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Kerala State Board New Syllabus Plus Two Computer Application Notes Chapter 1 Review of C++ Programming.

Kerala Plus Two Computer Application Notes Chapter 1 Review of C++ Programming

It is developed by Bjame Stroustrup. It is an extension of C Language.

Character set: To study a language first we have to familiarize the character set. For example to study English language first we have to study the alphabets. Similarly here the character set includes letters (A to Z & a to z), digits (0 to 9), special characters(+, -, ?, *, /, …….) white spaces(non printable) etc….

Token: It is the smallest individual units similarto a word in English or Malayalam language. C++ has 5 tokens
1. Keywords: These are reserved words for the compiler. We can’t use for any other purposes.
Eg: float is used to declare variable to store numbers with decimal point. We can’t use this for any other purpose

2. Identifier: These are user defined words.
Eg: variable name, function name, class name, object name etc…

3. Literals (Constants): Its value does not change during execution
i. Integer literals : Whole numbers without fractional parts are known as integer literals, its value does not change during execution. There are 3 types decimal, octal and hexadecimal.
Eg. For decimal 100, 150, etc
For octal 0100, 0240, etc
For hexadecimal 0x100, 0x1A, etc

ii. Float literals: A number with fractional parts and its value does not change during execution is called floating point literals.
Eg. 3.14157, 79.78, etc..

iii. Character literal: A valid C++ character enclosed in single quotes, its value does not change during execution.
Eg. ‘m’, ‘f’, etc…

iv. String literal: One or more characters enclosed in double quotes is called string constant. A string is automatically appended by a null character (‘\0’)
Eg. “Mary’s”, “India”, etc

4. Punctuators: In English or Malayalam language punctuation marks are used to increase the readability but here it is used to separate the tokens. Eg: {,}, (,),

5. Operators: These are symbols used to perform an operation (Arithmetic, relational, logical, etc…)

Integrated Development Environment(IDE): It is used for developing programs

• It helps to write as well as editing the program.
• It helps to compile the program and linking it to other (header files and another user) programs
• It helps to run the program

Turbo C++ IDE
Following is a C++ IDE

a) Opening the edit window
Method I: File → Click the menu item
New Method II: Press Alt and F simultaneously then press N
b) Saving the program:
Click File → Save or Press Function key F2 or Alt + F and then press S
Then give a file name and press ok.
c) Running/executing the program
Press Alt + R then press R OR Click Run → press R, OR Press Ctrl + F9
d) Viewing the output: Press Alt + F5
e) Closing Turbo C++ IDE
Click File → then press Quit menu Or Press Alt + X

Geany IDE

Step 1: Take Geany Editor and type the program(source code)
Step 2: Save the file with the extension.cpp
Step 3: Compile the program by Click the Compile Option
Step 4: After successful compilation, Click the Build option
Step 5: Then click on the Execute option

Important Notes while using Geany Editor

1. For the header files .h extension need not given
2. Header files are given below

3. Add a new statement using namespace std; after the preprocessor
4. Instead of void main() use int main();

Let us see the following to distinguish the editor’s Turbo C++ and Geany

1. Write a C++ program to read a number and print.

Using Turbo C++ editor

#include
#include
int main()
{
clrscr();
int a;
cout<<“Enter a number”; cin>>a;
cout<<“The number you entered is ”<<a;
getch();
}

To compile and press Ctrl+F9.

Using Geany editor

#include
using namespace std;
int main()
{
int a;
cout<<“Enter a number”; cin>>a;
cout<<“The number you entered is ”<<a;
}

Type the above and save it as a file name with .cpp.
Compile, Build and then Execute

Concepts of data types: The nature of data is different, data type specifies the nature of data we have to store.

C++ data types

Fundamental data types: It is also called a built-in data type. They are int, char, float, double and void
i) int data type: It is used to store whole numbers without fractional (decimal point) part. It can be either negative or positive. It consumes 2 bytes(16 bits) of memory.i.e. 216 = 65536 numbers. That is 32768 negative numbers and 32768 positive numbers(0 is considered as +ve ) So a total of 65536 (32768+32768) numbers. We can store a number in between -32768 to + 32767.

ii) char data type: Any symbol from the key ‘ board, eg. ‘A’, ‘?’, ‘9’,…. It consumes one byte (8 bits) of memory. It is internally treated as integers, i.e. 28 = 256 characters. Each character is having an ASCII code, ‘a’ is having ASCI I code 97, and zero is having ASCII code 48.

iii) float data type: It is used to store real numbers i.e. the numbers with a decimal points. It uses 4 bytes(32 bits) of memory.
Eg. 67.89, 89.9 E-15.

iv) double data type: It is used to store very large real numbers. It uses 8 bytes(64 bits) of memory.

(v) void data type: void means nothing. It is used to represent a function that returns nothing.

User-defined Data types: C++ allows programmers to define their own data type. They are Structure(struct), enumeration(enum), union, class, etc.

Derived data types: The data types derived from fundamental data types are called Derived data types. They are Arrays, pointers, functions, etc

Variables:
The named memory locations are called variables. A variable has three important things

1. variable name: A variable should have a name
2. Memory address: Each and every byte of memory has an address. It is also called the location (L) value.
3. Content: The value stored in a variable is called content. It is also called Read(R) value.

Operators: An operator is a symbol that performs an operation. The data on which operations are carried out are called operands. Following are the operators
1) Input (>>) and output (<<) operators are used to performing input and output operations. Eg. cin >> n;
cout << n;

2) Arithmetic operators: It is a binary operator. It is used to perform addition(+), subtraction(-), division (/), multiplication(*) and modulus(%-gives the remainder) operations.
Eg. If x = 10 and y = 3 then

x/y = 3, because both operands are integer. To get the floating-point result one of the operands must be float.

3) Relational operator: It is also a binary operator. It is used to perform comparison or relational operation between two values and it gives either true (1) or false(0). The operators are <, <=, >, >=, == (equality) and != (not equal to)

4) Logical operators: Here AND(&&), OR(||) are binary operators, and NOT(!) is a unary operator.
It is used to combine relational operations and it gives either true (1) or false (0).
If x = 1 and y = 0 then

Both operands must be true to get a true value in the case of AND (&&) operation.
If x = 1 and y = 0 then

Either one of the operands must be true to get a true value in the case of OR(||) operation
If x = 1 and y = 0 then

5) Conditional operator: It is a ternary operator hence it needs three operands. The operator is ?:.
Syntax: expression ? value if true : value if false.
First evaluates the expression if it is true the second part will be executed otherwise the third part will be executed.
Eg. If x = 10 and y = 3 then
x > y ? cout<<x; cout<<y
Here the output is 10

6) sizeof(): This operator is used to find the size used by each data type.
Eg. sizeof(int) gives 2.

7) Increment and decrement operator: These are unary operators.
a) Increment operator (++): It is used to increment the value of a variable by one i.e., x++ is equivalent to x = x + 1;
b) Decrement operator (–): It is used to decrement the value of a variable by one i.e., x– is equivalent to x = x – 1.

8) Assignment operator (=): It is used to assign the value of the right side to the left side variable.
eg. x = 5; Here the value 5 is assigned to the variable x.

Expressions: It is composed of operators and operands

Arithmetic expression: It is composed of arithmetic operators and operands. In this expression the operands are integers then it is called the Integer expression. If the operands are real numbers then it is called Floating point expression. If the operands are constants then it is called constant expression.

Relational expression: It is composed of relational operators and operands.

Logical expression: It is composed of logical operators and operands

Statements: Statements are the smallest executable unit of a programming language. Each and every statement must end with a semicolon(;).

Declaration statement: Each and every variable must be declared before using it.
Eg: int age;

Assignment statements: The assignment operator is used to assign the value of RHS to LHS.
Eg: x = 100;

Input statements:
input(>>) operator is used to perform input operation. Eg. cin>>n;

Output statements
output(<<) operator is used to perform output operation.
Eg. cout<<n;

Cascading of I/O operations
The multiple uses of input or output operators in a single statement is called Cascading of i/o operators.
Eg: To take three numbers by using one statement is as follows
cin>>x>>y>>z;
To print three numbers by using one statement is as follows
cout<<x<<y<<z;

Structure of a C++ program:
A typical C++ program would contain four sections as shown below.
Include files(Preprocessor directives)
Function declarations
Function definitions
Main function programs
Eg:

# include
using namespace std;
int sum(int x, int y)
{return (x+y);}
intmain()
{
cout<<sum(2, 3);
}

Preprocessor directives: A C++ program starts with the preprocessor directive i.e., # include, #define, #undef, etc, are such a preprocessor directive. By using #include we can link the header files that are needed to use the functions. By using #define we can define some constants.
Eg. #define x 100. Here the value of x becomes 100 and cannot be changed in the program.
No semicolon is needed.

Header files:
header files: A header file is a pre-stored file that helps to use some operators and functions. To write C++ programs the header files are a must. Following are the header files used in Geany editor.
iostream
cstdio
cctype
cmath
cstring
cstdlib
The syntax for including a header file is as follows
#include<name of the header file>
Eg. #include<iostream>

The main function: The main function is the first function which is invoked at the time of execution and the program ends within main(). The other functions are invoked from main().

Programming tips:
The identifier name must be clear, precise, brief, and meaningful
Use clear and simple expressions.
Use comments wherever needed.
To give tips in between the program comments are used. A comment is not considered as the part of the program and cannot be executed. There are 2 types of comments single line and multiline. Single line comment starts with //(2 slashes) but multi-line comment starts with /* and ends with */
indentation: Giving leading spaces to the statements is called indentation. It is a good programming practice.

Variable initialisation: Giving value to a variable at the time of declaration.
Eg: intage=16; Here the OS allocates 4 bytes memory for the variable age and it stores a value 16.

const-The access modifier: By using the keyword const we can create symbolic constants its value does not change during execution.
Eg: const int bp=100;

Type modifiers: With the help of type modifiers we can change the sign and range of data with same size. The important modifiers are signed, unsigned, long and short

Shorthands in C++

Arithmetic assignment operators: It is faster. This is used with all the arithmetic operators as follows.

a) Increment operator(++): It is used for incrementing the content by one.
++x(pre increment) and x++ (post increment) both are equivalent to x = x + 1.

b) decrement operator (–): It is used for decrementing the content by one.
–x (pre decrement) and x– (post decrement) both are equivalent to x = x – 1.

Prefix form: In this, the operator is placed before the operand and the operation is performed first then use the value.

Postfix form: In this, the operator is placed after the operand and the value of the variable is used first then the operation is performed
Eg: Post increment a++
Here first use the value of ‘a’ and then change the value of ‘a’.
Eg: if a=10 then b=a++.
After this statement b=10 and a=11

Pre increment ++a
Here first change the value of a and then use the value of a.
Eg: if a=10 then b=++a.
After this statement b=11 and a=11.

Precedence of operators: Consider a situation where an expression contains all the operators then the operation will be carried in the following order(priority)

Type conversion: Type conversions are of two types.
1) Implicit type conversion: This is performed by the C++ compiler internally. C++ converts all the lower sized data type to the highest sized operand. It is known as type promotion. Data types are arranged lower size to higher size is as follows, unsigned int(2 bytes), int(4 bytes), long (4 bytes), unsigned long (4 bytes), float(4 bytes), double(8 bytes), long double(10 bytes)

2) Explicit type conversion: It is known as typecasting. This is done by the programmer. The syntax is given below.
(data type to be converted) expression
Eg. int x=10;
(float) x;
This expression converts the data type of the variable from integer to float.
These are classified into two decision making and iteration statements

Decision-making statements:

if statement:

Syntax: if (condition)
{
Statement block;
}

First, the condition is evaluated if it is true the statement block will be executed otherwise nothing will be happened.

if… else statement:

Syntax:

if (condition)
{
Statement block1;
}
Else
{
Statement block2;
}

Nested if
An if statement contains another if statement completely then it is called nested if.

if (condition 1)
{
if (condition 2)
{
Statement block;
}
}

The statement block will be executed only if both the conditions evaluated are true.

The else if ladder: The syntax will be given below:

if (expression 1)
{
statement block1;
}
else if (expression 2)
{
statement block 2;
}
else if (expression 3)
{
statement block 3;
}
..............
else
{
statement block n;
}

Here firstly, expression 1 will be evaluated if it is true only the statement block1 will be executed otherwise expression 2 will be evaluated if it is true only the statement block2 will be executed and so on. If all the expression evaluated is false then only statement block n will be executed.

switch statement:
It is a multiple branch statement. Its syntax is given below.

switch(expression)
{
case value: statements;break;
case value: statements;break;
case value: statements;break;
case value: statements;break;
case value: statements;break;
...............................
default: statements;
}

The first expression evaluated and selects the statements with the matched case value. If all values are not matched the default statement will be executed.

Conditional operator: It is a ternary operator hence it needs three operands. The operator is ?:.
Syntax: expression ? value if true : value if false.
First evaluates the expression if it is true the second part will be executed otherwise the third part will be executed.

Iteration statements: If we have to execute a block of statements more than once then iteration statements are used.

while statement: It is an entry controlled loop. An entry controlled loop first checks the condition and executes (or enters into) the body of the loop only if it is true. The syntax is given below:

Loop variable initialised
while(expression)
{
Body of the loop;
Update loop variable;
}

Here the loop variable must be initialised before the while loop. Then the expression is evaluated if it is true then only the body of the loop will be executed and the loop variable must be updated inside the body. The body of the loop will be executed until the expression becomes false.

for statement
The syntax of for loop is

for(initialization; checking; update loop variable)
{
Body of loop;
}

The first part, initialization is executed once, then checking is carried out if it is true the body of the for loop is executed. Then the loop variable is updated and again checking is carried out this process continues until the checking becomes false. It is an entry controlled loop.

do-while statement: It is an exit controlled loop. Exit control loop first executes the body of the loop once even if the condition is false then checks the condition.

do
{
Statements
}while(expression);

Here the body executes at least once even if the condition is false. After executing the body it checks the expression if it false it quits the body otherwise the process will continue.

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 6 Open Economy Macroeconomics.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 6 Open Economy Macroeconomics

Question 1.
Indian Economy is having a deficit of Balance of Payment Account. Suggest some measures to improve its balance of payment position. (MARCH-2008)
Answer:
Measures to improve balance of payment deficit are given below:
1) Devaluation of rupee
2) Control of inflation
3) Promotional measures
4) Tariff and quota restrictions
5) Reduction of imports
6) Provision of incentives

Question 2.
Correct the following statements if necessary. (MARCH-2009)
1) Balance of payment at current account rate to both visible and invisible trade.
2) International trade is trade within the boundaries of a country.
3) The theory of comparative cost advantage is stated by David Ricardo
Answer:
1) True/ Correct
2) False. International trade means trade between two or more countries or internal trade is the trade within the boundaries of a country.
3) True/Correct

Question 3.
Devaluation of domestic currency will enable an economy to overcome deficit in balance of payments. Do you agree with the statement? Justify your answer. (JUNE-2009)
Answer:
Yes. I agree with this statement. Because, when there is deficit in balance of payment, the domestic currency is devalued. This will increase our exports and reduce imports. As a result of increased export and less imports, the deficit in balance of payment can be solved.

Question 4.
If C = 0.8 and M = 0.3
a) Calculate open economy and closed economy multiplier. (MARCH-2010)
b) If domestic autonomous demand increases by 100, what will be multiplier effect on output in both economy?
c) Elucidate the result.
Answer:
i) Open economy multiplier

ii) Closed economy multiplier

b) Multiplier effect of output on closed economy
5 x 100 = 500
Multiplier effect of output on open economy,
2 x 100 = 200

Question 5.
The following table shows the total cost schedule of a competitive firm. It is given that the price of the . good is ₹15. (MARCH-2010)

Answer:
a)

b) The profit maximising level of outputs is ₹6, where the difference between TR and TC is highest.

Question 6.
Mr. Sudheer converted rupees into dollar, he got 20 dollars in exchange of ₹1,000. (JUNE-2010)
a) Calculate profit at each level of output.
b) Find the profit maximising level of output.
Answer:
a) Exchange rate
b) Real exchange rate is the relative price of foreign goods in terms of domestic goods. It is equal to the nominal exchange rate times the foreign price level divided by the domestic price level. When the real exchange rate is equal to one, the two countries are said to be in purchasing power parity.

Question 7.
An Imaginary Balance of Payment situation is given in the table. (JUNE-2010)

a) Find out the trade balance, explain the concept.
b) Calculate the Current Account Balance, comment about the figure.
Answer:
a) Export-Import =12801 -19103
= – 6302
b) 998

Question 8.
Economics are classified into open and closed economics. Distinguish between open and closed economy with an example. (MARCH-2011)
Answer:
An open economy is one which has trade relationship with rest of the world.
Eg: A country with exports (India export rubber). On the other hand a closed economy is one which has not trade relation with rest of the world.
Eg: A country which has no exports or imports.

Question 9.
If a toy costs ₹10 in America and exchange rate is at 45 per U.S. dollar, what is the price of this toy in Indian currency? (MARCH-2011)
Answer:
₹450

Question 10.
If inflation is higher in country ‘A’ than in country ‘B’ and the exchange rate between the two countries is fixed, what is likely to happen to the trade balance between the two countries? Justify your answer. (MARCH-2012)
Answer:
When there is inflation, the domestic currency of country A’will depreciate. Depreciation of domestic currency will lead to increase in export and decrease in import. But this will depend on the elasticity of export and import. If the sum of export and import elasticities is greater than T, there will be positive effect on trade balance. However, in short run the elasticities are supposed to be less than T and therefore there may be negative effect on trade balance. The ultimate effect depends on the composition of trade items.

Question 11.
Compare the following graphs and explain the positions of economy that the diagrams represent. Suggest measures to correct these situations. (MARCH-2012)

Answer:


Excess demand

• Increase taxes
• Decrease Government expenditure
• Reduce deficit financing
• Increase public borrowing

Deficient demand

• Decrease taxes
• Increase government expenditure
• Increase deficit financing
• Reduce public borrowing

Question 12.
Among the following, identify the concepts (JUNE-2014)
i) Trade deficit
ii) Budget deficit
a) G + T
b) T + X
c) G-T
d) G + M
e) X-M
f) X+M
Answer:
i) e) X-M
ii) c) G-T

Question 13.
Fill appropriately. (JUNE-2014)
a) Domestic demand for foreign goods leads to ______
b) The tiny production unit is referred as ________
c) The expenses that raise productive capacity is called ________
Answer:
a) import
b) firm
c) investment expenditure

Question 14.
Distinguish nominal exchange rate and real exchange rate. (JUNE-2014)
Answer:
The price of one currency in terms of the other is . known as the exchange rate. Nominal exchange rates are bilateral in the sense that they are exchange rates for one currency against another and they are nominal because they quote the exchange rate in money terms, i.e. so many rupees per dollar or per pound. However, the real exchange rate is the ratio of foreign to domestic prices, measured in the same currency. It is defined as Real exchange rate = eP_f / P where P and P_f are the price levels here and abroad, respectively, and e is the rupee price of foreign exchange (the nominal exchange rate).
The real exchange rate is often taken as a measure of a country’s international competitiveness. Therefore, real exchange rate is considered to be more relevant.

Question 15.
Write down the national income identify for an open economy with due explanation of the terms used. (JUNE-2014)
Answer:
National income identity for an open economy
In a closed economy, there are three sources of demand for domestic goods – Consumption (C), government spending (G), and domestic investment (I).
We can write Y =C+ l + G
In an open economy, exports (X) constitute an additional source of demand for domestic goods and services that comes from abroad and therefore must be added to aggregate demand. Imports (M) supplement supplies in domestic markets and constitute that part of domestic demand that falls on foreign goods and services. Therefore, the national income identity for an open economy is
Y+M = C + I + G + X
Rearranging, we get
Y = C + I + G + X-M or
Y = C + I + G + NX
where, NX is net exports (exports – imports). A positive NX (with exports greater than imports) implies a trade surplus and a negative NX (with imports exceeding exports) implies a trade deficit.

Question 16.
Differentiate between: (JUNE-2014)
i) Currency Devaluation and
ii) Currency Depreciation
Answer:
Devaluation means increase in exchange rate. Devaluation is said to occur when the exchange rate is increased by social action under a pegged exchange rate system. Devaluation is used as a tool to bridge the gap of trade deficit.
On the other hand, change in the price of foreign exchange under flexible exchange rate, when it becomes cheaper as compared to domestic currency is known as depreciation.

Question 17.
Two National Income identities are shown below: (MARCH-2015)
i) Y = C + I + G
ii) Y = C + I + G + X – M
a) Pick out the National Income identity for an open economy.
b) If marginal propensity to consume (C) = 0.5 and marginal propensity to import (M) = 0.3, prove that the open economy multiplier is smaller than that of the closed economy
Answer:

the multiplier in closed economy is 2 and open economy is 1.25.

