2013 cbse xiicommerce 16 1 set2 sectiona

8/13/2019 2013 CBSE XIICommerce 16 1 SET2 SectionA

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2013_XI I _Delhi_Economics_Set-2

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General Instructions:(i) Allquestions in both the sections are compulsory.

(ii) Marks for questions are indicated against each.

(iii) Question Nos. 1-5 and 17-21 are very short-answer questions carrying 1marks each. Theyare required to be answered in one sentenceeach.

(iv) Question Nos. 6-10and 22-26are short- answer questions carrying 3marks each.Answers to them should normally not exceed 60words each.(v) Question Nos. 11-13and 27-29are also short-answer questions carrying 4marks each.

Answers to them should normally not exceed 70words each.

(vi) Question Nos. 14 -16and 30-32are long-answer questions carrying 6marks each.Answers to them should normally not exceed 100words each.

(vii) Question Nos. 11and 19 are value based questions.

(viii) Answer should be brief and to the point and the above word limits should be adhered to

as far as possible.

SectionA

1. Give two examples of variable costs. 1

Ans. Two examples of variable cost are cost of labour and cost of raw material

2. Given the meaning of market demand. 1

Ans. Market demand refers to the aggregate (total) demand for all the consumers in the market atdifferent prices.

3. Under which market form a firms marginal revenue is always equal to price? 1

Ans. Under Perfect Competition, marginal revenue is always equal to price.

4. When is the demand for a good said to be inelastic? 1

Ans. The demand for a good is said to be inelastic if the percentage change in the demand for a

good is less than the percentage change in its price.

5. Define marginal cost. 1

Ans. Marginal Cost is defined as the additional cost to the Total Cost, which is incurred for

producing one more unit of output.

6. Explain the law of diminishing marginal utility with the help of a total utility schedule.

OR

Explain the condition of consumers equilibrium with the help of utility analysis. 3


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Ans. Law of Diminishing Marginal Utility states that as a consumer consume more and more units

of a commodity at succession, then Marginal Utility derived from the consumption of each

additional unit of the commodity falls. For example, consider the follow utility schedule.

Number of

UnitsConsumed of

Commodity X

Total Utility

(TU)

(utils)

Marginal Utility

(MU)MUn= TUnTUn 1(utils)

1 50 500 = 50

2 100 10050 = 503 130 130100 = 30

4 150 150130 = 20

5 160 160150 = 10

6 160 160160 = 07 150 150160 =10

As per the schedule, marginal utility of the second unit is 50 utils. For the consumption of thethird unit, the marginal utility falls to 30. Next, for the consumption of the fourth unit, the

marginal utility falls to 20 and so on. For the consumption of the sixth unit the marginal utilitybecomes zero and for the seventh unit it becomes negative. Thus, with consumption of

additional units of the commodity, the marginal utility falls.

OR

According, to the utility analysis, in case of a single commodity, a consumer attains

equilibrium when the utility derived from each additional unit of the rupee spent on thecommodity becomes equal to the Marginal Utility of Money. In other words the consumer

attains equilibrium when,

Marginal Utility of a Rupee spent on the commodity = Marginal Utility of Money

Marginal U til ity of a Rupee spent on the commodity

As a consumer derives satisfaction by consuming commodities, in the similar sense, hederives utility by spending money. Therefore, the utility that is derived from the additional

unit of rupee spent on the commodity is called Marginal Utility of a Rupee spent on that

commodity. In other words, it refers to the utility derived from each additional unit of the

rupee spent on the purchase of the commodity. Algebraically,

where,MUxrepresents Marginal Utility of commodityx

Pxrepresents price of commodityx


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Marginal Utili ty of Money

Marginal utility of money refers to the valuation of an unit of rupee for a consumer. It is asubjective concept and the consumer himself defines the marginal utility of money. The

marginal utility of money is assumed to be constant in the Utility Analysis.

Consumer Equili brium

As we know a consumer attains equilibrium where the marginal utility of a rupee spent on the

commodity becomes equal to the marginal utility of money. Thus, according to the utility

analysis, in case of a single commodity, a consumer attains consumer equilibrium, when:

(Note: Besides the one-good case, the student who have presented the two-good case are also

correct)

7. Explain the difference between an inferior good and a normal good. 3

Ans. Normal Goods:Normal goods refer to those goods that share a positive relationship with

income. That is as the income increases, demand for normal goods increases. On the otherhand, as the income falls, the demand for normal goods falls. For example, clothing is a

normal good. As income increases, the demand for clothing increases.

I nferi or Goods:Inferior goods refer to those goods that share an inverse relationship withincome. That is as against normal goods, as the income increases, the demand for inferior

goods falls and vice-versa. For example, coarse cereals are inferior goods. As the incomeincreases, the consumer reduces its demand for coarse cereals and instead shifts its demandtowards superior quality cereals.

