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# Board Paper of Class 12-Commerce 2008 Economics (SET 1) - Solutions

General Instructions
1) This question paper contains two sections: A and B.
2) There are 9 questions in total.

Section A
i. This section contains 1 question with fifteen sub-parts.
ii. Question No. 1 is compulsory.
iii. Attempt all the sub-parts of 2 marks each.
iv. This section is of 30 marks in total.

Section B
i. This section consists of 8 questions of 14 marks each.
ii. Attempt any 5 questions from question nos. 2 to 9.
iv. This whole section is of 70 marks in total.

• Question 1
 Answer briefly each of the questions (i) to (xv) :                                                       [15 × 2] = [30 Marks] (i) Differentiate between Micro and Macro Economics. Give two examples of each. (ii) Define income effect. (iii) What is the price elasticity of demand when : (a) the change in price and total expenditure move in the opposite direction ? (b) the change in price and total expenditure move in the same direction ? (iv) Distinguish between autonomous and accommodating capital flow in Balance of Payment. (v) What is the price elasticity associated with a straight line supply curve passing through the origin ? Explain with a diagram. (vi) Differentiate between private income and personal income. (vii) Why is the MR curve below the AR curve under imperfect competition ? (viii) Draw a diagram to show the effect of total product on marginal product of a variable factor when total product reaches its maximum. (ix) Differentiate between break-even point and shut-down point. (x) State two similarities between perfect competition and monopolistic competition. (xi) Define transfer earnings.** (xii) When is the national product of a country higher than domestic product. (xiii) It is possible to measure profits earned by a firm in the following diagram ? Explain why. (xiv) Distinguish between gross profit and net profit.** (xv) What is fiscal deficit ?
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• Question 2
 (a) Discuss any four degrees or magnitudes of elasticity of demand.  (b) Explain graphically, the impact on equilibrium price and quantity in the following situations :  (i) An increase in the Consumer's income. (ii) A decrease in the price of inputs. (iii) An improvement in technology. (iv) An increase the price of complementary goods.
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• Question 3
 (a) Explain the properties of an indifference curve using diagrams.  (b) Give one difference between increasing returns to scale and diminishing returns to scale. Discuss two reasons each for increasing returns and diminishing returns to scale. 
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• Question 4
 (a) Explain with the help of a diagram, the relationship between average cost and marginal cost.  (b) Define monopoly market. Discuss four main features of monopoly market. 
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• Question 5
 (a) Discuss four differences between the Ricardian and Modern theory of rent.  (b) 'The wages of a labourer are determined according to marginal productivity'. Explain. 
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• Question 6
 (a) Mention the components of domestic factor income.  (b) Calculate the operating surplus from the following data :  Rs (in crores) (i) Gross value added at market price 5550 (ii) Wages and Salaries 1200 (iii) Employer's contribution to Social Security 250 (iv) Net indirect taxes 100 (v) Consumption of fixed capital 75 (vi) Mixed income 300 (c) Explain the income method of measuring National Income. State two precautions taken while calculating national income by the income method. 
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• Question 7
 (a) Discuss four differences between Balance of current account and Balance of capital account.  (b) Explain the Ricardian Theory of International Trade, using production possibility curve. 
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• Question 8
 (a) Discuss four reasons for internal borrowing by the Government.  (b) Define Fiscal Policy. Explain how inflation can be controlled through fiscal measures. 
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• Question 9
 (a) Discuss briefly how the Parliament controls budget finances.**  (b) Define 'tax'. Explain four differences between direct tax and indirect tax. 
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