Maharashtra Board Class 12 Economics Sample Paper Set 4 with Solutions

Maharashtra State Board Class 12th Economics Sample Paper Set 4 with Solutions Answers Pdf Download.

Maharashtra Board Class 12 Economics Model Paper Set 4 with Solutions

Max. Marks: 80

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)
Find the odd word out: (5) [20]

Question 1.
Income method: Private final consumption expenditure, Rent, Wages, Mixed Income
Answer:
Private final consumption expenditure

Question 2.
Optional functions: Provision of education, Provision of health services, Maintaining law and order, Provision of social security
Answer:
Maintaining law and order

Question 3.
Notebooks purchased from market, Toys made from clay, Windows made from glass, Notebooks made from paper
Answer:
Notebooks purchased from market

Question 4.
Special purpose index numbers: Import-export index number, Value index number, Labour productivity inderct number, Share price index number
Answer:
Value index number

Question 5.
Features of monopoly: Price maker, Entry barriers, Many sellers, Lack of substitutes.
Answer:
Many sellers

(B) Give Economic term: (5)

Question 1.
Degree of responsiveness of quantity demanded to change in income only.
Answer:
Income elasticity of demand

Question 2.
Expenditure which is incurred by the public authority for promoting their economic and social welfare.
Answer:
Public expenditure

Question 3.
Number of firms producing identical product.
Answer:
Perfect competition

Question 4.
The year with respect to which comparisons are made.
Answer:
Base year

Question 5.
Additional utility derived by a consumer from an additional unit consumed.
Answer:
Marginal utility

(C) Choose the correct option: (5)

Question 1.
This is not a reason justifying the downward sloping demand curve.
i. Law of DMU
ii. Single use of commodity
iii. Substitution effect
iv. Expenditure effect
a. ii and iv
b. i, ii, and iv
c. only ii
d. only i
Answer:
a. ii and iv

Question 2.
Statements that are incorrect in relation to index numbers.
i. Index number is a geographical tool.
ii. Index numbers measure changes in the air pressure.
iii. Index numbers measure relative changes in an economic variable.
iv. Index numbers are specialised averages.
a. iii and iv
b. i and ii
c. ii and iii
d. i and iv
Answer:
b. i and ii

Question 3.
Which of these factors affect supply?
i. State of technology
ii. Government policy
iii. Size of population
iv. Exports and Imports
a. only ii
b. i, ii, iii and iv
c. only iv
d. ii and iv
Answer:
a. i, ii and iv

Question 4.
Concepts studied under Macro-economics.
i. Whole economy
ii. Economic development
iii. Aggregate supply
iv. Product pricing
a. i, ii and iii
b. ii, iii and iv
c. only iv
d. i, ii, iii and iv
Answer:
a. i, ii and iii

Question 5.
Money market instruments are:
i. highly liquid
ii. less risky
iii. cheap
iv. easily marketable
a. i, ii and iv
b. ii, iii and iv
c. iii and iv
d. i and ii
Answer:
a. i, ii and iv

(D) Complete the correlation: (5)

Question 1.
Expansion of supply : Price rises : : Contraction of supply : _____
Answer:
Price falls

Question 2.
Price Index : Inflation :: ____ : Agricultural production
Answer:
Quantity index

Question 3.
Demand for consumer goods : Direct demand : : ____ : Derived demand
Answer:
Demand for factors of production

Question 4.
Theoretical difficulty : Transfer payments :: ____ : Valuation of Inventories
Answer:
Practical/ Statistical difficulty

Question 5.
Micro-economics : Slicing method : : Macro-economics : _____
Answer:
Lumping method

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

Question 1.
Lack of adequate supply of essential commodities will lead to inflation, implying rise in the overall prices.
Answer:
Concept: General price level

Explanation:

1. General price level is the average of all prices of goods and services currently being produced in the economy.
2. Hence, this illustration relates to the concept of ‘general price level’ as the lack of adequate supply of essential commodities will lead to a change (here, rise) in the general price level i.e. inflation.

Question 2.
Raghu’s father regularly invests his money in stocks and bonds.
Answer:
Concept: Stock exchange

Explanation:

1. Stock exchange is an association or organisation in which stocks, bonds, commodities etc. are traded. E.g. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)
2. Hence, this illustration relates to ‘stock exchange’ as Raghu’s father regularly invests his money in stocks and bonds.

