Model Paper – 1

I. Answer the following questions: - 1 X 10 = 10

1. Define an economy?

Ans. An economy is mechanism through which the resources are organized for production of

goods and services.

2. What is market economy? (Capitalistic economy)

Ans. It is a type of economy where production function is carried by private entrepreneurs.

Ex. USA, Japan

3. What is budget line?

Ans. It is different combinations of two goods which the consumer consumes and whose price

equals his income.

4. What are normal goods?

Ans. Normal goods are those goods for which the demand increases with rise in income of

consumers and decreases with fall in income of consumers.

5. Define Iso-quant.

Ans. It refers all possible combination of two inputs (Labour and capital) which results in same

level of output.

6. Define marginal cost.

Ans. Marginal cost is the cost addition to total cost. (MC = TCn – TCn-1)

7. What do you mean by „laissez faire‟ policy?

Ans. It refers to free trade policy.

8. Name the book written by J.M.Keynes.

Ans. J.M.Keynes wrote a book called, „The general theory‟ (1936).

9. In which year the RBI nationalized?

Ans. The RBI was nationalized in the year 1st January 1949.

10. What is De-valuation?

Ans. It refers to deliberate reduction of the value of domestic currency against Foreign

currencies is

called De-valuation.

II. Answer the following questions: - 10 X 2 = 20

11. Name the types of economies

Ans. The types of economies are

a) Socialistic or centrally planned economy

b) Capitalistic or Market economy

c) Mixed economy

12. Give two examples of Centrally Planned economy

Ans They are North Korea, Cuba, China and Vietnam

13. What does mean if an IC has a bulge?

Ans The bulge in IC Shows that MRS is not diminishing consistently (consumer is irrational)

14. In QD=10-2P, Identify independent variable,dependent variable, constant and Co-

efficient in it

Ans QD=Dependent variable,10=Constant, P=Independent variable and -2=Co-efficient

15 State the essentials of a market

Ans They are

1) Existence of goods and services

2) Existence of buyers and sellers

3) Existence of price

4) A place- region

16 what is Imperfect market? Mention its forms.

Ans Imperfect market is a market where prices charged by different sellers for a product is not

same.

Its forms are Monopoly, Duopoly, Oligopoly and Monopolistic.

17 State the difference between narrow money and broad money

Narrow money Broad money

1) It is highly liquid money

2) It includes coins and currency notes

3) It is representated as NM1 or M1

It includes both liquid and less liquid money

It includes savings and demand deposits

It is representated as NM3 or M4

18 Mention any four types of investment

Ans 1) Private investment and public investment

2) Induced investment and Autonomous investment

3) Planned investment and unplanned investment

4) Gross investment and net investment

19 Difference between nominal and real exchange rate

Nominal exchange rate Real exchange rate

1) It is expressed in terms of money

It is the ratio of foreign prices to domestic

prices

2) It is the amount of domestic currency

paid to purchase one unit of foreign

currency

It is expressed in terms of purchasing power of

both the currencies

20 Write any four features of oligopoly

Ans The features of oligopoly market are

1) Few large firms

2) Inter-dependence among firms

3) Group behavior

4) Advertisement cost

5) Price rigidity

III. Answer the following questions: - 5 X 8 = 40

21. What are the basic problems of an Economy? Explain

Ans An economic system is a mechanism where the scarce resources are channelized to

produce

goods and services. The problem of choice arising out of limited resources and unlimited

wants

is called economic problem. The basic problems of economy are

1) What to produce

2) How to produce

a) Labour intensive technology

b) Capital intensive technology

3) For whom to produce.

22. Mention the uses of Micro-economics?

Ans Micro economics plays a significant role in economic analysis, some of the uses are

a) Allocation of resources f) Analysis of tax policy

b) Price determination g) Economic models

c) Optimum utilization of resources h) solution to the problem of choice

d) Formulating economic policy i) Predictions

e) Market structure j) Helps in formulation of planning

23. Explain any properties of Indifference curves.

Ans The properties of indifference curves are.