8. A firms revenue rises from Rs 400 to Rs 500 when the price of its product rises fromRs 20 per unit to Rs 25 per unit. Calculate the price elasticity of supply. 3

Ans.

1

2

1

2

11

Given:

Initial Total Revenue ( ) = Rs 400

Final Total Revenue ( ) = Rs 500InitialPrice ( ) Rs 20

InitialPrice ( ) Rs 25

Change in Price ( ) = Rs (25 20) Rs 5

Initial Quantity Supplied ( ) =

TR

TRP

P

P

TRQ

1

400= 20

20P


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22

2

500Final Quantity Supplied ( )= = 20

25

Change in Price ( ) = Rs (20 20) Rs 0

( ) 0100 10020 0

( ) 5100 100

20

Hence, elasticity of supply is zero.

s

TRQ

P

Q

QQ

EP

P

9. Complete the following table: 3

Output

(Units)

Average Cost

(Rs)

Marginal Cost

(Rs)

1 12 .

2 10 ..3 . 10

4 10.5 ..

5 11 ..

6 .. 17

Ans.

Output

(Units)

Average Cost

(TCQ)

(Rs)

Marginal Cost

(TCnTCn-1)

(Rs)

Total Cost

(TC)

(Rs)

1 12 - 122 10 8 20

3 10 10 30

4 10.5 8 425 11 13 55

6 12 17 72

10. Explain any twofeatures of monopoly market. 3

Ans. Thefollowing are thetwo features of a monopoly market.

1. Restr icted entr y of new firms-The entry into the monopolist market is restricted. In otherwords, no new firm can enter the monopoly market. There may be various legal barriers such

as, patent rights, cartel laws, exclusive rights, etc. to restrict the entry of the new firms.

2. A monopolist is a price maker-Since, a monopolist firm is the single firm in the market,

therefore, it enjoys full control over the price and output decisions. The monopolist has the

total freedom to fix the price level, which maximises his profit. Therefore, it can be said that amonopoly firm is a price-maker.


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11. Production in an economy is below its potential due to unemployment. Government starts

employment generation schemes. Explain its effect using production possibilities curve. 4

Ans. As initially, the production in the economy is below its potential due to unemployment, this

suggests that the economy is operating at a point below the Production Possibility curve

(PPC). As the government starts employment generation schemes, the unemployed resourcesget utilized. In a situation of full employment the economy would move to a point on the PPC.

Consider the example of the economy producing two goods- consumer goods and capitalgoods. Suppose AB is the Production Possibility Curve (PPC) depicting full-employment of

resources.

Initially, suppose the economy is at point I (which is below the PPC) where, the economy is

below the potential level. As employment in the economy rises, the economy starts moving at

a point towards the PPC. At full employment, it will reach a point on the PPC such as point D.

12. The demand for good rises by 20 percent as a result of all in its price. Its price

elasticity of demand is () 0.8. Calculate the percentage fall in price.

OR

How is price elasticity of demand affected by:

(i) Number of substitutes of available for the good.

(ii) Nature of the good. 4

Ans.

Percentage Change in Quantity DemandedPercentage Change in Price

20or, 0.8 =

Percentage Change in Price

20or, Percentage Change in Price 25%

0.8

Thus, the percentage fall in the price 25.

dE


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OR

(i) Number of Substitutes Available of the Good:The demand for a good that has more number of substitutes available will berelatively more elastic and |ed| < 1. This is because a slight increase in the price

will push the consumers to shift their demand away from the good to its

substitutes. On the other hand, with a slight fall in price the consumers wouldshift their demand from the substitutes towards the good. Thus, the goodshaving a large number of close substitutes will have elastic demand. On the

contrary, if a good has no close substitutes, then it will have an inelasticdemand.

(ii) Nature of the Good:The price elasticity of demand depends on the nature of a good. The goods and

services can be broadly divided into three categories- Necessities, Luxuries, Jointly-

demanded goods. The three types of goods have different values of elasticity as

discussed below.

a. Necessity Goods- These goods are those goods which a consumer demands forsustaining his life. A consumer cannot reduce the consumption of these goods. The

demand for such goods does not change much in response to the changes in their

prices. Even when the price rises the consumer cannot reduce their demand.

Hence, such goods have an inelastic demand (|ed| < 1).b. Luxury Goods- Luxuries are the goods which are not essential, rather, are

consumed for leisure or comfort purposes. For example, air conditioner, branded

garments, etc. The demand for such goods is highly responsive to changes in theirprices. A rise in the price, reduces the demand for them and vice-versa. Thus, such

goods havehigh price elasticity

.

c. Jointly-demanded Goods- Jointly-demanded goods are those goods that aredemanded together. The joint consumption of such goods collectively satisfieswants. For example, sugar and tea. A rise in the price of one good does not reduce

its demand if the demand for its complement good has not reduced. For example, a

rise in the price of sugar will not reduce its demand if the demand for tea has notdecreased. Hence, such goods have an inelastic demand (|ed| < 1).

