Maharashtra Board Class 12 Economics Sample Paper Set 3 with Solutions

Maharashtra State Board Class 12th Economics Sample Paper Set 3 with Solutions Answers Pdf Download.

Maharashtra Board Class 12 Economics Model Paper Set 3 with Solutions

Time: 3 Hours
Max. Marks: 80

Notes:

1. All questions are compulsory.
2. Draw neat tables/diagrams wherever necessary.
3. Figures to the right indicate full marks.
4. Write answers to all main questions on new page.

Question 1.(A)
Complete the following statement: (5) [20]

Question 1.
The relationship between demand for a good and price of its substitute is ____.
a. direct
b. inverse
c. no effect
d. can be direct and inverse
Answer:
a. direct

The relationship between demand for a good and price of its substitute is direct.

Question 2.
The ______ is denoted by the suffix ’1’.
a. current year
b. base year
c. price
d. quantity
Answer:
The current year is denoted by the suffix ‘1’.

Question 3.
When supply curve is upward sloping, its slope is ____.
a. positive
b. negative
c. first positive, then negative
d. zero
Answer:
a. positive

When supply curve is upward sloping, its slope is positive.

Question 4.
In the law of diminishing marginal utility, Alfred Marshall assumes that marginal utility of money ____.
a. increases
b. remains constant
c. decreases
d. rises and then falls
Answer:
b. remains constant

In the law of diminishing marginal utility, Alfred Marshall assumes that marginal utility of money remains constant.

Question 5.
Whole Economy is studied in ____.
a. Micro Economics
b. Macro Economics
c. Applied Economics
d. Natural Science
Answer:
b. Macro Economics

Whole Economy is studied in Macro Economics.

(B) Give Economic Term: (5)

Question 1.
A market where sale and purchase of financial assets is undertaken.
Answer:
Financial market

Question 2.
This tax has replaced almost all indirect taxes in our country.
Answer:
Goods and Services Tax (GST)

Question 3.
Revenue per unit of output sold.
Answer:
Average Revenue

Question 4.
Degree of responsiveness of a change in quantity demanded of one commodity due to change, in the price of another commodity.
Answer:
Cross elasticity of demand

Question 5.
The utility that is created on buying mangoes from a mango seller.
Answer:
Possession utility

(C) Assertion and reasoning: (5)

Question 1.
Assertion (A): Power is not a real exception to the law of DMU.
Reasoning (R): Power violates the assumption of rationality.
a. (A) is True but (R) is False.
b. (A) is False but (R) is True.
c. Both (A) and (R) are True and (R) is the correct explanation of (A).
d. Both (A) and (R) are True but (R) is not the correct explanation of (A).
Answer:
c. Both (A) and (R) are True and (R) is the correct explanation of (A).

Question 2.
Assertion (A): Index number considers all factors.
Reasoning (R): Index number is based on samples.
a. (A) is True but (R) is False.
b. (A) is False but (R) is True.
c. Both (A) and (R) are True and (R) is the correct explanation of (A).
d. Both (A) and (R) are True but (R) is not the correct explanation of (A).
Answer:
b. (A) is False but (R) is True.

Question 3.
Assertion (A): By increasing production, stock can be increased.
Reasoning (R): Without stock, supply is not possible.
a. (A) is True but (R) is False.
b. (A) is False but (R) is True.
c. Both (A) and (R) are True and (R) is the correct explanation of (A).
d. Both (A) and (R) are True but (R) is not the correct explanation of (A).
Answer:
d. Both (A) and (R) are True but (R) is not the correct explanation of (A).

Question 4.
Assertion (A): Direct demand is the demand for factors of production.
Reasoning (R): Consumer goods satisfy the consumption needs of the consumers.
a. (A) is True but (R) is False.
b. (A) is False but (R) is True.
c. Both (A) and (R) are True and (R) is the correct explanation of (A).
d. Both (A) and (R) are True but (R) is not the correct explanation of (A).
Answer:
b. (A) is False but (R) is True.

Question 5.
Assertion (A): Micro-economics and Macro-economics are two branches of modern economics.
Reasoning (R): The terms ‘Micro-economics’ and ‘Macro-economics’ were coined by Prof. Alfred Marshall.
a. (A) is True but (R) is False.
b. (A) is False but (R) is True.
c. Both (A) and (R) are True and (R) is the correct explanation of (A).
d. Both (A) and (R) are True but (R) is not the correct explanation of (A).
Answer:
a. (A) is True but (R) is False.