Question 18.
The economic principle of exchange rate determination are different in different systems. Write in one or two sentences how the exchange rate is determined under:  (MARCH-2015)
a) Flexible Exchange rate system
b) Fixed Exchange rate system
c) Managed floating Exchange rate system.
Answer:
a) A country’s exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that particular currency relative to other currencies. Thus, floating exchange rates change freely and are determined by trading in the for ex market. This is in contrast to a “fixed exchange rate” regime.

b) Fixed Exchange Rate’ A country’s exchange rate regime under which the government or central bank ties the official exchange rate to another country’s currency (or the price of gold). The purpose of a fixed exchange rate system is to maintain a country’s currency value within a very narrow band. Also known as pegged exchange rate.
In a fixed exchange-rate system, a country’s central bank typically uses an open market mechanism and is committed at all times to buy and/or sell its currency at a fixed price in order to maintain its pegged ratio and, hence, the stable value of its currency in relation to the reference to which it is pegged. The central bank provides the assets and/or the foreign currency or currencies which are needed in order to finance any payments imbalances.

c) Managed float regime is the current international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries exchange by buying and selling currencies. It is also known as a dirty float.
Managed float exchange rates are determined in the foreign exchange market. Authorities can and do intervene, but are not bound by any intervention rule.
Often accompanied by a separate nominal anchor, such as inflation target. The arrangement provides a way to mix market-determined rates with stabilizing intervention in a non-rule-based system. Its potential drawbacks are that it doesn’t place hard constraints on monetary and fiscal policy. It suffers from uncertainty from reduced credibility, relying on the credibility of monetary authorities. It typically offers limited transparency.

Question 19.
Differentiate between fixed and floating exchange rates.  (MAY-2015)
Answer:
In a system of flexible exchange rates (also known as floating exchange rates), the exchange rate is determined by the forces of market demand and supply.
Countries have had flexible exchange rate system ever since the breakdown of the Bretton Woods system in the early 1970s. Prior to that, most countries had fixed or what is called pegged exchange rate system, in which the exchange rate is pegged at a particular level. Sometimes, a distinction is made between the fixed and pegged exchange rates.
Under a fixed exchange rate system, such as the gold standard, adjustment to BOP surpluses or deficits cannot be brought about through changes in the exchange rate.

Question 20.
Give one-word for the following:  (MAY-2015)
The price of one unit of foreign currency in terms of domestic currency.
Answer:
Exchange rate

Question 21.
Explain Balance of Payments (BOP). What do you mean by balance of payment surplus and balance of payment deficit?  (MAY-2015)
Answer:
Balance of trade is the record of a country’s visible export and visible imports. It includes only visible trade and excludes invisible trade of services. However, balance of payment is a more comprehensive term which denoted a country’s total monetary transactions with the rest of the world. It includes both visible and invisible trade of goods and services.
The balance of payments (BOP) records the transactions in goods, services and assets between residents of a country with the rest of the world. There are two main accounts in the BOP – the current account and the capital account.
When the total receipt is larger than the payment the balance of payment is said to be surplus. On the other hand when payments are larger than receipts, balance of payments is said to be deficit.

Question 22.
Differentiate:  (MARCH-2016)
a) Currency devaluation
b) Currency depreciation
Answer:
a) Currency devaluation: It is the deliberate reduction of the value of domestic currency in terms of a foreign currency.
b) Currency depreciation: It is the reduction in the value of domestic currency due to the operation of supply for money and demand for money.

Question 23.
Write a note on fixed exchange rate and floating exchange rate.  (MAY-2016)
Answer:
In a system of flexible exchange rates (also known as floating exchange rates), the exchange rate is determined by the forces of market demand and supply.
Countries have had flexible exchange rate system ever since the breakdown of the Bretton Woods system in the early 1970’s. Prior to that, most countries had fixed or what is called pegged exchange rate system, in which the exchange rate is pegged at a particular level. Sometimes, a distinction is made between the fixed and pegged exchange rates.
Under a fixed exchange rate system, such as the gold standard, adjustment to BOP surpluses or deficits cannot be brought about through changes in the exchange rate.

Question 24.
The relative price of foreign goods in terms of domestic goods is _____ (MAY-2016)
a) The nominal exchange rate
b) The real exchange rate
c) Floating exchange rate
d) All of the above
Answer:
The real exchange rate

Question 25.
Explain the working of a pegged exchange rate system with suitable diagram. (MARCH-2017)
Answer:
Fixed exchange rate is also known as pegged exchange rate system. Under this system, the exchange rate will be determined by central bank. The intervention made in the foreign exchange market by the central bank to keep exchange rate fixed is known as pegging. This can be explained with the help of diagram. Which is given below.

Here e* is the market determined exchange rate. Suppose that government fixes exchange rate as e₁ At e, exchange rate the demand for foreign exchange is greater than the supply of foreign exchange. If there is no.control over exchange rate. It will increase to e*. In order to maintain the exchange rate at e₁ the central bank will sell AB amount of foreign exchange in the market. So the exchange will be maintained at e*.
Suppose that the central bank fixes the exchange rate e₂. If there is no central bank intervention in the market the exchange rate will fall to e*. In order to maintain the exchange rate at e₂ the central bank will purchase CD amount of foreign exchange from the market. Thus fixed exchange rate is maintained.

Question 26.
Differentiate between Devaluation and Depreciation. (MARCH-2017)
Answer:
Devalution: Lowering of the value of domestic currency through official procedure by the central bank under fixed exchange rate system is known as currency devaluation.
Depreciation: The loss in the value of domestic currency when exchanged with foreign currency under flexible exchange rate system is known as currency depreciation.

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 5 The Government: Budget and The Economy.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 5 The Government: Budget and The Economy

Question 1.
Keynes suggested a deficit budget for a developing economy but classical economists supported a surplus budget. (MARCH-2008)
a) Differentiate the two concepts of budget.
b) What is your opinion? Justify your answer.
Answer:
a) Deficit budget and Surplus budget.
When the proposed expenditure is greater than the expected revenue, the budget is said to be deficient. On the other hand, when the proposed expenditure is less than the expected revenue, the budget is said to be a surplus one.
b) I do agree with the opinion of Keynes. Because in a developing economy govt, will have to make so many developmental activities for the welfare of the society. In such a situation, a deficit budget is possible and it will become unavoidable.

Question 2.
discretionary and non-discretionary.  (MARCH-2009)
a) Progressive Income Tax
b) Unemployment allowances
c) Public Expenditure programme.
d) Public borrowing
Answer:

Question 3.
In the present world, the budget is an important instrument of government policy. One of the objectives of the budget is given below. Supplement the other objectives. (MARCH-2008)
Redistribution of Income and Wealth
Answer:

• Reallocation of resources
• Stabilisation of economy
• Management of public enterprises
• Execution of plans
• Control of public fund

Question 4.
Classify the followings into tax revenue and non-tax revenue: (MARCH-2008)
Personal Income Tax, Excise duty, Import duty, License Fee, Surplus from Public Enterprise, Escheat.
Answer:

Question 5.
In a developed economy Keynesian budgetary policy is more effective compared to classical budgetary policy. Can you agree with this statement? Justify your answer. (JUNE-2009)
Answer:
Yes. I agree with this statement. Because in the developed economy the role of government and the private sector is more desirable. There will be situations of the business cycle in such economies. General overproduction and underproduction are common features. On such occasions, the classical policy will not properly work. Keynesian ideas will help the proper functioning of the developed economies.

Question 6.
Complete the following chart: (MARCH-2010)

Answer:

Question 7.
A glance at the Union Budget of 2009 reveals that there is a fiscal deficit of 6.8% of GDP as compared to 6% last year. What are the various measures used for deficit reduction? (JUNE-2010)
Answer:
If the government increases taxes or decreases expenditure then the fiscal deficit gets reduced. Indian government is trying to reduce the fiscal deficit by increasing tax revenue by selling the share of PSUs and by reducing the government expenditure. The deficit reduction influences the different sectors of an economy in different ways.
The government is trying to fill the gap of reduced fiscal deficit by making government activities more efficient through better planning of programmes and better administration.
The cutting back government programmes in vital areas like agriculture, education, health, poverty alleviation has adverse effect on the economy.
The same fiscal measures can lead to a large or small deficit government by the state of the economy. During recession period GDP falls which reduces tax revenue which increase the fiscal deficit.

Question 8.
The Government allocates more amount for subsidies in the budget. (MARCH-2011)
a) Give your opinion about its impact on fiscal deficit.
b) Total Expenditure = ₹3,000 crores
Revenue receipts = ₹1,500 crores
Non-debt creating Capital receipts = ₹600 crores
Calculate Gross
c) Define Primary Deficit.
Answer:
a) Increases fiscal deficit.
b) Gross fiscal deficit, = 3000 – (1500 + 600)
= 3000-2100 = 900
c) Primary deficit is fiscal deficit minus the interest payments
ie, Primary deficit = fiscal deficit – Interest payments

Question 9.
“Fiscal deficits are inflationary.” Do you agree with this statement? Comment. (MARCH-2012)
Answer:
Fiscal deficits are generally treated as inflationary. Increase in govt, expenditure and cuts in taxes both leads to government deficit. Increased govt, expenditure and reduced taxes tend to increase the aggregate demand. Generally firms are not able to produce higher quantities that are demanded at the going prices. This leads to inflationary pressure. However, there is a solution to this inflationary pressure. The economy can utilize the unutilized resources and raise production. Therefore, the deficit cannot be inflationary when an economy has unutilized resources.

Question 10.
The following are some of the fiscal policy measures. Complete the table appropriately.(MARCH-2012)

Answer:

Question 11.
Below are given the relative size of the budget. Mention the type of budget. (MARCH-2013)
Relative size of Budget
i) Revenue > Expenditure
ii) Revenue = Expenditure
iii) Revenue < Expenditure
Type of Budget?
Answer:
i) surplus budget
ii) balanced budget
iii) deficit budget

Question 12.
Schematically represent the components of a government budget. (JUNE-2014)
Answer:

Question 13.
Which of the following is a transfer payment? (MARCH-2015)
a) Rent
b) Wages
c) Interest
d) Old age pension
Answer:
old age pension

Question 14.
Distinguish between revenue deficit and fiscal deficit. (MAY-2015)
Answer:
When a government spends more than it collects by way of revenue, it incurs a budget deficit. There are various measures that capture government deficit and they have their own implications for the economy. The important concepts of deficits are discussed below.

Revenue Deficit: The revenue deficit refers to the excess of government’s revenue expenditure over revenue receipts.
Fiscal Deficit: Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing.
Primary Deficit: We must note that the borrowing requirement of the government includes interest obligations on accumulated debt. To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply the fiscal deficit minus the interest payments.
Gross primary deficit = Gross fiscal deficit – net interest liabilities.

Question 15.
Should current account deficit be a cause for alarm? (MARCH-2016)
Answer:
Yes, current account deficit is a cause for alarm because it will create inflationary pressures in the economy. Inflation will badly affect all classes of society. Hence current account deficit should be reduced by taking effective fiscal measures.

Question 16.
Complete the following equations: (MAY-2016)
a) Revenue Deficit = Revenue Expenditure – ( ___________ )
b) Gross Fiscal Deficit = Total Expenditure – (_________ )
c) Gross Primary Deficit = Gross Fiscal Deficit – ( _________)
d) 1 – MPC = (_________)
Answer:
a) Revenue receipts
b) Revenue receipts + non-debt creating capital receipts
c) Net investment liabilities
d) MPS

Question 17.
Are Fiscal deficit inflationary? Substantiate your answer.(MAY-2016)
Answer:
Yes. An increase in government expenditure beyond certain limits leads to a fiscal deficit increased spending thus pumps too much money into the economy. It increases the purchasing power of the public. The ultimate result of this overspending or fiscal deficit is an increase in the price level. Thus, fiscal deficits are inflationary in nature.

Question 18.
Fill in the blanks:
i) _______ = Revenue Expenditure – Revenue Receipts (MARCH-2017)
ii) Primary Deficit = _______ – Net Interest Liabilities
Answer:
i) Revenue Deficit
ii) Gross fiscal deficit

Question 19.
Distinguish between Revenue Expenditure and Capital Expenditure. (MARCH-2017)
Answer:
Revenue expenditure: Revenue expenditure is expenditure incurred for the normal functioning of the government. Which does not create liabilities or reduce the assets of the govt.
It can be further classified into plan revenue expenditure and non-plan revenue expenditure.
Capital expenditure: This expenditure creates physical or financial assets or decreases the liability of the government. Capital expenditure can be further classified into plan capital expenditure and non-plan capital expenditure.

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 4 Income Determination.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 4 Income Determination

Question 1.
Classify the following statements into two branches of economics: (MARCH-2008)
a) Firm’s decision about how much to invest.
b) Govt, has adopted devaluation to overcome deficit in balance of payments.
c) RBI has increased Cash Reserve Ratio to control inflation.
d) Price elasticity of luxury good is elastic
Answer:
a) Micro economics
b) Macroeconomics
c) Macroeconomics
d) Microeconomics

Question 2.
Assume the marginal propensity to consume of a State in India is 0.8 (MARCH-2010)
1) Find out tax multiplier and expenditure multiplier.
2) From the above example prove that adding these two policy multipliers brings a balanced budget multiplier.
Answer:

Question 3.
Suppose the income of individual A increases from ₹1,000 to ₹1,100. So his consumption rises from ₹750 to ₹825. Find out MPS and MPC. (MARCH-2010)
Answer:

Question 4.
a) Complete the following table: (JUNE-2010)
–
b) Using the equation prove that MPC + MPS = 1
Answer:
a)

b) MPC + MPS = 1
That is 0.75+ 0.25 = 1

Question 5.
The Central Government sanctioned ₹40 crores to Kerala and Assam for making additional investments. The MPC of Kerala is 0.8 and Assam is 0.5. (JUNE-2010)
a) Find the multiplier and multiplier effect on the income of these two States.
b) Explain the concept of output multiplier.
Answer:
a)


= 80 crores
b) Multiplier denotes the relationship between investment and income. Increase in investment leads to increase in income.

Question 6.
A = C + T = ₹ 50 crores, MPC = 0.8, Y = ₹ 4000 crores (MARCH-2011)
a) State whether the economy has reached in equilibrium or not (Hint: Y = \(\overline{\mathrm{A}}\) + CY)
b) Illustrate your conclusion in a diagram.
Answer:
Y = \(\overline{\mathrm{A}}\) + c. y
Since \(\overline{\mathrm{A}}\) = \(\overline{\mathrm{C}}\) \(\overline{\mathrm{I}}\). we have
Y = \(\overline{\mathrm{C}}\) \(\overline{\mathrm{I}}\) x c. y Putting values, we get
Y = 50 + 0.8 x 4000
=50 + 3200 – 3250
Since 3250 ≠ 4000, equilibrium is not reached in the economy.

Question 7.
Multiplier plays a significant role in Keynesian Macro Economics. (MARCH-2011)
a) Examine the relationship between multiplier and MPC
b) If MPC = 0.8, calculate multiplier.
Answer:
a) The value of multiplier is determined by marginal propensity to consume. Higher the MPC, greater the size of multiplier lower the MPC, smaller the size of multiplier. When income of consumer rises they spend more the value of increase in income ie. multiplier depends on’MPC, greater the value of multiplier depends on greater size of MPC. Thus there is direct relation between multiplier and MPC.
The relation can be expressed in terms of an equation as under

Putting the value of in equation we get,

Thus it is clear from the above equation that the value of MPC and multiplier are positively related
b) MPC = 0.8

Question 8.
Distinguish the terms ‘Ex ante investment’ and ‘Ex post’ investment. (MARCH-2012)
Answer:
Ex ante means ‘anticipated’ while Ex post means realised. In economics ex ante investment refers to anticipated investment in an economy while ex post investment refers to the realised investment.
Ex ante: The planned value of a variable as opposed to its actual value.
Ex post: The actual or realized value of a variable as opposed to its planned value .
Ex ante consumption: The value of planned consumption
Ex ante investment: The value of planned investment.

Question 9.
Explain the concept of aggregate demand with the help of a diagram.(MARCH-2013)
Answer:
The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as Total spending”.
Aggregate demand is the demand for the gross domestic product (GDP) of a country, and is represented by this formula:
Aggregate Demand (AD) = C + I + G + (X-M) Where, C = Consumers’ expenditures on goods and services.
I = Investment spending by companies on capital goods.
G = Government expenditures on publicly provided goods and services.
X = Exports of goods and services.
M = Imports of goods and services.
Downward sloping aggregate demand curve

The most noticeable feature of the aggregate demand curve is that it is downward sloping, as seen in . There are a number of reasons for this relationship. Recall that a downward sloping aggregate demand curve means that as the price level drops, the quantity of output demanded increases. Similarly, as the price level drops, the national income increases. There are three basic reasons for the downward sloping aggregate demand curve. These are Pigou’s wealth effect, Keynes’s interest-rate effect, and Mundell- Fleming’s exchange-rate effect. These three reasons for the downward sloping aggregate demand curve are distinct, yet they work together.
The first reason for the downward slope of the aggregate demand curve is Pigou’s wealth effect. The second reason for the downward slope of the aggregate demand curve is Keynes’s interest-rate effect. The third reason for the downward slope of the aggregate demand curve is Mundell-Fleming’s exchange-rate effect.

Question 10.
Distinguish the concepts (JUNE-2014)
a) Ex Ante and
b) Ex Post
Answer:
Ex-ante and Ex-post
Consumption, savings and investment can be classified into Ex-ante and Ex-post variables. The terms Ex-ante and Ex-post have been derived from the Latin word. Ex-ante means planned or desired. Ex-post means actual or realized. In national income accounting, the variables such as consumption, investment and savings are considered as ex-post variables. The rate at which consumption, savings and investment are presented in the ex-post sense.

Question 11.
Explain the concept marginal propensity to consume. How it relates to marginal propensity to save? (JUNE-2014)
Answer:
Marginal Propensity To Consume – MPC’
The proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. Marginal propensity
to consume is a component of Keynesian macroeconomic theory and is calculated as the change in consumption divided by the change in income. MPC is depicted by a consumption line- a sloped line created by plotting change in consumption on the vertical y axis and change in income on the horizontal x axis.
The marginal propensity to consume (MPC) is equal to AC / AY, where Ac is change in consumption, and AY is change in income.
Marginal Propensity to consume refers to the ratio of change in consumption to change in income. MPC = AC / AY
Marginal Propensity to save refers to the ratio of change in saving to change in income.
MPS = AS /AY
The sum of MPC and MPS is always one and equal to unity.
That is MPC + MPS = 1

Question 12.
The point on the supply curve at which a firm earns normal profit is called _________ (MARCH-2015)
a) Normal profit
b) Super normal profit
c) Break-even point
d) Shut-down point
Answer:
d) Shut-down point

Question 13.
In an economy, investment increases by 500 crores. If MPC is 0.5, what is the increase in total income? (MARCH-2015)
Answer:

Increase in total income
= Kx increase in investment
= 2 x 500 crores
= 1000 crores

Question 14.
If all the people of the economy increases the proportion of income they save, the aggregate savings in the economy will not increase. This phenomenon is known as ______. (MARCH-2015)
a) Paradox of prosperity
b) Paradox of thrift
c) Leontief paradox
d) Giffen paradox
Answer:
Paradox of thrift

Question 15.
Study the following table and answer the questions. (MARCH-2015)

a) Derive the aggregate demand schedule.
b) Show graphically the components of aggregate demand.
Answer:
a) Aggregate desired schedule

Question 16.
a) Explain Effective Demand. (MAY-2015)
b) What are the determinants of the value of aggregate demand?
c) Diagrammatically explain the change in Aggregate demand due to a change in government expenditure.
Answer:
Effective Demand
a) The logical starting point of Keynes General Theory is the principle of effective demand. Effective demand is the aggregate demand for the existing output at prevailing prices. The main reason for unemployment in an economy is the deficiency in aggregate demand. To avoid unemployment, we have to increase effective demand. Income and Employment determination The level of income and employment will be determined at the point where aggregate demand equals aggregate supply.
b) Aggregate demand and its determinants Aggregate demand is the total demand in an economy at various levels of employment. In other words it is aggregate expenditure on all goods and services in the economy. It consists of the four components.
They are:

• Consumption demand
• Investment demand
• Government demand

c) Equilibrium level of income is determined by Aggregate demand (AD) and Aggregate Supply (AS). This situation is shown in figure 1.

Figure 2 shows the effect of change in government expenditure. As government expenditure increases AD curve shifts up to AD¹.This brings new equilibrium point at E¹. So the level of income increases to Y¹.

