Economics Question Paper Answer Key
December 2025 Examination | SY-4035
Section 1: Multiple Choice Questions
1 mark each
1. For whom to produce is the problem related to
(b) Distribution of national income
2. The slope of indifference curve is
(c) Marginal rate of substitution
3. Shape of Average Fixed Cost curve
(c) Rectangular hyperbola
4. In a perfect competitive market
(c) AR = MR
5. If firms can enter and exit the market freely, then
(b) P = min. AC
6. If demand is greater than supply then the situation is
(b) Excess demand
7. Which one of the following is related to Macro Economics?
(c) National Income
8. Gross Value Added (GVA) at basic prices is
(a) GVA at factor cost + Net production taxes
9. \( M_1 = \text{Currency} + \underline{\hspace{2cm}} \)
(b) Demand deposit
10. Which one of the following equation is correct?
(c) \( MPS = 1 - MPC \)
Section 2: Short Answer Questions
2 marks each
11. Mention any two factors which determine price elasticity of a commodity.
Answer:
1. Availability of substitutes
2. Proportion of income spent on the commodity
1. Availability of substitutes
2. Proportion of income spent on the commodity
12. Draw Long-run Average Cost Curve and Long-run Marginal Cost Curve in a single diagram.
Diagram:
(Note: LAC curve is U-shaped, LMC curve cuts LAC at its minimum point.)
13. Mention four sectors of an economy from the view point of macro economies.
Answer:
1. Household sector
2. Business sector
3. Government sector
4. External sector
1. Household sector
2. Business sector
3. Government sector
4. External sector
14. If \( CRR = 20\% \), find money multiplier.
Answer:
\[ \text{Money multiplier} = \frac{1}{CRR} = \frac{1}{0.20} = 5 \]
15. Complete the following table:
| Income | Saving | APC | APS |
|---|---|---|---|
| 500 | 200 | 0.6 | 0.4 |
| 1000 | 500 | 0.5 | 0.5 |
| 1200 | 600 | 0.5 | 0.5 |
| 1500 | 700 | 0.533 | 0.467 |
Section 3: Medium Answer Questions
3 marks each
16. Babu wants to consume apple and orange with the money income of ₹ 150. Their market prices are 15 and 10 respectively.
Answer:
(a) Horizontal intercept = \( \frac{150}{10} = 15 \)
(b) Vertical intercept = \( \frac{150}{15} = 10 \)
(c) Slope = \( -\frac{P_x}{P_y} = -\frac{15}{10} = -1.5 \)
(a) Horizontal intercept = \( \frac{150}{10} = 15 \)
(b) Vertical intercept = \( \frac{150}{15} = 10 \)
(c) Slope = \( -\frac{P_x}{P_y} = -\frac{15}{10} = -1.5 \)
17. Explain three stages of Law of Returns to Scale.
Answer:
1. Increasing returns to scale
2. Constant returns to scale
3. Decreasing returns to scale
1. Increasing returns to scale
2. Constant returns to scale
3. Decreasing returns to scale
18. The following table shows the total revenue and total cost of a firm. Calculate the profit at each level of output. Determine also the market price of the good.
Market price: \( \frac{TR}{Q} = \frac{5}{1} = ₹5 \) (constant, perfect competition)
| Qty Sold | TR (₹) | TC (₹) | Profit |
|---|---|---|---|
| 0 | 0 | 5 | -5 |
| 1 | 5 | 7 | -2 |
| 2 | 10 | 10 | 0 |
| 3 | 15 | 12 | 3 |
| 4 | 20 | 15 | 5 |
| 5 | 25 | 23 | 2 |
| 6 | 30 | 33 | -3 |
| 7 | 35 | 40 | -5 |
Market price: \( \frac{TR}{Q} = \frac{5}{1} = ₹5 \) (constant, perfect competition)
19. Explain three situations in which GDP cannot be used as an index of welfare.
Answer:
1. Non-monetary transactions excluded
2. Income inequality not captured
3. Negative externalities ignored
1. Non-monetary transactions excluded
2. Income inequality not captured
3. Negative externalities ignored
20. Explain any two limitations to credit creation of commercial banks.
Answer:
1. Cash reserve requirement
2. Public's desire to hold cash
1. Cash reserve requirement
2. Public's desire to hold cash
Section 4: Long Answer Questions
4 marks each
21. With the help of diagrams explain short-run shut down point and short-run break even point of a firm under perfect competitive market.
