Maharashtra Board Class 12 Economics Sample Paper Set 6 with Solutions

Maharashtra State Board Class 12th Economics Sample Paper Set 6 with Solutions Answers Pdf Download.

Maharashtra Board Class 12 Economics Model Paper Set 6 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)
Choose the correct option:

Question 1.
Method adopted in micro-economic analysis.
i. Lumping method
ii. Aggregative method
iii. Slicing method
iv. Inclusive method
a. i, iii and iv
b. i, ii and iv
c. only iii
d. only i
Answer:
c. only iii

Question 2.
Role of capital market is:
i. Providing equity capital
ii. Mobilising short-term
iii. Facilitating integration
iv. Enabling quick valuation
a. i, iii and iv
b. iii and iv
c. i and ii
d. i, ii, iii and iv
Answer:
a i, iii and iv

Question 3.
These are examples of products having complementary demand.
i. Tea & Coffee
ii. Mobile and charger
iii. Sugar & Jaggery
iv. Car and fuel
a. i, ii, iii and iv
b. i, ii, and iv
c. i, ii and iii
d. ii and iv
Answer:
d. ii and iv

Question 4.
These are exceptions to the law of supply.
i. Agricultural goods
ii. Supply of labour
iii. Rare goods
iv. Perishable goods
a. All of these
b. i, ii, iv
c. ii, iii and iv
d. i, ii, iii
Answer:
a. All of these

Question 5.
Public finance is one of those subjects which are on the borderline politics.” ___ is the view of
i. Adam Smith
ii. Alfred Marshall
iii. Prof. Hugh Dalton
iv. Prof. Findlay Shirras
a. only i
b. only ii
c. only iii
d. only iv
Answer:
c only iii

(B) Give Economic term: . (5)

Question 1.
Price being constant, demand falls due to unfavourable change in other factors.
Answer:
Decrease in demand.

Question 2.
The point after which a rational consumer stops his consumption.
Answer:
Point of satiety

Question 3.
The point where demand and supply curve intersect.
Answer:
Equilibrium point

Question 4.
A compulsory contribution from the person to the government without reference to special benefits conferred.
Answer:
Tax

Question 5.
The index numbers which are constructed with some specific purpose.
Answer:
Special purpose index number

(C) Complete the correlation: (5)

Question 1.
Money market: Short term funds:: ___ : Long term funds
Answer:
Capital market

Question 2.
Macro-economic theory: Income and employment:: Micro-economics: _______
Answer:
Price theory

Question 3.
More is supplied at same price : Increase in supply : : Less is supplied at same price : ____
Answer:
Decrease in supply

Question 4.
________ : Wealth tax :: Indirect tax : GST
Answer:
Direct tax

Question 5.
Contraction of demand : Upward movement on the same demand curve : : Decrease in demand: ____
Answer:
Demand curve shifts from right to left

(D) Assertion and reasoning: (5)

Question 1.
Assertion (A): The law of DMU is useful to the government.
Reasoning (R): The law of DMU helps the government in framing trade policy, pricing policy etc.
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): Aggregate demand is a macroeconomic concept.
Reasoning (R): Aggregate demand refers to total amount of sales proceeds expected by an entrepreneur.
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 3.
Assertion (A): In perfect competition, price is determined by the forces of demand & supply.
Reasoning (R): The number of buyers and sellers is so large that one person cannot influence prices.
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 4.
Assertion (A): Spread of urbanisation leads to rise in government expenditure.
Reasoning (R): Urbanisation leads to rise in expenses on water supply, roads, energy etc.
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 5.
Assertion (A): Foreign exchange management and control is undertaken by commercial banks.
Reasoning (R): RBI has to maintain the official rate of exchange of rupee and ensure its
stability.
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 2.
(A) Identify and explain the following concepts: (Any Three) (6) [12]

Question 1.
Shabana paid wages to workers in her factory and interest on her bank loan.
Answer:
Concept: Theory of Factor Pricing

Explanation:

1. The theory of factor pricing explains how the rewards are determined for various factors of production like land, labour, capital and entrepreneur.
2. Hence, this illustration relates to the concept of ‘theory of factor pricing’ as Shabana paid wages to workers (labour) in her factory and interest on her bank loan (capital).

