50
SMC 50 30 20 15 25 45 60

SAC and SMC Curves

70

60

50

40

30

20

10

0
0 1 2 3 4 5 6 7 8

SAC SMC

37. The following table shows the total revenue and total cost schedules
of a competitive firm. Calculate the profit at each output level and
determine the market price of the good.
Quantity TR (Rs.) TC (Rs.) Profit Market
Sold (q) Price
0 0 5
1 5 7
2 10 10
3 15 12
4 20 15
5 25 23
6 30 33
7 35 40

Ans: Profit = TR-TC, Market price = AR = TR/q

Quantity TR (Rs.) TC (Rs.) Profit Market

Sold (q) Price
 0 0 5 -5 0
1 5 7 -2 5
2 10 10 0 5
3 15 12 3 5
4 20 15 5 5
5 25 23 2 5
6 30 33 -3 5
7 35 40 -5 5

38.Assume that 200 balls are produced in a market by the firm

at the price Rs.10 for each ball. When the price of ball rises to
Rs.30, firm produces 1000 balls. Find the Price elasticity of
supply?
Ans:
PED = Percentage change in quantity Supplied (ΔQ/Q x 100)

Percentage change in price (ΔP/P x 100)

Price per Ball Quantity Supplied

Old Price P1 = 10 Old quantity Q1 = 200
New Price P2 = 30 New Quantity Q2 = 1000

Percentage change in Quantity Supplied:

ΔQ/Q x 100 = Q2 – Q1 X 100 = 1000 – 200 X 100 = 800/200 x100 =
4x100 = 400 Q1 200
Percentage change in Price:
ΔP/P x 100 = P2 – P1 X 100 = 30 – 10 X 100 = 20/10 x100 =
2x100 = 200 P1 10
Now the Price Elasticity of Supply (PES)
will be PES = 400/200 = 2

39. Consider the market for cotton, the demand curve for the cotton is q= 200-p. Assume that market

consists of identical firms in which supply of single firm is q=10+p at the price 20. Calculate the

equilibrium number of firms.

Ans: Market Demand for cotton : q=
200-p ; Market Supply for Cotton
: q=10+p; The Market price20
Before we calculate the equilibrium number of firms, we need to find out quantity
 demanded and the supply of each firm.
At price 20, the market will supply that quantity which is equal to the market
demand. Therefore, from the demand equation, we get the equilibrium quantity of
demand (qo)
qo = 200 – p = 200 – 20 = 180
At Po = 20, each firm supplies: qof =10+p = 10+20=30: (qof – quantity of supply of
each firm). Now the equilibrium number of firms in the market:
no = qo/qof = 180/30 = 6.
At market price 20, the equilibrium number of firms is 6.

40. Suppose the GDP at market price of a country in a particular year was Rs. 1,100 crores. Net
Factor Income from Abroad was Rs.100 crores. The value of Net Indirect taxes was Rs. 150 crores
and National Income was Rs. 850 crores. Calculate the aggregate value of depreciation.
Ans: Depreciation is the value deducted from the Gross Value for wear and tear of fixed assets. The
aggregate value of depreciation is calculated as follows:
We know that :
National Income = Gross Domestic Product at market price minus depreciation plus net factor income
from abroad minus net indirect taxes. Then
N I = GDPMP –Depreciation + NIFA – NIT 850 = 1100-D+100-150
D = 1100+100-150-850
D = 200 crores.

41 Given the following information about a closed economy C= 50+0.8Y I=200,

a) Calculate the equilibrium level of income.
b) Suppose I increases to 250, find out the new equilibrium income.

Ans: Equilibrium level of income, if C=50+0.8Y, where I = 200, We

know that Y=C+I

(a) Equilibrium level of income (b) Suppose I increases to 250, find out the new
Y=C+I equilibrium income.
Y=50+0.8Y+200
Y=C+I
Y=250+0.8Y
Y=50+0.8Y+250
Y-0.8Y = 250
Y=300+0.8Y
0.2Y = 250
Y-0.8Y = 300
Y = 250/0.2
0.2Y = 300
Y= 1250
Y = 300/0.2
Y= 1500
SIX MARKS QUESTIONS MACRO AND MICRO ECONOMICS
1 Explain the law of Diminishing Marginal Utility with the help of table and diagram.
Illustrate the features of Indifference curve with diagrams.
Elucidate the changes in Budget set with the help of diagrams.
Explain the Optimal choice of consumer with the help of a diagram.
Demonstrate the derivation of demand curve from Indifference curves and budget constraints.
Explain the movements along the demand curve and shifts in demand curve with the help of
two diagrams.
Present the Market demand with the help of diagrams.
Analyse the points of elasticity along a linear demand curve.
9.The following table gives the average product schedule of
labour (APL). Find the total product (TPL) and Marginal
Product (MPL) schedule of Labour.
L 1 2 3 4 5 6
APL 2 3 4 5 4 3

Ans: The total product is obtained by multiplying AP L with L and MPL is obtained

from TPL. i.e, MPL = TPL - TPL-1 i.e., 6-2=4, 12-6=6, 20-12=8 and so on.

