Practice Paper
TERM II (2021 – 2022)
Class – XI
Economics (030)
Time: 2 hours Maximum Marks: 40
General Instructions:
• This is a Subjective Question Paper containing 13 questions.
• This paper contains 5 questions of 2 marks each, 5 questions of 3 marks each and 3 question of 5 marks each.
• 2 marks questions are Short Answer Type Questions and are to be answered in 30-50 words.
• 3 marks questions are Short Answer Type Questions and are to be answered in 50-80 words.
• 5 marks questions are Long Answer Type Questions and are to be answered in 80-120 words.
• This question paper contains Case / Source Based Questions.
1. A producer borrows money and opens a shop. The shop premises is owned by him. Identify implicit cost and explicit cost from this information. Also, explain.
In the above example, interest paid on borrowed money will be’ explicit cost, whereas, the imputed rent of the shop premises is implicit cost.
Explicit Cost These are those cash payments, which firms make to outsiders for their services and goods. e.g. wages, payment for raw material, rent, interest, etc.
Implicit Cost These are the costs of self-owned and self-employed resources. e.g. entrepreneur may utilise his · own building for factory use, interest on self-capital, etc.
OR
Explain the concept of the short –run and long –run.
Short-run: Short-run refers to a period of which output Can be changed by changing only variable factors. In the short – run fixed inputs like land, building, plant, machinery etc, cannot be changed. It means production can be raised by increasing only variable factors, with optimum use of fixed factors.
Long- run: Long-run refers to a period in which output can be changed by changing all factors of production. In the long run, firm can change its factory size, techniques of production, purchase new plant machinery, patents etc.
2. State giving reasons, whether the following statements are true or false.
(a) When Marginal Revenue Is positive and constant, Average Revenue and Total Revenue will both increase at constant rate.
False, because when Marginal Revenue is positive and constant, Total Revenue increases at constant rate but Average Revenue equal to Marginal Revenue.
(b) When Marginal Revenue falls to zero, Average Revenue becomes maximum.
False, when Marginal Revenue is zero, Average Revenue will be diminishing.
3. Complete the following table:
OR
What is meant by returns to a factor? State the law of diminishing returns to a factor?
Returns to a Factor: It refers to the behaviour of output, when only one variable factor of production is increased in short-run and fixed factors remains constant.
Law of Diminishing Returns to a Factor: It refers to a situation in which total output increases at a diminishing rate when more and more variable factor is combined with the fixed factor of production. In this situation, Marginal Product of the variable factor must be diminishing.
4. “Is a firm under perfect competition a price taker, or a price maker?” Justify your
answer.
A firm under perfect competition is a price taker because of the following reasons
(i) A firm under perfect competition is contributing such a small fragment to the market supply that total supply schedule remains unaffected by any change in individual firm’s supply.
(ii) All firms are selling homogeneous product. Accordingly, even partial control over price is not possible.
(iii)If any firm tries to fix its own price, it won’t succeed. Higher price would drive the buyers to a large number of other sellers. Lower price would bring so many buyers to a firm that it cannot cope with the demand.
OR
Explain the implication of freedom of entry and exit of the firms under perfect competition.
A firm can enter or leave the industry any time. Because of free entry and exit, firms in the long-run can earn only normal profits (TR =TC or AR =AC). In case extra normal
profits are earned in the short-run, new firms will join the industry. Market supply will increase and market price will fall. Extra profits will be wiped out. In case of extra normal losses or abnormal losses, some of the existing firms will leave the industry. Market supply will decrease. Hence, market price will increase and extra normal losses will be wiped out. So, we can say that firms under perfect. Competition can earn only normal profits in the long-run.
5. A firm supplies a certain quantity of a good at a price of ₹10 per unit. When price changes to ₹9 per unit the firm supplies 10 units less. Price elasticity of supply is 1, What is the quantity supplied before price change?
P = ₹10,
P1 =₹ 9
ΔP=9-10 (-) ₹1
Q=?
ΔQ= (-) 10
ES =1
Price Elasticity of supply (Es) = ΔQ/ΔP x P/Q
1= (-10)/(-)1 x 10/Q
=100 units.
6. Market for a good is in equilibrium. There is an increase in demand for these goods.
Explain the chain of effects of this change.
Equilibrium refers to the situation in which market demand is equal to market supply. The given diagram shows a situation of increase in demand. The demand curve shifts to the right from DD to D1D1. Equilibrium point shifts from E to E1. Consequently, equilibrium price rises from OP to OP1 and equilibrium quantity increases from OQ to OQ1.
7. Consider the examples given below
(i) As price falls, demand for product ‘A’ increases.
(ii) Effect of adequate irrigation facilities, fertilisers and pesticides on per hectare productivity of wheat.