Question 17.
Distinguish between the terms Ex-ante Investment and Ex-post Investment. (MAY-2016)
Answer:
Ex-ante investment means planned investment. On the other hand, ex-post investment means actual or realised investment.

Question 18.
Consider the following diagram. Answer the following questions: (MARCH-2017)

i) What does the 45° line represent?
ii) What is the difference between A₁ and A₁?
iii) List two possible reasons for an increase in Autonomous Expenditure.
iv) When the economy moved from E₁ to E₂, the Aggregate output is increased more as compared to Aggregate expenditure. Why?
v) Explain the movement of the economy from E₁ to E₂.
Answer:
i) Equilibrium income determination curve (AD curve)
ii) When investment increases the aggregate demand will increase. So equilibrium income will also increase.
iii) To increase public expenditure of govt.
To increase transfer of payment of govt.
iv) When govt, expenditure increases there occurs a change in autonomous component of the aggregate demand curve. The slope will remain constant then equilibrium income will increase. This is due to the operation of the multiplier.
Suppose the govt, expenditure increases, then aggregate demand curve shift from AD₁ to AD₂. So equilibrium income increase form E₁ to E₂. The change in income (∆y) is greater than change in govt, expenditure (∆G). This is due to the effect of multiplier.

Question 19.
Among the following choose the one which represents the multiplier.  (MARCH-2017)

Answer:

Question 20.
Elucidate the working of Autonomous Expenditure Multiplier Mechanism with a suitable example. Show the impact of a decline in MPC on multiplier.  (MARCH-2017)
Answer:
Consumption at zero level of income is called autonomous consumption. When there is increase in autonomous expenditure, the aggregate demand curve shifts upward. Similarly, when there is fall in autonomous expenditure the curve shifts downward.

Here mpc is the decisive factor influencing the value of multiplier. For example, if the value of mpc is 0.75, the multiplier is

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 3 Money and Banking.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 3 Money and Banking

Question 1.
Complete the chart. (MARCH-2008)

Answer:

Question 2.
Imagine an economy without money and point out the difficulties faced in the exchange of commodities. Can you suggest an economic term for that situation? (MARCH-2008)
Answer:
a) Difficulties of commodity exchange system are:

• need of the double coincidence of wants.
• need of divisibility
• lack of common measure of value
• lack of proper store of value.

b) This system is called barter system.

Question 3.
In the following table some important monetary policy measures are given. Complete the table appropriately. (MARCH-2008)

Answer:

Question 4.
the questions given below. (MARCH-2008)
1) Central Government wants advice on a financial crisis.
2) Central Government wants an authority as the custodian of foreign exchange reserves.
3) The country needs an institution to regulate the money supply and credit system.
4) Commercial Banks wants an institution for assistance and advice.
a) Which institution can handle all these issues?
b) Analyse each issue and explain how that institution handle and make decision on them.
Answer:
a) RBI or Central Bank
b) 1) Financial adviser
2) Custodian of nation’s foreign exchange reserves
3) Control of credit
4) Lender of last resort

Question 5.
A recent study on film industry in Kerala reveals that even today majority of the producers depend not on banks but on big money lenders for raising the required capital. (JUNE-2009)
a) Comment on it in the background of Indian monetary system.
b) Suggest a remedy for betterment.
Answer:
a) It is a fact that in Kerala many people depend on private money lenders rather than banks. This is because banking activities are time-consuming and will cause unnecessary delay. Moneylenders are easily accessible and therefore people depend on them for financial requirements,
b) Banking system should be made easily approachable.

• Bank facilities should be provided to all.
• Delay in business should be avoided.
• Unnecessary formalities and practices should be avoided.
• Large security requirements of banks should be relaxed.

Question 6.
The RBI has been publishing four alternative measures of money supply in India since 1977. On the basis of this.(MARCH-2010)
a) Complete the following table:
b) Identify aggregate monetary resource.

Answer:

Question 7.
Data regarding the production and cost structure of a firm is given below: (MARCH-2010)

a) If TFC is 60, complete the table.
b) On the same set of axis plot TFC, TVC and TC.
c) Write relevant equations to find out AFC, AVC,
Answer:
a)

Question 8.
Monetary policy is the policy adopted by the RBI to stabilize the economy. One of the instruments of monetary policy is cash reserve ratio. Supplement other three and explain.(MARCH-2010)
Answer:
1) Bank Rate
2) Statutory Liquidity Ratio
3) Open Market Organisations

Question 9.
‘Money supply is a stock variable.’ (JUNE-2010)
a) Define the concept of money supply.
b) Name the four alternative measure of money supply.
c) Classify them into narrow money and broad money.
Answer:
Money supply consists of currency notes and coins issued by the monetary authority of the country.
b) The total stock of money in circulation among the public at a particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M₁, M₂, M₃ and M₄. They are defined as follows.
c) M₁ and M₂ are narrow money. M₃ and M₄ are broad money

Question 10.
RBI is the independent authority for conducting monetary policy in the economy. Explain the instruments which RBI uses for conducting monetary policy. (JUNE-2010)
Answer:
Bank rate
Open market operations
Margin requirements

Question 11.
Anand has an account in State Bank of India. He often withdraws some amount of money either through cheque or through ATM card. (MARCH-2011)
Answer:
Demand deposit/Saving deposit/Current deposit

Question 12.
In order to control inflation, Reserve Bank of India (RBI) raised Cash Reserve Ratio (CRR) by 0.75% during January 2010. As part of monetary policy, the RBI adopts some more measures to counter inflation. Discuss any other 2 measures. (MARCH-2011)
Answer:
The instruments which RBI uses for conducting mon-etary policy are as follows.
1) Open Market Operations:
It refers to the sale and purchase of government securities by the central bank. RBI purchases government securities to the general public in a bid to increase the stock of high powered money in the economy.
2) Bank Rate Policy:
As mentioned earlier, RBI can affect the reserve deposit ratio of commercial banks by adjusting the value of the bank rate-which is the rate of interest commercial banks have to pay RBI – if they borrow money from it in case of shortage of reserves. A low (or high) bank rate encourages banks to keep smaller (or greater) proportion of their deposits as reserves, since borrowing from RBI is now less (or more) costly than before.

Question 13.
Observe the graph given. Identify the segment of liquidity trap from the figure and choose the answer from bracket. (MARCH-2011)

Answer:
c to d

Question 14.
Distinguish between the ‘legal tender money’ and ‘flat money’.(MARCH-2012)
Answer:
Money issued by the monetary authority or the government which cannot be refused by any one is called legal tender money.
Eg : Currency notes.
On the other hand fiat money refers to money with no intrinsic value.
Eg : Coins

Question 15.
In India RBI has developed alternative measures of money supply and figures are published accordingly. (MARCH-2013)
a) Prepare a chart showing the alternative measures of money supply in India.
b) Categorise them into ‘narrow money’ and ‘broad money’.
c) Also identify the ‘most’ and ‘least’ liquid forms of money.
Answer:
The total stock of money in circulation among the public at a particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M₁, M₂, M₃ and M₄. They are defined as follows.

b) M₁ and M₂ are narrow money M₃ and M₄ are broad money
c) M₁ and M₂ are known as narrow money. M₃ and M₄ are known as tad money. These gradations are in decreasing order of liquidity. M₁ is most liquid and easiest for transactions whereas M₄ is least liquid of all. M₃ is the most commonly used measure of money supply. It is also known as aggregate monetary resources.

Question 16.
“People desire to hold money balance broadly from two motives.” Explain. (MAY-2015)
Answer:
The Transaction Motive: The principal motive for holding money is to carry out transactions. In general, the transaction demand for money in an economy, MdT, can be written in the following form
Mt = k.T
where T is the total value of (nominal) transactions in the economy over unit period and k is a positive fraction. The number of times a unit of money changes hands during the unit period is called the velocity of circulation of money. In general, equation can be modified in the following way
Mt = kPY
where Y is the real GDP and P is the general price level or the GDP deflator. The above equation tells us that transaction demand for money is positively related to the real income of an economy and also to its average price level.
The Speculative Motive : An individual may hold her wealth in the form of landed property, bullion, bonds, money, etc. Everyone in the economy will hold their wealth in money balance and if additional money is injected within the economy it will be used up to satiate people’s craving for money balances without increasing the demand for bonds and without further lowering the rate of interest below the floor level. Such situation is called a liquidity trap. The speculative money demand function is infinitely elastic here.

Question 17.
Distinguish between a stock and flow variables. Illustrate with examples. (MARCH-2017)
Answer:
Stock : It is a variable which can be measured at a particular point of time. Stock is a static concept e.g. wealth, money supply, inventory.
Flow: It is a variable which can be measured over a given period of time. It is a dynamic concept, e.g: income, gross value added (GVA), changes in inventory

Question 18.
Write a note on the interest responsiveness of the following motives for the demand for money. (MARCH-2017)
Answer:
i) Translation motive
ii) Precautionary motives
iii) Speculative motives
The amount of money that people keep as cash will be determined by comparing the advantages of liquidity and interest rates. The demand for money – as arises due to
1. Precautionary motive: People will hold liquid cash in order to meet emergencies. This is known as precautionary motive.
2. Transation motive: The desire of people hold cash in order to make transactions is defined as demand for money. The volume of GDP increases transations demand for money will also increase. It has a positive relationship with GDP.
3. Speculative motive: In order to make profits from the purchase and sale of bonds and securities individuals will hold cash. This is known as speculative motive.
The relationship between interest rate and bond price is negative. When the market rate of interest is high the bond price will be less.

When the market rate of interest reaches minimum the speculative demand curve will be parallel to ‘x’ axis. This situation is known as liquidity troop.

Question 19.
Match the following: (MARCH-2017)
M₁ : Most commonly used measure of money supply
M₂: Least liquid form of money supply
M₃: M₁ + Post Office Savings Deposits M
M₄: CU+DD
Answer:
M₁: CU + DD
M₂: M₁ + Post Office Savings Deposits
M₃: Most commonly used measure of money supply
M₄: Least liquid form of money supply.

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 2 National Income Accounting.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 2 National Income Accounting

Question 1.
The national product can be measured by using the expenditure method, income method, and value-added method. Prepare the equations to find out GNP_MP with these separate methods. (MARCH-2008)
Answer:
National Income is the sum total of the value of goods and services produced in a country during a year. It can be measured using 3 methods namely product method, expenditure method, and income method.
Product Method
The process to obtain GNP_MP by the production method is: Value added in the primary sector + valued added in the secondary sector + value-added in the tertiary sector + Net factor income from abroad.
Income method
The process to obtain GNP_MP by the income method is: Compensation of employees + Profit + rent + interest + Mixed-Income + Depreciation + Net indirect taxes + Net factor income from abroad
Expenditure method
The process to obtain GNP_MP by the expenditure method is: Private consumption expenditure + Investment expenditure + Govt, purchase of goods and services + net exports + Net factor income from abroad.

Question 2.
Prepare self explanatory charts to explain the various concepts related to National Income concepts. (MARCH-2008)
a) GDP
b) PCI
c) NNP
d) PDI
Answer:
a) GDP – > GNP -> Net factor income from abroad
National Income
b) PCI – > \(\frac{\text { National Income }}{\text { Population }}\)
c) NNP – > GNP- depreciation
d) PDI -> Personal Income-direct taxes

Question 3.
Identify the Boxes and flows and complete the following. (MARCH-2009)

Answer:

Question 4.
The following table shows the different components of domestic factor income for the economy of Malasia. Complete the table by calculating the necessary figures. (MARCH-2009)

Answer:
Domestic Factor Income = Compensation of employees + Operating surplus + Mixed income of the self-employed.
1)250
2)450
3)-750
4) 1400

Question 5.
Give one word for the following statement: (MAY-2009)
a) National income + population
b) A pictural illustration of the interdependence between major sectors and their economic activities.
c) Personal income – direct tax.
d) GNP – Depreciation
Answer:
a) Per capita income
b) Circular flow
c) Disposable income
d) NNP

Question 6.
Suppose that in a two-sector economy the value of finished goods is equal to 200 crores and the income generated as factor reward is also equal to 200 crores. The household spends only 160 crores. Then (MAY-2009)
a) What will happen to circular flow?
b) Which system can be introduced to correct circular flow?
c) Name the leakages and injunctions.
d) Draw the flowchart by incorporating the new system
Answer:
a) Circular flow of income and expenditure will be disturbed when households spend less than their earnings.
b) Financial system can be introduced to correct the circular flow.
c) Saving is a leakage Borrowing is an injection

Question 7.
between income method and the expenditure method of national income measurement. (MARCH-2010)
Hint: The report should have
a) Title
b) Introduction
c) The main points
d) Conclusion win own observation
Answer:
Measurement of National income
Respected teachers and dear friends,
The topic of my seminar paper is ‘measurement of national income or the methods of measuring national income’. The concept of national income occupies an important place in economic theory. National income is the aggregate money value of all goods and services produced in a country during an accounting year. In this seminar paper I would like to present various methods of measuring national income. Introduction
National income can be measured in different ways. Generally, there are three methods for measuring national income. They are

• Value added method
•  Income method
• Expenditure method Value added method

The term that is used to denote the net contribution made by a firm is called its value-added. We have seen that the raw materials that a firm buys from another firm which are completely used up in the process of production are called ‘intermediate goods’. Therefore the value-added of a firm is, value of production of the firm – value of intermediate goods used by the firm. The value-added of a firm is distributed among its four factors of production, namely, labour, capital, entrepreneurship and land. Therefore wages, interest, profits and rents paid out by the firm must add up to the value-added of the firm. Value-added is a flow variable.

Expenditure Method

An alternative way to calculate the GDP is by looking at the demand side of the products. This method is referred to as the expenditure method. The aggregate value of the output in the economy by expenditure method will be calculated. In this method, we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes.

Income Method

As we mentioned in the beginning, the sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods). This follows from the simple idea that the revenues earned by all the firms put together must be distributed among the factors of production as salaries, wages, profits, interest earnings and rents.
That is GDP = W+ P + ln + R
Conclusion:
Thus it can be concluded that there are three methods for measuring national income. These methods are the value-added method, income method, and expenditure method. Usually, in estimating national income, different methods are employed for different sectors and sub-sectors.

Question 8.

a) Complete the chart showing circular flow of economic activity. (MARCH-2010)
b) Identify money flow and real flow from the figure.
Answer:
a)

b) Consumption expenditure and factor payments are money flows, flow of goods and services and factor services are real flows.

Question 9.
The GNP is considered as an index of welfare of a country, but there are some limitations of using GNP. Explain the three limitations. (MAY-2010)
Answer:
It is usually argued that GDP is not always a true index of welfare of a country. There are several limitations in using GDP as an index of welfare as discussed below.
1) Distribution of GDP- how uniform is it: If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in GDP maybe concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare of the entire country cannot be said to have increased. If we relate welfare improvement in the country to the percentage of people who are better off, then surely GDP is not a good index.

2) Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges goods (or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity. In developing countries, where many remote regions are underdeveloped, these kinds of exchanges do take place, but they are generally not counted in the GDPs of these countries.
This is a case of underestimation of GDP. Hence GDP calculated in the standard manner may not give us a clear indication of the productive activity and well-being of a country.
Externalities: Externalities refer to the benefits or harms a firm or individual causes to another for which they are not paid or penalized. Externalities do not have any market in which they can be bought and sold. In the case of externalities, whether positive or negative, it may not reflect the true picture of the economy. That is in the case of externality, GDP will underestimate the actual welfare of the economy.

Question 10.
using three methods: (MAY-2010)
a) Identify the three methods.
b) Prepare the equations to find out GDP with these separate methods.
Answer:
a) Product method, Income method, Expenditure method
b) Product method
Income method: GDP = C + S + T

Question 11.
Prepare a seminar report on the topic ‘Product Method and Income Method of National Income Measurement’. (MARCH-2011)
The report should contain
a) Title
b) Introduction
c) Main points
d) Conclusion with own observation
e) Order of presentation
Answer:
Measurement of National income Respected teachers and dear friends, The topic of my seminar paper is ‘measurement of national income or the methods of measuring national income’. The concept of national income occupies an important place in economic theory. National income is the aggregate money value of all goods and services produced in a country during an accounting year. In this seminar paper I would like to present various methods of measuring national income.
Introduction
National income can be measured in different ways. Generally there are three methods for measuring national income. They are

• Value added method
• Income method
• Expenditure method Value added method

The term that is used to denote the net contribution made by a firm is called its value added. We have seen that the raw materials that a firm buys from another firm which are completely used up in the process of production are called ‘intermediate goods’. Therefore the value added of a firm is, value of production of the firm – value of intermediate goods used by the fine. The value added of a firm is distributed among its four factors of production, namely, labour, capital, entrepreneurship and land. Therefore wages, interest, profits and rents paid out by the firm must add up to the value added of the firm. Value added is a flow variable.

Expenditure Method

An alternative way to calculate the GDP is by looking at the demand side of the products. This method is referred to as the expenditure method. The aggregate value of the output in the economy by expenditure method will be calculated. In this method we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes.

Income Method

As we mentioned in the beginning, the sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods). This follows from the simple idea that the revenues earned by all the firms put together must be distributed among the factors of production as salaries, wages, profits, interest earnings and rents.
That is GDP = W+ P + In + R
Conclusion
Thus it can be concluded that there are three methods for measuring national income. These methods are value-added method, income method and expenditure method. Usually, in estimating national income, different methods are employed for different sectors and sub-sectors.

Question 12,
Pick out the correct equation. (MARCH-2011)
a) GDP = GNP + Net factor income from abroad
b) NNP = GNP – Depreciation
c) NDP = GDP – Net Indirect Tax
d) NNP = GNP-Net Indirect Tax
Answer:
NNP = GNP – Depreciation

Question 13.
The term used to refer the benefits (or harm) a firm or an individual causes to another firm or an individual for which they are not paid is (MARCH-2012)
a) Welfare
b) Externalities
c) Transfer Payments
d) Internal Economies
Answer:
b) Externalities

Question 14.
Identify the real and nominal flows in the circular flow of income. (MARCH-2012)

Answer:
Real flows
Factor services
Final goods and services Nominal flows
Factor incomes
Expenditure on goods and services

Question 15.
GDP Deflator refers to (MARCH-2012)
a) The ratio of real to nominal GDP.
b) The ratio of nominal to real GDP.
c) The ratio of nominal N to real GDP.
d) The ratio of nominal GDP to nominal GNP.
Answer:
b) The ratio of nominal to real GDP.

Question 16.
From the data given below, calculate (MARCH-2012)
a) GDP at market price.
b) Net National Income at Factor Cost.
c) Personal income.
Data :
1) NDP at market price – ₹74,905
2) Net indirect taxes – ₹8,344
3) Income from Domestic product accruing to Govt. – ₹1,972
4) Net factor income from abroad – ₹(-) 232
5) Current transfers to households – ₹2,305
6) Depreciation – ₹4,486
Answer:
a) GDP at market price
GDP_MP = NDP_MP + Depreciation
= ₹74905 + 4486 = ₹79,391 .
b) Net National Income at factor cost
NNP_FC = NDP_MP – Net indirect tax + Net factor income from abroad = 74905-8344+ (-) 232 = 7 66,329
c) Personal income
= NNP_FC+Current transfers to households = 66329 + 2305= ₹68,634

Question 17.
List of some variables are given below. Classify them in a table into stocks and flows. (MARCH-2013)
i) Wealth
ii) Income
iii) consumption
iv) Investment
v) Expenditure
vi) Capital stock
Answer:
Stock variables

• wealth
• capital stock

flow variables

• income
• consumption
• investment
• expenditure

Question 18.
From the following information, calculate GNP and NDP (₹ in crores) (MARCH-2013)
i) GDP_MP 65,665
ii) Consumption of fixed capital 2,250
iii) Net factor income from abroad 750
Answer:
GNP = GDP + Net factor income from abroad GNP =65,665 + 750 = 66415 Crores
NDP = GDP – depreciation (Consumption of fixed capital)
NDP =65665-2250 = 63415 Crores

Question 19.
The value of the nominal GDP of India was ₹ 2,800 crores during the year 2011. The value of GDP of the country during the same year evaluated at the price of some base year was ₹3,200 crores. Find the value of GDP deflator of the year in percentage terms. (MARCH-2013)
Answer:
The ratio of nominal GDP to real GDP is known as GDP deflator

Question 20.
Though Gross Domestic Product (GDP) is often used as an indicator of economic welfare, it is not a comprehensive indicator of welfare. Elaborate. (MAY-2014)
Answer:
GDP deflator = Current year GDP / Base year GDP x 100 = 1800/1200 x 100 = 1.5 x 100
= 1.5 (in percentage terms 150)

Question 21.
Pick the odd one and justify your answer. (MAY-2014)
a) Product method
b) Deductive method
c) Income method
d) Expenditure method
Answer:
deductive method. All others are methods for measuring national income.