(D) Find the odd word out: (5)

Question 1.
Non-tax revenue: Fees, Penalty, Wealth tax, Special levy
Answer:
Wealth tax

Question 2.
Paasche’s Price Index, Price index number, Quantity index number, Value index number
Answer:
Paasche’s Price Index

Question 3.
Determinants of supply: Cost of production, Location of consumer, Exports and imports, State of technology
Answer:
Location of consumer

Question 4.
Necessary goods, Durable goods, Habitual goods, Single use
Answer:
Durable goods

Question 5.
Place Utility, Time Utility, Service Utility, Marginal Utility
Answer:
Marginal Utility

Question 2. (A)
Identify and explain the following concepts: (Any Three) (6) [12]

Question 1.
Ajay collected the information about the income of a particular firm.
Answer:
Concept: Micro-economics (or Micro-economic study)

Explanation:

1. Micro-economics studies the individual economic units such as individual consumer, individual producer, individual firm, the price of a particular commodity or a factor etc.
2. Hence, this illustration relates to the concept of ‘Micro-economics’ where Ajay has collected the information about the income of a particular firm.

Question 2.
Kavita consumed five units of oranges one after the other.
Answer:
Concept: Continuity

Explanation:

1. Continuity is an assumption to the law of DMU where it is assumed that different units of a commodity are consumed in quick succession without any lapse of time.
2. Hence, this illustration relates to the concept of “continuity” because Kavita consumed five units of orange one after the other.

Question 3.
When prices of basic commodities increased, Mehta family’s total monthly expenditure did not increase.
Answer:
Concept: Unitary elastic demand (as per total expenditure method)

Explanation:

1. As per the total expenditure method, demand is said to be unitary elastic when there is no change in total expenditure in spite of a rise or fall in price.
2. Hence, this illustration relates to the concept of ‘unitary elastic demand’ as Mehta family’s monthly expenditure has remained the same in spite of increase in prices of basic commodities.

Question 4.
The supply and demand of mangoes became equal when sellers got the prices down to ₹ 600 per dozen.
Answer:
Concept: Equilibrium price

Explanation:

1. The price at which demand = supply is called as equilibrium price.
2. Hence, this illustration relates to the concept of ‘equilibrium price’ as the supply and demand of mangoes became equal (i.e. demand started matching supply) when the prices were brought down to ₹ 600 per dozen.

Question 5.
Sara makes a monthly contribution to a fund jointly created by her friends. The collected fund is then given to a chosen member through lucky draw.
Answer:
Concept: Chit fund

Explanation:

i. Chit fund is an unregulated non-banking financial intermediary in which members make regular contribution to the fund. Bids/ draws are made based on some criteria mutually agreed upon by members. Accordingly, the collected fund is given to the chosen member.

ii. Hence, this illustration relates to the concept of ‘chit fund’ as Sara makes a monthly contribution to a fund created by friends and the collected fund is given to a chosen member through lucky draw.

(B) Distinguish between: (Any Three) (6)

Question 1.
Partial Equilibrium and General Equilibrium
Answer:

Partial Equilibrium	General Equilibrium
i. Partial equilibrium means an equilibrium derived by considering the effect of only two variables at a time. All other variables are considered to be constant.	i. General equilibrium means an equilibrium which is derived by considering the effect of many variables at a time.
ii. It neglects the interdependence between variables.	ii. It takes into account the interdependence between variables.
iii. Micro-economic analysis is based on partial equilibrium analysis.	iii. Macro-economic analysis is based on general equilibrium analysis.
iv. It studies the equilibrium position of consumer, a firm, an industry, a market etc.	iv. It studies the equilibrium position of the economy as a whole.

Question 2.
Desire and Demand
Answer:

Desire	Demand
i. Desire means an urge to have something.	i. Demand is a desire backed by willingness and ability to pay.
ii. There is no relation between desire and price.	ii. There is an inverse relation between demand and price.
iii. Reference of time and price is not necessary to express desire.	iii. Reference of time and price is necessary to express demand.
iv. E.g.: Desire of a poor person to go on a vacation to Switzerland.	iv. E.g.: Demand of a popular movie actor for an “Audi” car.

Question 3.
Individual Supply and Market Supply
Answer:

Question 4.
Internal debt and External debt
Answer:

Internal Debt	External Debt
i. When the government borrows from its citizens, banks, central bank, financial institutions, business houses etc. within the country, it is known as internal debt. E.g.: Indian government taking loan from the RBI.	i. When the government borrows from foreign governments, foreign banks or institutions, international organisations, it is known as external debt. E.g.: Indian government taking loan from the World Bank.
ii. It is voluntary or compulsory in nature.	ii. It is voluntary in nature.
iii. It involves use of domestic currency.	iii. It involves use of foreign currency.
iv. It is less complex for management.	iv. It is more complex for management.

