CBSE Sample Papers for Class 11 Economics (2023-24) Set 1 with Solutions

CBSE Sample Papers for Class 11 Economics (Set 1) with Solutions are designed to help students prepare for their Class 11 Economics examinations. These sample papers provide a valuable resource for practice and revision. Here’s a general introduction to CBSE Sample Papers for Class 11 Economics:

Purpose:

1. Practice: CBSE Sample Papers offer students the opportunity to practice and familiarize themselves with the format and types of questions that may appear in the actual examination.
2. Self-Assessment: Students can use these papers to self-assess their understanding of key concepts and their readiness for the final exams.
3. Time Management: Solving sample papers helps students improve their time management skills, as they get a sense of how much time to allocate to different sections and questions.

CBSE Sample Papers for Class 11 Economics 2023 Set 1 with Solutions

Time : 3 Hour Maximum Marks: 80

[Section – A]

1. Read the following Assertion (A) and Reason (R) and choose the correct alternative: [1]

Assertion (A): The Class Interval needs to be continuous while drawing a Histogram.
Reason (R): A Histogram is a rectangular diagram using frequency distributions that are joined to one another.
Alternative:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A)
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true

Option (B) is correct

Preparing a histogram is necessary; the data series should be in continuous series. It is a graphical presentation of a frequency distribution of a continuous series.

2. The investigator appoints local persons or correspondents at different places. They collect information in their own way and furnish the same to the investigator.[1] Identify the above source of data.

(A) Primary Data Source
(B) Secondary Data Source
(C) Both (A) & (B)
(D) Neither (A) Nor (B)

Option (A) is correct

Primary data is one which an investigator collects for the first time for a particular purpose. Information from local source or correspondents are primary data sources under which the investigator appoints local persons or correspondents at different places.

3. An index number which accounts for the relative importance of the item is known as ………………. . [1]

(A) Simple Index Number
(B) Weighted Index Number
(C) Aggregate Index Number
(D) Average Index Number

Option (B) is correct

 A weighted index is a stock index in which each company included in the index makes up a fraction of the total index proportionate to that company’s share stock price per share. It is the weighted average of the prices of different goods.

4. There are two statements given below, marked as Statement (I) and Statement (II). Read the statements and choose the correct option: [1]

Statement – I The Arithmetic Mean is the amount secured by dividing the sum of value of the items in a series by their numbers.
Statement – II An Average is a figure that represents the whole group.
(A) Only I is true
(B) Only II is true
(C) Both I & II are true
(D) Both I & II are false.

Option (C) is correct

Mean is the number which is obtained by adding the value of all the items of a series and dividing the total by the number of items and it is a single figure that represent the whole series.

5. Which of the following facts is statistics: [1]

(A) Ram secured 66% marks in English.
(B) Ram secured 80% marks in Mathematics.
(C) Ram secured 90% marks in Economics.
(D) Ram secured 90% marks in Economics, this year, whereas he secured 80% marks in Economics previous year.

Option (D) is correct

Ram secured 90% marks in Economics but he gets 80 % in previous year. This would mean making a comparison over different years marks of economics. This is facts concept in statistics.

6. Identify the following diagram: [1]

(A) Pie Diagrams
(B) Deviation Bar Diagram
(C) Percentage Bar Diagram
(D) Subdivide Bar Diagram

Option (B) is correct

7. Which of the following is not a method to measure correlation: [1]

(A) Karl Pearson’s Coefficient of correlation.
(B) Spearman’s rank difference method.
(C) Scatter diagram method.
(D) Step Deviation Method

Option (D) is correct

8. Find out the mode value from the following data: [1]
8,5,10,8,5,11,9,6,5,8,5,3,5,3,8,5,8,9,5,8

(A) 8
(B) 6
(C) 5
(D) 11

Option (C) is correct

9. There are two statements given below, marked as Statement (I) and Statement (II). Read the statements and choose the correct option: [1]

Statement (I) – If we measure the weight of students of class 10th, then the weight of the student will be called
variable.
Statement (II) – A variable may also be called a data item.
(A) Statement I is true and statement II is false
(B) Statement I is false and statement II is true
(C) Both statements I and II are true
(D) Both statements I and II are false

Option (C) is correct

10. What type of correlation is present between happiness and death anxiety? [1]

(A) Positive
(B) Negative
(C) Neutral
(D) Cannot be determined

Option (B) is correct.

11. In how many groups, different commodities have been divided while constructing Wholesale Price Index in India? [3]

In India, the Wholesale Price Index (WPI) is constructed by dividing different commodities into three major groups. These three groups are:

1. Primary Articles
2. Fuel and Power
3. Manufactured Products

Each of these groups includes a wide range of commodities, and the WPI is calculated based on the price movements within these categories. This division allows for a comprehensive assessment of price changes across various sectors of the economy.

12. Calculate mean from the following series: [3]

Class – Interval	Frequency
0 – 2	2
2 – 4	4
4 – 6	6
6 – 8	4
8 – 10	2
10 – 12	6

To calculate the mean (average) from a frequency distribution, you need to use the following formula:

Mean = (Σ[Midpoint × Frequency]) / ΣFrequency

Here, “Midpoint” refers to the midpoint of each class interval, and “Frequency” is the frequency of each class interval.