Question 2.
Bhushan refused to eat fifth chapati after eating four chapatis.
Answer:
Concept: Point of satiety

Explanation:

1. The point of satiety refers to the point when TU is maximum and MU is zero. After this point, any additional unit consumed would lead to disutility or negative MU.
2. Therefore, this illustration relates to the concept of “point of satiety” as Bhushan has reached that point with four chapatis and he is refusing to eat fifth chapati because it would result in disutility.

Question 3.
Amazon experienced surge in demand during Diwali when they offered mega discounts on TV.
Answer:
Concept: Price elasticity of demand

Explanation:

1. Price elasticity of demand is a ratio of proportionate change in quantity demanded of a commodity to a given proportionate change in its price. In simple words, price elasticity is responsiveness of demand due to a change in price only.
2. Hence, this illustration relates to the concept of ‘price elasticity of demand’ as the demand for TV sets increased due to a change in its price (lower price arising from mega discount).

Question 4.
Odisha government collected 1.06 crores in a day from traffic rule violators.
Answer:
Concept: Fines and penalties

Explanation:

1. The government levies fines and penalties on those who violate the laws in the country. The objective of the imposition of the fines and penalties is to not earn income but to discourage the citizens from violating’the laws.
2. Hence, this illustration relates to the concept of ‘fines and penalties’ as Odisha government collected ₹ 1.06 crores in day from people who violated traffic rules.

Question 5.
India sells spices to Singapore.
Answer:
Concept: Export trade

Explanation:

1. Export trade refers to the sale of goods by one country to another or outflow of goods from home country to foreign country.
2. Hence, this illustration relates to the concept of export trade’ as India (i.e. home country) sells spices to Singapore (i.e. foreign country)

(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 worms eye view of the economy.	iii. It gives a bird’s 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.
Form Utility and Time Utility
Answer:

Form Utility	Time Utility
i. When utility is created due to the change in shape/ form/ structure of an existing material, it is called form utility.	i. When utility increases by storing a commodity and making it available during the time of need, it is called time utility.
ii. Form utility is created by the process of manufacturing or processing.	ii. Time utility is created by storing the goods from time of production to time of consumption.
iii. Manufacturing units or workshops create form utility.	iii. Warehousing services create time utilitý.
iv. E.g.: The manufacturing of furniture from wood.	iv. E.g.: Storing of mangoes till they transported to local markets.

Question 3.
Perfectly elastic demand and Perfectly inelastic demand
Answer:

Question 4.
Laspeyre’s Index and Paasche’s Index
Answer:

Laspeyre’s Index	Paasche’s Index
i. Laspeyre’s index was formulated by Étienne Laspeyres, a German economist.	i. Paasche’s index was formulated by Hermann Paasche, a German economist.
ii. In this technique, base year quantities are considered as weights.	ii. In this technique, ‘current year’ quanitities are considered as weights.
iii. Laspeyres price index is calculated as P01 = \(\frac{\sum p_1 q_0}{\sum p_0 q_0}\) × 100	iii. Paasche’s Price Index is calculated as P01 = \(\frac{\sum p_1 q_1}{\sum p_0 q_1}\) × 100

Question 5.
Developmental expenditure and Non-developmental expenditure
Answer:

Development Expenditure	Non-developmental Expenditure
i. The expenditure which results in generation of employment, increase, in production, price, stability etc. is known as developmental expenditure.	i. The expenditure which does not yield any direct productive impact on the country is called non developmental expenditure.
ii. It is productive in nature.	ii. It is unproductive in nature.
iii. E.g.: expenditure on health, education, industrial development, social welfare, Research and Development (R & D) etc.	iii. E.g.: administration costs, war expenditure etc.

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

Question 1.
Explain the concept of macro-economics and its features..
Answer:
Macro-economics is the branch of economics which analyses the entire economy. It deals with the total employment, national income, national output, total investment, total consumption, total savings, general price level, interest rates, trade cycles, business fluctuations etc.

The following are the features of macro-economics:

i. General Equilibrium Analysis
Equilibrium means the balance between two factors. Macro-economics studies the behaviour of large aggregates like aggregate demand, aggregate supply, national income, total investment etc. It studies the equilibrium of these variables as a whole, taking into account the other market forces. Hence, macro economics deals with general equilibrium.