Question 22.
Identify central/basic economic problems. (MAY-2014)
i) What is to be produced?
ii) What is to be regulated?
iii) How goods are to be produced?
iv) How sectors are to be divided?
v) How produced output is to be divided?
vi) How much is to be produced?
Answer:
Basic economic problems are
i) what to produce
iii) how goods are to be produced
vi) how much is to produced

Question 23.
Define value added method. A farmer produces 5 quintals of wheat, out of which he sells 3 quintals to a flour mill and 1.5 quintals to consumers at the rate of ₹1000 per quintal. He retains the balance of 0.5 quintals of self-consumption. For wheat cultivation he spends ? 2000 on account of purchasing seeds and fertilizers. Calculate value added by the farmer (MARCH-2015)
Answer:
The real value added in the production process is called Gross value added.
Gross value added = Value of output – Intermediate consumption
Gross value added = 5000 – 2000 = 3000

Question 24.
Suppose in a two sector economy goods worth ₹150 crores are produced and income generated is also equal to ₹150 crores. Draw circular flow of economic activities in this economy and explain. (MAY-2015)
Answer:
The inter related process of production, income generation and expenditure is called circular flow of income. In the given two sector economy, the flow of economic activities can be in the following way.

In this sector households receive ₹150 crore for their factor services given to firms. Firms in reply, provides goods and services to household sector to firms as consumption expenditure.

Question 25.
Write down the three identities of calculating the GDP of a country by the three methods. Also explain why each of these should give us the same value of GDP.(MAY-2015)
Answer:
Gross National Product (GNP) equals Gross National Income equals Gross national expenditure i.e.
GNP = GNI = GNE
These are equal because national income is a circular flow of income. Aggregate expenditure is equal to aggregate output which in turn, is equal to aggregate income. However each method has some different items, yet they show exactly identical results. Their identity can be shown in the following manner: Reconciling Three Methods of Measuring Gross

Question 26.
Fill in the blanks :
a) A balanced budget multiplier is unity implies that ₹100 increase in ‘G’ increases National Income by (MAY-2015)
b) Gross primary deficit = ________
Answer:
a) ₹100
b) Gross primary deficit = Gross fiscal deficit – net interest liabilities.

Question 27.
Fill in the blanks : (MARCH-2016)
a) GDP + ______ = GNP
b) GNP – Depreciation = ______
c) ________ – Net Indirect Taxes = NNP_FC
(GDP – Gross Domestic Products
GNP – Gross National Products
NNP_FC – Net National product at factor cost)
Answer:
a) Net factor income from abroad
b) NNP
c) NNP_MP

Question 28.
You are to be cautions while taking only GDP (Gross Domestic Product) as index of welfare. Why so? (MARCH-2016)
Answer:
GDP deflator = Current year GDP / Base year GDP x 100
= 1800/1200 x 100
= 1.5 x 100
= 1.5 (in percentage terms 150)

Question 29.
If the quantity demanded of ‘good’ X’ increases with a rise in the price of ‘good Y’, these goods are ________ (MAY-2016)
a) complementary goods
b) Inferior goods
c) Normal goods
d) Substitute goods
Answer:
d) Substitute goods

Question 30.
Differentiate between the stock variables and flow variables with examples. (MAY-2016)
Answer:
Stocks and flows
There are differences between the concepts of stocks and flows. Stock is a variable measured at appoint of time, whereas, flow is a variable measured over a period of time. Wealth, capital etc are variables which can be measured at a point of time. Therefore, they are stock variables. At the same time, income, output, profits etc are concepts that make sense only when a time period is specified. These are called flows because they occur in a period of time. Therefore we need to delineate a time period to get a quantitative measure of these.
Net Investment -> Flow
Capital -> Stock

Question 31.
Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP. (MAY-2016)
Answer:
Gross National Product (GNP) equals Gross National Income equals Gross National Expenditure,
i.e. GNP = GNI = GNE
These are equal because national income is a circular flow of income. Aggregate expenditure is equal to aggregate output which in turn, is equal to aggregate income. However each method has some different items, yet they show exactly identical results. Their identity can be shown in the following manner: Reconciling Three Methods of Measuring Gross.

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part II Chapter 1 Introduction.

Kerala Plus Two Macroeconomics Chapter Wise Previous Questions Chapter 1 Introduction to Macroeconomics

Question 1.
Classify the following statements into two branches of Economics. (MARCH-2008)
a) Reliance Communications reduced the STD charges by 20% from November onwards.
b) The Government proposed to reduce unemployment by introducing IT-related industries.
c) RBI hiked the cash reserve ratio.
d) Maruti Udyog decided to increase the production of the brand Estilo.
Answer:
a) Micro Economics
b) Macro Economics
c) Macro Economics
d) Micro Economics

Question 2.
them in a table based on two branches of Economics. Give suitable titles to the column. General price level, Aggregate consumption,Rent for a house in a city, Demand for fish in a local market. (MARCH-2009)
Answer:

Question 3.
Read the following statements carefully. (MARCH-2009)
Statement i:
M/s. Sathyam Computers Ltd. decided to introduce a wage cut of 10% for the labourers in the company in November, 2008.
Statement ii:
Reserve Bank of India introduced a new credit policy for the economy in the month of October, 2008.
In which Branc of Economics do you include the statement and why?
Answer:
Micro: Individual approach
Macro: Aggregate / General approach

Question 4.
In a seminar on “Definition of Economics” a group leader presented the definition as follows: “Economics is on the one side a study of wealth and on the other side study of man”. (MAY-2009)
State the correct definition. State the name of the economist.
Answer:
Wealth definition.
According to wealth definition, “Economics is the study of the nature of wealth, its generation, and its spending”. This definition was developed by Adam Smith.

Question 5.
Classify the following statements into two branches of economics: (MAY-2009)
a) Firm’s decision about how much to invest.
b) Govt, has adopted devaluation to overcome deficit in balance of payments.
c) RBI has increased Cash Reserve Ratio to control inflation.
d) Price elasticity of luxury good is elastic.
Answer:
a) Micro economics
b) Macroeconomics
c) Macroeconomics
d) Microeconomics

Question 6.
Classify the following economic variables under suitable heads. International trade, price theory, economic growth, partial equilibrium, aggregate demand, allocation of resources. (MARCH-2010)

Answer:

Question 7.
According to the macro economic point of view there are four major sectors in an economy. Name these sectors. (MAY-2010)
Answer:
1)Households
2) Firms
3) Government
4) External sector

Question 8.
Classify the following in a given table under the given titles. (MARCH-2011)

(National Saving Rate, Wage Rate of a KSRTC worker, Average Cost, Inflation)
Answer:

Question 9.
Some variables are given below. Classify them in a Table based on the two branches of Economics. (MARCH-2012)
i) Utility
ii) Price level
iii) Inflation
iv) Demand for pen Aggregate consumption
vi) Taxes
vii) GDP
viii) Rent
Answer:

Question 10.
Keyne’s book ‘‘General Theory of Employment, Interest and money” was published in (MARCH-2013 )
Answer:
i) 1926
ii) 1936
iii) 1946
iv) 1956
Answer:
ii) 1936

Question 11.
Classify the following under the heads micro and macro economics. (MARCH-2014)
a) Govt, regulations on auto emissions
b) Price elasticity of refrigerators
c) A family’s decision about how much income to save
d) The impact of higher National Savings on Economic Growth.
Answer:
a – Macroeconomics
b – Microeconomics
c – Microeconomics
d – Macroeconomics

Question 12.
Who is known as the father of modern Macro Economics? (MARCH-2015)
a) Adam Smith
b) Alfred Marshall
c) J.M.Keynes
d) J.B.Say
Answer:
c) J.M.Keynes

Question 13.
Classify the following under two heads Micro and Macro economics. (MAY-2015)
Utility, Inflation, Price of rice, taxes, GDP, Rent received by a shop owner, Extension in demand, Aggregate demand.
Answer:

Question 14.
Distinguish the following economics systems. (MARCH-2016)
a) Centrally Planned economy
b) Market economy
Answer:
a) Centrally planned economy is an economic system where all the economic decisions are taken by the government through planning.
b) In a market economy, economic problems are solved by market forces of demand and supply. Competition are profit are the driving forces.

Question 15.
What would come in the place of question mark: (MARCH-2016)
A) (a) Wealth of Nations : 1776
(b) The general theory : ____?____
B) (a) ___?____ : Economy as a whole
(b) Micro Economics : Individual units
Answer:
A) (b) 1936
B) (a) Macroeconomics

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part I Chapter 6 Non-Competitive Markets.

Kerala Plus Two Microeconomics Chapter Wise Previous Questions Chapter 6 Non-Competitive Markets

Question 1.
a) Draw the demand curves of perfect competition and monopoly market situations. (MARCH-2008)
b) Give reasons for the different shapes of demand curves in these markets?
Answer:
a) Demand curve of firm in perfect competition will be a horizontal straight line and that of monopoly will be a downward sloping. It is drawn below.

b) In perfect competition demand curve is horizontal because the price for every unit sale will be uniform. In monopoly, price varies for every unit of output. Therefore demand curve slopes downward.

Question 2.
From your experience identify two examples each for the following market forms: (MARCH-2008)
a) Monopoly
b) Monopolistic competition
Answer:
Monopoly
KSEB
Indian Railway
Monopolistic competition
Soap industry
Toothpaste industry

Question 3.
State whether the following statements are correct or false. Give justification for your answer. (MARCH-2009)
1) Price discrimination is an important feature of perfect competition.
2) Selling cost is the cost for producing the commodity.
3) Product differentiation is one of the main features of Monopoly.
4) Price leadership is an important feature of Oligopoly.
Answer:
1) False
2) False
3) False
4) True

Question 4.
Write the correct market form in which the following firms operate. (MARCH-2009)

Answer:
KSEB – Monopoly
Reliance – Communication Ltd. Oligopoly

Question 5.
Pick up the odd one and justify your answer. (MARCH-2009)
a) Monopolistic competition
b) Oligopoly
c) Monopsony
d) Perfect competition
Answer:
Monopsony

Question 6.
From the data given in table find TR and AR. Write any two relation between TR and MR. (MARCH-2009)

Answer:

When TR is maximum, MR becomes zero.
When TR reduces, MR becomes negative.

Question 7.
Fill up the following table appropriately: (MARCH-2009)

Answer:

Question 8.
The average revenue curves of two market situations are given below: (MAY-2009)

Draw MR curves corresponding to AR curves.
State the market situation corresponding to AR curves.
Give reasons for difference in AR and MR between two market forms.
Answer:
a)

b) First curve is related to perfect competition. Second curve is related to monopoly.
c) In perfect competition AR and MR are equal because every unit of the product is called sold at uniform price. Whereas, in monopoly firm can sell more only at lower prices. Therefore, different units are sold at different prices. This leads to difference in AR and MR curves.

Question 9.
Output and average revenue of firm are given below.
Fill up the missing columns and write the relevant equation of TR and MR : (MAY-2009)

Answer:

Question 10.
State whether the following statements are true or false. Rewrite if they are wrong: (MAY-2009)
a) The products in perfect competitive market are homogenous.
b) Seller in monopoly is a price taker.
c) Price leadership is an important feature of monopolistic competition.
d) Selling cost is a feature of monopoly.
e) Price discrimination under monopoly is always profitable.
1) Market in which there is only one buyer is called duopoly.
Answer:
True
b) False – price maker
c) False – a feature of Oligopoly
d) False – a feature of monopolistic competition
e) True
f) False – called monopsony

Question 11.
The average revenue curve of two market situation are given below: (MARCH-2010)

a) State the market situation corresponding to AR curves.
b) Give reasons for the different shapes.
c) Draw MR curves corresponding to AR curves.
Answer:
a) Perfect competition, monopoly
b) Under perfect competition, firm is price taker, therefore, AR = MR
Under monopoly, firm is price maker, therefore, AR > MR
c)

Question 12.
The main objective of the monopoly firm is profit maximisation. State the profit maximisation condition of a monopolist firm. (MARCH-2010)
Answer:
A monopolist maximises profit at that level of output for which the MC = MR and MC is rising. In other words, monopolist maximises profit at that level of output for which the vertical difference between TR and TC is maximum and TR is above the TC. In this level, the firm produces half of the market demand.

Question 13.
The following table shows the total cost schedule of a competitive firm. It is given that the price of the good is ₹15 (MARCH-2010)

a) Calculate profit at each level of output.
b) Find the profit maximising level of output.
Answer:
a)

b) The profit maximising level of outputs is 6, where the difference between TR and TC is highest.

Question 14.
Which of the following is a characteristic of oligopoly? (MARCH-2013)
i) A market situation with only a few buyers
ii) A market situation with only a few sellers
iii) A market situation with only one seller
iv) Government control overprice.
Answer:
ii) A market situation with only a few sellers

Question 15.
Which type of market have full control over price? (MARCH-2013)
i) Perfect competition
ii) Monopolistic competition
iii) Monopoly
iv) Oligopoly
Answer:
iii) Monopoly

Question 16.
Can you explain why the demand curve facing a firm under monopolistic competition is negatively sloped? (MAY-2014)
Answer:
Monopolistic competition

The demand curve under monopolistic competition is neither perfectly elastic nor elastic but more elastic then monopoly. This is basically beacuse, close substitutes are available in monopolistic competition but not in monopoly.
Monopolistically competitive firms maximize their profit when they produce at a level where its marginal costs equals its marginal revenues. Because the individual firm’s demand curve is downward sloping, reflecting market power, the price these firms will charge will exceed their marginal costs. Due to how products are priced in this market, consumer surplus decreases below the pare to optimal levels you would find in a perfectly competitive market, at least in the short run. As a result, the market will suffer dead weight loss. The suppliers in this market will also have excess production capacity.

Question 17.
Monopolistic competition consists of: (MAY-2015)
a) A few firms selling identical products.
b) A few firms selling differentiated products.
c) Large number of firms selling identical products.
d) Large number of firms selling differentiated products.
Answer:
d) Large number of firms selling differentiated products

Question 18.
Which of the following describes monopoly? (MAY-2015)
a) Large number of buyers
b) Large number of sellers
c) Only a single buyer
d) Only a single seller with complete control over industry.
Answer:
Only a single seller with complete control over industry.

Question 19.
Linder Oligopoly the output decision of any one firm necessarily affect the price and quantity sold by other firms. Hence the rivals may react to protect the profit. List the three different ways in which oligopoly firms may behave. (MAY-2015)
Answer:
If the market of a particular commodity consists of more than one seller but the number of sellers is few, the market structure is termed oligopoly. The special case of oligopoly where there are exactly two sellers is termed duopoly. We shall explain the different ways in which the oligopoly firms may behave.

• Firstly duopoly firms may collude together and decide not to compete with each other and maximize total profits of the two firms together. In such a case the two firms would behave like a single monopoly firm that has two different factories producing the commodity.
• Secondly, take the case of a duopoly where each of the two firms decide how much quantity to produce by maximizing its own profit assuming that the other firm would not change the quantity that it is supplying. We can examine the impact using a simple example where both the firms have zero cost.
• Thirdly, some economists argue that oligopoly market structure makes the market price of the commodity rigid, i.e., the market price does not move freely in response to changes in demand.

Question 20.
From the schedule given below, calculate the Total Revenue (TR) and derive the demand schedule. (MARCH-2016)

Answer:

Question 21.
The demand curve faced by a firm under monopolistic competition is negatively sloped. Explain. (MARCH-2016)
Answer:
The demand curve faced by a firm under monopolistic competition is negatively sloped because a firm under monopolistic competition could sell more of the commodity only by reducing the price.

Question 22.
What do you mean by monopoly market? Explain the features of monopoly. Also explain the short run equilibrium of a monopoly producer. (MAY-2016)
Answer:
Monopoly may be defined as a market situation in which there is only a single seller. He controls the entire market. The term monopoly has derived from two Greek words such as ‘mono’ means single and poly means ‘seller’. The meaning of the combined term is single seller. In a boarder sense, a monopolist is single seller of a commodity which does not have close substitutes. E.g. KSEB Features of Monopoly Market Some of the salient features of monopoly are as follows:
1) There is only a single firm producing the product
2) There is no close substitute for the product
3) Entry is denied for other producers
4) Since there is only one seller, the firm and the industry are same
5) The firm under monopoly is the price maker

Question 23.
Oligopoly is a market situation in which there is only (MAY-2016)
a) a few buyers
b) one seller
c) a few sellers
d) large number of sellers
Answer:
c) A few sellers

Question 24.
Why the Average Revenue Curve and Marginal Revenue Curve of a firm under monopolistic competition is negatively sloped? (MARCH-2017)
Answer:
The demand curve under monopolistic competition is much flatter, i.e, the demand curve of monopolistic competition is more price elastic, which can be explained with diagram.

Question 25.
Examine the diagram given below. Identify the mistake and redraw the diagram. What is the relation between Total Revenue and Marginal Revenue as the firm expands its output? (MARCH-2017)

Answer:
Relation between TR and MR
As more and more units of output is sold the TR increases at a decreasing rate MR decreases. When TR reaches maximum MR is zero.
When TR decreases MR is negative.

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part I Chapter 5 Market Equilibrium.

Kerala Plus Two Microeconomics Chapter Wise previous Questions Chapter 5 Market Equilibrium

Question 1.
Compared to rural areas, the wage rate is higher in urban areas. Discuss the reasons for this. (MARCH-2008)
Answer:
Wages are higher in urban areas compared to rural areas due to the following reasons.

• Availability of skilled workers in urban areas.
• Professionals in urban areas.
• Occupational and geographical mobility.
• Differences in risks in certain urban jobs.

Question 2.
When you conducted a survey among teachers working in parallel colleges in Trichur district it is found that there exists a difference in earnings among teachers teaching different subjects. Find the reason for the same with suitable examples. (MAY-2009)
Answer:
Wage differences are due to the following reasons.

• Difference in skill and productivity
• People are not the same in matter of tastes, talents and efficiency.
• Occupational and geographical mobility.
• Some professions require high cost and long period of training.
• Difference in risks involved in certain jobs.
• Due to these reasons, some are paid more and others are paid less.

Question 3.
Suppose the demand and supply curve of good x shift simultaneously. The simultaneous shift can happen in four possible cases. The impact on equilibrium price and quantity in all four cases is different. On the basis of this, complete the following table : (MARCH-2010)

Answer:
a) Leftward
b) Rightward
c) Decrease
d) Increase

Question 4.
Under fixed price analysis of a product market, if quantity supplied is either in excess or falls short of quantity demanded price will change because of excess supply or demand. In this occasion (MARCH-2010)
a) How the equilibrium is determined?
b) Name the principle.
Answer:
a) Assume that the elasticity of supply is infinite that is the supply schedule is horizontal. In this situation the equilibrium output will be solemnly determined by aggregate amount of demand at this price in the economy.
b) Keynesian analysis or effective demand Principle.

Question 5.
The demand function of a monopoly firm is given as q = 20 – 2P, substitute the values of P from 10 to 1. (MAY-2010)
a) Calculate the demand schedule of the commodity.
b) From the table calculate the TR, AR and MR values in a tabular form.
c) Draw the AR and MR curve in same set of axis.
d) When the price elasticity is more than one?
Answer:
a)

b)

c)

d) Price elasticity is more than one when MR is positive.

Question 6.
Find the correct term for the following : (MAY-2010)

Answer:
a) Equilibrium price
b) Price ceiling

Question 7.
The Government imposed lower limit on the price that may charged for a particular good is called price floor. Give two examples for imposition of price floor. The Government imposed lower limit on the price that may charged for a particular good is called price floor. Give two examples for imposition of price floor (MAY-2010)
Answer:
i) Price floor fixed for paddy
ii) Price floor fixed for food grains

Question 8.
This is a demand curve for a branded umbrella. (MARCH-2011)
a) If the demand for umbrella increases during rainy season, what term we use in economics to denote this change? Draw the curve.
b) What you call this change when the price of umbrella increased, the demand decreased.

Answer:
a) Rightward shift or increase in demand

b) Upward movement along the same demand curve or there is contraction of demand.

Question 9.
The demand and supply equations of a commodity in a perfectly competitive market are given as qd = 700 – P qs = 500 + 3P (MARCH-2011)
Calculate:
a) Equilibrium price
b) Equilibrium quantity
c) Based on the given supply and demand equations draw equilibrium situation on a diagram.
Answer:
a) Equilibrium price

b) Equilibrium quantity
qd = 700 – P
= 700 – 50
= 650
c)

Question 10.
Imposition of the price ceiling below the equilibrium price leads to (MARCH-2012)
a) Excess demand
b) Excess supply
c) Deficit demand
d) Deficit supply
Answer:
a) Excess demand

Question 11.
Match the following: (MARCH-2012)

Answer:

Question 12.
Welfare considerations enable the govt, to impose price floor for some goods and services. Mention any one example of imposition of price floor. (MARCH-2013)
Answer:
In India, floor prices are fixed for a variety of commodities like paddy, rubber, wheat, coconut etc.

