CBSE Class 12 Economics Value Based Questions Set C

CBSE Class 12 Economics VBQs (1)  Based on CBSE and NCERT guidelines. Value based questions are now being given in exams to promote morals and values in students, Students should read and understand the following VBQs to get better understanding and score good marks in exams

VALUE BASED QUESTIONS

(CHAPTER WISE)

INTRODUCTION TO MICRO ECONOMICS:

Question. India is a labour abundance and capital scarce economy. Which technique of production should be used to produce the commodity?
Answer: India should adopt labour intensive technology.

Question. As water resources are limited in our country, how can we economise the water resources so that it would not become a future problem for us. Give any two suggestions.
Answer: i) Rain water harvesting to be implemented as must.
ii) Recycling of Water and economical use of water.

Question. A teacher is getting Rs. 6000/- as salary per month. If he leaves the job and starts tuition work, he is expected to earn Rs. 5000/- per month what would be his opportunity cost.
Answer: The opportunity Cost of a school Job is Rs. 5000/- p.m . That a teacher could have earned in the next best alternative use that is doing tuition work.

Question. With the same amount of resources, a farmer can feed the following combination of goats and Horses.

Given the option available with him,What is the opportunity cost of the farmer of feeding one Horse. ?
Answer: The opportunity cost to the farmer of feeding one horse is 3 goats i.e: 168- 155 ÷ 50-44 =3/1

Question. Lot of people die and many factories are destroyed because of a severe earthquake in a country. How will it affect the countries PPC?
Answer: As a result of death and destruction of factories due to Earthquake there will be reduction in Production as a result PPC will shift to left, due to decline in resource.

CONSUMER‘S BEHAVIOUR AND DEMAND

Question. Keeping the health of the people in mind, the government should be considerate in fixing the .price of essential items like milk, as price elasticity of demand is;
Answer:

a) More than one

b) less than one,

c) equal to one

d) zero

Question. For proper allocation of his income, a consumer shall maximize his gain when the
Answer:
a) MU=Price

b) MU>Price

c) MU

d)None

Question. Price of petrol has increased. As a result, the consumer should:
Answer:

a) .Decrease its demand,

b) Economize on it by no wastage

c)Increase its demand

d) none

Question. How can the government meet the amount demanded of an essential good like onions in the face of shortage ?
Answer:

a) Rise the price

b) Fall in price

c) Rationing

d)None

Question. Taste and preference for cola have increased manifold their consumption among children. Being unhealthy, it should be urgently checked through
Answer:

a) Rise in price

b ) Rationing

c) Parent‘s help

d) school as a counselor

Question. Before the purchases, a given consumer in order to behave rationally should look at
Answer:

a) Price of the product

b) Its marginal utility

c) After-sale service

d) All the three.

Question. Demand for water is :
Answer:

a) More elastic

b) Inelastic

c) Perfectly elastic

d) perfectly inelastic

Question. On account of subsidy given to an essential item, consumers have started spending more on this item. Based on the principle of 'equal distribution, . What can be done to restrict its consumption?
Answer:

a) increase in its price

b) ration it

c) increase its supply

d) none of the above

Question. What is the shape of the demand curve when the elasticity of demand is perfectly elastic?
Answer:

a) horizontal to the x axis

b) vertical to the x axis

c) slope downwards

d) none.

Question. Price of petrol is very high but still its demand continues to be very high. Suggest two measures by way of which demand of petrol can be decreased.
Answer: Demand for petrol is high despite of its price, being high because of derived demand.. As the cars are in demand, petrol is in demand. Two measures of conserving these scarce resources are: a) car pool instead of each member with a car Use alternate methods of transportation which are cheaper and cleaner like Metro, whenever possible

Question. Demand for electricity is increasing but due to scarcity of resources. Its supply cannot be increase. Suggest two measures as how you can curtail the demand for electricity?
Answer: Demand for electricity can be curtailed by
a) Switching off its usage when not in use, eg TV to be switched off when not in use.
b) Consumers of electricity should conserve it, for example, by using 1 AC instead of 3 AC for three family members separately.

