ISC Economics 2018 Class-12 Previous Year Question Papers Solved for practice. Step by step Solutions with Questions of Part 1 and Part 2. By the practice of Economics 2018 Class-12 Solved Previous Year Question Paper you can get the idea of solving.

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## ISC Economics 2018 Class-12 Previous Year Question Papers Solved

Part – I

Part – II

Maximum Marks: 80
Time allowed: 3 hours

• Candidates are allowed additional 15 minutes for only reading the paper.
• They must NOT start writing during this time.
• Answer Question 1 (Compulsory) from Part I and five questions from Part II.
• The intended marks for questions or parts of questions are given in brackets [ ].

Part – I (20 Marks)

### ISC Class-12 Economics 2018 Previous Year Question Papers Solved

Question 1.
Answer briefly each of the following questions (i) to (x):
(i) Define deficit financing.
(ii) Differentiate between Current Account and Capital Account of Balance of Payment.
(iii) What is meant by price discrimination in the monopoly market?
(iv) Define total utility. How is marginal utility derived from total utility?
(v) Explain the overdraft facility given by banks.
(vi) Define implicit cost. How is it different from explicit cost?
(vii) Why is price per unit equal to AR and MR under perfect competition?
(viii) Explain the meaning of the following:
(a) Full employment
(b) Involuntary unemployment.
(ix) Explain two differences between factor income and transfer income.
(x) With the help of diagrams, show how equilibrium price and quantity of a commodity are affected when:
(a) Demand is perfectly elastic and supply decreases.
(b) Supply is perfectly elastic and demand increases.
(i) Deficit financing is a budgetary situation when government expenditure is higher than the revenue and the difference is made up by borrowing or uniting new funds.
(ii)

 Current Account Capital Account (i) It records exports and imports of goods and services as well as unilateral transfers. (i) It records transactions of purchase and sale of foreign assets and liabilities. (ii) It has a direct influence on the level of income of a country. (ii) It does not have a direct influence on the level of income of a country. (iii) It includes all items of a flow nature so it is a flow concept. (iii) It includes all items expressing changes in stock, hence it is a stock concept.

(iii) A monopolist may charge different prices for his product from different sets of consumers at the same time. It is known as Price Discrimination.

(iv) It is the sum total of marginal utilities derived from the consumption of different units of a commodity.
TUn = U1 + U2 + ….+ Un
Marginal utility is the net addition made to total utility by the consumption of an additional unit.
Mun = TUn – TUn-1

(v) An overdraft allows the individual to continue withdrawing money even if the account has no funds in it or not enough to cover the withdrawal. Basically, overdraft means that the bank allows customers to borrow a set amount of money.

(vi) Implicit cost refers to the cost of self-supplied factors or the factors owned and employed by the firm itself, e.g., the salary of an entrepreneur. Whereas explicit cost is the expense incurred for outside payment or hired factors.

(vii) Under perfect competition, AR or price remains fixed. So. MR will always be constant.

(viii) Full employment: It is a situation in which all those people who are willing to work at the prevailing wage rate get work.
Involuntary unemployment: Involuntary unemployment is a situation in which people are able to work and willing to work at existing rate of wages but do not get work.

(ix)

 Basis Factor Income Transfer Income Definition It refers to income received by factors of production for rendering factor services in the production process. It refers to income received without rendering any productive sendee in return. Nature It is included in both National Income and Domestic Income. It is neither included in National Income nor in Domestic Income.

(x)

(a) When supply increases, the supply curve shifts to the right from SS to S1S1. DD is a vertical straight line parallel to the Y-axis. Due to an increase in supply, the new equilibrium is established at point E1. Equilibrium price falls from OP to OP1 but equilibrium quantity remains the same at OQ as demand is perfectly inelastic.

(b) When demand increases, the demand curve shifts to the right from DD to D1D1 (Fig. below). Supply curve SS is a horizontal straight line parallel to the X-axis. Due to the increase in demand for the product, the new equilibrium is established at E1 Equilibrium quantity rises from OQ to OQ1 but equilibrium price remains the same at OP as supply is perfectly elastic.

Part – II (60 Marks)

### ISC Class-12 Economics 2018 Previous Year Question Papers Solved

Question 2.
(a) Differentiate between the contraction of demand and decrease in demand, using diagrams. [3] (b) “The supply curve of labour is an exception to the law of supply.” Justify the statement, using a diagram. [3] (c) A consumer consumes goods X and Y. Given below is his marginal utility schedule for goods X and Y. Suppose, the price of X is ₹ 2, Y is ₹ 1 and income ₹ 12. State the law of Equimarginal utility and explain how the consumer will attain equilibrium. [6]

 Basis Contraction in Demand Decrease in Demand Meaning When the quantity demanded falls due to an increase in the price, keeping other factors constant, it is known as a contraction in demand. When the demand falls due to an unfavourable change in the other factors, at the same price, it is known as a decrease in demand. Effect on Demand Curve There is an upward movement (see fig.) along the same demand curve. There is a leftward shift (see fig.) in the demand curve. Reason It occurs due to an increase in the price of the given commodity. It occurs due to an unfavourable change in the other factors like a decrease in the prices of substitutes, an increase in the prices of complementary goods, a decrease in income in case of normal goods, etc.

(b) Labour Supply: The law of supply is not applicable in case of labour supply. If the wage rate rises, after a certain level labour supply may fall in order to have more leisure. The supply curve in such a situation is backward bending.
In Fig. Ls is backward bending labour supply curve. Wc is the critical wage rate where L1 is the total labour supply. How ever, when the wage rate starts rising above Wc, the supply of labour will be reduced. At W1 wage rate, the labour supply will fall from L1 to L0. This is because after giving a considerable amount of labour, individual labour will prefer leisure at very high wage rate.

It is worth noting that in order to maximise his utility the consumer will equate marginal utilities of the goods because the prices of the two goods are different. He will equate the marginal utility of the last rupee (i.e., the marginal utility of money expenditure) spent on these two goods. In other words he will equate $\frac{\mathrm{MU}_{x}}{\mathrm{P}_{x}} \text { with } \frac{\mathrm{MU}_{y}}{\mathrm{P}_{y}}$ while spending his given money income on the two goods. By looking at the table, it will become clear that $\frac{\mathrm{MU}_{x}}{\mathrm{P}_{x}}$ equal to 8 units when the consumer purchases 1 unit of good X and $\frac{\mathrm{MU}_{y}}{\mathrm{P}_{y}}$ is equal to 8 units when he buys 4 units of good Y. Therefore, a consumer will be in equilibrium when he is buying 1 unit of good X and 4 units of good Y and will be spending (₹ 2 × 4 + ₹ 1 × 4) = ₹ 12 on them. Thus, in the equilibrium position where he maximises his utility.
\begin{aligned} \frac{\mathrm{MU}_{x}}{\mathrm{P}_{x}} &=\frac{\mathrm{MU}_{y}}{\mathrm{P}_{y}}=\mathrm{MU}_{m} \\ \frac{16}{2} &=\frac{16}{2}=\frac{8}{1}=8 \end{aligned}
Thus, the marginal utility of the last rupee spent on each of the two goods he purchases is the same, that is 8 utils.

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