Class 12 Economics Previous year question paper with Solutions 2024
Group A: Objective Questions (Answer all)
Question paper Available after the Answers
1-
a. Joint demand
b. Vertical
c. Infinite
d. Increases at an increasing rate
e. AC is minimum
f. Perfect competition
g. J. M. Keynes
h. Consumption expenditure (C) / Income (Y)
i. The Reserve Bank of India (RBI)
j. Total income greater than total expenditure (Surplus budget)
k. Adam Smith
l. Want
m. Consumer goods
n. Form utility
o. Downward sloping
Correct the incorrect statements only:
2- a. Incorrect - In case of perfectly elastic demand, elasticity is infinite, not zero.
b. Incorrect - Change in quantity demanded occurs due to change in price, not income.
c. Incorrect - Functional relationship between inputs and outputs is called production function, not consumption function.
d. Incorrect - Labour is a variable factor, not fixed.
e. Incorrect - Economic cost is explicit cost plus implicit cost, not average cost.
f. Incorrect - Average cost curve is U-shaped in short run, not horizontal.
g. Incorrect - Under monopoly, AR is not equal to MR.
h. Incorrect - Macroeconomics studies aggregate economy, not individual units.
i. Correct
j. Incorrect - At equilibrium income, saving equals investment.
k. Incorrect - Only RBI has monopoly power in note issue, not commercial banks.
l. Correct
m. Incorrect - Resources are limited, not unlimited.
n. Incorrect - Consumption is use or satisfaction of utility, not destruction.
o. Incorrect - Public goods are generally not available in market due to non-excludability.
Group B: Short Answers (Any eleven, 2-3 sentences each)
3- A-Elasticity of demand measures responsiveness of quantity demanded to change in price.
b. Marginal utility is additional satisfaction from consuming one extra unit of a good.
c. Production is process of creating goods/services using factors of production: land, labor, capital, entrepreneurship.
d. Short-run total cost is sum of total fixed cost and total variable cost in production.
e. Marginal revenue is additional revenue from selling one more unit of output.
f. Features of perfect competition: many buyers/sellers, homogeneous products, free entry/exit, perfect knowledge.
g. Short period is time frame when at least one factor of production is fixed.
h. Personal disposable income is income after tax and transfer payments available for spending or saving.
i. Macroeconomics studies economy-wide phenomena like inflation, unemployment, national income.
j. Money proper refers to commodity money used as a medium of exchange, e.g. gold, silver coins.
k. Types of budget: surplus, deficit, balanced.
l. Place utility is utility created by making goods available at convenient locations.
m. Economic goods are scarce goods that have opportunity cost and demand.
n. Change in demand means shift of demand curve due to factors other than price.
4- (a) Value vs Price
Value indicates the usefulness or satisfaction derived from a good or service.
Price is the monetary amount paid to purchase a good or service.
Value is subjective and varies from person to person.
Price is objective and determined by market forces.
Value is related to utility and demand of the product.
Price reflects supply and demand equilibrium in the market.
(b) Money Costs vs Real Costs
Money costs are the actual expenses incurred in monetary terms.
Real costs refer to the physical or opportunity costs borne while producing goods.
Money costs include wages, rent, raw material payments.
Real costs include labor hours, effort, and resources used.
Money costs are recorded in accounts; real costs may not be fully quantifiable.
Real costs consider sacrifice of next best alternative use of resources.
(c) Average Revenue vs Marginal Revenue
Average revenue (AR) is total revenue divided by quantity sold.
Marginal revenue (MR) is the revenue earned by selling one additional unit.
AR usually equals price in perfect competition.
MR can be less than price in imperfect markets due to price reductions.
AR shows per unit earning; MR shows incremental earnings.
MR curve lies below AR curve in monopoly due to price effect.
(d) Perfect Competition vs Monopoly
Perfect competition has many buyers and sellers; monopoly has only one seller.
Products are homogeneous in perfect competition; unique in monopoly.
Firms are price takers in perfect competition; price makers in monopoly.
Easy entry and exit in perfect competition; blocked entry in monopoly.
Perfect competition leads to allocative efficiency; monopoly may cause inefficiency.
Perfect competition ensures normal profits; monopoly can earn supernormal profit.
(e) GDP vs GNP
GDP measures total value of goods & services produced within a country’s borders.
GNP adds net income from abroad to GDP.
GDP includes foreign firms within the country; GNP includes income of nationals abroad.
GDP reflects domestic economic activity; GNP reflects economic activity of residents regardless of location.
GDP is useful for assessing internal economy; GNP for measuring overall national income.
GDP excludes remittances from abroad; GNP includes them, showing broader income scope.
(f) Demand/Current Deposits vs Time/Fixed Deposits
Demand deposits can be withdrawn anytime without prior notice.
Time deposits are held for a fixed tenure with restricted withdrawal.
Demand deposits offer low or no interest; time deposits generally offer higher interest.
Demand deposits are transactional accounts; time deposits are savings or investment.
Demand deposits facilitate payments via checks and transfers.
Time deposits encourage savings by locking funds and offering fixed returns.
Group C: Long Answers (Any four)
5. Functions of Commercial Banks
Commercial banks play a vital role in the modern economy, acting as financial intermediaries between savers and borrowers.
Accepting Deposits: Banks provide a safe place for the public to deposit their savings in various forms such as saving, current, and fixed deposits. These deposits are repayable on demand or after a certain period.