E.g.: Macro-economics explains how equilibrium is achieved between aggregate demand and aggregate supply and how it determines price level in the economy.

ii. Interdependence
Macro analysis takes into account the interdependence between aggregate economic variables such as income, output, employment, investments, price level etc. E.g.: Changes in the level of investment will finally result into changes in the levels of income, output, employment and eventually the level of economic growth.

iii. General Price Level
general price level is the average of all prices of goods and services currently being produced in the economy. Macro-economics studies how the general price levels are determined and the causes for their fluctuation.

iv. Income Theory
Macro-economics studies the concept of national income, its different elements, methods of measurement and social accounting. It also explains the causes of fluctuations in national income, which lead to business cycles, i.e. inflation and deflation.

v. Growth Models
Macro-economics studies various factors that contribute to economic growth and development. It is useful in developing growth models. These growth models are used for studying economic development.
E.g.: Mahalanobis growth model focused on basic heavy industries.

vi. Policy-Oriented
According to Keynes, macro-economics is a policy-oriented science. It suggests suitable economic policies to promote economic growth, generate employment, control inflation and depression etc.

vii. Lumping Method
Macro-economics deals with macro-variables like aggregate demand, aggregate supply, national output etc. Unlike micro-economics, it does not split up the economy into small slices but studies it in big lumps. Thus, it uses the lumping method. According to Prof. Boulding, “Forest is an aggregation of trees, but it does not reveal the properties of an individual tree.” Macro-economics is said to study the forest as opposed to micro-economics which studies individual trees.

viii. Study of Aggregates
Macro-economics deals with the study of the economy as a whole. It is concerned with the aggregate concepts such as national income, national output, national employment, general price level, business cycles etc.

Question 2.
Explain importance of 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 concept of elasticity of demand is of great importance to producers, farmers, workers and the Government. Lord Keynes considered this concept to be the most important contribution of Alfred Marshall. The importance of elasticity of demand can be explained with the help of the following points:

i. Importance To A Producer

Every producer has to decide the price of his product. The concept of elasticity of demand becomes important for this purpose. If the producer is producing a commodity whose demand is relatively inelastic, then he can set a high price for it. Similarly, if the producer is producing a commodity whose demand is relatively elastic, then he will set a low price for it. The concept of elasticity of demand is also useful to a monopolist to practice price discrimination.

ii. Importonce To government

The taxation policy of the government is based on concept of elasticity of demand. The government charges higher taxes on commodities whose demand is relatively inelastic and which are harmful. This helps the government to earn higher tax revenue and also keep the consumption of such goods in control.

E.g.: The government charges high tax on cigarettes, guthka, tobbaco, liquor etc.

iii. Important In Factor Pricing
The concept of elasticity of demand is useful in determination of factor prices. The factors of production whose demand is relatively inelastic can command a higher price as compared to those having elastic demand.

E.g.:
a. A software engineer having specific skill set can demand higher salary.
b. Commercial space in central areas have higher rent.

iv. Importance In Foreign Trade
The concept of elasticity of demand is useful to determine terms and conditions in foreign trade. The countries exporting commodities having relatively inelastic demand can raise the prices of their commodities.

E.g.: Organisation of Petroleum Exporting Countries (OPEC) has increased the price of oil several times. The concept of elasticity of demand is also useful in formulating export and import policy of a country.

v. Public Utilities
There are various public utilities like bus transport, railways, water supply etc. which have inelastic demand. Government can either subsidise them or nationalise them to avoid customer exploitation.

Question 3.
How is price determined under perfect competition?
Answer:
Perfect competition can be explained as a market structure where there are a large number of sellers selling a homogenous product to a large number of buyers. The number of sellers and buyers is so large that a single buyer or seller is not in a position to influence the price of the product.

Under perfect competition, there is a single ruling market price which is called as ‘equilibrium price1. This equilibrium price is determined by-the interaction of market forces of demand and supply. Equilibrium price is basically the price at which demand and supply is the same.

According to Marshall, demand and supply are like two blades of a pair of scissors. Just as cutting of cloth is not possible with the use of one blade, the equilibrium price of a commodity cannot be determined either by the force of demand or by supply alone. Both these forces together determine the price.

