CBSE Class 12 Economics Question Paper 2019 Set 1 Solutions

BVM 1
Strictly Confidential: (For Internal and Restricted use only)
Secondary School Examination
March 2019
Marking Scheme – ECONOMICS (030)
(PAPER CODE –58/1/1, 58/1/2, 1/2/3
General Instructions: -
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Pg.1

MARKING SCHEME – ECONOMICS (030)
(PAPER CODE –58/1/1, 58/1/2, 1/2/3
SET SET SET Marks
Expected Answer / Value Points Distribution
1 2 3

SECTION A – MICRO ECONOMICS

1 4 3 (c) Production of more units of Good X and less units of Good Y. 1

2 3 4 (c) falls, as more units are produced. 1
OR
(d) MCn=TCn-TCn-1 1

3 2 1 (d) an inverse ‘U’ shaped curve. 1

4 1 2 shift rightwards 1
OR
shift leftwards.

5 5 6 i) Positive statement – it deals with a real life situation, justifiable by facts.
1½+ 1½
ii) Normative statement- it deals with a situation as it ‘ought to be’.
(No marks to be awarded if reason not given)

6 - - Substitute Goods- those goods which can be used in place of each other to
satisfy the same want, examples: Coke and Pepsi.
whereas;
Complementary Goods – Complementary goods is a pair of goods which 1½+1½
are jointly demanded for the satisfaction of wants, for example: petrol car
and petrol.
(or any other relevant example)
OR
Normal Goods are those Goods whose demand tends to increase with an
increase in the income of a consumer. The demand for the normal goods is 1½
directly related to the income of a consumer.
Inferior Goods are those goods whose demand decreases with an increase
in the income of a consumer. The demand for the inferior goods is 1½
inversely related to the income of a consumer.
For example – with an increase in income, more generally, a consumer
would like to shift to a smart phone from a simple mobile phone he is
1
using at present. Now, the simple mobile phone is an inferior good for him
whereas, the smart phone is a normal good.
(or any other relevant example)

Pg.2

7 - - Quantity MU TU
(in units) (Utils) (Utils)
1 8 8
2 5 13
3 3 16
4 1 17
5 0 17
6 -1 16
Relationship between total utility and Marginal Utility
• Marginal utility falls but remains positive as long as total utility
increases from 1st unit to 4th unit of consumption. 4
• When marginal utility is Zero, total utility is maximum i.e. at 5th unit
of consumption.
• When marginal utility becomes negative, total utility starts falling
but remains positive i.e. at 6th unit of consumption and beyond.
(or any other relevant schedule with explanation)
(to be marked as a whole)
OR

Combination Good X Good Y MRSxy
(in units) (in units) (∆y/∆x)

A 1 8 -

B 2 4 4Y:1X

C 3 2 2Y:1X

D 4 1 1Y:1X

Diminishing Marginal Rate of Substitution implies that a consumer is
willing to sacrifice lesser unitsof Good Y for every additional unit of Good
X. As given in the schedule, moving from combination B to C the consumer
is willing to give up 2 units of Good Y so as to gain an additional unit of
Good X(2Y:1X), which diminishes to 1Y:1X in combination D. 4
(or any other relevant schedule with explanation)
(to be marked as a whole)

8 7 8 Total quantity TC TVC AVC
(in units) (in ) (in ) (in )
0 200 0 -
1 300 100 100
2 380 180 90 (½ x 8= 4)
3 440 240 80
4 490 290 72.5
Pg.3

9 8 9 (a) ‘AB’ in the given diagram represents ‘Price Floor’. 1
(b) In the situation of price floor the Government sets the price above the
equilibrium price, it creates the situation of excess supply in the market 3
that leads to surplus of unsold stock with the producer and other
consequences.
OR
Equilibrium price and quantity for the commodity X in a perfectly
competitive market will be determined where:
Qd = Qs 1
1700– 2P = 1300 + 3P ½
1700-1300= 3P+2P ½
400 = 5P

P= 80 ½

Therefore, Equilibrium price = 80
Equilibrium quantity can be ascertained by substituting equilibrium price = ½
80, either in Qd or Qs.
Qd = 1700– 2P
½
Qd = 1700-2(80)
Qd = 1700-160 = 1,540 units
½
Therefore, equilibrium quantity =1,540 units.
10 12 11 a) Price elasticity of demand is the measure of the degree of 2
responsiveness of change in quantity demanded for a good due to given
change in its price.
% 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝒅𝒆𝒎𝒂𝒏𝒅𝒆𝒅
b) Ed = (ignoring minus sign)
% 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒑𝒓𝒊𝒄𝒆 1
∆𝑄
% change in quantity demanded = X 100 ½
𝑄
30 1
= 150 X 100
= 20% fall in the quantity demanded ½
𝟐𝟎%
Ed = 𝟒𝟎% = 0.5 (ignoring minus sign)
1

Diminishing returns to a variable input referred to a stage in production
11 10 12
when with the employment of more and more units of variable factor with
the given fixed factor, marginal product (MP) decreases and total product 2
(TP) increases at diminishing rate.
Reasons for the decreasing returns to a variable factor are:

i) Over-utilisation of the fixed factor
As we keep on increasing the variable factor along with the fixed 2
factor eventually a position comes when the fixed factor has its
limits and starts yielding diminishing returns.