Question 3.
Maharashtra purchased wheat from Punjab.
Answer:
Concept: Internal trade

Explanation:

1. The buying and selling of goods and services within the boundaries of a nation are referred to as ‘Internal Trade’ or ‘Domestic Trade’.
2. Hence, this illustration relates to the concept of ‘internal trade’ as Maharashtra purchased wheat within the country i.e. Punjab.

Question 4.
Vikas purchased CA Inter Economics book on Amazon.
Answer:
Concept: Market

Explanation:

1. In Economics, market refers to an arrangement through which buyers and sellers come in contact with each other directly or indirectly.
2. In this illustration, Vikas purchased CA Inter Economics book on Amazon which is e-commerce platform where buyers and sellers come in contact. Hence, this illustration relates to the concept of “market”.

Question 5.
Anuja bought two trousers when there was a 50% discount in the shop.
Answer:
Concept: Income effect

Explanation:

1. In case of normal goods, when price falls, purchasing power (real income) of the consumer increases which enables him to buy more of that commodity. This is known as income effect.
2. Hence, this illustration relates to the concept of ‘income effect’ as a fall in price i.e. 50% discount enabled Anuja to buy two trousers at the price of one.

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

Question 1.
Slicing Method and Lumping Method
Answer:

Slicing Method	Lumping Method
i. When the aggregate is divided into small units for the purpose of study of each unit in depth, it is called as slicing method.	i. When the economy is not split up into small slices; but it is studied in big lumps as it is, it is called as lumping method.
ii. Micro-economics uses slicing method.	ii. Macro-economics uses lumping method.
iii. It gives a worm’s eye view of the economy.	iii. It gives a birds eye view of the economy.
iv. It studies in depth individual units like household, firm, consumer, producer, individual wages, individual prices, individual incomes, particular commodity etc.	iv. It studies aggregates such as total employment, national income, national output, total investment, total savings, total consumption, aggregate supply, aggregate demand etc.

Question 2.
Relatively elastic demand and Relatively inelastic demand
Answer:

Question 3.
Direct Tax and Indirect Tax
Answer:

Direct Tax	Indirect Tax
i. Direct tax refers to the tax paid on the basis of income and property of a taxpayer.	i. Indirect tax is levied on goods or services. It is paid at the time of production or sale and purchase of commodity/ service.
ii. The burden of direct tax is borne by the person on whom it is levied. It is impossible to shift it.	ii. The burden of indirect tax can be shifted by the taxpayer (i.e., producers) to other person/s.
iii. The impact and incidence of direct tax falls on the same person.	iii. The impact and incidence of indirect tax falls on different persons.
iv. E.g.: Personal income tax, wealth tax etc.	iv. E.g.: Goods and Services Tax (GST) in India has replaced almost all indirect taxes, custom duty.

Question 4.
Output method and Income method
Answer:

Output Method	Income Method
i. Under output method, national income is calculated either by adding the value of final goods and services or by adding up the value added at each stage of production.	i. Under income method, national income is calculated by adding up the income payments received by all citizens of a country ma particular year.
ii. Output method is also called as product or inventory method.	ii. Income method is also called as factor cost method.
iii. It approaches national income from the output side.	iii. It approaches national income from the distribution side.
iv. In India, this method is applied to agriculture, mining and manufacturing, including handicrafts.	iv. In India, this method is applied to trade, transport, professional and liberal arts, public administration and domestic services.

Question 5.
Perfect Competition and Monopoly
Answer:

Perfect competition	Monopoly
i. Perfect competition is a market structure where there are a large number of sellers selling homogenous goods to large number of buyers at uniform price without any government intervention.	i. Monopoly refers to the form of a market where entire supply of the commodity is under the control of a single seller or producer. i.e., monopolist.
ii. There are a large number of sellers.	ii. There is only one seller.
iii. The products sold are homogenous and perfect substitutes for each other.	iii. The product has no close substitute.
iv. There is free entry and exit.	iv. There are various entry barriers.
v. The price of product is fixed by the market forces of demand and supply. The sellers and buyers are price takers.	v. The price of product is fixed by the monopolist. He is a price maker and the buyers are the price takers.

Question 3.
Answer the following (Any Three): [12]

Question 1.
Explain the concept of foreign trade and its types.
Answer:
Foreign trade refers to trade between the different countries of the world. It is also called as ‘International trade’ or ’External trade’.

According to Wasserman and Hultman, “International trade consists of transaction between residents of different countries”. Foreign trade is divided into the following three types:

i. Import Trade
Import trade refers to purchase of goods and services by one country from another country. In other words, it is inflow of goods and services to home country from foreign country.