Question 13.
The following diagram shows equilibrium market price determined by the equality between demand and supply. (MARCH-2013)
Show the effect of change in demand and supply on equilibrium price and output under the following situations (use diagrams)
i) Increase in demand or when the demand curve shift rightwards.
ii) Increase in supply or when supply curve shift rightwards.

Answer:
i) When demand curve shifts to right (increase in demand), there will be increase in equilibrium price and increase in equilibrium quantity. This change is shown in the diagram.

ii) When supply curve shifts to right (increase in supply), the equilibrium price decreases and the equilibrium quantity increases. This is given in the following diagram.

Question 14.
Diagrammatically illustrate the impact of (MAY-2014)
a) Price ceiling and
b) Price floor on market equilibrium
Answer:
a) Price Ceilings
A price ceiling occurs when the government puts a legal limit on how high the price of a product can be. In order for a price ceiling to be effective, it must be set below the natural market equilibrium.
When a price ceiling is set, a shortage occurs. For the price that the ceiling is set at, there is more demand than there is at the equilibrium price. There is also less supply than there is at the equilibrium price, thus there is more quantity demanded than quantity supplied. An inefficiency occurs since at the price ceiling quantity supplied the marginal benefit exceeds the marginal cost. This inefficiency is equal to the dead weight welfare loss.

This graph shows a price ceiling. P* shows the legal price the government has set, but MB shows the price the marginal consumer is willing to pay at Q*, which is the quantity that the industry is willing to supply. Since MB > P* (MC), a dead weight welfare loss results. P’ and Q’ show the equilibrium price. At P* the quantity demanded is greater than the quantity supplied. This is what causes the shortage,
b) Price Floors
A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage the minimum price that can be payed for labor. Price floors are also used often in agriculture to try to protect farmers.

Question 15.
From the list of goods given below, find out the one which cannot be provided through market mechanism? (MARCH-2015)
a) Private goods
b) Public goods
c) Merit goods
d) Club goods
Answer:
b) Public goods

Question 16.
The following diagram shows the equilibrium price of wheat determined by the supply curve ‘SS’ and market demand curve ‘DD’. With the help of the diagram answer the questions given below. (MARCH-2015)
a) If the Government imposes price ceiling on wheat, what happens to the demand for wheat?
b) Define price ceiling.
c) Write down two adverse impacts of price ceiling on the consumers.

Answer:

Question 17.
Explain through a diagram the effect of a rightward shift (increase) of both the demand and supply curves on the equilibrium price and quantity? (MAY-2015)
Answer:
When demand curve shifts to right (increase in demand), there will be increase in equilibrium price and increase in equilibrium quantity. This change is shown in the diagram.

When supply curve shifts to right (increase in supply), the equilibrium price decreases and the equilibrium quantity increases. This is given in the following diagram.

Question 18.
List the 3 different ways in which an oligopoly firm may behave. (MARCH-2016)
Answer:
If the market of a particular commodity consists of more than one seller but the number of sellers is few, the market structure is termed oligopoly. The special case of oligopoly where there are exactly two sellers is termed duopoly. We shall explain the different ways in which the oligopoly firms may behave.
Firstly duopoly firms may collude together and decide not to compete with each other and maximize total profits of the two firms together. In such a case the two firms would behave like a single monopoly firm that has two different factories producing the commodity.
Secondly, take the case of a duopoly where each of the two firms decide how much quantity to produce by maximizing its own profit assuming that the other firm would not change the quantity that it is supplying. We can examine the impact using a simple example where both the firms have zero cost.
Thirdly, some economists argue that oligopoly market structure makes the market price of the commodity rigid, i.e., the market price does not move freely in response to changes in demand.

Question 19.
Explain the consequence if price prevailing in the market is fixed: (MARCH-2016)
i) Above the equilibrium price (Price floor)
ii) Below the equilibrium price (Price ceiling)
Answer:
i) Excess supply
ii) Excess demand

Question 20.
Demand and supply equations of commodity X is given by (MARCH-2016)
qd = 100- P
qs = 70 + 2P
find the equilibrium price and quantity.
Answer:

Question 21.
Imposition of price floor leads to (MAY-2016)
a) an excess demand
b) an excess supply
c) normal demand
d) any of the above
Answer:
b) an excess supply

Question 22.
State whether the following statements are true or false: (MAY-2016)
a) With supply curve remaining unchanged, when demand curve shifts rightward, the equilibrium quantity decreases and equilibrium price decreases.
b) In a perfectly competitive market, equilibrium occurs where market demand equals market supply.
Answer:
a) False
b) True

Question 23.
Suppose onion price increases above ₹100 per kg and the government imposes price ceiling. (MAY-2016)
a) What is price ceiling?
b) What are the consequence of imposing price ceiling?
Answer:
a) Price ceiling mean maximum price. It is the maximum price fixed by the government. The aim of price ceiling is to protect consumers. Government fixes price ceiling for essential products and medicines to protect the interests of the consumers.
Consequence of imposing price ceiling:
1. Black marketing
2. Malpractices by fair price shops
3. Sale of inferior quality goods.

Question 24.
Suppose the demand and supply functions of wheat are given by Q_D = 800 – 4P and Q_S= 600 + 4P respectively.
i) Find the equilibrium price and quantity demanded. (MARCH-2017)
ii) Due to a shortage of fertilizers, the cost of production of wheat is increased. So that the new supply function is
Q_S = 400 + 4P. What will happen to the equilibrium price and quantity demanded?
Answer:


The equilibrium price will increase and equilibrium quantity will fall.

Question 25.
How does equilibrium price and quantity demand affect when (MARCH-2017)
i) Both demand and supply curves shift in the same direction.
ii) Demand and supply curves shift in the opposite directions.
Answer:
i) Both demand and supply curve shift in the same direction.
When the demand curve and supply curve shift to right: For a given price, more quantity is demanded as well as more quantity is supplied. The demand curve and supply curve shifted to right to show a greater quantity for a given price. If supply increases relatively greater than the equilibrium price is smaller, but if demand increases relatively greater than the intersection is higher and the price obtained will be higher. Only than it is certain that there will be more quantity at new equilibrium price.

When the demand curve and supply curve shifts to left: The price may increase or decrease depending whether supply decreases relatively more or demand decrease relatively more, respectively, and the only certainty is that there is less quantity at new equilibrium point

ii) Demand curve shifts left and supply curve shifts right: Demand decreases and supply increases. The price was fallen, but if supply curve shifts a lot more right than the demand curve shifts left, then the new equilibrium point will mean more quantity is supplied at a much lower price.

Demand curve shifts right and supply curve shift left: Demand increases and supply decreases. The price will increase but depending on how far the supply curve shifts left, the equilibrium quantity would be more or less or same. This shift will see a higher equilibrium point with less quantity demand.

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part I Chapter 4 The Theory of The Firm Under Perfect Competition.

Kerala Plus Two Microeconomics Chapter Wise previous Questions Chapter 4 The Theory of The Firm Under Perfect Competition

Question 1.
Correct the following statements, if necessary: (MARCH-2010)
Statement I : Liquidity trap is the situation in which speculative demand for money is infinitely elastic.
Statement II : The imposition of a unit tax shift the supply curve of a firm to the left.
Statement III : The profit level that is just cover the explicit cost and opportunity cost is supernormal profit.
Answer:
Statement I : No correction
Statement II : No correction
Statement III : The profit level that is just cover
the explicit cost and opportunity cost is normal profit

Question 2.
There are three identical firms in the market. The following table shows the supply schedule of a firm : (MARCH-2010)

1) Define market supply
2) Compute market supply schedule
3) Draw market supply curve
Answer:
1) The output level that firms in the market produce in aggregate, corresponding to different values of market prices.
2)

3) Draw a market supply curve that slopes upwards corresponding to the above values.

Question 3.
Any factor that affects a firm’s marginal cost curve is of course a determinant of its supply curve”, there are three factors – determining the supply curve of a firm. Identify them. (MAY-2010)
Answer:
Factors determining the supply curve of a firm are :
Technical progress
Input prices
Unit tax

Question 4.
Mr. Kameth is a textile mill owner. He is facing challenges in production and marketing screnario. The situations he faced are given in column A and corresponding outcomes in marginal cost and supply of output are given in column B and C. Match A with B and C. (MARCH-2011)

Answer:

Question 5.
Under perfect competition a firm’s profit in the short run is maximized when 3 conditions are satisfied. (MARCH-2011)
a) Discuss the 3 conditions.
b) From the following schedule, suggest profit
maximizing level of output in the short run if price is ₹10.

Answer:
a 1) MC must be equal to MR
2. MC must cut MR from below
3. Slope of MC must be greater than slope of MR.
b)

c) Since MC = MR = 10 at 6th unit of output, the profit maximising level of output is 6 units.

Question 6.
In the following diagram, at points E and E₁ MC and MR are equal. Among these, which point do you consider as producer’s equilibrium? Justify your answer. (MARCH-2012)

Answer:
In this diagram, producer’s equilibrium is at point E_r This is because this point satisfies all the conditions of equilibrium. The conditions for attaining equilibrium are,
i) MC = MR
ii) MC must cut MR from below
These two conditions are satisfied at point E₂.

Question 7.
Firm ‘A’ is operating under the condition of perfectly competitive market. Whether firm ‘A’ is capable of maintaining abnormal profit in the long run? Why? Hint: Long run equilibrium of a firm under perfect competition. (MARCH-2012)
Answer:
Yes, I do agree to the statement that a firm cannot make supernormal profit in the long run under perfect competition. This is because; freedom of entry will prevent super normal profit in the long run.
We first determine the firm’s profit-maximizing out-put level when the market price is greater than or equal to the minimum (long run) AC. This done, we determine the firm’s profit-maximizing output level when the market price is less than the minimum (long run) AC.
Case 1: Price greater than or equal to the minimum LRAC
Case 2: Price less than the minimum LRAC Combining cases 1 and 2, we reach an important conclusion. A firm’s long run supply curve is the rising part of the LRMC curve from and above the minimum LRAC together with zero output for all prices less than the minimum LRAC.

Question 8.
State whether the statements are true or false. (MARCH-2013)
i) In a perfect competitive market structure, firms are price takers.
ii) All firms in the market produce homogeneous product.
Answer:
i) True
ii) True

Question 9.
In an economy, the level of income is Rs. 1,000 crores and the MPC is 0.8. If the investment increases by 200 crores. Calculate the total increase in income. (MARCH-2013)
Answer:

Total increase in income is K x 200 Crores
That is 5 x 200 Crores = 1,000 Crores
Total increase in income = 1,000 Crores

Question 10.
Under perfect competition, a firm will not produce output level in cases under (MARCH-2013)
a) P > MC and
(b) P< MC. If so, what is the condition of profit maximising output in the short run. Give diagramatic illustration. (Hint: Short run equilibrium of a firm under perfect competition).
Answer:
Perfect Competition – Short Run Equilibrium In the model of price and output determination under perfectly competitive market conditions, price is determined by the impersonal market forces of supply and demand, and not by individual actions of buyers and sellers. The individual firm in such a market may be said to be a price-taker. Perfect competition is used by economists not so much as an attainable goal, but as a pure state against which all other markets can be measured.
For a market to be perfectly competitive, the following necessary conditions must, in general, prevail.
1) There must be many firms acting independently. Each firm is small enough relative to the size of the market, so that a single firm’s decision to either stop production entirely or to produce to full capacity will not have any perceptible effect on market supply to cause a change in market price.
2) Entry and exit from the market are free and frictionless for both the firms and consumers.
3) The products offered for sale are homogeneous and divisible into small units.
5) Buyers and sellers have perfect knowledge about the market conditions.
6) Price is determined by the impersonal market forces of supply and demand, and not by individual actions of buyers and sellers. The individual firm in such a market may be said to be a price-taker.
7) There is perfect knowledge among consumers about the price at which goods are being sold in the market. Sellers thus cannot manipulate the commodity price and thereby exploit the consumer.
8) There is perfect mobility of goods and factors of production among firms. Uniformity in factor prices is prevalent in the market.
If these necessary conditions prevail, the firm can lose its entire market if it sets its price above the market price. It can also expect no gain by lowering price, since it can sell all it wishes to produce at the market price. The competitive firm has no price discretion. Market price will not be affected by the independent action of a single firm. No firm is able to influence market price.
The objective of each firm is to maximize profit. Profit is the difference between revenue and cost of production. Marginal cost (MC) is the cost incurred to produce an additional unit of the product. If the per unit price of a commodity is greater than the marginal cost, the firm will be interested in producing more of the commodity. On the other hand if price falls below marginal cost, the firm will curtail its production. Equilibrium condition will prevail at a point where profit is maximized. This happens where price is equal to marginal cost (P = MC). Also at the point of equilibrium, the marginal cost curve must be upward sloping.

In the diagram the given price is P. Again the firm will produce the level of output for which MC = MR. This occurs at point E, giving a level of output of Q. Notice that at this point, AR = AC, so the firm is making normal profit.
So, in the short run, a perfectly competitive firm could be making super normal profit, or a loss, or just normal profit, depending on the given market price. Note that if the firm’s losses get too big in the short run (i.e. AR < AVC) then it will have to shut down.

Question 11. What are the conditions that are to be fulfilled for a firm to be in short run equillibrium under perfectly competitive market conditions? (MAY-2014)
Answer:
A firm is in equilibrium when it has no tendency to change its level of output. It needs neither expansion nor contraction. It wants to earn maximum profits. In the words of A. W. Stonier and D.C. Hague, “A firm will be in equilibrium when it is earning maximum money profits.” ’ Equilibrium of the firm can be analysed in both short- run and long-run periods. A firm can earn the maximum profits in the short run or may incur the minimum loss. But in the long run, it can earn only normal profit. Short-run Equilibrium of the Firm : The short run is a period of time in which the firm can vary its output by changing the variable factors of production in order to earn maximum profits or to incur minimum losses. The number of firms in the industry is fixed because neither the existing firms can leave nor new firms can enter it. It’s Conditions: The firm is in equilibrium when it is earning maximum profits as the difference between its total revenue and total cost. For this, it essential that it must satisfy two conditions:
(1) MC = MR, and
(2) the MC curve must cut the MR curve from below at the point of equality and then rise upwards. The price at which each firm sells its output is set by the market forces of demand and supply. Each firm will be able to sell as much as it chooses at that price. But due to competition, it will not be able to sell at all at a higher price than the market price. Thus the firm’s demand curve will be horizontal at that price so that P = AR = MR for the firm.

Marginal Revenue and Marginal Cost Approach : The short-run equilibrium of the firm can be explained with the help of the marginal analysis as well as with total cost-total revenue analysis. We first take the marginal analysis under identical cost conditions. This analysis is based on the following assumptions:
1) All firms in an industry use homogeneous factors of production.
2) Their costs are equal. Therefore, all cost curves are uniform.
3) They use homogeneous plants so that their SAC curves are equal.
4) All firms are of equal efficiency.
5) All firms sell their products at the same price determined by demand and supply of the industry so that the price of each firm is equal to AR = MR.
Determination of Equilibrium: Given these assumptions, suppose that price OP in the competitive market for the product of all the firms in the industry is determined by the equality of demand curve D and the supply curve S at point E in Figure 1 (A) so that their average revenue curve (AR) coincides with the marginal revenue curve (MR).

Question 12. A fruits seller sells 600 Kg. of grapes at market price of ₹40 per kg. When price increases to ₹50 per kg, he is ready to sell 750kg of grapes. Find out the price elasticity of supply. (MARCH-2015)
Answer:
Elasticity of supply

Question 13.
A firm that maximizes profit under perfect competition will not produce an output where (MARCH-2015)
(a) P > MC and
(b) P<MC.
If so, what is profit maximizing output condition in the short run? Briefly illustrate with diagram.
Answer:
A firm is in equilibrium when it has no tendency to change its level of output. It needs neither expansion nor contraction. It wants to earn maximum profits. In the words of A.W. Stonier and D.C. Hague, “A firm will be in equilibrium when it is earning maximum money profits.”
Equilibrium of the firm can be analysed in both short- run and long-run periods. A firm can earn the maximum profits in the short run or may incur the minimum loss. But in the long run, it can earn only normal profit.
Short-run Equilibrium of the Firm:
The short run is a period of time in which the firm can vary its output by changing the variable factors of production in order to earn maximum profits or to incur minimum losses. The number of firms in the industry is fixed because neither the existing firms can leave nor new firms can enter it.
It’s Conditions:
The firm is in equilibrium when it is earning maximum profits as the difference between its total revenue and total cost.
For this, it essential that it must satisfy two conditions:
(1) MC = MR, and
(2) the MC curve must cut the MR curve from below at the point of equality and then rise upwards.
The price at which each firm sells its output is set by the market forces of demand and supply. Each firm will be able to sell as much as it chooses at that price. But due to competition, it will not be able to sell at all at a higher price than the market price. Thus the firm’s demand curve will be horizontal at that price so that P = AR = MR for the firm.
1. Marginal Revenue and Marginal Cost Approach: The short-run equilibrium of the firm can be explained with the help of the marginal analysis as well as with total cost-total revenue analysis. We first take the marginal analysis under identical cost conditions. This analysis is based on the following assumptions:
1) All firms in an industry use homogeneous factors of production.
2) Their costs are equal. Therefore, all cost curves are uniform.
3) They use homogeneous plants so that their SAC curves are equal.
4) All firms are of equal efficiency.
5) All firms sell their products at the same price determined by demand and supply of the industry so that the price of each firm is equal to AR = MR.
Determination of Equilibrium:
Given these assumptions, suppose that price OP in the competitive market for the product of all the firms in the industry is determined by the equality of demand curve D and the supply curve S at point E in Figure 1(A) so that their average revenue curve (AR) coincides with the marginal revenue curve (MR).

Question 14.
Will a profit-maximizing firm in a competitive market ever produce a positive level of output in the range where the marginal cost is falling? (MAY-2015)
Answer:
No, a profit maximising firm will not produce in the range where the marginal cost is falling. This is because, at this range, his profit is not maximised. So he fixes his level of out output at the point where marginal cost equals marginal revenue.
This can be explained with the help of a diagram.

As per the diagram, if the firm fixes output at the range where MC is falling his profit will not be maximised. Being profit maximising firm, he goes on producing OQ level of output corresponding to the point where MC=MR. This is at the rising part of MC. So his profit is maximised as shown in shaded area.

Question 15.
At the market price of ₹10, a firm supplies 4 units of output. The market price increases to ₹30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price? (MAY-2015)
Answer:

Question 16.
Distinguish: (MARCH-2016)
a) Break even point
b) Shutdown point
Answer:
a) The point on the supply curve at which a firm earns
normal profit is called the break even point. The point of minimum average cost at which the supply curve cuts the LRAC curve is therefore the break even point of a firm.
b) In the short run the firm continues to produce as long as the price remains greater than or equal to the minimum of AVC. Therefore, along the supply curve as we move down, the last price-output combination at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve. Below this, there will be no production. This point is called the short run shutdown point of the firm. In the long run, the shut down point is the minimum of LRAC curve.

Question 17.
Identify the wrong statements and correct the same. (MARCH-2016)
i) A perfectly competitive market deals in heterogeneous product.
ii) Each buyer Under perfect competition is a price taker.
iii) A perfectly competitive market is a market where there is only a single seller.
Answer:
i) Wrong. A perfectly competitive market deals with homogenous products
ii) Wrong. Each seller under perfect competition is a price taker.
iii) Wrong. A monopoly market is the market where there is only a single seller.

Question 18.
A firm under perfect competition wishes to maximize its profit in the short run. State and explain the conditions must hold for profit maximization. (MAY-2016)
Answer:
Perfect competition is a market situation where there are large number of buyers and sellers dealing with homogeneous commodities.
Conditions of equilibrium
i) MC = MR
ii) MC must cut MR from below It can be explained as,

Question 19.
Differentiate between the shut-down point and break even point. (MAY-2016)
Answer:
Shut down point refers to a situation where average revenue is equal to average variable cost. In other words it is the minimum pint of AVC. On the other hand, break even point is the no-profit, no loss point. It is the point where TR = TC or AR = AC.

