CBSE Sample Papers for Class 12 Economics Paper 2

CBSE Sample Papers for Class 12 Economics Paper 2 are part of CBSE Sample Papers for Class 12 Economics Here we have given CBSE Sample Papers for Class 12 Economics Paper 2.

CBSE Sample Papers for Class 12 Economics Paper 2

Students who are going to appear for CBSE Class 12 Examinations are advised to practice the CBSE sample papers given here which is designed as per the latest Syllabus and marking scheme as prescribed by the CBSE is given here. Paper 2 of Solved CBSE Sample Papers for Class 12 Economics is given below with free PDF download solutions.

Time Allowed: 3 Hours
Maximum Marks : 80

General Instructions

(i) All questions in both sections are compulsory.
(ii) Question Nos. 1 – 4 and 13 – 16 are very short answer questions carrying 1 mark each. They are required to be answered in one sentence each.
(iii) Question Nos. 5 – 6 and 17 – 18 are short answer questions carrying 3 marks each. Answers to them should not exceed 60 words each.
(iv) Question Nos. 7 – 9 and 19 – 21 are also short answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
(v) Question Nos. 10 – 12 and 22 – 24 are long answer questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
(vi) Answers should be brief and to the point and the above word limits should be adhered to as far as possible.

Section A : Microeconomics

Question 1:
State one example of positive economics.

Question 2:
Define fixed cost.

Question 3:
When the Average Product (AP) is maximum the Marginal Product (MP) is (Choose the correct alternative) :
(a) Equal to AP.
(b) Less than AP.
(c) More than AP.
(d) Can be any one of the above.

Question 4:
When the total fixed cost of producing 100 units is ₹ 30 and the average variable cost ₹ 3, total cost is (Choose the correct alternative) :
(a) ₹3
(b) ₹30
(c) ₹270
(d) ₹ 330

Question 5:
Explain the central problem of “for whom to produce”.
Or
Explain the central problem of “choice of technique”.

Question 6:
What is meant by inelastic demand ? Compare it with perfectly inelastic demand.

Question 7:
Given the price of a good, how will a consumer decide as to how much quantity to buy of that good ? Explain.
Or
What is Indifference Curve ? State three properties of indifference curves.

Question 8:
When the price of a commodity changes from ₹4 per unit to ₹5 per unit, its market supply rises from 100 units to 120 units. Calculate the price elasticity of supply. Is supply elastic ? Give reason.

Question 9:
What is meant by price ceiling ? Explain its implications.

Question 10:
Explain the conditions of consumer’s equilibrium using Indifference Curve Analysis.

Question 11:
Explain the conditions of producer’s equilibrium in terms of marginal revenue and marginal cost.

Question 12:
State three characteristics of monopolistic competition. Which of the characteristics separates it from perfect competition and why ?
Or
Explain the implications of the following :
(a) Freedom of entry and exit of firms under perfect competition.
(b) Non-price competition under oligopoly.

Section B : Macroeconomics

Question 13:
Which of the following affects national income ? (Choose the correct alternative)
(a) Goods and Services Tax
(b) Corporation Tax
(c) Subsidies
(d) None of the above

Question 14:
Define money supply.

Question 15:
The central bank can increase availability of credit by (Choose the correct alternative):
(a) Raising repo rate (b) Raising reverse repo rate
(c) Buying government securities (</) Selling government securities

Question 16:
Why does consumption curve not start from the origin ?

Question 17:
Which among the following are final goods and which are intermediate goods ? Give reasons.
(a) Milk purchased by a tea stall.
(b) Bus purchased by a school.
(c) Juice purchased by a student from the school canteen.

Or

Given nominal income, how can we find real income ? Explain.

Question 18:
Define multiplier. What is the relation between marginal propensity to consume and multiplier ? Calculate the marginal propensity to consume if the value of multiplier is 4.

Question 19:
Explain the role of Reserve Bank of India as the “lender of last resort”.

Question 20:
What is meant by inflationary gap ? State three measures to reduce this gap.
Or
What is meant by aggregate demand ? State its components.