E.g.: India imports petroleum from Iraq, Kuwait, Saudi Arabia, etc.

ii. Export Trade
Export trade refers to sale of goods and services by one country to another country. In other words, it is outflow of goods and services from home country to foreign country.

E.g.: India exports tea, rice, jute to China, Hong Kong, Singapore etc.

iii. Entrepot Trade
Entrepot trade refers to purchase of goods and services from one country for reselling them to another country after some processing.

E.g.: Japan imports raw material required to make electronic goods like, radio, washing machine, television etc. from England, Germany, France etc. and then sells them to various countries after processing them.

Question 2.
Explain the role of money market in India.
Answer:
Money market is a financial market wherein lending and borrowing of short-term funds takes place. It is a market for ’near money’ i.e. short-term instruments. These instruments are highly liquid, less risky and easily marketable with a maturity period of one year or less than one year.

The role of the money market in India can be explained as follows:

i. Short-Term Requirements of Borrowers
Money market provides access to sources of funds in order to meet short-term financial requirements of borrowers at reasonable interest rates.

ii. Liquidity Management
Money market is a dynamic market. It helps the monetary authorities to efficiently manage liquidity and money in the economy. This, in turn, leads to economic stability and development of the country.

iii. Equilibrating Mechanism
Money market helps to establish equilibrium between the demand for and supply of short-term funds by a way of rational allocation of resources and mobilisation of savings into investment channels.

iv. Economises the Use of Cash
Money market deals with financial instruments that are close substitutes of money and not actual money. Thus, it economises the use of cash.

v. Portfolio Management
Money market deals with different types of financial instruments that suit investors’ risk and return preferences. So, investors can hold a portfolio of different financial assets, which helps them to minimise risks and maximise returns.

vi. Financial Requirements of the Government
Money market helps the government to fulfil its short-term financial requirements on the basis of Treasury Bills (T-bills).

vii. Implementation of Monetary Policy
Monetary policy is implemented by the central bank. It aims at managing the quantity of money in order to meet requirements of different sectors and to increase the pace of economic growth. A well-developed money market ensures successful implementation of the monetary policy. It also guides the central bank in developing an appropriate interest policy.

viii. To Contribute Towards Growth of Commerce, Industry and Trade
Money market facilitates discounting bills of exchange to local and international traders who urgently need short-term funds. It also provides working capital for agriculture and small scale industries.

Question 3.
Explain the price elasticity and income elasticity of demand.
Answer:
Elasticity of demand refers to the degree of responsiveness of quantity demanded of a commodity to a change in its price (or any other factor).

The following are the types of elasticity of demand:

i. Price Elasticity

a. Definition or Meaning
According to Prof. Marshall, price elasticity of demand is a ratio of proportionate change in the quantity demanded of a commodity to a given proportionate change in its price.

b. Main Factor
In simple words, price elasticity is responsiveness of demand to a change in price only. Other factors affecting demand are assumed to remain constant.

c. Values
Price elasticity of demand may be infinite, zero, unit (1), greater than one or less than one.

d. Symbolic representation
Price Elasticity (Ed) \(=\frac{\text { Percentage change in quantity demanded }}{\text { Percentage change in price }}\)
Ed = \(\frac{\% \Delta Q}{\% \Delta \Delta P}\)

e. Example
Suppose the demand for Cello Gripper pen is 200 units at ₹ 10. When the price is increased to ₹ 15, the demand for the pen reduces to 75 units.
Ed = \(\frac{\Delta Q}{Q}\) ÷ \(\frac{\Delta P}{P}\)
Ed = \(\frac{\Delta Q}{Q}\) × \(\frac{P}{\Delta \mathrm{P}}\)
= \(\frac{75-200}{200}\) × \(\frac{10}{15-10}\)
= \(\frac{-125}{200} \times \frac{10}{5}\) = 1.25
In this case, the elasticity of demand is greater than 1.

ii. Income Elasticity

a. Definition or Meaning
Income elasticity of demand is a ratio of proportionate change in quantity demanded of a commodity to a proportionate change in income of individual.

b. Main Factor
In simple words, income elasticity is the responsiveness of demand to a change in income only. Other factors affecting demand are assumed to remain constant.

c. Values

1. Income elasticity of demand may be positive, negative or zero.
2. Income elasticity is positive when quantity demanded increases with increase in income. This happens in case of normal goods.
3. Income elasticity is negative when quantity demanded decreases with increase in income. This happens in case of inferior goods or Giffen goods.
4. Income elasticity is zero when quantity demanded remains the same in spite of an increase or decrease in income. This happens in case of necessary goods like salt, basic food items etc.

