CBSE Sample Papers for Class 12 Economics Paper 6

CBSE Sample Papers for Class 12 Economics Paper 6 are part of CBSE Sample Papers for Class 12 Economics Here we have given CBSE Sample Papers for Class 12 Economics Paper 6.

CBSE Sample Papers for Class 12 Economics Paper 6

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 6 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. However, there is internal choice in some questions,
(ii) Question Nos.1 – 4 and 13 – 16 are veiy short answer questions carrying 1 mark each. They are required to be answered in one sentence.
(iii) Question Nos. 5 – 6 and 17 – 18 are short answer questions carrying 3 marks each. Answers to them should not normally 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 not normally exceed 70 words each.
(v) Question Nos. 10 – 12 and 22 – 24 are long answer questions carrying 6 marks each. Answers to them should not normally exceed 100 words each.
(vi) Answers should be brief and to the point and the above word limit be adhered to as far as possible.

Questions

Section A : Microeconomics

Question 1:
The demand of a normal commodity when measured through percentage method is less than unity (one), but more than zero. A fall in its price will result in (choose the correct alternative):
(a) no change in demand.
(b) decrease in demand.
(c) increase in demand.
(d) any one of the above

Question 2:
Define market demand.

Question 3:
Identify the commodity whose demand will not change in spite of rise or fall in the price of the commodity.
(a) Cosmetics
(b) Salt
(c) Television
(d) Garments

Question 4:
Average revenue and price are always equal under (choose the correct alternative) :
(a) perfect competition only.
(b) monopolistic competition only.
(c) monopoly only.
(d) all market forms.

Question 5:
State different phases of the Law of Variable Proportions on the basis of total product.
Or
Explain briefly the factors determining elasticity of supply.

Question 6:
Explain the “free entry and exit of firms” feature of monopolistic competition.

Question 7:
Distinguish between microeconomics and macroeconomics.
Or
State the meaning and properties of production possibilities frontier.

Question 8:
Explain the conditions of consumer’s equilibrium under indifference curve approach.

Question 9:
Complete the following table :

Question 10:
When price of a commodity AT falls by 10 per cent, its demand rises from 150 units to 180 units. Calculate its price elasticity of demand. How much should be the percentage fall in its price so that its demand rises from 150 to 210 units ?

Question 11:
Good Pis a substitute of good X. The price of Y falls. Explain the chain of effects of this change in the market of X.
Or
Explain the chain of effects of excess supply of a good on its equilibrium price

Question 12:
Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of output is ₹ 12. Using marginal cost and marginal revenue approach, find out the level of equilibrium output. Give reasons for your answer :

Section B : Macroeconomics

Question 13:
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called (choose the correct alternative):
(a) statutory liquidity ratio.
(b) deposit ratio.
(c) cash reserve ratio.
(d) legal reserve ratio.

Question 14:
Aggregate demand can be increased by _____ . (choose the correct alternative) :
(a) increasing bank rate.
(b) selling government securities by Reserve Bank of India.
(c) increasing cash reserve ratio.
(d) none of the above.

Question 15:
Give the meaning of involuntary unemployment.

Question 16:
Which of the following is not a function of central bank ?
(a) Issue of currency.
(b) Accepting deposits from public.
(c) Govermfient’s banker.
(d) Credit control.

Question 17:
Explain the basis of classifying taxes into direct and indirect tax. Give examples.

Question 18:
Explain how government budget can be used to influence distribution of income.
Or
Explain the role of government budget in bringing economic stability.

Question 19:
Distinguish between final products and intermediate products. Give an example of each.

Question 20:
Explain ‘banker to the government’ function of the central bank.
Or
Explain the role of reverse repo rate in controlling money supply.

Question 21:
An economy is in equilibrium. From the following data about an economy calculate autonomous consumption.
(i) Income = 5,000
(ii) Marginal propensity to save = 0.2
(iii) Investment expenditure = 800

Question 22:
Why does the demand for foreign currency fall and supply rises when its price rises ? Explain.

Question 23:
Assuming that increase in investment is ₹1,000 crore and marginal propensity to consume is 0.9, explain the working of multiplier.

