# Plus Two Economics Model Question Paper 4

## Kerala Plus Two Economics Model Question Paper 4

Time: 2½ Hours
Cool off time : 15 Minutes

General Instructions to candidates:

• There is a ‘cool off time’ of 15 minutes in addition to the writing time of 2½ 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.
• 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 Qno 14

Question 1.
Imposition of the price ceiling below the equilibrium price leads to
a. Excess demand
b. Excess supply
c. Deficit demand
d. Deficit supply

Question 2.
GDP deflater refers to
a. The ratio of real to nominal GDP
b. The ratio of nominal to real GDP
c. The ratio of nominal NI to real GDP
d. The ratio of nominal GDP to nominal GNP

Question 3.
Which type of market have full control over price?

i. Perfect competition
ii. Monopolistic competition
iii. Monopoly
iv. Oligopoly

Question 4.
Given below is the average cost curve of a firm. Draw a marginal cost curve showing the relationship between AC and MC.

Question 5.
Keyne’s book “General Theory of Employment,interest and money” was published in

(i) 1926
(ii) 1936
(iii) 1946
(iv) 1956

Question 6.
The value of the nominal GDP of India was Rs.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 Rs. 3,200 crores. Find the value of GDP deflater of the year in percentage terms.

Question 7.
In an economy, investment increases by 500 crores. If MPC is 0.5, what is the increase in total income?

Question 8.

Draw the diagram correctly.
(AFC-Average Fixed Cost)

Question 9.
Complete the equations.

a. GDP + ___= GNP
b. GNP – Depreciation =_____

Question 10.
Classify the following under the heads micro and macro economics.
a. Govt, regulations on auto emissions
b. Price elasticity of refrigerators
c. A family’s decision about how much in come to save
d. The impact of higher National savings on Economic growth

Question 11.
Differentiate the terms short run and long run.

Question 12.
The price of a commodity goes up from Rs. 5 to 6 as a result of which demand falls from 8 units to 6 units. Calculate price elasticity of demand.

Question 13.
The demand curve faced by a firm under monopolistic competition is negatively sloped. Explain.

Question 14.
From the Budget line shown below, find the price of good X2 given that the price of X1 good is Rs 30. The equation on the Budget line is given as P1X1+P2X2 1000.

Answer any 6 questions from Qno. 15 to 21. Each question carry 3 score.

Question 15.
Consider the following figures
Why point E in the figure is considered as consumer’s optimum? justify your answer.

Question 16.
From the table identify the different levels of TP which makes the different phases of the operation of the law of variable proportions.

Question 17.
Match the columns ‘B’ and ‘C’ with ‘A’.

Question 18.
Following information about a firm is given below.

From the given information, estimate
a. Total Fixed Cost (TFC)
b. Total Variable Cost (TVC)
c. Average Cost (AC)
d. Marginal Cost (MC)

Question 19.
Observe the following figures and answer the questions.

i Point out the elasticities on the above supply curves.
ii. Which method is applied here.

Question 20.
The average revenue curve of two market situation are given below:

a. State the market situation corresponding to AR curves.
b. Give reasons for the different shapes.
c. Draw MR curves corresponding to AR curves.

Question 21.
A consumer wants to consume two goods. The prices of two goods are Rs. 4 and Rs. 5 respectively. The consumer’s income is Rs. 20.
a. Write down the equation of the budget line.
b. How much of good 1 can the consumer consume if he spends his entire income on the good ?

Answer any 4 questions from Qno. 22 to 27. Each question carry 5 score.

Question 22.
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.

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.

Question 23.
Define value added method. A farmer produces 5 Quinta of wheat, out of which he sells 3 Quinta to a flour mill and 1.5 Quinta to consumers at the rate of Rs. 1000/- per Quinta. He retains the balance of 0.5 quinta for self-consumption. For wheat cultivation he spends Rs. 2000/on account of purchasing seeds and fertilizers. Calculate value added by the farmer.

Question 24.
The following table shows TFC and TVC of a firm. Find out TC, AFC, AVC, AC, and MC of the firm

Question 25.
Suppose the Central Govt, sanctioned Rs. 2crore each to 5 states for making additional investments. The MPC of these 5 states are given below. Find multiplier effect.

Question 26.
‘Increase in MPS leads to decrease in saving ’. Do you agree with this statement. Comment.