d. Symbolic Representation
Income Elasticity (Ey) \(=\frac{\text { Percentage change in quantity demanded }}{\text { Percentage change in income }}\)
EY = \(\frac{\% \Delta Q}{\% \Delta V}\)

e. Example
Suppose, income of Mr. Karan increases from ₹ 10,000 per month to ₹ 12,000 per month. His demand for food products increased from 8 kgs to 12 kgs.
Ey = \(\frac{\Delta Q}{Q} \div \frac{\Delta y}{y}\)
Ey = \(\frac{\Delta Q}{Q} \times \frac{y}{\Delta y}\)
= \(\frac{12-8}{8} \times \frac{10000}{12000-10000}\)
= \(\frac{4}{8} \times \frac{10000}{2000}\)
= 2.5

Income elasticity in this case is positive i.e. more is demanded when income increased. We can conclude that the food products in above example are normal goods.

Question 4.
Explain the features of index numbers.
Answer:
Index Number:
Meaning
An index number is a device to measure changes in an economic variable (or group of variables) over a period of time. Index numbers are not directly measurable, but represent relative changes. They are one of the most used statistical tools in Economics.

Although index numbers were originally developed to measure changes in the price level, in the 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.

Definitions

1. Spiegel: “An index number is a statistical measure designed to show changes in a variable or a group of related variables with reference to time, geographical location and other characteristics such as income, profession etc.”
2. Croxton and Cowden: “Index numbers are devices for measuring differences in the magnitude of a group of related variables.”

Features
The features of index numbers are as follows:

1. Statistical tool: Index numbers are statistical devices.
2. Can be expressed in %: Index numbers are specialised averages which are capable of being expressed in terms of percentages.
3. Measure the net change: Index numbers measure the net change in one or more related variables over time or between two different time periods or two different localities.
4. Variable involved: Index number computed from a single variable is called a ’univariate index’ while index number constructed from a group of variables is called a ’composite index’.
5. Base year: The year with which the changes are measured is termed as the base year. In other words, the year with respect to which comparisons are made is the base year and it is denoted by the suffix ‘o’.
6. Current year: The year for which the index number is prepared is termed as the current year. In other words, the year for which comparisons are required to be made is the current period and it is denoted by the suffix ‘1’.
7. Base year index: The base year’s index is assumed as 100 and accordingly the value of the current year is calculated.
8. Measure economic activity: Index numbers are also referred to as ‘barometers of economic activity’ since it is used to measure the trends and changes in the economy.
9. Notations:
   p0 = Price of the commodity in the base year
   p1 = Price of the commodity in the current year
   q⁰ = Quantity of commodity consumed or purchased in base year
   q¹ = Quantity of commodity consumed or purchased in current year

Question 5.
Explain the importance of micro-economics.
Answer:
Micro-economics is a branch of modern economics. Micro-economics deals with a small part of the national economy. It studies the individual units such as individual consumer, individual producer, individual firm, the price of a particular commodity or a factor etc.

The following points explain the importance of micro-economics:

i. Price Determination
Micro-economics explains how the prices of different products and various factors of production are determined. It is also known as price theory.

ii. Understanding Working of Free Market Economy
A free market economy refers to an economy where the economic decisions regarding:

a. What to produce?
b. How much to produce?
c. How to produce? etc.
are taken at individual level. There is no intervention by the government or any other agency in decisions regarding the production. Micro-economics helps in understanding the working of such free market economy.

iii. Business Decisions
Micro-economic theories are helpful to businessmen for taking crucial business decisions like determination of price of goods, determination of cost of production, maximisation of output and profit etc.

iv. Forms Basis of Welfare Economics
Resources are scare and the government must allocate these resources properly for ensuring maximum social welfare. Micro-economic analysis helps the government in optimal allocation and utilisation of scare resources in order to achieve maximum welfare. It also studies how taxes affect social welfare.

v. Required by Government
Micro-economics is useful to government in framing economic policies such as taxation policy, public expenditure policy, price policy etc. These policies help the government to attain its goals of efficient allocation of resources and economic welfare of the society.

vi. Explains Aspects of Foreign Trade
Micro-economics explains various aspects of foreign trade like effects of tariff on a particular commodity, determination of foreign exchange rates of any two countries, gains from international trade to a particular country etc.

vii. Economic Model Building
Micro-economics helps in understanding various complex economic situations by way of simple economic models. Economic models are built using various economic variables. Micro-economics has also helped in development of various terms, concepts, terminologies and tools of economic analysis.