Question 24:
(a) Calculate net domestic product at factor cost:
                                                                                                                                     (₹ in Crores)
(i) Private final consumption expenditure                                                                         8,000
(ii) Government final consumption expenditure                                                              1,000
(iii) Exports                                                                                                                                  70
(iv) Imports                                                                                                                                120
(v) Consumption of fixed capital                                                                                             60
(vi) Gross domestic fixed capital formation                                                                        500
(vii) Change in stock                                                                                                                 100
(viii) Factor income to abroad                                                                                                 40
(ix) Factor income from abroad                                                                                              90
(v) Indirect taxes                                                                                                                       700
(xi) Subsidies                                                                                                                               50
(b) Explain ‘non-monetary exchanges’ as a limitation of using gross domestic product as an index of welfare of a country.
Or
How will vou treat the following w hile estimating domestic product of a country ? Give reasons for your answer.
(a) Profits earned by branches of country ’s bank in other countries.
(b) Gifts given by an employer to his employees on Independence Day.
(c) Purchase of goods by foreign tourists.

Answers

Answer 1:
(c) increase in demand.

Answer 2:
Market demand may be defined as the estimates of quantity demanded of the commodity per time period at various alternate prices by all households constituting a market.

Answer 3:
(b) Salt

Answer 4:
(d) All market forms.

Answer 5:
According to Law of Variable Proportions, given an increase in one factor of production, other factors remaining unchanged, total production increases at an increasing rate, then at diminishing rate and finally at negative rate.
Thus, there are three stages of the law :
(i) Stage I – where total product increases at a higher rate.
(ii) Stage II – where total product increases but at a diminishing rate.
(iii) Stage III – where the total product diminishes.
Following production schedule demonstrates the Law of Variable Proportions:

OR

Following are the factors determining elasticity of supply :

1. Nature of the commodity – Durable goods, generally, have elastic supply while perishable goods have inelastic supply because their supply cannot be increased or decreased as a result of a change in their prices.
2. Time – Shorter time period involved in production makes the supply inelastic while longer period makes the supply elastic because more time is available to make changes in production.
3. Technique of production – Supply of commodities involving simple technique of production have elastic supply and commodities having complex techniques of production have inelastic supply.
4. Future expectations – If the prices are expected to fall in future, the supply will be elastic. If the prices are expected to rise in future, producers will withhold the supply and supply will be inelastic.

Answer 6:
One of the most important features of a firm under monopolistic competition is that there is free entry and exit of firms. If firms receive abnormal profits, entry of the other firms being free, the new firms will enter the market and increase the total supply. The total supply will now be shared among more firms and this will deprive all the firms of abnormal profits. If firms suffer loss in short run, some of the firms will reduce or stop its production and quit the industry. As a result, the supply will fall and firms will come at a point of no profit no loss. Thus, in the long run equilibrium, firm earns only normal profits i.e., zero abnormal profits.

Answer 7:
Following table shows the distinction between microeconomics and macroeconomics : (Any four)

OR

Production possibility curve is a curve which depicts all possible combinations of two goods which can be produced with given resources and technology in an economy.
Following are the properties of a production possibility curve :

1. Downward slope – Production possibility curve slopes downward from left to right. It is so because increase in production of one commodity is possible only by reducing the production of other.
2. Concave to the origin – Production possibility curve is concave to the point of origin because of increasing marginal opportunity cost or marginal rate of transformation.
3. Shift – Production possibility curve can shift to the right or to the left. It can shift to the left when resources decrease due to large scale natural calamities, war, fall in population etc. It can shift to the right where there is improvement of technology or increase in resources.

Answer 8:
Following are two conditions of consumer’s equilibrium under indifference curve analysis:
(i) MRS = Ratio of prices – Let the two goods be X and Y. The first condition for consumer’s equilibrium is that MRS = Px/Py. Now suppose MRS is greater than Px/Py. It means that the consumer is willing to pay more forXthan 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.
(ii) MRS continuously falls as more of a good is consumed – Unless MRS declines continuously as more and more of good X is consumed, it will not be equal to \(\frac { { P }_{ x } }{ { P }_{ y } }\) and consumer will not be able to reach the equilibrium.

Answer 9:

Formula used:

Answer 10:
(i) Original demand = 150 units
New demand = 180 units
Change in demand = 180 – 150 = 30 units

Answer 11:
When the price of Y (substitute good) falls, there will be following chain of effects :

1. A fall in the price of Y will increase the demand for Y. As a result, demand for X will fall.
2. When the demand for good X is less than its supply, all the sellers will not be able to sell the quantity they want to sell. As a result, the price will tend to fall.
3. When the price of X starts falling, sellers will like to supply
   less.
4. Fall in the price of X will lead to increase in demand till demand is equal to its supply.