Answer:
Shutdown point: P < AVC (firm covers only variable costs)
Breakeven point: P = AC (firm earns normal profit)
Shutdown point: P < AVC (firm covers only variable costs)
Breakeven point: P = AC (firm earns normal profit)
(Diagrams showing price, AVC, AC curves with shutdown and breakeven points marked)
22. With the help of diagrams explain change in equilibrium price and output.
Answer:
(a) Both supply and demand curves shift rightwards: Price ambiguous, output rises
(b) Both supply and demand curves shift leftwards: Price ambiguous, output falls
(a) Both supply and demand curves shift rightwards: Price ambiguous, output rises
(b) Both supply and demand curves shift leftwards: Price ambiguous, output falls
(Diagrams showing supply and demand curves shifting)
23. Write a short note on Emergence of Macro Economics.
Answer:
- Post-Great Depression economic rethinking
- Keynes' General Theory (1936) as foundational work
- Focus on aggregate demand, employment, inflation, and national income
- Shift from microeconomic analysis to economy-wide perspective
- Post-Great Depression economic rethinking
- Keynes' General Theory (1936) as foundational work
- Focus on aggregate demand, employment, inflation, and national income
- Shift from microeconomic analysis to economy-wide perspective
24. Suppose a consumer buys 90 kg of rice and 5 metre of cloth in a year. In the year 2020 the price of a kg of rice was ₹ 10 and a piece of cloth was ₹ 100. Now suppose that the prices have gone up to 15 and 120 respectively in 2024. Calculate consumer price index.
Answer:
Base year (2020):
Expenditure = \( (90 \times 10) + (5 \times 100) = 900 + 500 = 1400 \)
Current year (2024):
Expenditure = \( (90 \times 15) + (5 \times 120) = 1350 + 600 = 1950 \)
Base year (2020):
Expenditure = \( (90 \times 10) + (5 \times 100) = 900 + 500 = 1400 \)
Current year (2024):
Expenditure = \( (90 \times 15) + (5 \times 120) = 1350 + 600 = 1950 \)
\[ \text{CPI} = \frac{1950}{1400} \times 100 = 139.29 \]
25. If autonomous consumption is 20, Investment is 30, MPC = 0.8, find equilibrium income in a two sector economy.
\[ Y = \frac{A}{1 - MPC} = \frac{20 + 30}{1 - 0.8} = \frac{50}{0.2} = 250 \]
Equilibrium income = 250
Section 5: Very Long Answer Questions
5 marks each
26. (a) Explain central problems of an economy in relation to allocation of scarce resources.
(b) Mention the mechanism which is used to solve these problems in atleast two economies.
(b) Mention the mechanism which is used to solve these problems in atleast two economies.
Answer:
(a) Central problems:
1. What to produce
2. How to produce
3. For whom to produce
(b) Mechanisms:
- Market economy: Price mechanism (supply and demand)
- Planned economy: Government decisions and central planning
(a) Central problems:
1. What to produce
2. How to produce
3. For whom to produce
(b) Mechanisms:
- Market economy: Price mechanism (supply and demand)
- Planned economy: Government decisions and central planning
27. Distinguish between movement along the demand curve and shifts in the demand curve with the help of diagrams.
Answer:
Movement along the demand curve: Change in quantity demanded due to price change (along the same curve)
Shift in demand curve: Change in demand due to non-price factors (entire curve shifts)
Movement along the demand curve: Change in quantity demanded due to price change (along the same curve)
Shift in demand curve: Change in demand due to non-price factors (entire curve shifts)
(Diagrams showing movement along vs. shift of demand curve)
28. What are average fixed cost, average variable cost and average cost of a firm? How are they related?
Answer:
AFC (Average Fixed Cost): TFC/Q
AVC (Average Variable Cost): TVC/Q
AC (Average Cost): TC/Q = AFC + AVC
Relationship: AC is the sum of AFC and AVC. As output increases, AFC decreases continuously, AVC first decreases then increases, giving AC its U-shape.