Schedule
The price determination through interaction of demand and supply forces can be explained with the help of the following schedule:

DEMAND AND SUPPLY SCHEDULE

Price per kg. of apples (in ₹)	Quantity Demanded (in Kg.)	Quantity Supplied (in Kg.)	Relation between DD and SS
100	5000	1000	DD >> SS
200	4000	2000	DD >> SS
300	3000	3000	DD = SS
400	2000	4000	DD < SS
500	1000	5000	DD < SS

Explanation of the Schedule:
i. Demand > Supply: At ₹ 100 per kg, the quantity demanded is 5000 kgs while the quantity supplied is only 1000 kgs. When the price rises to ₹ 200 per kg; the demand falls to 4000 kgs while the supply rises to 2000 kgs. This is because demand falls with a rise in price (law of demand) and supply rises with a rise in price, (law of supply). At this stage, demand is greater than supply.

ii. Demand = Supply: When the price rises to ₹ 300 per kg, quantity demanded and quantity supplied become equal i.e. 3000 kgs. This is the stage of equilibrium where demand and supply become equal. Hence, ₹ 300 is the equilibrium price.

iii. Supply > Demand: When the price rises further from ₹ 300 to ₹ 400 and then from ₹ 400 to ₹ 500, the demand falls to 2000 kgs and 1000 kgs, respectively while the supply increases to 4000 kgs and 5000 kgs, respectively. At this stage, supply is greater than demand.

Diagrammatic Representation

Explanation of the Diagram:

1. In the above diagram, Y axis represents the price whereas X axis represents the quantity demanded and supplied.
2. The demand curve DD is a downward sloping curve indicating inverse relationship between price and quantity demanded.
3. The supply curve SS is an upward sloping curve indicating a direct relationship between price and quantity supplied.
4. The curves DD and SS interest each other at point E which is the ‘equilibrium point’.
5. Therefore, ₹ 300 is the equilibrium price and 3000 kgs in the equilibrium quantity. The equilibrium price is determined by the interaction of the forces of market demand and market supply.

Question 4.
Explain the significance of index numbers in Economics.
Answer:
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. Index numbers are indispensable tools of economic analysis. The significance of index numbers is as follows: –

i. Measurement of Inflation

Index numbers are used to measure changes in the price level over a period of time. It enables the government to undertake appropriate anti-inflationary measures. Also, there is legal provision to pay the Dearness Allowance (D.A.) to employees in organised sector based on changes in Dearness Index.

ii. Useful To Present Financial Data in Real Terms

Deflating refers to making adjustments in the original data. Index numbers are used to adjust price changes, wage changes etc. Thus, deflating helps to present financial data in real terms, i.e., at constant prices.

iii. Studies Trends and Tendencies

Index numbers are widely used to measure changes (trends) in economic variables such as production, prices, exports, imports etc. over time. So, we can study whether a particular variable is showing an upward tendency or a downward tendency.

E.g. by examining index of industrial production for past few years, it is possible to understand whether it shows upward or downward tendency.

iv. Index Numbers Are Used For Forecasting

Index numbers are also useful for making predictions for the future based on the analysis of past and present trends in the economic activities.

E.g. based on the available data pertaining to imports and exports, future predictions can be made. The forecasting guides in proper decision making.

v. Contributes in Framing Suitable Policies

Index numbers provide guidelines to policy makers in framing suitable economic policies such as agricultural policy, industrial policy, fixation of wages and dearness allowances in accordance with cost of living etc.

Question 5.
Explain the importance 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 importance of the national income can be explained as follows:

i. For the Economy

National income data is important for the economy of a country. In present times, the national income data are regarded as accounts of the economy, which are known as ‘Social Accounts’. It explains how . [Aggregates of nation’s income, output and product]

Result from:
[Income of different individuals, products of industries and transactions pf international trade]

ii. Economic Planning

For economic planning, data pertaining to national income is very essential. It includes data on country’s gross income, output, savings, investment and consumption. Such data can be obtained from different sources.

iii. National Policies

National income data forms the basis of national policies such as employment policy, industrial policy, agricultural policy etc. The data provides information regarding the direction in which the industrial output, investment and saving etc., change. Further, national income data also helps to generate economic models like growth model, investment model etc. It enables to adopt proper measures to bring the economy to the right path.

iv. Comparison of Standard of Living

National income data helps us to compare the standards of living of people in different countries as well as of people living in the same country at different times.

v. Economic Research

National income data is used by the research scholars of Economics. They use the data on country’s input, output, income, savings, consumption, investment employment, etc. obtained from social accounts.

vi. Distribution of Income

National income statistics enables us to understand the distribution of income in the country based on data related to wages, rents, interests and profits. Through this data, it is possible to understand the disparities in incomes of different social sections.

