(SET-I)

Time allowed : 3 Hours

M.M. : 100

SECTION-'A'

Give two examples of non-departmental government enterprises in India.(1)

(ii) Life Insurance Corporation.

Name any two subsectors of the Indian economy for which production method is used for estimating their contribution to national income. (1)

(ii) Forestry and logging.

Name any two subsectors of the tertiary sector in India. (1)

2. Trade, hotels and restaurants.

Distinguish between current transfers and capital transfers. (2)

1. Current transfers are generally meant for consumption whereas capital transfers are meant for capital formation.

2. Current transfers are made from the current income whereas capital transfers are made out of saving.

3. Current transfers are used for short term expenditure whereas capital transfers are used for long term expenditure.

Define gross domestic capital formation. Are purchases and sales of second-hand assets in the domestic market included in it ? Give reason in brief. (2)

Gross domestic capital formation in excess of production over consumption within domestic territory of a country during a year. It consists of gross fixed capital formation and change in stocks.

sale and purchase of second hand physical assets within the domestic market does not affect and gross domestic capital formation. It is because these transactions do not increase or decrease the capital formation. These represent only the transfer of ownership of the assets.

What does intermediate consumption of general government include ? (3)

The intermediate consumption of the government includes the following :

(i) Value of all non-durable goods and services such as petrol, electricity, lubricants, pens, writing paper, ink etc.

However, any goods received for distribution to consumer house-holds without renovation and alteration should not be included in intermediate consumption as these go into the final consumption of consumer households.

Explain with the help of an example the process based division of labour. (3)

In such a situation A will do cutting, B will do stitching, C will do buttoning and D will do ironing. Among all these four persons, none can say that he can manufacture the shirt individually. In modern industries, process-based division of labour is used.

How is factor income generated in the production process ? Explain.(3)

Income generated is the income which factors of production earn during production process, such as wages, salary, profit, rent and interest, etc. During production process income is generated in the same ways as value added takes place. The net value added is the result of the production activity of the primary factors - land, labour, capital and entrepreneurship. therefore, they have a share in the net value added by enterprise. The net value added gets distributed as income to the owner of production. Net value added and factor incomes are one and the same thing, but net value added is looked at from the side of the enterprise, and factor income from the side of the factor owners.

Distinguish between national income at constant prices and national income at current prices. Explain briefly. (3)

The money measure of the volume of final goods and services produced in an economy during a year is called national income.

The money value of goods and services can be estimated by multiplying the physical quantity of output of goods and services by their respective market prices. The market prices to be used for this purpose may relate to the year for which national income estimation is being made. Such an estimate of national income is called national income at current prices ( or nominal national income).

Alternatively, the price quotations to be used may relate to nay other specific year. Such a year is known as a base year. National income estimates prepared with base year prices are known as national income at constant prices ( or real national income).

From the following data calculate value added by firm X and by firm Y.(3)

(ii) Value Added by Firm = Rs. 175 lakh.

Distinguish between intermediate goods and capital goods. Give two examples of each. (3)

Intermediate goods are those goods which are used up in the production of other goods or services or are purchase for sale. These consist of different non-durable goods and services. These are also known as non-factor inputs.

Capital goods : All such producers goods which are used for further production processes are called capital good. It includes two types of goods. Firstly, durable goods which are used for production such as machines, buildings, cars etc. Secondly, stock of raw-material semi-finished goods and finished goods lying with the producers at the end of the year. This stock is also treated as producers goods.

Calculate gross national product at factor cost from the following data : (3)

Gross National Product at Factor Cost = Rs. 2,030 Crore.

How is the net value added by registered manufacturing sector estimated in India ? (3)

Registered manufacturing : This relates to the value of output of those factories which are registered under the Factories Act of 1948. The National Sample Survey Organisation of India conducts every year a survey relating to these industries which is called as annual survey of industries. Through this survey industry-wise information is collected relating to employment, capital employed, inputs used, quantity and value of output , etc. After subtracting intermediate consumption and depreciation from the gross value of output obtained through ASI, the gross value added and net value added of this sector is obtained.

Calculate national income from the following data : (3)

National Income = Mixed Income of the self employed + Operating Surplus + Wages and Salaries + employers contribution to Social Security Schemes + Net Factor Income from Abroad.

National Income = Rs. 1,640 Crore.

Define domestic factor income. Describe briefly its three components. (5)

Domestic Factor Income is the income generated within the domestic territory of a country by all producers.

The Sum of (1) Compensation of employees, (2) Operating Surplus, and (3) Mixed - Income of self-employed is called domestic factor income.

Precautions in Income Method : The following precautions are to be taken while estimating factor incomes :

(i) Transfer payments should not be included.

(v) If a person receives money by selling his second hand goods, the sale proceeds are not income since he has not rendered and productive services.

Explain the value added method of estimating national income.

(iii) Finding out net factor earned from abroad and adding to total net value added in the economy to obtain national income.