Question 20.
Which one of the following condition is not satisfied by the long run equilibrium of a firm under perfect condition? (MARCH-2017)
a) P = AR
b) AR = MR
c) MC = MR
d) AFC = AVC
Answer:
AFC = AVC

Question 21.
Graphically explain the short run equilibrium of the firm under Perfect Competition. Draw separate diagram depicting the following conditions: (MARCH-2017)
i) The firm is earning super normal profit.
ii) The firm is earning only normal profit.
iii) The firm is incurring a loss
Answer:
The firm is earning super normal profit
Under perfect competition a firm’s super normal profit in the short run is maximised when 3 conditions are satisfied.
1) Market price P should be equal to marginal cost (MC) at equilibrium output q i.e, MC = MR = P
2) MC should be non-decreasing at Q, i.e. MC should cut MR from below.
3) P ≥ AVC
i) Since at point e AC curve touches AR curve, the firm enjoys normal profit only
ii) The firm is incurring a loss because of the free entry and exit of firms and buyers.
This can be explained with diagram.

Profit maximization under short run graph

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part I Chapter 3 Production and Costs.

Kerala Plus Two Microeconomics Chapter Wise Previous Questions Chapter 3 Production and Costs

Question 1.
Classify the following costs into Fixed Costs and Variable costs. (MARCH-2008)
Raw material costs, Daily wages, Interest on capital, Rent, Salary to M.D, Electricity charges, Insurance, Transportation Charges.

Answer:

Question 2.
Following table shows the AC and total quantity of a firm. (MARCH-2008)

a) Complete the table.
b) Plot TFC, TVC and TC on the same set of axis.
c) Write relevant equations to find out AFC, AVC, AC and MC.
Answer:
a)

Question 3.
The cost incurred by a Toys Manufacturing Company is given below. Classify the cost into fixed cost and variable cost. (MARCH-2009)
Rent, Wages, Insurance Premium, Electricity Charges, Cost of raw material, Salary to the Managing Director.

Answer:

Question 4.
The total cost structure of a firm is given in the schedule (MARCH-2009)

a) Fill up the column appropriately from the data given.
b) On the same set of axis plot the AC and MC curves.
Answer:

Question 5.
Total cost of producing 1000 cell phone is ₹10 lakhs if the marginal cost of producing 1001 unit is ₹4,000. What will be the total cost of producing 1001 unit? (JUNE-2009)

Answer:
10,04,000

Question 6.
State whether the following statements are true or false. Rewrite the statement if they are false: (JUNE-2009)
a) TFC is zero at zero level of output.
b) AC is minimum at the point where AC = MC.
c) AVC curve is a rectangular hyperbola.
d) TFC curve is‘U’shaped.
Answer:
a) False. TFC is positive even when the level of output is zero.
b) True
c) False. AVC curve is‘U’ shaped.
d) False. TFC is horizontal straight line.

Question 7.
Reserve Bank of India has increased the bank rate and cash reserve ratio in, June 2008 to control inflationary tendencies in the Indian economy. How ever this effort of RBI became ineffective (JUNE-2009)
Answer:
a) Value of certain products went up and the petroleum prices increased. As a result of it RBI’s efforts to regulate the inflationary pressure failed. Thus monetary policy resulted ineffective.
b) In additional to monetary measures like CRR and bank rate policy, various other measures can be adopted to regulate the economy. Taxation and expenditure policy can be used by the government. Similarly government may provide subsidy or can introduce price ceiling and support prices.

Question 8.
Let the production function of a firm be Q = 3L²K² (MAY-2010)
a) Find out the maximum possible output that the firm can produce with 5 units of L and 3 units of K.
b) What is the maximum possible output that the firm can produce with 10 units of L and zero units of K?
Answer:

Question 9.
“In the long run, the shut down point of the firm is the minimum of LRAC curve.” (MAY-2010)
a) Which is the shut down point of a perfect competitive firm in short run?
b) Draw the diagram to explain the shut down condition of a firm under short run.
Answer:
a) Previously, while deriving the supply curve, we have discussed that in the short run the firm continues to produce as long as the price remains greater than or equal to the minimum of AVC. Therefore, along the down, the last price-output combination at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve. Below this there will be no production. This point is called tiTe short run shutdown point of the firm. In the long run, however, the shut down point is the minimum of LRAC curve.

Question 10.
Correct the figure if there are any mistakes (MARCH-2011)

Answer:

Question 11.
Gireesh cultivates paddy on a piece of land. He employs labourers successively and total product is given here. (MARCH-2011)

a) Complete the given table.
b) Plot TP, APL and MPL on the same set of axis.
c) At what level of total product, the producer stops further employment? (Suggest from schedule)
d) Give reasons.
Answer:


c) 7th labour
d) When 7th labour is employed, TP becomes maximum or MP becomes zero.

Question 12.
The following table shows the TC schedule of a firm. What is the TFC of this firm? Calculate TVC, AFC, AVC, SAC and SMC of the firm. (MARCH-2012)

Answer:

Question 13.
Rajeev is a farmer who produces paddy in his 10 acres of land. He is trying to increase his total output by increasing the quantity of only one of his inputs – say labour. Which law of production explains this situation? What will be the effect on his total output? Give your suggestion to Rajeev with a suitable diagram. (MARCH-2012)
Answer:
Law of Variable Proportions The law of diminishing marginal product says that if we keep increasing the employment of an input, with other inputs fixed, eventually a point will be reached after which the resulting addition to output will start falling. A somewhat related concept with the law of diminishing marginal products is the law of variable proportions. It says that the marginal product of a factor input initially rises with its employment level. But after reaching a certain level of employment, it starts falling.
The reason behind the law of diminishing returns or the law of variable proportion is the following. As we hold one factor input fixed and keep increasing the other, the factor proportions change. Initially, as we increase the amount of the variable input, the factor proportions become more and more suitable for the production and marginal product increases. But after a certain level of employment, the production process becomes too crowded with the variable input and the factor proportions become less and less suitable for the production. It is from this point that the marginal product of the variable input starts falling. Since inputs cannot take negative values, marginal product is undefined at zero level of input employment. Marginal products are additions to total product. For any level of employment of an input, the sum of marginal products of every unit of that input up to that level gives the total product of that input at that employment level. Therefore, total product is the sum of marginal products. Average product of an input at any level of employment is the average of ail marginal products up to that level. Average and marginal products are often referred to as average and marginal returns, respectively, to the variable input.
The marginal product (MP) and total product (TP) of an input are related. The points of relationship are given below.
i) When MP increases, TP also increases
ii) When MP is zero, TP becomes maximum
iii) When MP becomes negative, TP turns negative The relationship between MP and TP are picturised below

Question 14.
The following table shows TFC and TVC of a firm. Find out TC, AFC, AVC, AC and MC of the firm. (MARCH-2013)

Answer:

Question 15.
From the table identify the different levels of TP which makes the different phases of the operation of the law of variable proportions. (MARCH-2013)

Answer:

Question 16.
Short run MC and AC curves are U-shaped. Write down any three relationships between Me and AC. (MAY-2014)
Answer:

marginal cost (MC) is above average cost (AC), the average cost rises, that is, the marginal cost (MC) pulls the average cost (AC) upwards.
ii) When marginal cost (MC) stands equal to the average cost (AC), the average cost remains the same, that is, the marginal cost pulls the average cost horizontally.
iii) if the marginal cost (MC) is below the average cost (AC); average cost falls, that is, the marginal cost pulls the average cost downwards.

Question 17.
‘Short run production functions are fixed proportion production functions’. Do you agree? Substantiate (MAY-2014)
Answer:
Yes, I agree with the statement that Short Run Production Functions are fixed proportion production functions. The short run is a time period where at least one factor of production is in fixed supply. A business has Ghosen it’s scale of production and must stick with this in the short run.
We assume that the quantity of plant and machinery is fixed and that production can be altered by changing variable inputs such as labour, raw materials and energy.
The time periods used differ from one industry to another; for example, the short-run in the electricity generation industry differs from local sandwich bars. If you are starting out in business with a new venture selling sandwiches and coffees to office workers, how long is your long run? It could be as short as a few days – enough time to lease a new van and a sandwich-making machine

Question 18.
Fill in the blanks: (MAY-2014)

Answer:

Question 19.
Which of the following cost will be zero when production is stopped? (MARCH-2015)
a) Average Fixed cost
b) Total Cost
c) Fixed cost
d) Variable cost
Answer:
d) variable cost

Question 20.
The following diagram represents TP, MP and AP curves of a firm. After studying the curves, answer the questions given below. (MARCH-2015)

a) When does ‘TP’ becomes maximum?
b) At what rate (increasing or decreasing) does ‘TP’ increase when ‘MP’ increases?
c) When does ‘MP’ become negative?
Answer:
a) MP becomes zero
b) Increasing rate
c) TP decreases

Question 21.
Following information about a firm is given below: (MARCH-2015)

From the given information estimate,
a) Total Fixed Cost
b) Total Variable Cost
c) Average cost
d) Marginal Cost
Answer:

Question 22.
Consider the following cost schedule of a firm and find AC, AVC and MC. (MAY-2015)

Answer:

Question 23.
“Production is the transformation of inputs into outputs”. Justify the statement by citing examples from your location. Also built a production function based on your example. (MAY-2015)
Answer:
Production is possible only through effective utilisation of factors of production. The factors of production like land, labour, capital and organisation are called inputs. In the production process, these inputs. In the production process, these inputs are transformed into output. Thus a production function stands for functional relationship between inputs and output.
In my locality paddy is produced by combining inputs like labour, machinery, land, bank loan and organisers efforts. These are inputs. Thus the paddy production function can be stated as follows.
Q = f(X₁, X₂, X₃ ,X_n)
Where Q = paddy, X₁, X₂ ……… X_n are inputs used.

Question 24.
i) There is an error in the diagram. Redraw the diagram by correcting the same (MARCH-2016)

ii) Explain the relationship between Average Product (AP) & Marginal Product (MP)
Answer:
i)

ii) a) When MP is greater than AP, AP rises.
b) When MP is less than AP, AP falls.
c) When MP = AP, AP is at its maximum.

Question 25.
The relationship between input & Output is ______ (MARCH-2016)
Answer:
Production function

Question 26.

Draw the diagram correctly (MARCH-2016)
(AFC – Average Fixed Costs)
Answer:

Question 27.
 is _____  (MARCH-2016)
а) MC
b) AC
c) FC
d) VC
[TC = Total Cost, q = Output, MC = Marginal Cost, AC = Average Cost, FC = Fixed Cost, VC = Variable Cost]
Answer:
a) MC

Question 28.
State and explain the ‘law of variable proportions’ (MAY-2016)
Answer:
When more and more units of a variable input are added with the fixed input, the marginal product would increase only upto a certain point. Thereafter, the marginal product declines. This phenomenon is known as the Law of Variable Proportions. It is also known as returns to a factor.
The shape of TP, AP and MP suggests that they are specifically passing through three phases.
They are:
First phase : In the first stage, both AP and MP increase. As a result TP also increases at an in-creasing rate. This stage is known as the stage of increasing return to a factor. AP reaches the maximum level in this stage.
Second phase : Both AP and MP decrease at this stage. The TP increases at a decreasing rate. More importantly, TP reaches maximum and MP touches zero. This stage is also known as the stage of diminishing returns to a factor.
Third phase : At this stage, the MP becomes negative. As a result, TP also starts declining. The decline of AP is continuous. In the graph, when TP reaches maximum and MP touches zero. When MP becomes negative, TP starts declining. This stage is known as the stage of negative returns to a factor.

Question 29.
The cost curve which is a rectangular hyperbola is (MAY-2016)
a) ATC
b) AFC
c) TFC
d) AVC
Answer:
b) AFC

Question 30.
Short run marginal cost curve cuts average variable cost curve from below at the (MAY-2016)
a) the minimum point of AVC
b) any point of AVC
c) the falling portion of AVC
d) the rising portion of AVC
Answer:
a) the minimum point of AVC

Question 31.
Match the following: (MARCH-2017)

Answer:

Question 32.
Rising portion of long run marginal cost curve from the minimum of long run average cost curve is known as (MARCH-2017)
a) Long run supply curve of the firm.
b) Long run demand curve of the firm.
c) Variable cost curve of the firm.
d) Fixed cost curve of the firm.
Answer:
Long run supply curve of the firm.

Question 33.
The following table shows the total cost schedule of a firm. Calculate TVC, AFC, AVC, SAC and SMC schedules. (MARCH-2017)

TVC = Total Variable Cost, AFC = Average Fixed Cost, AVC = Average Variable Cost, SAC = Short run Average Cost, SMC = Short run Marginal cost)
Answer:

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part I Chapter 2 Theory of Consumer Behaviour.

Kerala Plus Two Microeconomics Chapter Wise Previous Questions Chapter 2 Theory of Consumer Behaviour

Question 1.
The demand function of commodity X of three Households are given below: (MARCH-2008)
Household 1 – D_x = 50 – 5 P_x
Household 2 – D_x = 50 – 6 P_x
Household 3 – D_x = 50 – 3 P_x
If the values of P_x are (5,4, 3, 2,1)
a) Prepare the Household demand schedule.
b) Calculate the market demand schedule.
c) Draw the three Household demand curves on the same axis.
Answer:
a)

Question 2.
State whether the following statements are true or false. Justify your answer. (MARCH-2009)
a) Equilibrium price is the price at which the demand for the commodity is greater than its supply.
b) A rise in supply due to non-price factors is called
expansion in supply.
Answer:
a) False.
Equillibrium price is the price at which the demand for the commodity is equal to supply.
b) False.
Increase in supply.

Question 3.
Sree Ram buys 10kg of wheat at a price of ₹ 20 per kg. It is found that the price elasticity of demand is 2. At what price he will be ready to buy 15 kg. of wheat? Exhibit in a diagram. (MARCH-2009)
Answer:

Question 4.
The Demand function of Commodity ‘y’ of two households are given below: (MARCH-2009)
Household I: DY = 80 – 20P Household II: DY= 100 – 20P If the value of P_y are 1,2, 3,4, 5
a) Derive the demand schedule of two households.
b) Draw the two household demand curves on the
same axis.
Answer:
Demand Schedule of Household I

Demand Schedule of Household II

Question 5.
A seller supplies 100 Kg. of rice at price ₹25. It is found that price elasticity of supply is 2. At what price he will be ready to sell 150 Kg. of rice?
(MAY-2009)
Answer:
Price elasticity of supply is defined as the degree of responsiveness of change in supply due to change in price. That is,
–
Therefore, new price = 25 + 6.25 = 31.25

Question 6.
The demand function of commodity x for three households are given below: (MAY-2009)
D_x= 300-30 P_x (1)
D_x = 200 – 20 P_x (2)
D_x= 200 – 10 P_x (3)
If the value of Px are 5, 4, 3,2 and 1.
a) Prepare the individual demand schedule.
b) Prepare the market demand schedule.
c) Draw the market demand curve.
Answer:
a) There are Three individual demand schedules.

Question 7.
Calculate the elasticity of demand by using total expenditure method from the data given below: (MAY-2009)

Answer:

Change in price leading to changes in quantity demanded causes changes in total expenditure incurred on commodity. By looking at the variation in total expenditure, price elasticity can be calculated. Since total expenditure remaining the same when price changes, elasticity is equal to one (unitary elastic demand).

Question 8.
During Onam festival Govt, of Kerala offered 20% discount on the prices of Khadi items. As a result of this sales of Khadi items registered an increase of 30%. Find out price elasticity by applying appropriate method. (MAY-2009)
Answer:
Price elasticity of demand can be found out by using the formula

The method used here is percentage or proportional method.

Question 9.
What may happen to the supply of two wheelers if Tata introduces new car at low cost and supplies them in the market which is more or less equal to prices of two wheelers? (MAY-2009)
Answer:
When a new car is supplied in the market at a lower price, the demand for two wheelers will be reduced. This is because, more customers will switch over their demand of two wheelers and start demanding the new car.

Question 10.
The Govt, of Kerala decided to abolish lottery system from November2008 onwards. Do you agree with the policy of the Govt, of Kerala? Justify your answer. (MAY-2009)
Answer:
Yes/No
State any answer and substantiate the answer

Question 11.
A production possibility schedule for good x and y is given below: (MARCH-2010)

a) Define production possibility frontier.
b) Draw the PPC.
Answer:
a) A production possibility curve is a geometrical device representing all such combinations of two goods that can be produced with given technology and available resources,

Question 12.
A consumer purchased 4 kg. of good A when his income was ₹500 per month. He reduces the consumption of good A to 2 kg. when his income alone increase to ₹1,000 per month. If so, (MARCH-2010)
a) State the nature of good A and justify.
b) Give one example for commodity like good A.
Answer:
a) Inferior goods or Giffen goods
b) Bajra, Ragi, Tapioca, etc.

Question 13.
An indifference curve possesses several properties. One of them is that, it is a downward sloping curve from left to right. Write any other two properties. (MARCH-2010)
Answer:
a) Indifference curve is convex to origin
b) Higher and higher indifference curve represents higher level of satisfaction.
c) Indifference curves never intersect each other.

Question 14.
Observe the diagram (MARCH-2010)

a) Comment on the given demand curve.
b) Give any two reasons for the positional change of demand curve from D_d to D_p.
Answer:
a) Shift in demand / increase in demand
b) Increase in income of the consumers. Change in taste and preference of the consumers.

Question 15.
“The direction of change in equilibrium price and quantity is same whenever there is a shift in demand curve.” (MAY-2010)
a) Identify the two types of shift in demand curve.
b) Draw the relevant diagrams.
Answer:
a) Increase in demand and decrease in demand.
b)

Question 16.
Ramu has an income of ₹20 and suppose he wants to consume two commodities X and Y, both the goods are priced at ₹4 per unit. (MAY-2010)
a) Find out all the budget sets available to Ramu.
b) Draw the budget-line.
c) What factors can change the budget set of Ramu?
Answer:
a) 4x + 4y = 20

Question 17.
“Prices of related goods affect the household demand, and we can differentiate the related goods into two types.” (MAY-2010)
a) Which are the types of related goods that determine the demand?
b) Define them.
Answer:
) Substitutes
ii) Complementaries
b) Substitutes are those goods where one good can be used instead of other. Eg. Tea and Coffee. Complementary goods are those goods which are used together. Eg. Car and Petrol.

Question 18.

From the following indifference curve, mark (MARCH-2011)
a) monotonic preferences
b) inferior bundles
c) Preferred bundles
Answer:
a) D b) E c) D

Question 19.
Raghu, Yadav and Basheer are 3 customers who purchased mangoes from a market. Individual quantity demanded for mangoes are given in the schedule. (MARCH-2011)

a) Construct market demand schedule
b) Draw market demand curve.
c) Based on the given schedule, identify the nature of good (Hint: Normal, Inferior, Giffen).
Answer:

Question 20.
A consumer wants to consume two goods ‘x’ and ‘y’ with his income of ₹20. The prices of the two goods are ₹4 and ₹5 respectively.
a) Write down the equation of the budget line. (MARCH-2012)
b) Represent the budget line diagramatically.
c) How much of good x can the consumer consume if he spends his entire income on that good?
Answer:
a) 4x + 5y = 20

Question 21.
Consider the demand for a good. At a price ₹4 the demand for the good is 30 kg. Suppose price of the good increases to ₹5 and as a result the demand for the good falls to 20 kg. Calculate the price elasticity of demand. (MARCH-2012)
Answer:
Elasticity of demand

Question 22.
Consider the following figure: (MARCH-2012)
Why point E in the figure is considered as consumer’s optimum? Justify your answer.

Answer:
Point E is considered as consumers’s optimum. The optimum bundle of the consumer is located at the point where the budget line is tangent to one of the indifference curves. It is drawn below

Condition I : Budget line should be tangent to the indifference Curve
Condition II: Slope of IC ((MRS_xy)) should be equal to slope of budget line (Price Ratio)

Question 23.
In economics, it is generally assumed that consumer is rational. The consumer have well defined preference over a set of available bundle. He always tries to maximise his satisfaction or attain the optimum level. Diagrammatically illustrate the consumer’s optimum. (Hint: Consumer’s equilibrium). (MARCH-2013)
Answer:
Consumer’s Equilibrium
Consumer’s equilibrium shows a situation in which a consumer buys such a combination of goods from which he gets the maximum satisfaction with his given income and given prices of the goods.
The term consumer’s equilibrium refers to the amount of goods and services which the consumer may buy in the market given his income and given prices of goods in the market. The aim of the consumers is to get maximum satisfaction from his money income. Given the price line (budget line) and the indifference map, a consumer is said to be in equilibrium at a point where the price line is touching the highest attainable indifference curve from below. Thus the consumer’s equilibrium under the indifference curve theory must meet the following two conditions.
First order condition.
A given price line should be tangent to an indifference curve or marginal rate of substitution of good X for good Y (MRSxy) must be equal to the price ratio of the two goods.
(MRS_xy) = (P_x)/(P_y) Second order condition.
The second condition is that indifference curve must be convex to the origin at the point of tangency. Assumptions
The following assumptions are made to determine the consumer’s equilibrium position.
(1) Rationality. The consumer is rational. He wants to obtain maximum satisfaction given his income and prices.
(2) Utility is ordinal. It is assumed that the consumer can rank his preferences according to the satisfaction of each combination of goods.
(3) Consistency of choice. It is also assumed that the consumer is consistent in the choice of goods.
(4) Perfect competition. There is perfect competition in the market from where the consumer is purchasing the goods.
The optimum bundle of the consumer is located at the point where the budget line is tangent to one of the indifference curves. It is drawn below.