Question 21:
The value of marginal propensity to consume is 0.6 and initial income in the economy is ₹100 crores. Prepare a schedule showinglncome, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of ₹ 80 crores.

Question 22:
Explain the meaning of the following :
(a) Revenue deficit
(b) Fiscal deficit
(c) Primary deficit.
Or
Explain the following objectives of government budget:
(a) Allocation of resources.
(b) Reducing income inequalities.

Question 23:
(a) Explain the impact of rise in exchange rate on national income.
(b) Explain the concept of ‘deficit’ in balance of payments.

Question 24:
Calculate (a) Net National Product at market price, and (b) Gross Domestic Product at factor
                                                                                (₹ in Crores)
(i) Rent and interest                                                      6,000
(ii) Wages and salaries                                                  1,800
(iii) Undistributed profit                                                400
(iv) Net indirect taxes                                                      100
(v) Subsidies                                                                       20
(Vi) Corporation tax                                                         120
(vii) Net factor income to abroad                                   70
(viii) Dividends                                                                  80
(ix) Consumption of fixed capital                                  50
(x) Social security contribution by employers           200
(xi) Mixed income                                                           1,000

Answers

Answer 1:
India is overpopulated.

Answer 2:
Fixed costs of a firm refer to the costs which do not change with the change in output.

Answer 3:
(a) Equal to AP.

Answer 4:
(d) ₹330

Answer 5:
Problem of “for whom to produce” means how the national product i.e., national income is to be distributed among the factors of production that helped to produce it. This is also called theory of functional classification. It is rent, wages, interest and profits which determine the distribution of goods among the various individuals in the society. The important view has been that each individual should get income equal to the contribution he makes to the national production. Who is paid how much is also a problem of choice. Production possibility curve helps to solve this problem. If the combination of goods being produced shows increase in output of luxury goods such as cars, refrigerators, washing machines etc. than necessary goods such as foodgrains, cheap clothes etc., it indicates that rich people are preferred to poor people.

OR

“How to produce” is the problem related to the allocation of resources. It arises due to the fact that every economy has limited resources in relation to its wants. Goods can be produced in more than one way. Production techniques may be either labour intensive or capital intensive. An economy will opt for the technique which uses the least amount of scarce resources for a given quantity of output.
For example, a given amount of foodgrains can be produced either by using more capital and less labour or less capital and more labour. The guiding principle is to adopt that technique which causes least possible cost to produce per unit of commodity. In India, labour intensive technique will be preferred because of availability of labour and scarcity of capital.

Answer 6:
Inelastic demand means that the percentage change in quantity demanded is less than the percentage change in the price of the good. Thus,

Perfectly inelastic demand means that there is no change in the demand due to the change in price. Thus, % change in demand
% change in price
In case of inelastic demand, the demand curve is steeper. In case of perfectly inelastic demand, demand curve is vertical i.e., parallel to y-axis.

Answer 7:
Following are the conditions determining how many units of a good the consumer will buy at a given price :
(i) Marginal utility
(ii) Price .
A consumer will compare marginal utility with the price. If a consumer finds that marginal utility is more than price, he will continue to buy more. As he buys more, marginal utility falls. A consumer will buy up to the point where marginal utility equals price. A consumer will stop buying when marginal utility is less than the price.
Following condition of consumer’s equilibrium should be satisfied :
MU of a commodity = Its price
Let us take example of a consumer Saksham whose utility schedule is as under at a price of the commodity of ₹? 6 per unit.

Here, a consumer should purchase 4 units of commodity X because the above condition is satisfied at this point. Thus,
= \(\frac { 6 }{ 1 }\) = 6
If the consumer purchases less than 4 units, there is scope of increasing satisfaction (utility) by purchasing more. If the consumer purchases more than 4 units, there is scope of increasing satisfaction (utility) by purchasing less because marginal utility is less than the price.