Question 5.
Internal trade and International trade
Answer:

Internal Trade	International Trade
i. Internal trade refers to trade within the boundaries of a nation.	i. International trade refers to trade between the different countries.
ii. It is also known as ‘Domestic trade’ or ‘Home trade’.	ii. It is also known as ‘Foreign trade’ or ‘External trade’.
iii. E.g.: Goods produced in Maharashtra are sold to Uttar Pradesh.	iii. E.g.: India imports petroleum from Iraq and exports tea to Singapore.
iv. It does not result in inflow or outflow of foreign exchange.	iv. It results in inflow or outflow of foreign exchange.

Question 3.
Answer the following: (Any Three)

Question 1.
Explain any four features of utility.
Answer:
Utility is the capacity of a commodity to satisfy human wants. In other words, utility is the want satisfying power of a commodity. The following are the features of utility:

i. Forms the Basis of Demand
A person will demand a commodity only if it has utility for him. A person will not demand a commodity if it does not offer any utility to him. Thus, utility is the basis of demand.

E.g.:
a. An uneducated person will not demand a book as it has no utility for him. A student will demand a book as it has utility for him.
b. A student pursuing Arts will not demand a calculator as it has no utility for him. A student pursuing Commerce will demand it.

ii. Ethically Neutral Concept
The concept of utility does not consider whether the commodity satisfies morally good want or bad want. A commodity can have utility even if it satisfies bad or unethical want. Utility does not consider any moral or ethical factors. It is morally colourless concept. In short, it is ethically neutral.

E.g.: A gun has utility for a soldier as well as a terrorist. Their wants are of different nature but are satisfied by the same commodity.

iii. Also Differs From Usefulness
Usefulness is the benefit (value-in-use) that is derived by consuming a commodity whereas utility is the want satisfying power of a commodity.
A commodity having utility need not be useful.

E.g.: Alcohol has utility to a drunkard but it is not useful as it harms his health. On the other hand, milk has utility as well as usefulness to the consumer.

iv. The Measurement of Utility is Hypothetical
Utility is an abstract concept. It is intangible and invisible in nature. It is an inherent feeling. Therefore, it cannot be measured cardinally i.e. in numbers.

E.g.: It cannot be said that “Marie” biscuit has 5 utility and “Good Day” biscuit has 10 utility. The utility can only be experienced and found to be either positive, zero or negative. Negative utility is called disutility

v. Utility is A Subjective Concept
Utility is a psychological concept. Subjective means changing from one person to another. A product may give high utility to one person but the same product may not give as much utility to another. It is a subjective concept as the utility of a commodity differs from person to person on account of differences in tastes, preferences, likes-dislikes, habits, surroundings, age, occupation etc.

E.g.:
a. A measuring tape will have more utility to a tailor as compared to a cobbler.
b. A fish curry will have more utility to a non-vegetarian while it may have less utility or no utility at all to a vegetarian.

vi. Relative Concept
Utility is related to time and place under consideration. It changes from time to time and place to place.

E.g.:
a. Aqua guard (water purifier) has more utility in the rainy season compared to other seasons because the risk of water-borne diseases is high.
b. A room freshener has more utility in the bathroom as compared to the drawing room.

vii. Even Different From Pleasure
Utility and pleasure are different. A commodity may have utility but it is not necessary that its consumption will give pleasure to the consumer.

E.g.: A textbook has utility for a student but he may not derive pleasure from reading it.

viii. Satisfaction and Utility are Different
Utility and satisfaction are inter-related but there is a difference between the two concepts. The difference is as follows:

a. Utility is a cause of consumption but satisfaction is the end-result of consumption.
b. Utility is assumed satisfaction but satisfaction is something that is actually realised by a person through consumption.

ix. Utility Is Multi-Purpose
A commodity can satisfy the want of more than one person. It can also be put to several uses.

E.g.: Electricity and water can be used to serve many purposes for many people at the same point of time.

x. Depends on Intensity of the Want
The utility of a commodity depends on the intensity of want. More intense the want, greater will be the utility. As and when the urgency of the want declines; utility diminishes.

E.g:
a. The utility of notes is higher when exams are closer as the intensity of want for notes is intense.
b. The utility of the fan is high when the weather is warm outside as the intensity of want for the fan’s breeze is high.

Question 2.
What are the various types of demand?
Answer:
In Economics, demand means a desire which is backed by willingness and ability to pay. The following are the types of demand:

i. Individual Demand
Individual demand is the quantity of a commodity demanded by an individual (single) consumer at a given price during a given period of time.

ii. Market Demand
Market demand is the total demand for a commodity by all consumers at a given price during a given period of time.

iii. Joint Demand or Complementary Demand
When two or more goods are demanded jointly to satisfy one single want; it is known as joint or complementary demand.

E.g.: To satisfy the need of making tea, we need water, tea powder, sugar and milk. Thus, we can say that there is joint demand for these goods. Other examples: Car and petrol, pen and refill, mobile and charger etc.

iv. Composite Demand
The demand for a commodity which can be put to several uses is known as composite demand. In other words, it refers to the demand for a commodity which can be used to satisfy two or more wants.