13. Explain the conditions of producers equilibrium with the help of a numerical example. 4

Ans. The conditions of producer's equilibrium can be explained through the MR-MC approach. In

this approach, the producer attains equilibrium where the following two necessary and

sufficient conditions are fulfilled.

(i) MR = MC

or,

d TR d TC

dx dx


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(ii) MC curve is rising and cuts MR curve from below

That is, Slope of MC > 0

or,

0d MC

dx

Units ofOutput

MR MC

1 10 222 10 15

3 10 10

4 10 12

5 10 15

According to the schedule, at 3 units of output, both the conditions of producersequilibrium are satisfied. That is, at this level, both MR and MC are equal to 10 and

MC is rising. Thus, the producers equilibrium is 3 units of output.

(Note: Besides the MR- MC approach the students who have presented the TR-TCapproach are also correct.)

14. Explain consumers equilibrium with the help of Indifference Curve Analysis.

OR

Explain the relationship between

(i) Prices of other goods and demand for the given good.(ii) Income of the buyers and demand for a good. 6

Ans. According to the Indifference Curve Approach, a consumer attains equilibrium at the pointwhere the budget line is tangent to the indifference curve and also at the point of

tangency, the IC should be convex to the origin. This optimum point is characterised by the

following equality:

1

2

PdyMRS

dx P

That is,

Absolute value of the slope of theIC = Absolute value of the slope of the budget line

Graphically, the equilibrium can be depicted as follows.


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In the above figure, pointEdepicts consumers equilibrium. At this point, the budget line istangent to the indifference curve IC2. The optimum bundle is denoted by (x1*,x2*). This

point is the optimum or the best possible consumption bundle, where the consumer is

maximising his satisfaction.

All other points lying on the budget line (such as pointBand point C) are inferior to (x1*x2*)

as they lie on a lowerIC (i.e. IC1). Thus, the consumer will rearrange his consumption and

will attempt to reach the equilibrium point, where the marginal rate of substitution is equal tothe price ratio.

Let suppose that instead of point E, the consumer is at point B. At this point, MRS is greater

than the price ratio 1

2

i.e.P

MRSP

. In this case, the consumer would tend to move towards

pointEby giving-up some amount of good 2 in order to consume more units of good 1. The

consumer will continue to give-up consumption of good 2, until, he reaches the point E,where, MRS becomes equal to the price ratio.

On the other hand, for all points such as point C, MRS is lesser than the price

ratio 1

2

i.e.P

MRSP

. In this case, the consumer would tend to move towards pointEby

giving up some amount of good 1 to consume more units of good 2.Thus, we can conclude that if the consumer is consuming any bundle other than the optimum

one, then he would rearrange his consumption bundle in such a manner that the equality

between the MRS and the price ratio is established and he attains the state of equilibrium.

OR

(i) Pri ce of Other Goods and Demand for the given GoodQuantity demanded of a good depends on the price of other goods (i.e. related goods).

Any two goods are considered to be related to each other, when the demand for one

good changes in response to the change in the price of the other good. The related

goods can be classified into following two categories.


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1. Substi tute Goods

Substitute goods refer to those goods that can be consumed in place of each other. In

other words, they can be substituted for each other. For example, tea and coffee,

Colgate and Pepsodent, Cello pens and Reynolds pen, etc. In case of substitute goods,if the price of one good increase, the consumer shifts his demand to the other

(substitute) good i.e. rise in the price of one good result in a rise in the demand of theother good and vice-versa.

For example, if price of tea increases, then the demand for tea will decrease. As aresult, consumers will shift their consumption towards coffee and the demand for

coffee will increase. (Price of Tea Demand for Coffee ). It should be noted that

the demand for a good moves in the same direction as that of the price of its

substitute.

If PT increases DT decreases DC increasesTea and coffee are substi tute goods

2. Complementary goods

Complementary goods refer to those goods that are consumed together. The jointconsumption of these goods satisfies wants of the consumer. For example: Tea and

sugar, ink pen and ink, printer and paper, etc.

In case of complementary goods, if the price of one good increases then a consumerreduces his demand for the complementary good as well, i.e. a rise in the price of one

good results in a fall in demand of the other good and vice-versa.

For example, sugar and tea are complementary goods. Since, sugar and tea consumed

together, so a rise in price of tea reduces the demand for sugar and vice-versa. It

should be noted that demand for a good moves in the opposite direction of the price ofits complementary goods. (Price of tea demand for sugar )

IfPTeaincreases DTeadecreases DSugarincreases Tea and Sugar arecomplementary goods

(ii) I ncome of the Buyer and the Demand for a Good.