Lending Loans and Advances: After accumulating deposits, banks use a major portion of these funds to offer loans and advances, including personal loans, home loans, and business finance, to individuals and organizations.
Credit Creation: Commercial banks facilitate the process of credit creation in the economy by lending more than the cash they have on hand, through the fractional reserve system.
Cheque and Payment Facilities: Banks offer payment and settlement services such as issuing cheques, NEFT, RTGS, UPI, and online transfers, which help in circulating money efficiently.
Agency and Utility Services: Besides primary functions, banks perform agency services like fund transfers, bill payments, collection of cheques, and acting as trustees or executors of wills.
Other Services: Banks also provide locker services, deal in foreign exchange, safeguard valuables, offer investment advice, and facilitate standing instructions and utility bill payments.
6. Lionel Robbins’ Definition of Economics
Lionel Robbins provided a scientific and universal definition of economics emphasizing scarcity and allocation:
Definition: According to Robbins, “Economics is the science which studies human behavior as a relationship between multiple ends and scarce means which have alternative uses.”
Key Features: The definition highlights four core propositions: unlimited human wants, wants differ in importance, resources are limited, and these resources have alternative uses.
Science of Scarcity: Robbins stressed that the central economic problem is scarcity—there are not enough resources to satisfy all wants, so choices must be made.
Choice and Allocation: As resources have alternative uses, society must decide how to allocate resources to maximize utility, which leads to the study of choice in economics.
Role in Modern Economics: Robbins’ approach shifted the focus from wealth or welfare to decision-making, scarcity, and choice, broadening the scope of economics to areas like environmental and welfare economics.
Merits and Criticism: His definition is lauded for scientific rigor and universal applicability, though some criticize it for ignoring welfare or human aspects.
7. Price Elasticity of Demand: Meaning, Factors, and Measurement
Price elasticity of demand (PED) is a crucial concept in economics:
Definition: PED measures the degree to which quantity demanded changes in response to a change in price, keeping other factors constant.
Formula: Mathematically, it is the percentage change in quantity demanded divided by the percentage change in price.
Factors Affecting PED: Major factors include availability of substitutes (more substitutes, higher elasticity), nature of the good (necessity vs. luxury), share of income spent on the good (higher share, higher elasticity), and time period (elasticity is greater in the long run).
Types of Elasticity: It can be perfectly elastic (infinite), perfectly inelastic (zero), unitary elastic (=1), relatively elastic (>1), or relatively inelastic (<1).
Measurement Methods: PED can be measured using the percentage or proportional method, total expenditure method, and geometric method (using the slope of the demand curve).
Importance: Helps firms in pricing decisions, government in taxation policy, and understanding consumer behavior.
8. Law of Diminishing Marginal Utility: Statement and Limitations
The law of diminishing marginal utility (DMU) is a foundational law of consumption:
Statement: The law states that as a consumer consumes more units of a good, the marginal utility derived from each successive unit decreases, assuming consumption of all other goods remains constant.
Explanation: For instance, the first slice of bread satisfies hunger more than the second; with each additional slice, satisfaction declines.
Underlying Assumptions: The units consumed must be identical and consumed in succession, consumer’s taste remains constant, and utility can be measured in cardinal numbers.
Graphical Representation: The marginal utility curve typically slopes downward, showing diminishing satisfaction with increased quantity.
Limitations: The law assumes rational behavior, independent utility, constant income, and homogeneous goods—conditions not always present in real life. It may not hold for items like addictive goods or goods consumed with time gaps.
Significance: The law justifies the downward slope of the demand curve and the basis for consumer equilibrium and the law of demand.
9. Law of Supply: Statement, Exceptions, and Diagram
The law of supply explains the positive relationship between price and quantity supplied:
Statement: The law states that other things being equal, the quantity of a good supplied rises as the market price rises and falls as the price falls.
Normal Supply Curve: The supply curve generally slopes upward from left to right, showing direct relationship.
Exceptions:
For rare and unique goods (e.g., art by deceased artists), supply is fixed regardless of price.
For agricultural goods, supply can’t rapidly adjust due to biological and seasonal constraints.
Perishable goods may be supplied at any price to prevent loss.
Firms expecting future price drops may supply more at current prices.
In share markets, some investors may sell more as prices fall, anticipating further decline.
Illustrative Diagram: A typical upward sloping supply curve is used; for exceptions, a vertical or downward sloping curve may be shown.
Key Assumptions: Other factors, like technology, cost of production, and government policy, are held constant.
Practical Implications: Understanding the supply law and exceptions helps in market analysis and planning by firms and policymakers.
10. Price Determination under Perfect Competition
Price determination in perfectly competitive markets is a core topic in microeconomics:
Market Features: Perfect competition means many buyers and sellers, homogeneous products, free entry and exit, and perfect information.
Price Taker: Individual firms have no influence over the market price and accept the price determined by overall demand and supply.
Demand and Supply Interaction: The price is set at the equilibrium point where market demand equals market supply.
Equilibrium Point: This equilibrium price ensures the quantity consumers want to buy equals the quantity firms want to sell.
Firm’s Output Decision: Each firm decides its output level based on this price, ensuring profit maximization where marginal cost equals marginal revenue.
Graphical Representation: Market price is at the intersection of demand and supply curves; the firm’s demand curve is perfectly elastic (horizontal) at the market price.