E.g.: Electricity can be used to satisfy the want of watching TV, using the washing machine, charging your mobile etc.

v. Competitive Demand
When two or more commodities can be used alternatively to satisfy the same want, then such goods are said to be substitutes for each other. Competitive demand refers to the demand for those goods which are substitutes for each other.

E.g: Tea or coffee, sugar or jaggery, Pepsi or Coke, Surf Excel or Tide etc.

vi. Indirect/ Derived Demand
The demand for goods which are needed in order to produce finished goods is called indirect demand. Indirect demand is also called as derived demand. It is the demand for producer’s goods. All factors of production have indirect demand.

E.g.: Demand for land, labour, capital etc. is derived demand.

vii. Direct Demand
The demand for goods which satisfy the wants of consumer directly is called as direct demand. All finished goods or consumption goods have direct demand.

E.g.: Demand for food, clothes and house are examples of direct demand

Question 3.
Explain the concept of total output, stock and supply.
Answer:
Total Output

1. Output is produced in the process of production.
2. Total output can be defined as the total quantity of a commodity produced at a given period of time in the economy.
3. In the process of production, inputs are converted into output or final goods.

E.g.: Maruti Suzuki produced 60,000 units of Swift Car in December 2019. This is total output for December 2019.

Stock

1. Stock is the total quantity of commodity available for sale with a seller at a particular point of time.
   E.g.: On 15^th December, 2019, Maruti Suzuki had 25,000 units of Swift Car in their warehouse. This is the stock as on that day.
2. Stock is the source of supply. It is potential supply. Without stock, supply is not possible.
3. By increasing production, stock can be increased.
4. Normally, stock exceeds supply. It is fixed and inelastic.
5. In case of perishable goods like milk, bread, fish etc., stock may be equal to supply.
6. In case of durable goods like clothes, cars, furniture etc., stock can exceed supply.

Supply

1. According to Paul Samuelson, “Supply refers to the relation between market prices and the amount of goods that producers are willing to supply.”
2. In simple words, supply refers to the quantity of a commodity that a seller is willing and able to offer for sale at a given price, during a certain point of time.
3. Supply is a relative term. It is always expressed in relation to price, time and quantity.
4. E.g.: Out of the 25,000 cars in stock, Maruti Suzuki offers 15,000 cars for sale when the price is ₹ 10,00,000 per car. This is the actual supply.
5. Supply is a micro-economic concept while aggregate supply is a macro-economic concept. Aggregate supply refers to the minimum amount of sales proceeds which entrepreneurs expect to receive from the sale of output at a given level of employment.

Question 4.
Explain the meaning of perfect competition with its features.
Answer:
According to Mrs. Joan Robinson, “Perfect competition prevails when the demand for the output of each producer is perfectly elastic”.

The price of a commodity in perfect competition is determined by the market forces of demand and supply. Both, buyers and sellers have perfect knowledge of market conditions.

A close example of a perfectly competitive market could be the local flower market at Dadar (Mumbai), petrol pumps across the country etc.

Features
The following are features of perfect competition:

i. Large Number of Sellers and Buyers
In a perfectly competitive market, there are large number of sellers and buyers. Each seller and each buyer form a negligible part of the entire market. Therefore, no single seller or buyer is in a position to influence the market price. Both, sellers and buyers are said to be “price takers” under perfect competition.

ii. It Sells Homogenous Product
All the firms in perfectly competitive market sell the same (homogeneous) product. It means their products are exactly identical in terms of size, shape, design, taste, colour, weight etc. Thus, all products are perfect substitutes for each other.

iii. Free Entry and Exit
In perfect competition, there are no barriers on entry and exit of the firms. Any firm can enter or exit the market at its own will. If there is a hope of profit, a new firm will enter the market and if there are chances of loss, an existing firm may leave the market.

iv. Every Factor of Production is Perfectly Mobile
There is perfect mobility of factors of production under perfect competition. Labour and capital are mobile; not only geographically but also occupationally (i.e. they can be put to any use). So, each factor input is optimally utilised and producer does not face any problem in production.

v. A Single Price
The buyers and sellers are price takers in a perfectly competitive market. There is only one single market price which is determined by the forces of demand and supply.

vi. Perfect Knowledge of Market
The buyers and sellers possess perfect knowledge about the market conditions. Every seller and buyer has the knowledge about price, quality, source of supply of products etc. Thus, no seller can charge a higher price from the consumer or suffer a loss himself by selling at a lower price.

vii. No Government Intervention
Laissez-faire policy is an important feature of perfect competition. It means that there is no government intervention in economic activities i.e., there is no tax, no control mechanism or any other interference from the government with respect to production or distribution.

viii. Absence of Transport Cost
In perfect competition, it is assumed that there is no transportation cost. This assumption leads to uniformity in price in such market.
Some features of perfect competition are unrealistic in nature. Therefore, perfect competition is said to be an ideal and imaginary concept of market rather than an actual market.

