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Question Paper Class XII
Economics
1998
Set 1
Page 2
Ques 15. Estimate national income from the following data:

  Rs in crores
Opening stock   50
Closing stock   60
Consumption of fixed capita   l10
Private final consumption expenditure   500
Net exports   (-) 5
Net factor income from abroad (-) 10
Compensation of employees paid by General government    100
Direct purchases of non-durable goods   10
Net purchase of goods and services by General government in the domestic market   100
Net capital formation   60
Net indirect taxes   50
Ans:
National Income =  
Private final consumption expenditure   500
+ Net purchase of goods & services by General govt. in the domestic market   100
+ Direct purchase of non-durable goods from abroad by general government   10
+ Net capital formation   60
+ Net exports   -5
+ Compensation of employees paid by General government    100
- Net indirect taxes   -50
  Rs 705 crores

Ques 16. How is the private final consumption expenditure measured?
Ans:
PRIVATE FINAL CONSUMPTION EXPENDITURE

It includes the expenditure made by both households and private enterprises on final demand. Household sector expenditure on

    1. Single use consumer goods such as bread, butter, vegetable etc.,
    2. Durable goods such as furniture, T.V etc. and services like those teachers, medical and transportation. The expenditure on these items is met by household sector by receiving income from factor services. Private final expenditure also includes expenditure made by private producing sector. This sector broadly incurs expenditure on (1) Inventories / change in stock (closing stock – opening stock) (2) replacement includes stocks of raw materials, work in progress, semi-finished goods

Ques 17. Explain the income method of calculating national income.
Ans:
Measurement of national income using income method involves the following steps:
  1. Firstly, all the enterprises are classified industry wise. From this point of view, enterprises can be classified into three sectors, namely, agriculture industries and services.
  2. Secondly, all the factor payments are classified into following categories

    1. Compensation of employees which include :
    1. Wages and salaries
    2. Employers contribution to social security schemes
    3. Pension on retirement

            2. Operating Surplus, which include rent, interest and profit.
            3. Mixed Income: It is the income of self employed persons using their labour, land, capital and entrepreneurship

       iii.   Thirdly, by adding up all the factor payments of enterprises of all the sectors, domestic factor income is ascertained.
       iv.   Net factor Income from abroad – Domestic factors earn income from foreign countries and foreigners earn income within                  country. The difference of the two is known as net income earned from abroad. It is included in national income.


Ques 18. Which organisation estimates the national income in India? Name the sectors of the Indian economy for which income method is used for estimating their contribution to the domestic product.

Ans:
The Central Statistical Organisation (CSO) estimates national income in India.

Income method is used by the following sectors:

  1. Manufacturing (Unregistered)
  2. Electricity, gas and water supply
  3. Transport and communication
  4. Trade, hotels and restaurants
  5. Banking and Insurance
  6. Real estate, Ownership of dwellings and Business services
  7. Public administration and defense
  8. Other services

Ques 18. Define normal profits.
Ans:
NORMAL PROFITS – means the profit that a firm must receive to remain in business. It is a profit, which is just sufficient to induce a firm to stay in industry and continue its production.

Ques 19. When will the transfer earnings of a factor of production be zero?
Ans:
When the supply of a factor is perfectly inelastic, transfer earnings of a factor of production be zero.

Ques 20. What is the value of marginal propensity to consume when marginal propensity to save is zero?
Ans:
The value of MPC is equal to unity i.e. whole of disposable income is spent on consumption.

Ques 21. What is meant by involuntary unemployment?
Ans:
INVOLUNTARY UNEMPLOYMENT : A situation in which people are will to work at current or slightly lower level of wages, but do not find jobs due to deficiency of aggregate effective demand.

Ques 22. Explain the problem of full utilisation of resources in an economy.
Ans:
THE PROBLEM OF FULL UTILISATION OF RESOURCES : The problem is how can an economy give fuller employment to its unutilised and under-utilised existing resources. On one hand a country has limited resources and on the other, if they are not fully utilised, it will have an adverse effect on the economy. Due to this reason every country is confronted with the problem of fuller utilisation of its existing resources. The problem has two aspects, first, to give employment to all the resources – land, labour and capital of the economy; and second, fuller or optimum utilisation of these resources.

Ques 23. How is the supply of a commodity affected by the prices of another commodities?
Ans:
The supply of a commodity depends upon the prices of all other commodities, far, if other prices rises, they will become relatively more attractive to produce, and the supply of the commodity, the price of which has not changed, will become less attractive. Its supply may, therefore fall.

Ques 24. State the economic problems relating to the allocation of resources.
Ans:
ALLOCATION OF RESOURCES – An economy has to allocate its resources in such a way that serves best the needs of the society.
  1. What to produce and in what quantity? An economy has to choose what quantities. It has to choose between consumer goods ands producer goods. The guiding principle is to allocate resources in such a way that generate maximum aggregate utility.
  2. How to produce? The second question on allocation of resources concerns technique of production – i.e. on economy has to choose between labour intensive and capital intensive techniques of production. The guiding principle is to adopt those techniques which cause the least possible cost to produce per unit of a commodity.
  3. For whom to produce? An economy decides for whom the goods are to be produced on the basis of purchasing power of people, which is determined by the distribution of income. The guiding principle in solving the problem of distribution is to fulfill the urgent wants of each productive factor to the maximum possible extent.

Ques 25. How do changes in the income of the buyer of a commodity affect his demand for that commodity?
Ans:
Both income and demand for commodities move in the same direction. In some cases, however, an increase I income may have, no effect on the demand for a particular commodity, This will be so in the case of salt, even with a rise in income, the demand for salt in likely to remain unaffected. In some other cases, a rise in income may actually lead to decrease in demand for a particular commodity. For e.g. – the household may be consuming Dalda Ghee. A rise in income may induce it to consumer Pure Ghee and its demand for Dalda Ghee may go down. We call such goods ‘inferior’ goods.

In case of normal goods, a rise in income leads to an increase and fall in income leads to decrease in their demand.


Ques 26. The coefficient of price elasticity of demand of a commodity is 5. When its price is Rs 10 per units, its quantity demanded is 40 units. If the price falls to Rs 5 per unit, how much will be its quantity demanded?
Ans:
Ed = (D Q / Q) * (P /D P)
=> 5 = (DQ / 40) * (10 / 5)
=> DQ = 100

Quantity demanded = Q + D Q
                                    = 40 + 100
                                    = 140 units

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