Let’s calculate the mean for the given frequency distribution:

Class Interval Frequency 0 – 2 2 2 – 4 4 4 – 6 6 6 – 8 4 8 – 10 2 10 – 12 6

First, find the midpoint for each class interval: Midpoint for 0 – 2: (0 + 2) / 2 = 1 Midpoint for 2 – 4: (2 + 4) / 2 = 3 Midpoint for 4 – 6: (4 + 6) / 2 = 5 Midpoint for 6 – 8: (6 + 8) / 2 = 7 Midpoint for 8 – 10: (8 + 10) / 2 = 9 Midpoint for 10 – 12: (10 + 12) / 2 = 11

Now, calculate the product of each midpoint and its corresponding frequency:

(1 × 2) + (3 × 4) + (5 × 6) + (7 × 4) + (9 × 2) + (11 × 6) = 2 + 12 + 30 + 28 + 18 + 66 = 156

Next, calculate the sum of the frequencies:

2 + 4 + 6 + 4 + 2 + 6 = 24

Now, apply the formula to find the mean:

Mean = (Σ[Midpoint × Frequency]) / ΣFrequency Mean = 156 / 24

Mean = 6.5

So, the mean of the given frequency distribution is 6.5.

OR

Item	Weightage (%)	Expenses (in)	Price (in) in 1995
Food	35%	1,500	1,400
Fuel	10%	250	200
Clothing	20%	750	500
Rent	15%	300	250
Miscellaneous	20%	400	200

What is the cost of living index of 2004 as compared with 1995? [3]

To calculate the Cost of Living Index (CLI) for 2004 compared with 1995, we can use the formula:

CLI = (Total Expenditure in the Current Year / Total Expenditure in the Base Year) * 100

In this case, the base year is 1995. The total expenditure in 1995 can be calculated as follows:

Total Expenditure in 1995 = Σ(Weightage * Price in 1995)

Total Expenditure in 1995 = (35% * 1,400) + (10% * 200) + (20% * 500) + (15% * 250) + (20% * 200) Total Expenditure in 1995 = 490 + 20 + 100 + 37.5 + 40 = 687.5

Now, let’s calculate the total expenditure in 2004 using the provided expenses and price in 1995:

Total Expenditure in 2004 = Σ(Weightage * Expenses)

Total Expenditure in 2004 = (35% * 1,500) + (10% * 250) + (20% * 750) + (15% * 300) + (20% * 400) Total Expenditure in 2004 = 525 + 25 + 150 + 45 + 80 = 825

Now, we can calculate the Cost of Living Index (CLI) for 2004 compared to 1995:

CLI = (Total Expenditure in 2004 / Total Expenditure in 1995) * 100 CLI = (825 / 687.5) * 100 CLI = 1.2 * 100

CLI = 120

So, the Cost of Living Index (CLI) for 2004 compared with 1995 is 120. This means that the cost of living in 2004 is 1.2 times higher than it was in 1995.

13. Construct a pie-diagram to represent the cost of construction of a house in Delhi: [4]

Items	Expenditure %
Labour	25
Bricks	15
Cement	20
Steel	15
Timber	10

To construct a pie diagram (also known as a pie chart) to represent the cost distribution of constructing a house in Delhi based on the given expenditure percentages, follow these steps:

1. Calculate the angles for each item based on their respective expenditure percentages. To calculate the angle for each item, multiply its expenditure percentage by 360 degrees (as a full circle has 360 degrees).
2. Create a table to organize the data:

Items	Expenditure %	Angle (Degrees)
Labour	25%	(25% * 360)
Bricks	15%	(15% * 360)
Cement	20%	(20% * 360)
Steel	15%	(15% * 360)
Timber	10%	(10% * 360)

Calculate the angles for each item:

• Angle for Labour = 25% * 360 = 0.25 * 360 = 90 degrees
• Angle for Bricks = 15% * 360 = 0.15 * 360 = 54 degrees
• Angle for Cement = 20% * 360 = 0.20 * 360 = 72 degrees
• Angle for Steel = 15% * 360 = 0.15 * 360 = 54 degrees
• Angle for Timber = 10% * 360 = 0.10 * 360 = 36 degrees

Create a pie chart using these angles. You can draw a circle and then divide it into sectors with the respective angles for each item:

• The Labour sector will have a central angle of 90 degrees.
• The Bricks sector will have a central angle of 54 degrees.
• The Cement sector will have a central angle of 72 degrees.
• The Steel sector will have a central angle of 54 degrees.
• The Timber sector will have a central angle of 36 degrees.

Label each sector with the corresponding item (Labour, Bricks, Cement, Steel, Timber).

You can also add a legend or key to the chart to provide additional information about each item and its expenditure percentage.

Your pie diagram should now accurately represent the cost distribution of constructing a house in Delhi based on the given expenditure percentages.

14. Find out Median value of the following distribution: [4]

Wages	No. of Workers
0 – 10	22
10 – 20	38
20 – 30	46
30 – 40	35
40 – 50	20

Wages	No. of Workers	Cumulative Frequency (CF)
0 – 10	22	22
10 – 20	38	60
20 – 30	46	106
30 – 40	35	141
40 – 50	20	161

Median value = Size of (N2)th Items
= Size of (1612)th Items
Size of 80.5th item (which lies in 20 – 30 wage group)
By Interpolation:
Median = L1+N2−C⋅Ff×i
Where
L₁ = 20, C.F = 60 f = 46 i = 10
Thus, put the above value in formula
Median = 20 + 80.5−6046 × 10
= 20 + 4.45
= 24.45

15. “An index number is a statistical device for measuring changes in the magnitude of a group of related variables. It represents the general trend of diverging ratios, from which it is calculated.” Elaborate how index number measures the changes in the magnitude of variables. [4]

An index number is a statistical tool used to measure and represent changes in the magnitude or value of a group of related variables over time. It is particularly useful for tracking trends and assessing variations in various economic, financial, or other data sets. Here’s how index numbers measure changes in the magnitude of variables:

1. Base Year and Base Value: Index numbers start with a base year or period against which subsequent changes are compared. In the base year, the index is set to 100, representing a reference point. The base year’s value is considered the benchmark against which all other values are evaluated.
2. Selection of Variables: Index numbers are used to analyze a group of related variables or data points. These variables could be prices, quantities, expenditures, or any other measurable attribute. The selection of variables depends on the specific purpose of the index.
3. Data Collection: Data for the chosen variables are collected regularly, typically at specific intervals like months, quarters, or years. This data can be historical or current, depending on the analysis’s timeframe.
4. Calculation of Indices: To measure changes in the magnitude of these variables, the index is calculated using a formula. The formula involves dividing the current value of the variable by the base year’s value and multiplying the result by 100:Index = (Current Value / Base Year Value) * 100This formula represents the ratio of the current value to the base year value, scaled to 100 for easy interpretation.
5. Interpretation of Indices: The resulting index numbers provide a relative measure of how the magnitude of the variables has changed compared to the base year. An index value above 100 indicates an increase from the base year, while a value below 100 indicates a decrease. The magnitude of the change is reflected in the specific index value.
6. Tracking Trends: Index numbers allow analysts to track trends and assess the direction and extent of changes in the chosen variables. They are particularly valuable for understanding inflation, price movements, economic performance, and other macroeconomic or sector-specific indicators.
7. Comparative Analysis: Index numbers enable comparative analysis between different time periods, regions, or groups. By comparing the index values of two or more periods or groups, analysts can identify patterns, disparities, or divergences in the variables’ magnitudes.

OR

What is the importance of Statistics in economic planning?

Statistics play a crucial role in economic planning for several reasons. Here’s a 4-mark answer highlighting the importance of statistics in economic planning:

1. Data Collection and Analysis: Statistics provide a systematic and organized approach to collect, process, and analyze data related to various economic parameters such as GDP, inflation, employment, and production. These data points are essential for policymakers to assess the current economic situation accurately.
2. Decision Making: Economic planning involves making informed decisions regarding resource allocation, government policies, and development strategies. Statistics offer policymakers a factual and evidence-based foundation to make sound decisions. For example, data on unemployment rates can guide policies aimed at job creation.
3. Monitoring and Evaluation: Statistics help in monitoring the progress of economic plans and policies. By tracking key economic indicators over time, policymakers can assess whether their initiatives are achieving the desired outcomes or if adjustments are needed.
4. Forecasting: Economic planning often involves predicting future trends and potential challenges. Statistical techniques, such as time series analysis and regression modeling, enable economists to make forecasts and scenarios based on historical data. These forecasts inform long-term planning and risk assessment.
5. Resource Allocation: Governments allocate resources for various sectors like education, healthcare, infrastructure, and agriculture. Statistics assist in identifying the most critical areas that require investment and where resources can be allocated effectively to achieve economic growth and social development.
6. Policy Formulation: Statistical data aids in the formulation of economic policies that address specific issues or challenges. For example, inflation data can inform monetary policy decisions, while trade statistics can influence trade policies and international agreements.
7. Measurement of Progress: Statistics provide quantifiable metrics to measure the progress of economic planning goals. Whether it’s achieving a specific growth rate or reducing poverty, statistics enable governments and organizations to assess their success and make necessary adjustments.
8. Transparency and Accountability: Transparent and accurate statistics promote accountability in economic planning. When data is publicly available and subject to scrutiny, it enhances transparency and ensures that policymakers are held accountable for their decisions and actions.

16 (a) Draw a frequency polygon of the following distribution of the students obtaining marks in Economics: [3]

Marks	No. of students
10 – 20	5
20 – 30	12
30 – 40	15
40 – 50	22
50 – 60	14
60 – 70	4

1. On a graph paper, create an x-axis (horizontal) to represent the marks range and a y-axis (vertical) to represent the frequency (number of students).
2. Plot points for each marks range on the x-axis and the corresponding frequency on the y-axis. For example, for the marks range 10 – 20, plot a point at (15, 5) since it corresponds to 5 students.
3. Connect the points with straight line segments. Start from the first point (10 – 20) and draw lines to the subsequent points.
4. Close the polygon by drawing a line segment from the last point (60 – 70) back to the first point (10 – 20).
5. Label the axes with “Marks Range” and “Number of Students.”
6. Your frequency polygon should now represent the distribution of students’ marks in Economics.

(b) Economics is a science. Give reasons. [3]

Economics is considered a science due to several reasons:

1. Systematic Study and Methodology: Economics employs a systematic approach to the study of human behavior in the context of resource allocation. It follows a structured methodology that involves data collection, analysis, hypothesis testing, and the development of theories and models to explain economic phenomena.
2. Empirical Analysis: Economists gather and analyze empirical data to understand and explain economic phenomena. They use statistical methods, models, and econometric techniques to test hypotheses and make predictions based on real-world observations.
3. Use of Scientific Tools: Economics utilizes mathematical and statistical tools extensively to develop and test economic theories and models. These tools allow economists to quantify relationships, make predictions, and conduct rigorous empirical research.

OR

(a) Explain the relationship between statistics and economics. [3]

The relationship between statistics and economics is deeply intertwined, and statistics plays a crucial role in the field of economics for several reasons:

1. Data Collection and Analysis: Statistics provides the tools and techniques for collecting, organizing, and analyzing economic data. Economists use statistical methods to gather information on various economic variables, such as GDP, inflation rates, unemployment rates, consumer spending, and trade balances. These data are essential for economic research and policymaking.
2. Descriptive Analysis: Statistics helps economists describe economic phenomena accurately. Descriptive statistics, including measures like mean, median, and standard deviation, allow economists to summarize and present data in a meaningful and understandable way. For example, economists use averages to represent the central tendency of economic variables.
3. Inferential Analysis: Economics often involves making inferences and predictions based on data. Inferential statistics enable economists to draw conclusions about populations or make forecasts about future economic trends. Hypothesis testing, regression analysis, and time series analysis are common statistical tools used for this purpose.