Question 5.
Explain the role of capital market in India.
Answer:
Capital market is an important constituent of the financial system. It is basically a market for long-term funds (both equity and debt) which are raised within and outside the country. The role of capital market in India can be explained as follows:

i. Mobilises Long-Term Savings
There is a rising demand for investment funds by industrial organisations and the government. However, the availability of financial resources is inadequate to meet the growing demand. Capital market mobilises long-term savings from various sections of the population through the sale of securities.

ii. Achieve Operational Efficiency
Capital market enables to achieve operational efficiency by lowering transaction costs, simplifying transaction procedures as well as lowering settlement timings in purchase and sale of stocks.

iii. Provides Equity Capital
Capital market provides equity or share capital to entrepreneurs. They can use it for purchasing assets as well as funding business operations.

iv. Integration
Capital market leads to integration among real and financial sectors, equity and debt instruments, government and private sector, domestic and external funds etc.

v. Quick Valuation
Capital market helps to determine a fair and quick value of both equity (shares) and debt (bonds, debentures) instruments.

Question 4.
State with reasons whether you agree or disagree with the following statements: (Any Three)

Question 1.
The scope of Micro-economics is unlimited ‘
Answer:
No, I do not agree with the given statement. The scope of micro-economics is limited.

Reason:

1. Micro-economics and Macro-economics are the two main branches of modern economics.
2. The term ‘micro’ is derived from the Greek word ’Mikros’ which means small or a millionth part.
3. Micro-economics deals with a small part of the national economy.
4. It studies individual economic units such as individual consumer, individual producer, individual firm, the price of a particular commodity or a factor etc.
5. In simple terms, it is examination of the ‘tree’ and not the ‘forest’.
6. The scope of micro-economics is limited to only individual units.
7. It doesn’t deal with nationwide economic problems like inflation, deflation, balance of payments, poverty, unemployment, population, economic growth etc.
8. Hence, the scope of Micro-economics is limited.

Question 2.
Price is the only determinant of demand.
Answer:
No, I do not agree with the given statement. Price is not the only determinant of demand.
Reason: The determinants of demand (other than price) are explained below:

1. Income: Income of a consumer decides the purchasing power which in turn influences the demand. When the income of a person increases, he will demand more goods and services and vice versa.
2. Price of substitute goods: If the price of the substitute good falls, then people will demand more of the substitute good than the costly good. The reverse would happen in case of price rise.
3. Price of complementary goods: If the price of one of the goods increases, then the demand for the other will fall and vice versa.
4. Nature of product and Size of population: If a commodity is a necessity, then its demand will continue to be the same irrespective of its price. Larger the size of population, greater will be the demand for a commodity and vice versa.
5. Expectations about future prices and taxation level: If the consumer expects the price of a commodity to fall, he will buy less in present at the existing prices and vice versa. Increase in indirect tax rate will lead to increase in price of a product that will decrease the demand of that product.
6. Advertisement, Tastes, habits and fashion: Advertisement, sales promotion schemes and effective salesmanship leads to increase in demand. Also change in tastes and habits of consumers changes the demand of a product.

Question 3.
Index numbers measure changes in the price level only.
Answer:
No, I do not agree with the above statement. Index numbers measure changes in various economic variables.

Reason:

1. An index number is device to measure changes in economic variable (or group of variables) over a period of time.
2. Index numbers are one of the most used statistical tools in economics.
3. Index numbers were originally developed to measure changes in the price level.
4. In present time, it is also used to measure trends in a wide variety of areas such as stock market prices, cost of living, industrial and agricultural production, changes in exports and imports etc.
5. Hence, index numbers measure changes in many economic variables.

Question 4.
Old age pension is transfer income
Answer:
Yes, I agree with the above statement.

Reason:

1. Transfer income refers to the income received by a person without contributing to the process of production.
2. Old age pension is received by a person post his retirement. It is generally paid by the government to people who were earlier in government service.
3. The people receiving old age pension do not contribute anything to the production of the current year. Hence, old age pension is transfer income.

Question 5.
Issuing currency notes is the only function of RBI.
Answer:
No, I do not agree with the above statement. The Reserve Bank of India (RBI) performs various functions.
Reason: Various other functions of RBI are explained below.

