ISC Economics 2017 Class-12 Previous Year Question Papers Solved
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ISC Economics 2017 Class-12 Previous Year Question Papers Solved
-: Select Your Topics :-
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)
Answer all questions.
ISC Economics 2017 Class-12 Previous Year Question Papers Solved
Answer briefly each of the following questions (i) to (x): [10 × 2]
(i) What is meant by ex-ante demand and ex-post demand?
(ii) What is the short-run production function? Explain how is short-run production function different from the long-run production function.
(iii) Explain one main feature of each:
(a) Monopsony market.
(b) Monopoly market.
(iv) How is the elasticity of supply different from supply of a commodity?
(v) What is a direct tax?
(vi) Give two differences between a time deposit and demand deposit.
(vii) Explain with the help of an example, the problem of double-counting while calculating national income.
(viii) Give a reason for each of the following:
(a) The demand for a good increase when the income of the consumer increases.
(b) X and Y are substitute goods. A rise in the price of X results in the rightward shift of the demand curve of Y.
(ix) Write any two differences between the balance of trade and balance of payment.
(x) Explain the shape of the MC curve.
(i) Ex-ante and Ex post Demand: Ex ante demand refers to the number of goods that consumers want to or willing to buy during a particular time period. It is the planned or desired amount of demand. Ex post demand, on the other hand, refers to the amount of the goods that the consumers actually purchase during a specific period. It is the number of goods actually bought. The number of goods actually bought is not the same as the amount that the consumers want (desire) to purchase. If the commodity is not available in adequate quantity, the quantity actually purchased (ex-post demand) will be less than the quantity that the consumers desire to purchase (ex-ante demand). Thus, consumers may end up buying more, or lesser quantity of goods that they had planned to buy.
(ii) Short-run is a period of time when production can be increased only by increasing the application of variable factor(s). Fixed factor, by definition, remains constant.
When one factor is a fixed factor and the other is a variable factor, production function may be specified as under:
Qx = f(L, K)
Here, Qx = Output of Good – X
L = Labour, a variable factor
K = Capital, a fixed factor
1. Short run production function is ‘variable proportions type production function’ while the long period production function is ‘constant proportions type production function’.
2. Short run production function exhibits constant scale of output, while long run production function exhibits change in the scale of output.
(a) Single Buyer: Monoposony is a market structure where there is only one buyer of a commodity, service or input. It is a case of only one firm purchasing the entire product or factor service.
(b) Single Seller: Monopoly is a market situation where there is only one seller or producer, called monopolist of a commodity. It is a case of one firm or producer controlling the supply of the product. Since there is only one seller, any change in the amount of output produced by the monopolist would have significant influence over the market price. Because there is only one firm in monopoly, therefore the difference between the firm and the industry disappears.
(iv) Supply refers to the quantity of a commodity that a seller is willing to sell corresponding to a given price, at a given point of time. On the other hand, elasticity of supply measures the degree of responsiveness of the quantity supplied of a commodity to a change in its price. It measures the sensitivity of the quantity supplied to a change in the price.
(v) Direct taxes refer to taxes that are imposed on property and income of individuals and companies and are paid directly by them to the government.
- They are imposed on individuals and companies.
- The ‘liability to pay’ the tax (i.e. impact) and ‘actual burden’ of the tax (i.e, incidence) lie on the same person, i.e. its burden cannot be shifted to others.
- They directly affect the income level and purchasing power of people and help to change the level of aggregate demand in the economy.
- Examples: Income tax, Corporate tax, Interest tax, Wealth tax, Death duty, Capital gains tax, etc.
(vi) Demand deposits and time deposits:
- Demand deposits can be withdrawn at any time, whereas the time deposits can be with-drawn only after the expiry of a specific period.
- There is no interest rate on demand deposits, whereas the time deposits carry a higher interest rate.
- Demand deposits are chequeable and can be withdrawn through cheques, whereas time deposits are not chequeable.
(vii) To calculate national income overall value of goods and services produced by the country is taken into account. However, this method suffers from ‘double counting’, since the output of a production unit can be the input for another unit, it leads to double counting of a single variable. Only final goods are included when measuring national income. If intermediate goods were included too, this would lead to double counting; for example, the value of the tires would be counted once when they are sold to the car manufacturer, and again when the car is sold to the consumer. .
(a) The income of the consumer determines the purchasing power of the consumer. There is a direct relationship between the income of the consumer and his demand for a product. The demand for good increases when the income of the consumer increases because purchasing power of the consumer increases. Now he has more income to spend on different goods and services.