Question 4.
State with reasons whether you agree or disagree with the following statements: (Any Three) [12]

Question 1.
Various factors influence the elasticity of demand.
Answer:
Yes, I agree with the given statement.

Reason: Various factors that influence the elasticity of demand are explained below:

1. Nature of the commodity: Commodities which are necessities have relatively inelastic demand. On the other hand, comfort goods and luxury goods have relatively elastic demand.
2. Availability of substitutes: The demand for a commodity will be relatively elastic if its close substitute is easily available while the demand will be relatively inelastic if its close substitute is not available.
3. Number of uses: The demand for commodities having single use will be less elastic or relatively inelastic while the demand for commodities having multiple uses will be relatively more elastic.
4. Habits: The demand for commodities which are consumed as a habit is relatively inelastic.
5. Durability: The demand for durable goods is relatively elastic while that of perishable goods is relatively inelastic.
6. Complementary goods: The demand for complementary goods is generally relatively inelastic.
7. Income of the consumer: A consumer with higher income will have relatively inelastic demand as compared to a consumer having lower income. The demand pattern of a very rich and an extremely poor person is rarely affected by significant changes in the price.
8. Urgency of need: The goods which are needed urgently will have a relatively inelastic demand while luxury goods which are less urgent will have relatively elastic demand.
9. Time period: In short-term, demand is generally relatively inelastic. However, in long-term, demand is relatively elastic as consumer can change his consumption habits and find cheaper substitutes.

Question 2.
Perfect competition and monopolistic competition are one and the same.
Answer:
No, I do not agree with the given statement. Perfect competition and monopolistic competition are different.

Reason:

1. Perfect competition is a market structure where there are a large number of sellers selling homogeneous goods to large number of buyers at uniform price without any government intervention.
2. On the other hand, monopolistic competition is a market structure where there is competition among a large number of sellers producing close but not perfect substitutes.
3. Although there are fairly a large number of sellers in monopolistic competition, the number is not as large as perfect competition.
4. The products sold in perfect competition are homogeneous and perfect substitutes for each other while those in monopolistic competition are differentiated and close substitutes for each other.
5. In perfect competition, the firms do not incur any selling cost as they sell homogeneous products while under monopolistic competition; firms incur selling cost as they sell differentiated products.
6. In perfect competition, all sellers charge one uniform price for the product. On the other hand, in monopolistic competition every seller charges a different price for the product sold.
7. Perfect competition is hypothetical while monopolistic competition is realistic.

Question 3.
Obligatory function is the only function of the Government.
Answer:
No, I do not agree with the above statement. The government has obligatory as well as optional functions.

Reason:

1. Government is a formal or informal institution created by the people in specific region to perform various functions
2. The functions of the government can be classified as obligatory functions and optional functions.
3. The obligatory functions include protection from external attacks, maintaining internal law and order etc.
4. The optional functions include provision of education and health services, provision of social security like pensions and other welfare measures etc.
5. Hence, obligatory function is not the only function of the government.

Question 4.
The law of diminishing marginal utility is based on certain assumptions.
Answer:
Yes, I agree with the above statement.

Reason:
The various assumptions of the law of Diminishing Marginal Utility (DMU) are as follows:

1. Rationality: The consumer is assumed to be rational. It means that his behaviour is normal and he tries to maximise his satisfaction.
2. Cardinal measurement: It is assumed that utility can be measured cardinally. Hence, mathematical operations are easily possible so as to know and compare the utility derived from each unit.
3. Homogeneity: It is assumed that all the units of the commodity are uniform in nature. It means they are identical in terms of shape, size, colour, taste, smell etc.
4. Continuity: It is assumed that units of a commodity are consumed in quick succession without any time lapse. If there is a time gap in consumption, the MU will not diminish.
5. Reasonability: It is assumed that all the units of the commodity consumed are neither very small nor very big. The size of the commodity is reasonable i.e. standard size.
6. Constancy: The law assumes factors affecting the utility of commodity (income, tastes, habits, choices, likes-dislikes of a consumer) to remain constant. MU of money is also assumed to be constant.
7. Divisibility: The law assumes that the commodity consumed by the consumer is divisible so that it can be acquired in small quantities.
8. Only single want: The law assumes that the commodity is used to satisfy only a single want. If the commodity satisfies multiple wants, the MU will keep on increasing.

Question 5.
Index numbers can be constructed without the base year.
Answer:
No, I do not agree with the above statement. Base year is required to construct index numbers.