1. Banker to the government: RBI acts as a banker, agent and advisor to the governments. On behalf of governments, RBI accepts money, makes payments and engages in management of public debt.
2. Banker’s bank: RBI controls the working of commercial banks in the country. It is mandatory for all scheduled banks to maintain certain minimum cash reserves with the RBI against their demand and time deposits. RBI discounts eligible bills of banks and also gives loans and advances to them.
3. Custodian of foreign exchange reserves: RBI acts as a custodian of the country’s foreign exchange reserves. RBI also engages in buying and selling the currencies of all members of IMF.
4. Controller of credit: As a supreme banking authority, RBI has the power to influence the volume of credit created by commercial banks. It also monitors the purpose or use of credit.
5. Collection and publication of data: RBI collects and compiles statistical information related to banking and other financial sectors.
6. Promotional and developmental functions: RBI performs certain promotional and developmental functions such as extending banking services to semi-urban and rural areas, providing security to depositors, development of specialised institutions for agricultural credit, industrial finance etc.
7. Other functions: RBI acts as a clearing house for settling the accounts between its member banks. As a lender of last resort, it also provides liquidity to banks experiencing financial difficulty.

Question 5.
Study the following table, figure, passage and answer the questions given below it:- (Any Two) [8]

Question 1.
Since a monopolist can fix the price of his product, he may find it profitable to “charge different price to different consumers for the same product. This phenomenon is known as ‘price discrimination’ and the monopoly practicing it is ‘discriminating monopoly’. A monopolist sells portions of his entire output at two or more prices.

Prof. Pigou has given three types of price discrimination; namely, price discrimination of first degree, price discrimination of second degree and price discrimination of third degree. In first degree price discrimination, monopolist may charge a separate price for each unit sold by him. In second degree price discrimination, monopolist may sell his output in ‘batches’, charging a separate price for each batch. In third degree price discrimination, monopolist may split up the market for his product. He may divide buyers into two or more categories and charge different price from each category.

i. What is discriminating monopoly?
ii. State the types of price discrimination.
iii. What is price discrimination of second degree?
iv. Dr. Kumar charges different price to poor and rich patients. Identify the degree of price discrimination.
Answer:
i. The monopoly practicing price discrimination (charging different prices to different consumers for the same product) is known cts discriminating monopoly.

ii. There are three types of price discrimination: namely, price discrimination of first degree, price discrimination of second degree and price discrimination of third degree.

iii. In second degree price discrimination, monopolist may sell his output in ‘batches’ charging a separate price for each batch.

iv. This is third degree price discrimination. This is because in third degree discrimination, monopolist may split up the market for his product. He may divide buyers into two or more categories (here, poor and rich) and charge different price from each category.

Question 2.
Calculate Value Index Number from the given data:

Answer:

Question 3.

i. Which organisation has the least share in the direction of India’s imports in 2015-16?
ii. Which organisation has maximum share in India’s direction of imports in 1990-91 ?
iii. State your opinion regarding the direction of India’s imports from 1990-91 to 2015-16.
iv. How much is the percentage of increase in the imports of developing nations in 2015-16 as compared to 1990-91?
Answer:
i. Eastern Europe has the least share (1.9%) in the direction of India’s imports in 2015-16.

ii. OECD has maximum share (54%) in India’s direction of imports in 1990-91.

iii. India’s imports from OECb and Eastern Europe has declined drastically during the period from 1990-91 to 2015-16. On the other hand, imports from OPEC, developing nations and others rose during the same period.

iv. There is an increase of 24.6% ¡n the imports of developing nations in 2015-16 (43.2%) as compared to 1990-91 (18.6%).

Question 6.
Answer the following questions in detail: (Any Two) [16]

Question 1.
Explain the types of price elasticity of demand.
Answer:
Price elasticity of demand refers to the degree of responsiveness of quantity demanded to a change in price. It is the ratio of percentage change in quantity demanded of a commodity to a percentage change in its price. The following are the types of price elasticity of demand:

i. Perfectly Elastic Demand

a. Meaning
When a slight or zero change in the price brings about an infinite change in the quantity demanded of that commodity, it called perfectly elastic demand. It is only a theoretical concept.

b. Value of Ed
In this case, Ed = ∞

c. Symbolic Representation

d. Diagrammatic Representation

In diagram, X-axis represents quantity demanded and Y-axis represents price. DD is the demand curve. With negligible change in price, the quantity demand changes infinitely. The demand curve DD represents perfectly elastic demand.

e. Demand Curve
The demand curve DD is a horizontal straight line parallel to X-axis.

ii. Perfectly Inelastic Demand

a. Meaning
When a change in the price has no effect on the quantity demanded of a commodity, it called perfectly inelastic demand. Salt, water etc. are some examples of commodities having a perfectly inelastic demand. A change in their prices will have no or negligible effect on their quantity demanded.

b. Value of Ed
In this case, Ed = 0

c. Symbolic Representation

d. Diagrammatic Representation

In diagram, X-axis represents quantity demanded and Y-axis represents price. DD is the demand curve. When the price increases from P₁ to P₂, the quantity demanded does not change. It remains constant at Q₁. The demand curve DD represents perfectly inelastic demand.

e. Demand Curve
The demand curve DD is a vertical straight line parallel to Y-axis.

f. Example
At ₹ 20 per kg., the demand for salt is 100 kgs. When the price falls to ₹ 15 per kg., the demand remains the same.