(b) Describe in brief three main characteristics of statistics. [3]

Three main characteristics of statistics are as follows:

1. Numerical Representation: Statistics primarily deals with numerical data and information. It involves the collection, measurement, and analysis of quantitative data, such as numbers, percentages, ratios, and counts. These numerical representations enable researchers and analysts to quantify, compare, and draw conclusions about various phenomena, making data more precise and manageable.
2. Variability and Uncertainty: Statistics recognizes the inherent variability and uncertainty present in data. It acknowledges that data points within a dataset may vary, and statistical methods are used to measure, analyze, and account for this variability. Probability theory and statistical inference help assess and manage uncertainty, allowing for informed decision-making and drawing valid conclusions from data.
3. Summary and Simplification: Statistics is used to summarize complex data sets and simplify information for better comprehension and interpretation. Summary statistics, such as means, medians, and standard deviations, condense large amounts of data into a few key measures. This simplification aids in communication and facilitates the identification of patterns, trends, and outliers within the data.

17 (a) Calculate mean value from the following data: [3]

Size	Cumulative Frequency
0 – 10	1
10 – 20	3
20 – 30	7
30 – 40	8
40 – 50	10

Size	Mid Value (x)	Frequency (f)	Cumulative Frequency (C.F)	f * x
0-10	5	1	1	5
10-20	15	2	3	30
20-30	25	4	7	100
30-40	35	1	8	35
40-50	45	2	10	90
Σx = 125		Σf = 10		Σf * x = 260

• The “Mid Value (x)” column represents the midpoint of each class interval.
• The “Frequency (f)” column represents the number of data points falling within each class interval.
• The “Cumulative Frequency (C.F)” column represents the cumulative frequency at each class interval.
• The “f * x” column represents the product of frequency and midpoint for each class interval.
• The sum of “Σx” is 125, which is the sum of all midpoints.
• The sum of “Σf” is 10, which is the sum of all frequencies.
• The sum of “Σf * x” is 260, which is the sum of all the products of frequency and midpoint.

As previously calculated, the mean value (average) is calculated as:

Mean Value = (Σ(f * x)) / Σf Mean Value = 260 / 10 Mean Value = 26

So, the mean value is 26, as shown in the table

(b) Discuss any three properties of Correlation Coefficient. [3]

Correlation coefficient, denoted as “r,” is a statistical measure that quantifies the degree and direction of the linear relationship between two variables. Here are three important properties of the correlation coefficient:

1. Range of Values: The correlation coefficient, “r,” always falls within the range of -1 to 1.

   This range provides a clear interpretation of the strength and direction of the relationship:

   • If |r| is close to 1, it suggests a strong linear relationship.
   • If |r| is close to 0, it indicates a weak or no linear relationship.
   • The sign of “r” (+ or -) indicates the direction of the correlation (positive or negative).
2. Symmetry: The correlation coefficient is symmetric, meaning that the correlation between variable A and variable B is the same as the correlation between variable B and variable A. In mathematical terms:Correlation (A, B) = Correlation (B, A)This symmetry is a fundamental property of the correlation coefficient and ensures that the order of variables does not affect the correlation calculation.
3. No Causation: Correlation does not imply causation. Even if two variables have a strong correlation, it does not necessarily mean that one variable causes the other. Correlation measures only the strength and direction of the linear relationship between variables. Causation requires additional evidence, such as experimental design or a deeper understanding of the underlying mechanisms, to establish a cause-and-effect relationship.For example, if there is a strong positive correlation between ice cream sales and drowning incidents, it does not mean that eating ice cream causes drownings. There may be a third variable, such as hot weather, that influences both ice cream sales and the likelihood of swimming, leading to the observed correlation.

• A value of -1 indicates a perfect negative correlation, meaning that as one variable increases, the other decreases linearly.
• A value of 1 indicates a perfect positive correlation, meaning that as one variable increases, the other also increases linearly.
• A value of 0 indicates no linear correlation between the two variables.

[Section – B]

18. Identify the correct pair of items from the following Columns I and II: [1]

Column I	Column II
A. Utility	1. Bread and butter
B. Normal Goods	2. Rise in price
C. Contraction in demand	3. Capacity of a commodity to satisfy human wants
D. Complementary goods	4. Positively related

Alternatives:
(A) A -1
(B) B – 2
(C) C – 3
(D) D – 4

Option (D) is correct.
Explanation: Complementary goods are positively related with each other. Rise in quantity demanded of one good also brings the increment in quantity demanded of paired goods.

19. Which of the following has elastic demand: [1]

(A) Matchbox
(B) Water
(C) Medicine
(D) Air conditioners

Option (D) is correct.

20. A form of market in which “sellers become price taker instead of price maker” firm. Identify the above form of market: [1]

(A) Perfectly competitive market
(B) Monopoly market
(C) Monopolistic form of market
(D) Oligopoly market

Option (A) is correct.
Explanation: Sellers become price taker in perfectiy competitive markets because free play of market forces determines the price of commodity in this form of market.

21. Total utility is …………… at the point of satiety. [1]

(A) Minimum
(B) Maximum
(C) Zero
(D) None of these

Option (B) is correct.

At the point of satiety, total utility is maximum beyond which it starts decreasing.