OR

Indifference curve may be defined as the curve depicting the various alternative combinations of two goods which provide the same level of satisfaction to the consumer.
Following are the properties of indifference curves :

1. An indifference curve slops downward from left to right – An indifference curve has a negative slope which shows that any increase in the amount of one commodity is accompanied by a reduction in amount of an other commodity.
2. An indifference curve is convex to the origin – An indifference curve is convex to the origin due to diminishing marginal rate of substitution. Marginal rate of substitution of y for x (MRS_yx) is the rate by which amount of y is sacrificed to obtain one additional unit of x. MRS_yx is continuously falling because as he obtains more and nfore units of x, marginal utility of x declines and the consumer will like to sacrifice less y to obtain one additional unit of x.
3. Higher indifference curve represents a higher satisfaction – An indifference curve is based on the assumption that preferences are monotonic which means that consumption of more goods means more satisfaction. One indifference curve represents only one level of satisfaction. For different levels of satisfaction, there are different indifference curves. A higher indifference curve represents a higher level of satisfaction.

Answer 8:
Es = \(\frac { P }{ Q }\) = \(\frac { \Delta Q }{ \Delta P }\)
where P = Original price
Q = Original quantity supplied
AP = Change in price
AQ = Change in quantity supplied.
Putting the given figures in above formula, we get
Es = \(\frac { 4 }{ 100 }\)  x \(\frac { 20 }{ 1 }\) =0.8
No, supply is not elastic because price elasticity of supply is less than 1 (one) or unity.

Answer 9:
Price ceiling is a system under which a ceiling is imposed on the price of a commodity as a result of which sellers cannot charge price higher than the price fixed by the government. Price fixed by the government is lower than the equilibrium price. Price ceiling is a . method of government’s intervention in the free operation of market forces. Such a step is taken to protect the interests of the poor people who cannot afford the equilibrium price. The impact of price ceiling may be shown in diagram.

In the diagram, OP is equilibrium price. The government fixes ceiling at OC. As a result of price ceiling, price is reduced from OP to OC. At this price demand increases to CN i.e., OV. But the sellers offer only CM i.e., OU quantity of commodity. As a result, there is a shortage of commodity equal to MN or UV. To avoid the problem of shortage, the government adopts the system of Rationing.

Answer 10:
Consumer’s equilibrium will be at the point where he gets maximum satisfaction with the given money income. As such, a consumer will attempt to reach the highest indifference curve which is within his purchasing power shown by budget line. Hence, a consumer will be at equilibrium at the point when following two

1.  MRS = Ratio of prices – Let the two goods be X and Y. The first condition for consumer’s equilibrium is that MRS – Px/Pv. Now suppose MRS is greater than Px/Py. It means that the consumer is willing to pay more for X than the price prevailing in the market. As a result, the consumer buys more of X. This leads to fall in MRS. MRS continues to fall till it becomes equal to the ratio of prices and the equilibrium is established.
2. MRS continuously falls – Unless MRS continuously falls, die equilibrium cannot be established.
   Adjacent diagram shows the equilibrium of a consumer.
   A consumer will be at equilibrium at E because he gets maximum satisfaction from his given money income. He will not like to shift to any point left to E because the level of satisfaction is lower. He will like to move to right of E but his money income is not sufficient to achieve it.

Answer 11:
Producer’s equilibrium is the position where a producer earns maximum profit and as a result, there is no tendency to change.
According to marginal cost and marginal revenue approach, there are two conditions of producer’s equilibrium :
(i) Marginal Revenue (MR) = Marginal Cost (MC)
(ii) Marginal cost must be rising i.e., MC curve must cut MR curve from below.
Following are two cases :

(i) Producer selling any quantity at prevailing market price.
Producer’s equilibrium may be shown as :

In the diagram, marginal revenue and marginal cost are equal to each other at two points A and E. But, the producer will be at equilibrium at E because at this level rising marginal cost is equal to marginal revenue. Producer will cam more profit at E than at A because number of units produced are maximum.

(ii) Producer selling more of quantity only by lowering the price.
Producer’s equilibrium may be shown as :

In the diagram, MC = MR condition is satisfied at both A and B. But the second condition – MC is greater than MR or MC curve cuts MR from below – is satisfied only at B. So, the equilibrium level of output is OQ2.