1) Higher indifference curves represents higher level of satisfaction

2) An indifference curve must always be convex to the origin

3) The indifference curves cannot be parallel

4) An indifference curve cannot have a bulge

5) Indifference curves cannot intersect each other

24 Discuss various types of short –run costs

Ans The various short-run costs can be explained with neat diagrams

1) Total fixed cost (TFC): it is a payment made for fixed factors in the short –run. It remains

the same with the change in the level of production(TFC=TC-TVC)

2) Total variable cost (TVC) : it includes payment made to the variable factors of production

.it changes along with the change in output.(TVC=TC-TFC)

3) Total cost (TC): It includes both total fixed cost and total variable cost(TC=TFC+TVC)

4) Average fixed cost (AFC): It is the per unit fixed cost of production of a

commodity(AFC=TFC/Q) or (AFC=AC-AVC)

5) Average variable cost(AVC): It is the cost per unit variable cost of production of a

commodity(AVC=TVC/Q) or (AVC=AC-AFC)

6) Average cost(AC): It is per unit total cost of production (AC=AFC+AVC) or (AC=TC/Q)

7) Marginal cost(MC): It is the addition to the total cost (MC=TCn-TCn-1)

25 Explain elasticity of demand with the neat diagram

Ans There are five types

1) Perfectly elastic demand: In this case a very small change in price leads to an infinite

change in demand(ped=∞)

2) Perfectly in elastic demand : In this case whatever may be the change in price , the

quantity demanded will remain constant(ped=0)

3) More elastic demand : In this case the percentage change of demand is greater percentage

change in price (ped>1)

4) Less elastic demand: In this case the percentage change in demand is less than the

percentage change in price(ped<1)

5) Unitary elastic demand: In this case the percentage change in demand is equal to

percentage change in price(ped=1)

26 Explain the scope of macro-economics

Ans The scope macro-economics are

1) Major sector : While studying the economy one should consider each sector for the

complete study macro-economics

2) National income: Here we study the various concepts of national income such as

GDP,NDP,GNP,NNP etc

3) General employment: Theory of employment ,Determinants of employment and

unemployment are issues in Macro-economics

4) Theory of general price: It studies the determination of general price level, inflation and

deflation.

5) Theory of money: To bring equilibrium between demand and supply of money macro-

economics studies monetary policy , fiscal policy,etc

6) International trade: It studies trade, Export, import, Exchange rate, balance of payment

etc.

27 Explain the functions of money

Ans According to Prof.Kinley functions of money, classified into four categories they are

1) Primary functions of money

a) Medium of exchange

b) Measure of value

2) Secondary functions of money

a) Standard of deferred payments

b) Store of value

c) Transfer of value

3) Contingent functions of money

a) Distribution of national income

b) Basis of credit

c) Satisfaction of consumer and producer

d) Liquidity and uniformity

4) Other functions of money

a) Helps in making decisions

b) Generalize purchasing power

c) Determination of solvency

28 Explain the functions of commercial banks

Ans There are two main functions

1) Primary functions

A) Accepting deposits

I) Current account deposits

II) Saving account deposits

III) Fixed deposits

IV) Recurring deposits

B) Advancing of loans

I) Overdraft

II) Cash credit

III) Loans

IV) Discounting of bills of exchange

2) Secondary functions

A) Agency services

I) Remittance of funds

II) Buying and selling of securities

III) Making payments

B) General utility services

I) Locker facilities

II) ATM facilities

III) Credit card facilities

IV. Answer the following questions: - 2 X 10 = 20

29. Explain how a consumer reaches equilibrium using Indifference Curve technique.

Ans. Here we can explain how a consumer attains equilibrium by using.

a) Indifference Curves and b) Budget line.

Assumptions:

1. Income of the consumer is given

2. Consumer is rational

3. Prices of goods and services are constant

4. Consumer is aware of the Indifference Map

5. All goods are homogeneous and divisible

This is clearly explained with the help of a diagram.

