AHSEC| CLASS 12| ECONOMICS| SOLVED PAPER - 2019| H.S. 2ND YEAR
2019
ECONOMICS
Full
Marks: 100
Pass Marks:
30
Time: Three
hours
The figures
in the margin indicate full marks for the questions
PART – A
1. (a) Define the term scarcity as used in economics. 1
Ans:- Scarcity in economics refers to
the fundamental problem that arises because resources are limited while human
wants are unlimited. This implies that there are not enough resources available
to satisfy all the wants of individuals and society.
(b) What is
opportunity cost? 1
Ans:- Opportunity cost is the value of the next best alternative that is
given up when a choice is made. It reflects the benefits that could have been
obtained by choosing a different alternative.
(c) If marginal
utility of a commodity is higher than the price, then the consumer will buy
more of the commodity. (Write true or false)
1
(d) What will
be the effect of price change on supply of a commodity with perfectly inelastic
supply? 1
Ans:- In the case of perfectly inelastic supply, a change in price will
have no effect on the quantity supplied. Supply remains constant despite price
changes.
(e) How will
an increase in the price of inputs shift the supply curve? 1
Ans:- An increase in the price of an input will shift the supply curve to
the left, indicating a decrease in supply. This happens because higher input
costs make it less profitable for producers to supply the same quantity at
previous prices.
(f) What is
shut-down price? 1
Ans:- The shut-down price is the minimum price at which a firm can
operate without incurring losses in the short run. If the market price falls below
this level, the firm would prefer to shut down production temporarily rather
than continue to operate at a loss.
2. Why the production possibility curve
slopes downward from left to right? 2
Ans:- The
production possibility curve (PPC) slopes downward from left to right due to
the concept of opportunity cost. As an economy allocates more resources to the
production of one good, it must reduce the production of another good,
reflecting the trade-off between the two goods. This downward slope shows that
to increase the quantity of one good, the quantity of the other good must be reduced,
since resources are limited and must be used efficiently.
3. Give two reasons of a leftward shift
in the demand curve. 2
Ans:- Two causes of a leftward shift in
the demand curve include:
(i) Decrease in consumer income: When
consumers experience a decrease in income, their purchasing power decreases,
leading to a decrease in the demand for normal goods.
(ii) Increase in the price of substitutes: If the price of substitute goods increases, consumers may reduce
their demand for the original product, resulting in a leftward shift in its
demand curve.
4. The price elasticity of demand of a
commodity is 4 and the percentage change in price is 8. Find the percentage
change in the quantity demanded. 2
Ans:- Calculating Price Elasticity of
Demand:-
To find the percentage change in quantity demanded when the price
elasticity of demand is 4 and the percentage change in price is 8%, we can use
the formula:
Percentage change in quantity demanded = Price elasticity ×
Percentage change in price
Substituting the values: Percentage
change in quantity demanded = 4 × (−8) = -32%
Thus, the quantity demanded decreases by 32%.
5. What is fixed factor? Give one
example. 1+1=2
Ans:- A
fixed factor refers to a resource that remains constant despite changes in the
level of production. An example of a fixed factor is land, which does not
change in size or availability even when production increases or decreases.
6. What is meant by inelastic supply?
Draw a inelastic supply curve. 1+1=2
Ans:- Inelastic
supply occurs when the quantity supplied of a commodity does not change
significantly with a change in price. This usually occurs when producers cannot
easily increase production due to constraints such as limited resources or
capacity.
An example of an inelastic supply curve is depicted below:
In this graph, even a significant change in price causes only a
minimal change in quantity supplied.
7. Mention two differences between
monopoly and perfectly competitive market.
2
Ans:- Difference between monopoly and
perfectly competitive market:-
(i) Market structure: In a monopoly, a
single seller dominates the market with no close substitutes, while in a
perfectly competitive market many sellers offer the same product.
(ii) Pricing power: A monopolist has
significant control over prices and can set them above marginal cost, while in
perfect competition firms are price takers and must accept the market price
determined by supply and demand.
8. Distinguish between change in
quantity demanded and change in demand. 4
Ans:- Difference between change in
quantity demanded and change in demand:-
(i) Change in quantity demanded: It
refers to a movement along a certain demand curve, caused by a change in the
price of the commodity. For example, if the price of a product is reduced, the
quantity demanded increases, and vice versa. This relationship is represented
by points along the same demand curve, which show how consumers react to price
changes without changing their overall demand for the product.
(ii) Change in demand: In contrast,
change in demand refers to a shift in the entire demand curve. This shift can
be caused by various factors such as changes in consumer income, preferences,
or prices of related goods. For example, if consumers suddenly prefer healthier
options than sweetened drinks, the demand for sweetened drinks may decrease,
causing the demand curve to shift to the left, regardless of the price.
In short, while change in quantity
demanded is influenced only by price changes along the existing curve, change
in demand involves macroeconomic factors that change consumer preferences and
needs.
9. Mention the relationship between
total utility and marginal utility. 4
Ans:- Relationship between Total Utility
and Marginal Utility:-
(i) Total Utility: This concept refers
to the overall satisfaction or benefit derived from the consumption of a given
quantity of goods or services. It reflects the cumulative satisfaction derived
from all the units consumed.
(ii) Marginal Utility: Marginal utility
is defined as the additional satisfaction derived from the consumption of one
more unit of a good or service. According to the law of diminishing marginal
utility, as more units are consumed, the additional satisfaction (marginal
utility) derived from each successive unit diminishes.
The relationship between total utility and marginal utility may be
summarized as follows:-
(a) As long as marginal utility is positive, total utility increases
with each additional unit consumed.
(b) When marginal utility becomes zero or negative (indicating that
additional consumption does not increase satisfaction), total utility reaches
its maximum or begins to decline.
This
relationship outlines how consumers allocate their resources to maximize total
utility based on their consumption choices.
10. What is variable cost? Why the
average variable cost (AVC) curve becomes U shaped? 1+3=4
Ans:-
Variable costs refer to expenses that change in direct proportion to the amount
of goods or services produced by a business. Unlike fixed costs, which remain
constant regardless of the level of production, variable costs fluctuate
depending on the quantity produced. For example, the cost of raw materials,
direct labor, and utilities may increase as production increases and decrease
when production slows.
The AVC curve is U-shaped primarily due to the law of diminishing
returns. Initially, as production increases, average variable costs decrease
due to increased efficiency and better utilization of resources. However, after
a certain output level is reached, the addition of variable inputs (such as
labor) leads to less efficient production, which increases AVC.
This results in a U-shaped curve where:-
(i) Decreasing phase: At lower levels of
output, increasing variable inputs increases productivity and lowers average
costs.
(ii) Minimum point: AVC reaches its
lowest point at optimal production levels.
(iii) Increasing Stage: From this point
onwards, further increases in the variable inputs lead to diminishing returns,
resulting in rising average cost.
11. The production function of a firm is
Q=2L1/2 K2. Find the amount required of factor K is the
firm wants to produce 200 units with available 16 units of factor L. 4
(Q=Output, K=Capital, L=Labour)
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