As a result of above changes, deficient demand of A will be corrected and prevailing market price will be equal to equilibrium price.
It may be shown in diagram.

In the diagram, DD is original demand curve and SS is supply curve, which intersects the demand curve at A. A is original equilibrium point. As a result of leftward shift of demand curve, D₁D₁ is new demand curve which intersects supply curve at B. As a result equilibrium price of X decreases from OP to OP₁ and equilibrium quantity decreases from OQ to OQ₁.

OR

Excess supply means that equilibrium price of a good is lesser than its market price. As a result of excess supply, equilibrium price gets disturbed. There will be following chain of effects :

1. Since the supply is more than the demand, all the sellers will not be able to sell the quantity they want to sell. As a result, price of the good will tend to fall.
2. When price of the good starts falling, sellers will like to supply less.
3. Fall in the price of good will lead to increase in demand till supply is equal to demand.

As a result of above changes, excess supply will be corrected and new equilibrium price will be determined. It may be shown in the diagram.

In the diagram, at OP price there is excess supply equal to AB.
As a result of chain of effects, demand will increase and supply will decrease to facilitate equilibrium price equal to OPj.

Answer 12:
A producer will be in equilibrium at the level of output at which his marginal cost is equal to the marginal revenue.

In the above table, price or marginal revenue is equal to marginal cost at two output units 1 unit and 5 units. But the producer will be at equilibrium where rising marginal cost is equal to marginal revenue. Therefore, the producer will be at equilibrium at 5th output level where his profit will be maximum.
If a producer is producing at a point where MR > MC, a producer will not have maximum profit because there is still a scope of getting additional profit by producing additional units.
If a producer is producing at a point where MR < MC, a producer will not have maximum profit because the producer is suffering losses and he should reduce the output to achieve maximum profit.

Answer 13:
(c) cash reserve ratio.

Answer 14:
(d) None of the above.

Answer 15:
Involuntary unemployment means a situation under which those who are able and willing to work at the current wage rate do not get work.

Answer 16:
(b) Accepting deposits from public.

Answer 17:
The basis of classifying taxes into direct and indirect tax is whether the burden of tax can be shifted to others or not. A direct tax is a tax whose burden falls on the person on whom it is imposed i.e., whose burden cannot be shifted to others. An indirect tax is a tax whose burden can be shifted on others either partly or wholly.

• An example of direct tax is income tax.
• An example of indirect tax is sales tax.

Answer 18:
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 age 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.

OR

One of the objectives of government is to ensure economic stability in the economy. The government budget prevents business fluctuations and maintains price stability. If the aggregate demand falls short of aggregate supply, the government will have to take some measures in its budget to discourage savings and to encourage investments. For this, the government would decrease taxes but increase public expenditure. If the aggregate demand exceeds aggregate supply, the government would encourage savings and discourage investments by increasing taxes and reducing public expenditure.

Answer 19:
Following are the points of distinction between intermediate products and final products :

Answer 20:
As government’s banker, central bank keeps the banking accounts of the government, both of the centre and of the states. As a banker, the central bank offers all those services to the government which a commercial bank offers to the general public. It accepts deposits from government departments as well institutions and operate their accounts on regular basis. It also collects cheques and drafts drawn on other banks in favour of the government. It also makes available cash for the payment of salaries, wages and other disbursements by the government.
The central bank makes advances to the government to meet temporary demand, till taxes are collected or loans from the public arc raised. The government can also take extraordinary advances during a period of depression, war or emergency.

OR

Reverse repo rate is the rate at which central bank of a country borrows money from commercial banks. Reverse repo rate is fixed by the central bank. To control the money supply, central bank makes changes in the reverse repo rate. To reduce money supply central bank will increase reverse repo rate. Increase in reverse repo rate motivates commercial banks to lend to central bank. Increase in reverse repo rate reduces availability of funds with commercial banks and supply of money is curtailed in the economy. Decrease in reverse repo rate will increase availability of funds with the commercial banks and supply of money increases in the economy.