In the diagram IC1, IC2, IC3 and IC4 Indifference Curves are drawn. PQ is budget

line. ABCD and E points are combination of X and Y goods Which of the points from

A to E is the optimum choice of a consumer. Is point B optimal? No, because B lies

below the budget line PQ and therefore does not give maximum satisfaction. Are

points C and E optimal? No, because C and E are on the IC curve which gives

minimum satisfaction than the above IC curves. Is point D optimal? No, because B

lies on IC4 which gives maximum satisfaction but it is far above budget line PQ.

Hence, the point A is optimal. The point A lies on IC2 and it touches the budget line

PQ. Here

consumer can purchase the combination with his budget and he attains equilibrium by

getting

maximum satisfaction. This is called optimal choice of a consumer.

30. Explain the functions of RBI.

Ans: RBI performs the following functions:

A. Traditional functions: Traditional functions are the primary functions of RBI. They

are –

1. Monopoly of note issue: RBI has the sole right to issue currency notes of all

denominations of Rs. 2, 5, 10, 20, 50, 100, 500 and 1000.

2. Banker to the Government: RBI acts as a banker and financial advisor to the

government. It receives and makes all payments on behalf of the government.

3. Banker’s bank: RBI controls all commercial and other bank in the nation.It regulates

these banks and also provides finance to them.

4. Lender of last resort: When a commercial bank is under financial crises and not able

to get finance from any banks, RBI will provide finance to them.

5. Clearing house: RBI acts as a clearing house by clearing the disparities between

subordinate banks in lending and borrowing.

6. Leader of money market: RBI controls the entire money market in the nation and

helps to bring financial stability.

7. Custodian of foreign exchange reserves: RBI is the sole custodian of foreign

exchange in the country.

8. Controller of credit: RBI controls the credit system through its monetary

policy.They are Bank rate , CRR, SLR, Margin requirement, credit rationing Etc..

B. Developmental functions: In addition to the traditional functions, RBI performs

developmental functions wherein it provides finance to NABARD for the

development of agriculture. It also provides finance to IDBI for the development of

Industrial sector.

C. RBI performs other functions : like publishing bulletins and magazines regarding

banking system, conducting seminars, training for bank staff and also conducting

research for the improvement of banking system.

V. Answer the following questions: - 2 X 5 = 10

31. If the demand and supply function of raw cotton are Qd = 250 – 50p and Qs = 25 +

25p,

find the equilibrium price and equilibrium quantity demanded and supplied and

prove that

any price other than equilibrium price leads either to excess supply or excess

demand.

Ans: Qd = Qs

250 – 50p = 25 + 25p

-50p -25p = 25 – 250

-75p = -225

P = 225 / 75 = 3

Equilibrium price = 3

When p is 3

Qd = 250 – 50p Qs = 25 + 25p

Qd = 250 – 50 x 3 Qs = 25 + 25 x 3

Qd = 250 – 150 Qs = 25 + 75

Qd = 100 Qs = 100

So at equilibrium price = 3,

Qd = Qs = 100

Suppose if the price = 2 there will be excess of demand

Qd = 250 – 50p Qs = 25 + 25p

Qd = 250 – 50 x 2 Qs = 25 + 25 x 2

Qd = 250 – 100 Qs = 25 + 50

Qd = 150 Qs = 75

Qd> Qs

150 >75

Suppose if the price = 4 there will be excess of supply

Qd = 250 – 50p Qs = 25 + 25p

Qd = 250 – 50 x 4 Qs = 25 + 25 x 4

Qd = 250 – 200 Qs = 25 + 100

Qd = 50 Qs = 125

Qd <Qs

50<125

Thus equilibrium price is 3

32. The market demand curve for commodity and the total cost for monopoly firms

producing the commodity is given by the schedule below:

Quantity(Q) 0 1 2 3 4 5 6 7 8

Price in Rs. (P) 52 44 37 31 26 22 19 16 13

Total costs (Tc) 20 60 85 100 102 105 109 115 125

Use the information to calculate the following:

a. The MR and MC schedules

b. The quantities for which MR and MC are equal

c. The equilibrium quantity of output and equilibrium price of the commodity

Q P TC MC TR (P x Q) MR

0 52 20 20 0 0

1 44 60 40 44 44

2 37 85 25 74 30

3 31 100 15 93 19

4 26 102 02 104 11

Ans:

b) The quantity for which MR = MC is 6

c) Equilibrium output = 6 and equilibrium price = 19

*** *** ***

5 22 105 03 110 06

6 19 109 04 114 04

7 16 115 06 112 -2

8 13 125 10 104 -8

Model Paper – 2

Answer the Following 1X10=10

1 What is deductive method?

Ans. It is one of the method of study of economics from general to particular

2 What is utility?

Ans. Utility refers to the want –satisfying power of a commodity.

3 What is price ratio?

Ans. Price ratio refers to price of a product on the X-axis divided by the price of the product

on Y-axis

(PR=Px/Py)

4 Write the meaning of product differentiation

Ans. It refers to differentiation in size, colour, shape or brand names (heterogeneous

products)

5 What is duopoly?

Ans. It is a market situation where there are only two sellers or firms in the market(private

and public firm)

6 What is break- even point?

Ans. Break-even point is a point where TR=TC(no loss , no gain)

7 How do you get NDP?

Ans. NDP=GDP-depreciation

8 What do you mean by savings?

Ans. Savings refers to excess of income over expenditure.

9 How do you calculate MPS?

Ans. MPS=1-MPC

10 What is deficit budget?

Ans. When the income of the Government is less than its expenditure is known as deficit

budget.

II. Answer the Following 2X10=20

11 Mention any two difference between positive and normative economics

Positive economic Normative economic

1) It is a study of “what was “ and

“what is” under given circumstances

2) It deals with scientific explanation

It studies “what ought to be”.

It explains about “what should be and

should not be done.

12 Mention any two limitations of Micro-economics

Ans. 1) Unrealistic assumption 2) Wrong assumption of full employment

3) Neglects macro-economics 4) Narrow scope

13 Differentiate between total utility and marginal utility.

Ans

Total Utility Marginal Utility

1) It is aggregate utility derived by the

consumer by consuming all the

units.

2) It represents utility of all the units

consumed

It is additional utility derived by the

consumer by consuming additional unit.

It represent utility of single event

14 Mention any four determinants of demands

Ans. 1) Price of the product 2) Price of related goods

3) Income of the consumer 4) Tastes and preferences of consumer

15 List the determining elements of a market structure

Ans. 1) Existence of firms to produce a product 2) Nature of the commodities 3) Freedom of

entry and exit

16 State any four determinants of supply

Ans. 1) Techniques of production 2) Cost of production

3) Government policy on tax, subsidies etc 4) Objectives of the firm

5) Climatic condition

17 Classify the following into stocks and flows;Bank deposit,salary,wealth,food grain

stock,exports,imports,foreign exchange reserves,national income

Stocks Flows

Bank deposits,wealth,food grain stock,

foreign exchange reserves

Salary,exports,imports,national income

18 Mention any four Non-plan revenue expenditures of the Government

Ans 1) Expenditure on Defence 2) Interest payments 3) Subsidies 4) Law and

order

19 Mention the uses of tax system as a instrument of Fiscal policy in India

Ans 1) Mobilization of revenue

2) Checking unwanted expenditure

3) Bring favourable changes in re-disrtibution of income and wealth

4) Helpful to control inflation and deflation

20 Mention the types of budget deficits

Ans 1) Revenue deficits 2) Fiscal deficits 3) Primary deficits

III. Answer the following 5X8=40

21 Explain the movements along the demand curve and shift in demand curve with a neat

diagram

Ans 1) Expansion and contraction: When price is less the demand is more and when

price is more

the demand is less thus anychange in price leads to movements along demand

curve

In the diagram when price decreases from P to P1 the demand expands from Q to Q1

so the

demand curve moves downwards it is called expansion of demand likewise when the

price

increases from P to P2 the demand contracts Q to Q2 so the demand curve upwards it

is called

contraction of demand.