22. Identify the stage of production from given circumstances according to the law of variable proportion. [1]

“Average production continues to decrease, total production starts decreasing and marginal product become negative”
Alternatives
(A) First stage
(B) Second stage
(C) Third stage
(D) None of these

Option (C) is correct.

Given situation refers to the third stage of production under short rim production. According to the law of variable proportion, in the third stage of production, the total product declines and the marginal product becomes negative.

23. There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose
the correct option: [1]

Assertion (A): Demand for salt is inelastic.
Reason (R): In case of elastic demand, percentage change in price of a commodity causes relatively less than percentage change in quantity demanded.
Alternatives
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A)
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.

Option (A) is correct

1. Necessary goods have inelastic demand.
2. Price inelastic demand means there is no change in demand even when there is price change.
3. Salt has an price inelastic demand as salt is a necessary good because we need salt everyday. Without it food will taste bad.

24. There are two statements given below, marked as Statement (I) and Statement (II). Read the statements and choose the correct option: [1]

Statement – I: The society faces a number of difficulties in the production of commodities.
Statement – II: The whole society sacrifices for the production process.
Alternatives
(A) Statement I is true and Statement II is false
(B) Statement I is false and Statement II is true
(C) Both statements I and II are true
(D) Both statements I and II are false

Option (C) is correct.

Both the given statements are true regarding short run production. Efforts and sacrifices made in the production process are known as real cost or social cost.

25. Law of demand states the ………………. relationship between price and quantity demanded. [1]

(A) Direct
(B) Inverse
(C) Proportional
(D) None of the above

Option (B) is correct.

Law of demand states that when the price of a commodity increases the quantity demanded decreases and vice versa. Thus, it shows the inverse relationship between price and quantity demanded.

26. There are two statements given below, marked as Statement (I) and Statement (II). Read the statements and choose the correct option: [1]

Statement – I : Supply function refers to the functional relationship between supply of a commodity and its determining factors.
Statement – II: The supply function is used to measure price elasticity demand for goods and services.
Alternatives
(A) Statement I is true and Statement II is false
(B) Statement I is false and Statement II is true
(C) Both statements I and II are true
(D) Both statements I and II are false

Option (C) is correct.

The functional relationship between supply of the commodity and its determining factors is called supply function and it is used to measure price elasticity demand for goods and services.

27.

(a) Average product increases only when marginal product increases. [3]
(b) Total cost can never be constant.
Do you agree with the above statements? Justify your answer with valid argument.

(a) Average product increases only when marginal product increases:

I disagree with this statement. Average product (AP) and marginal product (MP) are related but not always dependent on each other for their changes. The relationship between AP and MP depends on the current level of production and the stage of production.

• In the initial stages of production, both AP and MP tend to increase. This occurs because the addition of each additional unit of input (e.g., labor or capital) contributes more to output due to underutilized resources.
• However, there comes a point where MP starts to decline while AP continues to increase. This happens because as more and more units of input are added, the law of diminishing marginal returns sets in. Each additional unit of input contributes less to output, causing MP to decrease even though AP is still increasing.
• Eventually, when MP becomes zero, AP reaches its maximum point and then starts to decline. This signifies the point where total output is at its maximum, and further increases in input do not contribute positively to output.

So, while it is true that there is a positive relationship between AP and MP initially, it’s incorrect to state that AP increases only when MP increases because there is a stage where AP can increase while MP decreases.

(b) Total cost can never be constant:

I agree with this statement. Total cost (TC) represents the sum of all costs incurred in the production of goods or services. These costs typically include fixed costs (FC) and variable costs (VC). Fixed costs are constant and do not change with changes in the level of production, while variable costs vary with production levels.

• Fixed Costs (FC): These costs remain constant regardless of the level of production. For example, rent for a factory or annual insurance premiums will not change with changes in production. Hence, FC contribute to the constant component of TC.
• Variable Costs (VC): These costs change as the level of production changes. Examples include raw materials, labor, and utilities directly associated with production. VC fluctuate with production levels, impacting the total cost.

Since variable costs vary with production levels and fixed costs remain constant, the total cost is never constant. It will increase or decrease with changes in production. The specific shape and pattern of the total cost curve depend on the relationships between fixed costs, variable costs, and the level of production, but it will never remain constant as long as variable costs are present in the production process.

28. What are the characteristics of a perfectly competitive market? [3]

Characteristics of a perfectly competitive market include:

1. Many Buyers and Sellers: In a perfectly competitive market, there are numerous buyers and sellers who participate in the market. No single buyer or seller has a significant influence on market price. This ensures that no entity can control or manipulate prices.
2. Homogeneous Products: All firms in a perfectly competitive market produce identical or homogeneous products. This means that consumers perceive no differences between the products offered by different firms. As a result, buyers make decisions solely based on price.
3. Perfect Information: Buyers and sellers have access to perfect and complete information about prices, quality, and market conditions. This information symmetry ensures that all participants are aware of prevailing market prices and can make informed choices.

These characteristics create a level playing field for all market participants and result in some key outcomes:

• Price Takers: Firms in a perfectly competitive market are price takers, meaning they accept the market-determined price as given. They have no control over the price and must sell their products at the prevailing market price.
• Zero Economic Profit in the Long Run: In the long run, firms in a perfectly competitive market tend to earn zero economic profit (normal profit). This occurs because, in the absence of barriers to entry, new firms can enter the market if there are economic profits to be made, increasing competition and driving prices down.
• Efficient Allocation of Resources: Perfect competition is often used as a benchmark for efficiency. In the long run, resources are allocated efficiently because firms produce at the lowest possible cost, and consumers pay the lowest possible price.
• Constantly Adjusting Prices: Prices in a perfectly competitive market are flexible and can change quickly in response to changes in supply and demand. This ensures that resources are allocated efficiently in response to changes in consumer preferences or production capabilities.