Answer 12:
Following are the main features of monopolistic competition :
(i) Limited number of sellers – The number of sellers is so limited that each individual seller can influence the market in a limited way.
(ii) Firms producing differentiated products – In monopolistic competition, firms produce differ-entiated products. The products are similar but not identical. Products are differentiated by brand name, colour, package, credit conditions, customer service etc. The products may physically be the same but consumers treat them different products. This gives an individual firm some monopoly of its own differenti-ated product.
(iii) Free entry and exit – Buyers and sellers (firms) are free to enter or leave the market at any time they like. Large profit will induce the new firms to enter the industry whereas losses will compel inefficient firms to leave the industry.
The characteristic of differentiated products separates monopolistic competition from perfect competition. Under perfect competition, firms sell homogeneous products which are identical in size, colour, quality and weight. As such, products sold by the firms under perfect competition are perfect substitutes of one another.

OR

(a) Freedom of entry and exit of firms under perfect competition – The feature ‘freedom of entry and exit of firms’ means that firms are free to enter or leave the market at any time they like.
If the firms are earning abnormal profits in short run, new firms will be attracted to the industry. This will shift the market supply curve to the right which will reduce the price as well as profit. If the firms are making abnormal losses in the short run, some of the existing firms will leave the market. This will shift the market supply curve to the left which will abolish the loss by increasing the price. Thus, in the long run, all firms under perfect competition will earn only normal profits.
(b) Non-price competition under oligopoly – In case of oligopoly, firms do not face price competition because prices of the products are more or less rigid. Once a price has been fixed, a firm will avoid changing it. Hence, price rigidity is an essential feature of oligopoly. However, there is non-price competition among firms to attract customers. Non-price competition is visible in following forms :

1.  Product research and development
2.  Stronger and more durable products
3. Better packaging
4.  Easier credit terms
5. After sales service
6. Advertising
7. Personal selling.

Answer 13:
(d) None of the above

Answer 14:
Money supply may be defined as total stock of money of various kinds at any particular point of time held by the public.

Answer 15:
(c) Buying government securities

Answer 16:
Consumption is an activity of using goods and services by the people to satisfy human wants.
Consumption has two components :

1. Autonomous consumption – Autonomous consumption is the consumption which is independent of the level of income. Such expenditure is incurred even if income is zero.
2.  Induced consumption – Induced consumption is the consumption which is influenced by the level of income. Such consumption bears a positive relation with the level of income.

Thus, C = \(\overline { C }\) + bY
Since autonomous consumption is incurred without having any income, consumption expenditure will always be positive and cannot be zero because survival needs consumption. Hence, consumption curve will not start from the origin i.e., from zero.

Answer 17:
(a) Milk purchased by a tea stall is an intermediate good because milk will be used up by the tea stall in the process of production i.e., for preparing tea meant for sale. It remains within production boundary.
(b) Bus purchased by a school is a final good because a bus is a durable product and shall be available for use in future also. A bus crosses over production boundary and does not remain in production boundary.
(c) Juice purchased by a student from the school canteen is a final good because it is used for consumption by a consumer. It is not found in production boundary.

OR

Nominal income is income at current prices and is estimated on the basis of prices prevailing in the current year. Real income is income at constant prices and is estimated on the basis of fixed prices i.e., prices prevailing in the base year.
For finding real income from given nominal income, we need price index of current year and price index of base year which is normally taken as 100. It may be put as under :
Real income = \(\frac { Nominal income }{ Price index of current year }\)  × Price index of base year

Answer 18:
Investment multiplier means the rate of change in national income due to change in investment. Thus.
Multiplier = \(\frac {  Change in National Income }{ Change in Investment }\)
Multiplier depends on the value of marginal propensity to consume (MPC).
Marginal propensity to consume is the proportion of income that is consumed out of additional income.
When there is increase in investment, there will be increase in the income of some persons who will again spend it on consumption goods which will again become the income of producers of consumption goods.  Higher marginal propensity to consume means higher consumption which induces producers to produce more resulting in increase in national income. Thus, investment multiplier is positively related to marginal propensity to consume.
Multiplier coefficient is obtained by following formula :
K = \(\frac {  1 }{ 1- MPC }\)
It implies that higher the marginal propensity to consume, higher will be the multiplier. Minimum value of investment multiplier can be one because minimum value of MPC can be zero.