Answer 21:
At equilibrium level of national income, investment and savings are equal.
Thus Savings = Investment = 800
Marginal Propensity to Consume (MPC) + Marginal Propensity to Save (MPS) = 1
MPC + MPS = 1
MPC = 1 -0.2 = 0.8
National Income = Consumption + Savings
Consumption = National Income – Savings
= 5,000 – 800 = 4,200
Consumption = Autonomous consumption + (MPC x National Income)
Autonomous consumption = Consumption – (MPC x National Income)
= 4,200 – (0.8 x 5,000)
= 4,200 – 4,000 = 200

Answer 22:
When price of a foreign currency i.e., foreign exchange rate rises, its demand falls because there is inverse relationship between price of a foreign currency and demand for foreign currency. When price of a foreign currency rises in terms of home currency, it means that more home currency is required to buy one foreign currency. The same amount of home currency can now buy less foreign currency. As a result, demand for foreign currency falls. It is due to following reasons :

1. People will not like to purchase goods and services from that country because imports from that country become costly than the imports of other countries.
2. People will not like to purchase financial assets in a particular country.

The shape of demand curve for foreign exchange is downward sloping. It may be shown in diagram :

In the diagram, we see that if price of foreign exchange falls from OP to OP₁, jnore of foreign currency is demanded to purchase foreign goods, and services. Conversely, if price of foreign exchange rises from OP to OP₂ less of foreign currency is demanded because there will be lesser demand for foreign goods and services.
When price of a foreign currency i.e., exchange rate of foreign currency rises, its supply rises. Home country’s goods become cheaper to foreigners because home currency is depreciating in value. As a result, demand for home country’s exports should increase as the exchange rate increases. This will bring greater supply of foreign exchange. Hence, the supply of foreign exchange increases as the exchange rate rises. As a result, the shape of supply curve for foreign exchange is upward sloping.
It is due to following reasons :

1.  People will like to export and sell goods and services to the foreign country because exports to that country become more beneficial than exports to other countries.
2.  People will like to sell financial assets in a particular country.

The shape of supply curve of foreign exchange is upward sloping. It may be shown in diagram.
In the diagram, we see that if price of foreign exchange falls from OP to OP₁. less of foreign currency is supplied. Conversely if price of foreign exchange rises from OP to OP2 more of foreign currency is supplied.

Answer 23:
Multiplier is related to marginal propensity to consume (MPC). Higher the MPC, higher will be multiplier. Higher MPC means higher consumption which induces producers to produce more resulting in increase in income. Multiplier coefficient is obtained by following formula :
K =  \(\frac { 1 }{ 1-MPC }\)  =  \(\frac { 1 }{ MPS }\)
When, there is an increase in investment of ₹ 1,000 in the construction of a building, there will be increase in the income of builder, architect and labourers of ₹ 1,000. If MPC is 0.90, they will spend ₹ 900 (1,000 x 0.9) on consumption goods which will become the income of producers of consumption goods. The producers of consumption goods will again spend ₹ 810 (900 x 0.9) which will become the income of other people. This process will continue resulting in increase in national income. It may be shown as under :

Answer 24:
(a) Net Domestic Product at Factor Cost
= Private final consumption expenditure + Government final consumption expenditure + Gross domestic fixed capital formation + Change in stock – Consumption of fixed capital
+ Exports – Imports – Indirect taxes + Subsidies
= 8.000+ 1,000 + 500 + 100 – 60+ 70 – 120 – 700 + 50
= 9,720 – 880
= 8,840 Crores

(b) Non-monetary exchanges are the transactions which take place in an economy hut are not evaluated in monetary terms. As a result, these transactions are not counted in the gross domestic product. For example, a number of barter transactions take place in rural areas in India. These transactions are not considered as part of economie activity and there is under estimation of gross domestic product. Hence, non-monetary transactions are a Limitation in taking gross domestic product as an index of welfare.

OR

(a) Profits earned by branches of country’s bank in other countries will not be included in the domestic product of the country because it amounts to factor income from abroad which is not included in the domestic income.
(b) Gifts given by an employer to his employees on Independence Day will not be included in the domestic product of the country because it is not an expenditure on productive activity. It is a transfer payment and not a factor payment.
(c) Purchase, of goods by foreign tourists will be included in the domestic product of the country because goods purchased by the foreign tourists are produced by the producers in the domestic territory of the country.

We hope the CBSE Sample Papers for Class 12 Economics Paper 6 help you. If you have any query regarding CBSE Sample Papers for Class 12 Economics Paper 6, drop a comment below and we will get back to you at the earliest.