Pg.4

ii) Improper coordination between Fixed and Variable factors
After a certain level of employment, the production process
becomes too crowded with the variable input and factor proportion 2
tends to become less and less suitable for the production.
Features of monopoly form of market-
12 - -
1. Single seller – There is a single producer of a commodity therefore
the difference between firm and industry disappears. The firm has
full control over supply of the commodity.

2. No close substitutes-The product offered by a monopolist has no
close substitute. So, the monopoly firm has no fear of competition
from new or existing rivals.

3. Restriction on entry – There exist strong barriers to entry of new
firm under monopoly. As a result, a monopoly firm can manipulate 2x3=6
the market and earn abnormal profits in the long run too.
(any other relevant features with explanation )
OR
Distinction between Perfect Competition and Monopolistic Competition

1. Number of sellers – Perfect competition and monopolistic
competition, both the markets consists of large number of sellers
but there is lesser number of sellers in monopolistic competition as
compared to the number of sellers in perfect competition.

2. Nature of product – under perfect competition product is
homogeneous. Whereas In monopolistic competition products are
differentiated on the basis of brand, size, colour etc.

3. Selling cost - under perfect competition, products are
homogeneous in nature therefore there is no selling cost required 2x3=6
whereas under monopolistic competition, products are
differentiated. Therefore, huge selling costs are required to be
incurred to attract consumers.
SECTION B – MACRO ECONOMICS
13 14 15 National income, Investment 𝟏 𝟏
𝟐
+𝟐
(any other relevant example)
Tax is a compulsory payment made by the individuals and the firms to the
14 15 16 1
government.
15 16 13 d) 0.6 1
Primary deficit is the difference between fiscal deficit and the interest payments
16 13 14 1
made by the government.
OR
Fiscal deficit is the difference between the Government’s budgetary expenditure 1
and its budgetary receipts excluding borrowings.
17 18 17 The problem of double counting arises when the value of some goods and
services are counted more than once while estimating national income.
Two ways to avoid double counting are : 1

Pg.5

a) Deduct intermediate consumption from value of output to arrive at value 1
added
1
b) Take the value of final product only
OR
Yes, given statement is defended. As GDP may not take into account
i) Non-monetary exchanges like services of housewife
ii) Externalities i.e. benefits and harms which are caused due to
economic activities 3
iii) Distribution of income.
(to be marked as a whole)
1 1
18 - - K=
𝑀𝑃𝑆
1 ½
K =0.2 =5
1
∆Y= K(∆I)
½
∆Y= 5X500 = 2,500 Crores
Capital Receipts are those receipts of government which either lead to
19 - -
increase in its liabilities or reduction in its assets. For Example: receipts
from recovery of loans, borrowings, receipts from disinvestment. 1½
whereas;
Revenue receipts are those receipts of government which neither lead to
increase in its liabilities nor reduction in its assets. For example: income
tax, profit of PSU, dividends, fees and fines etc. 1½
(any other relevant example)
Components of Aggregate Demand are:
20 21 19
1. Consumption Expenditure(C)
2. Investment Expenditure(I) ½+½
• Consumption Expenditure(C)–it is that portion of income
which is spent on purchase of goods and services by the
consumers in an economy during the accounting period.
1½ + 1½
• Investment Expenditure(I)– The addition to the stock of
physical capital and change in inventories of a firm in an
economy.
OR
The vertical gap ‘KT’ represents ‘Deficient Demand’.
1
The fiscal measures to correct ‘Deficient Demand’ are:
a) Increase in government expenditure
b) Reduction in taxes. 1½ + 1½
(Marks may be awarded for both ‘Deficient Demand’ or ‘Excess Demand’. However, the
‘measures to contol’ must be correct accordingly)

FOR BLIND CANDIDATES
Deflationary gap represents the situation where actual aggregate demand
falls short of the aggregate demands required to maintain full employment
level. The fiscal measures to correct deflationary gap are:
a) Increase in government expenditure
2+ 2
b) Reduction in taxes.