It’s important to note that perfectly competitive markets are an idealized concept and may not exist in their pure form in the real world. However, they serve as a useful benchmark for understanding market dynamics and efficiency when certain conditions are met.

29. Explain the implications of the feature “homogeneous product” in a perfectly competitive market.

The feature of a “homogeneous product” in a perfectly competitive market has several implications:

1. Price Competition: Since all firms produce identical or indistinguishable products, consumers perceive no differences in quality, features, or branding among the products. As a result, they base their purchasing decisions solely on price. This leads to intense price competition among firms in the market.
2. Perfect Substitutability: In a perfectly competitive market, products are perfect substitutes for one another. If one firm charges a slightly higher price than others, consumers will shift their purchases to the lower-priced product because they provide the same utility or satisfaction. This enforces a strong price equilibrium, and firms must keep their prices competitive to attract customers.
3. No Product Differentiation: Firms cannot differentiate their products through branding, advertising, or product variations. As a result, there is no room for non-price competition or product innovation in a perfectly competitive market. All firms offer essentially the same product, so consumers have no reason to choose one firm over another based on factors other than price.

These implications highlight the key role that price plays in a perfectly competitive market. Firms must constantly adjust their prices to remain competitive and attract customers because there are no other means of distinguishing their products. This intense price competition ensures that prices are driven down to the lowest possible level, benefiting consumers with lower prices and resulting in an efficient allocation of resources.

30. A consumer spends ₹1,000 on a good priced at ₹8 per unit. When price rises by 25 percent, the consumer continues to spend ₹1,000 on the good. Calculate price elasticity of demand by percentage method. [4]

To calculate the price elasticity of demand by the percentage method, we’ll use the formula:

Price Elasticity of Demand=Percentage Change in Quantity DemandedPercentage Change in PricePrice Elasticity of Demand=Percentage Change in PricePercentage Change in Quantity Demanded​

First, let’s calculate the initial quantity demanded:

Initial price per unit = ₹8

Total expenditure = ₹1,000

Initial quantity demanded = Total expenditure / Initial price per unit = ₹1,000 / ₹8 = 125 units

Now, let’s calculate the new price after the price rise of 25%:

New price per unit = Initial price per unit + (Initial price per unit * Percentage change in price) = ₹8 + (₹8 * 0.25) = ₹8 + ₹2 = ₹10

Now, we know that the consumer continues to spend ₹1,000 on the good at the new price. Therefore, let’s calculate the new quantity demanded:

New quantity demanded = Total expenditure / New price per unit = ₹1,000 / ₹10 = 100 units

Now, let’s calculate the percentage change in quantity demanded and the percentage change in price:

Percentage change in quantity demanded = ((New quantity demanded – Initial quantity demanded) / Initial quantity demanded) * 100% = ((100 – 125) / 125) * 100% = (-25 / 125) * 100% = -20%

Percentage change in price = ((New price per unit – Initial price per unit) / Initial price per unit) * 100% = ((10 – 8) / 8) * 100% = (2 / 8) * 100% = 25%

Now, let’s plug these values into the price elasticity of demand formula:

Price elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price) = (-20% / 25%) = -0.8

So, the price elasticity of demand by the percentage method is -0.8.

30. Complete the following table: [4]

Price (₹)	Output (Units)	Total Revenue (TR in ₹)	Marginal Revenue (MR in ₹)
—	1	6	—
4	—	—	2
—	3	6	—
1	—	—	(-)2

Price (₹)	Output (Units)	Total Revenue (TR in ₹)	Marginal Revenue (MR in ₹)
6	1	6	6
4	2	8	2
2	3	6	(-)2
1	4	4	(-)2

OR

Giving reasons, state whether the following statements are true or false: [4]

(i) Average product will increase only when marginal product increases.
(ii) With increase in level of output, average fixed cost goes on falling till it reaches zero.
(iii) Under diminishing returns to a factor, total product continues to increase till marginal product reaches zero.
(iv) When there are diminishing returns to a factor, total product always increases.

(i) Average product will increase only when marginal product increases.

• False: Average product (AP) will increase as long as the marginal product (MP) is greater than the current AP. However, there is a point at which AP reaches its maximum, and from that point onward, even if MP is positive, AP will start to decline. This happens because when MP is less than AP, it pulls the overall average down. So, AP does not increase only when MP increases; it depends on the relationship between MP and the current AP.

(ii) With an increase in the level of output, average fixed cost goes on falling till it reaches zero.

• True: Average fixed cost (AFC) decreases as the level of output increases in the short run. This is because fixed costs remain constant, and as production increases, these costs are spread over a larger quantity of output. AFC approaches zero but does not technically reach zero unless there are no fixed costs to begin with.

(iii) Under diminishing returns to a factor, total product continues to increase till marginal product reaches zero.

• False: Under the law of diminishing returns, total product (TP) does not continue to increase until marginal product reaches zero. Instead, TP increases initially at an increasing rate, but when the marginal product starts diminishing (i.e., MP becomes positive but smaller), TP will still increase, but at a decreasing rate. TP will eventually reach its maximum and start declining when MP reaches zero.

(iv) When there are diminishing returns to a factor, total product always increases.

• False: While total product generally increases initially as more of a variable input is added to a fixed input (due to increasing marginal returns), it does not always increase when diminishing returns to a factor set in. Total product increases when MP is positive but decreasing (indicating diminishing returns), but there is a point where TP reaches its maximum and starts to decline as MP becomes zero or negative.