Reason:

1. An index number is a device to measure changes in an economic variable over a period of time.
2. The year with which the changes are measured is termed as the base year.
3. In other words, the year with respect to which comparisons are made is the base year.
4. The base year is denoted by the suffix ‘o’.
5. If there is no base year, there will be no base against which current year variables can be measured.
6. Hence, it is not possible to construct index numbers without base year.

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

Question 1.
The history of capital market in India dates back to the 18th century when securities of the East India Company were traded in the country. The trading was unorganised until the end of the 19th century and the main trading centres were Mumbai and Kolkata. The Bombay Stock Exchange was setup in 1875 and is one of the oldest stock exchanges in India. Before Independence, Indian capital market was not well-organised and developed. It mainly consisted of the gilt-edged market for government and semi-government securities. The growth of industrial securities market was not much impressive. After 1985, there has been significant growth in the market due to favourable government policies. There was qualitative development in the Indian capital market after 1991.,
i. How old is the capital market in India?
ii. State the nature and location of capital market trading till 19th century.
iii. When did the qualitative development in Indian capital market start?
iv. Write about Indian capital market prior to independence.
Answer:
i. The history of capital market in India dates back to the 18th century when securities of the East India Company were traded in the country. [1 Mark]

ii. The trading was unorganised until the end of the 19th century and the main trading centres were Mumbai and Kolkata. [1 Mark]

iii. There was qualitative development in the Indian capital market after 1991. [1 Mark]

iv. Before independence, Indian capital market was not well-organised and developed. It mainly consisted of the gilt-edged market for government and semi-government securities. The growth of industrial securities market was not much impressive.

Question 2.

Unity of commodity	TU units	MU units
1	6	6
2	11	5
3	15	4
4	15	0
5	14	-1

i. Draw total utility curve and marginal utility curve.
ii. a. When total utility is maximum, marginal utility is ___.
b. When total utility falls, marginal utility becomes ___.
Answer:
i.

ii. a. When total utility is maximum, marginal utility is zero.
b. When total utility falls, marginal utility becomes negative.

Question 3.
The conventional notion of social security is that the government would make periodic payments to look after people in their old age, ill-health, disability and poverty. This idea should itself change from writing a cheque for the beneficiary to institutional arrangements to care for beneficiaries, including by enabling them to look after themselves, to a large extent. The write-a-cheque model of social security is a legacy from the rich ; world at the optimal phase of its demographic transition, when the working population was numerals enough and earning enough to generate the taxes to pay for the care of those not working. This model is ill-suited for less, well-off India with growing life expectancy, increasing urbanisation and resultant migration. Social security under urbanisation will be different from social security in a static society.

i. State the conventional notion of social security.
ii. What kind of conceptual change is suggested in the given paragraph?
iii. What is a legacy of social security from the rich world?
iv. Which features of India make the traditional model of social security ill-suited for the economy?
Answer:
i. The conventional notion of social security is that the government would make periodic payments to look after people in their old age, ill-health, disability and poverty.

ii. The paragraph suggests that the concept of social security provision should change from writing a cheque for the beneficiary to institutional arrangements for taking care of beneficiaries and enabling them to look after themselves.

iii. The write-a-cheque model of social security is a legacy from the rich world.

iv. The features such as growing life expectancy, increasing urbanisation and resultant migration etc. make the traditional model of social security ill-suited for India.

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

Question 1.
Explain the concepts of variation and changes in demand with the help of diagrams.
Answer:
In Economics, demand means a desire which is backed by willingness and ability to pay.

i. Variations in Demand

Meaning:
When the demand for a commodity falls or rises solely due to a change in its price while other factor affecting demand remain constant, it is called “variation in demand”.

Reason:
Variation in demand takes place only due to a change in the price of a commodity. All other factors affecting demand (like tastes, income of the consumer, size of population etc.) remain constant.

Demand Curve:
Variation in demand is shown by the movement along the same demand curve.

Types:

Variation in demand is of following two types:
a. Expansion of demand
b. Contraction of demand

a. Expansion of Demand

Meaning:
Expansion of demand refers to a rise in the quantity demanded only due to fall in the price of a commodity.

Reason:
Expansion of demand takes place solely due to a fall in the price. All other factors affecting demand are constant.

Demand Curve:
Expansion of demand is shown by a downward movement on the same demand curve.

Representation:

In the above diagram, downward sloping curve DD is the demand curve. The Y-axis represents price and the X-axis represents quantity demanded. When the price falls from P1 to P2, the quantity demanded rises from Q1 to Q2. This downward movement on demand curve from point a to b represents expansion of demand.

b. Contraction of Demand

Meaning:
Contraction of demand refers to a fall in the quantity demanded only due to rise in the price of a commodity.