Pg.6

a) When Aggregate Demand is greater than Aggregate Supply (AD>AS),
21 19 20
buyers are planning to, buy more goods and services than what
producers are planning to produce. It will lead to fall in planned 2
inventories below the desired level. The producers in turn will produce
more, which will raise the income level i.e. AS, till AD becomes equal to
AS.
b) Ex-ante investments are lesser than ex-ante saving (I < S) means buyers
are planning to buy lesser output as to what producers are planning to
produce. It will lead to rise in planned inventories above the desired 2
level. As a result the producers will cut down production, leading to
reduction of income till savings becomes equal to investments.
a) Trade surplus refers to excess of value of export of visible items
22 24 24 1
over value of import of visible items in the balance of payment
account of a country.
Current account surplus refers to excess of receipts from value of
export of visible items, invisible items and unilateral transfers
over payments for value of import of visible items, invisible items 2
and unilateral transfers. It is relatively broader concept as
compare to trade surplus.
b) Indian rupee plunged to all time low of 74.48 against US dollar. It
is called depreciation in the value of Indian Rupees. It may lead to
fall in imports as foreign goods will become costlier for the 3
domestic consumers. (To be marked as a whole)
a) Two components of money supply are:
23 22 23
(i) Currency held with the public 2
(ii) Demand deposits held with commercial banks

b) Two instruments of credit control are
• Repo rate – It is the rate of interest at which central bank lends to
commercial banks for their short term requirements. An increase in repo
rate will force commercial banks to increase their lending rates. It will
2
make borrowings costlier to general public.

• Open market operations refer to buying and selling of government
securities by the central bank from and to the general public. When
central bank sells its securities, it reduces liquidity (deposits) with 2
commercial banks and adversely affects credit creating power of banks.
(any other instrument with relevant explanation )
OR
Credit multiplier measures the amount of money that the banks are able to 1
create in the form of deposits with every initial deposit.
The credit creation by commercial banks depends on credit multiplier as it is
inversely related to LRR. Higher the credit multiplier, higher will be the total
credit created and vice - versa. 2
For Example suppose the LRR is 0.2 and initial deposit is 1000
1
Credit multiplier = 0.2 = 5
Total credit created = 5 x 1,000= 5,000

Whereas, suppose LRR is 0.5 and initial deposit is Rs. 1,000
1
Credit multiplier = 0.5 = 2
Total credit created = 2 x 1000 = 2,000
3
Thus, with the same initial deposit total credit creation decreases with an increase
in the value of credit multiplier. (Any other relevant example)
Pg.7

Mixed income of self-employed =(i)-[(viii)+(xii)+(v)]
24 - - 1½
=71,000-(15,000 + 30,000 + 1,000) 1
½
Mixed income of self-employed = 25,000 crores

Government Final consumption expenditure = (i)- [(x)+(ii)+(v)+(ix)]+(vi)+(xi) 1½

=71,000 –(40,000 + 10,000 + 1,000 + 5,000) + 2,000 + 3,000 1
½
= 20,000 crores

SET 2 – UNCOMMON QUESTIONS

- 6 - Good X and Good Y are substitute goods, if the price of Good X rises, it
makes the Good X costlier and Good Y relatively cheaper. As a result 3
demand for Good Y will increase and consumer will substitute Good Y over
Good X.
OR
Increase in income of consumer leads to an increase in his purchasing
power so the demand for inferior goods falls as consumer will tend to shift 3
from an inferior product to a better quality product.

- 9 - Quantity (in units) MU
(in utils)
1 8
2 5
3 3
4 1
5 0
6 -1

Law of diminishing marginal utility states that keeping other factors
constant, as a consumer consumes more and more units of a good, the 4
utility obtained from the consumption of every additional unit consumed
goes on falling.
As per the schedule marginal utility at first unit of consumption is 8 utils
and it goes on falling as consumption increases. It is zero at the 5th unit of
consumption and negative at 6th unit of consumption and beyond.
(any other relevant example) (to be marked as a whole)
OR
Budget line – it is a graphical presentation of all those combinations of two 2
goods which costs the consumer exactly his income.
It is downward sloping because to buy more of one good, the consumer 2

must reduce the purchase of the other goods as income remains same.