L APL TPL MPL

1 2 2 -
2 3 6 4
3 4 12 6
4 5 20 8
 5 4 20 0
6 3 18 -2

10 A firm’s SMC schedule is shown in the following table. TFC is

Rs.100. find TVC, TC, AVC and SAC schedules of the firm.
Q 0 1 2 3 4 5 6
SMC - 500 300 200 300 500 800
Ans:
Q SMC TFC TVC TC AVC SAC
0 - 100 0 100 0 0
1 500 100 500 600 500 600
2 300 100 800 900 400 450
3 200 100 1000 1100 333.33 366.66
4 300 100 1300 1400 325 350
5 500 100 1800 1900 360 380
6 800 100 2600 2700 433.33 450

Note: TFC is given. TVC is obtained by adding SMC for each unit of output like
500 as it is taken, then 500+300=800; 800+200(SMC)=1000 and so on. TC is
TFC+TVC, AVC is TVC
divided by Q; and SAC is TC divided by Q
11. Suppose the demand and supply curves of wheat are given by qD=250-P and
qS=150+P
a) Find the equilibrium price
b) Find the equilibrium quantity of demand and supply
c) Find the quantity of demand and supply when P is greater than equilibrium price
d) Find the quantity of demand and supply when P is lesser than equilibrium price.

Ans:
We know that Qd = Qs
 Quantity of demand Quantity of demand
For equilibrium For equilibrium Quantity and supply when P is and supply when P is
Price (P*) Demanded and Supplied
greater than less than equilibrium
qD = qS equilibrium price price,
250-P = 150+P qD=250-P
If P=60 If P=40
=250-50
= 250-P -150-P =200
qD=250-P qD=250-P
= 100 – 2P =250-60 =250-40
qS=150+P
=190 =210
=150+50
2p= 100 =200
qS=150+P qS=150+P
P= 100/2 qD=qS=200 =150+60 =150+40
=210 =190
i.e., P* = 50 So when P ˃ P* So when P ˂ P*
qS ˃ qD qD ˃ qS

The Demand and supply equations given qD=250-P and qS=150+P respectively.
12.Suppose the demand and supply curves of salt are given by qD=100-P and qS=70+2P
e) Find the equilibrium price and quantity.
f) Now suppose that the price of an input used to produce salt has increased so that
the new supply curve is qS=40+2P. How does the equilibrium price and quantity
change?
g) Suppose the government has imposed a tax of Rs.3 per unit of sale of salt. How
does it affect the equilibrium price and quantity?
Ans: a). The Demand and supply equations given qD=100-P and qS=70+2P respectively.

For equilibrium For equilibrium Quantity

Price (P*) Demanded and Supplied
qD = qS qD=100-P
100-P = 70+2P =100-10
= 100-P -70-2P =90
= 30 – 3P
qS=70+2P
3p= 30 =70+2(10)
P= 30/3 =70+20
⸫ P* = 10 = 90
Equilibrium Price: 10
qD=qS=90
Equilibrium Quantity: 90
 b). Now suppose that the price of an input used to produce salt has increased so that the new
supply curve is qS=40+2P. How does the equilibrium price and quantity change?
With new supply Curve For equilibrium Quantity Demanded
qS=40+2P, new equilibrium and Supplied qD=100-P
Price and Quantity =100-20
qD = qS =80
100-P = 40+2P
= 100-P -40-2P qS=40+2P
= 60 – 3P 3p = =40+2(20)
60 P = 60/3 =40+40
⸫ P* = 20 Eqm. = 80
Price: 20 qD=qS=80
Eqm. Quantity: 80

Therefore, with new supply curve, the equilibrium price increases from 10 to 20 and
Equilibrium quantity reduces from 90 to 80.
c). Suppose the government has imposed a tax of Rs.3 per unit of sale of salt. How does it
affect the equilibrium price and quantity?
When the government imposes
When the government imposes
Tax of Rs.3 the supply curve
Tax of Rs.3 the supply curve
becomes 70+2(P-3)=
becomes 70+2(P-3)=
70+2P-6=64+2P, the
70+2P-6=64+2P, now the
equilibrium quantity is
equilibrium price is
D S
qD = 100-P
q =q = 100-12
100-P = 64+2P = 88
= 100-P-64-2P
= 36 – 3P qS = 64+2P
3p = 36 P = 64+2(12)
= 36/3 = 64 + 24
⸫ P* = 12 Eqm. = 88
Price: 12 ⸫ qD = qS = 88