Section - 'B'

MPC = DC / DY = Change in consumption / Change in income

When does a situation of deficient demand arise in an economy ? (1)

Deficient demand exists when aggregate demand for goods and services falls short of aggregate supply of output which can be produced by fully employing the given resources of the economy.

Involuntary unemployment : A situation in which people are willing to work at current or seigntly lower or level of wages, but do not find jobs due to deficiency of aggregate effective demand.

Aggregate Supply : Aggregate supply is the total value of output produced in a year at the given price level.

Distinguish between average revenue and marginal revenue.

Distinguish between average revenue (AR) and marginal revenue (MR)

(i) When both AR and MR are falling, MR falls at a greater rule than the AR.

(ii) MR can be negative but AR is always positive (i.e., greater than zero). That is why AR curve always remain above the x-axis while MR curve can go below the x-axis.

Explain any one factor that affects the demand for a factor of production by a firm under perfect competition. (2)

Demand for the produced goods : The demand for the factors depend upon the demand for the goods that are to be produced with those factors. The higher in the demand for gods, the more is factor demand.

State the six factors that affect the market supply of a commodity.(3)

6. Natural factors.

What can be the effects of an increase in both the market demand and market supply of a commodity on its price ? Explain. (3)

When both demand and supply increase : If both demand and supply increase (i.e., both demand curve and supply cure shift to the right), the equilibrium quantity would certainly rise. but the equilibrium price may rise, fall or remain unchanged. It depends on the comparative increases in demand and supply.

(i) If the increase in demand is greater than the increase in supply, the equilibrium - price will rise.

(iii) If the increase in demand and increase is supply are equal, the equilibrium - price will remain unchanged.

How is the value of output on general government estimated ? (3)

As we know, the general government sector does not sell goods and services, but provides them to the citizens normally free of cost. therefore, it is not possible to find out the market value of the government's services as no sale is involved. there value is ascertained on the basis of their cost of production.

Two types of expenses are involved in the production of such services namely (a) intermediate consumption and (b) compensation of employees. Since government uses its own land and capital, rent and interest are treated as nil. In this way, value of output is equal to the sum of intermediate consumption and compensation of employees.

How is the demand of a commodity affected by increases in the prices of other commodities? (3)

The demand of a commodity is affected by increase in the prices of other commodities as follows :

(i) An increase in the price of other commodities increases the households demand for a particular commodity. This is possible in the case of substitute goods. for example, tea and coffee are substitute goods. The amount demanded of tea increases due to increase in the price of coffee.

(iii) An increase in the price of other commodities leave the demand for a commodity unaffected. It is possible in case of unrelated goods.

Explain any three factors on which the price elasticity of demand for a commodity depends. (3)

3. Share in total expenditure : Commodities that account for a small share in household's total budget will be less elastic in demand. Commodities with larger share will be more elastic in demand.

The following table shows the total cost of production of a firm at different levels of output. Find out the average variable cost and the marginal cost at each level of output. (3)

Define monopolistic competition. State its any two basic features. (3)

In the words of Prof. Leftwhich, "Monopolistic Competition is a market situation in which there are many sellers of a particular product but the product of each seller is in same way differentiated in the minds of consumers from the products of every other seller."

Features :

2. Product Differentiation : Under monopolistic competition products of different firms are neither completely homogeneous as in perfect competition nor entirely district as in monopoly.

How is final consumption expenditure of the government estimated? (3)

Government final consumption expenditure : Government uses its own produced goods, goods bought in the domestic market and outside the country. It also sells goods. The value of its produced goods is equal to material used and compensation of employees. Therefore, government final consumption expenditure is equal to net purchases of goods and services plus compensation of employees plus purchases by the government abroad for its embassies, etc.

State three fiscal measures to reduce aggregate demand. (3)

To reduce the aggregate demand following three fiscal measures are adopted by the government :

(iii) Introducing compulsory saving by the govt.

Explain briefly any five central problems of an economy. (5)

Following are the central problems of an economy :

(a) Problem of Allocation of Resources : Following are problems relating to allocation of resources :

(c) Problem of Growth of Resources : Resources are scarce and therefore, every economy should grow the resources available to the economy.

Explain the relationship between average product and marginal product. (5)

The relationship between marginal product and average product is as follows :

(i) The average product rises when the marginal product is greater the average product.

(iii) The average product falls when the marginal product is less than the average product.

How is the private final consumption expenditure measured? (5)

Private final consumption expenditure : It includes the expenditure made by both households and private enterprises on final demand. Household sector makes expenditure on single use consumer goods such as bread, butter, vegetable etc., durable use goods such as furniture, T.v. etc., and services like those of 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 (i) Inventories / Change in stocks ( closing stock - opening stock) and (ii) replacement investment. Inventory investment includes stock of raw material, work-in-progress, semi-finished-goods. It is a very essential expenditure of business sector for increasing the level of production and meeting the demand of household sector.