Question. As a consumer would you equate price of a commodity with total utility or marginal utility? Give reason in support of your answer.
Answer: A consumer would equate price of the commodity with its marginal utility and not total utility.
Reason: The consumer, while buying a unit of a commodity, compares additional benefit and additional cost related to the unit. Additional benefit is marginal utility, while additional cost is p of the commodity. He will buy a particular unit only when MU is at least equal to P. And he strikes his equilibrium when MU =P The consumer does not compare P with TU because TU is the sum total of utility resulting from all the units of a commodity he is buying . It cannot be compared with P which is always related to one unit.

Question. How does it matter to a consumer in case of MRSxy>Px/Py?
Answer: MRSxy, refers to ratio between change in y commodity to a change x commodity or the amount of goody that the consumer is willing to give up for one more unit of good X according to his taste and preferences, Px/Py, on the other hand , the amount of good Y that the consumer has to give up for one more unit of good X, according to the market price of X and Y. In case MRSxy > Px/PY, it implies a situation that what the consumer is willing to give up exceeds what he is required to give up.. Will the consumer be rational in such a situation, if he stops buying more of x in place of Y? Certainly not.so, he better moves downward on IC. Increase in his purchase of x in
place of Y, will reduce his MRS to align with the required rate of substitution between x and y.

PRODUCER BEHAVIOUR AND SUPPLY

PRODUCTION

Question. How can the productivity of Human resources be increased?
Answer: The productivity of human resource can be increased with the help of human capital formation by providing training and skill to available labour force.
Value: Creative thinking

Question. What efforts should be made in an economy to reduce the continuous use of exhaustible natural resources in production?
Answer: There are various efforts namely,

1. To increase the use of renewable resources

2. To explore the substitutes of resources

3. To reduce the wastage of resources

4. To spread awareness about the effectively and optimum use of natural resources Value: Environmental conservation

Question. Availability of agricultural land (fixed cost) is limited in the world, but demand of food grains is continuously increasing. Is it possible to increase the supply of food grains by continuously increasing variable factors like seeds, fertilizer, etc?
Answer: Availability of agricultural land is limited in the world, production of food grains may be increased by continuous increase in variable factors only up to a optimum combination with fixed factors.
After that law of negative returns is applied. Value: Critical thinking

Question. Imagine yourself as a producer (in a perfectly competitive market structure), focusing on profit maximization. Will you prefer striking an equilibrium in a state of increasing returns?
Answer: Striking an equilibrium in a state of increasing returns to a factor (when MP is rising or MC is falling) is absolutely ruled out. Because it is a situation when every addition unit of output adds more and more to total profits.
Reason: while MR is constant (under perfect competition) MC is falling (owing to increasing returns), so that the difference between MR and MC tends to rise. It is only when the differential (MR – MC) starts shrinking, and is finally eliminated, that the profits are maximized. This happens only in a state of diminishing returns when MP is falling or MC is rising.

COST

Question. In a situation of fall in the sale of ice cream, the ice cream producer would like to reduce the production. What factors of production fixed or variable will be reduced by him? Explain with reasons.
Answer: When sale of ice cream decreases, profit of producer will fall by which he will try to control his cost of production but in short run he cannot change the cost of fixed factors therefore he will reduce the cost of variable factors.

 REVENUE

Question. A manager of zoo wants to increase the revenue, which measure is more appropriate:
i) Increase the entry fee
ii) Decrease the entry fee. Explain?
Answer: By reducing the entry fee the number of visitors will increase and total revenue will increase, but if the entry fee is increased, number of visitors will decrease and total revenue will fall.
Value: Problem solving

SUPPLY

Question. How can tax policy of government be effective in controlling the supply of Liquor like harmful product?
Answer: The production of liquor like harmful products will be less profitable to the producer due to increasing tax rates because the difference between revenue and cost decreases and hence producer’s profit will decrease, and the supply of liquor will be decreased.
Value: Social health consciousness

FORMS OF MARKET AND PRICE DETERMINATION

Question. ―Demand curve facing a monopoly firm is a constraint for the monopolist.‖
Answer: one seller, price maker

Question. Price discrimination should be socially desirable. How?
Answer: For the benefit of the poor

Question. How to reduce the incidence of selling cost under monopolistic competition because of which price tends to be higher than what it would have been if only the production cost would have been the sole basis.
Answer: reduce expenditure on advertisement, increase consumer awareness