2) Increase and decreasing demand: Other things remaining constant if the income of the

consumer

increases the demand for the goods changes at each price it leads to shift in demand curve

In the diagram the right ward shift of demand curve from DD to D1 D1 is called increase

in demand

likewise if demand curve shift leftward from DD to D2 D2 is called decrease in demand.

22 Mention the factors determining price elasticity of demand

Ans The price elasticity of demand depends several factors some of them are

1) Nature of goods

2) Availability of substitutes

3) Income of the consumer

4) Habits

5) Price of goods

6) Varity of uses

7) Differed consumptions

8) Market awareness

23 Explain with a neat diagram how the long run average cost curve is derived.

Ans All the factors are variable in long run hence there is no total fixed cost or average fixed

cost in long

run . So they are called long run average cost

In the diagram SAC1, SAC2,SAC3,SAC4 and SAC5 is short term average cost curve the

point

PQRST is the minimum point if each SAC . If these minimum points are joined together

is called long run .The point R of SAC3 is least cost combination that is the cost is minimum, the

output is maximum.

24 Explain TR and TC approach under monopoly firm with neat diagram

Ans A monopoly firm attains its equilibrium at point where TR is maximum and TC is

minimum at this

point the firm reaches maximum profit

In The diagram TR and TC is total revenue and total cost respectively .π is the profit curve.

The profit of monopoly firm as given by TR-TC.In the diagram we find BD distance is a

maximum . Thus the firm attains equilibrium with OQ output. The point A and C is called break-

even points where TR=TC(no loss no gain). Before OQ1 and after OQ2 the firm suffers loses

because TC >TR. After OQ1 and before OQ2 the firm is under profit because TR<TC.

25 Mention the important concepts of national income(Macro-economic identities)

Ans The concepts of national income are

1) Gross domestic product (GDP) it is aggregate value of final goods and services produced

within the country during the year GDP=C+I+G+netX

2) Net domestic product(NDP) it is aggregate money value of all final goods and services

produced within the country less depreciation NDP=GDP-Depreciation

3) Gross national product (GNP) it is aggregate money value of all final goods and services

produced by a country in a year including net income from abroad GNP=C+I+G+(X-

M)+(R-P)

4) Net national product (NNP) it includes the value of total output of consumption goods

and investment goods NNP=GNP-depreciation cost

5) Personal income it is that part of the national income of a country which is received by

the people or households

6) Personal disposal income (PDI) the actual income which can be spent on consumption

after deducting direct access is called disposal income (PDI=PI-personal taxes)

26 Explain the new definition of money supply.

Ans At present there exist only three monitory aggregates that is NM1,NM2 and NM3

1) NM1 =currency with the public + demand deposits with the banking system+ other

deposits with RBI

2) NM2= NM1+ Short term time deposits of residents

3) NM3=NM2 + Long term time deposits of residents+ call or term funding from financial

institutions.

27 Explain the consumption functions of Keynes.

Ans. It is the important concept of general theory . It is also called propensity to

consume. It shows

the relationship between income and consumption C=f(y) .

Consumption schedule

Income(Y)

in crores

Consumption (C)

in crores

0

50

100

150

200

20

60

100

140

180

In the diagram income is measured along OX axis and consumption is measured along OY axis.