Answer 19:
Lender of last resort means , when the commercial banks have no other sources to procure loan, the central bank lends to them after rediscounting its bills of exchange and securities. This situation sometimes arises when the commercial banks have to meet extra demand of their customers for ready cash. They cannot supply according to demand and fall back upon the central bank. The central bank as the lender of the last resort comes to their rescue.
The advantages of this function are as follows :

1. Commercial banks can carry reserves.
2. An emergency can easily be faced because of easy economic aid from the central bank.
3. Important requirements of trade and industry can be met.
4.  The central bank gets a chance to control credit creation.

Answer 20:
Inflationary gap or excels demand may be defined as the excess of aggregate demand over aggregate supply at full employment.
Following are three measures to reduce inflationary gap :

1. Legal Reserves – Legal or statutory reserve is the fraction of total demand and time deposits which the commercial banks are required by central bank to keep with it. To reduce inflationary gap, central bank raises legal reserve ratio which in turn, reduces capacity of commercial banks to create credit.
2. Bank Rate – Bank rate means the rate of interest at which central bank lends to commercial banks. Any change in bank rate affects credit creation by commercial banks. An increase in bank rate leads to an increase in commercial banks’ lending rate of interest. As a result, credit becomes costlier because rate of interest is cost of credit. An increase in bank rate discourages commercial banks in borrowing from central bank. Thus, increase in bank rate reduces the quantum of credit with the commercial banks that can be advanced to public as loan.
3. Open Market Operations – Open market operation means policy of central bank to sell and buy government securities in the market. Open market operations affect the volume of cash reserves with the commercial banks and, thus the overall availability of credit. Sale of government securities by central bank to commercial banks reduces the cash reserves with the banks resulting in decline of credit. During the phase of inflationary gap, central bank sells government securities to commercial banks which motivates the commercial banks to create less credit.

OR

Aggregate demand may be defined as the total amount which all the buyers in the economy are willing to spend i.e., total output of the economy during a year.
Following are the components of aggregate demand :

1.  Private (or household) consumption demand – Private consumption demand refers to the total amount of expenditure incurred by the households on purchase of goods and services for consumption purposes.
2.  Private investment demand – Private investment demand refers to the total amount of expendi-ture incurred by the households on currently produced real assets like buildings, machines, raw materials etc. which help in production.
3.  Government demand for goods and services – Government demand for goods and services refers to the total amount of expenditure incurred by the government on purchase of consumer and capital goods to cater to the common needs of the society.
4. Net exports – Net exports means excess of exports over imports.

Answer 21:
Schedule showing income, consumption and savings :

At equilibrium level of income, autonomous investment has to be equal to savings. At a savings of ₹80 crores, equilibrium level of income will be ₹200 crores.

Answer 22:
(a) Revenue Deficit – Revenue deficit may be defined as a position where total revenue expenditure of the government exceeds its total revenue receipts. Thus,
Revenue deficit = Total revenue expenditure – Total revenue receipts
Revenue deficit means dissavings on government account and the use of savings of other sectors of the economy to finance a part of the consumption expenditure of the government. As a result, borrowed funds from the capital account are used to meet a part of consumption expenditure of the government. This affects the entire economy adversely. Revenue deficit leads to rise in prices and hampers the process of economic growth.

(b) Fiscal Deficit – Fiscal deficit may be defined as a position where total expenditure of the government is more than its sum total of revenue receipts and non-debt capital receipts. Thus,
Fiscal deficit = Total expenditure – Total revenue receipts – Non-debt capital receipts
Fiscal deficit within a limit does not create any problem. But, if fiscal deficit is high, it would create a large number of problems. High fiscal deficit encourages wasteful and unnecessary expenditure on the part of the government. Further, a high fiscal deficit leads to financial instability because high fiscal deficit encourages borrowings on the part of the government. This creates a large burden of interest payment and repayment of loans in the future. A country has to face the problem of debt-trap. Further, a large fiscal deficit may be inflationary.