So, statements (i), (ii), (iii), and (iv) are not all true. They have nuances and depend on specific conditions within the production process.

31. Using a diagram explain what happens to the PPC of Kashmir if the widespread floods have led to the destruction of human lives? [4]

A Production Possibility Curve (PPC) is a graphical representation of the maximum combinations of two goods that an economy can produce given its available resources and technology. It illustrates the trade-off between producing different goods when resources are limited.

In the context of Kashmir experiencing widespread floods that have led to the destruction of human lives, we can expect the PPC to be affected. Here’s how it might look using a simplified diagram:

Before the Floods (Initial PPC):

• Assume that the economy was initially operating along the PPC, producing a combination of goods (e.g., agriculture and infrastructure development) indicated by point A.

After the Floods (Changed PPC):

• The widespread floods have resulted in a loss of human lives and significant damage to infrastructure and resources. This tragedy has several implications:
  1. Loss of labor force: With human lives lost, there is a reduced workforce available for production activities.
  2. Damage to infrastructure: Infrastructure and capital goods (e.g., buildings, roads, machinery) may have been damaged or destroyed, limiting the economy’s productive capacity.
  3. Reallocation of resources: Resources that were previously allocated to production may now need to be diverted to disaster relief, recovery efforts, and rebuilding.

As a result of these factors, the PPC after the floods will shift inward or to the left compared to the initial PPC. This indicates a reduction in the economy’s capacity to produce both goods. The new PPC reflects the constrained resource availability and the need to prioritize essential needs like disaster relief, healthcare, and rebuilding efforts over other production.

The diagram would show the new PPC as shifted to the left of the original PPC, indicating a decrease in the potential output of both goods. The economy is now operating at a point (e.g., point B) on the new PPC that represents the trade-off between producing the two goods given the limited resources and the focus on addressing the aftermath of the floods.

In summary, the widespread floods and the loss of human lives would lead to a reduction in the economy’s productive capacity, shifting the PPC inward and affecting the trade-off between different goods in favor of disaster recovery and rebuilding efforts.

33. a) Central problems arise because resources and scarce and have alternate uses and want are unlimited. Explain.

Central economic problems arise due to the fundamental economic concepts of scarcity and unlimited wants. Here’s an explanation:

1. Scarcity of Resources: Resources, which include natural resources, labor, capital, and entrepreneurship, are limited or scarce. There are only a finite amount of these resources available in any economy. For example, there is a limited amount of arable land, skilled labor, machinery, and raw materials. These resources are insufficient to fulfill all the desires and needs of society at their maximum level.
2. Unlimited Wants: In contrast to the scarcity of resources, human wants and desires are virtually unlimited. People have diverse and constantly evolving needs and desires, which include basic necessities like food, shelter, and clothing, as well as desires for luxury goods, entertainment, and leisure. As societies progress and standards of living rise, new wants and demands emerge.

The interplay between these two fundamental concepts creates the central economic problems:

• Choice and Allocation: Because resources are limited while wants are unlimited, individuals, businesses, and governments must make choices about how to allocate these scarce resources. They must decide what goods and services to produce, how to produce them, and for whom they should be produced. These choices involve trade-offs and opportunity costs, as allocating resources to one use means forgoing their use in another.
• Efficiency and Equity: Decisions about resource allocation also involve considerations of efficiency (producing the maximum possible output with the available resources) and equity (ensuring a fair distribution of goods and services). Striking a balance between these two goals is often a central challenge in economic decision-making.
• Allocation Mechanisms: Economic systems, such as market economies and planned economies, employ different mechanisms to address central economic problems. In market economies, prices and the forces of supply and demand play a significant role in resource allocation. In planned economies, central authorities make allocation decisions based on their assessments of societal needs.

In summary, central economic problems stem from the inherent tension between limited resources and unlimited human wants. Addressing these problems requires making choices about resource allocation, balancing efficiency and equity considerations, and employing various economic mechanisms to manage scarcity and fulfill societal needs and desires.

(b) Describe the problem of “What to Produce?”.

The problem of “What to Produce?” is one of the central economic problems that arise due to the allocation of limited resources to the production of goods and services. It involves making choices about which specific goods and services an economy should produce to best satisfy the wants and needs of society. Here’s a description of this economic problem:

1. Limited Resources: Every economy has limited resources, including natural resources, labor, capital (machinery and equipment), and entrepreneurial skills. These resources are insufficient to produce all possible goods and services at their maximum potential.
2. Unlimited Wants: On the other hand, human wants and desires are virtually unlimited. People have a wide range of wants, from basic necessities like food, clothing, and shelter to desires for luxury items, entertainment, and various other goods and services.
3. Choices and Trade-offs: Given the scarcity of resources and the abundance of wants, society must make choices about what to produce. It’s impossible to produce everything that people desire, so trade-offs are inevitable. Allocating resources to produce one type of good or service means sacrificing the production of something else. This is known as the opportunity cost.