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

Question 1.
There are many features of utility.
Answer:
Yes, I agree with the above statement.

Reason: Utility is the capacity of a commodity to satisfy human wants. The various features of utility are explained below.

1. Relative concept: Utility is related to time and place under consideration. It changes from time to time and place to place.
2. Subjective concept: Utility is a psychological concept. The utility of a commodity differs from person to person on account of differences in tastes, preferences, habits, surroundings, age, occupation etc.
3. 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.
4. Differs from usefulness: Usefulness is the benefit (value-in-use) that is derived by consuming a commodity. A commodity having utility need not be useful.
5. Differs from pleasure: A commodity may have utility but it is not necessary that its consumption will give pleasure to the consumer.
6. Differs from satisfaction: Utility is a cause of consumption but satisfaction is the end-result of consumption.
7. Measurement is hypothetical: Utility is an abstract concept. Therefore, it cannot be measured cardinally. The utility can only be experienced and found to be either positive, zero or negative.
8. Multi-purpose: A commodity can satisfy the want of more than one person. Similarly, it can also be put to several uses.
9. Depends on intensity of the want: More intense the want, greater will be the utility. As and when the urgency of the want declines, utility diminishes.
10. Forms the basis of demand: A person will demand a commodity only if it has utility for him. Thus, utility is the basis of demand.

Question 2.
Perfect competition is an imaginary concept.
Answer:
Yes, I agree with the given statement.

Reason:

i. Perfect competition can be explained as a market structure where there are a large number of sellers selling a homogeneous product to large number of buyers at a uniform price without any type of government intervention.

ii. The following are the features of perfect competition:
a. Large number of sellers & buyers.
b. Free entry and exit.
c. Homogeneous product.
d. Perfectly mobility of factors of production.
e. Single price.
f. Perfect knowledge of market conditions.
g. No government intervention.
h. Absence of transport cost.

iii. Features like large number of sellers, large number of buyers and free entry & exit are realistic and something that can be observed in reality.

iv. However, the other features of perfect competition are not possible in the real economic world.

v. The following is generally observed in reality:
a. There is some differentiation in products sold. They are not homogeneous.
b. Factors of production are also not perfectly mobile due to certain social factors.
c. Due to’certain differentiating factors, different sellers may charge different prices for products.
There is always some level of government intervention involved in the market. Also, transport cost is not zero. It is considered while calculation cost.
d. Due to all these reasons, perfect competition is said to be a hypothetical or imaginary concept.

Question 3.
Index numbers are free from limitations.
Answer:
No, I do not agree with the above statement. Index numbers suffer from certain limitation.

Reason:
Various limitations of index numbers are explained below:

1. Based on samples: Index numbers are generally based on samples. It is not practically possible to include all the items in the construction of index numbers. Hence, they suffer from sampling errors.
2. Bias in the data: Index numbers are constructed based on various types of data. There may be bias or errors in the collected data. This is bound to affect the results of the index numbers.
3. Misuse of index numbers: Index numbers can be misused. They compare a situation in the current year with a situation in the base year. Hence, a person may choose base year which is suitable for his purpose.
4. Defects in formulae: There is no perfect formula for the construction of index number. It is only an average and so, it suffers from all the limitations of an average.
5. Changes in the economy: The habits, tastes and expectations of people are always changing and all these changes cannot be included in the estimation of index numbers.
6. Qualitative changes: The price or quantity index numbers may ignore the changes in product qualities. At any given time, a better quality commodity will have higher production cost and higher price than ordinary commodity.
7. Arbitrary weights: The weights assigned to different commodities may be arbitrary.
8. Limited scope: An index number has limited scope because if it is constructed for one purpose then it cannot be used for any other purpose.

Question 4.
Under output method, value added approach is used to avoid double counting.
Answer:
Yes, I agree with the above statement.