Pg.8

- 11 - Three main features of oligopoly form of market:
1. Few firms – This market comprises of few firms, each firm is likely
to have market share big enough to have some influence on the
price of product.
2. Interdependence – As the number of competing firms is limited
under oligopoly therefore each firm has to take into account the
likely reactions of the rival firms before taking any price and output
decision.
2x3=6
3. Non-price competition – In order to avoid any possible price war in
the market the firms resort to the use of promotional techniques.
(Any other relevant feature)
OR
Distinction between monopoly and monopolistic competition:
1. Number of seller: There exists a single seller in the monopoly
market whereas there are large numbers of sellers under
monopolistic competition form of market.
2. Nature of the product: There is unique product in monopoly
market whereas under monopolistic competition products are
differentiated.
3. Selling cost: Under monopoly market selling cost are negligible as
2x3=6
product is unique in its nature. Under monopolistic competition
market huge selling cost are incurred due to product
differentiation.
1 1
- 17 - K=𝑀𝑃𝑆
1
K=0.2=5 ½
1
∆Y=K(∆I)
½
∆Y=5×700= 3500crores

- 20 - Revenue expenditure is that expenditure of the government that neither
creates any asset nor reduces any liability. For example: Expenditure on 2
salaries, pensions, interest payments .
Whereas;
Capital expenditure is that expenditure of the government that either
creates assets or reduces liabilities. For example: Expenditure on 2
construction of flyovers , repayment of loans
23 Operating surplus = (i)-[(vii)+(ix)+(xi)] 1½
=50,000-(20,000+13,000+500) 1
= 16,500 Crores ½
Private final Consumption expenditure = (i)-[(iv)+(vi)+(xi)+(xii)]+(vii)+(ii) 1½
=50000-(17000+12500+2000+500)+700+1000 1
½
= 19,700 Crores

Pg.9

SET III – UNCOMMON QUESTIONS

5. Good X and Good Y are complementary goods which are jointly demanded 3
therefore if the price of Good X increases the demand for Good Y will decrease.
This is due to the inverse relationship between the price of given good and
demand for its complementary good. (to be marked as a whole)
OR
Increase in income of consumer leads to an increase in purchasing power of
consumer so the demand for normal good X increases, as the demand for normal
good is directly related to the income of consumer. (to be marked as a whole)
3

7. Law of equi-marginal utility states that a consumer will get maximum satisfaction
if the marginal utility of last rupee spent on each good is same.
The condition for consumer to be in equilibrium in case of equi marginal utility
MUx MUy
will be Px = Py = MU of last rupee spent on each good. 4
OR
The condition of consumer’s equilibrium under ordinal approach are:-
𝑃𝑥
1. MRSXY =
𝑃𝑦
2. MRSXY declines as more of Good X is consumed.
1
Explanation:-
𝑃𝑥 1
1. Suppose MRSXY>𝑃𝑦, it means that the consumer is willing to sacrifice
more for Good X than market price of Good X. it will induce a consumer
to buy more of Good X and less of Good Y. Buying more of Good X
𝑃𝑥
reduces MRSXY. This process will continue till MRSXY= .
𝑃𝑦
𝑃𝑥 1½
(explanation with MRSXY<𝑃𝑦 is also correct)
2. MRS XY must decline for the consumer to attain equilibrium. ½
(Diagram not required)

10. Feature of monopolistic competition-
1. Large number of seller – Large number of sellers selling closely related
but differentiated products. Each firm acts independently and has limited
share of the market which leads to limited degree of monopoly overprice.

2. Product differentiation- products are differentiated on the basis of brand
name, color, size etc. these differentiated products are close substitute of
each other. Since a group of buyers prefers the product of a particular
producer, that producer enjoys some monopoly in the market.

3. Freedom of entry and exit to firms- there exist no barriers to entry or 2X3=6
exit, as a result firms earn only normal profits in the long run.
OR
1. Number of sellers – Perfect and monopolistic, both the market
consist of large number of sellers but there are comparatively less
number of sellers in monopolistic market.
2. Nature of product – under perfect competition product is
homogeneous. In monopolistic competition products are
differentiated on the basis of brand, size colour etc.
Pg.10

3. Selling cost - under perfect competition, products are
homogeneous in nature therefore no selling cost is required. Under
monopolistic competition, products are differentiated thus huge
selling cost is required promote the good and to attract the 2x3=6
consumers.
1 1
18. K = 𝑀𝑃𝑆
1 ½
K= =5
0.2

∆Y=K(∆I) 1
∆Y= 5 X 1200= 6000crores ½

21. 3
a) Tax receipt is the revenue earned by the government from taxes levied
on income, wealth and commodities. E.g. Income Tax, GST etc., whereas;
non- tax receipts are the revenue earned by the government from
sources other than taxes, e.g. fees, fines, interest earned etc.

b) Expenditure of the government on salaries, pensions, subsidies, grants 1
etc. (any other relevant examples)

22. Wages and salaries = ix-[(i)+(viii)+(vii)] 1½
= 30,000-(3,500+12,000+700) 1
= 13,800 crores ½

Gross domestic Capital formation
= (ix)-[(iv)+(v)+(vii)+(xii)]+(ii)+(vi) 1½
= 30000-(14000+3000+700+11000)+300+300 1
= 1,900 crores ½

Pg.11