Question. Why has power crisis increased in India
Answer: demand is more, transmission and distribution losses and theft

Question. Explain the effect on the market equilibrium by imposing a ban on the sale of GUTKA in Delhi?
Answer: fall in supply, increase in supply of other related goods

Question. BPO offers attractive jobs to the educated urban youth in India. Though highly remunerative, these jobs involve long and inconvenient working hours. What is the impact of BPO on the supply of labour.
Answer: prevailing unemployment supply of labour is not affected by the long and inconvenient working hours( sweat shopping)

Question. A severe drought results in a drastic fall in the output of wheat. Analyze how it will affect the market price of wheat.
Answer: Market price will rise, price regulation may be required from the govt.

Question. Consumers often suffer because of their ignorance about the market situation and pay higher price than the equilibrium price. How this can be avoided.
Answer: consumer awareness about their rights and duties

Question. How are decisions taken by consumers and producers in a market coordinated?
Answer: Manifest in the form of demand and supply and the resultant price. 

National Income and Related Aggregates

Question. GDP of a Nation rose by 6%, does it represent real Growth of the Country?
Answer: No, because inflationary growth must be discounted from it.

Question. ―GDP does not include all the economic transactions in it‖. Comment,
Answer: Indian Economy is an underdeveloped economy. There occur several non-monetary transactions. In rural India, people exchange some goods with other goods or exchange goods with services without involving money. Money Value of such transactions is excluded from GDP. Thus GDP is not a true index of all the transactions of a nation.

Question. National Income rose by 8% during the year 2010, Does it represent the growth of every Indian? Discuss
Answer: No, because national income includes the factor income of all the factors of the nation. It does not analyse the distribution of income of every Indian. Some people might have very high income while others income might be negligible. Thus 8% growth of national income does not mean equivalent growth of every Indian.

Question. Does private income include Net Factor Income from Abroad
Answer: Yes, Private Income is private because it does not include income of public sector. Income of any Govt. Department or savings of public enterprises is excluded from it. However net foreign income of every factor earned from abroad is part of private income. Thus private income is a part of national income of a nation.

Question. ―National Disposable Income has a greater value than national income‖. Do youn agree?
Answer: Yes, because national disposable income includes some additional factors which national income does not include. These are:

I. Net Indirect Taxes.

II. Net Current Transfers from Abroad.

National Disposable Income does not distinguish factor income from transfer income. It can be disposed off by a nation, the way it likes.

Question. ―The value of Private income is greater than Personal income and Personal Disposable Income‖. Comment
Answer: Yes, the value of Private income is greater than Personal Income as well as Personal Disposable income in every nation because Private income has the following extra elements in it:

I. Private Income includes corporate Taxes as well as Corporate Savings where as personal income does not include these amounts.

II. Private income includes personal Taxes as well as Miscellaneous income where as Personal Disposable income does not include it

Question. Why transfer income is not included in National income? Explain.
Answer: Transfer Income is any income of the people which is paid to them without providing any service. It is unearned income, received as a help from Govt. or from some other donor. National income, on the other hand is the income of all the factors for providing some service. It is the sum total of earned incomes.

Question. Determine National income when the following data is given:

                                                                Rs. Crores

i. National Disposable income                          12,00
ii. Net Indirect Taxes                                         150
iii. Net Current Transfers Income from Abroad   200
iv. Net Factor Income from Abroad                   (-)50

Answer:                                                        Rs. Crores

National Disposable income =                           12000

(-) Net Indirect Taxes =                                       150

(-)Net Current Transfers Income from Abroad =  200

NATONAL INCOME =                          Rs. 11650 crores

Question. How far Retained Earnings of National Thermal Plant Corporation (NTPC) Rs.1500 crs.is a part of national income?
Answer: It is an income of Public Sector Company, therefore, included in National income.

Question. State Bank of India Earned Rs.500 crs from its branch at London. Is it a part of Indian National Income?
Answer: Yes, it is a part of income of India, since economic interest of SBI at London lies in India.