Reason:

1. Double counting occurs when the costs of intermediate goods used by a business to produce finished good are included in the computation of a nation’s GDP.
2. According to the value added approach, value added at each stage of the production process is included while calculating national income.
3. Value added Value of final output – Value of input.
4. GNP is obtained by adding the values added by the different stages of the production process till the final output is reached in the hands of consumers.
5. The calculation in such manner ensures that costs of all intermediate goods are counted only once.
6. Hence, value added approach, under output method, is used to avoid double counting.

Question 5.
The goods and services tax (GST) has replaced almost all indirect taxes in India.
Answer:
Yes, I agree with the above statement.

Reason:

1. Indirect tax ¡s levied on goods or services.
2. It is paid at the time of production or sale and purchase of commodity/ service.
3. Before GST was introduced, there were various indirect taxes like service tax, value added tax (VAT), excise etc.
4. GST is a comprehensive tax introduced with the objective of unifying all indirect taxes levied at different stages of production.
5. Hence, GST has replaced almost all indirect taxes in India.

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

Question 1.
In the following diagram, AE is the linear demand curve of a commodity. On the basis of the given diagram, state whether the following statements are True or False. Give reasons to your answer.

In case of point method or geometric method,
Ed \(=\frac{\text { Lower segment of demand curve below a given point }}{\text { Upper segment of demand curve above a given point }}\)

i. Demand at point ‘C’ is relatively elastic demand.
Answer:
False.
Correct Statement: Demond at point ‘C is relatively inelastic demand.

Reason: The length of the lower segment is less as compared to the upper segment at point C. Therefore, Ed < 1. Thus, at point C, demand is relatively inelastic. ii. Demand at point ‘B’ is unitary elastic demand. Answer: False. Correct Statement: bemand at point ‘B’ is relatively elastic demand. Reason: The length of the lower segment is more as compared to the upper segment at point B. Therefore, Ed > 1. Thus, at point B, demand is relatively elastic.

iii. Demand at point ‘D’ is perfectly inelastic demand.
Answer:
False.
Correct Statement: Demand at point ‘b’ is unitary elastic demand.

Reason: The length of the lower segment is equal to the upper segment at point
D. Therefore, Ed = 1. Thus, at point D, Demand is unitary elastic.

iv. Demand at point ‘A’ is perfectly elastic demand.
Answer:
True

Reason: The length of the upper segment is O at point A. Therefore, Ed = ∞
Thus, at point A, demand is perfectly elastic.

Question 2.

Components	₹ Crores
Consumption (C)	800/-
Investment (I)	700/-
Government Expenditure (G)	400/-
Net Export(X – M)	-150/-
Depreciation (D)	100/-

i. Calculate GDP (Gross Domestic Product) on the basis of above table.
ii. Calculate NDP (Net Domestic Product) on the basis of above table.
Answer:
i. a. GDP = C + I + G + (X – M)
GDP = 800 + 700 + 400 – 150 = 1,750
Thus, GDP (Gross Domestic Product) is ₹ 1,750 crores. (2 Marks)

b. NDP = GDP – Depreciation
NDP = 1,750 – 100 1,650
Thus, NDP (Net Domestic Product) is ₹ 1,650 crores.

Question 3.

Questions:

i. Which commodity has the highest amount of expenditure in 20 16-17?
ii. What is percentage increase in the amount of expenditure of Iron ore?
iii. Which commodity has the least amount of expenditure after Iron ore in 2015-16?
iv. What is the difference in amount of expenditure of Cotton yarn?
Answer:
i. Engineering goods has the highest amount of expenditure in the year 2016-17.
ii. Expenditure of Iron and ore has been increased by 703.14°/e.
iii. Leather is the commodity having least amount of expenditure after Iron and ore in the year 2015-16.
iv. The difference in the amount of expenditure of Cotton and yarn is $ 324 million.

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

Question 1.
State and explain the law of demand with exceptions.
Answer:
The law of demand 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 demanded.

Statement of the Law:

According to Prof. Alfred Marshall, “Other things being equal, higher the price of a commodity, smaller is the quantity demanded and lower the price of a commodity, larger is the quantity demanded”.

Explanation: Other factors remaining constant, when the price of a commodity rises, demand for it falls and when the price of a commodity falls, demand for it rises. Thus, there is an inverse relationship between price and quantity demanded.