OR

(a) Explain the meaning and implications of maximum price ceiling and minimum price ceiling [3]

(a) Maximum Price Ceiling:

• Meaning: A maximum price ceiling, also known as a price cap, is a government-imposed limit on the maximum price at which a particular good or service can be sold in the market. This means that the price of the commodity cannot legally exceed the specified maximum price set by the government.
• Implications:
  1. Consumer Benefit: The primary intention behind a maximum price ceiling is to protect consumers by ensuring that essential goods and services remain affordable. It prevents producers and sellers from charging excessively high prices, particularly in situations where demand exceeds supply (e.g., during emergencies or for vital goods like medicines or basic food items).
  2. Shortages: While a price ceiling benefits consumers by keeping prices low, it can lead to shortages or supply constraints. If the legally mandated maximum price is below the equilibrium market price (the price determined by supply and demand), producers may find it unprofitable to supply the product, leading to a shortage.
  3. Black Market: In response to shortages caused by price ceilings, black markets may emerge. Sellers may charge higher prices illegally, leading to the creation of illegal markets where the commodity is sold at prices above the government-imposed maximum.
  4. Quality Decline: To maintain profitability when prices are capped, producers may reduce the quality of the product or cut corners in production, affecting the overall quality and safety of the goods.
  5. Inefficiency: Price ceilings can result in market inefficiencies, as resources may not be allocated optimally. Producers may not have incentives to produce more of the product, and consumers may engage in non-price rationing methods (e.g., waiting in long queues) to obtain the product.

(b) Define Price Ceiling. What is the common purpose for the price ceiling imposed by the government? Explain any one likely consequence of this nature of intervention by the government in the price determination process. [3]

Price Ceiling:

A price ceiling, also known as a maximum price ceiling or price cap, is a government-imposed limit on the maximum price at which a particular good or service can be legally sold in the market. In other words, it sets a legal maximum price that sellers are allowed to charge for a specific product, and this price cannot be exceeded.

Common Purpose for Price Ceiling:

The common purpose for a price ceiling imposed by the government is to protect consumers, particularly in situations where there is a concern that the market price might become too high for essential goods or services. Some common scenarios where price ceilings are used include:

• Emergency Situations: During natural disasters, wars, or other emergencies, governments may impose price ceilings on items such as food, drinking water, and medical supplies to prevent price gouging and ensure that these critical goods remain affordable to the affected population.
• Basic Necessities: Price ceilings are often used for basic necessities like medicines, basic food items, and housing in an effort to make these essential goods more accessible and affordable to a wide range of consumers.

One Likely Consequence:

One likely consequence of government intervention through the imposition of price ceilings is the emergence of black markets or illegal markets. When the legally mandated maximum price is set below the equilibrium market price (the price determined by supply and demand), it can create a situation where the supply of the product is limited because producers find it unprofitable to sell at the capped price.

As a result:

• Sellers may engage in illegal activities by charging prices above the government-imposed maximum, often in hidden or unregulated markets. These are referred to as black markets or underground markets.
• Buyers who are willing to pay the market-clearing price may seek out these black markets to obtain the goods they need, even at higher prices.
• The existence of black markets undermines the effectiveness of the price ceiling, as it circumvents the government’s intended price control measures.
• Additionally, black markets can lead to reduced transparency, quality concerns, and a lack of consumer protection, as transactions are conducted outside of legal channels.

In summary, while price ceilings aim to protect consumers by keeping prices low, one likely consequence of this government intervention is the emergence of black markets where the capped prices are circumvented, potentially leading to unintended and undesirable outcomes.

34. Read the passage given below and answer the questions that are followed:

Production, exchange and consumption of goods and services are among the basic economic activities of life. In the course of these basic economic activities, every society has to face scarcity of resources and it is the scarcity of resources that gives rise to the problem of choice. The scarce resources of an economy have competing usages. In other words, every society has to decide on how to use its scarce resources. Every society must decide on how mu(h of each of the many possible goods and services it will produce. Whether to produce more of food, clothing, housing or to have more of luxury goods.

(a) Why does the problem of ‘what to produce’ arise? Explain. [2]

The problem of “what to produce” arises due to the fundamental economic concept of scarcity. Scarcity refers to the limited availability of resources (such as natural resources, labor, capital, and entrepreneurship) relative to the unlimited wants and desires of society. In other words, resources are finite, but human wants are virtually unlimited.

Because of this scarcity of resources:

1. Choice: Every society must make choices about how to allocate its limited resources among the production of different goods and services. These choices involve trade-offs, as allocating resources to produce one type of good means sacrificing the production of something else.
2. Competing Usages: Scarce resources have competing usages or multiple possible uses. For example, the same resources can be used to produce food, clothing, housing, or luxury goods. Society must decide how to prioritize these competing usages based on societal preferences and needs.
3. Resource Allocation: The problem of “what to produce” involves deciding on the quantity and mix of goods and services that will be produced to best satisfy the wants and needs of the population. It’s about determining which goods are essential and which are considered luxuries, and how resources should be allocated accordingly.

(b) Human wants are unlimited in number. They are never ending and they can never be fully satisfied. Justify. [4]

Human wants are indeed unlimited in number, and they can never be fully satisfied. This idea is justified by several reasons:

1. Changing and Evolving Wants: Human wants are not static; they evolve and change over time. As societies progress, technological advancements occur, and living standards rise, new wants and desires emerge. For example, in the past, the desire for smartphones, high-speed internet, and electric cars did not exist, but today, these are considered essential by many.
2. Individual Variation: People have diverse preferences and desires. What one person considers a necessity, another may view as a luxury. This individual variation means that even if some wants are satisfied, others may still remain unsatisfied for different individuals.
3. Relative Nature of Wants: Human wants are often influenced by relative comparisons. People often desire what others have or what they perceive as a higher standard of living. This can lead to a constant striving for more, even if basic needs are met.
4. Maslow’s Hierarchy of Needs: Psychologist Abraham Maslow proposed a hierarchy of human needs, where basic physiological and safety needs are at the bottom, followed by higher-level needs like belonging, esteem, and self-actualization. As one set of needs is satisfied, individuals aspire to fulfill higher-level needs, contributing to the never-ending nature of wants.