20
Therefore, if the government imposes a tax of Rs.3 per unit of sale of salt, the equilibrium price
increases from 10 to 12 and Equilibrium quantity reduces from 90 to 88.
13. Briefly explain the Expenditure method of measuring GDP.
14 .Prove that all the three methods of estimating GDP gives us the same answer with
numerical example.
15.Explain the Macroeconomic identities.
16.Suppose the GDPMP of a country in a particular year was Rs.3,000 crores. Net Factor
Income from Abroad (NFIA) was Rs. 500 crores. The depreciation was Rs. 450 crores
and the value of Net Indirect taxes (NIT) was Rs. 300 crores. Complete the following
table.
Values
Identities
(Rs. in Crores)
GDPMP 3000
GDPFC
NDPMP
NDPFC
GNPMP
GNPFC
NNPMP

20
17. Suppose the GDPMP of a country in a particular year was Rs. 1000 crores. Net Factor
Income from Abroad (NFIA) was Rs. 100 crores. The depreciation was Rs. 250 crores and
the value of Net Indirect taxes (NIT) was Rs. 200 crores. Answer the following.
a) Find out the NDPMP
b) Find out the GNPMP.
c) Find out the NNPMP.
d) Find out the NNPFC.
e) Which one is called as National Income?
f) Is GNP always greater than National Income?
18. Explain the limitations of using GDP as an index of welfare of a country.
19. Explain the functions of Money. How does money overcome the short comings of a
Barter system?
20. Write the story of gold smith Lala on the process of deposit and loan (credit)
creation by Commercial banks.
21. ‘Requirement of reserves acts as a limit to money (credit) creation’. Analyse.
22. Explain the Open market operations.
23. Describe the Balance of payments accounts.
24. Illustrate the effect of an increase in demand for imports in the foreign exchange
market with the help of diagram
25. How the Purchasing Power Parity (PPP) theory is used to make long run prediction
of exchange rates in Flexible exchange rate system?
26. Briefly explain the foreign exchange market with fixed exchange rates based on a
diagram.

27.List out the merits and demerits of Flexible and Fixed exchange rate system
28Complete the following schedule by finding Aggregate Demand (AD) and
Aggregate supply (AS) and state the equilibrium level of income.
Y C I AD AS
0 5 10
10 10 10
20 15 10
30 20 10
40 25 10
50 30 10

20
 29.Draw a diagram for the following table and identify the equilibrium point,

equilibrium price, equilibrium quantity, excess demand and excess supply in the

diagram.
P QD QS

1 50 10
2 40 20
3 30 30
4 20 40

5 10 50

POQ PRACTICAL ORIENTED

Assignment and Project Oriented Question. (5 Marks)

1.A) consumer wants to consume two goods, the price of good X 1 is Rs.10 and the price of
good X2 is Rs.20. The consumer’s income is Rs.100. Answer the following.
How many X1 goods a consumer can consume if the entire income is spent on that
good?
How many X2 goods a consumer can consume if the entire income is spent on that
good?
Is the slope of budget line downward or upward?
Are the bundles on the budget line equal to the consumer income or not?
If consumer wants to have more of X1 good, X2 good has to be given up. Is it true?

Write about the impact of 2016 Demonetization on Indian economy.

Prepare Surplus/ Deficit / Balanced budget on monthly income and expenditure of

your family.
[Note: Either of Surplus / Deficit / Balanced budget any one should be asked in
Examination}
14

20
 Name the currencies of any five countries of the following.
USA, UK, Germany, Japan, China, Argentina, UAE, Bangladesh, Russia

Find the missing products in the following table.

Factor (L) TPL MPL APL
0 0 0 0
1 10 - 10
2 22 - -
3 - 14 12
4 - 08 11
5 50 06 10

In a Perfectly competitive market when market price of each unit of good is Rs.60,
compute the total revenue, marginal revenue and average revenue schedules from
the
following
Quantity
TR MR AR
sold
0
1
2
3
4
5

Find out the missing values in the following table.

Production Levels Total Intermediate Value
Production Goods used Added

Wheat (Farmer) 500 0 ---

Flour (A Miller) --- 500 300
Bread (Baker) 1100 --- 300
Retail Shop (Seller) --- 1100 200
Gross Value Added (GVA) ---

20
 Complete the following schedule by finding Aggregate Demand (AD) and
Aggregate supply (AS) and state the equilibrium level of income.

Y C I AD AS
0 5 10
10 10 10
20 15 10
30 20 10
40 25 10
50 30 10

Draw a diagram for the following table and identify the equilibrium point,
equilibrium price, equilibrium quantity, excess demand and excess supply in the
diagram.

P QD QS

1 50 10
2 40 20
3 30 30

4 20 40

5 10 50

20
31
32
33
34
16

35
36
30

37