Symbolically, the functional relationship between demand and price is expressed as:
Dx = f (Px)
Where,
D = Demand for a commodity
x = Commodity
f = Function
Px = Price of a commodity

Demand Schedule
The law of demand is explained with the help of the following demand schedule:

Demand Schedule
Price of commodity ‘x’ (in ₹)	Quantity demanded per week (in kgs.)
10	1
8	2
6	3
4	4
2	5

 

1. From the above schedule, it can be observed that when the price of the commodity is ₹ 10, the demand is 1 kg.
2. When the price falls from ₹ 10 to ₹ 8, the demand rises from 1 kg to 2 kg.
3. Similarly, as the price falls from ₹ 8 to 6 and from ₹ 6 to 4, the demand rises from 2 kgs to 3 kgs and 3 kgs to 4 kgs, respectively.
4. If we look at the schedule from bottom to top, when the price rises from ₹ 2 to ₹ 4, the demand falls from 5 kgs to 4 kgs.
5. Thus, we can conclude that, as the price of a commodity falls, quantity demanded rises and when price of the commodity rises, quantity demanded falls.
6. This shows an inverse relationship between price and quantity demanded.

Demand Curve
Law of demand can be further explained with the help of the following demand curve:

In the above diagram, Y-axis represents price and the X-axis represents quantity demanded. DD is the demand curve which slopes downward from left to right. It represents inverse relation between price and quantity demanded.

The exceptions to the law are as follows:

i. Giffen’s Paradox

Giffen Goods are inferior goods or low-quality goods like vanaspati ghee (Dalda), low quality rice etc. These are goods whose demand does not rise even if their price falls. This happens because every person wants to constantly increase his standard of living.

Sir Robert Giffen observed this behaviour in England in relation to bread (inferior good). People had limited money and so, they used to consume more bread (a cheaper commodity) and less meat (a costlier commodity). He observed that when the price of bread decreased, less bread was demanded than before. The people saved money and used it to purchase meat and thus, the demand for meat increased.

This behaviour is called as “Giffen’s paradox”. There is a direct relationship between price and quantity demanded in case of Gif fen goods. The demand curve for Giffen goods slopes upwards from left to right.

ii. Speculation

The law of demand does not hold true when people expect the prices to rise still further. In this case, although the prices have risen today, consumers will demand more in anticipation of further rise in the price.

E.g.: During the epic lockdown in March 2020, people expected the prices of goods to rise in the future. Therefore, they purchased goods in large quantities even at high prices.

iii. Habitual Goods
If a person is habituated or addicted to certain goods, his demand for these goods will continue to be the same even if the price of such goods rises.

E.g.: People who are addicted to social media like FB and Instagram will not reduce their usage even if the rates for data pack or internet usage are increased.

iv. Illusion of Price

Consumers may have an illusion that high priced goods are of better quality and therefore, demand for such goods tends to increase with increase in their prices.

E.g.: Branded products which are expensive are demanded even at high prices.

v. Prestiae Goods

The prestige goods are regarded as a status symbol in the society. Rich people may demand more of these goods when their prices rise so that they can show-off.

E.g.: Gold, diamond, expensive watches, luxury cars etc.

vi. Fashion

A product which is out of fashion (E.g.: Keypad phones) will have a Jess demand even if the price falls. A product which is in trend (E.g.: Smart phones) will have a high demand even if the price rises. Thus’, it is an exception to the law.

vii. Ignorance

Sometimes people buy more of a commodity at high prices due to ignorance. This may happen because the consumer is not aware about the price of the commodity at other places.

viii. Necessities

The demand for certain necessities like basic foodstuffs (wheat, salt, dal etc.) will not change due to a change in their prices.

ix. Demonstration Effect

The tendency of the low-income group to imitate the consumption pattern of high-income groups is known as demonstration effect.

E.g.: The t-shirts of “Being Human” worn by Salman Khan have a very high demand in spite of higher prices.

Question 2.
Explain determinants of supply.
Answer:
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. The following are the determinants of supply:

i. Price of Commodity

Price is an important factor influencing the supply of a commodity. When the price is high, more quantity is supplied by the producers and vice versa. Thus, there is a direct relationship between price and quantity supplied.

ii. Infrastructural Facility

Infrastructure facilities like transport, communication, banking etc. support the , process of production as well as supply. Therefore, a country with good infrastructure will have more supply and vice versa.

iii. Natural Conditions

The supply of agricultural goods depends on natural conditions. So, when there is sufficient monsoon and favourable climatic condition, the harvest will be good and supply of agricultural products will increase. However, in case of por climatic conditions, there will be a decrease in supply of these products.

iv. Government Policy

The government policies like taxation, subsidies, licensing etc. also influence production and supply. The supply is more when the government policies are favourable and vice versa.