(b) X and Y are substitute goods. A rise in the price of X result in a rightward shift of the demand curve of Y because substitute goods are those goods which satisfy the same type of need and hence can be used in place of one another to satisfy the given want. If price of good X rise, the consumer will shift his demand from X to Y good because they can be used in place of one another.
|Balance of Trade (BOT)||Balance of Payment (BOP)|
|1. Balance of Trade refers to the difference between amounts of exports and imports of visible items.||1. It is an accounting statement that provides a systematic record of all economic transactions, between residents of a country and the rest of the world in a given period of time.|
|2. BOT includes only visible items.||2. BOP includes visible items, invisible items, unilateral transfers and capital transfers.|
|3. It does not record any transactions of capital nature.||3. It records all transactions of capital nature.|
(x) MC curve is U-shaped. As output increases, MC curve slopes downward (up to OQ units), reaches the minimum (at point A) and then starts sloping upward beyond OQ level of output. (See Fig.) The U-shape of MC curve is because of the law of ( variable proportions. It is negatively sloped in the initial stage of production due to increasing returns to the variable factor and is positively sloped thereafter due to decreasing returns to the variable factor.
Part – II (60 Marks)
Answer any five questions.
Previous Year Question Papers Solved Economics 2017 for ISC Class-12
(a) Explain with the help of a diagram the relationship between total utility and marginal utility. (3)
(b) Find the elasticity of demand of x and y on the basis of the demand schedule given below and specify which one is more elastic: (3)
|Good x||Good y|
|Px(₹)||Dx (units)||Py(₹)||Dy (units)|
(c) Explain any four reasons for the demand curve to be downward sloping. (6)
(i) Total utility increases with an increase in consumption as long as MU is positive.
(ii) When TU reaches its maximum, MU becomes zero. This is known as point of satiety.
(iii) When consumption is increased beyond the point of satiety, TU starts falling as MU become negative.
(iv) MU curve has a negative slope, while TU curve has a positive slope upto point ‘B’.
(b) For Good x
Elasticity of Demand in case of Good y is more elastic.
(c) Reasons for downward sloping demand curve:
- Law of Diminishing Marginal Utility: According to this law, as consumption of a commodity increases, marginal utility of each successive unit goes on diminishing to a consumer. Accordingly, for every additional unit to be purchased, the consumer is willing to pay less and less price.
- Income Effect: Income effect refers to change in quantity demanded when real income of the buyer changes owing to change in price of the commodity. With a fall in price, real income increases. Accordingly, demand for the commodity expands.
- Substitution Effect: Substitution effect refers to substitution of one commodity for the other when it becomes relatively cheaper. Thus, when own price of commodity-X falls, it becomes cheaper in relation to commodity-Y. Accordingly, X is substituted for Y. Tea and coffee are substitutes. With a fall in the price of tea, it is substituted in place of coffee. It is expansion of demand due to the substitution effect.
- Size of Consumer Group: When price of a commodity falls, many more buyers can afford to buy it. Accordingly, demand expands.
- Different Uses: A good may have several uses. Milk, for example, is used for making curd, cheese and butter. If the price of milk reduces it will be put to different uses. Accordingly, the demand for milk expands.
(a) The difference between AC curve and AVC curve decreases with increase in output but the two curves never touch each other. Justify the statement with the help of a diagram.  (b) Explain any two characteristics of an indifference curve.  (c) Discuss producer’s equilibrium in perfect competition, using MR and MC approach.  Answers 3:
(a) The distance between the average total cost curve and the average variable cost curve gets smaller as production t increases. ATC curve is far above the AVC curve at early levels of output because the average fixed cost is a high percentage of the average total cost. But ATC curve tends o to come closer to AVC at higher levels of output because § the average fixed cost accounts for a relatively small percentage of the average total cost now. Notice that ATC curve never touches AVC curve because the average fixed cost is always positive. Thus, the distance between the 0 ATC curve and the AVC curve gets smaller as the level of output increases.
(i) An indifference curve (IC) always slopes downward: This characteristic implies that to increase the consumption of X-good, the consumer has to reduce the consumption of Y-good, so as to remain at the same level of satisfaction as shown in i the given diagram:
To increase the quantity of ‘X’ good from OX to OX1 the consumer has to reduce quantity of good ‘Y’ from OY to OY1.
(ii) Indifference curves are convex to the origin: This property is based on the principle of diminishing marginal rate of substitution. It implies that as the consumer substitutes X for Y, the marginal rate of substitution between them goes on diminishing as shown in the following figure.