Reason:
Contraction of demand takes place solely due to a rise in the price. All other factors affecting demand are constant.

Demand Curve:
Contraction of demand is shown by an upward movement on the same demand curve.

Representation:

In the above diagram, downward sloping curve DD is the demand curve. The Y-axis represents price and the X-axis represents quantity demanded. When the price rises from Pi to P2, the quantity demanded falls from Q1 to Q2. This upward movement on the demand curve from point a to b represents contraction of demand.

ii. Changes in Demand

Meaning:
When the demand for a commodity increases or decreases due to changes in other factors while the price of a commodity remains constant, it is known as “change in demand”.

Reason:
Change in demand takes place due to a change in factors other than price. In this case, price of a commodity remains constant.

Demand Curve:
Change in demand cannot be shown on one demand curve. It is shown by a shift in the original demand curve.

Types:

Change in demand is of the following two types:
a. Increase in demand
b. Decrease in demand

a. Increase in Demand

Meaning:
When more quantity is demanded than before at the same price, it is called as increase in demand.

Reasons:
Increase in demand takes place due to favourable changes in factors such as fashion, income, taxation policy, advertisement, tastes and habits etc. In this case, the price of a commodity remains constant.

Demand curve:
Demand curve shifts to the right-hand side of the original demand curve.

Representation:

In the above diagram, the Y-axis represents price and the X-axis represents quantity demanded. The price of the commodity remains constant at P. However, the quantity demanded increases from Q to Q1. The demand curve shifts to right (from DD to D1D1) and this indicates an increase in demand.

b. Decrease in Demand

Meaning:
When less quantity is demanded than before at the same price, it is called as decrease in demand.

Reasons:
Decrease in demand takes place due to unfavourable changes in factors such as fashion, income, taxation policy, advertisement, tastes and habits etc. In this case, the price of a commodity remains constant.

Demand curve
Demand curve shifts to the left-hand side of the original demand curve.

Representation

In the above diagram, the Y-axis represents price and the X-axis represents quantity demanded. The price of the commodity remains constant at P. However, the quantity demanded decreases from Q to Q1. The demand curve shifts to left (from DD to D1D1) and this indicates a decrease in demand.

Question 2.
Give meaning and definition of national income. State theoretical or conceptual difficulties in the measurement of national income.
Answer:
Meaning

1. National income is one of the important subject matter of macroeconomics.
2. National income is a composite measure of all economic activities such as production, distribution, exchange and consumption. It is an objective indicator of economic welfare of the people in a country.
3. Modern economy is a money economy. Hence, national income of a country is expressed in terms of money.
4. The total income of the nation is called national income. In real terms, national income refers to the flow of goods and services produced in an economy during a year.
5. In simple words, national income is the money value of goods and services produced in an economy during a year.

Definitions

i. National Income Committee: “A national estimate measures the volume of commodities and services turned out during a given period counted without duplication.”

ii. Prof. A. C. Pigou: “National dividend is that part of objective income of the community including of course income derived from abroad which can be measured in money.”

iii. Prof. Irving Fisher: “National dividend or income consists solely of services as received by ultimate consumers, whether from their material or from their human environments.”

The various theoretical or conceptual difficulties in the measurement of national income are as follows:

i. Illegal Income
Illegal incomes such as income from gambling, black marketing, theft, smuggling etc. are not included in national income.

ii. Changing Price Level
The changes in price levels cause difficulties in calculating national income.

E.g.: With an increase in the price level, the national income may show a rising trend even though the production may have decreased. Similarly, if the price level falls, the national income may show a decreasing trend even when there is rise in production.

iii. Unpaid Services
Only paid goods and services are taken into account while calculating national income. However, there are a number of unpaid services which are not considered in national income estimates.

E.g.: services of housewives and the services provided out of love, affection, mercy, sympathy, charity etc. are not included in national income.

iv. Transfer Payments
Whether the transfer payments (such as scholarships, grants, pension, unemployment allowance etc.) should be included in national income or not is a major concern. This is because they are a part of individual income on one hand and a part of government expenditure on the other. Hence, these transfer payments are not included in national income.

v. Valuation of Government Services
Government provides several public services such as law and order, defence, public
administration, education, health services etc. The calculation of these services at market price is difficult since the real value of these services is not known.

vi. Income of Foreign Firms
According to International Monetary Fund (IMF), income of a foreign firm should be included in the national income of a country in which the firm actually undertakes the production activities.

vii. Production for Self-Consumption
The products kept for self-consumption by farmers and other allied producers do not enter the market. Hence, it is not accounted for in the national Income

Question 3.
State and explain the law of supply with assumptions.
Answer:
The law of supply is a fundamental principle of economic theory. It was introduced by Prof. Alfred Marshall in his book, ‘Principles of Economics’ published in 1890. The law explains the functional relationship between price and quantity supplied.