Question 27.
Borrowing – 10,000
Budget deficit – 40000
Revenue receipts – 50000
Interest payments – 5000
Revenue expenditure – 60000
On the basis of above facts calculate
a. Fiscal deficit
b. Revenue deficit
c. Primary deficit

Answer any 2 questions from Qno. 28 to 30. Each question carry 8 score.

Question 28.
In India RBI has developed alternative measures of money supply and figures are published accordingly.

a. Prepare a chart showing the alternative measures of money supply in India.
b. Categories them into ‘narrow money ’ and ‘broad money’.
c. Also identify the ‘most’ and ‘least’ liquid forms of money.

Question 29.
Given the diagram

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

Question 30.
The economic principle of exchange rate determination are different in different systems. Write in how the exchange rate is determined under:
a. Flexible exchange rate system
b. Fixed exchange rate system
c. Managed floating exchange rate system.

a. Excess demand

The ratio of nominal to real GDP

iii. Monopoly

ii. 1936

The ratio of nominal GDP to real GDP is known as GDP deflator

Multiplier (K) = 1/1 – MPC
That is K = 1/1 – 0.5
K = 1/0.5
K = 2
Increase in total income = K x increase in investment = 2 x 500 crores = 1000 crores

b. NNP

a & d Macro economics ; b & c Micro economics

THE SHORT RUN AND THE LONG RUN.
In the short run, a firm cannot vary all the inputs. One of the factors – factor 1 or factor 2 – cannot be varied, and therefore, remain fixed in the short run. In order to vary the output level, the firm can very only the other factor. The factor that remains fixed is called the fixed input whereas the other factor which the firm can vary is called the variable input. In the long run, all factors of production can be varied. A firm in order to produce different levels of output in the long run may vary both the inputs simultaneously. So, in the long run, there is no fixed input. For any particular production process, long run generally refers to a longer time period than the short run. For different production : processes, the long run periods may be different. It is not advisable to define short run and long run in terms of say, days, months or years. We define a period as long run or short run simply by looking at whether all the inputs can be varied or not.

The monopolistically competitive firm could sell more of the commodity only by reducing the price. In case of monopolistic competition, the firm expects small increase in demand if it lowers the price. Hence the marginal revenue is slightly less than the average revenue.

The consumer’s budget set would consist of all bundles (x1, x2) such that x1 and x2 are any numbers greater than or equal to 0 and p1x1 + p2x2≤M.
All bundles in the positive quadrant which are on or below the line are included in the budget set. The equation of the line is p1x1 + p2x2 = M.

Point E is considerd as consumer’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 should be equal to slope of budget line.

i. S1 elastic supply
S2 Unitary elastic supply
S3 Inelastic supply
ii. Geometric method is applied here.

a. Perfect competition, monopoly
b. Under perfect competition, firm is price taker
Therefore, AR = MR
Under monopoly, firm is price maker,

a. The equation of the budget line is
P1x1 + P2x2 = M
Where P1 and P2 are prices of good 1 and good 2. x1 and x2 are quantities of goods and M is his money income
b. X= M/P= 20/4 = 5 units

a. Price ceiling increases the demand for wheat. As supply becomes less, there will be shortage of wheat as shown in the diagram.

b. Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.

c. Price ceiling also reduce the quality of products as suppliers have less financial resources to reinvest in their business

* Price ceiling will also encourage black markets to thrive in an economy. Shortage in the free market makes the consumer to look for commodities in the black market even though they are highly price.

Three 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

It is usually accepted that an increase in MPs leads to a decrease in saving. This is because, if all the people of the economy increase the proportion of income they save, the total value of savings in the economy will not increase it will either decline or remain unchanged. This result is known as the ‘Paradox of shift’ which states that as people become more thrifty they end up saving less or same or more.

a. 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 measure’s of money supply, viz. M1, M2, M3 and M4. They are defined as follows.

b. i. M1 and M2 are narrow money
ii. M3 and M4 are broad money
M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These gradations are in decreasing order of liquidity. M1 is most liquid and easiest for transactions where as M4 is least liquid of all. M3 is the most commonly used measure of money supply, it is also known as aggregate monetary resources.

a. (i) Budget line or Budget constraint

(ii) Consumer’s Equilibrium

b. • Downward slopping
• Cover to the origin
• Two indifference curves never intersect
• Higher IC shows higher level of satisfaction
c. Yes. because any point on the budget line other than the point at which it touches the indifference curve lies on lower indifference curve and hence is inferior. Therefore such a point cannot be the consumer’s optimum bundle is located on the budget line at the point where the budget line is tangent to an indifference curve.