OA curve is in 45 degree . All the points on this curve equal to income and consumption. C is the

consumption curve. At point B C=Y or OY1=OC1 .When income increases to OY2 consumption

increases to OC2 but increase in consumption is not equal increase in income Y1 Y2>C1 C2 the

income saved is S S1

28. Briefly explain various economies and dis –economies of scale

Ans Economies of scale: it refers to advantages of large scale production . It includes internal

and external

economies

a) Internal economies arise within firm the various internal economies are

1) Technical economies 2)Managerial economies 3) Marketing economies

4) Financial economies 5) Transport and storage economies

b) External economies are those economies arises outside the firm. Various external economies

are

1) Cheaper raw material 2) development of skill labors 3) Growth of ancillary industries

4) better transport issue and marketing facilities 5) development of informational service

Dis-economies of scale it refers to disadvantages of large scale production. It includes internal

and external dis –economies. A) Various internal dis-economies are

1) Lack of co-ordination 2) Lack of control

3) Lack of communication 4) Lack of identification

B) External dis-economies of scale includes

1) Pressure on transport facilities 2) Dis economies of pollution 3) shortage of funds

4) Increase in risks 5) Marketing problems of products

6) rise in prices of the factors of production

IV. Answer the following 10X2=20

29. Explain the law of variable proportion with the help of a table and diagram.

Law of variable proportion refers to the relationship between the proportion of input and output in

short period.

There are 3 stages in this law. They are –

a. First stage: Increasing returns.

b. Second stage: Diminishing returns

c. Third stage: Negative returns

Assumptions of the law:

1. Technology is constant

2. Some inputs are constants

3. All the units of the variable factors are equally efficient

4. Factors of production are not perfect substitutes

The law can be understood with the help of the following table:

Land

(in

acre)

Amount of capital

(in Rs.)

Units of

labour

Total product

(in tonnes)

Average

product (in

tonnes)

Marginal

product (in

tonnes)

1 10,000 1 5 5 5

1 10,000 2 11 5.5 6

1 10,000 3 18 6 7

1 10,000 4 20 5 2

1 10,000 5 21 4.2 1

1 10,000 6 21 3.5 0

1 10,000 7 20 2.86 -1

First stage: At this stage marginal product increases i.e. total output increases at an increasing rate.

Average product also increases. In this situation law of increasing returns is set to operate.

Second stage: Here the total output continues to increase but at a diminishing rate. This stage continues

till total product reaches the maximum and marginal product becomes zero. The average product goes on

diminishing. But both average product and marginal product remain positive.

Third stage: At this stage total product starts declining and marginal product becomes negative. The

average product also falls.

30. Describe the short run equilibrium under a monopolistic competition.

Ans: A monopolistic firm can achieve equilibrium with the following conditions:

a. MR = MC.

b. MC curve intersects the MR curve from below and moves upwards.

c. Price should be more or equal to AVC

There are 3 short run equilibrium situations in monopolistic competitions.

I. Abnormal profit. MR = MC at point E which shows equilibrium output OQ and equilibrium

price OP. The total revenue of the firm is OPRQ and total average cost is OP1SQ. Thus the

firm profit of P1PRS which is shown in shaded area.

Profit = TR – TC

= OPRQ – OP1SQ

= P1PRS abnormal profit (shown in shaded area)

II. Normal profit. MR = MC at point E which show equilibrium output OQ and equilibrium price

OP. Total revenue of the firm is OPRQ and total cost is OPRQ. Thus the firm is earning Zero

profit (It is also called economic profit)

Profit = TR – TC

= OPRQ – OPRQ

= 0 (normal profit)

III. Losses. MR = MC which shows equilibrium output OQ and equilibrium price OP.Total ravenu

of the firm is OP1RQ and total cost is OPRSQ . Thus firm is under a losses of P1PRS.

Profit = TR – TC

= OPRQ – OP1SQ

= P1PERS (loss)

V. Answer the following 5X2=10

31. Write the process of credit creation by commercial banks with the help of an

example.

Ans: The process of credit creation of banks starts with lending out of primary deposits.

In this process we make the following assumptions.

a. There are A, B, C banks in this process.

b. Each bank has to keep 10% of cash reserve

c. A customer has kept new deposit of Rs. 1000 in bank A.