Condition I: Budget line should be tangent to the in-difference Curve
Condition II: Slope of IC ((MRS_xy)) should be equal to slope of budget line (Price Ratio)

Question 24.
Identify the relationship between good X and good Y. (MAY-2014)
i) Price of good X rises and demand for good Y rises, goods are
ii) Price of good X falls and demand for good Y rises, goods are
Answer:
i) Substitutes
ii) Complementary goods

Question 25.
Let Price of good X((P_x)) = ₹3 price of good Y((P_x)) = ₹5, income of the consumer (Y) = 130 and assume whole income is spend on good X and good Y. (MAY-2014)
a) Construct the budget equation and draw the budget line.
b) Suppose the prices of both goods, X and Y doubles, then what happens to the budget equation and the budget line?
c) Suppose income of the consumer (Y) doubles, then what happens to the budget equation and the budget line?
Answer:
a)

b) budget equation becomes 6X + 10 Y = 30 budget line will shift downward by half
c) budget equation becomes 3X+ 5 Y = 60 budget line will shift outward

Question 26.
Calculate the. price elasticity of demand from a movement from point A to B on the demand curve DD. (MAY-2014)

Answer:

Elasticity is 2.5. (Elastic demand)

Question 27.
If the demand curve is a rectangular hyperbola, elasticity is (MARCH-2015)
a) zero b) One
c) Less than one d) Infinity
Answer:
b) One

Question 28.
Mr. Abhi wants to consume two goods. The prices of two goods are ₹4 and ₹5 respectively. If Abhi’s income is ₹20, answer the following questions: (MARCH-2015)
a) Write down the equation of the budget line.
b) How much of good-1 that Abhi can consume if he spends his entire income on good-1?
c) How much of good-2 that Abhi can consume if he spends his entire income on good-2?
d) ‘ What is the slope of budget line?
e) How does the budget line change if the customer’s income increases from ₹20 to ₹40 but prices remain unchanged?
f) Show the change in budget line if the price is
good – 2 decreases by ₹1 but the price of good – 1 and consumers income remains unchanged.
Answer:

e) When income of the consumer increases without any changes in the price then the budget line shifts parallel upwards to the earlier budget line.

When only the price of good 2 decreases the budget line changes upwards in the good 2 axis, (vertical intercept)

Question 29.
“Consumer’s optimum bundle is located at the point of tangency between the budget indifference curve.” Explain with the help of a suitable diagram. Hint: Indifference Curve Analysis (MAY-2015)
Answer:
Consumer’s Equilibrium Consumer’s equilibrium shows a situation in which a consumer buys such a combination of goods from which he gets the maximum satisfaction with his given income and given prices of the goods.
The term consumer’s equilibrium refers to the amount of goods and services which the consumer may buy in the market given his income and given prices of goods in the market. The aim of the consumers is to get maximum satisfaction from his money income. Given the price line (budget line) and the indifference map, a consumer is said to be in equilibrium at a point where the price line is touching the highest attainable indifference curve from below. Thus the consumer’s equilibrium under the indifference curve theory must meet the following two conditions.
The following assumptions are made to determine the consumer’s equilibrium position.
1) Rationality. The consumer is rational. He wants to obtain maximum satisfaction given his income and prices.
2) Utility is ordinal. It is assumed that the consumer can rank his preferences according to the satisfaction of each combination of goods.
3) Consistency of choice. It is also assumed that the consumer is consistent in the choice of goods.
4) Perfect competition. There is perfect competition in the market from where the consumer is purchasing the goods.
The optimum bundle of the consumer is located at the point where the budget line is tangent to one of the indifference curves. It is drawn below.

Condition I: Budget line should be tangent to the indifference Curve
Condition II: Slope of IC (MRS_xy) should be equal to slope of budget line (Price Ratio)

Question 30.
Suppose there was a decrease in the price of good ‘X’ and as a result, the demand for good ‘Y’ increases. What will be the type of goods? (MAY-2015)
Answer:
Complementary goods.

Question 31.
Consider the demand curve D = 10 – 3p. What is the elasticity of price \(\frac { 5 }{ 3 }\) (MAY-2015)
Answer:

Elasticity is = 3

Question 32.
P₁ X₁+P₂ X₂ ≤ M is a budget constraint. Identify the constraints. (MARCH-2016)
Answer:
P₁, P₂, M

Question 33.
Given the diagram (MARCH-2016)

a) Identify:
i) AB
ii) Pont E
b) Elaborate the properties of indifference curve.
c) Point ‘C’ is not the equilibrium of the consumer,
do you agree? Explain.

Answer:
a) i) AB is the Budget line
ii) Point E is the equilibrium point
b) Properties of indifference curves are:
Indifferences curves are negatively sloped.
Indifference curves are convex to origin.
Higher and higher indifference curve represents higher level of satisfaction.
Two indifference curves never intersect each other.
c) I agree. Equilibrium point is reached by satisfying the following conductions.
1) IC must be tangent with budget line.
2) Slope of IC must be equal to slope of budget line.
These two conditions are satisfied at the point E. Hence ‘C’ is not the equilibrium point.

Question 34.
Distinguish between the movement along a demand . curve and the shifts in demand curve. (MAY-2016)
Answer:
Change in quantity demanded due to change in price leads to expansion and contraction of demand. In this case, there is the movement along a demand curve.
Change in quantity demanded due to change in factors other than price leads to increase and decrease in demand. In this case, there is shift in demand curve.

Question 35.
“The consumer’s optimum bundle is located at the point of tangency between the budget line and the highest indifference curve”. Explain the consumers’ equilibrium as per the indifference curve approach with a suitable diagram. (MAY-2016)
Answer:
The interest of the consumer is to purchase those goods and services which provides him maximum satisfaction. So the consumer chooses the best bundle available to him. The consumer always prefers to have bundles on the higher indifference curve. The preference of the consumer to have the bundle, which provides him maximum satisfaction, is known as consumer’s equilibrium. It is the optimum point, a point of maximum satisfaction.
The equilibrium of the consumers is possible only when the budget line is tangent to the indifference curve. The consumer purchases the goods and services on the budget line, which provides him maximum satisfaction. It is possible only when the slope of the budget line  and the slope of the indifference curve (MRS) are equal.

Question 36.
Why there is different price elasticity along a linear demand curve? Illustrate with the help of a diagram. (MARCH-2017)
Answer:
The price elasticity of a linear demand curve is based on slope of demand curve. Slope of the demand curve is the ratio between change in quantity demanded (∆q) to change in price (∆p). So the slope of a demand curve will be different at different points. This can be explained with diagram.

Question 37.
From the Budget line shown below, find the price of good X₂ given that the price of X₁ good is ? 30. The equation on the Budget line is given as P₁X₁+ P₂ X₂=1000 (MARCH-2017)

Answer:

Kerala State Board New Syllabus Plus Two Economics Chapter Wise Previous Questions and Answers Part I Chapter 1 Introduction.

Kerala Plus Two Microeconomics Chapter Wise Previous Questions Chapter 1 Introduction to Microeconomics

Question 1.
How each of the following affects the Production Possibility Curve of an Economy? (MARCH – 2008)
a) The number of employed workers increase.
b) Tsunami destroys some production facilities.
c) Introduction of capital intensive technique.
d) Increase in fuel price.
Answer:
PPC shifts outward
b) PPC shifts inwards
c) PPC shifts outwards
d) PPC shifts inwards

Question 2.
Below is given a Production Possibility Schedule (MARCH – 2008)

a) Draw the Production Possibility Curve.
b) Prepare the Marginal Opportunity cost in a table based o the PPC.
Answer:
a) 

b)

Question 3.
Micro Economics is otherwise known as “price theory”. Do you agree with this statement? Justify your answer. (MARCH – 2009)
Answer:
Yes.
It is related to the theory of product and factor pricing.

Question 4.
Some Economic Variables are given below. Classify them in a table based on two branches of Economics. Give suitable titles to the column.
General price level, Aggregate consumption,Rent for a house in a city, Demand forfish in a local market. (MARCH – 2009)
Answer:

Question 5.
A production possibility schedule is given below (MAY-2010)

a) Calculate M.O.C
b) What is the shape of PPC?
Answer:
a)

b) downward slope

Question 6.
Complete the following table : (MARCH-2012)

Answer:

Question 7.
Mention one example for each of the following market structures. (MARCH-2013)
i) Monopoly
ii) Monopolistic competition
Answer:
i) monopoly – Indian railway
ii) monopolistic competition – tooth paste

Question 8.
In a centrally planned economy all important decisions regarding production, exchange and consumption are taken by (MARCH-2014)
a) The Government
b) The Market
c) Either of (a) and (b)
d) The Central Bank
Answer:
The Government

Question 9.
Among the three statements given, which statement is a normative statement? (MAY-2014)
a) People work hard if wages are high.
b) The unemployment rate should be lower
c) Printing too much of money causes inflation.
Answer:
a) people work hard if wages are high.

Question 10.
Who is known as the father of modern Macro Economics? (MARCH-2015)
a) Adam Smith
b) Alfred Marshall
c) J.M.Keynes
d) J.B.Say
Answer:
c) J.M.Keynes

Question 11.
Prepare a production possibility Schedule and draw a production possibility curve on the basis of the schedule, how do you define the PPC? (MAY-2015)
Answer:
Production possibility curve is the locus of combinations of two goods that can be produced when the resources of the economy are fully utilized. Given below a production possible schedule and a production possibility curve.

Question 12.
The choice of technology is associated with (MARCH-2016)
a) What to produce?
b) Howto produce?
c) For whom to produce
d) None of these
Answer:
b) How to produce

Question 13.
Central problems faced by an economy can be solved through different ways by different economic systems. (MAY-2016)
a) Which are the important economic systems?
b) How each system solves the central problems?
Answer:
a) Economic systems are:
i) Capitalism
ii) Socialism
iii) Mixed economy
b) Solution of central problems
i) Capitalist economy solves the central economic problems through price mechanism
ii) Socialist economy solves the central economic problems through economic planning.
iii) Mixed economy solves the central economic problems through both price mechanism and central planning.

Question 14.
Identify the curve given below. What does the points A, B, C represents? (MARCH-2017)

Answer:
Production Possibility Curve: It shows various combinations of two goods that an economy can produce with a given level of resources and a given level of technology.
Point ‘A’shows efficient utilisation of resources. Point ‘B’ We can say that at any point above the existing PPC shows the growth of resources and Point ‘C’ inside the production possibility curve implies insufficient utilisation of resources.

Question 15.
Which among the following is not a characteristics of a Capitalist Economy? (MARCH-2017)
a) Wages and prices are administered by the government.
b) Private ownership of means of production.
c) Production takes place for exchange
d) Sale and purchase of labour services at a price is called wage rate.
Answer:
Wages and prices are administered by the government.

Kerala State Board New Syllabus Plus Two Business Studies Previous Year Question Papers and Answers.

Kerala Plus Two Business Studies Previous Year Question Paper Say 2018 with Answers

Time : 2 1/2 Hours
Cool off time : 15 Minutes
Maximum : 80 Score

General Instructions to Candidates:

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2 hrs.
• Your are not allowed to write your answers nor to discuss anything with others during the ‘cool off time’.
• Use the ‘cool off time’ to get familiar with the questions and to plan your answers.
• Read questions carefully before you answering.
• All questions are compulsory and only internal choice is allowed.
• When you select a question, all the sub-questions must be answered from the same question itself.
• Calculations, figures and graphs should be shown in the answer sheet itself.
• Malayalam version of the questions is also provided.
• Give equations wherever necessary.
• Electronic devices except non programmable calculators are not allowed in the Examination Hall.

Answer all questions from 1 to 7. Each carries 1 score. (7 × 1 = 7)

Question 1.
Which of the following is a function of middle level management?
a) Formulation of plans and policies.
b) Directly Oversee the efforts of workforce.
c) Cooperate with other departments for smooth functioning of the organization.
d) Analyse the Enviornment.
Answer:
c) Co-operate with other departments for smooth functioning of the organization.

Question 2.
F. W. Taylor’s functional foremanship in an extension of Henry Fayol’s function.
a) Scalar chain
b) Order
c) Division of work
d) Discipline
Answer:
c) Division of work.

Question 3.
Complete the series Globalisation: Integration of various economies of the world into a global economy.
Liberalisation: ……..?………
Answer:
Minimise governmental restrictions.

Question 4.
Which of the following is not a part of the Responsibility Centre?
a) Cost centre
b) Profit centre
C) Investment centre
d) Management centre
Answer:
d) Management centre

Question 5.
The cheapest sources of finance are………..
a) Equity share
b) Retained earnings
c) Preference share
d) Debenture
Answer:
b) Retained earnings

Question 6.
The settlement cycle in NSE is ………..
a) T + 5
b) T + 3
c) T + 2
d) T + 1
Answer:
c) T + 2

Question 7.
Which of the following firms emphasizes benefits to customers rather than product attributes?
a) Product concept
b) Market concept
c) Sales concept
d) Production concept
Answer:
b) Market concept

Answer any 7 questions from 8 to 15. Each carries 2 scores. (2 × 1 = 2)

Question 8.
Write any two personal objects of management.
Answer:

1. Give adequate remuneration to employees
2. Provide good working condition

Question 9.
“Communication from top to bottom should follow the official chain of command.”
a) Identify the principles of management mentioned above.
b) Name the shortcut proposed by Henry Fayol for speedy communication.
Answer:
a) Scalar chain
b) GangPlank

Question 10.
List out any four types of tests used in the selection process.
Answer:

1. Intelligence tests
2. Aptitude tests
3. Personality test
4. Trade test

Question 11.
Describe the concept of trading on equity.
Answer:
It refers to the use of fixed income securities such as debentures and preference capital in the capital structure so as to increase the return of equity shareholders.

Question 12.
Draw the pattern of any two types of formal communication network.
Answer:
a) Single chain: This chain network exists between a supervisor and his subordinates

b) Wheel Network: In wheel network, all subordinates under one superior communicate through him only.

Question 13.
Name any 2 important Acts framed to safeguard consumer interest in India.
Answer:

1. Consumer Protection Act 1986.
2. Prevention of Food Adulteration Act 1954.

Question 14.
Explain the importance of delegation. (any two)
Answer:

1. It reduces the workload of managers.
2. It helps employee development.

1) Reduces the work load of managers: The managers are able to function more efficiently as they get more time to concentrate on important matters.
2) Employee development: Delegation empowers the employees by providing them the chance to use their skills, gain experience and develop themselves for higher positions.

Question 15.
Give any four features of marketing.
Answer:
Features of Marketing:

1. Needs and Wants: Marketing focuses on the satisfaction of the needs and wants of consumers.
2. Creating a Market Offering: It refers to providing complete information about the product and services like name, type, price, size, etc.
3. Customer Value: A buyer analyses the cost and the satisfaction that a product provides before buying it. The seller should manufacture the product keeping in view this tendency of the customer.
4. Exchange Mechanism: The process of marketing involves the exchange of products and services. Exchange is the essence of marketing.

Answer any 4 questions from 16 to 20. Each carries 3 scores. (4 × 3 = 12)

Question 16.
Gopu argued that profit is the only organizational objectives of the business.
a) Do you agree with him?
b) Give reason
Answer:
a) No, I disagree with him
b) Other organisational objectives of the business are

• survival: Management must survive to ensure the survival of the organisation.
• Profit: Management has to ensure that the organization makes a reasonable profit.
• Growth: management must exploit fully the growth potential of the organisation.

Question 17.
“Though planning is an important tool of management, yet it is not a remedy to all problems.” Explain this statement.
Answer:
Limitations of Planning:

• Planning makes the activities rigid.
• Long term plans are insignificant in the rapidly changing business environment.
• It reduces creativity.

Question 18.
How can an organisation overcome the barriers to effective communication?
Answer:
Measures to overcome barriers to communication:

• The entire problem to be communicated should be studied in-depth, analysed, and stated in such a manner that is clearly conveyed to subordinates.
• Communication must be according to the education and understanding levels of subordinates.
• Before communicating the message, it is better to consult with subordinates.
• The contents of the message, tone, language used, etc. are important aspects of effective communication.
• While conveying a message to others, it is better to know the interests and needs of the receiver.
• Ensure proper feedback.

Question 19.
Describe the features of a good brand name.
Answer:
Qualities of a Good Brand Name:

• The brand name should be short, easy to pronounce, spell, recognise and remember.
• A brand should suggest the product’s benefits and qualities.
• A brand name should be distinctive.
• Brand name should be adaptable to packing or labelling requirements, to different advertising media and to different languages.
• The brand name should be sufficiently versatile to accommodate new products.
• It should be capable of being registered and protected legally.

Question 20.
Consumer grievances are redressed by the three tier machinery under the Consumer Protection Act. Name these three agencies and their jurisdiction limit.
Answer:
1) District Forum: This is established in each district by the state government. The District Forum consists of a president and two other members. A complaint can be made to the appropriate District Forum when the value of the goods or services and compensation claimed does not exceed Rs. 20 lakh. In case the aggrieved party is not satisfied with the order of the District Forum, he can appeal before the State Commission within 30 days of the passing of the order.

2) State Commission: It is established by the state government. The State Commission consists of a president and not less than two other members. A complaint can be filed before the State Commission where the value of goods or services and the compensation claimed exceeds Rs. 20 lakh but does not exceed Rs. 1 crore.ln case the aggrieved party is not satisfied with the order of the State Commission he can appeal to the National Commission within 30 days of passing of the order.

3) National Commission: The National commission was constituted by the central government. The National Commission consists of a president and at least four other members. It is the apex body in the three-tier judicial machinery set up by the government for redressal of consumer grievances. All complaints pertaining to those goods dr services and compensation whose value is more than RS. 1 crore can be filed directly before the National Commission. An appeal can be filed against the order of the National Commission to the Supreme Court within 30 days from the date of order passed.

Answer any 4 questions from 21 to 25. Each carries 4 scores. (4 × 4 = 16)

Question 21.
Write one example of the following plans:
a) Rule
b) Policy
c) Programme
d) Objective
Answer:
a) Rule – No smoking
b) Policy – Promotion is based on merit only
c) Programme – Three day training programme to mangers
d) Objects – Attain Rs. 20,00,000 profit

Question 22.
It is important for a business enterprise to understand its environment. Why?
Answer:
Importance of Business Environment:

1. Identification of opportunities: Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them.
2. Identification of threats: Environmental awareness help managers to identify various threats on time and serves as an early warning signal.
3. Tapping useful resources: Business environment helps to know the availability of resources and making them available on time.
4. Coping with rapid changes: Environmental scanning enables the firms to adapt themselves to the changes in the market.

Question 23.
Explain the limitations of controlling.
Answer:
Limitations of Controlling:

• Difficulty in setting quantitative standards: Control system loses some of its effectiveness when standards cannot be defined in quantitative terms.
• Little control on external factors: Generally an enterprise cannot control external factors such as government policies, technological changes, competition, etc.
• Resistance from employees: Control is often resisted by employees. They see it as a restriction on their freedom.
• Costly affair: Control is a costly affair as it involves a lot of expenditure, time and effort.

Question 24.
“Advertising misleads customers and increase the cost of product.”
a) Do you agree with this statement?
b) Give reason
Answer:
a) Yes, I agree with this statement
b) Disadvantages of Advertising

• Advertisement encourages consumers to buy unwanted goods.
• Most of the advertisements are misleading.
• Advertisement may lead to monopoly of a brand.
• Advertisement is a costly affair. So, ultimately it increases the price of the product.

(OR)

a) No. I diagree with this statement
b) Advantages of Advertising

• Advertising helps in introducing hew products.
• It stimulates the consumers to purchase the new products.
• It helps the consumers to know about the various products and their prices.
• Consumers can purchase the better products easily.
• Advertisement helps to create more employment opportunities.
• It provides an important source of income to the press, radio, T.V., etc.

Question 25.
“Entrepreneurship and Management are same.” Comment your views.
Answer:
a) Entreprenuership and management are different

b) Difference between Entreprenurship and Management
Entrepreneurship:

1. The main motive of an entrepreneur is to start a venture by setting up an enterprise.
2. An entrepreneur is the owner of the enterprise.
3. An entrepreneur assumes all risks and uncertainty.
4. An entrepreneur gets profit.

Management:

1. The main motive of a manager is to render his services in an enterprise already set up by someone.
2. A manager is the servant in the enterprise.
3. A manager does not bear any risk involved in the enterprise.
4. A manager gets salary.