(c) Primary Deficit – Primary deficit means excess of total expenditure of the government excluding interest payments over sum total of its revenue receipts and non-debt capital receipts. Thus,
Primary Deficit = Fiscal deficit – Interest payments
From the above definitions, we find that primary deficit is a narrower concept and a part of fiscal deficit.
Primary deficit shows the borrowing requirements of the government for meeting its existing expenses other than interest payments.

OR

(a) Allocation of resources – One of the objectives of a government budget is to secure reallocation of resources in line with economic and social priorities of the country. For this purpose, the budget of the government may have a liberal expenditure policy in favour of public goods such as national defence, roads, government administration etc. to promote social welfare. The government can use its taxation policy to mobilise resources for investment. The government can also give subsidies to encourage production in some sectors and small scale industries. The government may discourage the production of undesirable goods through heavy taxation.

(b) Reducing income inequalities – One of the objectives of a government budget is to ensure redistribution of income i.e., to reduce inequalities in income by provisions in budget.
To reduce inequalities in income and wealth, a government may adopt the liberal expenditure policy in favour of people whose income levels are low. The government can provide subsidies and other amenities to poor people. Expenditure incurred by the government on unemployment allowance, old agd pension, social security, adult education, health facilities, etc., benefit more the poor. Such a policy increases the disposable income and reduces the inequalities. The government may increase its investment in public works like costruction of roads, railway lines, canals, bridges etc. This will help in increasing the income of the poor and reducing the inequalities.
The government can use its taxation policy to reduce inequalities in income and wealth. The government may impose income tax at higher rates on the rich people and at lower rates on poor people. The government may impose more and more taxes on comforts and luxuries commonly used by the rich.

Answer 23:
(a) National income is generated by way of consumption expenditure, investment expenditure, government purchases and expenditure by foreigners on the country’s exports. A rise in foreign exchange rate makes home country’s goods cheaper to foreigners. As a result, demand for home country’s goods increases leading to increase in India’s exports. Further, a rise in foreign exchange rate makes home country’s currency cheaper which attracts foreigners and promotes tourism to home country. Due to these factors, there is a positive impact of rise in exchange rate on national income.
(b) Deficit in balance of payments means that total inflows on account of autonomous transactions is less than total outflows on account of such transactions. Deficit in balance of payments implies that the foreign countries have some claims against the domestic country.
Following are some measures to correct deficit in balance of payments :

1. Imports substitution
2. Export promotion
3. Depreciation of home currency
4. Exchange control
5. Restrictions on imports
6. Control of inflation.

Answer 24:
(a) Net National Product at market price
= Rent and interest + Wages and salaries + Social security contribution by employers + Undistributed profit + Corporation tax + Dividends + Mixed income + Net indirect taxes – Net factor income to abroad
= 6,000 + 1,800 + 200 + 400 + 120 + 80 + 1,000 + 100 – 70 = 9,700 – 70
= ₹ 9,630 Crores

(b) Gross Domestic Product at factor cost
= Net national product at market price + Consumption of fixed capital + Net factor income to abroad – Net indirect taxes
= 9,630 + 50 + 70- 100= 9,750 – 100
= ₹ 9,650 Crores

Alternatively :
Gross Domestic Product at factor cost
= Rent and interest + Wages and salaries + Social security contribution by employers + Undistributed profit + Corporation tax + Dividends + Mixed income + Consumption of fixed capital
= 6,000 + 1,800 + 200 + 400 + 120 + 80 + 1,000 + 50
= ₹ 9,650 Crores

We hope the CBSE Sample Papers for Class 12 Economics Paper 2 help you. If you have any query regarding CBSE Sample Papers for Class 12 Economics Paper 2, drop a comment below and we will get back to you at the earliest.