Bank A receives cash deposit of Rs. 1000 from a customer. Bank keeps Rs. 100

(10%) as reserve and lends Rs. 900 to Mr. X. It is shown in the balance sheet below.

Balance sheet of bank A

Liabilities Assets

Deposits: Rs.1000

Total: Rs.1000

Cash reserve: Rs.100

Loan to Mr.X Rs.900

Total: Rs.1000

Balance sheet of bank B

Liabilities Assets

Deposits: Rs.900

Total: Rs.900

Cash reserve: Rs.90

Loan to Mr.Y Rs.810

Total: Rs.900

Balance sheet of bank C

Liabilities Assets

Deposits: Rs.810

Total: Rs.810

Cash reserve: Rs:81

Loan to Mr.X Rs.729

Total: Rs.810

Thus, the credit created by the whole banking system has shown in the following

table

Multilpe credit creation or deposits multiples.(Amount in Rs)

Banks Liabilities Cash reserves Newloans(Assets)

Bank A 1000 100 900

Bank B 900 90 810

Bank C 810 81 729

Total for whole

banking system

10000 1000 9000

32. Calculate the missing costs.

Output

(units) TFC TVC TC AFC AVC AC

1 50 20 ? ? ? ?

2 50 30 ? ? ? ?

3 50 40 ? ? ? ?

4 50 60 ? ? ? ?

5 50 90 ? ? ? ?

Ans:

Output

(units) TFC TVC TC AFC AVC AC

1 50 20 70 50 20 70

2 50 30 80 25 15 40

3 50 40 90 16.67 13.33 30

4 50 60 110 12.5 15 27.5

5 50 90 140 10 18 28

Model Paper – 3

Answer the Following 1X10=10

1 Define indifference curve

2 What is cross elasticity of demand?

3 Why does the demand curve slopes downwards?

4 What is the shape of MC and AC curves?

5 How do you calculate AR?

6 What is oligopoly?

7 Which policy was proved wrong by the great depression?

8 What is economic welfare?

9 What do you mean by deferred payments?

10 What is multiplier?

Answer the Following 2X10=20

1 Give two examples of a capitalistic economy

2 Mention any four properties of a budget line

3 What is meant shutdown point?

4 State the law of supply

5 State the law of demand

6 What are Externalities? Give an example.

7 Name the motives of demand for money according to J M Keynes.

8 What do you mean open market operation

9 What are the differences between balance of trade and balance of payment

10 What do you mean by implicit cost and explicit cost?

Answer the Following 5X8=40

1 Explain the law of returns to scale with a neat diagram

2 Explain Price elasticity of supply with neat diagram

3 Explain the law of diminishing marginal utility with a neat diagram.

4 Explain the instruments of monetary policy of RBI(both quantitative and qualitative)

5 Briefly explain the concept of multiplier of Keynes

6 Explain the structure balance of payments

7 What is a budget? Explain the components of budget

8 Explain the methods to measure national income and mention any five difficulties in

measurement of national income

Answer the Following 10x2=20

1 Explain the consumers equilibrium under perfect competition

2 Explain how the short –run and long- run supply curves of a firm is derived under perfect

competition

Answer the Following 5X2=10

Practical Questions:

1. Assume that you are in the market with limited income of Rs. 100. Form the budget set

and draw the budget line.

Ans:

Combination of X and Y Commodity X (Rs. 10 /

unit)

Commodity Y (Rs. 20 /

unit)

A 10 0

B 8 1

C 6 2

D 4 3

E 2 4

F 0 5

2. Classify the following into stock and flow.

Bank deposits, salary, wealth, food grain stock, exports, imports, foreign exchange

reserves, national income, net investment and capital.

Ans: Stock: bank deposits, wealth, food grain stock, foreign exchange reserves, capital

Flow: salary, exports, imports, national income, net investment.

*** *** ***