On the basis of above examples, explain the main difference between simple correlation and multiple correlation.
The first example involves only two variables, viz. price and demand, Therefore, it relates to simple correlation.
The second example involves more than two variables, i.e., how the productivity of wheat is affected by use of irrigation facilities, fertilisers and pesticides. Therefore, it relates to multiple correlation.
Simple Correlation: When the relationship only two variables is studied, it is called simple correlation.
Multiple Correlation: When the relationship among three or more than three variables is studied simultaneously, it is called multiple correlation.
8. Calculate standard deviation and coefficient of variation from the following data with help of assumed mean method.
OR
The coefficient of variations of two series are 58% and 69% and their standard deviations are 21.2 and 15.6. What is their mean.
Read the following text carefully and answer question number 9 and 10 given below.
We frequently see index numbers, such as the Consumer Price Index (CPI), in our daily life. Economists often use the index numbers to compare values measured at different points in time. Using an index can make quick comparisons easy. The index numbers have become a widely accepted statistical device for measuring business activity changes. A typical use of the index number technique in business is to summarize complex situations, with a single performance index so that a dashboard (or report) would have enough space to show all CPIs. An index number is used to measure changes in the magnitude of a variable or group of variables regarding time, geographical location, or other characteristics such as profession. IT professionals who need to analyse economic and business activities, but have limited experience in statistics, want to learn how to construct and interpret performance indexes. Index numbers are also not free from criticism as its base year and commodity selection requires a lot of attention and expert attention.
9. What is an index number? Point out its utility.
An Index Number is a statistical measure designed to show changes in a variable or group of related variables with respect to time, geographic location or other characteristics.
1.Measurement of change in the price level or the value of money.
2.Knowledge of the change in Standard of living
3.Useful to Business Community
4.Information regarding production
5.Information regarding foreign trade.
(Brief Explanation)
Any relevant point.
10. What are the consideration underlying the choice of base period in the construction of an index number?
Base period should have the following properties
(i) The base year should be a normal year in which extraordinary events such as earthquake, flood, war, elections, etc should not have occurred.
(ii) The period should not be too far in the past as comparison cannot be done with such a base year because policies, economic and social conditions change with time.
(iii) Base period should be updated periodically.
11. (i) Do you agree with the view that market absorbs the impact of increase or decrease in demand only through the Process of ‘extension and contraction of demand and supply? Give reason.
Yes, it is true that the market absorbs the impact of increase or decrease in demand only through the process of ‘extension and contraction of demand and supply’. Reason: When there is increase in demand, demand curve shifts to the right. Excess demand emerges in the market. Price tends to be higher than the equilibrium price. It leads to extension of supply and contraction of demand. It is through this process of extension and contraction that excess demand is eliminated and new equilibrium is established in the market. Likewise, when there is decrease in demand, demand curve shifts to the left. Excess supply emerges in the market. Price tends to be lower than the equilibrium price. It leads to extension of demand and contraction of supply. It is through this process of extension and contraction that excess supply is eliminated and new equilibrium is established in the market. Show with diagram.
(ii) Farmers may suffer a loss even when there is a good harvest. Does your supply-demand analysis provide an answer to this paradox.
(ii) Owing to their poverty (and immediate need for cash) farmers are often driven to a distressed sale of their produce. Accordingly, good harvest often leads to excess supply in the market. This causes a price- crash. The price may fall to such an extent that the total revenue of the farmer decreases even when his output/sale is more than before.
12. What is total cost, average cost and marginal cost? Explain the relationship between average cost and marginal cost with help of a table and diagram.
Total Cost is the sum of total fixed cost and total variable cost.
Marginal cost can also be defined as the addition to total cost when one extra unit of output is produced.
Average Cost (AC) or Average Total Cost (ATC) is defined as per unit cost of output.
Relationship between MC and AC
1. When MC < AC, AC falls.
2. When MC = AC, AC is constant.
3. When MC > AC, AC rises.
Table Diagram
OR
Explain how change in prices of other products influence the supply of given products.
Increase in the price of substitute goods make them more profitable in comparison to the given commodity. As a result, the firm shifts its limited resources from production of the
given commodity to production of other good. e.g. increase in the price of wheat will induce the farmer to use land for cultivation of wheat in place of rice. Decrease in price of substitute good will shift the supply curve to the right and vice-versa. In case of complementary goods, if price of one good increases, then supply of its complementary good also increases, conveying a direct relationship. So, rise in the price of car, will cause the supply of petrol to rise and the supply curve shifts to the rightward and vice-versa. (Show with diagram.)
13. Calculate Karl Pearson’s coefficient of correlation between the price and quantity supplied by short-cut method and interpret the result.