Question. Although India‘s GDP is increasing but the welfare of the people is not increasing with that pace. Do you think the concept of ―Green GNP‖ should be followed?
Answer: Yes, the concept of Green GNP can be followed.

i. Green GNP measures national income or Output adjusted for the depletion of natural resources and degradation of the environment.

ii. It will help to attain a sustainable use of natural environment and equitable distribution of benefits of development. A large number signifies greater Sustainability

Question. Old age pension by the Govt. Increases the welfare of the people. However it is not included in the estimation of national income. Why?
Answer: It is not included in the estimation of National income because it is a transfer payment.

Question. Services of house wife and leisure time activities contribute to welfare of people. However they are not included in the estimation of national income. Why?
Answer: Such non-market transactions are not included in the national income because it is difficult to ascertain their market value and such services are not rendered for the purpose of earning income.

Question. A City in Northwest India is hit by a massive earthquake causing huge loss of property. Life of people has come to a standstill. Govt. of India announces compensation to earthquake victims to meet the needs of their food, clothes and shelter.
a) Is this expenditure included in National income?
b) How does it impact life in the city?
Answer: a) This Expenditure by the Govt. is not included in National income as it is transfer Payment and does not correspond to the flow of goods and services
b) This Expenditure will help the people to get their lives back on track. It will add to their consumption expenditure. Also, if some expenditure is incurred to rebuild their houses, it will add to the capital formation in the city.

Question. Measurement of national income suffers from various limitations which lead us to conclude that it is not an overall appropriate measure of welfare of people, still national income accounting is done and national income estimates are prepared. Justify.
Answer: i) National income Accounting helps in identifying specific economic achievements of a country.
ii) It provides an objective base of evaluation and review of policies implemented.
iii)It indicates specific contribution of each sector of the economy.
In spite of certain limitations, it is a measure of economic production if not overall welfare

Question. Countries GDP and National income are increasing. Higher GDP is generally taken as greater welfare of people. However this generalization may not always be correct. Why? Give reasons.
Answer: If rise in National income is due to production of more of war time goods such as explosives, guns, bombs, etc. are due to production of more goods which are socially undesirable such as opium, liquor, etc. then increased GDP may not be welfare oriented.
If there is unequal distribution of income economic welfare may not increase.

Question. Every rational producer makes provision for depreciation to replace fixed assets after expiry of expected life time. He takes care of physical capital, but in the pursuit of increasing production he must have been causing damage to natural capital (Resources and Environment). Suggest solution to the problem.
Answer: The producer should also make provision for loss caused to nature (in the form of exploitation of natural resources and environmental pollution) he should follow the concept of Green GNP (Green GNP is defined as GNP which would help to attain a sustainable use of natural environment and equitable distribution of National income)
Green GNP = GNP - Net fall in stock of Natural capital.

MONEY & BANKING

1) Out of the Bank rate policy and open market operations, which will you prefer in India? Ans: The bank rate policy should be preferred by the RBI because the policy of open market
operations cannot be used effectively in our country.

2) Why should be the top most role of the Central Bank in a developing economy like India? It should be to adopt measures like expansion, promotion and strengthen the banking and
financial structures.

3) Suppose all the customers of a commercial bank demand for their deposits at the same time then how does Central bank help the Commercial bank in this situation?

Central Bank helps as ―Lender of last resort‖. It gives financial accommodation to the commercial bank

a) By rediscounting its bills of exchange and promissory notes b) By providing loans against its securities. Thus it saves commercial banks from financial crisis.

4) When barter system was in use, a merchant had to incur cost in the absence of money. What were those costs?

a) Search cost, which is the cost of searching a person, to exchange goods and b) Disutility of waiting, which means cost of equivalent to wastage of time period spent on finding out required person.

5) Although increase in money supply is an effective measure to control economic depression, yet it creates burden of borrowing in an economy. Explain two measures to control economic depression in such a situation.

Decrease in Bank rate, Decrease in SLR and purchase of Government securities by RBI.

6) RBI has reduced CRR from 4.25% to 4%. Will this help in controlling inflation in India?

It increases the lending capacity of commercial banks. This adds to inflationary pressure in the economy.

7) Why is Central Bank sole authority for the issue of currency in the country?