AFC (Average Fixed Cost): TFC/Q
AVC (Average Variable Cost): TVC/Q
AC (Average Cost): TC/Q = AFC + AVC
Relationship: AC is the sum of AFC and AVC. As output increases, AFC decreases continuously, AVC first decreases then increases, giving AC its U-shape.
29. (a) What do you mean by price ceiling?
(b) Explain it with the help of a diagram.
(c) Write its two consequences.
(b) Explain it with the help of a diagram.
(c) Write its two consequences.
Answer:
(a) Price ceiling: Maximum price set by government below equilibrium price to make essential goods affordable.
(b) Diagram: Shows demand and supply curves with price ceiling below equilibrium, creating shortage.
(c) Consequences:
1. Shortage of the good
2. Emergence of black markets
(a) Price ceiling: Maximum price set by government below equilibrium price to make essential goods affordable.
(b) Diagram: Shows demand and supply curves with price ceiling below equilibrium, creating shortage.
(c) Consequences:
1. Shortage of the good
2. Emergence of black markets
30. With the help of a diagram explain effect of an autonomous change in aggregate demand on income and output.
Answer:
Autonomous increase in AD → higher equilibrium income/output
Autonomous decrease in AD → lower equilibrium income/output
Autonomous increase in AD → higher equilibrium income/output
Autonomous decrease in AD → lower equilibrium income/output
(Keynesian cross diagram showing AD curve shifting and new equilibrium points)
Section 6: Essay-type Questions
8 marks each
31. In the short-run and long-run a firm's profit is maximum if three conditions are satisfied.
(a) State the three conditions.
(b) Explain these conditions.
(c) Draw diagrams.
(a) State the three conditions.
(b) Explain these conditions.
(c) Draw diagrams.
Answer:
(a) & (b) Profit maximization conditions:
1. MC = MR (First-order condition)
2. MC cuts MR from below (Second-order condition)
3. P ≥ AVC (short-run), P ≥ AC (long-run) (Shutdown condition)
(c) Diagrams: Short-run & long-run equilibrium under perfect competition showing profit maximization.
(a) & (b) Profit maximization conditions:
1. MC = MR (First-order condition)
2. MC cuts MR from below (Second-order condition)
3. P ≥ AVC (short-run), P ≥ AC (long-run) (Shutdown condition)
(c) Diagrams: Short-run & long-run equilibrium under perfect competition showing profit maximization.
32. (a) Draw circular flow of income and expenditure in a two sector economy.
(b) Mark three methods of measurement of national income in it.
(c) Explain these three methods.
(b) Mark three methods of measurement of national income in it.
(c) Explain these three methods.
Answer:
(a) Circular flow diagram: Two-sector model with households and firms showing flow of goods/services and money.
(b) & (c) Three measurement methods:
1. Product method: Sum of value added by all producing units
2. Income method: Sum of incomes earned by factors of production
3. Expenditure method: Sum of final expenditures on goods and services
(a) Circular flow diagram: Two-sector model with households and firms showing flow of goods/services and money.
(b) & (c) Three measurement methods:
1. Product method: Sum of value added by all producing units
2. Income method: Sum of incomes earned by factors of production
3. Expenditure method: Sum of final expenditures on goods and services
33. (a) Explain the functions of Central Bank.
(b) Explain policy tool of Central Bank to control money supply.
(b) Explain policy tool of Central Bank to control money supply.
Answer:
(a) Functions of Central Bank:
1. Banker to government
2. Controller of money supply
3. Lender of last resort
4. Custodian of foreign exchange reserves
5. Regulator of banking system
(b) Policy tools to control money supply:
1. CRR (Cash Reserve Ratio)
2. SLR (Statutory Liquidity Ratio)
3. Open market operations
4. Bank rate
(a) Functions of Central Bank:
1. Banker to government
2. Controller of money supply
3. Lender of last resort
4. Custodian of foreign exchange reserves
5. Regulator of banking system
(b) Policy tools to control money supply:
1. CRR (Cash Reserve Ratio)
2. SLR (Statutory Liquidity Ratio)
3. Open market operations
4. Bank rate