AB > CD > EF or Diminishing MRS
(c) In order to know the position of maximum profit, a firm compares the marginal cost with marginal revenue. So, the first condition of a firm’s equilibrium is that marginal cost must be equal to marginal revenue (MC = MR). It is necessary, but not sufficient condition of equilibrium. A firm may not get maximum profit even when its marginal cost is equal to marginal revenue. So, it must fulfil the second condition of equilibrium as well, i.e., marginal cost curve must cut marginal revenue curve from below or the slope of MC curve must be steeper than the slope of MR curve. According to marginal analysis, a firm would, therefore, be in equilibrium when the following two conditions are fulfilled:
1. MC = MR.
2. MC curve cuts the MR curve from below.
Both these conditions of firm’s equilibrium are explained with the help of Fig. In this figure, PP is average revenue (price per unit) as well as marginal Q revenue curve. It is clear from this figure, that MC curve is cutting MR curve PP at two points ‘A’ and a; ‘E’. Point A cannot indicate the position of equilibrium of the firm as at point A marginal cost of the firm is still falling or we can say MC is not cutting MR from below.
On the other hand, point E shows that firm is producing OM units of output. If the firm produces more than OM units of output, its marginal cost (MC) will exceed marginal revenue (MR) and it will have to incur losses. Thus, point ‘E’ will represent the equilibrium of the firm. At this point, both the conditions of equilibrium are being fulfilled:
(1) Marginal cost is equal to marginal revenue (MC = MR) and
(2) The marginal cost curve is cutting the marginal revenue curve from below. At point ‘E’ i.e., equilibrium position, firm is getting maximum profit. In case, the firm produces more or less than OM output, then its profits will be less than the maximum. So the firm, at OM level of output, will have no tendency either to increase or decrease its output from this level. It will, therefore, be in equilibrium at point E.
(a) Fill the blank in the table given below: 
(b) What is meant by floor price? Explain its impact on producers. 
(c) Explain any four features of an oligopoly market. 
(b) Government intervenes in the process of price determination through Price Floor. Price Floor refers to the minimum price (above the equilibrium price), fixed by the government, which the producers must be paid for their produce.
- Many a time government feels that the price fixed by the market forces of demand and supply is not remunerative from the producer’s point of view, then it fixes a price (known as price floor) which is more than the equilibrium price.
- The minimum support price is one of the examples of a price ceiling.
- Indian Government maintains a variety of price support programmes for various agricultural products like wheat, sugar cane etc. and the floor is normally set at a level higher than the market-determined price for these goods.
As seen in the diagram, equilibrium is determined at point E when demand curve DD and supply curve SS of wheat intersect each other. The equilibrium price of OP is determined.
- Suppose, to protect the producer’s interest and to provide an incentive for further production, , government declares OP2 as the minimum price (known as Price Floor) which is more than the equilibrium price of OP.
- The higher price lures the producers to produce more. This helps the government to maintain a buffer stock for exports.
(c) The principal features of oligopoly are as under:
(1) Small Number of Big Firms: Oligopoly market is the one in which a small number of big firms dominate the market for a product. Market dominance is retained through intense advertising. Advertising generates brand loyalty. Established brand loyalty enables the producer to exercise partial control over price. It makes demand for the product as relatively less elastic. Accordingly, firms are able to generate extra-normal profits.
(2) Difficult to Trace Firm’s Demand Curve: It is not possible to determine firm’s demand curve under oligopoly. This is because of high degree of interdependence among the competing firms. Thus, when a firm lowers its price, demand for its product may not increase, because the rival firms may lower the price more, because of which the buyers shift to the rival firms. Implying that there is no specific response of quantity demand to change in price. This makes it impossible to draw any specific demand curve for a firm under oligopoly.
(3) Entry Barriers: There are barriers to the entry of new firms. These are created largely through patent rights. Because of these barriers, the existing firms are not much worried about the entry of new firms in the market. They continue to earn extra-normal profits even in the long run.
(4) Non-price Competition: Under oligopoly, firms tend to avoid price competition. Instead, they focus on non-price competition. Example: In India, both Coke and Pepsi sell their product at the same price. But, in order to increase its share of the market, each firm takes to the aggressive non-price competition. Coke and Pepsi sponsor different games and sports; they also offer lucrative schemes (like of maintenance of school garden) if their product is patronised.
(a) Explain two causes of increasing returns to a factor.  (b) Differentiate between real cost and money cost with the help of examples.  (c) Discuss four determinants of supply of a commodity.  Answers 5:
(a) Increasing returns to a factor occur because of the following factors:
1. Fuller Utilisation of the Fixed Factor: In the initial stages, fixed factor (such as machine) remains underutilised. Its fuller utilisation calls for greater application of the variable factor (Labour). Hence, initially (so long as fixed factor remains underutilised) additional units of the variable factor add more and more to total output, or marginal product of the variable factor tends to increase.