Ed = 0%

In given example, when the price of salt reduced by 25%, there was no effect on the demand for salt,
i.e., Ed = 0.

Hence, we can say that demand for salt is perfectly inelastic. In practice, such a situation of perfectly inelastic demand occurs rarely.

iii. Unitary Elastic Demand

a. Meaning
When the proportionate or percentage change in quantity demanded is exactly equal to the proportionate or percentage change in price of the commodity, it is called as unitary elastic demand.

b. Value of Ed
In this case, Ed = 1

c. Symbolic Representation

d. Diagrammatic representation

In diagram, X-axis represents quantity demanded and Y-axis represents price. DD is the demand curve. When the price falls from P₁ to P₂, the quantity demanded rises in the same proportion from Q₁ to Q₂. The demand curve DD represents unitary elastic demand.

e. Demand Curve
The slope of the demand curve is a rectangular hyperbola.

f. Example
At price of ₹ 300 per unit, the demand for pen drives is 3000 units. When the price falls to ₹ 150 per unit, the demand rises to 4500 units.

Ed = \(\frac{50 \%}{50 \%}\)
Ed = 1
In given example, when the price of pen drive fell by 50%, its demand rose by 50%. In this case, Ed = 1. Thus, we can say that pen drive has unitary elastic demand.

iv. Relatively Elastic Demand

a. Meaning
When the proportionate or percentage change in quantity demanded is greater than a proportionate or percentage change in price, it is called as relatively elastic demand. In short, when a change in price has greater effect on the quantity demanded, then the demand for the product is said to be relatively elastic.
Generally, luxury goods like T.V, washing machine, fridge, high-end watches, etc. are said to have relatively elastic demand.

b. Value of Ed
In this case,
Ed > 1 Symbolic Representation

c. Symbolic Representation

d. Diagrammatic Representation

In diagram, X-axis represents quantity demanded and Y-axis represents price. DD is the demand curve. When the price increases from P₁ to P₂, the quantity demanded falls in the greater proportion from Q₁ to Q₂. The demand curve DD represents relatively elastic demand.

e. Demand Curve
The demand curve is downward sloping from left to right. The slope of the demand curve is flatter.

f. Example
When the ticket prices are ₹ 200, PVR sells 50 tickets. When the ticket prices fall to ₹ 100, the demand for tickets rises to 90.

Ed = \(\frac{80 \%}{50 \%}\)
Ed = 1.6
In given example, when the price of tickets fell by 50%, the demand for tickets increased by 80%.
In this case, Ed > 1.

Thus, we can say that movie tickets have relatively elastic demand.

v. Relatively Inelastic Demand

a. Meaning
When the proportionate or percentage change en quantity demanded is less than a proportionate or percentage change in price, it is called as a relatively inelastic demand. In short, when a change in price has less effect on the quantity demanded, then the demand for the product is said to be relatively inelastic.
Generally, demand for necessary goods like rice, wheat, kerosene, oil, sugar, etc. is relatively inelastic.

b. Value of Ed
In this case, Ed < 1

c. Symbolic Representation

d. Diagrammatic representation

In diagram, X-axis represents quantity demanded and Y-axis represents price. DD is the demand curve. When the price increases from P₁ to P₂, the quantity demanded falls in the lesser proportion from Q₁ to Q₂. The demand curve DD represents relatively inelastic demand.

e. Demand Curve
The demand curve is downward sloping from left to right. The slope of the demand curve is steeper.

f. Example
The demand for sugar is 2000 kgs. at a price of ₹ 36 per kg. When the price is reduced to ₹ 28 per kg., the demand rises to 2200 kgs.

Ed = \(\frac{10 \%}{22 \%}\) = 0.45
In given example, when the price of sugar fell by 22%, the demand for sugar increased by only 10%.
In this case, Ed < 1.

Thus, we can say that sugar has relatively inelastic demand.

Question 2.
Explain the practical difficulties involved in the measurement of national income.
Answer:
National income is one of the important subject matter of macroeconomics. The total income of the nation is called national income. In real terms, national income is the flow of goods and services produced in an economy during a year.