Statement of the Law
According to Alfred Marshall, “Other things being constant, higher the price of a commodity, more is the quantity supplied and lower the price of a commodity, less is the quantity supplied.”

Explanation:
Other factors remaining constant, a rise in price results in a rise in quantity supplied and a fall in price results in a fall in quantity supplied. Thus, there is a direct relationship between price and quantity supplied.

Symbolically, the functional relationship between supply and price is expressed as: Sx = f (Px)
Where,
S = Supply of a commodity
x = Commodity
f = Function
P = Pricc of a commodity

The law of supply is explained with the help of the supply schedule as follows:

Supply schedule
Price of commodity ‘x’ (in ₹)	Quantity supplied per week (in kgs.)
10	100
20	200
30	300
40	400
50	500

1. From the above schedule, it can be observed that when the price of the commodity is ₹ 10, the supply is 100 kgs.
2. When the price rises from ₹ 10 to ₹ 20, the supply rises from 100 kas to 200 kgs.
3. Similarly, as the price rises from ₹ 20 to ₹ 30 and from ₹ 30 to ₹ 40, the supply rises from 200 kgs to 300 kgs and 300 kgs to 400 kgs, respectively.
4. If we look at the schedule from bottom to top, when the price falls from ₹ 50 to ₹ 40, the supply falls from 500 kgs to 400 kgs.
5. Thus, we can conclude that, as the price of a commodity rises, quantity supplied also rises and when price of the commodity falls, quantity supplied also falls.
6. This shows direct relationship between price and quantity supplied.

Supply Curve
The law of supply can be further explained with the help of following supply curve:

In diagram, Y-axis represents price and the X-axis represents corresponding quantity supplied. SS is the supply curve which slopes upward from left to right, i.e., it has a positive slope. It represents direct relation between price and quantity supplied.

Assumptions
Marshall begins the law of supply with the words ‘ Other things being constant’. These ‘other things’ refer to various factors other than price which affect the supply of a commodity. The law of supply only establishes the relationship between price and quantity supplied. However, if there is a change in other factors, the supply will change even without a change in price. In such case, the law of supply will not hold true. Hence, Marshall assumes that other factors are constant or they do not change.

The law of supply is based on the following assumptions:

i. Constant Cost of Production
The law of supply assumes that the cost of production remains the same. If the cost of production reduces, then the producer will produce more and the supply will increase in spite of no change in price of the commodity and vice versa.

ii. Constant Techniaue of Production
The law of supply assumes that there is no change in the state of technology and technique of production. If there is upgradation in technology and thereby improvement in production techniques, the production will increase and there will be an increase in supply in spite of no change in the price.

iii. No Chanae in Weather/ Natural Conditions
It is assumed that natural conditions which influence the production of agricultural goods remain the same. If there is a natural calamity or if the weather conditions become unfavourable, then the production of agricultural goods will be affected and the supply will decrease without a change in price.

iv. No Change in Government Policy
The law of supply assumes that there is no change in government policies like taxation, subsidies, licensing, trade policy etc.

v. No Change in Transport Cost
The law assumes that there is no change in the condition of transport facilities and transport cost.
E.g. better transport facility increases supply at the same price and vice versa.

vi. No Change in Price of Other Goods
It is assumed that there is no change in the price of other goods supplied by a firm. If there is an increase in the price of other goods, then the firm may divert its resources to the production of those goods and the supply of the given commodity will fall in spite of no change in its price. In such a case, the law of supply will not hold true.

vii. No Chanae in Future Expectation About Prices
It is assumed that the seller’s future expectation about prices remains the same. If the seller expects the price to fall in near future, he will supply more in the present even if there is no change in current price and vice versa. In such a case, the law of supply will not hold true.

viii. No Change in Other Factors
The law of supply assumes that other factors like nature of the market, exports and imports, industrial relations, availability of factors of production, infrastructural facilities etc. also remain the same. If there is any change in these factors, it will lead to a change in supply even when there is no change in price.

Maharashtra Board Class 12 Economics Previous Year Question Papers