Answer any 3 questions from 26 to 29. Each carries 5 scores. (3 × 5 = 15)

Question 26.
Metro Ltd. engaged in the production of soap and it has purchase, production, marketing and finance departments.
a) Suggest a suitable organisation structure.
b) State any two merits and demerits of this organisation structure.
Answer:
a) Functional Organisation Structure
b) Advantages

1. It promotes division of work which leads to specialisation.
2. It promotes control and coordination within a department.

Disadvantages:

1. Each departmental head gives more importance to their departmental objectives than overall organisation objectives.
2. In large functional organisations, taking quick decisions and co-ordination become difficult.

Question 27.
“It is the market for short terror funds which deals in financial assets whose period of maturity is upto one year.”
a) Identify the type of market referred above. (1)
b) Briefly explain the various instruments used in this market. (4)
Answer:
a) Money Market
b) 1) commercIal Paper: Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a maturity period of 15 days to one year. It is sold at a discount and redeemed at par.

2) Call Money: Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.

3) Certificate of Deposit: Certificates of Deposit (CDs) are short-term instruments issued by Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from one party to another. The maturity period of CDs ranges from 91 days to one year.

4) Commercial Bill: A commercial bill is a Bill of Exchange used to finance the working capital requirements of business firms. When goods are sold in credit, the seller draws the bill and the buyer accepts it. The seller can discount the bill before its maturity with the bank. When a trade bill is accepted by a commercial bank it is known as commercial bills.

Question 28.
Hantex offers 30% discount for all their products during Onam season as a part of their promotion technique.
a) Identify the promotion technique used by them.
b) Explain any 2 merits and demerits of this technique.
Answer:
a) Sales Promotion
b) Merits of Sales Promotion

1. Sales promotion activities attract attention of the people.
2. Sales promotion tools can be very effective at the time of introduction of a new product in the market.

Limitation of Sales Promotion:

1. If a firm frequently relys on sales promotion, it creates doubts in the minds of consumers about the quality of the product.
2. Use of sales promotion tools may affect the image of a product.

Question 29.
Explain the functional foremanship technique with a diagram.
Answer:
1. Functional foremanship: Functional foremanship is a technique in which planning and execution are separated. He classified 8 specialist foremen into two departments viz. Planning and Production department. Both departments have four foremen each. Functional foremanship is based on the principle of division of work.

Planning Department:

1. Route Clerk Gang Boss
2. Instruction Card Clerk Speed Boss
3. Time and Cost Clerk Repair Boss
4. Shop Disciplinarian Inspector

Production Department:

1. Gang Boss
2. Speed Boss
3. Repair Boss
4. Inspector

a. Route clerk: To lay down the sequence of operations through which the raw materials have to pass in the production process.
b. Time & cost clerk: To lay down the standard time for completion of the work.
c. Instruction card clerk: He is expected to deal with the instructions to be followed by workers in handling the job.
d. Disciplinarian: He maintains proper discipline in the factory.
e. Gang boss: He arranges material, machine, tool, etc. for operation.
f. Speed boss: He supervises matters relating to the speed of work.
g. Repair boss: He ensures repairs and maintenance of the tools and machines.
h. Inspector: He checks the quality of work done.

Answer any 2 questions from 30 to 32. Each carries 8 scores. (2 × 8 = 16)

Question 30.
It is the process of identifying and choosing the best person out of a number of prospective candidates for a job.
a) Name the process
b) Explain its steps
Answer:
a) Selection
b) Process of Selection
1. Preliminary Screening: Preliminary screening helps the manager to eliminate unqualified job seekers.

2. Selection Tests: Various tests are conducted to know the level of ability, knowledge, interest, aptitude, etc. of a particular candidate. The various types of tests are:

• Intelligence Tests
• Aptitude Test
• Personality Tests
• Trade Test
• Interest Tests

3. Employment Interview: Interview is a formal, in-depth conversation conducted to evaluate the applicant’s suitability for the job.

4. Reference and Background Checks: Many employers request names, addresses, and telephone numbers of references for the purpose of verifying information and; gaining additional information on an applicant.

5. Final Selection: The final decision has to be made from among the candidates who pass the tests, interviews and reference checks.

6. Medical Examination: After selection, the candidates are required to appear for a medical examination for ensuring that he is physically fit for the job.

7. Job Offer: After a candidate has cleared all the hurdles in the selection procedure, he is formally appointed through an order. It contains the terms and conditions of the employment, pay scale, joining time, etc.

8. Employment Contract: Basic information that should be included in a written contract of employment are job title, duties, responsibilities, date of joining, pay and allowances, hours of work, leave rules, disciplinary procedure, work rules, termination of employment, etc.

Question 31.
Explain briefly the elements of the directing function.
Answer:
Elements of Direction:

1. Supervision
2. Motivation
3. Leadership
4. Communication

1) Supervision: Supervision means overseeing the subordinates at work. Supervision is instructing, guiding and controlling the workforce with a view to see that they are working according to plans, policies, programmes and instructions.

Importance of Supervision:

• A good supervisor acts as a guide, friend and philosopher to the workers.
• Supervisor acts as a link between workers and management. It helps to avoid misunderstandings and conflicts between management and workers.
• Supervisor provides good On the Job training to the workers and employees.

2) Motivation: Motivation is the process of stimulating people to action to accomplish desired goals. Motivation depends upon satisfying needs of people.
Features of Motivation:

• Motivation is an internal feeling.
• Motivation produces goal-directed behaviour.
• Motivation can be either positive or negative.

3) Leadership: Leadership can be defined as the process of influencing the behaviour of employees at work towards the accomplishment of organisational objectives.
Features of Leadership:

• Leadership indicates ability of an individual to influence others.
• Leadership tries to bring change in the behaviour of others.
• Leadership indicates interpersonal relations between leaders and followers.

4) Communication: Communication may be defined as an exchange of facts, ideas, opinions or emotions between two or more persons to create mutual understanding.
Importance of Communication:

• Acts as basis of co-ordination: Communication acts as the basis of co-ordination.
• Helps in smooth working of an enterprise: It is only communication which makes smooth working of an enterprise possible.
• Acts as basis of decision making Communication provides needed information for decision making.

Question 32.
Describe the factors that affect the capital structure of a company.
Answer:
Capital Structure: Capital structure refers to the mix between owners, funds and borrowed funds. Owners, fund consists of equity share capital, preference share capital and reserves and surpluses or retained earnings. Borrowed funds can be in the form of loans, debentures, public deposits, etc.

A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share.

Factors Affecting Capital Structure:

• Trading on Equity (Financial Leverage): It refers to the use of fixed income securities such as debentures and preference capital in the capital structure so as to increase the return of equity shareholders.
• Stability of Earnings: If the company is earning regular and reasonable income, the management can rely on preference shares or debentures. Otherwise issue of equity shares is recommended.
• Cost of Debt: A firm’s ability to borrow at lower rate, increases its capacity to employ higher debt.
• Interest Coverage Ratio (ICR): The interest coverage ratio refers to the number of times earnings before interest and taxes of a Company covers the interest obligation. Higher the ratio, better is the position of the firm to raise debt.
• Desire for control: If the management has a desire to control the business, it will prefer preference shares and debentures in capital structure because they have no voting rights.
• Flexibility: Capital structure should be capable of being adjusted according to the needs of changing conditions.
• Capital Market Conditions: In depression, debentures are considered good. In a booming situation, issue of shares will be more preferable.
• Period of Finance: If funds are required for short period, borrowing from bank should be preferred. If funds are require for longer period company can issue shares and debentures.

Kerala State Board New Syllabus Plus Two Business Studies Previous Year Question Papers and Answers.

Kerala Plus Two Business Studies Previous Year Question Paper March 2019 with Answers

Time : 2 1/2 Hours
Cool off time : 15 Minutes
Maximum : 80 Score

General Instructions to Candidates:

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2 hrs.
• You are not allowed to write your answers nor to discuss anything with others during the ‘cool off time’.
• Use the ‘cool off time’ to get familiar with the questions and to plan your answers.
• Read questions carefully before you answering.
• All questions are compulsory and only internal choice is allowed.
• When you select a question, all the sub-questions must be answered from the same question itself.
• Calculations, figures and graphs should be shown in the answer sheet itself.
• Malayalam version of the questions is also provided.
• Give equations wherever necessary.
• Electronic devices except non-programmable calculators are not allowed in the Examination Hall.

Answer all questions from 1 to 7. Each carries 1 score. (7 × 1 = 7)

Question 1.
Identify the management principle which states that a manager should repalce “I with We” in all his conversations with workers to foster team spirit.
a) Espirit De Corps
b) Initiate
c) Unity of Command
d) Unity of Direction
Answer:
a) Espirit De Corps

Question 2.
Identify the type of plan which specifies the steps to be carried out in different business activities in a sequential order.
a) Programme
b) Procedure
c) Method
d) Strategy
Answer:
a) Programme

Question 3.
Which among the following is not an organizational objectives of management?
a) Profit
b) Survival
c) Protecting Environment
d) Growth
Answer:
c) Protecting Environment

Question 4.
Grapevine relates to ……..
a) Formal communication
b) Informal communication
c) Formal organisation
d) Informal organisation
Answer:
b) Informal communication

Question 5.
Name the controlling technique which states that only the significant deviations which go beyond the permissible limit should be brought to the notice of management.
Answer:
Management by exception/Control by exception

Question 6.
A company offers 40% of extra shaving cream in a pack of 100 grams. Identify the sales promotion tool used here.
Answer:
Quantity gift

Question 7.
A company gets applications without declaring any vacancies. However, as and when vacancy arises, the company makes use of such applications. Name the source of recruitment mentioned here.
Answer:
Casual callers/Un Solicited applicants

Answer questions 8 and 9 after observing given hint. Each carries 1 score. (2 × 1 = 2)

Question 8.
Hint:- Delegation Transfer of Authority from superior to subordinate.
Decentralisation:- …………
Answer:
Decentralisation refers to systematic delegation of authority throughout all levels of management in an organisation.

Question 9.
Hint:- Long term investment decision:- Capital budgeting decision.
Short term investment decision:-
Answer:
Working Capital Decision

Answer all questions from 10 to 13. Each carries 2 scores. (4 × 2 = 8)

Question 10.
Briefly explain the meaning of financial planning.
Answer:
It ensures adequate funds from various sources.

Question 11.
Classify the following items into appropriate elements business environment:
a) Literacy rate
b) Public debt (Internal and External)
c) Rate of saving and investment
d) Birth and death rate
Answer:
a) Social environment
b) Economic environment
c) Economic environment
d) Social environment

Question 12.
State any two characteristics of a good brand name.
Answer:

1. The brand name should be short
2. A brand name should be distinctive

Question 13.
State the conditions under which a consumer can approach the State Commission forgetting relief for his grievances.
Answer:
It is established by the state government. The state Commission consists of a president and not less than two other members. A complaint can be field before the State Commission where the value of goods service and the compensation claimed exceeds Rs. 20 lakh but does not exceed Rs. 1 crore. In case the aggrieved party is not satisfied with the order of the State Commission he can appeal to the National Commission within 30 days of passing of the order.

Answer any 4 questions from 14 to 18. Each carries 3 scores. (4 × 3 = 12)

Question 14.
State any three significance of Principles of Management.
Answer:

1. Increase efficiency: The understanding of the management principles provides guidelines to the managers for handling effectively the complex problems.
2. Optimum utilization of resources: The principles of management helps in the optimum utilization of resources through division of work, delegation of authority, etc.
3. Scientific decision: Management principles help in thoughtful decision-making. Such decisions are free from bias and prejudices.

Question 15.
Briefly explain the different types of leadership styles.
Answer:
Leadership Styles:

1. Autocratic or Authoritarian Leader: An autocratic leader gives orders and expects his subordinates to obey those orders. Here communication is only one-way with the subordinate.
2. Democratic or Participative Leader: A democratic leader encourages subordinates to participate in decision-making. They respect the other’s opinion and support subordinates to perform their duties.
3. Laissez Faire or Free-rein Leader: Here the followers are given a high degree of independence to formulate their own objectives and ways to achieve them.

Question 16.
Compare Treasury Bill and Commercial Paper, both are used in Indian money market.
Answer:
Difference between Treasury Bills and Commercial papers:
Treasury Bills:

1. It is issued by RBI on behalf of the central Government
2. It is issued in the form of sequred promissiory notes.
3. Risk free money.

Commercial papers:

1. It is issued by Joint Stock Company.
2. It is issued in the form of unsecured promissery notes.
3. It is risky market instrument.

Question 17.
State any three responsibilities of consumers.
Answer:
Consumers’ Responsibilities:

1. Be aware about various goods and services available in the market.
2. Buy only standardised goods as they provide quality assurance.
3. Learn about the risks associated with products and services, follow manufacturer’s instructions and use the products safely.
4. Read labels carefully so as to have information about prices, net weight, manufacturing and expiry dates, etc.
5. Choose only from legal goods and services.
6. Ask for a cash memo on purchase of goods or services.

Question 18.
Explain any three impact of government policy changes on business and industry.
Answer:

1. Competition for Indian firms has increased.
2. The customer’s wider choice in purchasing better quality of goods and services.
3. Rapid technological advancement has changed/ improved the production process.
4. Enterprises are forced to continuously modify their operations.
5. Need for Developing Human Resources arise.
6. There is a shift from production oriented concept to market oriented concept.

Answer any 5 questions from 19 to 24. Each carries 4 scores. (5 × 4 = 20)

Question 19.
Explain the following types of training:
a) Vestibule training
b) Apprenticeship training
Answer:
a) Vestibule Training: This is an off the job training method. Actual work environments are created in a class room and employees use the same materials, files and equipments. This is ususally done when employees are required to handle sophisticated machinery and equipment.

b) Apprenticeship Training: Apprenticeship training is an on the job training method. Here trainee is put under the guidance of a master worker. These are designed to acquire a higher level of skills. The trainees spend a prescribed time with an experienced trainer.

Question 20.
This management function ensures that “all activities are performed as per predetermind plans”.
a) Identify the management function.
b) Explain its first three steps.
Answer:
a) Controlling

b) Steps in control process:

1. Setting Performance Standards: Standards are the criteria against which actual performance would be measured. Standards can be set in both quantitative as well as qualitative terms.
2. Measurement of Actual Performance: After establishing standards, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner.
3. Comparing Actual Performance with Standards: This step involves comparison of actual performance with the standard. Such comparison will reveal the deviation between actual and desired results.

Question 21.
Briefly explain any two characteristics of entreprenurship.
Answer:
Characteristics of entrepreneurship:

1. It is a systematic and purposeful activity.
2. The object of entrepreneurship is lawful business.
3. Entrepreneurship is a creative and innovative response to the environment and an ability to recognize, initiate and exploit an economic opportunity.
4. It is concerned with employing, managing, and developing the factors of production.

Question 22.
Under this technique of scientific management, one worker is supervised by eight specialist foreman.
a) Identify the technique.
b) Show this technique in a diagram.
Answer:
a) Functional foremanship

b)

Question 23.
State any four regulatory functions of SEBI.
Answer:
Regulatory Functions:

1. Registration of brokers and sub brokers and other players in the market.
2. Registration of Mutual Funds.
3. Regulation of stock brokers, portfolio exchanges, underwriters, etc.
4. Regulation of takeover bids by companies.

Question 24.
State any four differences between marketing and selling.
Answer:
Marketing:

1. Marketing is a wider term consisting of number of activities.
2. It is concerned with product planning arid development.
3. It focuses on maximum satisfaction of the customer.
4. It aims at profits through consumer satisfaction.

Selling:

1. It is a narrow concept.
2. It is concerned with sale of goods already produced.
3. It focuses on the maximum satisfaction of the sellers through the exchange of products.
4. It aims at maximum profit through maximisation of sales.

Answer any 3 questions from 25 to 28. Each carries 5 scores. (3 × 5 = 15)

Question 25.
Mr. Jojo is working as a production manager of a Joint Stock Company.
a) Identify the level of management he belongs to.
b) State any four functions performed by him.
Answer:
a) Middle level

b) Functions of Middle Level Management:

1. Carry out the plans formulated by the top managers.
2. To act as a link between Top Level Management and Lower Level Management.
3. Assign necessary duties and responsibilities to the subordinates.
4. Motivate them to achieve desired objectives.

Question 26.
This management function seeks to bridge the gap between where we are and where we want to go.
a) Identify the management function.
b) Explain any four importance of that function.
Answer:
a) Planning

b) Importance of Planning:

1. Planning provides directions: By stating in advance how work is to be done planning provides direction for all actions.
2. Planning reduces the risk of uncertainty: Planning enables an organisation to predict future events and prepare to face the unexpected events.
3. Planning reduces wasteful activities: Planning serves as the basis of coordinating the activities and efforts of different departments and individuals. It helps to eliminate useless and redundant activities.
4. Planning promotes innovative ideas: Since planning is thinking in advance, there is scope for finding better and different methods to achieve the desired objectives.

Question 27.
This management function begins with work force planning and putting people to job.
a) Name the management function.
b) Explain its first four steps/process
Answer:
a) Staffing

b) Staffing Process:

1. Manpower planning: it is concerned with forecasting the future manpower needs of the organisation, i.e., finding out number and type of employees need by the organisation in future.
2. Recruitment: Recruitment may be defined as the process of searching for prospective employees and stimulating them to apply for jobs in the organisation.
3. Selection: Selection is the process of selecting the most suitable candidates from a large number of applicants.
4. Placement and Orientation: Placement refers to putting the right person on the right job. Orientation is introducing the selected employee to other employees and familiarising him with the rules and policies of the organisation.

Question 28.
Star Ltd. produces three types of products such as cosmetics, garments and medicines.
a) Suggest a suitable organizational structure for Star Ltd.
b) Represent this structure in a diagram.
c) State any two advantages of it.
Answer:
a) Divisional Organisation Structure

b)

c) Advantages

• Each division functions as an autonomous unit which leads to faster decision making.
• It helps in fixation of responsibility in cases of poor performance of the division.

Answer any 2 questions from 29 to 31. Each carries 8 scores. (2 × 8 = 16)

Question 29.
One of the financial decision relates to the amount of profits to be retained in the business.
a) Identify the financial decision.
b) Explain any seven factors affecting this decision.
Answer:
a) Dividend decision

b) Factors affecting Dividend Decision:

• Stability Earnings: A company having stable earnings can declare higher dividends. Otherwise, pay lower dividend.
• Stability of Dividends: Companies generally follow a policy of stabilising dividend per share. Dividend per share is not altered if the change in earnings is small.
• Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings to finance the required investment. In such a case, they can declare dividend at a lower rate.
• Cash Flow Positions: Availability of enough cash in the company is necessary for declaration of dividend.
• Shareholders’ Preference: While declaring dividends, managements must keep in mind the preferences of the shareholders in this regard.
• Taxation Policy: A company is required to pay tax on dividend declared by it. If tax on dividend is higher, company will prefer to pay less by way of dividends whereas if tax rates are lower, then more dividends can be declared by the company.
• Capital Market: Reputed companies have easy access to the capital market and, therefore, they can pay higher dividends than the smaller companies.

Question 30.
Sun Ltd. offers shares to its employees at a price which is lower than market price.
a) Identify the type incentive offered to the employees.
b) Name the incentive.
c) Explain any four similar types of incentives,
Answer:
a) Financial Incentive/Monetary Incentive
b) Employees stock Option Plan (ESOP)
c)

1. Pay and allowances: It includes basic pay, dearness allowances and other allowances.
2. Commission: Under this system, a sales person is guaranteed a minimum wage as well as commission on sales. A commission plan motivates him to work better.
3. Bonus: Bonus is an incentive offered over and above the wages/salary to the employees.
4. Profit Sharing: Profit sharing is meant to provide a share to employees in the profits of the organization.

Question 31.
It is an impersonal form of communication which is paid for by the marketers (sponsors) to promote some goods and services.
a) Name the promotional tool mentioned above.
b) Explain its four merits and three limitations.
Answer:
a) Advertisement

b) Merits of Advertising
Advantages to Manufacturers and Traders:

• Advertising helps in introducing new products.
• It stimulates the consumers to purchase the new products.
• Advertisement helps to increase the sales of new and existing products.

Advantages to Consumers:

• It helps the consumers to know about the various products and their prices.
• Consumers can purchase the better products easily.
• It helps in maintaining high standard of living.

Advantages to the Society:

• Advertisement helps to create more employment opportunities.
• It provides an important source of income to the press, radio, T.V., etc.
• It is a source of encouragement to artists.

c) Disadvantages/Objections to Advertising:

• Advertisement encourages consumers to buy unwanted goods.
• Most of the advertisements are misleading.
• Advertisement may lead to monopoly of a brand.
• Advertisement is a costly affair. So, ultimately it increases the price of the product.