E.g.: When the government announced lockdown during COVID-19 pandemic, there was a fall in the overall supply of various goods.

v. State of Technology

If the process of production is technology driven, then the cost of production is less and speed is more. Thus, more quantity is produced and supplied.

E.g.: The supply of machine woven cloth is more than handloom cloth.
Technological improvements enable producers to increase the supply.

vi. Cost of Production

If the cost of production is low, then higher quantity can be produced and offered for sale in the market. On the other hand, if the cost of production is high, lower quantity is produced and supply is also less.

vii. Future Expectations About Price

If the producers expect the prices to rise in near future, they will withhold the stock and this will lead to a decrease in supply. However, if they expect the prices to fall in future, then they will supply more.

E.g.: Many sellers withheld stock of masks and sanitizers during the COVID-19 pandemic expecting to get a higher price in future. This led to decrease in the supply of these commodities.

viii. Other Factors

The other factors that influence supply are nature of the market, relative prices of other goods, exports and imports, industrial relations, availability of factors of production etc. If all these factors are favourable, the supply of the commodity will be more and vice versa.

Question 3.
Give defination of Central Bank and explain the functions of RBI.
Answer:
DEFINITIONS OF CENTRAL BANK

i. Dr. M. H. de Kock: “Central bank is one which constitutes the apex of the monetary and banking structure of the country.”

ii. Prof. W. A. Shaw: “Central bank is a bank which controls credit.”

Reserve Bank of India (RBI) is the central bank of India. It is at the apex of banking system in our country. It is entrusted with the responsibility of regulating the money market. RBI was set up based on the recommendations of the Hilton Young Commission. The RBI Act of 1934 provides the statutory basis of the functions of bank. On 1st April 1935, RBI commenced its operations as a private shareholders’ bank. It was nationalised on 1^st January 1949. RBI is the most important constituent of the money market.

The following are the functions of RBI:

i. Issue of Currency Notes

RBI has the sole right to issue currency notes of all denominations, except one rupee note and coins. As per the ‘Minimum Reserve System’ of 1957, RBI has to maintain minimum gold and foreign exchange reserves of ₹ 200 crores. Out of this, at least ₹ 115 crores should be in gold and the remaining ₹ 85 crores should be in terms of foreign currency and government securities.
Note: ₹ 1 note and coins are issued by Ministry of Finance.

ii. Banker to the Government

RBI acts as a banker, agent and advisor to the Central and State Governments.
On behalf of these governments, RBI:
a. Accepts money
b. Makes payments
c. Engages in management of public debt

iii. Banker’s Bank

RBI acts as a banker’s bank. It controls the working of commercial banks in the country. It is mandatory for all scheduled banks to maintain a certain minimum cash reserves with the RBI against their demand deposits (savings deposits and current deposits) and time deposits (fixed deposits and recurring deposits). RBI also provides financial assistance to banks in the form of discounting eligible bills. Moreover, loans and advances are provided against approved securities.

iv. Custodian of Foreign Exchanae 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 International Monetary Fund (IMF). It is responsible for maintaining the official exchange rate of rupee as well as for ensuring its stability.

v. 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. RBI controls credit in the economy through following methods:

Quantitative methods (to control the volume of credit created)

a. Bank rate
b. Open market operations
c. Variable reserve ratios: Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR)

Qualitative methods (to regulate the purpose or use of credit)

a. Fixing margin requirements
b. Credit rationing
c. Moral suasion

vi. Collection and Publication of Data

RBI collects and compiles statistical information related to banking and other financial sectors.

vii. Promotional and Developmental Functions

RBI performs certain promotional and developmental functions such as:
a. Extending banking services to semi-urban and rural areas
b. Providing security to depositors
c. Development of specialised institutions for agricultural credit, industrial finance

viii. Other functions

RBI acts as a:
a. Clearing house for settling the accounts between its member banks.
b. Lender of last reson and provides liquidity to banks experiencing financial difficulty.

Maharashtra Board Class 12 Economics Previous Year Question Papers