Change in the income of the buyer also affects the demand for goods. The effect ofchange in income on the demand depends on the type of the good.

Demand for normal goodsshare a positiverelationship with buyer's income. As

income increases, the demand for normal goods also increases and vice-versa.

Demand forinf eri or goods (such as coarse cereals) shares a negativerelationship with

consumer's income. As the income increases, the demand for inferior goods falls and

vice-versa.Giffen goods are those goods which are highly inferior. Similar to the inferior goods,

demand for Giffen goods also shares a negativerelationship with the income.


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15. Giving reasons, state whether the following statements are true or false.

(i) A monopolist can sell any quantity he likes at a price.

(ii) When equilibrium price of a good is less than its market price, there will becompetition among the sellers. 6

Ans. (i) False, a monopolist cannot sell any quantity he likes at a price. This is because he hasno control over the quantity that he can sell in the market. Rather, it depends on the

buyers that what quantity of output they want to purchase at the price fixed by the

monopolist. If the monopolist fixes a higher price, then lesser quantity of the outputwill be demanded and lesser quantity will be sold in the market. On the other hand, if

he fixes a lower price, then higher quantity of the good will be sold.

(ii) True, when equilibrium price of a good is less than its market price then there will becompetition among the sellers. This is because in such a situation there exists excess

supply in the market.

This is explained with the help of the following diagram.

In the above diagram, point E is the equilibrium point, where the market demand curveDD and the market supply curve SS intersects each other. At this point the equilibrium

price is Opeand the equilibrium quantity is Oqe.Now, suppose the market price is OPo. So, the equilibrium price is less than the marketprice. At this price the market demand is Oqd and the market supply is Oqs. Clearly,

market supply is more than the market demand. So, there exists a situation of excess

supply. Due to excess supply, there will exist competition among the sellers.


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16. Explain the Law of Variables Proportions with the help of total product and marginal product

curves. 6

Ans. The Law of Variable Proportions states that if more and more of variable factor (labour) is

combined with the same quantity of fixed factor (capital), then initially the total product will

increase but gradually after a point, the total product will become smaller and smaller.

Assumptions of Law of Variable Proportions

1. Technology level remains constant

2. The units of variable factor are homogeneous. This implies that all the labour units areequally productive.

3. One of the inputs must be fixed and it is because of the limited availability of this factor

that diminishing returns exists.

4. No change in the input prices i.e. wages (price of labour) and interests (price of capital)

remains the same.

5. It is assumed that proportions in which the factors are combined can be varied toproduce the desired output level.

For example, consider the following total product and marginal product schedule.

Units of

Capital

Units of

LabourTP

AP MP

Phase

1 0 0 0 Phase I

1 1 7 7 7

1 2 18 9 11

1 3 33 11 15

1 4 44 11 11 Phase II

1 5 48 9.6 4

1 6 51 8.5 3

1 7 51 7.4 0

1 8 49 6.1 2 Phase III

The whole production phase can be distinguished into three different production stages.

IstStage:Increasing Returns to a Factor

This stages starts from the origin point O and continues till the point of inflexion (K) on theTP curve. During this phase, TP increases at an increasing rate and is also accompanied by

rising MP curve (in figure ii). The MP curve attains its maximum point (U) corresponding to

the point of inflexion. Throughout this stage, AP continues to rise. As per the schedule, thisstage continues till the employment of third unit of labour. Here, the marginal product is

maximum at 15 units.


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IInd

Stage: Diminishing Returns to a Factor

This stage starts from point K and continues till point B on the TP curve. During this stage,

the TP increases but at a decreasing rate and attains its maximum point at B, where it remains

constant. On the other hand (in the figure ii), the MP curve continues to fall and cuts AP fromits maximum point Z, where MP equals AP. When TP attains its maximum point,

corresponding to it, MP becomes zero. AP, in this stage initially rises, attains its maximumpoint at Z and thereafter starts falling. As per the schedule, this stage is from the employmentof fourth unit of labour to the seventh unit of labour. With the employment of the seventh unit,

the marginal product becomes zero.

IIIrd

Stage:Negative Returns to a Factor

This stage begins from the point B on the TP curve. Throughout this point, TP curve is falling

and MP curve is negative. Simultaneously, the AP curve continues to fall and approaches the

x-axis (but does not touch it). Like the first stage, this stage is also known as non-economic

zone as any rational producer would not operate in this zone. This is because the addition to

the total output by the additional labour unit (i.e. marginal product) is negative. This implies

that employing more labour would not contribute anything to the total product but will add tocost of the production in form of additional wage. Hence, the cost of the additional labour

input is greater than the benefit of employing it. As per the schedule, beyond, the employment

of the seventh unit of labour, the marginal product becomes nagtive.

2013 cbse xiicommerce 16 1 set2 sectiona

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