• It ensures uniformity in note circulation
• It builds up public faith in the currency system
• It enables government to control money supply through RBI

DETERMINATION OF INCOME AND EMPLOYMENT

Question. ―Investment demand includes financial investment like purchase of shares from secondary market‖. Do you agree?
Answer: The term investment here refers to real investment, not the financial investment. Real investment is concerned with the increase in stock of capital assets such as machines, tools, equipment, inventories and also fixed assets. Therefore investment demand does not include financial investments.

Question. If in an economy seasonal-unemployment exists with voluntary unemployment, is it a situation of full employment?
Answer: Yes, it is a situation of full employment. Full employment is a situation in which there is no involuntary unemployment. If seasonal unemployment exists, they can be absorbed in alternative employment opportunities.

Question. If disposable income increases what happens to household consumption expenditure?
Answer: Household consumption expenditure has a tendency to increase with the increase in disposable income, but at lesser rates than the rate of increase of income. 

Question. Rising inflation is a matter of corners for the Govt. in India. Suggest four measures to control inflation?
Answer:

(i) Increase in the bank rate.

(II) Increase in reserve ratio

(III) Increase in taxation

(IV) Increase in margin requirement.

Question. Assume that in India general price level is falling. Suggest four measures to raise the price level?
Answer: (a) Decrease in tax rates

(b) Increase in public expenditure

(c) Reduction in bank rate

(d) Decrease is reserve ratio

Question. ―MPC falls with successive increase in the level of income‖. It is true always?
Answer: This may be true if there is equitable distribution of income. But, if there is unequal distribution of income the MPC will be high for a poor person as he needs to spend more to fulfill his requirements.

GOVERNMENT BUDGET AND THE ECONOMY

Question. Between direct and indirect tax, which should be used more for equitable distribution of income and why?
Answer: Direct tax as it is progressive in nature

Question. What is a Zero PRIMARY deficit budget?
Answer: It means that the Government has to borrow only for making interest payments of the previous years, and that there are no fresh borrowings.

Question. What will be the effect of reduction of subsidies on fiscal deficit?
Answer: It will reduce the Revenue expenditure and hence fiscal deficit will also be reduced

Question. There has been a consistent rise in the price of fruits and vegetables in India. Which measure of the budget will help to reduce the price
Answer: Public Distribution system, measures against hoarding

Question. Public goods are provided by the government, is it necessary?
Answer: Public goods are those goods and services for which consumption by some individuals, do not reduce the amount available to others. Example parks, roads. People receive benefits from public good but do not pay for them. Such a good can be produced only by government

BALANCE OF PAYMENTS

Question. What is the likely effect of depreciation or devaluation of a currency of the country‘s foreign trade?
Answer: It encourages exports from the country and discourages imports from rest of the world.

Question. India is suffering from the problem of current Account deficit .How is it met or fianced?
Answer: Current Account deficit in BOP occurs when the sum of receipts of foreign Exchange on account of trade in visible and invisible goods is less than the sum of payments of foreign Exchange on account of trade in visible and invisible goods.

A CAD implies that a country has contracted to spend more foreign exchange than it has been able to earn during the year. A CAD can be financed through various sources:

i) A country may use a part of its gold stocks and maka payments to foregners by means of gold.

ii) A country may draw upon the reserves of foreign currencies and foreign securities iii) A country may borrow foreign exchange from different officials and private sources.

iv) It may mobilise foreign Exchange by attracting deposits from foreigners and investment of capital by foreigners.

Question. If Inflation is higher in a country A than in country B and the exchange rate between two countries is fixed , what is likely to happen to trade balance between two countries?
Answer: If Inflation is higher in country A than in country B , and the exchange rate between the countries is fixed, the trade balance of country A will be deficit while that of country B will be surplus. In case of Inflation in country A and prices of country B remaining constant, imports of country A will rise or Exports of country A will decline . As a result trade balance of country A will be unfavourable and trade balance f country B will be favourable.

Question. A rise in BOP services in the economy can be considered a good source of supply of foreign currency 'justify.
Answer: Indeed the post reform period, India has become the destination of global outsourcing. This has been mainly due to the cheaper cost wit reasonable degree of skill and accuracy of labour. There is a good inflow of supply of foreign exchange from the economy point of view,which proves beneficial.

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