The various practical or statistical difficulties in the measurement of national income are as follows:

i. Depreciation Depreciation refers to wear and tear of capital assets due to their use in the production process. Since there are no uniform, common or accepted standard rates of depreciation applicable to various assets, it is difficult to make correct deductions for depreciation.

ii. Illiteracy and Ignorance Due to illiteracy and ignorance, small producers do not keep an account of their production. As a result, they are unable to give accurate information about the quantity or value of their output.

iii. Valuation of Inventories Inventories refer to raw materials, intermediate goods, semi-finished and finished products in the stock of producers. If there is a mistake in measuring the value of inventory, then the value of the final production will be incorrect. Therefore, valuation of inventories requires careful assessment.

iv. Inadequate and Unreliable Data The available data on production and cost relating to crops, fisheries, animal husbandry, forestry, construction workers, small enterprises etc. is inadequate and inaccurate, especially in developing countries. Additionally, data on unearned incomes, consumption and investment expenditure of rural and urban population is also not available. Due to unavailability of data, it is difficult to estimate the actual size of national income.

v. Difficulties in Classification of Working Population In India, working population is not clearly defined. E.g.: Indian farmers are not engaged in agriculture throughout the year. In off season, they engage themselves in alternative occupations. In such cases, it is very difficult to identify their incomes from a particular occupation.

vi. Existence of Non-Monetised Sector In India, there is a presence of non-monetised sector, especially in rural areas. Small farmers exchange a major part of their agricultural production for other goods and services (i.e. barter system). It is excluded while counting national income.

vii. Problem of Double Counting The greatest difficulty in calculating national income is that of double counting. This difficulty arises because of the failure to properly distinguish between a final and an intermediate product.

E.g.: flour used by a bakery is an intermediate product and flour used by a household is final product.

viii. Capital Gains or Losses Capital gains or losses are not included in the national income because they do not result from current economic activities. These gains and losses accrue to the property owners due to increase or decrease in the market value of their capital assets or changes in demand.

Question 3.
State the types and importance of government budget.
Answer:
Budget is an important instrument of financial administration through which all the financial affairs of the state (government) are regulated. Budget is a financial statement which shows the expected receipts and proposed expenditures of the government in the coming financial year. Types of Budget The budgetary provisions of public expenditure and public revenue need to be at different levels as per the changing needs of the economy.

Accordingly, government budget is of three types as follows:

i. Balanced Budget Estimated Government Receipts = Estimated Government Expenditure
When estimated revenue and expenditure of the government are equal, the budget is said to be a balanced budget.

Classical Economists: The concept of balanced budget was advocated by the classical economists like Adam Smith. According to them, it has a ‘neutral’ effect on the working of the economy. Hence, they regarded it as the best type. Modern Economists: Modern economists feel that the policy of balanced budget may not always be suitable. According to them, modern governments are welfare entities and so, they cannot keep expenditure at the exact level of receipts.

ii. Surplus Budget Estimated Government Receipts > Estimated Government Expenditure
When estimated government receipts are more than the estimated government expenditure, the budget is said to be a surplus budget.

Useful in Inflationary Conditions:

a. During the period of inflation, there is a tendency for prices to rise rapidly.
This tendency needs to be checked, particularly in the interest of those people who earn fixed income.

b. The price rise can be controlled by lowering the level of effective demand in the economy. When the effective demand reduces, the prices also reduce gradually.

c. When there is inflation in the economy, the government increases taxes which would increase the public revenue. The increase in taxes reduces the money in the hands of the people.

d. As a result, the aggregate demand will fall, leading to a downward movement in the prices. Thus, inflationary pressures can be controlled.

However, surplus budget should not be used in the situations other than inflation as it may lead to unemployment and low levels of output.

[In Keynesian macroeconomic theory, effective demand is the point of equilibrium where Aggregate demand = Aggregate supply]

iii. Deficit Budget
Estimated Government Receipts < Estimated Government expenditure
When estimated government receipts are less than the estimated government expenditure, the budget is said to be a deficit budget.

Useful in Depression:

a. In the period of depression, all economic activities are at low level which results in unemployment. The rising unemployment can be controlled if the government increases its productive expenditure.
b. So, in such a situation, the government increases its expenditure by borrowing money and through deficit financing.
c. This leads to an increase in effective demand for goods and services and employment. It encourages further investment.

In modern times, deficit budget is the most commonly implemented policy of any government. Developing countries like India have consistently followed deficit budgeting for economic development.
[Deficit financing is a practice in which a government spends more money than it receives as revenue. The difference is made up by borrowing or minting new money.]

Importance of Budget

1. Union budget affects people and overall economy in a number of ways.
2. Taxes are the most interesting part of any budget. Taxes determine the fate of businesses and individuals. Also, the level of disposable income of taxpayers depends on the tax rates presented in the budget.
3. Government expenditure on defence, administration, infrastructure, education and health care etc. affects the lives of citizens and overall economy.
4. Governments use the budget as a medium for implementing economic policies in the country.
5. Budgetary actions affect production, size and distribution of income as well as utilisation of human and material resources.
6. In modern economy, the scope and importance of public finance has undergone an immense change since last 100 years.

Maharashtra Board Class 12 Economics Previous Year Question Papers